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 to ss.240.14a-11(c) or ss.240.14a-12
TII Network Technologies, 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:
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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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[ ] 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:
TII NETWORK TECHNOLOGIES, INC.
1385 Akron Street
Copiague, New York 11726
------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 4, 2002
------------------
To the Stockholders of
TII Network Technologies, Inc.:
NOTICE IS HEREBY GIVEN that the 2002 Annual Meeting of Stockholders of TII
Network Technologies, Inc., a Delaware corporation (the "Company"), will be held
at the Huntington Hilton, 598 Broadhollow Road, Melville, New York, on
Wednesday, December 4, 2002 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 II directors to serve until the 2005 Annual
Meeting of Stockholders and until their respective successors are
elected and qualified;
2. A proposal to ratify the selection by the Board of Directors of KPMG
LLP as the Company's independent public accountants for the fiscal
year ending June 27, 2003; and
3. 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 18, 2002 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,
Virginia M. Hall,
Secretary
October 28, 2002
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.
TII NETWORK TECHNOLOGIES, INC.
1385 Akron Street
Copiague, New York 11726
--------------------
PROXY STATEMENT
For Annual Meeting of Stockholders
To be Held on December 4, 2002
------------------------
This Proxy Statement, to be mailed to stockholders of TII Network
Technologies, Inc., a Delaware corporation (the "Company"), on or about October
28, 2002, is furnished in connection with the solicitation of proxies by the
Board of Directors of the Company ("Proxy" or "Proxies") for use at the Annual
Meeting of Stockholders of the Company to be held on Wednesday, December 4, 2002
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 18, 2002 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").
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) and
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 ratify the selection of KPMG LLP as the Company's independent public
accountants for the Company's fiscal year ending June 27, 2003 (Proposal 2).
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 represented by proxy and entitled to vote (e.g., Proposal
2), 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, ratification of
a board's selection of independent public accountants and certain other matters.
Brokers are, therefore, expected to vote such shares on the election of
directors. Under Delaware law, if a broker holding shares in street name votes
some, but not all, of the shares held by it as record owner on one or more
matters, the shares not voted by it on a matter (called "broker non-votes") are
considered not entitled to vote. Accordingly, broker non-votes will have no
effect on the outcome on the election of directors which requires a plurality
vote (Proposal 1) or any other matter, including the ratification of the
election of independent public accountants (Proposal 2), that requires the
affirmative vote of a majority of shares entitled to vote on the matter. The
presence, in person or represented by proxy, of a majority of the shares
entitled to vote at the Meeting will constitute a quorum for the transaction
of business at the Meeting. Proxies submitted which contain abstentions or
broker non-votes will be deemed present at the Meeting for determining the
presence of a quorum.
Stockholders in whose name shares are registered may vote by proxy or in
person at the Meeting. To vote by mail, simply mark, sign and return the
accompanying Proxy card and return it in the enclosed envelope which requires no
postage if mailed in the United States. If a stockholder holds shares through a
broker, bank or other nominee, that institution will send you separate
instructions describing the procedures for voting those shares.
Proxies properly and timely received will be voted in accordance with the
specifications made or, in the absence of specification, for all nominees named
herein to serve as directors and to ratify the selection of KPMG 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 (a) by a written
notice of revocation received by the Secretary of the Company, 1385 Akron
Street, Copiague, New York 11726, (b) by receipt of a duly executed Proxy
bearing a later date at the foregoing address or (c) 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-
Shares Percent of
Beneficial Owner Owned Class (1)
---------------- ----- ---------
Alfred J. Roach 1,001,240(2) 8.4%
1385 Akron Street
Copiague, NY 11726
Jerry Bloomberg and/or Sondra Bloomberg 898,000(3) 7.7%
155 East Ames Court
Plainview, New York 11803
Timothy J. Roach 870,013(4) 7.2%
1385 Akron Street
Copiague, NY 11726
R. Dave Garwood 168,570(5) 1.4%
Joseph C. Hogan 149,330(6) 1.3%
James R. Grover, Jr. 143,600(7) 1.2%
George S. Katsarakes 135,000(8) 1.1%
C. Bruce Barksdale 99,120(9) *
Dorothy Roach 58,912(10) *
Lawrence M. Fodrowski 25,000(11) *
Kenneth A. Paladino 45,000(12) *
All executive officers and directors
as a group (11 persons) 2,793,585(13) 21.3%
- --------------------
(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.
