SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant toss.240.14a-11(c) orss.240.14a-12
TII 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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[X] No fee required
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pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
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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:
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4) Date Filed:
TII NETWORK TECHNOLOGIES, INC.
1385 Akron Street
Copiague, New York 11726
------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 3, 2003
------------------
To the Stockholders of
TII Network Technologies, Inc.:
NOTICE IS HEREBY GIVEN that the 2003 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 3, 2003 at 3:00 p.m., New York time, at which the following
matters are to be presented for consideration:
1. The election of three Class III directors to serve until the
2006 Annual Meeting of Stockholders and until their respective
successors are elected and qualified;
2. A proposal to approve the Company's 2003 Non-Employee Director
Stock Option Plan;
3. A proposal to ratify the selection by the Audit Committee of
the Board of Directors of KPMG LLP as the Company's
independent public accountants for the fiscal year ending June
25, 2004; 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 October 17, 2003 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 27, 2003
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 3, 2003
------------------------
This Proxy Statement, to be mailed to stockholders of TII Network
Technologies, Inc., a Delaware corporation (the "Company"), on or about October
29, 2003, 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 3, 2003
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 17, 2003 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 11,726,284 shares of the Company's Common Stock ("Common Stock").
Stockholders in whose name shares are registered may vote by proxy or
in person at the Meeting. To vote by mail, appropriately mark, sign and return
the accompanying Proxy card in the enclosed envelope which requires no postage
if mailed in the United States. If a stockholder's Common Stock is held in
"street name" (that is, whose shares are held by, and registered in the name of,
a broker or other nominee), that institution is the record owner of those shares
and entitled to vote them. Those stockholders will receive from, or on behalf
of, that institution instructions describing the procedures for advising the
institution how to vote those shares. Stockholders whose shares are held in
street name who wish to vote at the Meeting will need to obtain a separate proxy
form from the institution that holds their 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, for approval of the Company's 2003
Non-Employee Director Stock Option Plan (the "2003 Plan") 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 at 1385 Akron Street, Copiague, New York 11726 or at the Meeting, (b) by
receipt of a duly executed Proxy bearing a later date at the foregoing address
or at the Meeting or (c) by voting in person at the Meeting.
The presence, in person or represented by proxy, of a majority of the
outstanding Common Stock will constitute a quorum for the transaction of
business at the Meeting. Brokers that are members of the New York Stock Exchange
have discretion to vote the shares of their clients that the broker holds in
street name for its customers but as to which the broker has received no voting
direction from the beneficial owner of the shares with respect to non-contested
elections of directors, the selection of independent public accountants and
certain other matters considered to be "routine" matters, but not with respect
to the approval of "non-routine" matters, such as the approval of stock option
plans. Brokers are, therefore, expected to vote such shares on the election of
directors and the ratification of the selection of independent public
accountants, but not the proposal to approve the 2003 Plan. 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." Proxies submitted which contain abstentions or broker non-votes will
be deemed present at the Meeting for determining the presence of a quorum.
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 (that is,
the three persons receiving the highest affirmative vote) of the vote of shares
present in person or represented by proxy at the Meeting and entitled to vote
thereon will be required for the election of Class III 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 approve the 2003 Plan (Proposal 2) and to ratify the selection of
KPMG LLP as the Company's independent public accountants for the Company's
fiscal year ending June 25, 2004 (Proposal 3).
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
shares present in person or represented by proxy and entitled to vote (e.g.,
Proposals 2 and 3), abstentions will have the effect of a negative vote thereon.
Under Delaware law, broker non-votes will have no effect on the outcome on the
election of directors, approval of the 2003 Plan (Proposal 2) or the
ratification of the selection of independent public accountants (Proposal 3).
While the Company knows of no other matters to be brought before the Meeting, if
any other matter is brought before the Meeting that requires the vote of a
majority of all outstanding shares of Common Stock, broker non-votes, as well as
abstentions, will have the effect of a negative vote on that matter.
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:
-2-
Shares Percent of
Beneficial Owner (1) Owned (2) Class (3)
- -------------------- --------- ---------
Alfred J. Roach 1,095,240(4) 9.0%
1385 Akron Street
Copiague, NY 11726
Jerry Bloomberg and/or Sondra Bloomberg 965,000(5) 8.2%
155 East Ames Court
Plainview, New York 11803
Timothy J. Roach 976,981(6) 8.0%
1385 Akron Street
Copiague, NY 11726
R. Dave Garwood 215,570(7) 1.8%
Joseph C. Hogan 174,330(8) 1.5%
James R. Grover, Jr. 168,600(9) 1.4%
C. Bruce Barksdale 136,920(10) 1.2%
Lawrence M. Fodrowski 50,000(11) *
Charles H. House 43,200(12) *
Mark T. Bradshaw 25,000(13) *
Virginia M. Hall 153,000(14) 1.3%
Kenneth A. Paladino 120,000(15) 1.0%
All executive officers and directors 3,158,841(16) 23.4%
as a group (11 persons)
- ----------------------
(1) 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) Includes shares subject to stock options or warrants 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 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.
(4) Includes 384,000 shares subject to options held under the Company's
stock option plans. Excludes 51,744 shares owned by Mr. Roach's wife,
as to which shares Mr. Roach disclaims beneficial ownership.
(5) Based solely on information contained in a Schedule 13G, dated February
10, 2003, filed jointly by, among others, Jerry and Sondra Bloomberg
with the Securities and Exchange
(Footnotes continued on next page)
-3-
Commission reflecting information as at December 31, 2002. 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 790,500 of such shares (6.7% of the
Company's outstanding Common Stock). Various other related persons, an
entity and a profit sharing plan (none of whom beneficially owns at
least 5% of the Company's outstanding Common Stock) are reflected as
also having shared voting and dispositive power over certain of such
shares.
(6) 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 440,000 shares
subject to options held under the Company's stock option plans.
(7) Includes 135,000 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.
(8) Includes 174,250 shares subject to options held under the Company's
stock option plans.
(9) Includes 165,000 shares subject to options held under the Company's
stock option plans.
(10) Includes 129,000 shares subject to options held under the Company's
stock option plans.
(11) Represents shares subject to options held under a Company stock option
plan.
(12) Includes 18,200 shares owned jointly by Mr. House and his wife, and
25,000 shares subject to an option held under a Company stock option
plan.
(13) Represents shares subject to an option held under a Company stock
option plan.
(14) Includes 148,000 shares subject to options held under the Company's
stock option plans.
(15) Includes 95,000 shares subject to options held under a Company stock
option plan.
(16) Includes (i) 1,770,250 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. The term of office of Class III directors continues until the
Meeting, the term of office of Class I directors continues until the next
succeeding annual meeting of stockholders and the term of office of Class II
directors continues until the second succeeding annual meeting of stockholders,
and, in each case, until their respective successors are elected and qualified.
At each annual meeting, directors are chosen to succeed those in the class whose
term expires at that meeting.
-4-
The Board of Directors has fixed the size of the Board at nine. Each
director was previously elected by the Company's stockholders, except Lawrence
M. Fodrowski, Mark T. Bradshaw and Charles H. House, who were elected by the
Board of Directors.
The terms of Alfred J. Roach, Timothy J. Roach and Lawrence M.
Fodrowski, the present Class III directors, will expire at the Meeting. At the
Meeting, holders of Common Stock will elect three Class III directors to serve
until the 2006 Annual Meeting of Stockholders and until their respective
successors are elected and qualified. Unless otherwise directed, the persons
named in the enclosed Proxy intend to cast all votes pursuant to Proxies
received for the election of Alfred J. Roach, Timothy J. Roach and Lawrence M.
Fodrowski to serve as Class III directors (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. The Company believes that all of the nominees are
available to serve as directors.
Background of Nominees
Class III Directors
Alfred J. Roach, 88, 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, 56, 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 served as Chief Operating
Officer of the Company from May 1987 until January 1998. Mr. Roach served as
Treasurer, Secretary and a director of ABS from September 1983 until September
2002, when ABS filed a petition under the federal Bankruptcy Code. 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, 55, 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
-5-
Science degree in Accounting from Fordham University and is a certified public
accountant in New York.
