-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Q20e5lKe4FW0ENs0LcQn9eXK/4jbJSe3If6imKs3FqcdEB3y8YfQUWkLWBBR7fYu 6z/ELHTTXXmURGv+CH0+fw== /in/edgar/work/20000721/0000910680-00-000480/0000910680-00-000480.txt : 20000920 0000910680-00-000480.hdr.sgml : 20000920 ACCESSION NUMBER: 0000910680-00-000480 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 20000721 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TII INDUSTRIES INC CENTRAL INDEX KEY: 0000277928 STANDARD INDUSTRIAL CLASSIFICATION: [3613 ] IRS NUMBER: 660328885 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-3 SEC ACT: SEC FILE NUMBER: 333-41998 FILM NUMBER: 676922 BUSINESS ADDRESS: STREET 1: 1385 AKRON ST CITY: COPIAGUE STATE: NY ZIP: 11726 BUSINESS PHONE: 5167895000 MAIL ADDRESS: STREET 1: 1385 AKRON STREET CITY: COPIAGUE STATE: NY ZIP: 11726 S-3 1 0001.txt FORM S-3 OF TII INDUSTRIES, INC. As filed with the Securities and Exchange Commission on July 21, 2000 Registration No. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------- TII INDUSTRIES, INC. (Exact name of registrant as specified in its charter) DELAWARE 66-0328885 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1385 AKRON STREET, COPIAGUE, NY 11726 (631) 789-5000 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) TIMOTHY J. ROACH, PRESIDENT TII INDUSTRIES, INC. 1385 AKRON STREET COPIAGUE, NY 11726 (631) 789-5000 (Name, address, including zip code, and telephone number, including area code, of agent for service) Copy to: RICHARD A. RUBIN, ESQ. PARKER CHAPIN LLP 405 LEXINGTON AVENUE NEW YORK, NEW YORK 10174 (212) 704-6130 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: From time to time after the effective date of this Registration Statement. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box: If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. ---------------------- CALCULATION OF REGISTRATION FEE
- ------------------------------------------------ ----------------- ------------------- ---------------------- ----------------- PROPOSED PROPOSED MAXIMUM MAXIMUM AMOUNT OF TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION OF SECURITIES TO BE REGISTERED REGISTERED (1) PER SECURITY (2) OFFERING PRICE (2) FEE - ------------------------------------------------ ----------------- ------------------- ---------------------- ----------------- Common stock, $.01 par value per share (3) . . . . . . . . . . . . . . . 1,800,000 (4) $2.75 (5) $4,950,000 (5) $1,306.80 - ------------------------------------------------ ----------------- ------------------- ---------------------- ----------------- Warrants to purchase common stock (3). . . . . . . . . . . . . . 1,800,000 $2.79 (6) $5,022,000 (6) $1,325.81 - ------------------------------------------------ ----------------- ------------------- ---------------------- ----------------- Common Stock issuable upon exercise of the foregoing warrants (7) . . . . . . . 1,800,000 (4) $2.79 (8) $5,022,000 (8) $1,325.81 - ------------------------------------------------ ----------------- ------------------- ---------------------- ----------------- Unit purchase options (3) . . . . . . . . . . 414,000 $2.69 (9) $1,113,660 (9) $ 294.01 - ------------------------------------------------ ----------------- ------------------- ---------------------- ----------------- Common stock and warrants issuable upon exercise of the unit purchase options (10) . . . . . . . . . . . . . . 414,000 (4) $2.69 (11) $1,113,660 (11) $ 294.01 - ------------------------------------------------ ----------------- ------------------- ---------------------- ----------------- Common stock issuable upon exercise of the warrants included in the unit purchase options (7) . . . . . . 414,000 (4) $2.79 (8) $1,155,060 (8) $ 304.94 - ------------------------------------------------------------------------------------------------------------------------------- Total registration fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 4,851.38 - -------------------------------------------------------------------------------------------------------------------------------
(1) Pursuant to Rule 416(b), this registration statement also covers all additional securities resulting from anti-dilution adjustments to the registered securities or to the registered securities issuable upon exercise of the registered warrants and unit purchase options. (2) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457 of the Securities Act of 1933, as amended. (3) Being registered for potential resale. (4) Each share of the Registrant's common stock being registered hereunder, if issued prior to the termination by the Registrant of its preferred share rights agreement, includes Series D junior participating preferred stock purchase rights. Prior to the occurrence of certain events, the Series D junior participating preferred stock purchase rights will not be exercisable or evidenced separately from the Registrant's common stock and have no value except as reflected in the market price of the shares to which they are attached. (5) Based on the average of the high and low sales prices on the Nasdaq National Market on July 19, 2000. (6) Based upon the exercise price of the warrants, which exceeds the market value of the warrants. (7) Being registered for sale to the holders of the warrants upon