SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant toss.240.14a-11(c) orss.240.14a-12
TII Industries, Inc.
--------------------
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
1) Title of each class of securities to which transaction
applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
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5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
TII INDUSTRIES, INC.
1385 AKRON STREET
COPIAGUE, NEW YORK 11726
------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 6, 2000
------------------
To the Stockholders of
TII Industries, Inc.:
NOTICE IS HEREBY GIVEN that the 2000 Annual Meeting of Stockholders of
TII Industries, Inc., a Delaware corporation (the "Company"), will be held at
the Huntington Hilton, 598 Broadhollow Road, Melville, New York, on Wednesday,
December 6, 2000 at 3:00 p.m., New York time, at which the following matters are
to be presented for consideration:
1. The election of two Class III directors to serve until the
2003 Annual Meeting of Stockholders and until their respective
successors are elected and qualified;
2. A proposal to amend the Company's 1998 Stock Option Plan to
increase the number of shares available thereunder from
1,500,000 to 2,500,000;
3. Proposals to amend the Company's 1994 Non-Employee Director
Stock Option Plan to increase the number of shares available
thereunder from 200,000 to 700,000 and to increase the number
of shares subject to options to be granted thereunder at the
time of a director's initial election and at each annual
meeting of stockholders from 10,000 to 25,000;
4. A proposal to ratify the selection by the Board of Directors
of Arthur Andersen LLP as the Company's independent public
accountants for the fiscal year ending June 29, 2001; and
5. The transaction of such other business as may properly come
before the meeting or any adjournments or postponements
thereof.
The close of business on October 13, 2000 has been fixed as the record
date for the determination of stockholders entitled to notice of, and to vote
at, the meeting and any adjournments or postponements thereof.
By Order of the Board of Directors,
Dorothy Roach,
Secretary
November 6, 2000
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE
AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN
ORDER TO ASSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE NEED BE AFFIXED IF
MAILED IN THE ENCLOSED ENVELOPE IN THE UNITED STATES.
<PAGE>
TII INDUSTRIES, INC.
1385 AKRON STREET
COPIAGUE, NEW YORK 11726
--------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 6, 2000
------------------------
This Proxy Statement, to be mailed to stockholders of TII Industries,
Inc., a Delaware corporation (the "Company"), on or about November 6, 2000, is
furnished in connection with the solicitation by the Board of Directors of the
Company of proxies in the accompanying form ("Proxy" or "Proxies") to be used at
the Annual Meeting of Stockholders of the Company to be held on Wednesday,
December 6, 2000 at 3:00 p.m., New York time, and at any adjournments or
postponements thereof (the "Meeting"). The Meeting will be held at the
Huntington Hilton, 598 Broadhollow Road, Melville, New York.
The close of business on October 13, 2000 has been fixed as the record
date (the "Record Date") for the determination of stockholders entitled to
notice of, and to vote at, the Meeting. On the Record Date, there were
outstanding 11,682,284 shares of the Company's Common Stock ("Common Stock").
The presence, in person or by proxy, of a majority of all such shares, will
constitute a quorum for the transaction of business at the Meeting. Each
outstanding share of Common Stock on the Record Date is entitled to one vote on
all matters to be voted on at the Meeting. A plurality of the votes of shares
present in person or represented by proxy at the Meeting and entitled to vote
thereon will be required for the election of directors (Proposal 1), while the
affirmative vote of a majority of the shares present in person or represented by
proxy at the Meeting and entitled to vote thereon will be required to approve
the proposed amendment to the Company's 1998 Stock Option Plan (Proposal 2), to
approve the proposed amendments to the Company's 1994 Non-Employee Director
Stock Option Plan (Proposal 3) and to ratify the selection of Arthur Andersen
LLP as the Company's independent public accountants for the fiscal year ending
June 30, 2001 (Proposal 4).
Abstentions are considered as shares present and entitled to vote and,
therefore, to the extent a vote requires approval by a majority of shares
present in person or by proxy and entitled to vote, abstentions will have the
effect of a negative vote thereon. Brokers who are members of the New York Stock
Exchange have discretion to vote the shares of their clients that the broker
holds of record (in "street name") for its customers with respect to
non-contested elections of directors and ratification of a board's selection of
independent public accountants and certain other matters. Brokers are,
therefore, expected to vote such shares on these matters. However, under the
rules of the New York Stock Exchange, brokers are not entitled to vote such
shares with respect to the proposal to approve the amendment to the Company's
1998 Stock Option Plan
<PAGE>
(Proposal 2) or with respect to the proposals to approve the amendments to the
Company's 1994 Non-Employee Director Stock Option Plan (Proposal 3). Under
Delaware law, shares not voted by brokers (called "broker non-votes") are
considered not entitled to vote. Accordingly, broker non-votes will have no
effect on the outcome of the vote on those proposals. Proxies submitted which
contain abstentions or broker non-votes will be deemed present at the Meeting
for determining the presence of a quorum.
Proxies properly executed and received in time for the Meeting will be
voted in accordance with the specifications made thereon or, in the absence of
specification, for all nominees named herein to serve as directors, to approve
the proposed amendment to the 1998 Stock Option Plan, to approve the proposed
amendments to the 1994 Non-Employee Director Stock Option Plan and to ratify the
selection of Arthur Andersen LLP as the Company's independent public
accountants. The Board of Directors does not intend to bring before the Meeting
any matter other than those described above, and has not received notice of, and
is not aware of, any other matters that are to be presented by stockholders for
action at the Meeting. If, however, any other matters or motions come before the
Meeting, it is the intention of the persons named in the accompanying Proxy to
vote such Proxy in accordance with their judgment on such matters or motions,
including any matters dealing with the conduct of the Meeting. Any Proxy may be
revoked by the person giving it at any time prior to the exercise of the powers
conferred thereby by a written notice of revocation to the Secretary of the
Company, 1385 Akron Street, Copiague, New York 11726, by submitting a duly
executed proxy bearing a later date at the foregoing address or at the Meeting,
or by voting in person at the Meeting.
SECURITY HOLDINGS OF CERTAIN
STOCKHOLDERS, MANAGEMENT AND NOMINEES
The following table sets forth information, as of the Record Date
except as noted below, with respect to the beneficial ownership of the Company's
Common Stock by (i) each person (including any "group," as that term is used in
Section 13(d)(3) of the Securities Exchange Act of 1934) known by the Company to
beneficially own more than 5% of the outstanding shares of the Company's Common
Stock, (ii) each director and nominee to serve as a director of the Company,
(iii) each executive officer named in the Summary Compensation Table under the
caption "Executive Compensation", below, and (iv) all executive officers and
directors of the Company as a group. The Company understands that, except as
noted below, each beneficial owner has sole voting and investment power with
respect to all shares attributable to such owner.
2
<PAGE>
<TABLE>
<CAPTION>
SHARES PERCENT OF
BENEFICIAL OWNER OWNED CLASS (1)
---------------- ----- ---------
<S> <C> <C>
Alfred J. Roach 833,240(2) 7.1%
1385 Akron Street
Copiague, NY 11726
Jerry Bloomberg and/or Sondra Bloomberg 713,000(3) 6.1%
155 East Ames Court
Plainview, New York 11803
Timothy J. Roach 653,013(4) 5.5%
1385 Akron Street
Copiague, NY 11726
Norman H. Pessin 640,571(5) 5.4%
c/o Neuberger & Berman, LLC
605 Third Avenue
New York, NY 10158
Dorothy Roach 55,328(6) *
George S. Katsarakes 55,000(7) *
C. Bruce Barksdale 23,598(8) *
R. Dave Garwood 38,570(9) *
James R. Grover, Jr. 93,600(10) *
Joseph C. Hogan 99,330(11) *
James A. Roach 65,000(12) *
Paul G. Sebetic 23,000(13) *
All executive officers and directors as a group (12 persons) 1,982,079(14) 16.0%
</TABLE>
----------------------
(1) Asterisk indicates that the percentage is less than one percent.