Background of Directors Whose Terms of Office Continue After the Meeting
Class I Directors
C. Bruce Barksdale, 72, 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, 61, has been a director of the Company since August
2000. Mr. Garwood is President of R. D. Garwood, Inc., an education and
consulting company founded by him in 1974, specializing in supply chain
management and the performance of operational audits and due diligence work for
investment firms. Mr. Garwood holds a Bachelor of Science degree in Mechanical
Engineering from Purdue University.
Joseph C. Hogan, Ph.D., 81, 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 II Directors
Mark T. Bradshaw, Ph.D., 36, has been a director of the Company since
May 2003. Since July 2000, Dr. Bradshaw has been Assistant Professor of Business
Administration at Harvard Business School. From June 1995 to June 2000, Dr.
Bradshaw attended the University of Michigan Business School performing research
and completing his Doctorate Degree. Mr. Bradshaw also holds a Bachelor of
Business Administration degree and a Masters in Accounting degree from the
University of Georgia. Dr. Bradshaw is a certified public accountant in Georgia.
James R. Grover, Jr., 84, 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. Mr. Grover performed
legal services for the Company in fiscal 2003, for which he received $16,385,
and may perform legal services for the Company in fiscal 2004.
Charles H. House, 63, has served as a director of the Company since
September 2003. Mr. House presently serves as Director of Societal Impact of
Technology at Intel Corporation, a semiconductor chip maker ("Intel"). Mr. House
previously served as Executive Vice President of Communications Research of
Dialogic Corp., a manufacturer of hardware and software
-6-
enabling technologies for computer telephony systems ("Dialogic"), which was
acquired by Intel in 1999. Mr. House joined Dialogic in December 1995 as
President of its wholly owned subsidiary, Spectron MicroSystems, Inc., which
developed software for digital signal processing operating systems. Mr. House
served as a director from July 1998 until July 2003, and Chairman from January
2001 until June 2003, of Applied Microsystems Corporation, when that company was
dissolved following the sale of certain operations to Motorola, Inc. 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.
Alfred J. Roach is the father of Timothy J. Roach. There are no other
family relationships among the Company's directors or executive officers.
The Board of Directors and Committees of the Board
During the Company's fiscal year ended June 27, 2003, the Company's
Board of Directors held five meetings. In addition, during that fiscal year, the
Board also acted by unanimous written consent on four 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 (Chairman), R. Dave Garwood and Joseph C. Hogan,
each of whom meets the independence requirements for audit committee members
under the listing standards for the Nasdaq SmallCap Market, on which the
Company's Common Stock is quoted. 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 specific
function and responsibilities of the Audit Committee are set forth in the
written charter of the Committee adopted by the Board of Directors, a copy of
which, as amended on September 24, 2003, is attached as Appendix A to this Proxy
Statement. A report of the Audit Committee appears under the caption "Audit
Committee Report," below. The Audit Committee met on ten occasions during the
fiscal year ended June 27, 2003.
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 the
Company's present and future employee stock option plans; examine 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 R. Dave Garwood (Chairman), Lawrence M. Fodrowski
and Joseph C. Hogan. The Compensation Committee met on five occasions, and acted
by unanimous written consent on one occasion following informal discussions,
during the Company's fiscal year ended June 27, 2003.
-7-
During the Company's fiscal year ended June 27, 2003, 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 fiscal 2003.
Audit Committee Report
Management has the primary responsibility for the Company's financial
reporting process, including its financial statements, while the Audit Committee
is responsible for overseeing the Company's accounting, auditing and financial
reporting practices, and the Company's independent public accountants have the
responsibility for examining 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 fulfilling its oversight responsibility with respect to the
Company's year ended June 27, 2003, the Audit Committee:
o Reviewed and discussed the audited financial statements for
the fiscal year ended June 27, 2003 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 Securities and Exchange
Commission 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 27, 2003 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-
Executive Officers
In addition to Alfred J. Roach and Timothy J. Roach, the following are
executive officers of the Company:
Kenneth A. Paladino, 46, has been Vice President-Finance and Chief
Financial Officer of the Company since September 2000 and Treasurer since June
2001. From February 2000 until he joined the Company, Mr. Paladino was an
independent consultant. Prior thereto, Mr. Paladino served as Chief Financial
Officer from 1995 until February 2000, and for six years prior thereto as
Corporate Controller, of EDO Corporation, a designer and manufacturer of
advanced electronic and electro-mechanical systems. Mr. Paladino holds a
Bachelor of Science degree in Accounting from Villanova University and is a
Certified Public Accountant in New York.
Virginia M. Hall, 50, 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.
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 Alfred J.
Roach, Timothy J. Roach and Lawrence M. Fodrowski to serve as Class III
directors.
-9-
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth, for the Company's three fiscal years
ended June 27, 2003, information concerning the compensation paid by the Company
to Timothy J. Roach, the Company's Chief Executive Officer and the Company's
other executive officers serving at the end of fiscal 2003 (the "Named Executive
Officers"):
Long-Term
Compensation
Annual Compensation Award
--------------------------------------------------------- ---------------- -------------
Other Annual All Other
Name and Principal Position Year Salary Bonus Compensation Stock Options (#) Compensation
- --------------------------- ------- ------------- ------------ ----------------- ---------------- -------------
Timothy J. Roach 2003 $250,000 $ -- $ 48,000 (1) 80,000 $ 13,148(2)
President and 2002 250,000 -- 48,000 -- 13,148
Chief 2001 250,000 -- 48,000 100,000 13,875
Executive Officer
Kenneth A. Paladino 2003 193,000 -- -- 80,000 --
Vice President- 2002 190,000 -- -- 50,000 --
Finance, Chief 2001 150,202(3) -- -- 75,000 --
Financial Officer
and Treasurer
Alfred J. Roach 2003 150,000 -- -- -- --
Chairman of 2002 150,000 -- -- -- --
the Board 2001 150,000 -- -- 100,000 --
Virginia M. Hall 2003 143,000 -- -- 50,000 --
Vice President 2002 140,000 -- -- 25,000 --
-Administration, 2001 140,000 -- -- 25,000 --
Contract Admin-
istration and Secretary
- -----------------------
(1) Pursuant to his employment agreement with the Company, during fiscal
2003, 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. This allowance ceased effective July
1, 2003.
(2) Represents premiums on life and long-term disability insurance
maintained by the Company for the benefit of Mr. Roach.
(3) Mr. Paladino joined the Company in September 2000.
-10-
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 27,
2003:
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%
- ---------------------- ----------- -------------- --------- ---------- --- ---
Timothy J. Roach 80,000 18.2% $0.34 8/29/07 $ 4,452 $12,741
Kenneth A. Paladino 80,000 18.2% $0.31 8/29/12 $15,597 $39,525
Virginia M. Hall 50,000 11.4% $0.31 8/29/12 $ 9,748 $24,703
- ---------------------
(1) The option granted to Mr. Roach is exercisable at a price equal to 110%
of the market value of the Company's Common Stock on the date of grant,
has a five-year term and vests and becomes exercisable, on a cumulative
basis, in two equal annual installments commencing January 1, 2004. The
options granted to Mr. Paladino and Ms. Hall are exercisable at a price
equal to the market value of the Company's Common Stock on the date of
grant, have ten year terms and vest and become exercisable, on a
cumulative basis, in two equal annual installments commencing August
30, 2003.
(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.
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 27, 2003. The following table contains
information with respect to the unexercised options held at June 27, 2003 by the
Named Executive Officers:
Number of In-the-Money Value
Unexercised Options of Unexercised
Held at Fiscal Options Held at
Year-End Fiscal Year-End
(Exercisable/ (Exercisable/
Name Unexercisable) Unexercisable) (1)
---- -------------- ------------------
Timothy J. Roach 374,000 / 236,000 $ 0 / $7,560
Alfred J. Roach 324,000 / 146,000 $ 0 / $0
Kenneth A. Paladino 40,000 / 165,000 $ 200 / $10,800
Virginia M. Hall 105,800 / 95,200 $ 0 / $6,250
- ---------------------
(1) Represents the closing price of the Company's Common Stock at fiscal
year-end minus the option exercise price, multiplied by the respective
number of shares.