exercise of the warrants. (8) Based upon the exercise price of the warrants. (9) Based upon the exercise price of the unit purchase options, which exceeds the market value of the unit purchase options. (10) Being registered for sale to the holders of the unit purchase options upon exercise of the unit purchase options. (11) Based upon the exercise price of the unit purchase options. ---------------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. ================================================================================ SUBJECT TO COMPLETION, DATED JULY 21, 2000 PROSPECTUS - ---------- TII INDUSTRIES, INC. ------------------- The selling securityholders of TII Industries, Inc. listed beginning on page 17 of this prospectus may offer for sale the following securities acquired by them from us in a private placement: o 1,800,000 shares of our common stock o 1,800,000 redeemable stock purchase warrants to purchase our common stock o 414,000 unit purchase options to purchase our common stock and identical redeemable stock purchase warrants to those issued in the private placement This prospectus also covers our issuance to the selling securityholders of: o 1,800,000 shares of our common stock upon exercise of the warrants issued in the private placement o 414,000 shares of our common stock upon exercise of the unit purchase options o 414,000 warrants upon exercise of the unit purchase options o 414,000 shares of our common stock issuable upon exercise of the warrants subject to the unit purchase options Each warrant entitles its holder to purchase, between December 9, 2000 and December 8, 2004, one share of our common stock at an exercise price of $2.79, subject to possible prior redemption. Each unit purchase option entitles its holder to purchase, for $2.69, between December 9, 2000 and December 8, 2004, one share of our common stock and one warrant having the same terms as the warrants issued in the private placement. The warrant exercise prices and number of shares of common stock issuable upon exercise of the warrants and the unit purchase options are subject to adjustment if certain events occur. The warrants are also subject to possible redemption. See "Description of Securities - The Warrants; Unit Purchase Options." The selling securityholders may offer their shares, warrants, unit purchase options and their underlying securities through public or private transactions, on or off the Nasdaq National Market, at prevailing market prices or at privately negotiated prices. However, the warrants and unit purchase options may only be sold to "accredited investors" within the meaning of Rule 501 under the Securities Act of 1933. This prospectus may also be used by those to whom the selling securityholders may pledge, donate or transfer their securities and by other non-sale transferees. The shares of our common stock held by or issuable to the selling securityholders may also be sold under Rule 144 promulgated under the Securities Act of 1933 at such time as that rule becomes available with respect to the shares, subject to compliance with the terms and conditions of the rule. See "Plan of Distributions." Our common stock is currently quoted on the Nasdaq National Market under the symbol "TIII." There is no current market for either the warrants or the unit purchase options. On July 20, 2000, the last reported sale price of a share of our common stock on the Nasdaq National Market was $2.75. ------------------- AN INVESTMENT IN OUR SECURITIES INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER THE FACTORS DESCRIBED UNDER THE CAPTION "RISK FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS. ------------------- NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------- The date of this prospectus is ______, 2000 The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the SEC is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. PROSPECTUS SUMMARY This summary highlights some information from this prospectus. It may not contain all of the information important to you. To understand this offering fully and get a better understanding of our business and operations, you should read the entire prospectus carefully, including the documents we have incorporated by reference in the section "Where You Can Find More Information About Us" on page __. Please note that, except where the context requires that the reference be to TII Industries, Inc. only, references in this prospectus to "we," "our," "us" or "TII" refer to TII Industries, Inc. and our subsidiaries, not to the selling securityholders. THE COMPANY We design, manufacture and market lightning and surge protection systems, network interface devices and station electronics for use in the communications industry. We have been a leading supplier of subscriber overvoltage protectors to telephone operating companies in the United States for over 25 years, during which time our gas tubes have set the performance standard for the telephone industry and continue to be specified for use by our customers. We sell our products to all four of the Regional Bell Operating Companies, as well as to original equipment manufacturers, cable operators and competitive access providers. Our new patented Broadband Coax Protector product line was designed to address the rapidly