SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
TII Network Technologies, Inc.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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[X] No fee required
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computed pursuant to Exchange Act Rule 0-11 (Set forth the
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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4) Date Filed:
TII NETWORK TECHNOLOGIES, INC.
1385 Akron Street
Copiague, New York 11726
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 8, 2004
------------------
To the Stockholders of
TII Network Technologies, Inc.:
NOTICE IS HEREBY GIVEN that the 2004 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 8, 2004 at 1:00 p.m., New York time, at which the following
matters are to be presented for consideration:
1. The election of three Class I directors to serve until the 2007
Annual Meeting of Stockholders and until their respective successors
are elected and qualified;
2. A proposal to ratify the selection by the Audit Committee of the
Board of Directors of KPMG LLP as the Company's independent
registered public accounting firm for the fiscal year ending June
24, 2005; and
3. The transaction of such other business as may properly come before
the meeting or any adjournments or postponements thereof.
The close of business on October 15, 2004 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 25, 2004
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
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PROXY STATEMENT
For Annual Meeting of Stockholders
To be Held on December 8, 2004
------------------------
This Proxy Statement, to be mailed to stockholders of TII Network
Technologies, Inc., a Delaware corporation (the "Company"), on or about October
27, 2004, 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 8, 2004
at 1:00 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 15, 2004 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 11,907,784 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 and sign the
accompanying Proxy and return it 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 and to ratify the selection of KPMG LLP as the
Company's independent registered public accounting firm. 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 the Company's independent registered
public accounting firm and certain other matters considered to be "routine"
matters. Brokers are, therefore, expected to vote such shares on the election of
directors and the ratification of the selection of the Company's independent
registered public accounting firm. 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 number of affirmative votes cast) of the
vote of shares present in person or represented by proxy at the Meeting and
entitled to vote thereon will be required for the election of Class I directors
(Proposal 1) and the affirmative vote of a majority of the shares present in
person or represented by proxy at the Meeting and entitled to vote thereon will
be required to ratify the selection of KPMG LLP as the Company's independent
registered public accounting firm for the Company's fiscal year ending June 24,
2005 (Proposal 2).
Shares represented by Proxies that are marked "withhold authority" for the
election of one or more director nominees will not be counted as a vote cast for
those persons (Proposal 2). 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., Proposal 2), 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 (Proposal 1) or any matter that
requires approval by a majority of shares present in person or by proxy and
entitled to vote thereon (e.g., Proposal 2). 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:
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Shares Percent of
Beneficial Owner (1) Owned (2) Class (3)
- -------------------- --------- ---------
Alfred J. Roach 1,129,240(4) 9.2%
1385 Akron Street
Copiague, NY 11726
Timothy J. Roach 1,056,013(5) 8.5%
1385 Akron Street
Copiague, NY 11726
Jerry Bloomberg and/or Sondra Bloomberg 965,000(6) 8.1%
155 East Ames Court
Plainview, New York 11803
C. Bruce Barksdale 166,920(7) 1.4%
Mark T. Bradshaw 50,000(8) *
Lawrence M. Fodrowski 67,000(8) *
R. Dave Garwood 240,570(9) 2.0%
James R. Grover, Jr. 168,600(10) 1.4%
Joseph C. Hogan 114,330(11) *
Charles H. House 33,200(12) *
Virginia M. Hall 191,000(13) 1.6%
Kenneth A. Paladino 185,000(14) 1.5%
All executive officers and directors 3,401,873(15) 24.4%
as a group (12 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 418,000 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.
Footnotes continued on next page)
-3-
(5) 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 520,000 shares subject to
options held under the Company's stock option plans.
(6) 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 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 (6.6% 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.
(7) Includes 159,000 shares subject to options held under the Company's stock
option plans.
(8) Represents shares subject to options held under a Company stock option
plan.
(9) Includes 160,000 shares subject to options held under the Company's stock
option plans and a warrant to purchase 14,285 shares that was acquired
from the Company in the Company's June 2000 private placement.
(10) Includes 165,000 shares subject to options held under the Company's stock
option plans.
(11) Includes 114,250 shares subject to options held under the Company's stock
option plans.
(12) Includes 8,200 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) Includes 186,000 shares subject to options held under the Company's stock
option plans.
(14) Includes 160,000 shares subject to options held under a Company stock
option plan.
