Tii Network (TIII) DEF 14A Definitive proxy

SCHEDULE 14A INFORMATION

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TII Network Technologies, Inc.

(Name of Registrant as Specified in Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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TII NETWORK TECHNOLOGIES, INC.

141 Rodeo Drive

Edgewood, New York 11717

__________________

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD MAY 15, 2009

__________________

To our Stockholders:

The 2009 Annual Meeting of Stockholders of TII Network Technologies, Inc., a Delaware corporation, will be held atthe Sheraton Long Island Hotel, 110 Vanderbilt Motor Parkway, Hauppauge, New York, on Friday, May 15, 2009 at 10:00 a.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 2012 Annual Meeting of Stockholders and until their respective successors are elected and qualified;

2. A proposal to amend our Restated Certificate of Incorporation to change our name from “TII Network Technologies, Inc.” to “Tii Network Technologies, Inc.”;

3. A proposal to ratify the selection of Marcum & Kliegman LLP as our independent registered public accounting firm for the year ending December 31, 2009; and

4. The transaction of such other business as may properly come before the meeting or any adjournments or postponements thereof.

The close of business on April 3, 2009 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,

Jennifer E. Katsch,

Secretary

April 23, 2009

Important Notice Regarding Availability of Proxy Materials

For the Annual Meeting of Stockholders to be Held on May 15, 2009.

The proxy statement and annual report to stockholders

are available at www.edocumentview.com/TIII.

YOUR VOTE IS IMPORTANT

Whether or not you expect to attend the meeting, we urge you to promptly vote your shares. Stockholders of record may do so by completing, signing, dating and  returning  the enclosed proxy card in the enclosed postage prepaid envelope, which requires no postage if mailed in the United States. Alternatively, stockholders of record may vote by telephone or Internet in accordance with the instructions on the enclosed proxy card.  Have your proxy card in front of you when voting by telephone or the Internet as it contains important information that is required to access the system. If you attend the meeting, you may vote your shares in person, which will revoke any previously provided proxy.  If you hold shares in “street name” through an institution, you may vote your shares by any method specified on the voting instruction form provided by or on behalf of the institution.

TABLE OF CONTENTS

	Page
About the Meeting	1
Security Holdings of Certain Stockholders, Management And Nominees	5
Election of Directors (Proposal 1)	7
Background of Nominees for Class III Directors	7
Background of Directors Whose Terms of Office Continue After the Meeting	8
Directors’ Independence	9
Meetings of the Board of Directors	9
Attendance at Stockholders Meetings	9
Committees of the Board	9
Director Nomination Process	11
Stockholder Communications with Directors	12
Codes of Business Conduct and Ethics	12
Audit Committee Report	12
Executive Officers	13
Required Vote	13
Proposal to Amend Our Restated Certificate of Incorporation to Change the Name of the Company (Proposal 2)	14
Reasons for Name Change	14
Implementation of Name Change	14
Effect on Stockholders	14
Required Vote	14
Ratification of Selection of Independent Registered Public Accounting Firm (Proposal 3)	15
Change in Our Independent Registered Public Accounting Firm	15
Principal Accountant Fees and Services	15
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors	16
Effect of Ratification	16
Availability of Marcum & Kliegman at the Meeting	16
Required Vote	16
Executive Compensation	17
Summary Compensation Table	17
Employment Agreement with Kenneth A. Paladino	18
Severance Agreement with Martin Pucher	19
Option Grants in 2008 to our Named Executive Officers	19
Outstanding Equity Awards At Fiscal Year-End	19
Director Compensation	20
Equity Compensation Plan	22
Compliance with Section 16(a) of the Securities Exchange Act of 1934	22
Transactions with Related Persons	22
Control	23
Review and Approval of Transactions with Related Persons	23
Miscellaneous	23
Stockholder Proposals	23
Annual Report on Form 10-K	23
Cost to Solicit Proxies	23

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TII NETWORK TECHNOLOGIES, INC.

141 Rodeo Drive

Edgewood, New York 11717

____________________

PROXY STATEMENT

For Annual Meeting of Stockholders

To be Held on May 15, 2009

________________________

This Proxy Statement is to be mailed to stockholders of TII Network Technologies, Inc., a Delaware corporation, beginning on or about April 23, 2009. We refer in this proxy statement to TII as “we,” “us,” “our,” or the “Company.” This Proxy Statement is being furnished in connection with the solicitation of proxies by our Board of Directors in the accompanying form for use at our 2009 Annual Meeting of Stockholders and at any adjournments or postponements thereof. We refer to proxies in the accompanying form as “proxies” and to that meeting, as it may be adjourned or postponed, as the “meeting.”

ABOUT THE MEETING

Where and when is the meeting to be held?

The meeting will be held on Friday, May 15, 2009 at 10:00 a.m., New York time, at the Sheraton Long Island Hotel, 110 Vanderbilt Motor Parkway, Hauppauge, New York.

What are the matters to be voted upon at the meeting?

Stockholders will consider:

• the election of two Class III directors;

• an amendment to our Restated Certificate of Incorporation to change our name from “TII Network Technologies, Inc.” to “Tii Network Technologies, Inc.”;

• the ratification of our Audit Committee’s selection of Marcum & Kliegman LLP to serve as our independent registered public accounting firm for the year ending December 31, 2009; and

• any other business as may properly come before the meeting.

Who will be entitled to vote at the meeting?

Stockholders who own shares of our common stock of record as of the close of business on April 3, 2009 are entitled to notice of, and to vote at, the meeting. We refer to that time and date as the “record date.”

How many shares will be entitled to vote and how many votes will I have?

On the record date, there were outstanding 13,917,792 shares of our common stock. Each outstanding share of common stock at the close of business on the record date is entitled to one vote on all matters to be voted on at the meeting.

Are proxy materials for the meeting available on-line?

Yes. This proxy statement and our 2008 Annual Report to Stockholders, which includes our annual report on Form 10-K for our fiscal year ended December 31, 2008 as filed with the Securities and Exchange Commission, are available to view or download at www.edocumentview.com/TIII. If you are a registered owner of our common stock, you can also view or download these materials when you vote online at www.envisionreports.com/TIII.

How can I vote if I am the record owner of common stock?

Stockholders in whose name shares are registered as of the record date may vote:

• In Person: For directions to attend the Annual Meeting in person, see the Admission Ticket included with the enclosed proxy card.  You may also call the Sheraton Long Island Hotel at (631) 231-1100.

• Mail: Fill in, date and sign the enclosed proxy card and mail it promptly in the enclosed postage paid envelope, which requires no postage if mailed in the United States.

• Internet: Go to http://www.envisionreports.com/TIII and follow the on-screen instructions.

• Telephone: Call 1-800-652-VOTE (8683) and follow the instructions provided.

To vote online or by telephone, you will be asked to provide certain information (located on your accompanying proxy card). You may enter your voting instructions by the Internet or telephone up until 1:00 a.m. Central Time on May 15, 2009.

If my shares are owned of record by a fiduciary, how can I vote and what if I wish to vote personally at the meeting?

If your shares are held in “street name” by an institution (that is, held by, and registered in the name of, a bank, broker or other nominee), then that institution is the record owner of those shares and entitled to vote them. Stockholders who are the beneficial owner of shares on the record date should receive instructions from, or on behalf of, that institution describing the procedures for advising the institution how to vote those shares.

A number of banks and brokerage firms participate in a program that also permits stockholders to direct their vote by Internet or telephone. If your shares are held in an account at such a bank or brokerage, you may direct the voting of those shares by Internet or telephone by following the instructions on their enclosed voting form. Directing your vote in this manner will not affect your right to vote in person if you decide to attend the meeting; however, you must first request a proxy from the institution.