growing market for telephony over coaxial cable networks. The 1999 edition of the National Electrical Code requires lightning and surge protection to be included on network powered coax lines, the preferred technology to bring telephony and broadband services to homes and businesses. The National Electrical Code is published by the National Fire Protection Association and typically is adopted by states or local municipalities. We believe that our proprietary overvoltage surge protectors offer superior, cost-effective performance features, including high reliability, long life cycles and advanced protection against adverse environmental conditions. Our products include: o TELEPHONE LIGHTNING AND SURGE PROTECTORS - Overvoltage surge protectors have been mandated in the United States by the National Electrical Code to be installed on subscriber telephone lines to prevent injury to users and damage to their equipment due to surges caused by lightning and other hazardous overvoltages. Surge protectors: (i) protect the subscribers and their equipment; (ii) reduce the subscribers' loss of service; (iii) reduce the communications provider's loss of revenue due to subscriber outages; and (iv) reduce the communications provider's costs to replace or repair damaged equipment. Our surge protectors are based primarily on gas tube technology, which provides protection when the voltage on a telephone line rises to a level preset in the gas tube. Our gas tubes have been designed to withstand multiple high energy overvoltage surges while continuing to operate over a long service life with minimal failure rates. We also produce solid state protectors, as well as combining solid state protection with our gas tubes in hybrid overvoltage surge protectors. o BROADBAND SURGE PROTECTORS - Recent revisions to the National Electric Code, as it continues to be adopted by local jurisdictions, require overvoltage surge protection on all network powered subscriber coax lines, the preferred coaxial cable technology to bring telephony and broadband services to homes and businesses. As an integral part of our broadband product line, we recently developed our high-performance, 75-ohm, patented -2- Broadband Coax Protector product line to safeguard coaxial cable lines. While providing overvoltage surge protection, our in-line Broadband Coax Protectors are virtually transparent to the network, permitting high-bandwidth signals to be transmitted without adversely affecting the signal. Our Broadband Coax Protectors have begun to be installed in active network interface units distributed as part of hybrid-fiber coax (known as HFC) broadband network build-outs. These build-outs, employing HFC architecture, connect residential and business customers to an enhanced range of video, voice and high-speed data communication possibilities, as well as improved signal reliability, better pictures and superior two-way transmission capability over existing and new HFC systems. According to Nielsen Media Research, as of February 2000, there were approximately 68.7 million basic cable households in the United States. We believe that the demand for our Broadband Coax Protectors will increase significantly as large United States cable operators begin to upgrade their networks to accommodate voice and broadband applications and as telephone operating companies enter the broadband market directly or through acquisitions. Capitalizing on our patent for in line Coaxial Cable Surge Protectors, we have also developed a 50-ohm Base Station Protector product line which protects wireless service providers' cell sites from the damaging effects of lightning and other surges. We have also developed our 10 Base T Surge Protector, which is presently utilized by a Regional Bell Operating Company customer to deliver broadband signals over "category five" cables, a competing network technology. Furthermore, the Company is developing additional products to address the satellite television market, as well as other surge protection products for coaxial cable and wireless networks. o NETWORK INTERFACE DEVICES - Network interface devices were developed to establish a separation point between the telephone companies' property and subscriber property in response to the requirements of the Federal Communication Commission and state public service commissions. We sometimes refer to network interface devices as NIDs. NIDs typically also enclose overvoltage surge protectors and various station electronic products. To address the demand for voice, high-speed data and other broadband services, telephone companies and other communications providers are expanding and upgrading their networks. To meet our customers' needs, we have introduced a broadband network interface device product line specifically designed to house a telephone company's technology of choice, whether traditional twisted pair lines or high-bandwidth coaxial cable or fiber optic lines. o STATION ELECTRONICS AND OTHER PRODUCTS - Our station electronic products are designed to be installed with an overvoltage surge protector, typically within a NID. Our other products include plastic housings, wire terminals, enclosures, cabinets and various hardware products. We recently received a patent on our Residential Protection Service Center, which