(15) Includes (i) 2,024,250 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 I directors continues until the
Meeting, the term of office of Class II directors continues until the next
succeeding annual meeting of stockholders and the term of office of Class III
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.
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The Board of Directors has fixed the size of the Board at nine. Each
director was previously elected by the Company's stockholders, except Mark T.
Bradshaw and Charles H. House, who were elected by the Board of Directors.
The terms of C. Bruce Barksdale, R. Dave Garwood, and Joseph C. Hogan ,
the present Class I directors, will expire at the Meeting. At the Meeting,
holders of Common Stock will elect three Class I directors to serve until the
2007 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 C. Bruce Barksdale, R. Dave Garwood, and Joseph C. Hogan to serve as
Class I 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 I Directors
C. Bruce Barksdale, 73, 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, 62, 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., 82, 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.
-5-
Background of Directors Whose Terms of Office Continue After the Meeting
Class II Directors
Mark T. Bradshaw, Ph.D., 37, 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., 85, has been a director of the Company since 1978.
Mr. Grover has been engaged in the private practice of law since 1974 and was
General Counsel to the Company from 1977 until March 2004. Mr. Grover was a
member of the United States House of Representatives from 1963 to 1974, after
serving as a member of the New York State Assembly from 1957 to 1962.
Charles H. House, 64, 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 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.
Class III Directors
Alfred J. Roach, 89, 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, 57, 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.
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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, 56, has been a director of the Company since
October 2001. Since May 2004, Mr. Fodrowski has served as Vice President Finance
and Administration and Chief Financial Officer of Hylan Group, Inc. a company
that provides custom solutions for data communications and electrical
installations. From July 2002, Mr. Fodrowski was an independent financial
consultant. From January 2001 until May 2004, Mr. Fodrowski was Chief Financial
Officer of Gisbert McDonnell Construction, Inc. ("Gisbert McDonnell"), a
construction management firm. From January 1976 until he joined Gisbert
McDonnell, Mr. Fodrowski was Vice President, Chief Financial Officer and a
director of LNR Communications, Inc. ("LNR"), a satellite communications
equipment manufacturer. Prior to joining LNR, he was a Supervising Senior
Accountant with KPMG Peat Marwick LLP (predecessor to KPMG LLP) for five years.
Mr. Fodrowski holds a Bachelor of Science degree in Accounting from Fordham
University and is a certified public accountant in New York.
Alfred J. Roach is the father of Timothy J. Roach. There are no other
family relationships among the Company's directors or executive officers.
Directors' Independence
The Board of Directors has determined that C. Bruce Barksdale, Mark T.
Bradshaw, Lawrence M. Fodrowski, R. Dave Garwood, Joseph C. Hogan and Charles H.
House (constituting a majority of the Board of Directors) are "independent
directors" pursuant to listing standards of Nasdaq. The Company's Common Stock
is listed for trading on the SmallCap Market of Nasdaq. In reaching its
conclusion, the Board determined that these individuals do not have a
relationship with the Company that, in the Board's opinion, would interfere with
their exercise of independent judgment in carrying out the responsibilities of a
director, and do not have any of the specific relationships set forth in
Marketplace Rules of Nasdaq that would disqualify any of them from being
considered independent directors.
Meetings of the Board of Directors
During the Company's fiscal year ended June 25, 2004, the Company's Board
of Directors held five meetings. Each incumbent director attended at least 75%
of the aggregate number of Board of Directors meetings and meetings of all
committees of the Board on which such director served that were held during the
portion of fiscal 2004 that such person served as a director.
It is the Company's policy that, absent extenuating circumstances, all
members of the Board of Directors attend meetings of stockholders. Eight members
of the Board attended the Company's 2003 Annual Meeting of Stockholders.
Committees of the Board
The Board of Directors has Audit, Compensation and Nominating Committees.
-7-
The Audit Committee presently consists of Messrs. Lawrence M. Fodrowski
(Chairperson), R. Dave Garwood, Joseph C. Hogan, Mark T. Bradshaw, and Charles
H. House each of whom meets the independence requirements for audit committee
members under the Nasdaq listing standards, including Rule 10A-3 promulgated by
the Securities and Exchange Commission under the Securities Exchange Act of
1934. 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, a copy of which 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 six occasions during the
fiscal year ended June 25, 2004.
The present members of the Compensation Committee are R. Dave Garwood
(Chairperson), Lawrence M. Fodrowski Joseph C. Hogan and Charles H. House, each
of whom meets the independence requirements for compensation committee members
under the listing standards of Nasdaq. 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.