If your shares are held in street name and you wish to vote at the meeting, you will need to obtain a separate proxy form from the institution that holds your shares affording you the right to vote those shares. Obtaining a proxy will automatically cancel any voting directions you have previously given by Internet or by telephone with respect to your shares.

What happens if my shares are held in “street name” and I do not give my fiduciary instructions as to how to vote my shares?

Brokers that are members of the New York Stock Exchange have the discretion to vote the shares of their clients that the broker holds in street name where the client’s broker has received no voting direction from the beneficial owner with respect to non-contested elections of directors, the selection of independent registered public accounting firms and certain other matters considered to be “routine” matters. All matters proposed for consideration at the meeting are considered to be routine. Brokers are, therefore, expected to exercise their discretion with respect to the election of directors (Proposal 1), the proposed amendment of our Restated Certificate of Incorporation to change our name (Proposal 2) and the ratification of the selection of our independent registered public accounting firm (Proposal 3). Proxies submitted which contain abstentions or broker non-votes will be deemed present at the meeting for determining the presence of a quorum.

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If I vote by proxy, how will my shares be voted?

Proxies properly and timely received will be voted at the meeting in accordance with your instructions. With respect to the election of directors, you may vote for each nominee, or withhold your vote for one or more specific nominees. You may vote for, against or abstain from voting with respect to the other proposals.

What happens if I return the proxy card without marking a vote?

If your proxy does not provide instructions, the shares represented by your proxy will be voted:

• FOR all nominees proposed in this proxy statement;

• FOR the amendment to our Restated Certificate of Incorporation to change our name from “TII Network Technologies, Inc.” to “Tii Network Technologies, Inc.”; and

• FOR ratification of the selection of Marcum & Kliegman LLP to serve as our independent registered public accounting firm for the year ending December 31, 2009.

How will a proposal or other matter that was not included in this proxy statement be voted upon by the proxy holders named in the proxy card if it comes up at the meeting?

The Board of Directors does not intend to bring before the meeting any matter other than the three specific proposals set forth in the Notice of Meeting accompanying this proxy statement, and has not received notice of, and is not aware of, any other matter that is 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 proxy holders to vote the proxy in accordance with their judgment on those other matters or motions, including any matters dealing with the conduct of the meeting.

How can I change my vote after I submit my proxy?

Any proxy given by a registered stockholder may be revoked by the person giving it at any time prior to the exercise of the powers conferred in the proxy by:

• delivering a written notice revoking the proxy to our Secretary, Jennifer E. Katsch, at 141 Rodeo Drive, Edgewood, New York 11717 or at the meeting;

• delivering a duly executed proxy bearing a later date to our Secretary at the address set forth above or at the meeting;

• entering a new vote over the Internet or by telephone, as discussed above under “How can I vote if I am the record owner of common stock”; or

• voting in person at the meeting.

If your shares are held in “street name” by a bank, broker or other institution, you should check with that institution as to how to change your vote.

What constitutes a quorum in order to conduct the meeting?

The presence, in person or by proxy, of a majority of our outstanding shares of common stock on the record date will constitute a quorum for the transaction of business at the meeting. Proxies submitted which contain abstentions or broker non-votes, discussed below, will be deemed present at the meeting for determining the presence of a quorum.

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What vote is required to approve each proposal?

The matters proposed to be considered will require:

• a plurality (that is, the two persons receiving the highest number of affirmative votes cast) of the vote of shares present in person or represented by proxy at the meeting and entitled to vote thereon for the election of Class III directors (Proposal 1);

• the affirmative vote of a majority of our outstanding shares of common stock to adopt the proposed amendment to our Restated Certificate of Incorporation to change our name (Proposal 2); and

• the affirmative vote of a majority of the shares present in person or represented by proxy at the meeting and entitled to vote on the matter to ratify the selection of Marcum & Kliegman LLP as our independent registered public accounting firm for the year ending December 31, 2009 (Proposal 3).

How are the proxies which “withhold authority” for the election of directors, “abstain” or which are subject to “broker non-votes” counted in determining the outcome of a vote?

Shares represented by proxies that are marked “withhold authority” for the election of one or more director nominees will not be counted as a vote cast for those persons (Proposal 1).

Abstentions are considered as shares present and voted on the subject matter and, therefore, to the extent a vote requires approval by a majority of our outstanding shares of common stock (Proposal 2) or a majority of the shares present in person or represented by proxy and entitled to vote on the matter (Proposals 3), abstentions will have the effect of a negative vote thereon.

If a broker, nominee or other fiduciary holding shares in street name votes some, but not all, of the shares held by it as record owner for one or more beneficial owners of shares on one or more matters, the shares not voted by it on a matter are called “broker non-votes” as to that matter. Under Delaware law, broker non-votes will have no effect on the outcome on the election of directors which requires a plurality vote (Proposal 1) or ratification of the selection of independent public accountants which requires the approval by a majority of shares entitled to vote on the matter (Proposal 3), but will have the effect of a negative vote on a matter which requires the affirmative vote of a majority of all outstanding shares of our common stock (e.g., Proposal 2).

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SECURITY HOLDINGS OF CERTAIN

STOCKHOLDERS, MANAGEMENT AND NOMINEES

The following table sets forth information, as of April 3, 2009, the record date, except as noted below, with respect to the beneficial ownership of our common stock by:

• each person (including any “group,” as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934) known by us to beneficially own more than 5% of the outstanding shares of our common stock;

• each director and nominee to serve as a director;

• each executive officer named in the Summary Compensation Table under the caption “Executive Compensation,” below; and

• all current executive officers and directors as a group:

Beneficial Owner (1)	Shares Owned (2)		Percent of Class (3)
Alfred J. Roach 207 Inlet Drive Lindenhurst, NY 11757	881,240	(4)	6.3%
Mark T. Bradshaw	168,061	(5)	1.2%
Lawrence M. Fodrowski	192,061	(6)	1.4%
James R. Grover, Jr.	166,904	(7)	1.2%
Susan Harman	52,554	(8)	*
Charles H. House	283,837	(9)	2.0%
Brian J. Kelley	22,000	(10)	*
Kenneth A. Paladino	694,000	(11)	4.8%
David E. Foley	146,973	(12)	1.1%
Jennifer E. Katsch	42,000	(13)	*
All executive officers and directors as a group (9 persons, including the foregoing)	1,768,390	(14)	11.7%

______________________

(1) We understand that, except as noted below, each beneficial owner has sole voting and investment power with respect to all shares attributable to that owner.

(2) Includes shares subject to stock options but only to the extent exercisable on or within 60 days after the record date.

(3) Asterisk indicates that the percentage is less than one percent. Percent of Class assumes the issuance of common stock issuable upon the exercise of options (to the extent exercisable on or within 60 days after the record date) held by the person but (except for the calculation of beneficial ownership by all executive officers and directors as a group) by no other person or entity.

(4) Includes 170,000 shares subject to options held under our employee stock option plans. Excludes 51,744 shares owned by Mr. Roach’s wife (who has sole voting power and dispositive power with respect to the shares owned by her and as to which shares Mr. Roach disclaims beneficial ownership).

(5) Includes 6,250 shares that Mr. Bradshaw elected to receive in lieu of an annual cash director fee, as to which shares Mr. Bradshaw has the right to vote but does not have present dispositive power since the shares are subject to forfeiture in the event he resigns or is removed for cause before the meeting, and 152,500 shares subject to options held under our non-employee director stock option plans.