-11-
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 (the "1994
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 under the 1994 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 fair market value on the date
of grant of the shares subject thereto. See "Approval of 2003 Non-Employee
Director Stock Option Plan" for information concerning the 2003 Plan which will,
if approved, replace the 1994 Plan on the day following the Meeting. R. Dave
Garwood served as an operational planning consultant to the Company, for which
the Company granted him an option, on January 3, 2001, 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. From April 1, 2002 to March 31, 2003, the Company was also a party to
an agreement with Mr. Garwood under which Mr. Garwood provided strategic
planning consulting services to the Company at a fee of $10,000 per quarter.
Employment Agreements
The Company and Timothy J. Roach are parties to an Amended and Restated
Employment Agreement, effective as of July 1, 2003, 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 two-year term ending July 1,
2005, with automatic one year extensions unless either party gives the other
notice of termination at least six months prior to the then scheduled
termination date. Under the Amended and Restated Employment Agreement, Mr. Roach
is entitled to an annual salary of $300,000 per year, subject to increases and
bonuses at the discretion of the Board of Directors or Compensation Committee of
the Board. The Company also is to continue to maintain the medical, dental and
disability insurance provided to Mr. Roach at levels and terms no less favorable
than in effect on July 1, 2003. The Company is also to pay the premiums on at
least $500,000 of life insurance on the life of Mr. Roach for benefit of Mr.
Roach's beneficiaries and is to reimburse Mr. Roach for any income taxes, on a
"gross up" basis, payable by him on such premiums.
If Mr. Roach's employment is terminated by the Company for any reason,
other than death, disability or for cause, or if Mr. Roach terminates his
employment for good reason, (in general, a change of control of the Company, as
defined, a reduction of Mr. Roach's salary or benefits, adverse changes in his
powers, duties, position, compensation or benefits or certain changes in the
location where his duties are to be performed), he will be entitled to receive,
as severance pay, in a lump sum, an amount equal to two times his annual salary
in effect immediately prior to his cessation of employment (or, if greater, two
times the highest annual salary rate in effect at any time during the year
period preceding the date of such termination)
-12-
and all bonuses paid or payable in respect of the Company's most recent fiscal
year ended prior to the date of such termination (or, if greater, the bonus paid
in respect of the Company's then current fiscal year or the immediately
preceding fiscal year. In addition, during the two-year period following the
date of such termination, Mr. Roach would continue to receive the benefits
provided for in his Employment Agreement and any additional benefits that may be
provided to executive officers or their dependents during such period in
accordance with the Company's policies and practices, and any stock options
granted to him which had not vested would become vested on the date of such
termination. Mr. Roach (or his beneficiaries) will also be entitled to severance
equal to one year's annual salary in the event of his death or two years' annual
salary in the event of the termination of his employment by reason of his
disability (as defined). In the event of termination of Mr. Roach's employment
by virtue of an event that entitles him (or his beneficiaries) to severance pay,
all outstanding options held by Mr. Roach will fully vest and become exercisable
for the maximum time allowed for the exercise thereof under the terms of the
applicable stock option.
Mr. Roach has agreed, among other things, not to disclose confidential
information of the Company and, during the term of the agreement and for a
Restricted Period thereafter, not to directly or indirectly, engage,
participate, invest or have an interest in any business that engages in the
manufacture and sale of surge protector devices for the telephone industry or
any other activity which is competitive with the Company's business as conducted
within twelve months preceding the end of the term of his Employment Agreement.
The Restricted Period is one year after the date of termination of Mr. Roach's
employment in the case of termination of Mr. Roach's employment due to
disability, for cause (as defined) or Mr. Roach's voluntary termination of
employment without good reason or if the term of the Employment Agreement
expires based on Mr. Roach's election not to extend the term of the Agreement.
The Company may extend the Restricted Period for a second year by paying Mr.
Roach 50% of his annual salary in effect immediately prior to his cessation of
employment (or, if greater, at the highest annual salary rate in effect at any
time during the one-year period preceding the date of termination of his
employment). If Mr. Roach terminates his employment for good reason or the
Company terminates Mr. Roach's employment for any reason (other than his death,
disability, or for cause) or the Employment Agreement expires based on a notice
from the Company not to extend the term of the agreement, the Company may elect
to invoke a one year Restricted Period by paying Mr. Roach his annual salary in
effect immediately prior to his cessation of employment (or, if greater, the
highest annual salary rate in effect at any time during the one year period
preceding the date of termination of his employment), with the Company having
the right to extend the Restricted Period for a second year by paying Mr. Roach
50% of the amount that was payable with respect to the first year of the
Restricted Period.
Kenneth A. Paladino is a party to an Employment Agreement, dated
September 5, 2000, as amended June 5, 2003, with the Company under which Mr.
Paladino is serving as the Company's Vice President-Finance and Chief Financial
Officer for a term expiring September 4, 2005 at a salary of $215,000, which 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
change in control, 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
-13-
have received for a one year period of time, and all outstanding options held by
Mr. Paladino will fully vest and become exercisable for the maximum time allowed
for the exercise thereof under the terms of the applicable stock option plan
under which the options were granted 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.
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 to grant 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 27, 2003 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.
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. No performance bonuses were granted to any
of the Named Executive Officers during the Company's past three fiscal years.
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).
The Committee, on behalf of the Company, negotiated an Amended and
Restated Employment Agreement with Timothy J. Roach, the Company's President and
Chief Executive Officer, which became effective July 1, 2003. See "-- Employment
Agreements," above, for a description of Mr. Roach's Amended and Restated
Employment Agreement. During fiscal 2003, Mr. Roach received no bonus but was
granted a five year option to purchase 80,000 shares of the Company's Common
Stock exercisable at $.34 per share, 110% of the market value of the
-14-
Company's Common Stock on the date of grant. The five year option is
exercisable, on a cumulative basis, in two equal annual installments commencing
January 1, 2004.
Section 162(m) of the Internal Revenue Code of 1986, as amended,
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
R. Dave Garwood
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 27, 2003 with (i) the
Nasdaq Stock Market-US Index and (ii) the Nasdaq Telecommunications Index. The
comparison assumes $100 was invested on June 30, 1998 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):
Cumulative Total Return
----------------------------------------------------------
6/98 6/99 6/00 6/01 6/02 6/03
----------------------------------------------------------
TII NETWORK TECHNOLOGIES, INC. 100.00 40.13 44.74 22.74 8.84 8.74
NASDAQ STOCK MARKET (U.S.) 100.00 143.67 212.43 115.46 78.65 87.33
NASDAQ TELECOMMUNICATIONS 100.00 163.70 183.95 78.01 26.88 40.76
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 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 27, 2003 were timely filed,
except for one late filing by R. Dave Garwood reporting one transaction.
-16-
PROPOSAL 2
APPROVAL OF 2003 NON-EMPLOYEE
DIRECTOR STOCK OPTION PLAN
On September 24, 2003, the Board of Directors adopted, subject to
stockholder approval at the Meeting, the Company's 2003 Non-Employee Director
Stock Option Plan (the "2003 Plan"). The Company's 1994 Non-Employee Director
Stock Option Plan (the "1994 Plan") is scheduled to expire as to the grant of
options on September 13, 2004. However, following the grant of options to
Outside Directors serving on the Board immediately following the Meeting, only
15,000 shares of Common Stock will be available for grant under the 1994 Plan.
Accordingly, the 2003 Plan will replace the 1994 Plan commencing on the date
following the day on which the Meeting is concluded (and no future options will
thereafter be granted under the 1994 Plan if the 2003 Plan is approved by
stockholders at the Meeting). Like the 1994 Plan, the 2003 Plan will provide for
the grant of options only to non-employee directors of the Company ("Outside
Directors").