A report of the Compensation Committee appears under the caption "Report of
Compensation Committee Concerning Executive Compensation," below. The
Compensation Committee met on four occasions, and acted by unanimous written
consent on one occasion following informal discussions, during the Company's
fiscal year ended June 25, 2004.
The Nominating Committee of the Board of Directors presently consists of
Messrs. Joseph C. Hogan (Chairperson), C. Bruce Barksdale and Lawrence M.
Fodrowski, each of whom meets the independence requirements for nominating
committee members under the listing standards of Nasdaq. The Nominating
Committee is responsible for identifying qualified Board candidates and
recommending their nomination for election to the Board, including recommending
a slate of nominees for election to the Board at each annual meeting of
stockholders. The Committee is also responsible to review executive succession
and processes to assure a smooth and orderly Chief Executive Officer transition
when the need arises. The specific function and responsibilities of the
Nominating Committee are set forth in the written charter of the Committee
adopted by the Board of Directors, a copy of which is attached as Appendix B to
this Proxy Statement. . The Nominating Committee met on one occasion subsequent
to its formation on September 20, 2004.
Director Nomination Process
The Company's Nominating Committee, consisting exclusively of independent
directors under the listing standards of Nasdaq, recommends to the full Board
nominees to serve as directors of the Company.
While the Committee will consider nominees recommended by stockholders,
the Company's Board of Directors presently consists of nine members, the maximum
number of directors permitted under the Company's Restated Certificate of
Incorporation. Accordingly, the Nominating Committee does not intend to actively
solicit recommendations from stockholders or
-8-
others unless (i) there is a vacancy on the Board of Directors, (ii) a director
is not standing for re-election or (iii) the Board does not intend to recommend
the nomination of a sitting director for re-election. The Committee has not in
the past retained or paid any third party to assist in identifying and
evaluating nominees. Although the Committee has not established specific minimum
qualifications, or specific qualities or skills for prospective nominees, the
Committee will consider, among other things a potential nominee's financial and
business experience, educational background, understanding of the Company's
business and industry, skills that would complement rather than duplicate skills
of existing Board members, demonstrated ability in his or her professional
field, integrity and reputation, willingness to work productively with members
of the Board and represent the interests of stockholders as a whole, and time
availability to perform the duties of a director, as well as the then current
size and composition of the Committee. No weight is assigned to any of the
factors and the Committee may change its emphasis on certain of these factors
from time to time in light of the needs of the Company at the time. The
Committee will evaluate nominees of stockholders using the same criteria as it
uses in evaluating other nominees to the Board and, in addition, in the case of
incumbent directors, the director's past attendance at, and participation in,
Board meetings and his or her overall contributions to the Board. Evaluations of
candidates are expected to involve a review of background material supporting
the criteria described above, internal discussions within the Nominating
Committee and interviews with a candidate as appropriate. Upon selection of a
qualified candidate, the Nominating Committee would recommend a candidate for
consideration by the full Board. .
A stockholder seeking to recommend a prospective nominee should submit the
recommendation to the Committee in the manner described under "Stockholder
Communications with Directors," below, and within the time frame described in
the third sentence under the caption "Miscellaneous - Stockholder Proposals,"
below. The recommendation should include, in addition to the name and business
or residence address of the nominee, the written consent of the person being
recommended to being named as a nominee in the Company's proxy statement
relating to the stockholder vote on his or her election and to serving as a
director if elected. The recommendation must also include all information that
would be required to be disclosed concerning such nominee in solicitations of
proxies for the election of directors pursuant to Regulation 14A under the
Securities Exchange Act of 1934, including, but not limited to, the information
required by Items 103, 401, 403 and 404 of Regulation S-K of the Securities and
Exchange Commission. In addition, the stockholder recommending the proposed
nominee must provide the recommending stockholder's name, address and number of
shares of the Company's Common Stock owned by such stockholder as they appear on
the Company's stockholder records and the length of time the shares have been
owned by the recommending stockholder (or, if held in "street name," a written
statement from the record holder of the shares confirming the information
concerning such stock ownership of the recommending stockholder) and whether the
recommendation is being made with or on behalf of one or more other stockholders
(and, if so, similar information with respect to each other stockholder with or
on behalf of whom the recommendation is being made). The address to which
recommendation should be sent is Nominating Committee of the Board of Directors,
TII Network Technologies, Inc., 1385 Akron Street, Copiague, N.Y. 11726,
Attention: Secretary. While the Committee makes recommendation for director
nominations, final approval rests with the full Board.