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(6) Includes 6,250 shares that Mr. Fodrowski elected to receive in lieu of an annual cash director fee, as to which shares Mr. Fodrowski has the right to vote but does not have present dispositive power since the shares are subject to forfeiture in the event he resigns or is removed for cause before the meeting, and 176,500 shares subject to options held under our non-employee director stock option plans.

(7) Includes 6,250 shares that Mr. Grover elected to receive in lieu of an annual cash director fee, as to which shares Mr. Grover has the right to vote but does not have present dispositive power since the shares are subject to forfeiture in the event he resigns or is removed for cause before the meeting, and 127,500 shares subject to options held under our non-employee director stock option plans.

(8) Includes 48,000 shares subject to options held under a non-employee director stock option plan.

(9) Includes 15,638 shares that Mr. House elected to receive in lieu of an annual cash director fee, as to which shares Mr. House has the right to vote but does not have present dispositive power since the shares are subject to forfeiture in the event he resigns or is removed for cause before the meeting, and 102,500 shares subject to options held under a non-employee director stock option plan.

(10) Includes 22,000 shares subject to options held under a non-employee director stock option plan.

(11) Includes 215,000 shares issued to Mr. Paladino pursuant to our 2008 Equity Compensation Plan, as to which Mr. Paladino has the right to vote but does not have present dispositive power since the shares are subject to forfeiture in the event, with certain exceptions, of termination of his employment prior to vesting, and 434,000 shares subject to options held under an employee stock option plan. See “Executive Compensation – Employment Agreement.”

(12) Includes 25,000 shares issued to Mr. Foley pursuant to our 2008 Equity Compensation Plan, as to which Mr. Foley has the right to vote but does not have present dispositive power since the shares are subject to forfeiture in the event, with certain exceptions, of termination of his employment prior to vesting, and 100,000 shares subject to options held under an employee stock option plan.

(13) Includes 15,000 shares issued to Ms. Katsch pursuant to our 2008 Equity Compensation Plan, as to which Ms. Katsch has the right to vote but does not have present dispositive power since the shares are subject to forfeiture in the event, with certain exceptions, of termination of her employment prior to vesting, and 27,000 shares subject to options held under an employee stock option plan.

(14) Includes 289,388 shares of restricted stock, as to which executive officers and directors have the right to vote but do not have present dispositive power as those shares are subject to potential forfeiture, and 1,190,000 shares subject to options held by executive officers and directors under stock option plans.

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PROPOSAL 1

ELECTION OF DIRECTORS

Our Restated Certificate of Incorporation and By-Laws provide that our Board of Directors (which we refer to as “our Board” or “the Board”) shall consist of a minimum of five and a maximum of nine directors, as determined by the Board, with the Board to be divided into three classes, designated Class I, Class II and Class III. Our entire Board presently consists of seven directors, with two Class I directors, three Class II directors and two Class III directors. Each incumbent director, except Brian J. Kelley, a Class I director, and Kenneth A. Paladino, a Class III director, who were elected by our Board, was previously elected by our stockholders.

The term of office of Class III directors continues until the meeting, the term of office of Class I directors continues until the 2010 Annual Meeting of our stockholders and the term of office of Class II directors continues until the 2011 Annual Meeting of our 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 terms of Kenneth A. Paladino and Lawrence M. Fodrowski, the present Class III directors, will expire at the meeting. Each is standing for re-election. At the meeting, holders of common stock will elect two Class III directors to serve until the 2012 Annual Meeting of Stockholders and until their respective successors are elected and qualified.

The Nominating Committee of our Board of Directors has recommended to our Board, and our Board has selected as its nominees for election as directors at the meeting, Kenneth A. Paladino and Lawrence M. Fodrowski. Mr. Paladino is our President and Chief Executive Officer. Mr. Fodrowski is a non-employee director and independent under the NASDAQ Marketplace Rules. Unless otherwise directed, the proxy holders intend to cast all votes pursuant to proxies received for the election of Messrs. Paladino and Fodrowski to serve as Class III directors. We refer to Messrs. Paladino and Fodrowski as the “nominees.”

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. We believe that all of the nominees are available to serve as directors.

Background of Nominees for Class III Directors

Lawrence M. Fodrowski, 60, has been a director since October 2001. Since May 2004, Mr. Fodrowski has served as Vice President - Finance and Administration and Chief Financial Officer of Hylan Group, Inc., a company that provides custom solutions for data communications and electrical installations. From July 2002 until May 2004, Mr. Fodrowski was an independent financial consultant. Mr. Fodrowski holds a Bachelor of Science degree in Accounting from Fordham University and is a Certified Public Accountant in New York.

Kenneth A. Paladino, 52, has been our President and Chief Executive Officer since August 2006, after serving as our Vice President - Finance and Chief Financial Officer from September 2000, Treasurer from June 2001 and Chief Operating Officer from December 2004. Mr. Paladino holds a Bachelor of Science degree in Accounting from Villanova University and is a Certified Public Accountant in New York.

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Background of Directors Whose Terms of Office Continue After the Meeting

Class I Directors

Susan Harman, 58, has been a member of our Board since 2007.  Ms. Harman has been President of Carlisle Partners, LLC, a consulting firm that advises emerging growth companies regarding equity and acquisition transactions, since September 2008.  From May 2007 to September 2008, Ms. Harman was a Managing Director of Soleil Securities Group, Inc., an investment banking firm. From March 2003 until she joined Soleil Securities Group, Ms. Harman served as President of Carlisle Partners.  From its inception in January 2000 until March 2003, Ms. Harman served as Co-founder, Chief Operating Officer, and Executive Vice President of Bigchalk, Inc., an online K-12 educational resource.  Ms. Harman holds a Bachelor of Science degree in Business from Towson University and a Masters in Business Administration degree from Stanford University.

Brian J. Kelley, 57, was elected to our Board in April 2008. Mr. Kelley has, since December 2006, been President of TAMCO Technology, a business development company focused on telecommunications asset management and financing solutions, specializing in technologies for VoIP and TDM-based business telephone systems and video conferencing solutions. From January 1994 until August 2006, Mr. Kelley served as President and Chief Executive Officer of Cognitronics Corporation (now Thinkengine Networks, Inc.), a company that designs, manufactures and markets voice processing systems. Mr. Kelley holds a Bachelor of Arts degree in Economics from the University of New Hampshire and a Masters in Business Administration degree from the University of Connecticut.

Class II Directors

Mark T. Bradshaw, Ph.D., 42, has been a member of our Board since 2003. Since July 2008, Dr. Bradshaw has been Visiting Associate Professor of Business Administration at the University of Chicago Booth School of Business. From 2005 until then, Dr. Bradshaw was Associate Professor of Business Administration at Harvard Business School after having been an Assistant Professor from July 2000. Dr. Bradshaw also holds a Bachelor of Business Administration degree and a Masters in Accounting degree from the University of Georgia and a Doctorate Degree from the University of Michigan Business School. Dr. Bradshaw is a Certified Public Accountant in Georgia.

James R. Grover, Jr., 90, has been a member of our Board since 1978. Mr. Grover was engaged in the private practice of law from 1974 until he retired in March 2004. He served as our General Counsel from 1977 until March 2004. Mr. Grover was a member of the United States House of Representatives from 1963 to 1974, after serving as a member of the New York State Assembly from 1957 to 1962.