The 2003 Plan, like the 1994 Plan, is designed to provide an
additional incentive for Outside Directors to continue to work for the best
interests of the Company and to attract and retain the services of experienced
and knowledgeable directors who are not employees of the Company.
A copy of the 2003 Plan is set forth as Appendix B to this Proxy
Statement, and the following discussion of the 2003 Plan is qualified in its
entirety by reference thereto.
Number of Shares, Administration and Eligibility. The maximum number of
shares of Common Stock as to which options may be granted under the 2003 Plan is
500,000, subject to adjustment as discussed below under "Adjustment in Event of
Capital Changes". Upon the expiration, cancellation or termination of
unexercised options, the shares subject thereto will again be available for
grant under the 2003 Plan. The 2003 Plan is administered by the Board of
Directors subject to the provisions of the 2003 Plan. Participation in the 2003
Plan is limited to Outside Directors.
Grant of Options. The 2003 Plan provides for the grant of an option, on
the date a person initially becomes an Outside Director, to purchase 24,000
shares of Common Stock (an "Initial Option"). In addition, immediately following
each annual meeting of stockholders at which directors are elected, beginning
with the annual meeting to be held in 2004, each Outside Director in office
immediately following the conclusion of the meeting (whether or not elected at
such meeting) will be granted an option to purchase 5,000 shares of Common
Stock, as well as 5,000 shares for each standing committee of the Board on which
the Outside Director will be serving and 2,000 shares for each such committee
that the Outside Director will be serving as Chairperson (an "Annual Option").
An individual who becomes an Outside Director for the first time at an annual
meeting of stockholders will only be granted an Initial Option to purchase
24,000 shares of Common Stock and options to purchase 5,000 shares and 2,000
shares with respect to such committee memberships and chairpersonships,
respectively, as will pertain to that Outside Director. An employee who ceases
that relationship but remains a director will not be entitled to an Initial
Option. The 1994 Plan provides for each of initial and annual grants of options
to purchase 25,000 shares of the Company's Common Stock to each Outside
Director.
-17-
Exercise Price. The option exercise price for each share to be granted
under the 2003 Plan is to be 100% of the fair market value of the Company's
Common Stock on the date of grant. Upon exercise of the option, the exercise
price is to be paid in full in cash. The closing price of the Company's Common
Stock on Nasdaq SmallCap System on October 23, 2003 was $1.37 per share.
Option Term. Each option will have a term of ten years. Initial Options
shall vest and become exercisable, on a cumulative basis, in three equal annual
installments commencing one year following the date of grant. Annual Options
granted under the 2003 Plan will vest and become exercisable on the date of
grant. Each option under the 1994 Plan becomes fully vested and exercisable
immediately upon grant.
In the event that an optionee ceases to serve on the Board of Directors
for any reason (including as a result of not being re-elected to the Board,
death or disability), options held by the optionee may be exercised, at any time
within one year after cessation of service but in no event after the date on
which the option would otherwise expire. However, if the Outside Director's
service on the Board is terminated for cause or if the Outside Director resigns
without the consent of a majority of the remaining members of the Board, the
Outside Director's options shall terminate immediately.
Adjustment in Event of Capital Changes. In the event of any change in
the outstanding Common Stock by reason of a stock dividend, stock split, stock
combination, recapitalization, spin-off, split up, merger in which the Company
is the surviving corporation, reorganization or the like, the number and kind of
shares available for option under the 2003 Plan, the number and kind of shares
to be granted initially and annually to Outside Directors, and the option price
and number and kind of shares purchasable under outstanding options will be
adjusted in a manner similar to the anti-dilution adjustments made under Company
stock option plans for employees. In the event of the liquidation or dissolution
of the Company, a merger or consolidation in which the Company is not the
surviving corporation, or any other capital reorganization in which more than
50% of the Company's Common Stock is exchanged, outstanding options under the
2003 Plan shall terminate unless other provision is made therefor in the
transaction (which provision shall be made in a manner similar to the provision
made for options granted under the Company's employee stock option plans).
Miscellaneous. An option may not be transferred by an Outside Director
other than by will or by the laws of descent and distribution, and an option may
be exercised during the optionee's lifetime only by the optionee. In addition,
an option may not be exercised unless either (a) a registration statement under
the Securities Act of 1933, as amended (the "Act"), is then effective and
current with respect to the shares or (b) in the opinion of counsel to the
Company, there is an exemption from registration under the Act for the issuance
of such shares. As a further condition to exercise of an option, the Company may
require that the shares underlying such option or the 2003 Plan be listed for
trading on any securities market on which Common Stock is traded and have been
appropriately registered or qualified under applicable
-18-
state securities laws, and that any necessary or desirable governmental approval
or consent has been obtained. The Company intends to file a registration
statement under the Act covering the issuance of shares upon the exercise of
options under the 2003 Plan.
Duration and Amendment of the 2003 Plan. No options may be granted
under the 2003 Plan after September 23, 2013. Options outstanding on that date,
however, shall in all respects continue subject to the 2003 Plan. The Board may
suspend or terminate the 2003 Plan at any time. Without the approval of
stockholders, no alteration or amendment may be made to the 2003 Plan which
would (1) change the class of eligible participants who may receive options, (2)
increase the total number of shares available for the grant of options (except
for anti-dilution adjustments), (3) decrease the exercise price at which options
may be granted (except for anti-dilution adjustments) or (4) materially increase
the benefits accruing to participants.
Equity Compensation Plans
The following table sets forth certain information as of June 27, 2003
with respect to the Company's equity compensation plans:
Number of securities
Number of securities to be Weighted-average remaining available for
issued upon exercise of exercise price of future issuance
outstanding options, outstanding options, under equity
Plan Category warrants and rights warrants and rights compensation plans
------------- ------------------- ------------------- ------------------
Equity compensation plans
approved by security holders. 3,363,350(a) $ 1.53 1,053,450(b)
Equity compensation plans
not approved by security
holders...................... -- $ -- --
-------------- ------ -------------
Total...................... 3,363,350 $ 1.53 1,053,450
============== ====== ============
- ----------------
(a) Includes 25,000, 1,067,900, 1,775,450 and 495,000 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 the 1994 Plan,
respectively.
(b) Includes 138,900 and 724,550 shares available for future grant under
the 1995 Plan and 1998 Plan, respectively, to employees and directors
of, and consultants to, the Company and 190,000 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 Plan, 1998 Plan and, unless the 2003
Plan is approved, 1994 Plan will again be available for the grant of
options under the applicable plan.
-19-
Plan Benefits.
If the 2003 Plan is approved, any director added to the Board at any
time beginning on the day following the Meeting would be granted an Initial
Option upon his or her election to the Board, and the Company's then existing
Outside Directors would be granted Annual Options under the 2003 Plan beginning
with the Company's 2004 Annual Meeting of Stockholders and at each subsequent
annual meeting of stockholders. See "-- Grant of Options," above. Assuming the
continuance of the present Outside Directors and the present two committees of
the Board, Annual Options to purchase 69,000 shares of the Company's Common
Stock would be issued annually under the 2003 Plan. Had the 2003 Plan been in
effect from the day following the Company's 2002 Annual Meeting of Stockholders
to date, options, including Initial Options (to two directors) and Annual
Options (to seven directors), to purchase an aggregate of 117,000 shares of
Common Stock would have been granted, compared to 275,000 shares under the 1994
Plan. Outside Directors are also eligible to participate in the Company's 1998
Stock Option Plan.
Federal Income Tax Consequences.
The following is a general summary of the Federal income tax
consequences under the Internal Revenue Code of 1986, as amended, as currently
in effect with respect to options under the 2003 Plan.
The optionee will not recognize any income for Federal income tax
purposes, and the Company will not be entitled to any deduction, upon the grant
of an option.
Generally, an option holder recognizes ordinary taxable income at the
time an option is exercised in an amount equal to the excess of the fair market
value of the shares of Common Stock on the date of exercise over the exercise
price. The Company generally will be entitled to a compensation deduction for
Federal income tax purposes at the same time as, and in the same amount that,
the option holder recognizes such income.