is expected to expand our market and customer base into the residential/commercial marketplace. The Residential Protection Service Center provides overvoltage protection for AC power, telephone and coaxial cable lines at the entry point to the home, all bonded to a common ground, thereby eliminating the potentially dangerous practice of providing protection for certain electronic devices on an item by item basis, compromising protection integrity. We are in the process of finalizing the design of this product and seeking to market it in collaboration with one or more companies with selling and distribution expertise into the residential and commercial markets. Our principal executive office is located at 1385 Akron Street, Copiague, New York 11726 and our telephone number is (631) 789-5000. -3- THE OFFERING
Securities that may be offered by the selling securityholders . . . . . . . . . . . . . . . . . . 1,800,000 shares of our common stock; 1,800,000 warrants, each warrant entitling its holder to purchase one share of our common stock; and 414,000 unit purchase options, each option entitling its holder to purchase one share of our common stock and one warrant to purchase one additional share of our common stock. Each of these securities was issued by us in a private placement to the selling securityholders, who may then resell them by delivering of this prospectus. Securities being offered by us . . . . . . . . . . This prospectus also covers the issuance by us of the following securities, which may be then resold by the holders of the securities without delivery of this prospectus: 1,800,000shares of our common stock that we may issue upon exercise of the warrants; 414,000 shares of our common stock and warrants to purchase 414,000 additional shares of our common stock that we may issue upon exercise of the unit purchase options; 414,000 shares of purchase our stock that we may issue upon exercise of the warrants issuable upon exercise of the unit purchase options. Each warrant entitles its holder to purchase, between December 9, 2000 and December 8, 2004, one share of our common stock at an The warrants . . . . . . . . . . . . . . . . . . . exercise price of $2.79, subject to possible prior redemption and possible adjustment of the number of shares issuable upon exercise, and the exercise price, of the warrants if certain events occur. See "Description of the Securities - The Warrants." The unit purchase options . . . . . . . . . . . . The unit purchase options were issued to certain . . employees and affiliates of M.H. Meyerson & Co., Inc., the placement agent for the private placement. Each unit purchase option entitles its holder to purchase, between December 9, 2000 and December 8, 20004, one share of our common stock and one warrant (containing the same terms as the warrants issued in the private placement) to purchase one additional share of our common stock. Each unit purchase option is exercisable at an exercise price of $2.69, subject to possible adjustment of the number of shares of our common stock issuable upon exercise, and the exercise price, of the unit purchase options if certain events occur. See "Description of the Securities - Unit Purchase Options."
-4-
Common stock outstanding on the date of this prospectus......................................... 11,680,484 shares. Common stock outstanding after the offering assuming: No warrants or unit purchase options are exercised . . . . . . . . . . . . . . . . . . . 11,680,484 shares. . . . . . . . . . All warrants and unit purchase options and warrants included in the unit purchase 14,308,484 shares. options are fully exercised . . . . . . . . . . . . . . . Use of Proceeds..................................... The selling securityholders will receive all of the proceeds from the sale of the shares of our common stock, the warrants and the unit purchase options, and we will not receive any proceeds from their resale. We did receive approximately $2,527,000 in net proceeds (after our estimated expenses) from the issuance of the shares, warrants and unit purchase options. The proceeds from the private placement are being used for product development, marketing and sales, primarily to promote and expand our broadband and wireless surge protection products, as well as for working capital and general corporate purposes. We will also receive the exercise price of $2.79 per share to the extent the warrants are exercised ($4,821,120, net of the 4% placement agent's warrant solicitation fee we are required to pay, if the warrants are fully exercised), $2.69 per share to the extent the unit purchase options are exercised (an aggregate of $1,113,660 if they are fully exercised) and $2.79 per share to the extent the warrants included in the unit purchase options are exercised (an aggregate of $1,115,060 if they are fully exercised). We intend to use the proceeds from the exercise of the warrants, as well as from the unit purchase options and from the exercise of the warrants issuable upon exercise of the unit purchase options, for working capital. See "Use of Proceeds." Risk Factors........................................ The securities offered under this prospectus involve a high degree of risk. You should carefully consider the factors beginning on the following page.