(2) Includes 290,000 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, dated February 12,
2002, filed jointly by, among others, Sondra and Jerry Bloomberg with the
Securities and Exchange Commission (the "SEC") reflecting information as at
December 31, 2001. The Schedule 13G reflects that Jerry Bloomberg has
shared voting and dispositive power over all such shares and that Sondra
Bloomberg has shared voting and dispositive power over 739,000 of such
shares. Various other related persons, entities and a profit sharing plan
are reflected as also having shared voting and dispositive power over
certain of such shares.
(Footnotes continued on next page)
-3-
(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 334,000 shares subject to
options held under the Company's stock option plans.
(5) Includes 110,000 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.
(6) Includes 149,250 shares subject to options held under the Company's stock
option plans.
(7) Includes 140,000 shares subject to options held under the Company's stock
option plans.
(8) Includes 125,000 shares subject to options held under the Company's stock
option plans.
(9) Includes 91,200 shares subject to options held under the Company's stock
option plans.
(10) Includes 7,168 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. Mrs. Roach is not nominated to stand for
re-election.
(11) Represents shares subject to an option held under a Company stock option
plan.
(12) Includes 30,000 shares subject to an option held under a Company stock
option plan.
(13) Includes (i) 1,394,418 shares subject to options held by executive officers
and directors under the Company's stock option plans and (ii) 14,285 shares
subject to a warrant held by a director.
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 II directors continues until the Meeting, the term of
office of Class III directors continues until the next succeeding annual meeting
of stockholders and the term of office of Class I 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 nine directors. The
Board of Directors has determined to fix the size of the Board at eight
commencing with the Meeting and not to renominate Dorothy Roach, a Class II
director, whose term of office will expire at the Meeting. The terms of James R.
Grover, Jr. and George S. Katsarakes, the other present Class II directors, will
expire at the Meeting. At the Meeting, holders of Common Stock will elect two
-4-
Class II directors to serve until the 2005 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 James R. Grover, Jr. and George
S. Katsarakes to serve as Class II directors (the "nominees"). Each director was
previously elected by the Company's stockholders, except Mr. Fodrowski, who was
elected by the Board of 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 both of the nominees are available to serve
as directors.
Background of Nominees
Class II Directors
James R. Grover, Jr., 83, 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. 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.
George S. Katsarakes, 65, 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 Northeastern University and a
Masters of Business Administration degree from Harvard Business School.
Background of Directors Whose Terms of Office Continue After the Meeting
Class I Directors
C. Bruce Barksdale, 71, was Vice President of the Company from August 1971
until December 1999 and thereafter was a consultant to the Company until April
2002. Since that time, Mr. Barksdale has been retired. 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, 60, 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
-5-
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.
Joseph C. Hogan, Ph.D., 80, 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.
Class III Directors
Alfred J. Roach, 87, 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. From September 1983 until September 2002, when it filed a petition under
the federal Bankruptcy Code, Mr. Roach also served as Chairman of the Board of
Directors and a director of American Biogenetic Sciences, Inc., a biotechnology
research company ("ABS").
Timothy J. Roach, 55, has served the Company in various capacities since
December 1973. He has been President of the Company since July 1980, Chief
Executive Officer since January 1995, Vice Chairman of the Board since October
1993 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 also served
as Treasurer, Secretary and a director of ABS from September 1983 until
September 2002. 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.
Lawrence M. Fodrowski, 54, has been a director of the Company since October
2001. Since July 2002, Mr. Fodrowski has been an independent financial
consultant. From January 2001 until July 2002, Mr. Fodrowski was Chief Financial
Officer of Gisbert McDonnell Construction, Inc. ("Gisbert McDonnell"), a
construction management firm. From January 1976 until he joined Gisbert
McDonnell, Mr. Fodrowski was Vice President, Chief Financial Officer and a
director of LNR Communications, Inc. ("LNR"), a satellite communications
equipment manufacturer. Prior to joining LNR, he was a Supervising Senior
Accountant with KPMG Peat Marwick LLP (predecessor to KPMG LLP) for five years.
Mr. Fodrowski holds a Bachelor of Science degree in Accounting from Fordham
University and is a certified public accountant in New York.