Charles H. House, 68, has served as a member of our Board since 2003 and as non-executive Chairman of our Board since September 2005. In November 2006, Mr. House was appointed Executive Director of the Media X Industry Affiliates program at Stanford University. From March 2005 until October 2006, when he retired from Intel Corporation, a semiconductor chip maker, Mr. House served as Director of the Research Collaboratory at Intel. He also served as Director of Societal Impact of Technology at Intel from July 1999 until October 2006. Mr. House holds a Bachelor of Science degree in Solid-State Physics from California Institute of Technology, a Masters in Sciences degree in Electronics Engineering from Stanford University, a Masters in Arts degree in the History of Science and Technology from the University of Colorado and a Masters in Business Administration degree in Strategic Studies from the University of California at San Diego.

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Directors’ Independence

Our common stock is listed for trading on the Capital Market of the NASDAQ Stock Market. The Marketplace Rules of NASDAQ require that, in order to maintain our listing, among other things, a majority of our Board, and all members of each of our Audit, Compensation and Nominating Committees, subject to certain potential exceptions, be “independent directors,” as defined under those rules. Our Board of Directors has determined that, of our present directors, Mark T. Bradshaw, Lawrence M. Fodrowski, Susan Harman, James R. Grover, Jr., Charles H. House and Brian J. Kelley, constituting six of the seven members of our Board of Directors, are “independent directors,” as defined under NASDAQ’s Marketplace Rules. In reaching its conclusion, our Board determined that these individuals do not have a relationship with our organization that, in the Board’s opinion, would interfere with their exercise of independent judgment in carrying out the responsibilities of a director, and do not have any of the specific relationships set forth in NASDAQ’s Marketplace Rules that would disqualify any of them from being considered independent directors.

Meetings of the Board of Directors

During the year ended December 31, 2008, our Board of Directors held eight meetings. Each incumbent director attended at least 75% of the aggregate number of Board meetings and meetings of all committees of the Board on which that director served that were held during the year.

Attendance at Stockholders Meetings

It is our policy that, absent extenuating circumstances, all members of the Board attend annual meetings of stockholders. All members of our Board attended our 2008 Annual Meeting of Stockholders, except Mark T. Bradshaw and Lawrence M. Fodrowski.

Committees of the Board

Our Board of Directors has Audit, Compensation and Nominating Committees. The following table sets forth the current composition of the committees of our Board:

Name	Audit Committee	Compensation Committee	Nominating Committee
Mark T. Bradshaw	X	X Chairperson
Lawrence M. Fodrowski	X Chairperson		X
James R. Grover, Jr.		X	X
Susan Harman	X		X Chairperson
Charles H. House		X
Brian J. Kelley	X	X

Committee Charters

The specific functions and responsibilities of each committee are set forth in its written charter adopted by the Board of Directors. Each Committee reviews and reassesses its charter annually and recommends any changes to the Board for approval. A copy of each committee’s charter is available on our website at www.tiinettech.com by clicking on “Investors Relations” and then clicking on the applicable charter.

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Audit Committee

Each member of the Audit Committee meets the requirements for eligibility for audit committee membership under NASDAQ’s Marketplace Rules, including the independence requirements of Rule 10A-3 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. The Board of Directors has determined that Mr. Fodrowski is an audit committee financial expert, within the meaning of the rules and regulations of the Securities and Exchange Commission.

The functions of the Audit Committee include, in general:

• overseeing both accounting and financial processes, the audits of our financial statements, our systems of internal control over financial reporting, accounting and legal compliance, the ethics standards that management and the Board has established, and our auditing, accounting and financial reporting processes generally;

• the appointment, compensation, retention and oversight of our independent registered public accounting firm; and

• pre-approving all audit and permissible non-audit services to be provided by our independent registered public accounting firm.

A report of the Audit Committee appears under the caption “Audit Committee Report,” below. The Audit Committee met on four occasionsduring the year ended December 31, 2008.

Compensation Committee

The Compensation Committee is authorized, among other things, to:

• consider and recommend to the full Board of Directors salaries, bonuses and other compensation arrangements with respect to our executive officers;

• grant and administer equity compensation awards under our present and future equity compensation plans; and

• examine and make recommendations to the full Board of Directors with respect to employee benefit plans and arrangements for us and our subsidiaries.

The Compensation Committee met on two occasions during the year ended December 31, 2008.

Nominating Committee

The Nominating Committee is responsible for:

• identifying qualified Board candidates and recommending their nomination for election to the Board, including recommending a slate of nominees for election to the Board at each annual meeting of stockholders; and

• reviewing executive succession planning, including recommending procedures that will assure an orderly Chief Executive Officer transition when the need arises.

The Nominating Committee met on one occasion during the year ended December 31, 2008.

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Director Nomination Process

Our Nominating Committee, consisting exclusively of independent directors under NASDAQ’s Marketplace Rules, recommends to the full Board nominees to serve as directors.

The Committee will consider nominees to serve on our Board that are recommended by stockholders, as well as by directors, officers and others. While the Committee makes recommendations for director nominations, final approval rests with the full Board. Although it may do so in the future, the Committee has not in the past retained or paid any third party to assist in identifying and evaluating nominees.

The Committee has not established specific minimum qualifications, or specific qualities or skills, for prospective nominees. The Committee will consider, among other things, a potential nominee’s financial and business experience, educational background, understanding of our business and industry, skills that would complement rather than duplicate skills of existing Board members, demonstrated ability in his or her professional field, integrity and reputation, willingness to work productively with members of the Board and represent the interests of stockholders as a whole, and time availability to perform the duties of a director, as well as the then current size and composition of the Board. No weight is assigned to any of the factors and the Committee may change its emphasis on certain of these factors from time to time in light of our needs at the time. The Committee will evaluate nominees of stockholders using the same criteria as it uses in evaluating other nominees to the Board and, in addition, in the case of incumbent directors, the director’s past attendance at, and participation in, Board meetings and his or her overall contributions to the Board. Evaluations of candidates involve a review of background material supporting the criteria described above, internal discussions within the Nominating Committee and interviews with a candidate, as appropriate. Upon selection of a qualified candidate, the Nominating Committee recommends a candidate for consideration by the full Board.

A stockholder seeking to recommend a prospective nominee should submit the recommendation to the Nominating Committee of the Board of Directors, TII Network Technologies, Inc., 141 Rodeo Drive, Edgewood, New York 11717, Attention: Secretary, within the time frame described in the third sentence under the caption “Miscellaneous – Stockholder Proposals,” below. The recommendation should include, in addition to the name and business or residence address of the nominee, the written consent of the person being recommended to being named as a nominee in our proxy statement relating to the stockholder vote on his or her election and to serving as a director if elected. The recommendation must also include all information that would be required to be disclosed concerning the nominee in solicitations of proxies for the election of directors pursuant to Regulation 14A under the Securities Exchange Act of 1934, including, but not limited to, the information required by Items 103, 401, 403 and 404 of Regulation S-K of the Securities and Exchange Commission. In addition, the stockholder recommending the proposed nominee must provide the recommending stockholder’s name, address and number of shares of our common stock owned by the recommending stockholder as they appear on our stockholder records and the length of time the shares have been owned by the recommending stockholder or, if held in “street name,” a written statement from the record holder of the shares confirming the information concerning the stock ownership of the recommending stockholder, and whether the recommendation is being made with or on behalf of one or more other stockholders and, if so, similar information with respect to each other stockholder with or on behalf of whom the recommendation is being made.

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Stockholder Communications with Directors

Stockholders may communicate directly with our Board of Directors or one or more specific directors by sending a written communication to: Board of Directors or the specific director, c/o Secretary, TII Network Technologies, Inc., 141 Rodeo Drive, Edgewood, New York 11717. Our Secretary will forward the communication to the director or directors to whom it is addressed, except for communications that are (1) advertisements or promotional communications, (2) related solely to complaints by users of our products that are ordinary course of business customer service and satisfaction issues or (3) clearly unrelated to our business, industry, management, the Board, a Board committee or a Board member. Our Secretary will make all communications not specifically addressed to any one director available to each member of the Board at the Board’s next regularly scheduled meeting.