Percent of Class assumes the issuance of the Common Stock issuable upon
the exercise of options or warrants (to the extent exercisable on or
within 60 days after the Record Date) held by such person but (except
for the calculation of beneficial ownership by all executive officers
and directors as a group) by no other person or entity.
3
<PAGE>
(2) Includes 122,000 shares subject to options held under the Company's
stock option plans. Excludes the shares owned by Mr. Roach's wife,
Dorothy Roach, reflected below in this table, as to which shares Mr.
Roach disclaims beneficial ownership.
(3) Based solely on information contained in a Schedule 13G filed with the
Securities and Exchange Commission (the "SEC") dated December 31, 1999.
Jerry Bloomberg and Sondra Bloomberg are each the beneficial owners of
599,000 (5.1% of the Company's outstanding) shares as follows: (i)
375,000 shares are held by them in joint tenancy or as tenants in
common, (ii) 10,000 shares are held by them and Michael Bloomberg as
joint tenants, (iii) 19,500 shares are held by them indirectly in
Uniform Gifts to Minors Act accounts for their minor grandchildren,
(iv) 50,000 shares are held by them indirectly in the Jerry Bloomberg
and Sondra Bloomberg Family Foundation, (v) 53,500 shares are held
indirectly in Jerry and Sondra Bloomberg Associates, LP, of which Jerry
Bloomberg and Sondra Bloomberg are general partners, each with a 1%
interest, and (vi) 91,000 shares are held indirectly through Romac
Electronics Profit Sharing Plan, of which both are trustees. In
addition, Jerry Bloomberg beneficially owns an additional 114,000 (1.0%
of the Company's outstanding) shares as follows: (i) 4,000 shares are
held by him indirectly in Kenjer Industries, Inc., a New York
corporation of which he is President and a 1% stockholder with sole
voting and dispositive power, and (ii) 110,000 shares are held by him
indirectly in Night Vision, Inc., a New York corporation of which he is
President and a 1% stockholder with sole voting and dispositive power.
(4) Includes 968 shares owned by Mr. Roach's wife (who has sole voting and
dispositive power with respect to the shares owned by her and as to
which Mr. Roach disclaims beneficial ownership) and 142,000 shares
subject to options held under the Company's stock option plans.
(5) Based on information contained in a Schedule 13D filed with the SEC
dated April 25, 2000. Includes 100,000 shares subject to an option
originally issued by the Company in 1992 to an unaffiliated third party
and acquired by Mr. Pessin in April 2000.
(6) Includes 3,584 shares subject to options held under the Company's stock
option plans. Excludes the shares owned by Mrs. Roach's husband, Alfred
J. Roach, reflected above in this table, as to which shares Mrs. Roach
disclaims beneficial ownership.
(7) Includes 45,000 shares subject to options held under the Company's
stock option plans.
(8) Includes 78 shares owned by Mr. Barksdale's children and 15,600 shares
subject to options held under the Company's stock option plans.
(9) Includes 10,000 shares subject to options held under the Company's
stock option plans and a warrant to purchase 14,285 shares that was
acquired from the Company in the Company's June 2000 private placement.
(10) Includes 90,000 shares subject to options held under the Company's
stock option plans.
(11) Includes 99,250 shares subject to options held under the Company's
stock option plans.
(12) Represents 65,000 shares subject to options held under the Company's
stock option plans.
(13) Represents 23,000 shares subject to options held under the Company's
stock option plans.
(14) Includes 652,834 shares subject to options held under the Company's
stock option plans and a warrant to purchase 14,285 shares.
4
<PAGE>
PROPOSAL 1.
ELECTION OF DIRECTORS
The Company's Restated Certificate of Incorporation and By-Laws provide
that the Board of Directors shall be divided into three classes, designated
Class I, Class II and Class III. These classes are to be as nearly equal in
number as the then total number of directors constituting the entire Board of
Directors permits, with each class to include not less than two directors. The
term of office of Class III directors continues until the Meeting, the term of
office of Class I directors continues until the next succeeding annual meeting
of stockholders and the term of office of Class II directors continues until the
second succeeding annual meeting of stockholders, and, in each case, until their
respective successors are elected and qualified. At each annual meeting,
directors are chosen to succeed those in the class whose term expires at that
meeting.
The Company's Board of Directors presently consists of eight directors.
Each director was previously elected by the Company's stockholders, except R.
Dave Garwood, who was elected as a Class I director by the Board of Directors
pursuant to the terms of an agency agreement with the placement agent for a
private placement of securities completed by the Company in June 2000 under
which the Company agreed to either appoint a person to the Board mutually
agreeable to the placement agent and the Company or permit the placement agent
to send a representative to observe meetings of the Board. The terms of Alfred
J. Roach and Timothy J. Roach, the present Class III directors, will expire at
the Meeting. At the Meeting, holders of Common Stock will elect two Class III
directors to serve until the 2003 Annual Meeting of Stockholders and until their
respective successors are elected and qualified. Unless otherwise directed, the
persons named in the enclosed Proxy intend to cast all votes pursuant to Proxies
received for the election of Alfred J. Roach and Timothy J. Roach (the
"nominees") to serve as Class III directors.
In the event that any of the nominees should become unavailable or
unable to serve for any reason, the holders of Proxies have discretionary
authority to vote for one or more alternate nominees who will be designated by
the Board of Directors. The Company believes that all of the nominees are
available to serve as directors.
BACKGROUND OF NOMINEES
CLASS III DIRECTORS
Alfred J. Roach, 85, has served as Chairman of the Board of Directors
and a director of the Company and its predecessor since its founding in 1964 and
was Chief Executive Officer of the Company from the Company's founding until
January 1995. Since September 1983, Mr. Roach has also served as Chairman of the
Board of Directors of American Biogenetic Sciences, Inc. ("ABS"), a
biotechnology research company.
Timothy J. Roach, 53, has served the Company in various capacities
since December 1973. He has been President of the Company since July 1980, Vice
Chairman of the Board since
5
<PAGE>
October 1993, Chief Executive Officer since January 1995 and a director since
January 1978. Mr. Roach also served as Chief Operating Officer of the Company
from May 1987 until January 1998. Mr. Roach was a Captain in the United States
Air Force for four years prior to joining the Company and is a graduate of
Harvard University's Business School Program for Management Development. Mr.
Roach has also served as Treasurer, Secretary and a director of ABS since
September 1983.
BACKGROUND OF DIRECTORS WHOSE TERMS OF OFFICE CONTINUE AFTER THE MEETING
CLASS I DIRECTORS
C. Bruce Barksdale, 69, was Vice President of the Company from August
1971 until December 1999 and thereafter has been a consultant to the Company. He
has been a director of the Company since 1974. Mr. Barksdale holds a Bachelor of
Science degree in Electrical Engineering from the University of South Carolina.
R. Dave Garwood, 58, has been a director of the Company since August
2000. Mr. Garwood is President of R. D. Garwood, Inc., an education and
consulting company founded by him in 1974, specializing in supply chain
management and the performance of operational audits and due diligence work for
investment firms. Mr. Garwood holds a Bachelor of Science degree in Mechanical
Engineering from Purdue University. Mr. Garwood is also a director of Telxon
Corporation.
Joseph C. Hogan, Ph.D., 78, has been a director of the Company since
January 1974. Dr. Hogan served as Dean of the College of Engineering of the
University of Notre Dame from 1967 to 1981, following which he performed various
services for the University of Notre Dame until 1985, where he remains Dean
Emeritus. From 1985 until his retirement in 1987, Dr. Hogan was a Director of
Engineering Research and Resource Development at Georgia Institute of
Technology. He is past President of the American Society of Engineering
Education. Dr. Hogan is a director of ABS.
CLASS II DIRECTORS
James R. Grover, Jr., 81, has been a director of the Company since
1978. Mr. Grover has been engaged in the private practice of law since 1974 and
has been General Counsel to the Company since 1977.