-5- FORWARD-LOOKING STATEMENTS Some of the information in this prospectus and in the documents we have incorporated by reference in the section "Where You Can Find More Information About Us" may contain forward-looking statements. Such statements can be generally identified by the use of forward-looking words like as "may," "should," "plan," "expect," "anticipate," "intend," "estimate," "potential," "believe" or other similar words and the negative of those words. These statements discuss future expectations or state other "forward-looking" information. When considering those statements, you should keep in mind the risk factors and other cautionary statements in this prospectus and in the documents we have incorporated by reference. The risk factors discussed below and other factors noted in this prospectus and the documents which we have incorporated by reference could cause our actual results to differ materially from those contained in any forward-looking statements. RISK FACTORS BEFORE YOU BUY ANY OF THE SECURITIES OFFERED BY THIS PROSPECTUS, YOU SHOULD BE AWARE THAT THERE ARE VARIOUS RISKS ASSOCIATED WITH THAT PURCHASE, INCLUDING THOSE DESCRIBED BELOW. YOU SHOULD CONSIDER CAREFULLY THESE RISK FACTORS, TOGETHER WITH ALL OF THE OTHER INFORMATION IN THIS PROSPECTUS AND THE DOCUMENTS WE HAVE INCORPORATED BY REFERENCE IN THE SECTION "WHERE YOU CAN FIND MORE INFORMATION ABOUT US" BEFORE YOU DECIDE TO PURCHASE ANY OF THE SECURITIES. IF ANY OF THE RISKS DISCUSSED BELOW OR IN OUR OTHER SEC FILINGS OCCUR, OR IF UNFORESEEN EVENTS OCCUR, OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS COULD BE MATERIALLY AND ADVERSELY AFFECTED. IN THAT EVENT, THE MARKET PRICE OF OUR COMMON STOCK COULD DECLINE, IN WHICH CASE THE VALUE OF YOUR INVESTMENT MAY DECLINE AS WELL. WE CANNOT ASSURE YOU THAT WE CAN REVERSE OUR RECENT HISTORY OF LOSSES --------------------------------------------------------------------- While we reported a profit for our third quarter of our fiscal 2000 year, we have reported the following net losses applicable to common stockholders for the last three fiscal years and overall for the first nine months of fiscal 2000: Fiscal Year Ended: June 27, 1997 $ 856,000 June 26, 1998 $5,142,000 June 25, 1999 $6,402,000 Nine Months Ended: March 31, 2000 $ 833,000 Our results of operations were affected by several factors in our 1997, 1998 and 1999 fiscal years. CERTAIN FACTORS AFFECTING FISCAL 1997 RESULTS. During fiscal 1997, Access Network Technologies, Inc. ("ANT"), a joint venture between Lucent Technologies, Inc. and Raychem Corporation (now part of Tyco International Ltd.), was dissolved. We had entered into a strategic agreement with ANT in 1995 to develop and manufacture advanced overvoltage surge protectors. While we and Raychem have continued to manufacture and market the products without the participation of Lucent, the dissolution of ANT caused us to increase our allowance for the inventory that was produced for ANT and to put into effect certain measures to reduce costs. The cost reduction measures included a reduction of personnel, the movement of certain production processes to our facility in the Dominican Republic, the outsourcing of certain manufacturing steps, the realignment of our sales and marketing force and the discontinuance of certain lower margin products. These actions resulted in charges of $3.0 million. -6- CERTAIN FACTORS AFFECTING FISCAL 1998 RESULTS. To meet our customers' needs, we introduced a line of broadband NIDs with features and functionality that we believe were instrumental in our winning major contracts in July and September of 1997 with a Regional Bell Operating Company and an independent telecommunications company, respectively, each of which was a preexisting unaffiliated customer. For strategic purposes, we accepted orders under one of these contracts that we believed we could fulfill under an aggressive delivery time schedule that mandated us to seek to accelerate production. Beginning in the fourth quarter of fiscal 1997 and continuing through fiscal 1998, we incurred additional manufacturing expenses in gearing up toward the accelerated production of our new broadband NID product line, compounded, in the second quarter of fiscal 1998, by production disruptions as we sought to meet the customers' requested delivery schedules. While we resolved most of the production disruption issues toward the end of that second quarter, during the third and fourth quarters of fiscal 1998, we continued to experience certain yield losses, costs associated with expedited third party production of certain injection molded parts and added costs to air freight products to meet customer delivery requirements. CERTAIN FACTORS AFFECTING FISCAL 1999 RESULTS. During the fourth quarter of fiscal 1999, we initiated a strategic operations re-alignment in an effort to enhance operating efficiencies and reduce costs. These results are expected to be achieved through outsourcing a significant portion of our production, closing our Dominican Republic facility, workforce reductions and other cost-saving measures throughout TII. Under this plan, we have reduced our workforce from approximately 1,165 employees as of April 23, 1999 to approximately 255 at June 30, 2000. As a result, we recorded a charge to earnings