Codes of Business Conduct and Ethics

We have adopted a Code of Business Ethics and Conduct that applies to all of our directors, officers and employees, which is supplemented by a Code of Ethics for Senior Financial Officers that additionally applies to our Chief Executive Officer and senior financial officers. Copies of these codes are available on our website at www.tiinettech.com by clicking on “Investors Relations” and then clicking on the applicable code.

Audit Committee Report

Management has the primary responsibility for our financial reporting process, including our financial statements, while the Audit Committee is responsible for overseeing our accounting, auditing and financial reporting practices, and our independent registered public accounting firm has the responsibility for auditing our annual financial statements, expressing an opinion on the conformity of those financial statements with accounting principles generally accepted in the United States and issuing a report on those financial statements. In fulfilling our oversight responsibility with respect to our company’s financial statements for the year ended December 31, 2008, the Audit Committee:

• Reviewed and discussed the audited financial statements for the year ended December 31, 2008 with management and Marcum & Kliegman LLP, our independent registered public accounting firm;

• Discussed with Marcum & Kliegman the matters required to be discussed by Statement on Auditing Standards No. 61, as amended, as adopted by the Public Company Accounting Oversight Board in Rule 3200T; and

• Received the written disclosures and the letter from Marcum & Kliegman required by the applicable requirements of the Public Company Accounting Oversight Board regarding its communications with the Audit Committee concerning independence, and also discussed Marcum & Kliegman’s independence with Marcum & Kliegman (see “Ratification of the Selection of Independent Registered Public Accounting Firm,” below).

Based on the foregoing review and discussions, the Audit Committee recommended to the Board that our audited financial statements for the year ended December 31, 2008 be included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission for that year.

Respectfully,

Lawrence M. Fodrowski, Chairperson

Mark T. Bradshaw

Susan Harman

Brian J. Kelley

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Executive Officers

In addition to Kenneth A. Paladino, the following are our current executive officers:

Jennifer E. Katsch, 33, joined us as Vice President of Finance, Treasurer and Chief Financial Officer in November 2006. Prior to joining us, Ms. Katsch served as Senior Manager of Financial Reporting for NBTY, Inc., a manufacturer, marketer and retailer of nutritional supplements, from March 2006. Prior thereto, Ms. Katsch was employed from December 1996 until March 2006 by KPMG LLP, which served as our independent registered public accounting firm until June 2008, most recently serving as Audit Senior Manager on clients in the information, communications and entertainment industry. Ms. Katsch was never a member of KPMG’s audit engagement team for us. Ms. Katsch has advised us that she did not influence KPMG’s operations or financial policies, had no capital balance in KPMG and had no financial arrangement with KPMG other than one providing for a regular payment of a fixed amount pursuant to a fully-funded retirement plan which is not dependent upon the revenues, profits or earnings of KPMG.

David E. Foley, 45, joined us in November 2005 and has been Vice President – Technology Development since February 2007.  Prior to joining us, Mr. Foley served as President and Chief Operating Officer of Antex Electronics Corporation, a company specializing in custom high technology product development, from October 2000 to November 2005 after serving as its Vice President of Engineering from December 1996. Mr. Foley holds Bachelor of Science and Masters degrees in Electrical Engineering from Purdue University.

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.

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 Lawrence M. Fodrowski and Kenneth A. Paladino to serve as Class III directors.

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PROPOSAL 2.

PROPOSAL TO AMEND OUR RESTATED CERTIFICATE OF INCORPORATION TO
CHANGE THE NAME OF THE COMPANY

Reasons for Name Change

While our official name, under our Certificate of Incorporation, is “TII Network Technologies, Inc.,” with the TII written with all capital letters, for branding, marketing and most other purposes, we have been utilizing the stylized version “Tii.” We believe that it would be advantageous that our official corporate name also contain the stylized version of “Tii.”

Implementation of Name Change

If the amendment is adopted by stockholders and a Certificate of Amendment to our Restated Certificate of Incorporation is filed with the Secretary of State of the State of Delaware, Article 1 of our Restated Certificate of Incorporation will be amended to read as follows:

"1. The name of the corporation is Tii Network Technologies, Inc."

The amendment, if adopted by stockholders, will become effective on a date selected by our Board of Directors and set forth in a Certificate of Amendment to our Restated Certificate of Incorporation to be filed with the Secretary of State of Delaware.

Effect on Stockholders

The change of name will not effect in any way the validity or transferability of stock certificates outstanding at the time of the name change, our capital structure or the trading of our common stock on the NASDAQ Stock Market. After the change of name, our common stock will continue to be traded on NASDAQ under the symbol "TIII." (Most trading information systems are not case sensitive and will recognize lower case letters as well as upper case letters.) Following implementation of the amendment, stockholders may continue to hold their existing certificates or receive new certificates reflecting the name change by delivering their existing certificates to our transfer agent. Stockholders should not destroy any stock certificates and should not deliver any stock certificates to the transfer agent until after the effectiveness of the name change.

Required Vote

Adoption of the amendment to our Restated Certificate of Incorporation to change the name from "TII Network Technologies, Inc." to "Tii Network Technologies, Inc." requires the affirmative vote of the holders of a majority of our outstanding shares of common stock. If the amendment is not approved by stockholders, our Restated Certificate of Incorporation will continue in effect unchanged, and our name will remain as "TII Network Technologies, Inc." The Board of Directors recommends a vote FOR Proposal 2.

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PROPOSAL 3

RATIFICATION OF SELECTION OF

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The independent registered public accounting firm of Marcum & Kliegman LLP has been appointed by the Audit Committee of our Board of Directors to continue to serve as our independent registered public accounting firm for the year ending December 31, 2009, subject to ratification at the meeting by our stockholders. Marcum & Kliegman has served as our independent public accountants since July 2008.

Change in Our Independent Registered Public Accounting Firm

On June 3, 2008, as recommended by the Audit Committee of our Board of Directors, we dismissed KPMG LLP as our independent registered public accounting firm. On July 15, 2008, also upon the recommendation of the Audit Committee of our Board of Directors, we engaged Marcum & Kliegman as our new independent registered public accounting firm to replace KPMG.

KPMG’s reports on our consolidated financial statements for the years ended December 31, 2006 and 2007 did not contain any adverse opinion or disclaimer of opinion nor were they qualified or modified as to uncertainty, audit scope or accounting principles. During the fiscal years ended December 31, 2006 and 2007 and the subsequent interim period through June 3, 2008, there were no (i) disagreements with KPMG on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to KPMG’s satisfaction, would have caused KPMG to make reference to the subject matter of the disagreement in connection with its reports, or (ii) reportable events described in Item 304(a)(1)(v) of Regulation S-K. On June 10, 2008, KPMG issued a letter to the SEC agreeing with the foregoing statements made by us insofar as they related to KPMG.