-9-
Stockholder Communications with Directors
Stockholders may communicate directly with the Board or one or more
specific directors by sending a written communication to: Board of Directors or
a specific director, c/o the Company's Secretary, TII Network Technologies,
Inc., 1385 Akron Street, Copiague, NY 11726. The Company's Secretary will
forward the communication to the director or directors to whom it is addressed,
except for communications that are (1) advertisements or promotional
communications, (2) related solely to complaints by users of the Company's
products that are ordinary course of business customer service and satisfaction
issues or (3) clearly unrelated to the Company's business, industry, management,
the Board or a Board committee. The Secretary will make all communications not
specifically addressed to any one director available to each member of the Board
at the Board's next regularly scheduled meeting.
Codes of Business Conduct and Ethics
The Company has adopted a Code of Business Ethics and Conduct that applies
to all of its directors, officers and employees, which is supplemented by a Code
of Ethics for Senior Financial Officers that additionally applies to its Chief
Executive Officer and senior financial officers. Copies of these codes are
available on the Company's website at www.tiinettech.com by clicking on
"investors relations" and then clicking on the applicable code.
Audit Committee Report
Management has the primary responsibility for 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 registered public accounting
firm 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 25, 2004, the Audit Committee:
o Reviewed and discussed the audited financial statements for the
fiscal year ended June 25, 2004 with management and KPMG LLP
("KPMG"), the Company's independent registered public accounting
firm;
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 Registered Public Accounting Firm," below).
-10-
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 25, 2004 be included in the Company's Annual Report on
Form 10-K filed with the SEC for that year.
Respectfully,
Lawrence M. Fodrowski Joseph C. Hogan
R. Dave Garwood Charles H. House
Mark T. Bradshaw
Executive Officers
In addition to Alfred J. Roach and Timothy J. Roach, the following are
executive officers of the Company:
Kenneth A. Paladino, 47, 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, 51, 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 C. Bruce
Barksdale, R. Dave Garwood and Joseph C. Hogan to serve as Class I directors.
-11-
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth, for the Company's three fiscal years ended
June 25, 2004, 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 2004 (the "Named Executive
Officers"):
Long-Term
Annual Compensation Compensation
-------------------------------------------------------- Award
Other Annual ---------------- All Other
Name and Principal Position Year Salary Bonus Compensation Stock Options (#) Compensation
- --------------------------- ---- ------ ----- ------------ ----------------- ------------
Timothy J. Roach 2004 $300,000 $ 120,000 $ -- -- $20,570(1)
President and Chief 2003 250,000 -- 48,000(2) 80,000 $20,570
Executive Officer 2002 250,000 -- 48,000(2) -- $20,570
Kenneth A. Paladino 2004 215,000 86,000 -- -- --
Vice President- 2003 193,000 -- -- 80,000 --
Finance, Chief 2002 190,000 -- -- 50,000 --
Financial Officer
and Treasurer
Alfred J. Roach 2004 150,000 -- -- -- --
Chairman of 2003 150,000 -- -- -- --
the Board 2002 150,000 -- -- -- --
Virginia M. Hall 2004 147,000 58,400 -- -- --
Vice President 2003 143,000 -- -- 50,000 --
-Administration, 2002 140,000 -- -- 25,000 --
Contract Admin-
istration and Secretary
- -----------------------------
(1) Represents premiums on life and long-term disability insurance maintained
by the Company for the benefit of Mr. Roach.
(2) Pursuant to his employment agreement with the Company, during fiscal 2003
and fiscal 2002, 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.
-12-
Option Grants in Last Fiscal Year
During the year ended June 25, 2004, the Company did not issue any stock
options to any of the Named Executive Officers.
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 25, 2004. The following table contains
information with respect to the unexercised options held at June 25, 2004 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 520,000/ 90,000 $ 67,800/$60,060
Alfred J. Roach 418,000/ 52,000 $ 23,220/$15,480
Kenneth A. Paladino 105,000/100,000 $ 66,600/$77,000
Virginia M. Hall 161,000/ 40,000 $ 34,430/$32,495
(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.