of $6.0 million in fiscal 1999. This charge was partially offset by two non-recurring gains: o On September 21 and 22, 1998, our principal operating facilities in Puerto Rico and the Dominican Republic, respectively, sustained significant inventory, equipment and facility damages as a result of Hurricane Georges. In addition, as a result of the storm, we experienced production stoppages throughout the second quarter of fiscal 1999 and periods of less than full production continuing into the fiscal 1999 third quarter. Damaged inventory, business interruption losses, fees payable to our insurance advisors, losses to plant and equipment and other expenses incurred totaled $17.9 million. We received insurance payments of $19.3 million with respect to the losses sustained, including lost profits. Accordingly, insurance proceeds, net of hurricane losses and expenses, resulted in a gain of $1.4 million in fiscal 1999. o In order to focus on our core business, we sold substantially all of the assets of our fiber optic enclosures subsidiary, TII-Ditel, Inc., in March 1999 for $5.3 million, resulting in a gain of $2.2 million. RISKS ASSOCIATED WITH THE OWNERSHIP OF OUR COMMON STOCK ------------------------------------------------------- WE DO NOT ANTICIPATE PAYING DIVIDENDS. We intend to retain any future earnings for use in our business. As a result, we do not anticipate paying any cash dividends in the foreseeable future. In addition, our credit facility prohibits us from declaring and paying any dividends. THERE IS NO ASSURANCE OF CONTINUED NASDAQ LISTING OF OUR COMMON STOCK. Although we are currently in compliance with the Nasdaq National Market continuing listing requirements, we cannot assure you that our common stock will continue to be quoted on Nasdaq. -7- Among other things, our common stock is required to have a minimum bid price of at least $1.00 per share except during certain limited periods. The price range of our common stock on the Nasdaq National Market since the beginning of our 1998 fiscal year is indicated under "Price Range of our Common Stock." If we fail to maintain a Nasdaq listing by reason of the price of our common stock, our common stock will likely be traded on the Nasdaq OTC Bulletin Board. As a result, the market value of our common stock could decline and securityholders may find it more difficult to dispose of, or to obtain accurate quotations as to the market value of, our common stock. IF OUR COMMON STOCK CEASES TO BE LISTED ON NASDAQ, IT COULD BE SUBJECT TO "PENNY STOCK" REGULATIONS. Broker/dealer practices in connection with transactions in "penny stocks" are regulated by certain penny stock rules adopted by the Securities and Exchange Commission. Penny stocks generally are equity securities with a price of less than $5.00 that are not registered on certain national securities exchanges or quoted on the Nasdaq system. Quotation on the Nasdaq OTC Bulletin Board is not sufficient to avoid being treated as a "penny stock." The penny stock rules require a broker/dealer, prior to a transaction in a penny stock, not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker/dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker/dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer's account. In addition, the penny stock rules generally require that, prior to a transaction in a penny stock, the broker/dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for a stock that becomes subject to the penny stock rules. If our securities become subject to the penny stock rules, investors in our securities may find it more difficult to sell their securities. THE PRICE OF OUR COMMON STOCK MAY CONTINUE TO BE VOLATILE. The market price of our common stock has been at times, and may in the future be, subject to wide fluctuations. See "Price Range of Our Common Stock". Factors that may adversely affect the market price of our common stock include, among other things: o quarter to quarter variations in operating results, o the occurrence of events that affect or could affect our operating results, o changes in earnings estimates by analysts, o announcements regarding technological innovations or new products, o announcements of gains or losses of significant customers or contracts, o prospects in the communications industry, o changes in the regulatory environment, o market conditions, and o the sale or attempted sale of large amounts of our common stock into the public markets. -8- THE SUBSTANTIAL NUMBER OF SHARES OF COMMON STOCK RESERVED FOR POSSIBLE FUTURE ISSUANCE BY US MAY AFFECT OUR ABILITY TO OBTAIN ADDITIONAL EQUITY FINANCING. We have reserved shares of common stock for issuance as follows: (i) 1,800,000 shares for issuance upon exercise of the 1,800,000 presently issued warrants covered by this prospectus; (ii) 414,000 shares for issuance upon exercise of the unit purchase options; (iii) 414,000 shares for issuance upon exercise of the warrants issuable upon exercise of the unit purchase options; (iv) 3,007,526 shares for issuance upon conversion of our outstanding Series C preferred stock (upon the conversion of which we may be required to issue more or fewer shares); (v) 2,954,000 shares for issuance upon exercise of stock options under our stock option plans (of which 2,772,941 shares were subject to