When an optionee subsequently disposes of the shares of Common Stock
received upon exercise of an option, he or she will recognize long-term or
short-term capital gain or loss (depending upon the holding period) in an amount
equal to the difference between the sale price and the fair market value of the
shares on the date of exercise of the option. The Company will not be entitled
to any deduction upon any Outside Director's disposition of shares received upon
exercise of an option.
Required Vote.
The affirmative vote of a majority of the shares of Common Stock
present or represented by proxy at the Meeting and entitled to vote on this
proposal will be required to approve the 2003 Plan. The Board of Directors
unanimously recommends that stockholders vote FOR this proposal.
-20-
PROPOSAL 3
RATIFICATION OF SELECTION OF
INDEPENDENT PUBLIC ACCOUNTANTS
KPMG LLP has served as the Company's independent public accountants
since April 9, 2002 when the Company's Board of Directors, upon recommendation
of the Audit Committee of the Board, decided to no longer engage Arthur Andersen
LLP ("Andersen") as the Company's independent public accountants. 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 fiscal years ended June 29, 2001 and June 30, 2000 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 those fiscal years and the subsequent interim period thereafter
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, there was no "reportable event," as that term is defined in Item
304(a)(1)(v) of Securities and Exchange Commission Regulation S-K, and there was
no disagreement or difference of opinion with Andersen regarding any "reportable
event".
During those fiscal years and the subsequent interim period thereafter
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.
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 stating whether it agrees with the statements
made by the Company. By letter dated April 12, 2002 to the Securities and
Exchange Commission, Andersen advised that it was in agreement with the
statements contained above except for the information contained in the first and
fourth paragraphs of this section that did not relate to Andersen.
-21-
Principal Accountant Fees and Services
The following is a summary of the fees billed to the Company by KPMG
for professional services rendered for the fiscal years ended June 27, 2003 and
June 28, 2002:
Fee Category Fiscal 2003 Fees Fiscal 2002 Fees
------------ ------------------ ------------------
Audit Fees $ 162,000 $ 130,000(1)
Audit-related fees 7,500 --
Tax fees 16,500 9,300
All other fees -- --
------------------ ------------------
Total Fees $ 186,000 $ 139,300
------------------ ------------------
- ------------------------------
(1) Does not include $28,000 paid to Anderson for the review of quarterly
reports during fiscal 2002.
Audit Fees. These fees were for professional services rendered for
KPMG's audit of the Company's annual consolidated financial statements and
review of the Company's interim consolidated financial statements included in
quarterly reports, and services that are normally provided by KPMG in connection
with regulatory filings or engagements.
Audit-Related Fees. These services were for an employee benefit plan
audit.
Tax Fees. These fees were for professional services regarding the
preparation of income tax returns and other tax compliance.
All Other Fees. The Company did not engage KPMG to perform any services
other than those listed separately above in either fiscal 2003 or fiscal 2002.
In connection with the standards for independence of the Company's
independent public accountants promulgated by the SEC, the Audit Committee
considered whether the services provided is compatible with maintaining the
independence of KPMG.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit
Services of Independent Auditors
The Audit Committee's present policy is to pre-approve all audit and
permissible non-audit services provided by the independent auditors. 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 Chairman and any pre-approval is detailed as to the particular service or
category of services and is generally subject to a specific budget. The
independent auditors and management are required to periodically report to the
Audit Committee or its Chairman regarding the extent of services provided by the
independent auditors in accordance with this pre-approval, and the fees for the
services performed to date. The Audit Committee may also pre-approve particular
services on a case-by-case basis.
-22-
Effect of Ratification
The Board proposes that the stockholders ratify the Audit Committee's
selection of KPMG as the independent public accountants of the Company for the
year ending June 25, 2004. If the resolution selecting KPMG as independent
public accountants is adopted by stockholders, the Audit Committee 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.
Availability of KPMG at the Meeting
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 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 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 KPMG as the Company's
independent public accountants. The Board of Directors unanimously recommends a
vote FOR Proposal 3.
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 2004
Annual Meeting of Stockholders must be received by July 1, 2004. 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
proposal intended to be presented by a stockholder, without inclusion in the
Board of Directors' proxy statement and form of proxy for the Company's 2004
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, 2004. Any such notices should also be directed to the Secretary of the
Company at the above address. However, even if such notice is timely received,
such proxies may nevertheless be entitled to exercise discretionary authority on
that matter to the extent permitted by Securities and Exchange Commission
regulations.
Annual Report on Form 10-K
The 2003 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 27, 2003, which
-23-
has been filed with the Securities and Exchange Commission, is contained in the
Company's 2003 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., 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 $2,500 plus reimbursement for certain out-of-pocket expenses.
By Order of the Board of Directors,
Virginia M. Hall,
Secretary
October 27, 2003
-24-
Appendix A
CHARTER OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
OF
TII NETWORK TECHNOLOGIES, INC.
I. PURPOSE
The primary function of the Audit Committee (the "Committee") is to oversee
the accounting and financial reporting processes of TII Network Technologies,
Inc. and its subsidiaries (the "Company") and the audits of the financial
statements of the Company by reviewing the financial reports and other financial
information being provided by the Company to any governmental body or the
public; the Company's systems of internal controls regarding finance,
accounting, legal compliance and ethics that management and the Company's Board
of Directors (the "Board") have established or may establish; and the Company's
auditing, accounting and financial reporting processes generally. The
Committee's primary duties and responsibilities are to:
o Serve as an independent and objective party to monitor the Company's
financial reporting process and internal control system.
o Review financial and operating topics representing significant risk to
the Company.
o Be directly responsible for the appointment, compensation, retention
and oversight of the work of the Company's independent auditor.
o Review and appraise the audit efforts of the Company's independent
auditor.
o Provide an open avenue of communications among the independent
auditors, financial and senior management and the Board.
o Establish procedures for the receipt, retention and treatment of
complaints regarding accounting, internal controls or auditing
matters.
o Pre-approve all audit services and permissible non-audit services as
set forth in Section 10A(i) of the Securities Exchange Act of 1934
(the "Exchange Act").
The Committee will fulfill these responsibilities by carrying out the
activities enumerated in Section IV of this Charter and such other activities
consistent with this Charter as may from time to time be necessary or
appropriate.
While the Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Committee to plan or conduct audits or to
determine that the Company's financial statements and disclosures are complete
and accurate and are in accordance with generally accepted accounting principles
and applicable rules and regulations. These are the responsibilities of
management and/or the independent auditor.
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Nothing contained in this Charter is intended to, or should be construed
as, creating any responsibility or liability of the members of the Committee
except to the extent otherwise provided under the Delaware General Corporation
Law, which shall continue to set the legal standard for the conduct of the
members of the Committee.
II. COMPOSITION OF THE AUDIT COMMITTEE
The Committee shall be comprised of at least three members of the Board, as
determined by the Board, each of whom must be an "independent director" and free
from any relationship that, in the opinion of the Board, would interfere with
the exercise of the member's, or the proposed member's, independent judgment in
carrying out his or her responsibilities as a director and as a member of the
Committee. An "independent director" is a member of the Board who meets the
criteria for independence set forth in Section 10A(m)(3) of the Exchange Act,
Rule 10A-3(b)(1) promulgated thereunder by the Securities and Exchange
Commission (the "SEC") and Marketplace Rule 4200 of the Nasdaq Stock Market,
Inc. ("Nasdaq") for audit committees, all as amended, modified or supplemented
from time to time, subject to such exceptions and exemptions as may be
permissible under the rules of the SEC and the Nasdaq. No member of the
Committee may accept, directly or indirectly, any consulting, advisory or other
compensatory fee from the Company or any subsidiary of the Company nor may he or
she be an affiliated person of the Company under applicable SEC or Nasdaq rules.