Remuneration of Directors
Non-employee directors ("Outside 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. Until it
expired as to future grants in September 2004, Outside Directors were 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 became an Outside Director and immediately following each
annual meeting of stockholders at which directors were elected. Each option held
by an Outside 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 an Outside 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. At the 2003 Annual Meeting of Stockholders, the Company's
stockholders approved the Company's 2003 Non-Employee Director Stock Option Plan
(the "2003 Plan") to replace the 1994 Plan when the 1994 Plan expired as to
future option grants. The 2003 Plan provides that, at the time a person becomes
an Outside Director, he or she is granted an option to purchase 24,000 shares of
the Company's Common Stock under the 2003 Plan. In addition, under the 2003
Plan, immediately following each annual meeting of stockholders at which
directors are elected, each Outside Director in office immediately following the
conclusion of the meeting (whether or not elected at such meeting) is 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").
-13-
An individual who becomes an Outside Director for the first time at an annual
meeting of stockholders is only granted an option (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. Each option held by Outside Directors under the 2003 Plan is exercisable
for a period of ten years following the date of grant (subject to earlier
termination at specified times following a non-employee director's cessation of
service) at an exercise price equal to 100% of the fair market value on the date
of grant of the shares subject thereto. Initial Options vest and become
exercisable in twelve equal quarterly installments commencing one year after the
date of grant, while Annual Options vest and become exercisable in four equal
quarterly installments commencing immediately upon grant.
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) 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
-14-
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 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.
-15-
Equity Compensation Plans
The following table sets forth certain information as of June 25, 2004
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. ................. 2,998,650(a) $1.68 1,690,650(b)
Equity compensation plans
not approved by security
holders ........................... -- -- --
---------- ------ ---------
Total ........................... 2,998,650 $ 1.68 1,690,650
========== ====== =========
- ----------------
(a) Includes 23,000, 801,700, 1,621,950 and 552,000 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 Company's 1994 Non-Employee
Director Stock Option Plan, which expired as to future grants in September
2004 (the "1994 Plan"), respectively.
(b) Includes 311,100 and 864,550 shares available for future grant under the
1995 Plan and 1998 Plan, respectively, to employees and directors of, and
consultants to, the Company and 500,000 shares available for grants to
Outside Directors under the 2003 Plan. Upon the expiration, cancellation
or termination of unexercised options, shares subject to options under a
particular plan will again be available for the grant of options under
that plan. In addition, at June 25, 2004, there were 15,000 shares
available for grant under the 1994 Plan, which were not granted prior to
the expiration of that plan as to future grants in September 2004.
Report of 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. 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.
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
-16-
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. The Compensation Committee approved, as a
short term incentive, a bonus pool for various executive and other officers,
which, for fiscal 2004, was based on the Company achieving certain levels of net
income, which factor was weighted based upon the degree to which the Company
achieved various levels of revenues, net income and cash flows. The bonus pool
was shared among the participants in relation to their compensation, but was
limited to a specified percentage of each's compensation.
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.
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. For fiscal 2004, Mr. Roach's salary remained at the level
provided for in his Amended and Restated Employment Agreement. Mr. Roach's bonus
for fiscal 2004 was his share of the bonus pool for various executive officers
discussed above. See "Summary Compensation Table," above for information
concerning Mr. Roach's compensation.
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 Joseph C. Hogan
R. Dave Garwood Charles H. House
-17-
Performance Graph
The following graph compares the cumulative return to holders of the
Company's Common Stock for the five years ended June 25, 2004 with (i) the
Nasdaq Stock Market-US Index and (ii) the Nasdaq Telecommunications Index. The
comparison assumes $100 was invested on June 30, 1999 in the Company's Common
Stock and in each of the comparison groups and assumes reinvestment of dividends
(the Company paid no dividends during the periods):
[PERFORMANCE GRAPH]
Cumulative Total Return
6/99 6/00 6/01 6/02 6/03 6/04
TII Network Technologies, Inc. $100 $ 111.48 $ 56.66 $ 22.03 $ 21.77 $ 80.26
Nasdaq Stock Market-US Index $100 $ 192.65 $ 68.58 $ 58.24 $ 56.04 $ 76.42
Nasdaq Telecommunications Index $100 $ 145.51 $ 58.89 $ 27.85 $ 47.85 $ 54.35
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 25, 2004 were timely filed.