George S. Katsarakes, 63, has been Executive Vice President and Chief
Operating Officer of the Company since he joined the Company in January 1998 and
has been a director of the Company since October 1998. From January 1994 until
he joined the Company, Mr. Katsarakes held senior-level positions, most
recently, Executive Vice President, at Eagle Manufacturing Company, Inc., a
manufacturer of high-technology electrical wiring devices. From December 1978
until January 1994, Mr. Katsarakes held several general management and plant
management positions with Pratt & Whitney and Otis Elevator Company,
subsidiaries of United Technologies Corporation, a provider of a broad range of
products to the commercial and defense industries. Mr. Katsarakes holds an
Industrial/Mechanical Engineering degree from
6
<PAGE>
Northeastern University and a Masters of Business Administration degree from
Harvard Business School.
Dorothy Roach, 77, has been Secretary of the Company since 1971, served
as Treasurer of the Company from 1979 to December 1993 and, except for a brief
period, has been a director of the Company since 1964.
Alfred J. Roach and Dorothy Roach are married and the parents of
Timothy J. Roach. There are no other family relationships among the Company's
directors.
THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
During the Company's fiscal year ended June 30, 2000, the Company's
Board of Directors held four meetings. In addition, during that fiscal year, the
Board also acted by unanimous written consent on two occasions following
informal discussions.
The Board of Directors has Audit and Compensation Committees. The Board
does not have a standing nominating committee or committee performing a similar
function.
The principal functions of the Audit Committee are to nominate
independent auditors for appointment by the Board; meet with the independent
auditors to review and approve the scope of their audit engagement and the fees
related to such work; meet with the Company's financial management and
independent auditors to review matters relating to internal accounting controls,
the Company's accounting practices and procedures and other matters relating to
the financial condition of the Company; and report to the Board periodically
with respect to such matters. The members of the Audit Committee are R. Dave
Garwood (since August 2000), James R. Grover, Jr. and Joseph C. Hogan. The Audit
Committee met on one occasion (prior to Mr. Garwood's joining the Committee)
during the fiscal year ended June 30, 2000.
The Compensation Committee is authorized to consider and recommend to
the Board of Directors salaries, bonuses and other compensation arrangements
with respect to the executive officers of the Company; grant options under, and
administer, the Company's present and future employee stock option plans;
examine, administer and make recommendations to the full Board of Directors with
respect to other employee benefit plans and arrangements of the Company and its
subsidiaries; and report to the Board periodically with respect to such matters.
The present members of the Compensation Committee are James R. Grover, Jr. and
Joseph C. Hogan. While the Compensation Committee held no formal meetings, it
acted by unanimous written consent on nine occasions following informal
discussions during the Company's fiscal year ended June 30, 2000.
During the Company's fiscal year ended June 30, 2000, each incumbent
director attended at least 75% of the aggregate number of Board of Directors
meetings and meetings of all committees on which such director served that were
held during the portion of the year such person served as a director.
7
<PAGE>
REQUIRED VOTE
A plurality of the votes of the shares present in person or represented
by proxy at the Meeting and entitled to vote for the election of directors will
elect directors.
The Board of Directors recommends that stockholders vote FOR both of
Alfred J. Roach and Timothy J. Roach to serve as Class III directors.
EXECUTIVE OFFICERS
In addition to Alfred J. Roach, Timothy J. Roach, George S. Katsarakes
and Dorothy Roach, the following are also executive officers of the Company:
Kenneth A. Paladino, 46, has been Vice President Finance and Chief
Financial Officer of the Company since September 2000. Prior to joining the
Company, Mr. Paladino was an independent consultant and, from 1989 until
February 2000, served EDO Corporation, a designer and manufacturer of advanced
electronic and electro-mechanical systems, in various capacities including, from
1995 until joining the Company, as Chief Financial Officer and for six years
prior thereto, as Corporate Controller.
Thomas J. Guzek, 43, has been Executive Vice President and Chief
Marketing Officer of the Company since June 30, 2000. From 1981 until joining
the Company, Mr. Guzek served Cooper Bussmann, the circuit products group of
Cooper Industries, Inc., a manufacturer of electronic products and tools and
hardware, in various capacities, most recently as Vice President and General
Manager of its Cooper Electronic Technologies unit and from 1993 through 1999 as
Vice President of Worldwide Product and Market Development.
Virginia M. Hall, 47, has served the Company in various capacities
since February 1976, serving as Vice President-Administration since December
1993 and Vice President-Contract Administration from September 1990 until
December 1993.
Officers hold office until their successors are chosen and qualified.
Any officer elected or appointed by the Board of Directors may be removed at any
time by the Board. See "Executive Compensation - Agreements with Certain
Executive Officers" for information concerning the Company's Employment
Agreements with Timothy J. Roach and George S. Katsarakes.
8
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth, for the Company's three fiscal years
ended June 30, 2000, information concerning the compensation paid by the Company
to Timothy J. Roach, the Company's Chief Executive Officer, all other executive
officers serving at the end of fiscal 2000 whose annual salary and bonus in
fiscal 2000 was at least $100,000 and one former executive officer who would
have been included in the table had he remained an executive officer at the end
of the year (the "Named Executive Officers"):
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARD
------------------- ----------------------------
NAME AND PRINCIPAL STOCK OPTIONS ALL OTHER
POSITION YEAR SALARY BONUS (#) COMPENSATION
-------- ---- ------ ----- --- ------------
<S> <C> <C> <C> <C> <C>
Timothy J. Roach 2000 $250,000 $ -- 50,000 $7,761(2)
President and Chief 1999 250,000 -- 380,000(1) 7,782
Executive Officer 1998 243,654 -- 100,000 7,877
Alfred J. Roach 2000 150,000 -- 60,000 --
Chairman of the 1999 150,000 200(3) 310,000(1) --
Board 1998 150,000 200(3) 60,000 --
George S. Katsarakes 2000 250,000 -- 50,000 --
Executive Vice 1999 247,577 24,000(4) 125,000(1) --
President and Chief 1998 95,192(4) 24,000(4) 100,000 --
Operating Officer
James A. Roach 2000 104,262 -- -- $192,063(5)
Former Vice 1999 131,700 -- 65,000(1) --
President - 1998 130,738 -- 25,000 --
Marketing and Sales
Paul G. Sebetic 2000 125,000 -- 25,000 --
Former Chief 1999 120,192 15,000 65,000(1) --
Financial Officer 1998 113,846 -- 25,000 --
-------------------------------
</TABLE>
(1) Includes 380,000, 310,000, 100,000, 65,000 and 50,000 options for
Timothy J. Roach, Alfred J. Roach, George S. Katsarakes, James A. Roach
and Paul G. Sebetic, respectively, that were either modified or granted
in exchange for the cancellation of other options.
(2) Includes (i) $1,148, representing the dollar value to Mr. Roach of the
portion of the premium paid by the Company under a split dollar life
insurance policy during such year with respect to the deemed term life
insurance portion of the premiums and (ii) $6,613, representing the
annual premium paid by the Company on long-term disability insurance
maintained by the Company for the benefit of Mr. Roach.
(3) Required to be paid under Puerto Rico law.
(4) Mr. Katsarakes joined the Company in January 1998. The bonuses paid to
Mr. Katsarakes in fiscal 1998 and 1999 were paid as an inducement to him
to join the Company.
(5) See "-- Employment Agreements" for information concerning the Company's
employment termination arrangement with Mr. Roach.