During the fiscal years ended December 31, 2006 and 2007 and the subsequent period through July 15, 2008, neither we nor anyone on our behalf consulted Marcum & Kliegman regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our financial statements and no written or oral advice was provided to us that Marcum & Kliegman concluded was an important factor considered by us in reaching a decision as to any accounting, auditing or financial reporting issue or (ii) any matter that was either the subject of a disagreement (as defined in Item 304 (a)(1)(iv) of Regulation S-K and the related instructions to that Item) or any reportable event (as described in Item 304(a)(1)(v) of Regulation S-K). We provided Marcum & Kliegman with a copy of our Report on Form 8-K with respect to the change in independent registered public accountants and requested Marcum & Kliegman to review the disclosures contained in that Report and we provided Marcum & Kliegman with the opportunity to furnish us with a letter addressed to the Securities and Exchange Commission containing any new information, clarification of our expression of its views or the respects in which Marcum & Kliegman did not agree with the statements made in that Report. Marcum & Kliegman did not furnish a letter.

Principal Accountant Fees and Services

The following is a summary of the fees billed to us by Marcum & Kliegman and by KPMG for services rendered to us with respect to the fiscal years ended December 31, 2008 and 2007, respectively:
 

Fee Category	Marcum & Kliegman LLP Fiscal 2008		KPMG LLP Fiscal 2007
Audit Fees		$170,000		$545,000
Audit-related fees		-		-
Tax fees		-		19,500
All other fees		-		-
Total Fees		$170,000		$564,500

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Audit Fees. The fees for services rendered by Marcum & Kliegman were for the audit of our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2008 and its reviews of our interim condensed consolidated financial statements included in our Quarterly Reports on Form 10-Q for the quarters ended June 30, 2008 and September 30, 2008. KPMG’s fees for services were for the audit of our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2007, reviews of our interim condensed consolidated financial statements included in our three Quarterly Reports on Form 10-Q during the year ended December 31, 2007. Audit fees for both firms included services that are normally provided by them in connection with regulatory filings or engagements, including consents provided with respect to registration statements we filed with the Securities and Exchange.

Tax Fees. These fees were for services regarding the preparation of income tax returns and other tax compliance.

In connection with the standards for independence of a company’s independent registered public accounting firm promulgated by the Securities and Exchange Commission, the Audit Committee of our Board considered whether the services provided were compatible with maintaining the independence of Marcum & Kliegman and KPMG for the respective periods that each was engaged by us, and determined that the provision of those services did not adversely affect the independence of Marcum & Kliegman or KPMG.

Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors

The Audit Committee’s policy is to pre-approve all audit and permissible non-audit services provided by our independent registered public accounting firm. These services may include audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to one year for services set forth in an engagement letter approved by the Audit Committee or its Chairperson and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. All of the services provided by Marcum & Kliegman and KPMG during the years ended December 31, 2008 and 2007 were pre-approved by the Audit Committee or its Chairperson. If approved by the Chairperson, his decision was reported to the full Audit Committee at its next scheduled meeting. Our independent registered public accounting firm and management are required to periodically report to the Audit Committee or its Chairperson regarding the extent of services provided by our independent registered public accounting firm in accordance with this pre-approval process and the fees for the services performed to the date of the report. The Audit Committee or its Chairperson may also pre-approve particular services on a case-by-case basis.

Effect of Ratification

Our Board proposes that the stockholders ratify the Audit Committee’s selection of Marcum & Kliegman as our independent registered public accounting firm for the year ending December 31, 2009. If the resolution selecting Marcum & Kliegman as our independent registered public accounting firm is adopted by stockholders, the Audit Committee nevertheless retains the discretion to select different auditors should it then deem it in our interests. Any future selection need not be submitted to a vote of stockholders.

Availability of Marcum & Kliegman at the Meeting

Marcum & Kliegman has indicated to us that it intends to have a representative present at the meeting who will be available to respond to appropriate questions and will have the opportunity to make a statement if the representative so desires.

Required Vote

The affirmative vote of a majority of the shares of our common stock present in person or represented by proxy at the meeting and entitled to vote on this proposal is required to ratify the selection of Marcum & Kliegman LLP as our independent registered public accounting firm. Our Board of Directors recommends a vote FOR Proposal 3.

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EXECUTIVE COMPENSATION

Summary Compensation Table

The following table sets forth, for the years ended December 31, 2008 and 2007, information concerning the compensation of our Chief Executive Officer, our two most highly compensated executive officers (other than our Chief Executive Officer) who were serving at December 31, 2008 and an individual who would have been one of our two most highly compensated executive officers but for the fact that he was not serving at December 31, 2008. We refer to these individuals as the “named executive officers.”

Name and Principal Position		Salary	Bonus (1)	Stock Awards (2)	Option Awards (2)	All Other Compen- sation (3)	Total
	Year	($)	($)	($)	($)	($)	($)
Kenneth A. Paladino	2008	300,000	-	39,931	178,720	8,523	527,174
President and Chief Executive Officer (4)	2007	300,000	135,000	-	178,428	4,100	617,528
David E. Foley	2008	195,000	-	-	101,385	6,372	302,757
Vice President (5)	2007	177,250	60,000	-	76,731	3,100	317,081
Jennifer E. Katsch	2008	160,000	-	-	33,714	6,410	200,124
Chief Financial Officer	2007	147,019	35,000	-	26,985	2,596	211,600
Martin J. Pucher	2008	-	-	-	-	291,884	291,884
Executive Vice President (6)	2007	270,000	80,000	138,794	-	3,100	491,894

____________________

(1) All bonuses were discretionary awards approved by the Compensation Committee of our Board of Directors.

(2) Represents the dollar amount recognized for financial statement reporting purposes in 2008, computed in accordance with Statement of Financial Accounting Standards No. 123(R), “Share-Based Compensation,” except that, pursuant to the rules of the Securities and Exchange Commission relating to executive compensation disclosure, the amounts exclude the impact of estimated forfeitures related to service-based vesting conditions. Under SFAS 123(R), the amount recognized in a reported year includes amounts related to options granted in prior years to the extent options vested in the reported year. Assumptions used in the calculation of these amounts are disclosed in note 8 to our audited consolidated financial statements for the year ended December 31, 2008 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission.

(3) Except as reflected in footnote 6 below, all other compensation represents our matching contribution under our 401(k) deferred compensation plan.

(4) See “Employment Agreement with Kenneth A. Paladino,” below, for information concerning an Employment Agreement we entered into with Mr. Paladino on April 3, 2008.

(5) Mr. Foley was elected Vice President – Technology Development on February 7, 2007. The table reflects Mr. Foley’s total compensation in 2007.

(6) Mr. Pucher served as our Executive Vice President and Chief Marketing Officer from September 2006 until January 11, 2008, when he resigned. The bonus to Mr. Pucher with respect to 2007 was determined and paid to him pursuant to the terms of a Severance Agreement we entered into with him in January 2007. All other compensation for Mr. Pucher in 2008 includes severance of $270,000 and COBRA premium costs of $16,884. See “Severance Agreement with Martin Pucher,” below.

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Employment Agreement with Kenneth A. Paladino

On April 3, 2008, we entered into an Employment Agreement and a Restricted Stock Agreement with Kenneth A. Paladino, our President and Chief Executive Officer. The Employment Agreement provides for a term ending on December 31, 2009 and continuing thereafter for three successive twelve month periods unless written notice is given by either party not to extend the term at least sixty days prior to the then effective expiration date. The Employment Agreement provides for Mr. Paladino to receive base compensation at the rate of $300,000 per annum (his 2007 base compensation rate) and that he is eligible to participate in any Executive Bonus Program that we may adopt (none is presently in place). Mr. Paladino was also granted a restricted stock award covering 175,000 shares of our common stock under our 2008 Equity Compensation Plan, which was approved by our stockholders at our 2008 Annual Meeting of Stockholders, and entered into a Restricted Stock Contract with respect to the restricted stock award. The award vests on April 2, 2013 if Mr. Paladino remains employed by us on that date, subject to earlier vesting on a pro rata basis upon Mr. Paladino’s death, a Change in Control (as defined) of us, the termination of Mr. Paladino’s employment by us without Cause (as defined) or his Resignation For Good Reason (as defined), in each case at a rate equal to the 1/60^th of the number of shares subject to the award for each full month following the date of grant that Mr. Paladino was employed us. Mr. Paladino is also eligible to participate in benefits offered to our other executives and key management in accordance with the terms of the applicable plans. His salary and benefits are subject to periodic increases, but not decreases, at the discretion of our Board of Directors.