-18-
PROPOSAL 2
RATIFICATION OF SELECTION OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The independent registered public accounting firm of KPMG LLP ("KPMG") has
been appointed by the Audit Committee of the Board of Directors to continue to
serve as the Company's independent auditor for the fiscal year ending June 25,
2005, subject to ratification by the stockholders of the Company. KPMG has
served as the Company's independent public accountants since April 9, 2002.
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 25, 2004 and June
27, 2003:
Fee Category Fiscal 2004 Fees Fiscal 2003 Fees
- ------------ -------- --------
Audit Fees $177,000 $162,000
Audit-related fees 3,500 7,500
Tax fees 35,000 16,500
All other fees -- --
-------- --------
Total Fees $215,500 $186,000
======== ========
- ----------
Audit Fees. These fees were for 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. In fiscal 2004, these services were for a response to
comments from the Securities and Exchange Commission on a Company filing and, in
fiscal 2003, these services were for an employee benefit plan audit.
Tax Fees. These fees were for services regarding the preparation of income
tax returns and other tax compliance and, in addition, in fiscal 2004 for tax
advice ($8,300) regarding the tax treatment of the exercise of stock options.
All Other Fees. The Company did not engage KPMG to perform any services
other than those listed separately above in either fiscal 2004 or fiscal 2003.
In connection with the standards for independence of the Company's
independent registered public accounting firm promulgated by the SEC, the Audit
Committee considered whether the services provided is compatible with
maintaining the independence of KPMG.
-19-
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 Company's independent registered
public accounting firm. These services may include audit services, audit-related
services, tax services and other services. Pre-approval is generally provided
for up to one year for services set forth in an engagement letter approved by
the Audit Committee or its Chairperson and any pre-approval is detailed as to
the particular service or category of services and is generally subject to a
specific budget. All of the services provided by KPMG during fiscal 2004 were
pre-approved by the Committee or its Chairperson, in the latter of which cases,
the Chairperson reported his decision to the full Audit Committee at its next
scheduled meeting. The Company's independent registered public accounting firm
and management are required to periodically report to the Audit Committee or its
Chairperson regarding the extent of services provided by the Company's
independent registered public accounting firm 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.
Effect of Ratification
The Board proposes that the stockholders ratify the Audit Committee's
selection of KPMG as the independent registered public accounting firm of the
Company for the year ending June 24, 2005. If the resolution selecting KPMG as
the Company's independent registered public accounting firm is adopted by
stockholders, the Audit Committee nevertheless retains the discretion to select
different auditors should it then deem it in 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 registered public accounting firm. The Board of Directors
unanimously recommends a vote FOR Proposal 2.
MISCELLANEOUS
Stockholder Proposals
From time to time stockholders may present proposals which may be proper
subjects for inclusion in the proxy statement and form of proxy related to that
meeting. In order to be
-20-
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 2005 Annual Meeting of Stockholders
must be received by July 1, 2005. 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 2005 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 13, 2005. 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 2004 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 25, 2004, which has been filed with the Securities and Exchange
Commission, is contained in the Company's 2004 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 25, 2004
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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
A-1
accepted accounting principles and applicable rules and regulations. These are
the responsibilities of management and/or the independent auditor.
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
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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 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.
A-4
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.
A-5
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 lest 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
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APPENDIX B
Nominating Committee Charter
OF
TII NETWORK TECHNOLOGIES, INC.
I. PURPOSE
The primary function of the Nominating Committee (the "Committee") is to
oversee matters relating to the organization and composition of the Board of
Directors (the "Board") of TII Network Technologies, Inc. (the "Company"),
evaluate members and prospective members of the Board. The Committee is
responsible for identifying qualified Board candidates and recommending their
nomination for election to the Board, including recommending the slate of
nominees for election to the Board at each annual meeting of stockholders. The
Committee is also responsible to review executive succession and processes to
assure a smooth and orderly Chief Executive Officer ("CEO") transition when the
need arises.
II. COMPOSITION OF THE 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" who
meets the criteria for independence set forth in Marketplace Rule 4200 of the
Nasdaq Stock Market, Inc. ("Nasdaq") for nominating committees, as amended,
modified or supplemented from time to time, subject to such exceptions and
exemptions as may be permissible under the rules of Nasdaq.
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. The Board may replace any member of the Committee who dies, resigns or is
removed. 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.
The Committee shall meet from time to time as called by the Chairperson.