9
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning options granted
during the Company's fiscal year ended June 30, 2000 to the Named Executive
Officers:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
NUMBER OF PERCENT OF RATES OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE TERM(2)
OPTIONS EMPLOYEES IN PRICE PER EXPIIRATION -------------------------
NAME GRANTED FISCAL YEAR SHARE (1) DATE (1) 5% 10%
---- ------- ----------- --------- -------- -- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Timothy J. Roach 50,000 9.9% $1.66 5/29/2010 $52,198 $132,281
Alfred J. Roach 60,000 11.9% $1.66 5/29/2010 $62,638 $158,737
George S. Katsarakes 50,000 9.9% $1.41 1/21/2010 $45,045 $112,359
Paul G. Sebetic 25,000 5.0% $1.66 5/29/2010 $26,516 $ 66,140
----------------------
</TABLE>
(1) The exercise price of each option granted was equal to the market value
of the Company's Common Stock on the date of grant and is exercisable
during a ten year period ending on the date set forth under the
"Expiration Date" column (subject to early termination in certain
instances). The options vest in five equal annual installments
commencing one year after the date of grant.
(2) These are hypothetical values using assumed compound growth rates
prescribed by the Securities and Exchange Commission and are not
intended to forecast possible future appreciation, if any, in the
market price of the Company's Common Stock.
AGGREGATE OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE
No options were exercised by the Named Executive Officers during the
Company's fiscal year ended June 30, 2000. The following table contains
information with respect to the fiscal year-end value of unexercised options
held by the Named Executive Officers:
<TABLE>
<CAPTION>
NUMBER OF IN-THE-MONEY VALUE
UNEXERCISED OPTIONS OF UNEXERCISED
HELD AT FISCAL OPTIONS HELD AT
YEAR-END FISCAL YEAR-END
(EXERCISABLE/ (EXERCISABLE/
NAME UNEXERCISABLE) UNEXERCISABLE) (1)
---- -------------- ------------------
<S> <C> <C> <C> <C>
Timothy J. Roach 76,000/354,000 $16,550/$89,650
Alfred J. Roach 62,000/308,000 $12,302/$77,348
George S. Katsarakes 25,000/150,000 $13,115/$88,398
James A. Roach 65,000/ -- $14,050/ --
Paul G. Sebetic 13,000/77,000 $ 6,933/$39,455
---------------------
</TABLE>
(1) Represents the number of underlying shares of Common Stock for
in-the-money options multiplied by the difference between the closing
price of the Common Stock at fiscal year-end and the option exercise
price.
10
<PAGE>
REMUNERATION OF DIRECTORS
Non-employee directors receive a fee of $1,000 for each meeting of the
Board attended in person and members of Committees of the Board receive a fee of
$500 for each Board Committee meeting attended. C. Bruce Barksdale serves as a
consultant to the Company in the marketing field, for which he receives a per
hour or per diem fee depending on the amount of time expended in a day in which
the Company requests him to perform services. Non-employee directors currently
are also granted options to purchase 10,000 shares of the Company's Common Stock
under the Company's 1994 Non-Employee Director Stock Option Plan at the time
such person becomes a non-employee director and immediately following each
annual meeting of stockholders at which directors are elected. See "Proposal 3.
Approval of Amendments to the 1994 Non-Employee Director Stock Option Plan" for
information concerning a proposal to approve certain amendments to the 1994
Non-Employee Director Stock Option Plan, including an increase to 25,000 in the
number of shares subject to options to be granted at the time of a non-employee
director's initial election and the number of shares subject to annual option
grants to each non-employee director. Each option held by non-employee directors
is exercisable for a period of ten years following the date of grant (subject to
earlier termination at specified times following a non-employee director's
cessation of service) at an exercise price equal to 100% of the fair market
value on the date of grant of the shares subject thereto.
EMPLOYMENT AGREEMENTS
The Company and Timothy J. Roach are parties to an Amended and Restated
Employment Agreement, effective as of August 1, 1997, pursuant to which Mr.
Roach is serving as the Company's President and Chief Executive Officer. The
Amended and Restated Employment Agreement provides for a five-year term
presently ending July 31, 2004, with automatic one-year extensions on each July
31 during the term unless either party gives notice of termination at least 90
days prior to such July 31. Under the Amended and Restated Employment Agreement,
Mr. Roach is presently entitled to an annual salary of $250,000 per year,
subject to increases and bonuses at the discretion of the Board of Directors. In
addition, the agreement requires the Company to provide Mr. Roach with an
allowance, not to exceed 20% of his then salary, to reimburse him for the cost
of maintaining a secondary residence in Puerto Rico, where the Company maintains
its gas tube manufacturing facilities. The Company also is to continue to
maintain insurance benefits provided to Mr. Roach at levels and terms no less
favorable than in effect on August 1, 1997. Mr. Roach has agreed, among other
things, not to disclose confidential information of the Company and not to
directly or indirectly engage, during the term of the agreement and for two
years thereafter, in any activity which is competitive with the Company's
business. In consideration for such covenant, Mr. Roach is to receive, for each
year during the two-year period following termination of his employment, an
amount equal to his highest salary rate in effect at any time during the
one-year period preceding the date of such termination unless Mr. Roach's
employment is terminated by reason of his death, voluntary termination other
than for "good reason" (in general, adverse changes in his powers, duties,
position or compensation or certain changes in the location where his duties are
to be performed), or for cause and he is capable of providing day-to-day
services to a competitor. In the event of termination of employment by reason of
death or disability, Mr. Roach or his beneficiary is entitled to receive a
continuation of his compensation for a period of one year and
11
<PAGE>
two years, respectively. In the event Mr. Roach terminates his employment for
"good reason," the Company will also be required to pay him a sum equal to three
times the amount of his highest annual salary and highest bonus for the current
or two preceding fiscal years, subject to reduction as to any amount that would
constitute a "parachute payment" under the Internal Revenue Code of 1986, as
amended, to the maximum amount that would not constitute such a "parachute
payment." In the event of the termination of Mr. Roach's employment other than
for cause, all outstanding stock options then held by Mr. Roach shall fully
vest.
George S. Katsarakes is a party to an Employment Agreement, dated March
9, 1998, with the Company under which Mr. Katsarakes is serving as Executive
Vice President. The Employment Agreement provides for a term expiring March 8,
2001. Under the agreement, Mr. Katsarakes's salary is presently $250,000 and is
subject to review at the end of each year of employment. In the event of the
termination of Mr. Katsarakes's employment by the Company, other than for cause,
death or disability, or by Mr. Katsarakes following a reduction in rank or
authority, Mr. Katsarakes will be entitled to receive all compensation that he
would have received for the remaining term of his agreement, but not less than
one year's compensation, in a lump sum, and all outstanding options held by Mr.
Katsarakes shall fully vest and be exercisable for the maximum time allowed for
the exercise thereof under the terms of the applicable stock option plan but not
less than 90 days following such termination. Mr. Katsarakes has agreed not to
disclose confidential information of the Company during or after his employment
and, during the term of his employment and for a period of two years thereafter,
not to directly or indirectly engage in certain activities which are competitive
to the Company.
In connection with the termination of the Company's employment
arrangements with James A. Roach, who was serving as Vice President-Sales,
pursuant to an Employment Agreement dated January 21, 1998 between the Company
and Mr. Roach, the Company made severance payments to Mr. Roach aggregating
$192,063, all of Mr. Roach's outstanding options as of September 29, 2000 became
vested and the Company is to continue, through September 30, 2000, Mr. Roach's
medical and dental insurance benefits.
REPORT OF BOARD OF DIRECTORS AND COMPENSATION COMMITTEE
CONCERNING EXECUTIVE COMPENSATION
The following report is submitted by the Compensation Committee of the
Board of Directors which, among other things, considers and recommends to the
Board of Directors salaries, bonuses and other compensation arrangements with
respect to the Company's executive officers. While both the full Board of
Directors and the Compensation Committee have authority with respect to granting
stock options under the Company's 1995 Stock Option Plan and 1998 Stock Option
Plan, all options granted to executive officers under these plans during the
Company's fiscal year ended June 30, 2000 were granted by the Compensation
Committee.
The Compensation Committee has viewed salaries for the Company's
executive officers as a means of providing basic compensation at levels
sufficient to attract and retain qualified executives. Levels of base salary
have been, subject to the requirements of any employment agreement between the
Company and the executive officer, determined on a subjective basis in light of
the executive's level of responsibility, performance and expertise, as well as
prevailing
12
<PAGE>
economic conditions, the Company's performance, competitive factors and
contractual obligations.