outstanding options as of June 30, 2000); and (vi) 310,000 shares for issuance upon exercise of other issued options and warrants. As long as, and to the extent that, the warrants and unit purchase options (and warrants issuable upon exercise of the unit purchase options) remain unexercised, our ability to obtain additional capital might be adversely affected. Moreover, the holders of the warrants and unit purchase options (and warrants issuable upon exercise of the unit purchase options) may be expected to exercise them at a time when we would, in all likelihood, be able to obtain any needed capital through a new offering of our securities on terms more favorable than those provided by the warrants and unit purchase options (and warrants issuable upon exercise of the unit purchase options). THE EXERCISE OR CONVERSION OF OUR WARRANTS, OPTIONS AND CONVERTIBLE PREFERRED STOCK COULD DILUTE THE EARNINGS PER SHARE, BOOK VALUE PER SHARE AND VOTING POWER OF OUR OUTSTANDING COMMON STOCK AND AFFECT OUR ABILITY TO RAISE CAPITAL. The issuance of additional shares of our common stock, and the existence of the warrants, the unit purchase options, our employee stock options, our other warrants and options and convertible securities exercisable for or convertible into our common stock at a per share price below the market price of our common stock at the end of a fiscal period could reduce our earnings, if any, per share. Also, the issuance of our common stock at a price below our then book value ($2.69 per share at March 31, 2000) would reduce our book value per share. Issuances of common stock will also reduce the voting power and interest in our equity of other outstanding common stock, the degree of which dilution will depend on the number of shares of common stock we are required to issue. For the term of the warrants and unit purchase options, their holders will have the opportunity to profit from a rise in the market price of our common stock without assuming the risk of ownership of any of our common stock, with a resulting dilution in the interest of other security holders. The warrants issued in the private placement and those subject to the unit purchase options entitle the holders to purchase 2,214,000 shares of our common stock at a price of $2.79 per share and the 414,000 shares of our common stock issuable upon exercise of the unit purchase options are purchasable at $2.69 per share. Our other outstanding options, other than those subject to our stock option plans, and warrants entitle the holders to purchase an aggregate of 310,000 shares of our common stock at prices ranging from $2.50 to $7.03 per share and the stock options outstanding under our stock option plans at June 30, 2000 entitle their holders to purchase an aggregate of 2,772,941 shares of our common stock at an average exercise price of $2.08 per share. Through June 30, 2000, we have issued a total of 1,772,474 shares of our common stock with respect to the conversion of 3,374 shares of Series C preferred stock at an average conversion price of $1.90 per share. There remain outstanding 1,626 shares of Series C preferred stock, which are convertible at the option of their holders at the lower of $5.58 per share or 95% of the average of the closing bid prices of our common stock during the ten consecutive trading days immediately preceding the conversion date. Had all 1,626 shares been converted on June 30, 2000, we would have been required to issue an aggregate of 850,474 shares of our common stock at a conversion price of $1.91 per share. -9- THE PRICE OF YOUR STOCK MAY BE ADVERSELY AFFECTED BY THE SALE OF SHARES ELIGIBLE FOR FUTURE SALE. Sales, or the availability for sale, of a substantial number of shares of our common stock in the public market, could adversely affect the market price for our common stock. Of our 11,680,484 outstanding shares of common stock as of June 30, 2000, 8,507,228 shares are freely tradeable without restriction under the Securities Act of 1933. In addition, the 1,800,000 shares issued in the private placement can be sold by delivering a copy of this prospectus and 500,000 shares, owned by Alfred J. Roach and Timothy J. Roach, officers and directors of us, can be sold by delivering a prospectus under another registration statement. Of our remaining 873,256 outstanding shares of our common stock, 819,685 are owned by persons who may be deemed to be our "affiliates" (including Alfred J. Roach and Timothy J. Roach) and are presently eligible for sale under Rule 144, subject to Rule 144's volume and other limitations, and 53,571 shares are owned by an unaffiliated third party and will become eligible for sale under Rule 144 commencing on June 27, 2001. Alfred J. Roach and Timothy J. Roach have agreed, in connection with the closing of the private placement, not to transfer any shares beneficially owned by them until twelve months after the date of this prospectus without obtaining the prior approval of the placement agent. We have also registered, for possible future issuance under the Securities Act: o 2,628,000 shares covered by this prospectus, of which 1,800,000 shares are issuable upon the exercise of the warrants issued in the private placement, 414,000 shares are issuable upon exercise of the unit purchase options and 414,000 