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.
-6-
The Board of Directors and Committees of the Board
During the Company's fiscal year ended June 28, 2002, the Company's Board
of Directors held four meetings. In addition, during that fiscal year, the Board
also acted by unanimous written consent on six 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 Audit Committee of the Board of Directors, presently consists of
Messrs. Lawrence M. Fodrowski, R. Dave Garwood and Joseph C. Hogan, each of whom
meets the independence requirements for audit committee members under the
listing standards of the Nasdaq SmallCap Market, on which the Company's Common
Stock is quoted. The Committee provides assistance to the Company's directors in
fulfilling the Board's oversight responsibility as to the Company's accounting,
auditing and financial reporting practices and as to the quality and integrity
of the financial reports of the Company. The specific functions and
responsibilities of the Audit Committee are set forth in the written charter of
the Audit Committee adopted by the Board of Directors. A copy of the Audit
Committee's charter was most recently published in the Company's proxy statement
for its 2001 Annual Meeting of Stockholders. The Audit Committee reviews and
reassesses its charter annually and recommends any changes to the Board for
approval. Under its charter, the Audit Committee serves as an independent and
objective party to monitor the Company's financial reporting process and
internal control system; reviews and appraises the audit efforts of the
Company's independent auditors; and provides an open avenue of communication
among the Company's independent auditors, financial and senior management and
the Board. Among other things, the Audit Committee reviews the financial reports
and other financial information provided by the Company to the SEC and the
public; reviews with the Company's management and independent auditors any
material weaknesses in the Company's system of internal controls; and discusses
with the Company's management and independent auditors the quality of the
Company's financial reporting process. The Audit Committee also recommends to
the Board the selection of the independent auditors for each fiscal year,
confirms the independence of the independent auditors and approves the
engagement letter between the Company and its independent auditors, including
the fees and other compensation to be paid to the independent auditors. A report
of the Audit Committee appears under the caption "Audit Committee Report,"
below. The Audit Committee met on nine occasions during the fiscal year ended
June 28, 2002.
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 Lawrence M. Fodrowski and
Joseph C. Hogan. The Compensation Committee met on one occasion and acted by
unanimous written consent on eight occasions following informal discussions
during the Company's fiscal year ended June 28, 2002.
-7-
During the Company's fiscal year ended June 28, 2002, 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.
Audit Committee Report
Management has the primary responsibility for the Company's financial
reporting process, including its financial statements, while the Board is
responsible for overseeing the Company's accounting, auditing and financial
reporting practices and the Company's independent public accountants have the
responsibility for the examination of the Company's 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 thereon. In assisting the Board in fulfilling its oversight
responsibility with respect to the Company's year ended June 28, 2002, the Audit
Committee:
o Reviewed and discussed the audited financial statements for the fiscal
year ended June 28, 2002 with management and KPMG LLP ("KPMG"), the
Company's independent public accountants;
o Discussed with KPMG the matters required to be discussed by Statement
on Auditing Standards No. 61 relating to the conduct of the audit; and
o Received the written disclosures and the letter from KPMG regarding
its independence as required by Independence Standards Board Standard
No. 1, Independence Discussions with Audit Committees. The Audit
Committee also discussed KPMG's independence with KPMG and considered
whether the provision of non-audit services rendered by KPMG was
compatible with maintaining its independence under SEC rules governing
the independence of a company's outside auditors (see "Ratification of
the Selection of Independent Public Accountants," below).
Based on the foregoing review and discussions, the Audit Committee
recommended to the Board that the Company's audited financial statements for the
fiscal year ended June 28, 2002 be included in the Company's Annual Report on
Form 10-K filed with the SEC for that year.
Respectfully,
Lawrence M. Fodrowski
R. Dave Garwood
Joseph C. Hogan
-8-
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 James R.
Grover, Jr., and George S. Katsarakes to serve as Class II directors.
EXECUTIVE OFFICERS
In addition to Alfred J. Roach, Timothy J. Roach and George S. Katsarakes,
the following are executive officers of the Company:
Kenneth A. Paladino, 45, has been Vice President-Finance and Chief
Financial Officer of the Company since September 2000 and Treasurer since June
2001. 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, as Chief
Financial Officer from 1995 and for six years prior thereto as Corporate
Controller.