Bonuses, if awarded, have been to provide short-term incentive and to
reward the executive's personal performance and contribution to the Company's
recent overall performance or as an inducement to join the Company. Performance
bonuses have been determined by reference to specific pre-established
performance targets, on a subjective basis by examining the executive's
achievements, or, at times, pursuant to agreements entered into as an inducement
for an executive to join the Company. During fiscal 2000, no performance bonuses
were granted to executive officers.
The Compensation Committee has considered options a useful means of
enabling the Company to provide long-term incentive to executives in a manner
that enables the Company to conserve cash for operations and growth while tying
the executive's interest to the interests of stockholders through stock
ownership and potential stock ownership. Option grants have been made, based
upon the executive's performance and expected contribution to the long-term
goals of the Company. Stock options granted during fiscal 2000 to the Named
Executive Officers were granted to Messrs. Timothy J. Roach, Alfred J. Roach,
Katsarakes and Sebetic (see "-- Option Grants in Last Fiscal Year," above).
Timothy J. Roach's compensation is determined using the same criteria
as used for other executive officers, subject to the terms of his Amended and
Restated Employment Agreement which became effective August 1, 1997. Mr. Roach's
salary has been $250,000 since that agreement was entered into and he has
received no bonuses during that time. Options to purchase 50,000 shares of
Common Stock were granted to Timothy J. Roach during fiscal 2000. See
"--Employment Agreements," above, for a description of Mr. Roach's Amended and
Restated Employment Agreement.
Section 162(m) of the Internal Revenue Code of 1986, as amended
("Section 162(m)"), precludes a public company from taking a Federal income tax
deduction for annual compensation paid to its chief executive officer or any of
its four other most highly compensated executive officers in excess of
$1,000,000 for any such person. Certain "performance based compensation" is
excluded from the deduction limitation. Cash compensation being paid by the
Company does not, and is not expected to, reach the threshold at which the
deduction limitation would be imposed. The Company's stock option plans have
been structured in a manner designed to enable any amount which is considered
compensation as a result of the exercise of stock options or the disposition of
the shares underlying an exercised option to be excluded from the deduction
limitation. Accordingly, in light of the Company's current compensation levels,
Section 162(m) is not expected to affect the Company's ability to deduct items
treated as compensation for Federal income tax purposes.
Respectfully submitted,
James R. Grover, Jr.
Joseph C. Hogan
13
<PAGE>
PERFORMANCE GRAPH
The following graph compares the cumulative return to holders of the
Company's Common Stock for the five years ended June 30, 2000 with (i) the
Nasdaq Stock Market-US Index and (ii) the Nasdaq Telecommunications Index. The
comparison assumes $100 was invested on June 30, 1995 in the Company's Common
Stock and in each of the comparison groups and assumes reinvestment of dividends
(the Company paid no dividends during the periods):
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
--------------------------------------- ------------ ------------ ------------ ---------- ---------- ----------
6/95 6/96 6/97 6/98 6/99 6/00
--------------------------------------- ------------ ------------ ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
TII Industries Inc. $100.00 $101.85 $ 87.04 $ 70.37 $ 28.24 $ 31.48
--------------------------------------- ------------ ------------ ------------ ---------- ---------- ----------
Nasdaq Stock Market-US Index $100.00 $128.39 $156.14 $205.58 $296.03 $437.27
--------------------------------------- ------------ ------------ ------------ ---------- ---------- ----------
Nasdaq Telecommunications Index $100.00 $124.13 $135.95 $229.89 $377.17 $420.75
--------------------------------------- ------------ ------------ ------------ ---------- ---------- ----------
</TABLE>
14
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since fiscal 1982, the Company has leased equipment from PRC Leasing,
Inc. ("PRC"), a corporation wholly-owned by Alfred J. Roach, Chairman of the
Board of Directors and a director of the Company. The equipment lease was
amended on June 27, 2000 to remove certain equipment covered by the lease and
reduce the $200,000 annual rent by an amount equal to the annual rentals
attributable to the particular pieces of equipment being removed from the scope
of the lease. As a result, the present annual rent is $139,476. The lease
expires on July 17, 2001. The Company believes that the rentals charged by PRC
are comparable to the rentals which would have been charged by unrelated leasing
companies for similar equipment.
On April 28, 2000, the United States Overseas Private Investment
Corporation ("OPIC") sold to the individual retirement account of Norman Pessin
a $750,000 convertible note and an option to purchase 100,000 shares of the
Company's Common Stock, both of which had been issued by the Company to OPIC in
July 1991 in connection with certain loans made by OPIC to the Company. To
induce Mr. Pessin to convert the note, the Company agreed to reduce the $2.50
exercise price. As a result, the Company issued an aggregate of 428,571 shares
of Common Stock to the individual retirement account of Mr. Pessin. In addition,
the Company extended the expiration date of the option from July 2001 to July
2003. As a result of this transaction, Mr. Pessin, who is otherwise unaffiliated
with the Company, became the beneficial owner of 5.4% of the Company's Common
Stock
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's executive officers and directors, and persons who
beneficially own more than 10% of the Company's Common Stock, to timely file
initial statements of stock ownership and statements of changes of beneficial
ownership with the Securities and Exchange Commission and furnish copies of
those statements to the Company. Based solely on a review of the copies of the
statements furnished to the Company to date, or written representations that no
statements were required, the Company believes that all statements required to
be filed by such persons with respect to the Company's fiscal year ended June
30, 2000 were timely filed.
15
<PAGE>
PROPOSAL 2.
APPROVAL OF AN AMENDMENT TO THE 1998 STOCK OPTION PLAN
On September 5, 2000, the Board of Directors adopted, subject to
stockholder approval at the Meeting, an amendment to the Company's 1998 Stock
Option Plan to increase the number of shares available for issuance thereunder
from 1,500,000 to 2,500,000. The 1998 Stock Option Plan is being referred to as
the "1998 Plan". The Board of Directors considers the grant of options to be a
useful means of both enabling the Company to provide long-term incentive to
employees, directors and consultants and inducing optionees to remain with the
Company, while tying the optionee's interests to the interests of stockholders
through stock ownership and potential stock ownership. Prior to the amendments,
the 1998 Plan has enabled the Company to grant options to purchase up to an
aggregate of 1,500,000 shares of Common Stock. No options granted under the 1998
Plan have been exercised to date and, as of September 30, 2000, options to
purchase an aggregate of 1,473,541 shares of Common Stock are outstanding,
leaving only 26,459 shares available for the grant of future options.
The following is a summary of the of the 1998 Plan.
SHARES SUBJECT TO THE OPTION PLAN AND ELIGIBILITY
The 1998 Plan presently authorizes the grant of options to purchase a
maximum of 1,500,000 shares of Common Stock. If the proposed amendment is
approved, the number of shares that could be issued under the 1998 Plan would be
increased to 2,500,000. In either case the number of shares is subject to
adjustment as discussed below under "Adjustment in Event of Capital Changes".
Upon expiration, cancellation or termination of unexercised options, the shares
of Common Stock subject to such options will again be available for the grant of
options under the 1998 Plan.
TYPE OF OPTIONS
Options granted under the 1998 Plan may either be incentive stock
options ("ISOs"), within the meaning of Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"), or nonqualified stock options, which do not
qualify as ISOs ("NQSOs"). ISOs, however, may only be granted to employees.
ADMINISTRATION
The 1998 Plan is administered by the Board of Directors or a committee
of the Board consisting of not less than two members of the Board, each of whom
is to be a "non-employee director," within the meaning of Rule 16b-3 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). It
is also expected that Committee members will be "outside directors," within the
meaning of Section 162(m) of the Code. Those administering the 1998 Plan are
referred to as the "Administrators."