All members of the Committee must be able to read and understand
fundamental financial statements, including a company's balance sheet, income
statement and cash flow statement. Additionally, at least one member of the
Committee must have past employment experience in finance or accounting,
requisite professional certification in accounting, or other comparable
experience or background which results in such member's financial
sophistication, including being or having been a chief executive officer, chief
financial officer or other senior officer with financial oversight
responsibilities. The Company shall also disclose (in accordance with SEC and
Nasdaq rules) whether, based on a determination of the Board, at least one
member of the Committee meets the criteria of an "audit committee financial
expert," within the meaning of Rule 401(h) promulgated by the SEC under the
Exchange Act and any rules adopted by Nasdaq with respect thereto, as same may
be amended, modified or supplemented from time to time. All determinations
pursuant to this paragraph shall be made by the Board.
The members of the Committee shall be elected by the Board at the annual
organizational meeting of the Board and shall serve at the pleasure of the
Board. Unless a chairperson of the Committee (the "Chairperson") is elected by
the Board, the members of the Committee may designate a Chairperson by majority
vote of the full Committee.
III. MEETINGS
The Committee shall meet from time to time as called by the Chairperson or
as requested by management or the Company's independent auditors. The
Chairperson will prepare a meeting agenda with the input of management and the
independent auditor and in a timely manner to allow for adequate preparation and
participation during a meeting. Members of the Committee may participate in any
meeting of the Committee by means of conference telephone or other
telecommunications equipment by means of which all persons participating in the
A-2
meeting can hear each other. The Committee may ask members of management or
others to attend meetings of the Committee, or portions thereof, and provide
pertinent information as necessary. The Committee may meet with management, the
Company's independent auditors or others in separate executive sessions to
discuss any matters that the Committee or those with whom the Committee proposes
to meet believe should be discussed privately. The Committee shall maintain
minutes or other records of meetings and activities of the Committee, making the
minutes available to any Board member at any time he or she requests them. The
Committee shall report regularly to the full Board of Directors and provide the
Board such recommendations as the Committee may deem appropriate. The report to
the Board may take the form of an oral report by the person designated by the
Committee to make such report.
IV. RESPONSIBILITIES AND DUTIES
The Committee shall:
Documents/Reports Review
- ------------------------
1. Review, prior to its filing or prior to its release, as the case may
be, the Company's Annual Report on Form 10-K, annual report to
stockholders and press release with respect to financial information
contained therein.
2. Review, prior to their filing or release, as the case may be, the
Company's Quarterly Reports on Form 10-Q and press release with
respect to financial information contained therein. The Chairperson
may represent the entire Committee for the purposes of this review.
3. Review such other financial information as may be submitted to the SEC
or the public, as the Audit Committee shall deem appropriate. The
Chairperson may represent the entire Audit Committee for the purposes
of this review.
4. In connection with the reviews of all such reports and financial
information, consult with the Company's management and independent
auditors as to the completeness and accuracy of such reports and
financial information and discuss with the independent auditor the
matters required to be discussed by Statement of Auditing Standards 61
and, to the extent applicable, Statement of Auditing Standards 100
(formerly Statement of Auditing Standards 71), each as in effect at
that time.
5. Recommend to the Board whether the Company's financial statements for
the year covered by such report should be included in the Company's
Annual Report on Form 10-K.
6. Prepare a report of the Committee to be included in the Company's
Proxy statement for annual meetings of stockholders in accordance with
SEC rules.
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Independent Auditors
- --------------------
1. Have the sole authority to appoint, discharge and replace the
Company's independent auditor. The Committee shall be directly
responsible for the appointment, compensation, retention and oversight
of the work of the independent auditor (including resolution of
disagreements between management and the independent auditors
regarding financial reporting). The independent auditor shall be
accountable to, and report directly to, the Committee.
2. On an annual basis, consider the independence of the Company's
independent auditor, including reviewing and discussing with the
auditor all significant relationships which effect the auditor's
independence, reviewing whether the provision by the independent
auditor of permitted non-audit services is compatible with the
independent auditor's independence and receiving the written statement
from the independent auditor required by Independence Standards Board
Standard No. 1, as amended, modified or supplemented from time to
time, and actively engage in a dialogue with the independent auditor
with respect to any disclosed relationships or services that may
impact the objectivity and independence of the independent auditor.
3. Pre-approve all audit and permitted non-audit services to be performed
by the independent auditor (including the terms of its engagement with
respect thereto), explicitly and/or through policies and procedures
adopted by the Committee; consider whether the provision of non-audit
services is compatible with maintaining the independent auditor's
independence; and approve all engagement letters between the Company
and the independent auditor for both audit and permitted non-audit
services. The Committee may delegate to one or more designated members
of the Committee the authority to grant pre-approvals required by this
Section. The decisions of the members to whom such authority is
delegated shall be presented to the full Committee at its next
scheduled meeting. Approvals by the Committee (or such designated
members) of a non-audit service to be performed by the Company's
independent auditor shall be disclosed, in the manner and to the
extent required by the SEC, in the Company's periodic reports filed
with the SEC.
4. Review and evaluate the lead partner and other members of the
independent auditor's team.
5. Ensure the rotation of the audit partners, including, without
limitation, the lead partner and concurring or reviewing partner,
pursuant to Rule 2-01(c)(6), each of Regulation S-X promulgated by the
SEC.
6. Recommend to the Board policies, not inconsistent with Rule 2-01(c)(2)
of Regulation S-X promulgated by the SEC, for the Company's hiring of
employees or former employees of the independent auditor who
participated in any capacity in the audit of the Company.
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Financial Reporting Processes
- -----------------------------
1. Review and discuss the quality of the financial reporting process with
management and the independent auditors; and make inquiries as to the
appropriateness of the Company's accounting principles as applied to
its financial statements.
2. Review and discuss with management and the independent auditors any
significant judgments made in management's preparation of the
financial statements and the view of each as to appropriateness of
such judgments.
3. Review and discuss quarterly, with management and the independent
auditor, the Company's critical accounting policies and practices to
be used in the Company's financial statements and alternate treatments
of the application of accounting principles related to material items
that have been discussed with the Company's management and that may be
used in the preparation of the Company's financial statements,
including the ramifications of the use of such alternate treatments,
and the treatment preferred by the independent auditor.
4. Review disclosures made to the Committee by the Company's principal
executive officer and principal financial officer during their
certification process with respect to the Reports on Forms 10-K and
10-Q about any significant deficiencies in the design or operation of
internal controls or material weaknesses therein and any fraud
involving management or other employees who have a significant role in
the Company's internal controls.
5. Consider and approve, if appropriate, the adoption of new, and major
changes to the Company's existing accounting principles and practices
as suggested by the independent auditor or management.
6. Have discussions with management and the independent auditor regarding
the interim financial reporting process, if and when required.
7. Review the accounting for significant or unusual transactions and for
significant audit adjustments.
Process Improvement
- -------------------
1. Meet with the independent auditors and management of the Company to
review the scope of the proposed audit for the current year and the
audit procedures proposed to be utilized.
2. Review with management and the independent auditors any material
weaknesses in the Company's system of internal control.
3. Periodically consult with the independent auditor, out of the presence
of management, about the Company's internal controls and disclosure
controls and the completeness and accuracy of the Company's financial
statements.
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4. Review, assess and discuss with management and the independent auditor
material written communications between the independent auditor and
management, such as any management letter, recommendations on
financial reporting, internal and disclosure controls and other
matters, and schedules of unadjusted differences, and management's
responses to such communications.
5. Discuss with the independent auditors significant financial risk
exposures.
6. Following completion of the annual audit, review separately with each
of management and the independent auditors any significant issues
encountered during the course of the audit, including any restrictions
on the scope of work or access to required information. 7. Review with
the independent auditor any significant disagreement among management
and the independent auditors in connection with the preparation of any
of the Company's financial statements.
8. Review with the independent auditor and management the extent to which
changes or improvements in financial or accounting practices, as
approved by the Audit Committee, have been implemented.
9. Meet at least annually with management and the independent auditors to
discuss any matters that the Audit Committee, management or the
independent auditors believe should be discussed privately.