Virginia M. Hall, 49, has served the Company in various capacities since
February 1976, serving as Vice President-Administration since December 1993,
Vice-President-Contract Administration since September 1990 and Secretary since
September 2002.
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 - Employment Agreements" for
information concerning the Company's Employment Agreements with Timothy J. Roach
and Kenneth A. Paladino.
-9-
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth, for the Company's three fiscal years ended
June 28, 2002, information concerning the compensation paid by the Company to
Timothy J. Roach, the Company's Chief Executive Officer and the Company's next
four most highly compensated executive officers serving at the end of fiscal
2002 (the "Named Executive Officers"):
Annual Compensation Long-Term Compensation Award
---------------------------------------------------------- ------------------------------------
Name and Principal Other Annual Stock Options All Other
Position Year Salary Bonus Compensation (#) Compensation
- ---------------------------- --------- --------------- ------------- ------------------ ------------------ -----------------
Timothy J. Roach 2002 $250,000 $ -- $ 48,000 (1) -- $5,685 (2)
President and Chief 2001 250,000 -- 48,000 100,000 6,312
Executive Officer 2000 250,000 -- 48,000 50,000 7,761
Alfred J. Roach 2002 150,000 -- -- -- --
Chairman of the 2001 150,000 -- -- 100,000 --
Board 2000 150,000 -- -- 60,000 --
George S. Katsarakes 2002 250,000 -- -- -- --
Executive Vice 2001 250,000 -- -- 50,000 --
President and Chief 2000 250,000 -- -- 50,000 --
Operating Officer
Thomas J. Guzek 2002 200,000 50,000 (3) -- -- --
Executive Vice 2001 200,000 50,000 (3) -- 100,000 --
President and Chief
Marketing Officer
Kenneth A. Paladino 2002 190,000 -- -- 50,000 --
Vice President- 2001 150,202 -- -- 75,000 --
Finance, Chief
Financial Officer
and Treasurer (4)
- --------------------
(1) Pursuant to his employment agreement with the Company, Mr. Roach received
an allowance to reimburse him for the cost of maintaining a secondary
residence in Puerto Rico, where the Company maintains manufacturing
facilities.
(2) Includes (i) $985, representing the dollar value to Mr. Roach of the
portion of the premium paid during such year by the Company under split
dollar life insurance policies with respect to the deemed term life
insurance portion of the premiums and (ii) $4,700, representing the annual
premium paid by the Company on long-term disability insurance maintained by
the Company for the benefit of Mr. Roach.
(3) Mr. Guzek served from July 2000 until September 2002. The Company agreed to
pay Mr. Guzek bonuses of $50,000 in fiscal 2001 and $50,000 in fiscal 2002
as an inducement for him to join the Company.
(4) Mr. Paladino joined the Company in September 2000.
-10-
Equity Compensation Plans
The following table sets forth certain information as of June 28, 2002 with
respect to the Company's equity compensation plans:
Number of securities
Number of securities to Weighted-average remaining available for
be issued upon exercise exercise price of future issuance
of outstanding options, outstanding options, under equity
Plan Category warrants and rights warrants and rights compensation plans
------------- ------------------- ------------------- ------------------
Equity compensation
plans approved by
security holders............. 3,420,341(a) $1.79 1,018,459(b)
Equity compensation
plans not approved by
security holders 828,000(c) $2.74 --
-------------- ----- -------------
Total...................... 4,248,341 $1.98 1,018,459
============== ===== =============
- ----------------
(a) Includes 47,000, 1,194,500, 1,833,841 and 345,000 shares subject to options
granted under the Company's 1986 Stock Option Plan under which no further
options may be granted, 1995 Stock Option Plan (the "1995 Plan"), 1998
Stock Option Plan (the "1998 Plan") and 1994 Non-Employee Director Stock
Option Plan (the "1994 Plan"), respectively.
(b) Includes 12,300 and 666,159 shares available for future grant under the
1995 Plan and 1998 Plan, respectively, to employees and directors of, and
consultants to, the Company and 340,000 shares available for future grant
to non-employee directors under the 1994 Plan. Upon the expiration,
cancellation or termination of unexercised options, shares subject to
options under the 1995, 1998 and 1994 Plans will again be available for the
grant of options under the applicable plan.