16
<PAGE>
Among other things, the Administrators are empowered to determine,
within the express limits contained in the 1998 Plan, the employees, consultants
and directors to be granted options, whether an option granted to an employee is
to be an ISO or a NQSO, the number of shares of Common Stock to be subject to
each option, the exercise price of each option, the term of each option, the
date each option shall become exercisable, any terms and conditions relating to
the exercisability of each option, whether to accelerate the date of exercise of
any option or installment, the form of payment of the exercise price and, with
the consent of the optionee, to cancel or modify an option. The Administrators
are also authorized to prescribe, amend and rescind rules and regulations
relating to the 1998 Plan, to construe each stock option contract between the
Company and an optionee, and make all other determinations necessary or
advisable for administering the 1998 Plan.
TERMS AND CONDITIONS OF OPTIONS
Options granted under the 1998 Plan are subject to, among other things,
the following terms and conditions:
(a) The exercise price of each option is determined by the
Administrators; provided, however, that the exercise price of an ISO may not be
less than the fair market value of the Company's Common Stock on the date of
grant (110% of such fair market value if the optionee owns, or is deemed to own,
more than 10% of the voting power of the Company). The closing price of the
Company's Common Stock on the Nasdaq National Market System on November 1, 2000
was $1.45 per share.
(b) Options may be granted for terms established by the Administrators;
provided, however, that the term of an ISO may not exceed ten years (five years
if the optionee owns, or is deemed to own, more than 10% of the voting power of
the Company).
(c) The maximum number of shares of Common Stock for which options may
be granted to an employee in any calendar year is 250,000. In addition, the
aggregate fair market value of shares with respect to which ISOs may be granted
to an employee which are exercisable for the first time during any calendar year
may not exceed $100,000.
(d) The exercise price of each option is payable in full upon exercise
or, if the Administrators permit, in installments. Payment of the exercise price
of an option may be made in cash, or, if the Administrators permit, in shares of
the Company's Common Stock or any combination thereof.
(e) Options may not be transferred other than by will or by the laws of
descent and distribution, and may be exercised during the optionee's lifetime
only by the optionee.
(f) Except as may otherwise be provided in the option contract related
to the option, if the optionee's relationship with the Company as an employee,
director or consultant is terminated for any reason, other than death or
disability, the option may be exercised, to the extent exercisable at the time
of termination of such relationship, at any time within three months thereafter,
but in no event after the expiration of the term of the option; provided,
however, that if the relationship is terminated either for cause or without the
consent of the Company, the
17
<PAGE>
option will terminate immediately. Except as may be provided in the option
contract related to the option, an option is not affected by a change in the
status of an optionee so long as the optionee continues to be an employee or
director of, or a consultant to, the Company. Except as otherwise provided in
the optionee's option contract, in the case of the death of an optionee while an
employee, director or consultant (or, generally, within three months after
termination of such relationship or within one year after termination of such
relationship by reason of disability), the optionee's legal representative or
beneficiary may exercise the option, to the extent exercisable on the date of
death, at any time within one year after such date, but in no event after the
expiration of the term of the option. Except as otherwise provided in the
optionee's option contract, an optionee whose relationship with the Company is
terminated by reason of disability may exercise the option, to the extent
exercisable at the effective date of such termination, at any time within one
year thereafter, but not after the expiration of the term of the option.
(g) The Company may withhold cash and/or, with the consent of the
Administrators, shares of the Company's Common Stock having an aggregate value
equal to the amount which the Company determines is necessary to meet its
obligations to withhold any federal, state and/or local taxes or other amounts
incurred by reason of the grant, exercise or vesting of an option or the
disposition of shares acquired upon the exercise of the option. Alternatively,
the Company may require the optionee to pay the Company such amount in cash
promptly upon demand.
ADJUSTMENT IN EVENT OF CAPITAL CHANGES
Appropriate adjustments are to be made in the number and kind of shares
available under the 1998 Plan, in the number and kind of shares subject to the
1998 Plan and each outstanding option and in the exercise prices of outstanding
options, as well as the limitation on the number of shares that may be granted
to any employee in any calendar year, in the event of any change in the
Company's Common Stock by reason of any stock dividend, stock split,
combination, reclassification, recapitalization, merger in which the Company is
the surviving corporation, spin-off, split-up, exchange of shares or the like.
In the event of (a) the liquidation or dissolution of the Company or (b) a
transaction (or series of related transactions) that is approved by a majority
of the members of the Company's Board of Directors as elected by stockholders
prior to the first of such transactions (including, without limitation, a
merger, consolidation, sale of stock by the Company or its stockholders, tender
offer or sale of assets) and in which either (i) the voting power (in the
election of directors generally) of the Company's voting securities outstanding
immediately prior to such transaction ceases to represent at least 50% of the
combined voting power (in the election of directors generally) of the Company or
such surviving entity outstanding immediately after such transaction or (ii) the
registration of the Company's Common Stock under the Securities Exchange Act of
1934 is terminated, any outstanding options shall terminate upon the earliest of
any such event, unless other provision is made therefor in the transaction.
DURATION AND AMENDMENT OF THE 1998 PLAN
No option may be granted under the 1998 Plan after October 7, 2008. The
Board of Directors may at any time terminate or amend the 1998 Plan; provided,
however, that, without the approval of the Company's stockholders, no amendment
may be made which would (a)
18
<PAGE>
except as a result of the anti-dilution adjustments described above, increase
the maximum number of shares for which options may be granted under the 1998
Plan or increase the maximum number of shares covered by options that may be
granted to an employee in any calendar year, (b) change the eligibility
requirements for persons who may receive options under the 1998 Plan or (c) make
any change for which applicable law requires stockholder approval. No
termination or amendment may adversely affect the rights of an optionee with
respect to an outstanding option without the optionee's consent.
FEDERAL INCOME TAX TREATMENT
The following is a general summary of the federal income tax
consequences under current tax law of NQSOs and ISOs. It does not purport to
cover all of the special rules, including the exercise of an option with
previously-acquired shares, or the state or local income or other tax
consequences inherent in the ownership and exercise of stock options and the
ownership and disposition of the underlying shares.
An optionee does not recognize taxable income for federal income tax
purposes upon the grant of a NQSO or an ISO.
Upon the exercise of a NQSO, the optionee recognizes ordinary income in
an amount equal to the excess of the fair market value of the shares acquired on
the date of exercise over the exercise price thereof, the optionee's basis in
the shares is increased by that amount for determining future gain or loss and
the Company generally is entitled to a deduction for such amount at that time.
If the optionee later sells shares acquired pursuant to the exercise of a NQSO,
the optionee recognizes long-term or short-term capital gain or loss, depending
on the period for which the shares were held, equal to the difference between
the amount realized on the sale and the optionee's basis in the shares.
Upon the exercise of an ISO, the optionee does not recognize taxable
income. If the optionee disposes of the shares acquired pursuant to the exercise
of an ISO more than two years after the date of grant and more than one year
after the transfer of the shares to the optionee, the optionee recognizes
long-term capital gain or loss and the Company is not be entitled to a
deduction, equal to the difference between the amount realized on the sale and
the option exercise price for the shares. However, if the optionee disposes of
such shares within the required holding period, all or a portion of the gain is
treated as ordinary income and the Company generally is entitled to deduct the
amount of ordinary income realized.
In addition to the federal income tax consequences described above, an
optionee may be subject to the alternative minimum tax, which is payable to the
extent it exceeds the optionee's regular tax. For this purpose, upon the
exercise of an ISO, the excess of the fair market value of the shares over the
exercise price therefor is an adjustment which increases alternative minimum
taxable income. In addition, the optionee's basis in such shares is increased by
such excess for purposes of computing the gain or loss on the disposition of the
shares for alternative minimum tax purposes. If an optionee is required to pay
an alternative minimum tax, the amount of such tax which is attributable to
deferral preferences (including the ISO adjustment) is allowed as a credit
against the optionee's regular tax liability in subsequent years. To the extent
the credit is not used, it is carried forward.