A “Change in Control” is, in general, termination by Mr. Paladino of his employment within three months of a change in his duties or termination of his employment by us, in each case, within 18 months following a sale of all or substantially all of our assets, a consolidation or merger of us with any person as a result of which those who were our stockholders immediately prior to the consolidation or merger do not, immediately thereafter, own more than 50% of the combined voting power entitled to vote generally in the election of directors of the consolidated or merged company’s then outstanding voting securities or certain transactions that result in those who were our directors immediately before the transaction ceasing to constitute a majority of the Board of Directors of us or any successor to us.

“Resignation for Good Reason” is, in general, a change in Mr. Paladino’s duties that alters his overall authority, duties, responsibilities and status as Chief Executive Officer, the relocation of our principal place of business by more than 40 miles from its present location, a Change in Control, cessation of his position as President and Chief Executive Officer except as a result of death, disability or Cause, a material breach by us of the Employment Agreement that is not cured within ten days after notice, our insolvency, or, with certain exceptions, dissolution or liquidation.

In the event of Mr. Paladino’s death or termination of his employment at our election by virtue of his Disability (as defined), his Resignation for Good Reason, termination of his employment by us other than for Cause or if we fail to renew the Employment Agreement at the end of its initial or any additional term,Mr. Paladino and his beneficiaries or dependents will be entitled to 18 months of severance pay, a pro rata portion of his bonus based on his most recent performance bonus provided that our financial results in the year of termination are substantially similar to our financial results for the period of his most recent performance bonus, a continuation for 18 months of the benefits being provided at the time and an acceleration of vesting of stock options held by him at the time, which will remain exercisable for the greater of one year from the date of termination of employment or the period provided for under the applicable option or plan.

Mr. Paladino has agreed in the Employment Agreement to maintain the confidentiality of confidential information pertaining to our business and, for 18 months following the termination of his employment for any reason not to, directly or indirectly, in general, engage in competitive activities, induce custumers to cease doing business with us or otherwise interfere with our goodwill, or interfere with our relationship with our employees.

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Severance Agreement with Martin Pucher

On January 11, 2008, Martin Pucher resigned as our Executive Vice President and Chief Marketing Officer and a director. In connection with his resignation, we entered into a Severance Agreement with Mr. Pucher, pursuant to which Mr. Pucher’s 2005 letter employment agreement and his employment with us were terminated, and we agreed to pay Mr. Pucher severance equal to his current base pay at the rate of $270,000 per annum in installments until December 31, 2008, a bonus of $80,000 for the year ended December 31, 2007 and his COBRA premium costs until December 31, 2008. Another agreement entered into in 2005 between us and Mr. Pucher remains in effect under which Mr. Pucher is to maintain the confidentiality of all information pertaining to our business.

Option Grants in 2008 to our Named Executive Officers

The only option granted to any of our named executive officers during 2008 was an option granted to David E. Foley on April 3, 2008 under our 1998 Stock Option Plan to purchase 75,000 shares of our common stock at an exercise price of $1.83 per share, the average of the highest and lowest sales prices of our common stock on the date of grant. This option has a ten year term, subject to earlier termination in accordance with our 1998 Stock Option Plan in the event of the termination of Mr. Foley’s employment with us, and is exercisable as to 15,000 shares in each annual period, on a cumulative basis, commencing April 3, 2009.

Outstanding Equity Awards At Fiscal Year-End

The following table provides certain information concerning stock options and restricted stock awards (our only forms of equity awards) held by our named executive officers at December 31, 2008:

	Option Awards							Stock Awards
Name	Number of Securities Underlying Unexercised Options (#) Exercisable		Number of Securities Underlying Unexercised Options (#) Unexercisable		Option Exercise Price ($)	Option Expiration Date (1)		Equity Incentive Plan Awards: Number of Shares or Units of Stock That Have Not Vested (#)			Equity Incentive Plan Awards: Market Value of Shares or Units of Stock That Have Not Vested ($)
Kenneth A. Paladino		75,000	-		$2.250		09/04/10	175,000	(10)	110,250(10)
		50,000	-		0.410		04/30/12
		80,000	-		0.305		08/29/12
		39,000	-		1.485		06/06/15
		90,000	60,000	(2)	1.500		09/12/15
		100,000	150,000	(3)	2.975		10/24/16
David Foley		60,000	40,000	(4)	2.970		11/20/15
		20,000	30,000	(5)	2.270		12/19/16
		5,000	20,000	(6)	1.715		11/12/17
		-	75,000	(7)	1.830		04/02/18
Jennifer E. Katsch		22,000	33,000	(8)	2.570		11/12/16
		5,000	20,000	(9)	1.715		11/11/17

____________________

(1) Each option has a ten year term subject to earlier termination in accordance with the terms of the option plan under which the option was granted in the event of the termination of the optionee’s employment with us.

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(2)	Vests as to 30,000 shares per annum commencing September 13, 2009.
(3)	Vests as to 50,000 shares per annum commencing October 25, 2009.
(4)	Vests as to 20,000 shares per annum commencing November 21, 2009.

(5) Vests as to 10,000 shares per annum commencing December 20, 2009.

(6) Vests as to 5,000 shares per annum commencing November 13, 2009.

(7) Vests as to 15,000 shares per annum commencing April 3, 2009.

(8) Vests as to 11,000 shares per annum commencing November 13, 2009.

(9) Vests as to 5,000 shares per annum commencing November 13, 2009.

(10) See “Employment Agreement with Kenneth A. Paladino,” above, for information regarding the vesting of this restricted stock award. Market Value is based on the closing market price of our common stock on the NASDAQ Stock Market on December 31, 2008.

Director Compensation

Name	Fees Earned or Paid in Cash (1) ($)	Stock Awards (2) ($)	Option Awards (3) ($)	Total ($)
Mark T. Bradshaw	21,000	1,750	45,326	68,076
Lawrence M. Fodrowski	19,500	1,750	45,326	66,576
James R. Grover, Jr.	18,500	1,750	36,261	56,511
Susan Harman	20,000	-	59,614	79,614
Charles H. House	31,500	4,400	29,967	65,867
Brian J. Kelley (4)	14,500	-	35,274	49,774

______________________

(1) Includes (a) annual cash retainers, including cash retainers which Messrs. Bradshaw, Fodrowski, Grover ($10,000 in each case) and House ($25,000 including a fee for serving as non-executive Chairman of our Board) elected to forego in 2008 in favor of restricted stock awards, (b) fees for attending Board of Director and Board committee meetings and (c) fees for serving as Chairperson of committees of the Board.

(2) Represents the incremental market value on the date of our 2008 Annual Meeting of Stockholders of the restricted common stock that the director, by accepting restricted stock instead of the director’s cash retainer, received in excess of the annual cash retainer the director would have otherwise received.

(3) Represents the dollar amount recognized for financial statement reporting purposes in 2008 in accordance with SFAS 123(R) and, therefore, includes amounts related to options granted in prior years, as well as options granted in 2008. Assumptions used in the calculation of these amounts are disclosed in note 8 to our audited consolidated financial statements for the year ended December 31, 2008 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission.