(c) Includes 828,000 shares underlying an aggregate of 414,000 Unit Purchase
Options ("UPOs") issued to certain employees of the placement agent in
connection with a private placement completed by the Company in June 2000.
If exercised in full prior to their December 8, 2004 expiration date, the
UPOs will result in the issuance of an aggregate of 414,000 shares of the
Company's Common Stock at $2.69 per share and warrants to purchase an
aggregate of 414,000 shares of the Company's Common Stock exercisable at an
exercise price of $2.79 per share also until December 8, 2004.
-11-
Option Grants in Last Fiscal Year
The following table contains information concerning options granted to the
Named Executive Officers during the Company's fiscal year ended June 28, 2002:
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 Expiration -------------------------
Name Granted Fiscal Year Share (1) Date (1) 5% 10%
- ------------------------ ----------- ------------- --------- ---------- --- ---
Kenneth A. Paladino 50,000 32.3% $0.41 4/30/12 $12,892 $32,672
- --------------------
(1) The exercise price of the option granted was equal to the market value of
the Company's Common Stock on the date of grant. The option 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 SEC and are not intended to forecast possible future
appreciation, if any, in the market price of the Company's Common Stock.
(3) Subsequent to the fiscal year end, options to purchase 80,000 shares of the
Company's Common Stock at exercise prices of $0.34, $0.31 and $0.31 were
granted to each of Timothy J. Roach, George Katsarakes and Kenneth A.
Paladino, respectively.
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 28, 2002. The following table contains
information with respect to the unexercised options held at June 28, 2002 by the
Named Executive Officers:
Number of
Unexercised Options
Held at Fiscal Year-
End (Exercisable/
Name Unexercisable)(1)
-------------------- ----------------------
Timothy J. Roach 268,000/262,000
Alfred J. Roach 230,000/240,000
George S. Katsarakes 105,000/120,000
Thomas J. Guzek 33,333 /66,667
Kenneth A. Paladino 15,000/110,000
- --------------------
(1) The exercise price of each option exceeded the closing price of the Common
Stock at fiscal year-end.
-12-
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 Committee meeting attended. Non-employee directors currently are
also granted options to purchase 25,000 shares of the Company's Common Stock
under the Company's 1994 Non-Employee Director Stock Option Plan at the time
such person becomes a non-employee director and immediately following each
annual meeting of stockholders at which directors are elected. Each option held
by a non-employee director 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. R.
Dave Garwood serves as an operational planning consultant to the Company, for
which the Company granted him an option to purchase 50,000 shares of the
Company's Common Stock, which became exercisable in equal installments as four
phases of the Company's Sales and Operations Planning program was completed. The
Company is a party to an agreement with Mr. Garwood under which Mr. Garwood is
providing strategic planning consulting services from April 1, 2002 to March 31,
2003 at $10,000 per quarter.
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, 2007, 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
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 two years, respectively. In the
event Mr. Roach terminates his employment for "good reason,"
-13-
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.
Kenneth A. Paladino is a party to an Employment Agreement, dated September
5, 2000, with the Company under which Mr. Paladino is serving as Vice
President-Finance and Chief Financial Officer. The Employment Agreement provides
for a term expiring September 4, 2003. Under the agreement, Mr. Paladino's
salary is presently $190,000 and is subject to review at the end of each year of
employment. In the event of the termination of Mr. Paladino's employment by the
Company other than for cause, death or disability, or in the event of
termination by Mr. Paladino following a reduction in rank or authority or a move
of Mr. Paladino's primary place of work without his agreement, Mr. Paladino will
be entitled to receive all compensation that he would have received for a one
year period of time, and all outstanding options held by Mr. Paladino 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 exceeding 90
days following such termination. Mr. Paladino 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 one year 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 Agreement,
dated June 30, 2002, with Thomas J. Guzek, who was serving as Executive Vice
President-Chief Marketing Director, the Company and Mr. Guzek entered into a
Consulting Agreement, dated September 30, 2002, under which Mr. Guzek is
receiving payments aggregating $80,000 over a four month period in full
settlement and termination of Mr. Guzek's Employment Agreement. Mr. Guzek's
outstanding options remain in effect until December 27, 2002.
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 28, 2002 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 economic conditions, the Company's performance and competitive
factors.