19
<PAGE>
OPTIONS GRANTED DURING LAST FISCAL YEAR TO EMPLOYEES AND CONSULTANTS
The grant of options is within the discretion of the Administrators.
Accordingly, the Company is unable to determine future options, if any, that may
be granted under the 1998 Plan. Set forth under the caption "Executive
Compensation - Option Grants in Last Fiscal Year," above, is information
concerning options granted during the Company's fiscal year ended June 30, 2000
to the persons named in the Summary Compensation Table. The following table sets
forth the number of shares underlying options that were granted under the 1998
Plan during the Company's fiscal year ended June 30, 2000 to (i) all current
executive officers as a group and (ii) all other employees, including current
officers who are not executive officers (no non-employee director was granted an
option under the 1998 Plan in fiscal 2000):
<TABLE>
<CAPTION>
NUMBER OF SHARES
CATEGORY OF OPTIONEE UNDERLYING OPTIONS GRANTED
-------------------- --------------------------
<S> <C>
Executive officers as a group (5 persons, including the
persons named in the Summary Compensation Table).............................. 210,000
Other employees as a group (20 persons)......................................... 227,500
</TABLE>
The exercise price of all options granted was at least 100% of the
market value of the underlying shares on the date of grant. The foregoing table
does not include any dollar value that may arise from a future increase in the
market value of the Company's Common Stock.
REQUIRED VOTE
Approval of the amendment to the 1998 Plan requires the affirmative
vote of the holders of a majority of the shares of Common Stock present, in
person or represented by proxy, at the Meeting and entitled to vote on this
proposal. If the amendment to the 1998 Plan is not approved by stockholders, the
1998 Plan will continue in effect but will only permit the issuance of 1,500,000
shares of the Company's Common Stock thereunder. The Board of Directors
recommends a vote FOR approval of Proposal 2.
20
<PAGE>
PROPOSAL 3.
APPROVAL OF AMENDMENTS TO THE 1994 NON-EMPLOYEE DIRECTOR STOCK
OPTION PLAN
On September 5, 2000, the Board of Directors adopted, subject to
stockholder approval at the Meeting, amendments to the Company's 1994
Non-Employee Director Stock Option Plan to (i) increase the number of shares
available for issuance thereunder from 200,000 to 700,000 and (ii) to increase
the amount of options automatically granted to each director covered by the plan
upon his or her initial election as directors and at each meeting of
stockholders, commencing with the Meeting, from 10,000 to 25,000. The 1994
Non-Employee Director Stock Option Plan is being referred to as the "1994 Plan."
The Board of Directors believes that the 1994 Plan has been instrumental in
retaining and attracting directors who are not employees of the Company
("Outside Directors") and that this objective will be furthered by amending the
1994 Plan in the manner described above. Options to purchase 15,000 shares of
Common Stock have been exercised under the 1994 Plan and, as of September 30,
2000, options to purchase an aggregate of 175,000 shares of Common Stock are
outstanding, leaving only 10,000 shares available for the grant of future
options under the 1994 Plan.
The following is a summary of the 1994 Plan.
NUMBER OF SHARES, ADMINISTRATION AND ELIGIBILITY
The maximum number of shares of Common Stock as to which options may
be granted under the 1994 Plan is currently 200,000. If the proposed amendments
are approved, the number of shares available for issuance under the 1994 Plan
would be increased to 700,000. In either case, the number of shares is subject
to adjustment as discussed below under "Adjustment in Event of Capital Changes".
Upon the expiration, cancellation or termination of unexercised options, the
shares subject thereto will again be available for grant under the 1994 Plan.
The 1994 Plan is administered by the Board of Directors subject to the
provisions of the 1994 Plan. Participation in the 1994 Plan is limited to
Outside Directors.
GRANT OF OPTIONS
The 1994 Plan presently provides for the granting of an option to a
person to purchase 10,000 shares of Common Stock on the date the person becomes
an Outside Director and the granting immediately following each annual meeting
of stockholders (including the Meeting) of an option to purchase 10,000 shares
of Common Stock to each person who is an Outside Director immediately following
the meeting (whether or not elected at that meeting). If the proposed amendments
are approved, the number of shares that would be subject to options granted to
Outside Directors, both upon their initial election and immediately following
each annual meeting (including the Meeting), would be increased to 25,000. An
Outside Director elected a director for the first time at an annual meeting
receives only one option. An employee director who ceases to be an employee but
remains a director does not become an Outside Director unless and until such
director is serving as an Outside Director immediately following the next annual
meeting of stockholders at which directors are elected.
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<PAGE>
EXERCISE PRICE
The option exercise price of each share to be granted under the 1994
Plan is to be 100% of the fair market value of the Common Stock on the date of
grant. Upon exercise of the option, the exercise price is to be paid in full in
cash. The closing price of the Company's Common Stock on the Nasdaq National
Market System on November 1, 2000 was $1.45 per share.
OPTION TERM
Each option granted under the 1994 Plan is exercisable at any time
during its ten year (five years in the case of options granted prior to the
Company's 1995 Annual Meeting of Stockholders), subject to early termination as
discussed below. An Outside Director purchasing less than the number of shares
available for purchase in any period may purchase the unpurchased shares during
the remaining term of the option.
An option may not be transferred by an Outside Director other than by
will or by the laws of descent and distribution, and an option may be exercised
during the optionee's lifetime only by the optionee.
In the event that an optionee ceases to serve on the Board of Directors
for any reason (including as a result of not being re-elected to the Board),
other than by reason of death or disability, options held by the optionee may be
exercised at any time within one year after such cessation of service, but in no
event after the date on which the option would otherwise expire. However, if the
Outside Director's service on the Board is terminated for cause or if the
Outside Director resigns without the consent of a majority of the remaining
members of the Board, the Outside Director's options shall terminate
immediately.
If an optionee ceases to serve on the Board by reason of disability,
options held by such optionee may be exercised by the optionee at any time
within one year after cessation of service on the Board, but in no event after
the date on which the option would otherwise expire.
If an optionee dies while serving on the Board, options held by such
optionee may be exercised by the legal representatives or beneficiaries of the
optionee at any time within one year after the date of such optionee's death,
but in no event after the date on which the option would otherwise expire.
ADJUSTMENT IN EVENT OF CAPITAL CHANGES
In the event of any change in the outstanding Common Stock by reason of
a stock dividend, stock split, stock combination, recapitalization, merger in
which the Company is the surviving corporation, reorganization or the like, the
number and kind of shares available for option under the 1994 Plan, the number
and kind of shares to be granted initially and annually to Outside Directors,
and the option price and number and kind of shares purchasable under outstanding
options will be adjusted in a manner similar to the anti-dilution adjustments
made under Company stock option plans for employees. In the event of the
liquidation or dissolution of the Company, a merger or consolidation in which
the Company is not the surviving
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<PAGE>
corporation, or any other capital reorganization in which more than 50% of the
Company's Common Stock is exchanged, outstanding options under the 1994 Plan
shall terminate unless other provision is made therefor in the transaction
(which provision shall be made in a manner similar as made for options granted
under the Company's employee stock option plans).
DURATION AND AMENDMENT OF THE 1994 PLAN
No options may be granted under the 1994 Plan after September 13, 2004.
Options outstanding on that date, however, shall in all respects continue
subject to the 1994 Plan. The Board may amend, suspend or terminate the 1994
Plan at any time, except that without the approval of stockholders, no amendment
may be made which would (a) change the class of eligible participants who may
receive options, (b) increase the total number of shares available for option
(except for anti-dilution adjustments described above), (c) decrease the option
price at which options may be granted (except pursuant to anti-dilution
adjustments described above), or (d) materially increase the benefits accruing
to participants under the 1994 Plan. No amendment may adversely affect the
rights of an optionee under any then outstanding option without the consent of
the optionee.