Legal Compliance
- ----------------
1. Review at least annually, with the Company's counsel, legal compliance
matters.
2. Review with the Company's counsel any legal matters that could have a
significant impact on the Company's financial statements.
3. Review and assess the results of all material regulatory examinations,
including, but not limited to, SEC comments and inquires, review
findings, recommendations and management's responses.
Ethical Compliance
- ------------------
1. Establish procedures for (i) the receipt, retention and treatment of
complaints received by the Company regarding accounting, internal
accounting controls or auditing matters; and (ii) the confidential,
anonymous submission by employees of the Company of concerns regarding
questionable accounting or auditing matters.
2. Approve, if the duty is not delegated to a comparable body of the
Board, all related party transactions in accordance with the
regulations of the Nasdaq and, to the extent appropriate, the Delaware
General Corporation Law.
A-6
3. Establish, review and update periodically a code of ethics that
applies to the Company's principal executive officer, principal
financial officer, principal accounting officer or controller, or
persons performing similar functions, and review measures established
to enforce the code of ethics.
Review of Charter and Committee Performance
- -------------------------------------------
1. Review and reassess the adequacy of this Charter periodically, but at
least annually, and update this Charter as conditions dictate.
2. Review its own performance at least annually.
Other Responsibilities
- ----------------------
Perform such other activities consistent with this Charter, and the
Company's Certificate of Incorporation, By-Laws and governing law, as the
Committee or the Board deems necessary or appropriate.
V. CERTAIN OTHER AUTHORITY
The Committee shall have the authority to engage independent counsel,
accountants and other advisors, as it determines necessary to carry out its
duties.
The Committee shall have sole authority to provide for appropriate funding,
as determined by the Committee, for the payment of (i) compensation to the
Company's independent auditor engaged for the purpose of preparing or issuing an
audit report or performing other audit, review or attest services for the
Company; (ii) compensation to any advisors employed by the Committee under the
preceding paragraph of this Charter; and (iii) ordinary administrative expenses
for the Committee that are necessary or appropriate, in the Committee's
discretion, in carrying out its duties.
September 24, 2003
Appendix B
TII NETWORK TECHNOLOGIES, INC.
2003 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
1. Purpose of the Plan
The purpose of this 2003 Non-Employee Director Stock Option Plan (the
"Plan") of TII Network Technologies, Inc., a Delaware corporation (the
"Company"), is to make available shares of the Common Stock, par value $.01 per
share, of the Company (the "Common Stock") for purchase by Directors who are not
common law employees of the Company (the "Non-Employee Directors") and thus to
attract and retain the services of experienced and knowledgeable Non-Employee
Directors for the benefit of the Company and its stockholders and to provide
additional incentive for such Non-Employee Directors to continue to work for the
best interests of the Company and its stockholders through continuing ownership
of Common Stock.
2. Stock Subject to the Plan
Subject to the provisions of Article 10, the total number of shares of
Common Stock for which options may be granted under the Plan shall be 500,000.
Shares issued under the Plan may be either authorized but unissued shares or
shares which shall have been purchased or acquired by the Company for this or
any other purpose. Such shares are from time to time to be allotted for option
and sale to Non-Employee Directors in accordance with the Plan. In the event any
option granted under the Plan shall expire, be canceled or terminate for any
reason without having been exercised in full or shall cease for any reason to be
exercisable in whole or in part, the unpurchased shares subject thereto shall
again be available for grant under the Plan.
3. Administration of the Plan
The Plan shall be administered by the Board of Directors of the Company
(the "Board"). The Board shall, subject to the express provisions of the Plan,
grant options pursuant to the terms of the Plan; shall have the power to
interpret the Plan, correct any defect, supply any omission or reconcile any
inconsistency in the Plan; prescribe, amend and rescind rules and regulations
relating to, but not inconsistent with, the Plan; determine the terms and
provisions of the respective option agreements (which need not be identical);
and make determinations necessary or advisable for the administration of the
Plan. The determination of the Board on the matters referred to in this Article
3 shall be conclusive. No member of the Board shall be liable for any action or
determination made in good faith with respect to the Plan or any options granted
hereunder
B-1
4. Option Grants
(a) Subject to clause (c) of this Article 4, each individual who
subsequent to the day on which the Company's 2003 Annual Meeting of Stockholders
is concluded becomes a Non-Employee Director for the first time shall, effective
as of the date such person becomes a Non-Employee Director, be granted an
initial option to purchase 24,000 shares of Common Stock (an "Initial Option").
(b) In addition, immediately following each annual meeting of
stockholders at which Directors are elected which is held subsequent to the
Company's 2003 Annual Meeting of Stockholders, each Non-Employee Director in
office immediately following the conclusion of such meeting (whether or not
elected at such meeting) shall, effective as of the date such meeting is held,
be granted an option to purchase 5,000 shares of Common Stock plus 5,000 shares
of Common Stock for each then standing Committee of the Board on which such
director will be serving, and 2,000 shares of Common Stock for each such
standing Committee of the Board as to which such director will be serving as
Chairperson, immediately following the organization meeting of the newly elected
Board following such annual meeting of stockholders ("Annual Options"), provided
that an individual who becomes a Non-Employee Director for the first time at an
annual meeting of stockholders shall only be granted an Initial Option under
clause (a) of this Article 4 and options with respect to such Committee
memberships and Chairpersonships under this clause (b) of this Article 4.
(c) An employee of the Company who ceases such relationship shall not
be deemed to become a Non-Employee Director unless and until he or she is
serving as a Non-Employee Director immediately following the conclusion of the
next annual meeting of stockholders at which Directors are elected (including if
such person is not subject to election as a Director at such meeting) and shall
not be entitled to an Initial Option.
5. Option Price
The exercise price at which shares of the Common Stock may be purchased
pursuant to options granted under the Plan shall be 100% of the fair market
value of the Common Stock on the date an option is granted, but not less than
the par value of the Common Stock. The fair market value of the Common Stock on
any day shall be (a) if actual sales price information is generally reported for
the Common Stock on its principal market, the closing price of the Common Stock
on such day (or last day of trade prior to such day if not traded on such day),
(b) if actual sales price information is not generally reported for the Common
Stock on its principal market, the mean between the highest bid and lowest asked
prices for the Common Stock on such day (or the last day quoted prior to such
day if not quoted on such day), in each case as reported by such market or on a
consolidated tape reflecting transactions on such market, or (c) if neither of
the above are applicable, the mean between the then current highest independent
bid and lowest independent asked prices for the Common Stock, determined by the
Board (the determination of which shall be conclusive) on the basis of
reasonable inquiry.
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6. Term of Each Option
The term of each option shall be ten years (the "Scheduled Expiration
Date"), subject to earlier termination as provided in the Plan.
7. Exercise of Options
(a) An Initial Option, subject to the provisions of Article 9, shall
vest and become exercisable, on a cumulative basis, in three equal annual
installments commencing one year following the date of grant. Annual Options,
subject to the provisions of Article 9, shall vest and be exercisable in full
immediately upon grant.
(b) A Non-Employee Director purchasing less than the number of shares
available to him or her in any period under the option may purchase any such
unpurchased shares in any subsequent period of the option term.
(c) The option shall not be exercisable at any time in an amount less
than 100 shares (or the remaining shares then covered by and purchasable under
the option if less than 100 shares). In no case may a fraction of a share be
exercised, purchased or issued under the Plan.
(d) The purchase price of the shares as to which an option shall be
exercised shall be paid in full in cash or by check at the time of exercise. In
addition, the Non-Employee Director shall pay to the Company in cash, upon
demand, the amount, if any, which the Company determines is necessary to satisfy
its obligation to withhold federal, state and local income and other taxes or
other amounts incurred by reason of the grant or exercise of the option.
(e) An option (or any part thereof), to the extent then exercisable,
shall be exercised by giving written notice to the Company at its principal
office, specifying the number of shares of Common Stock as to which such option
is being exercised and accompanied by payment in full of the aggregate exercise
price therefor.