-14-
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 2002, 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 based upon the
executive's performance and expected contribution to the long-term goals of the
Company. (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. He received no
bonus and was granted no stock options during fiscal 2002. In August 2002, Mr.
Roach was granted an option to purchase 80,000 shares of the Company's Common
Stock exercisable at $.34 per share, 110% of the market value of the Company's
Common Stock on the date of grant. 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 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,
Lawrence M. Fodrowski
Joseph C. Hogan
-15-
Performance Graph
The following graph compares the cumulative return to holders of the
Company's Common Stock for the five years ended June 28, 2002 with (i) the
Nasdaq Stock Market-US Index and (ii) the Nasdaq Telecommunications Index. The
comparison assumes $100 was invested on June 30, 1997 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):
[GRAPHIC OMITTED]
- -----------------------------------------------------------------------------------------------------------------------------
6/97 6/98 6/99 6/00 6/01 6/02
TII NETWORK TECHNOLOGIES INC. 100.00 80.85 32.45 36.17 18.38 7.15
NASDAQ STOCK MARKET (U.S.) 100.00 131.62 189.31 279.93 151.75 103.32
NASDAQ TELECOMMUNICATIONS 100.00 169.13 277.36 310.82 131.80 45.38
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
5, 2002 to reduce the annual rent to $50,000 per annum. The rental paid prior to
the amendment was $139,000 per annum. The Company believes that the rentals
charged by PRC are comparable to the rentals which would have been charged by
unrelated leasing companies for similar equipment.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's executive officers and directors, and persons who beneficially own
more than 10% of the Company's Common Stock, to timely file initial statements
of stock ownership and statements of changes of beneficial ownership with the
SEC and furnish copies of those
-16-
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
28, 2002 were timely filed.
PROPOSAL 2
RATIFICATION OF SELECTION OF
INDEPENDENT PUBLIC ACCOUNTANTS
As recommended by the Company's Audit Committee, the Company's Board of
Directors on April 9, 2002 decided to no longer engage Arthur Anderson LLP
("Andersen") as the Company's independent public accountants and engaged KPMG
LLP ("KPMG") to serve as the Company's independent public accountants. While the
Company's stockholders, at the Annual Meeting of Stockholders held on December
5, 2001, ratified the appointment of Andersen as the Company's independent
public accountants for the fiscal year ending June 28, 2002, the Company's Board
of Directors retained the right to select different auditors should it then deem
it in the Company's interests. The selection of KPMG was based on, among other
factors, KPMG's industry expertise and the engagement team's experience and
qualifications.
Andersen's report on the financial statements of the Company for each of
the past two fiscal years did not contain any adverse opinion or disclaimer of
opinion and was not qualified or modified as to uncertainty, audit scope or
accounting principles.
During the Company's two most recent fiscal years, and the subsequent
interim period through the date of termination of Andersen's engagement, there
were no disagreements with Andersen on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Andersen, would have
caused Andersen to make reference to the subject matter of the disagreements in
connection with its report on the Company's consolidated financial statements
for such years.
During the Company's two most recent fiscal years, and the subsequent
interim period through the date of termination of Andersen's engagement, there
was no "reportable event," as that term is defined in Item 304(a)(1)(v) of
Regulation S-K, and there was no disagreement or difference of opinion with
Andersen regarding any "reportable event".
During the two most recent fiscal years and the subsequent interim period
through the date of termination of Andersen's engagement, neither the Company
nor anyone on behalf of the Company consulted KPMG regarding either the
application of accounting principles to a specified transaction, either
completed or proposed, or the type of audit opinion that might be rendered on
the financial statements of the Company or any matter that was either the
subject of a disagreement, within the meaning of Item 304(a)(1)(iv) of
Regulation S-K, or any reportable event, as that term is defined in Item 304
(a)(1)(v) of Regulation S-K.
-17-
The Company provided Andersen with a copy of the foregoing statements and
requested that Andersen furnish the Company with a letter addressed to the
Securities and Exchange Commission (the "SEC") stating whether it agrees with
the statements made by the Company. By letter dated April 12, 2002 to the SEC,
Andersen advised that it was in agreement with the statements contained above
except for the information contained in the first and fifth paragraphs of this
section that did not relate to Andersen.