(4) Elected as a director on April 3, 2008.

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Director Outstanding Awards at Fiscal Year-End

As of December 31, 2008, our non-employee directors held stock awards and stock options covering the following number of shares:

	Outstanding
Name	Stock Award Shares (1)	Stock Option Shares
Mark T. Bradshaw	6,250	152,500
Lawrence M. Fodrowski	6,250	176,500
James R. Grover, Jr.	6,250	127,500
Susan Harman	-	64,000
Charles H. House	15,638	102,500
Brian J. Kelley	-	44,000

____________________

(1) Represents shares of restricted stock which the director elected to receive instead of the director’s annual cash retainer. See note 2 to the first table under “Director Compensation,” above.

Narrative Discussion of Director Compensation

Each non-employee director receives (1) a cash retainer at the rate of $10,000 per annum ($25,000 in the case of the non-executive Chairman of the Board), which is payable quarterly or, alternatively, at the non-employee director’s election made at or prior to the applicable annual meeting of stockholders, $11,750 ($29,400 in the case of the non-executive Chairman of the Board) of our common stock (valued at the closing market price of our common stock on the date of the applicable annual meeting of our stockholders), which shares are subject to forfeiture in the event the non-employee director resigns or is removed for cause before the next annual meeting of our stockholders, (2) a fee of $1,000 for each meeting of the Board attended, (3) a fee of $500 for each meeting of the applicable committee attended by a member of the Board’s Audit, Compensation or Nominating/Governance Committees (except that the Chairman of those Committees receives a fee of $1,000) and (4) reimbursement for his or her reasonable travel and other expenses incurred in attending Board and committee meetings.

Our 2003 Non-Employee Director Stock Option Plan provides that, at the time a person becomes a non-employee director, he or she is granted an initial option to purchase 24,000 shares of our common stock. In addition, immediately following each annual meeting of stockholders at which directors are elected, each non-employee director in office immediately following the conclusion of the meeting (whether or not elected at the meeting) is granted an annual option to purchase 10,000 shares of common stock, as well as an option to purchase 5,000 shares for each standing committee of the Board on which the non-employee director will be serving and an option to purchase 10,000 shares for each committee that the non-employee director will be serving as Chairperson. An individual who becomes a non-employee director for the first time at an annual meeting of stockholders is only granted an initial option and annual options with respect to committee memberships and chairpersonships as will pertain to that non-employee director. An employee-director who ceases that relationship but remains a director is not entitled to an initial option. Each option held by non-employee directors under the 2003 Plan 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 closing market price of our common stock on the date of grant. Initial options vest and become exercisable in twelve equal quarterly installments commencing one year after the date of grant. Annual options generally vest and become exercisable in four equal quarterly installments commencing immediately upon grant.

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Equity Compensation Plans

The following table sets forth certain information, as of December 31, 2008, with respect to our equity compensation plans:

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights	Number of securities remaining available for future issuance under equitycompensation plans
Equity compensation plans approved by security holders	2,424,050 (1)	$2.06	1,286,000 (2)
Equity compensation plans not approved by security holders	-	-	-
Total	2,424,050	$2.06	1,286,000

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(1) Includes 167,550; 1,589,500; 177,000; and 490,000 shares subject to options granted under our 1995 Stock Option Plan, which expired as to future grants in September 2005; 1998 Stock Option Plan, which expired as to future grants in April 2008; 1994 Non-Employee Director Stock Option Plan, which expired as to future grants in September 2004; and 2003 Non-Employee Director Stock Option Plan, respectively. In addition, 175,000 shares of restricted stock were issued under our 2008 Equity Compensation Plan.

(2) Includes 461,000 shares available for grants to non-employee directors under the 2003 Plan and 825,000 shares available for the grant of stock options, stock appreciation rights, restricted stock awards and restricted stock unit awards to employees, directors and consultants under the 2008 Plan. Upon the expiration, cancellation or termination of unexercised options or the forfeiture of restricted stock awards or restricted stock unit awards, shares subject thereto under the 2003 Plan and 2008 Plan will again be available for the grant of awards under the particular plan.

Compliance with Section16(a) of the Securities Exchange Act of 1934

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors, and persons who beneficially own more than 10% of our common stock, to timely file initial statements of stock ownership and statements of changes of beneficial ownership of our common stock with the Securities and Exchange Commission and furnish copies of those statements to us. Based solely on a review of the copies of the statements furnished to us to date, or written representations that no statements were required, we believe that all statements required to be filed by those persons with respect to the year ended December 31, 2008 were timely filed, except that Kenneth A. Paladino and David E. Foley each were late in reporting one transaction.

TRANSACTIONS WITH RELATED PERSONS

We are a party to a Consulting Agreement, dated November 1, 2005, with Alfred J. Roach, our former Chairman and the beneficial owner of 6.3% of our common stock, which provides for Mr. Roach to make himself available at such reasonable times and periods of time as we may request to consult with our executive officers and directors regarding our business and operations, focusing on the sale and marketing of our products. The Consulting Agreement provides for a four-year term from November 1, 2005, when Mr. Roach ceased being our employee, subject to earlier termination in the event of Mr. Roach’s death or breach of either of his covenants to maintain the confidentiality of confidential information pertaining to our business and not to compete against us. For his services, Mr. Roach is receiving a consulting fee of $160,000 per annum, 5% of net sales that may be generated through his efforts during the term of the Consulting Agreement from potential customers in China, India or Russia.

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Control

We do not believe that any individual controls us by virtue of stock ownership. However, by virtue of his position as our President, Chief Executive Officer and a director, Kenneth A. Paladino, and our entire Board of Directors possess the power to direct or cause the direction of the management and policies of us and may be deemed to control us.

Review and Approval of Transactions with Related Persons

We have adopted a Related Party Transaction Policy pursuant to which, in general, our Audit Committee is charged with the responsibility of reviewing and approving all transactions with related persons, as defined in Securities and Exchange Commission regulations.

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 our proxy statement and form of proxy relating to our 2010 Annual Meeting of Stockholders must be received by December 23, 2009. Any such proposals, as well as any questions relating thereto, should be directed to our Secretary, 141 Rodeo Drive, Edgewood, New York 11717. As to any proposal intended to be presented by a stockholder, without inclusion in the Board of Directors’ proxy statement and form of proxy for our 2010 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 we receive notice of the matter on or before March 8, 2010. Any such notices should also be directed to our Secretary 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

Our Annual Report to Stockholders for the year ended December 31, 2008 accompanies this proxy statement but is not incorporated in and is not to be deemed a part of this proxy statement. A copy of our Annual Report on Form 10-K for the year ended December 31, 2008, which has been filed with the Securities and Exchange Commission, is included in our Annual Report to Stockholders and is also available, without charge, to stockholders upon request. Requests for a copy of that report should be addressed to Ms. Jennifer E. Katsch, Secretary, 141 Rodeo Drive, Edgewood, New York 11717.

Cost to Solicit Proxies

We will bear the cost of preparation, printing and mailing of this proxy statement and the 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 the beneficial owners. Proxies may be solicited without extra compensation by certain of our officers, directors and regular employees by mail and, if determined to be necessary, by telephone, telecopy, telegraph or personal interview. We have retained W.F. Doring & Co., Inc., 866 Broadway, Bayonne, New Jersey 07002 to aid in the solicitation of proxies. For its services, W.F. Doring & Co., Inc. will receive a fee of approximately $3,900.

By Order of the Board of Directors,

Jennifer E. Katsch,

Secretary

April 23, 2009

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