FEDERAL INCOME TAX TREATMENT
All options granted under the 1994 Plan are NQSOs. Reference is made to
the discussion of the Federal income tax consequences as to NQSOs under the
caption "Approval of an Amendment to the 1998 Stock Option Plan - Federal Income
Tax Consequences," above, for a general summary of the Federal income tax
consequences under the Code as currently in effect with respect to options under
the 1994 Plan.
PLAN BENEFITS
If the proposed amendments are adopted, Messrs. C. Bruce Barksdale,
James R. Grover, Jr., Joseph C. Hogan and R. Dave Garwood, the Company's Outside
Directors, would be granted an option, following the Meeting, to purchase 25,000
shares of Common Stock at 100% of the fair market value of the Common Stock on
the date of the Meeting and options to purchase 25,000 shares would be granted
to each Outside Director at each annual meeting thereafter held (and to new
Outside Directors on the date they join the Board). Outside Directors are also
eligible to participate in the 1998 Plan.
REQUIRED VOTE
Approval of the proposed amendments to the Non-Employee Director
Plan require the affirmative vote of the holders of a majority of the shares of
Common Stock, present in person or represented by proxy, at the Meeting and
entitled to vote on this proposal. If the amendments to the Non-Employee
Director Plan are not approved by stockholders, the amendments will not be made
and the Non-Employee Director Plan will continue in its present in effect in
accordance with its present terms. The Board of Directors unanimously recommends
that stockholders vote FOR approval of Proposal 3.
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<PAGE>
PROPOSAL 4.
RATIFICATION OF SELECTION OF
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected the firm of Arthur Andersen LLP as
the independent public accountants of the Company for the year ending June 30,
2001. The Board proposes that the stockholders ratify such selection at the
Meeting. Arthur Andersen LLP and its predecessor, Arthur Andersen & Co. have
acted as the Company's independent public accountants for the past 27 years.
Representatives of Arthur Andersen LLP are expected to be present at
the Meeting and will be afforded the opportunity to make a statement if they so
desire and to respond to appropriate questions.
REQUIRED VOTE
The affirmative vote of a majority of the shares of Common Stock
present in person or represented by proxy at the Meeting and entitled to vote on
this proposal is required to approve this proposal. The Board of Directors
recommends a vote FOR Proposal 4.
MISCELLANEOUS
STOCKHOLDER PROPOSALS
From time to time stockholders may present proposals which may be
proper subjects for inclusion in the proxy statement and form of proxy related
to that meeting. In order to be considered, such proposals must be submitted in
writing on a timely basis. Stockholder proposals intended to be included in the
Company's proxy statement and form of proxy relating to the Company's 2001
Annual Meeting of Stockholders must be received by July 9, 2001. Any such
proposals, as well as any questions relating thereto, should be directed to the
Secretary of the Company, 1385 Akron Street, Copiague, New York 11726. As to any
proposals intended to be presented by a stockholder, without inclusion in the
Board of Directors' proxy statement and form of proxy for the Company's next
Annual Meeting, the proxies named in the Board of Directors' form of proxy for
that meeting will be entitled to exercise discretionary authority on that
proposal unless the Company receives notice of the matter on or before September
22, 2001. Any such notices should also be directed to the Secretary of the
Company at the above address. However, even if such notice is timely received,
such proxies may nevertheless be entitled to exercise discretionary authority on
that matter to the extent permitted by Securities and Exchange Commission
regulations.
ANNUAL REPORT ON FORM 10-K
A copy of the Company's Annual Report on Form 10-K for the year ended
June 30, 2000, which has been filed with the Securities and Exchange Commission,
is also available, without charge, to stockholders who are interested in more
detailed information about the Company.
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<PAGE>
Requests for a copy of that report should be addressed to Ms. Virginia M. Hall,
Vice President-Administration, 1385 Akron Street, Copiague, New York 11726,
telephone number (631) 789-5000.
SOLICITATION OF PROXIES
The cost of solicitation of Proxies, including the cost of reimbursing
banks, brokers and other nominees for forwarding proxy solicitation material to
the beneficial owners of shares held of record by them and seeking instructions
from such beneficial owners, will be borne by the Company. Proxies may be
solicited without extra compensation by certain officers, directors and regular
employees of the Company by mail and, if determined to be necessary, by
telephone, telecopy, telegraph or personal interview. The Company has retained
W.F. Doring & Co., Inc., 150 Bay Street, Jersey City, New Jersey 07302 to aid in
the solicitation of Proxies. For its services, W.F. Doring & Co., Inc. will
receive a fee of $2,500 plus reimbursement for certain out-of-pocket expenses.
OTHER MATTERS
The Board of Directors does not intend to bring before the Meeting any
matter other than those specifically described above and knows of no matters
other than the foregoing to come before the Meeting. If any other matters or
motions properly come before the Meeting, it is the intention of the persons
named in the accompanying Proxy to vote the Proxy in accordance with their
judgment on such matter or motions, including any matters dealing with the
conduct of the Meeting.
By Order of the Board of Directors,
Dorothy Roach,
Secretary
November 6, 2000
25
<PAGE>
PROXY TII INDUSTRIES, INC. PROXY
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS - DECEMBER 6, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints, as proxies for the undersigned,
TIMOTHY J. ROACH and VIRGINIA M. HALL, or either of them, with full power of
substitution, to vote all shares of the capital stock of TII Industries, Inc.
(the "Company") which the undersigned is entitled to vote at the Annual Meeting
of Stockholders of the Company to be held on Wednesday, December 6, 2000, at
3:00 p.m., New York time, at the Huntington Hilton, 598 Broadhollow Road,
Melville, New York, receipt of Notice of which meeting and the Proxy Statement
accompanying the same being hereby acknowledged by the undersigned, and at any
adjournments or postponements thereof, upon the matters described in the Notice
of Meeting and Proxy Statement and upon such other business as may properly come
before the meeting or any adjournments or postponements thereof, hereby revoking
any proxies heretofore given.
EACH PROPERLY EXECUTED PROXY WILL BE VOTED IN ACCORDANCE WITH THE
SPECIFICATIONS MADE ON THE REVERSE SIDE HEREOF. A VOTE FOR EACH NOMINEE AND FOR
PROPOSALS 2, 3 AND 4 IS RECOMMENDED BY THE BOARD OF DIRECTORS. WHERE NO
DIRECTION TO VOTE ON A SPECIFIC MATTER IS GIVEN, THE PROXIES WILL BE DEEMED
AUTHORIZED TO VOTE FOR EACH LISTED NOMINEE TO SERVE AS A DIRECTOR AND FOR
PROPOSALS 2, 3 AND 4.
(Continued and to be signed on reverse side)
--------------------------------------------------------------------------------
(DELTA) FOLD AND DETACH HERE (DELTA)
26
<PAGE>
TII INDUSTRIES, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. |X|
<TABLE>
<CAPTION>
<S> <C>
1. ELECTION OF DIRECTORS - For Withhold For All
Nominees: (01) Alfred J. Roach and All All Except
(02) Timothy J. Roach [_] [_] [_]
(Except Nominee(s) written above)
FOR AGAINST ABSTAIN
[_] [_] [_]
2. To approve the amendment to the Company's 1998
Stock Option Plan.
3. To approve the amendments to the Company's 1994 [_] [_] [_]
Non-Employee Director Stock Option Plan.
4. To ratify the selection of Arthur Andersen LLP as [_] [_] [_]
independent public accountants for the Company.
Dated __________________________, 2000
Signature(s)
--------------------------
NOTE: Please sign your name or names exactly
as set forth hereon. If signing as attorney,
executor, administrator, trustee or
guardian, please indicate the capacity in
which you are acting. Proxies executed by
corporations should be signed by a duly
authorized officer and should bear the
corporate seal.
</TABLE>
--------------------------------------------------------------------------------
(DELTA) FOLD AND DETACH HERE (DELTA)
YOUR VOTE IS IMPORTANT.
PLEASE SIGN, DATE AND MAIL THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
27