(f) A Non-Employee Director entitled to receive shares of Common Stock
upon the exercise of an option shall not have the rights of a stockholder with
respect to such shares of Common Stock until the date of issuance of a stock
certificate to him or her for such shares.
(g) Nothing in the Plan or in any option granted under the Plan shall
confer on any Non-Employee Director any right to continue as a director of the
Company.
B-3
8. Non-Transferability of Options
No option granted under the Plan shall be transferable other than by
will or the laws of descent and distribution by the Non-Employee Director or his
or her legal representatives, and may be exercised during the Non-Employee
Director's lifetime only by him or her. Except to such extent, options may not
be assigned, transferred, pledged, hypothecated or disposed of in any way
(whether by operation of law or otherwise) and shall not be subject to
execution, attachment or similar process.
9. Termination of Services on the Board of Directors
In the event that a Non-Employee Director to whom an option has been
granted under the Plan shall cease to serve on the Board for any reason
(including as a result of not being re-elected to the Board, death or
disability), such option may be exercised in whole or in part by the
Non-Employee Director, at any time within one year after such cessation of
service but not thereafter, and in no event after the scheduled expiration date
of the option; provided, however, that if his or her service on the Board shall
have been terminated for cause or if he or she resigns without the consent of a
majority of the remaining members of the Board, his or her options shall
terminate immediately.
10. Adjustment of and Changes in Common Stock
(a) In the event of any change in the outstanding Common Stock by
reason of a stock dividend, stock split, stock combination, recapitalization,
spin-off, split up, merger in which the Company is the surviving corporation,
reorganization or the like, the aggregate number and kind of shares subject to
the Plan, the number and kind of shares to be granted initially and annually,
and the aggregate number and kind of shares subject to each outstanding option
and the exercise price thereof shall be adjusted by the Board in a manner
similar to the antidilution adjustments made under the Company's employee stock
option plans.
(b) In the event of (i) the liquidation or dissolution of the Company,
(ii) a merger or consolidation in which the Company is not the surviving
corporation, or (iii) any other capital reorganization in which more than 50% of
the shares of Common Stock of the Company are exchanged, outstanding options
shall terminate, unless other provision is made therefor in the transaction
(which provision shall be made in a manner similar to the provision made for
options granted under the Company's employee stock option plans).
11. Compliance with Securities Laws
(a) It is a condition to the exercise of any option that either (i) a
Registration Statement under the Securities Act of 1933, as amended, or any
succeeding act (collectively, the "Securities Act"), with respect to its
underlying shares shall be effective and current at the time of exercise of the
option or (ii) in the opinion of counsel to the Company, there shall be an
exemption from registration under the Securities Act for the issuance of shares
of Common
B-4
Stock upon such exercise. Nothing herein shall be construed as
requiring the Company to register shares subject to the Plan for issuance or for
resale.
(b) In connection with fulfilling the condition set forth in clause
(a)(ii) of this Article 11, the Company may require a Non-Employee Director, as
a condition to the exercise of an option, to execute and deliver to the Company
representations and warranties, in form and substance satisfactory to counsel to
the Company, that (i) the shares of Common Stock to be issued upon the exercise
of the option are being acquired by the Non-Employee Director for his or her own
account, for investment only and not with a view to the resale or distribution
thereof, all within the meaning of the Securities Act, and (ii) any subsequent
resale or distribution of shares of Common Stock by such Non-Employee Director
will be made only pursuant to (x) a Registration Statement under the Securities
Act which is effective and current with respect to the shares of Common Stock
being sold at the time of sale or (y) a specific exemption from the registration
requirements of the Securities Act, but in claiming such exemption, the
Non-Employee Director shall, prior to any offer or sale or distribution of such
shares of Common Stock, provide the Company with a favorable written opinion of
counsel, in form and substance satisfactory to counsel to the Company, as to the
applicability of such exemption to the proposed sale or distribution. The
Company may endorse such legend or legends upon the certificates for shares of
Common Stock issued upon exercise of an option under the Plan, and may issue
such "stop transfer" instructions to its transfer agent in respect of such
shares, as it determines, in its discretion, to be necessary or appropriate to
prevent a violation of, or to perfect an exemption from, the registration
requirements of the Securities Act.
(c) The Company may also require, as a further condition to the
exercise of an option, in whole or in part, that the shares of Common Stock
underlying such option or the Plan be specifically listed on the securities
markets on which the Company's Common Stock is traded and be registered or
qualified under any applicable state securities laws, and that the consent or
approval of any governmental regulatory body, which the Company deems necessary
or desirable as a condition to the exercise of such option or the issue of
shares thereunder, shall have been effected or obtained free of any conditions
requiring the Company to qualify as a foreign corporation or to execute a
general consent to service of process in any jurisdiction wherein it has not
already done so and free of any other conditions not customarily imposed by a
securities exchange, law or governmental regulatory body in connection with such
listing, qualification, consent or approval.
12. Amendment and Termination
The Board may amend, suspend or terminate the Plan or any portion
thereof at any time. The Board may not, without the approval of the Company's
stockholders within 12 months after the date of adoption of any such amendment
or amendments, make any alteration or amendment thereof which (i) makes any
change in the class of eligible participants as determined in accordance with
Articles 1 and 4 hereof; (ii) increases the total number of shares of Common
Stock for which options may be granted under the Plan except as provided in
Article 10 hereof; (iii) decreases the option exercise price provided in Article
5 hereof except as provided in Article 10 hereof; or (iv) materially increases
the benefits accruing to participants under the Plan within
B-5
the meaning of Rule 16b-3. No amendment shall adversely affect the rights under
any then outstanding option without the consent of the holder thereof.
13. Stock Option Contracts
Each option shall be evidenced by an appropriate contract which shall
be duly executed by the Company and the Non-Employee Director, and shall contain
such terms and conditions not inconsistent with the Plan as may be determined by
the Board.
14. Duties of the Company
The Company shall, at all times during the term of each option,
reserve and keep available for issuance or delivery such number of shares of
Common Stock as will be sufficient to satisfy the requirements of all options at
the time outstanding, shall pay all original issue taxes with respect to the
issuance or delivery of shares pursuant to the exercise of such options and all
other fees and expenses necessarily incurred by the Company in connection
therewith.
15. Effective Period
The Plan shall become effective on September 24, 2003, the date of
its adoption by the Board of Directors; provided, however that if the Plan is
not approved within 12 months thereof by the favorable vote of stockholders then
required for such action under the Delaware General Corporation Law at a meeting
to be held to consider such approval, the Plan and any options granted under the
Plan will be null and void and of no further effect. No options may be granted
under the Plan after September 23, 2013. Options outstanding on or prior to such
date shall, however, in all respects continue subject to the Plan.
PROXY TII NETWORK TECHNOLOGIES, INC. PROXY
Proxy for Annual Meeting of Stockholders - December 3, 2003
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 3, 2003, 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 PROPOSALS 2 AND 3 IS RECOMMENDED BY THE BOARD OF DIRECTORS. WHERE NO
DIRECTION TO VOTE ON A SPECIFIC MATTER IS GIVEN, THE PROXIES WILL BE DEEMED
AUTHORIZED TO VOTE FOR EACH LISTED NOMINEE TO SERVE AS A DIRECTOR AND FOR
PROPOSALS 2 AND 3.
Continued and to be signed on the reverse side if you elect to vote by mail
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NETWORK
TECHNOLOGIES
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DESIGNATION (IF ANY) 000000000.000 ext.
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ADD 6 Holder Account Number
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|_| Mark this box with an X if you have
made changes to your name or
address details above.
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Annual Meeting Proxy Card
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The Board of Directors recommends a vote FOR the listed nominees.
1. Election of Directors For Withhold
01- Alfred J. Roach |_| |_|
02- Timothy J. Roach |_| |_|
03- Lawrence F. Fodrowski |_| |_|
(Except Nominee(s) written above)
The Board of Directors recommends a vote FOR the following proposals:
For Against Abstain
2. To approve the Company's 2003
Non-Employee Director Stock
Option Plan. |_| |_| |_|
3. 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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