The Chairperson will prepare a meeting agenda with the input of management 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 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 shall meet in executive session to discuss any matters that the
Committee believes 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
B-1
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.
III. RESPONSIBILITIES
The Committee shall have the following responsibilities:
o Develop and recommend to the Board guidelines and criteria for the
selection of candidates for directors.
o Annually review the Board's compliance with SEC and Nasdaq rules and
oversee the Board's determination of each director's independence
under the Nasdaq listing standards and applicable law.
o Review candidates for the Board who may be recommended by
stockholders.
o Recommend the slate of nominees for election to the Board at each
annual meeting of stockholders and to fill vacancies in the Board
resulting from death, resignation or other cause or an increase in
the total number of directors.
o When directed by the Board, conduct searches for qualified Board
candidates and recommend their election to the Board.
o Report to the Board annually with an assessment of the Board's
performance.
o Annually review the structure of the Committees of the Board,
including the size and composition of all Board Committees.
o Recommend the resignation or non-re-election of a director in
response to a meaningful change in the director's qualifications or
employer or the director's acceptance, without Board approval, of
the directorship of another public company.
o Review executive succession planning, including recommending
procedures that will assure an orderly CEO transition when the need
arises.
o Annually review and evaluate this charter and the performance of the
Committee and recommend any appropriate changes to this charter or
the Committee.
IV. CERTAIN OTHER AUTHORITY
The Committee is authorized to delegate those of its functions as it may deem
appropriate to subcommittees and to confer with Company management and other
employees to the extent it deems necessary or appropriate to fulfill its duties.
The Committee shall have authority to engage outside independent counsel and
other experts, including search firms, as it determines necessary to carry out
its duties, including identifying director or CEO candidates, and shall have
sole authority to approve such experts' or advisors' fees and other retention
terms.
B-2
PROXY TII NETWORK TECHNOLOGIES, INC. PROXY
Proxy for Annual Meeting of Stockholders - December 8, 2004
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 Common 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 8, 2004, at 1:00 p.m., New York time, at the Huntington Hilton, 598
Broadhollow Road, Melville, New York, receipt of Notice of which meeting and the
Proxy Statement accompanying the same being hereby acknowledged by the
undersigned, and at any adjournments or postponements thereof, upon the matters
described in the Notice of Meeting and Proxy Statement and upon such other
business as may properly come before the meeting or any adjournments or
postponements thereof, hereby revoking any proxies heretofore given.
EACH PROPERLY EXECUTED PROXY WILL BE VOTED IN ACCORDANCE WITH THE
SPECIFICATIONS MADE ON THE REVERSE SIDE HEREOF. A VOTE FOR EACH LISTED NOMINEE
AND FOR PROPOSAL 2 IS RECOMMENDED BY THE BOARD OF DIRECTORS. WHERE NO DIRECTION
TO VOTE ON A SPECIFIC MATTER IS GIVEN, THE PROXIES WILL BE DEEMED AUTHORIZED TO
VOTE FOR EACH LISTED NOMINEE TO SERVE AS A DIRECTOR AND FOR PROPOSAL 2.
Continued and to be signed on the reverse side if you elect to vote by mail
[LOGO] TII
NETWORK
TECHNOLOGIES
000000 0000000000 0 0000
000000000.000 ext.
000000000.000 ext.
MR. A. SAMPLE 000000000.000 ext.
DESIGNATION (IF ANY) 000000000.000 ext.
ADD 1 000000000.000 ext.
ADD 2 000000000.000 ext.
ADD 3 000000000.000 ext.
ADD 4 000000000.000 ext.
ADD 5
ADD 6 Holder Account Number
C 1234567890J N T
---------------------------------
BARCODE
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|_| Mark this box with an x if you
have made changes to your name or
address details above.
- --------------------------------------------------------------------------------
Annual Meeting Proxy Card
- --------------------------------------------------------------------------------
The Board of Directors recommends a vote FOR the listed nominees.
1. Election of Directors For Withhold
01- C. Bruce Barksdale |_| |_|
02- R. Dave Garwood |_| |_|
03- Joseph C. Hogan |_| |_|
- -------------------------------------------------
(Except Nominee(s) written above)
The Board of Directors recommends a vote FOR the following proposal:
For Against Abstain
2. To ratify the selection of KPMG |_| |_| |_|
LLP as the Company's independent
registered public accounting firm.
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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[][] / [][] / [][][][]
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