Audit Fees
Fees billed to the Company by KPMG for its audit of the Company's annual
financial statements for the year ended June 28, 2002 and its review of the
financial statements included in the Company's Quarterly Report on Form 10-Q for
the quarter ended March 29, 2002 (and, as a result of its replacement of
Andersen, the previous two quarters in order for it to issue a review report to
the Company with respect to the quarter ended March 29, 2002) totaled
approximately $130,000. Fees billed by Andersen for its review of the financial
statements included in the Company's Quarterly Reports on Form 10-Q filed with
the SEC for the first two quarters of the fiscal year ended June 28, 2002
totaled $28,000.
Financial Information Systems Design and Implementation Fees
The Company did not engage KPMG or Andersen to provide advice to the
Company regarding financial information systems design and implementation during
the Company's fiscal year ended June 28, 2002.
All Other Fees
KPMG rendered no non-audit services to the Company during the Company's
2002 fiscal year. Fees billed to the Company by Andersen during the Company's
2002 fiscal year for all other non-audit services rendered by it, including tax
related services, totaled approximately $67,000.
In connection with the standards for independence of the Company's
independent public accountants promulgated by the SEC, the Audit Committee has
considered whether the provision of such services is compatible with maintaining
the independence of KPMG and, prior thereto, was compatible with maintaining the
independence of Andersen.
Required Vote
The Board proposes that the stockholders ratify the Board's selection of
KPMG as the independent public accountants of the Company for the year ending
June 27, 2003. If the resolution selecting KPMG as independent public
accountants is adopted by stockholders, the Board of Directors nevertheless
retains the discretion to select different auditors should it then deem it in
the Company's interests. Any such future selection need not be submitted to a
vote of stockholders. KPMG has indicated to the Company that it intends to have
a representative present at the Meeting who will be available to respond to
appropriate questions. This representative will have the opportunity to make a
statement if he so desires.
-18-
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 2.
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 2003
Annual Meeting of Stockholders must be received by July 1, 2003. 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
14, 2003. 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 SEC regulations.
Annual Report on Form 10-K
The 2002 Annual Report to Stockholders of the Company accompanies this
Proxy Statement but is not incorporated in and is not to be deemed a part of
this Proxy Statement. A copy of the Company's Annual Report on Form 10-K for the
year ended June 28, 2002, which has been filed with the SEC, is contained in the
Company's 2002 Annual Report to Stockholders accompanying this Proxy Statement
and is also available, without charge, to stockholders upon request. Requests
for a copy of that report should be addressed to Ms. Virginia M. Hall, Vice
President-Administration and Secretary, 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.
-19-
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 that are proposed 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,
Virginia M. Hall,
Secretary
October 28, 2002
-20-
PROXY TII NETWORK TECHNOLOGIES, INC. PROXY
Proxy for Annual Meeting of Stockholders - December 4, 2002
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 Network Technologies, 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 4, 2002, 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 LISTED NOMINEE
AND FOR PROPOSAL 2 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 PROPOSAL 2.
Continued and to be signed on the reverse side if you elect to vote by mail
[LOGO] TII
NETWORK
TECHNOLOGIES
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MR. A. SAMPLE 000000000.000 ext.
DESIGNATION (IF ANY) 000000000.000 ext.
ADD 1 000000000.000 ext.
ADD 2 000000000.000 ext.
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ADD 4 000000000.000 ext.
ADD 5
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BARCODE
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|_| Mark this box with an X if you
have made changes to your name
or address details above.
================================================================================
Annual Meeting Proxy Card
================================================================================
The Board of Directors recommends a vote FOR the listed nominees.
1. Election of Directors For Withhold
01- James R. Grover, Jr. |_| |_|
02- George S. Katsarakes |_| |_|
The Board of Directors recommends a vote FOR the following proposal:
For Against Abstain
2. To ratify the selection of |_| |_| |_|
KPMG LLP as independent
public accountants for the
Company.
Authorized Signatures - Sign Here - This section must be completed for your
instructions to be executed.
NOTE: Please sign your name(s) EXACTLY as you name(s) appear(s) on this proxy.
All joint holders should sign. When signing as attorney, trustee, executor,
administrator, guardian or corporate officer, please provide your FULL title.
Signature 1 - Please keep signature Signature 2 - Please keep signature
within the box within the box Date (mm/dd/yyyy)
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