shares are issuable upon exercise of the warrants included in the unit purchase options, all of which shares will be freely tradeable, subject to prospectus delivery requirements, upon issuance; and o 2,954,000 shares of common stock subject to our stock option plans (of which 2,772,941 shares were subject to outstanding options as of June 30, 2000). Any of those shares issued upon the exercise of options by persons who are not our affiliates will be freely tradeable upon issuance and any of those shares issued to our affiliates (815,000 of which are held by Alfred J. Roach and Timothy J. Roach and are subject to the transfer restrictions described above) will be eligible for sale under Rule 144 without any further holding period but subject to certain volume and other limitations. Furthermore, we have registered for potential resale following their issuance: o 3,007,526 shares of our common stock which may be issued upon conversion of our 1,626 outstanding shares of Series C preferred stock (this will cover all shares we may be required to issue if the conversion price should become as low as $.54 per share); o 200,000 shares of our common stock which may be issued upon the exercise of certain other warrants to purchase those shares until January 25, 2001 at an exercise price of $7.03 per share; and o 10,000 shares of our common stock subject which may be issued upon the exercise of certain other warrants to purchase those shares until July 15, 2001 at an exercise price of $6.46 per share. REDEMPTION OF OUR SERIES C PREFERRED STOCK WOULD RESULT IN A REDUCTION IN OUR CASH AND NET WORTH AND POSSIBLE LOSS OF OUR CREDIT FACILITY. The holders of Series C preferred stock may require us to redeem any shares of Series C preferred stock if: o we fail to maintain our listing on the Nasdaq National Market or, if applicable, the New York or American Stock Exchanges (see "There is no assurance of continued Nasdaq listing of our common stock"), -10- o we fail to maintain the effectiveness of the registration statements covering resale of our common stock underlying our Series C preferred stock for, in general, a period of ten consecutive trading days, o we do not comply with requests for conversion of any Series C preferred stock, o we engage in a merger, consolidation or other business combination with and into another company, o we sell or transfer all or substantially all of our assets, or o a purchase or exchange offer is made and accepted by the holders of more than 50% of our outstanding shares of common stock. The redemption price per share of Series C preferred stock will be equal to the greater of $1,150 per share of Series C preferred stock or the closing bid price at specified times of the shares of our common stock which we would otherwise have issued upon conversion of the Series C preferred stock we redeem. Redemptions of Series C preferred stock will result in a utilization of our then existing cash since our existing bank credit facility prohibits us from borrowing for that purpose, and will also reduce our net worth which, if combined with other factors could cause us to lose our existing bank credit facility if we can not obtain the bank's consent. See "We Could Lose Our Existing Credit Facility if Our Tangible Net Worth Declines." THE ANTI-TAKEOVER PROVISIONS IN OUR CERTIFICATE OF INCORPORATION AND UNDER DELAWARE LAW MAY DISCOURAGE OR PREVENT TAKEOVER OFFERS WHICH COULD INCREASE THE PRICE OF OUR STOCK IF THOSE PROVISIONS DID NOT EXIST. Our certificate of incorporation and the Delaware General Corporation Law contain provisions that, while intended to enable our Board of Directors to maximize securityholder value, could discourage or prevent any attempts by outsiders to obtain control of us through mergers, tender offers, proxy contests and other means and could prevent or delay changes in our management. Generally, attempts to obtain control of a company results in securityholders obtaining a premium above the market price of a company's stock before the attempt is made. These provisions include the following which are described in greater detail under the caption "Description of Securities": o a shareholder rights plan; o the ability to issue preferred stock with terms fixed by our Board of Directors at the time of their issuance without further securityholder authorization; o a supermajority vote to authorize certain transactions; o a classified Board of Directors; o a requirement that directors may be removed only by stockholders for cause; o the benefits of Delaware's "anti-takeover" statutory provisions. -11- RISKS ASSOCIATED WITH THIS OFFERING ----------------------------------- ABSENT AN EXEMPTION, THE WARRANTS, UNIT PURCHASE OPTIONS AND WARRANTS ISSUABLE UPON EXERCISE OF THE UNIT PURCHASE OPTIONS CAN ONLY BE EXERCISED IF THERE IS A CURRENT PROSPECTUS AVAILABLE AND WE MAKE ANY REQUIRED STATE "BLUE SKY" FILINGS. The warrants, unit purchase options and warrants issuable upon exercise of the unit purchase options are not exercisable unless, at the time of exercise, we have a current prospectus covering our issuance to their holders of the shares of common stock issuable upon their exercise in effect and current, or there is an available exemption from registration applicable to their issuances under the Securities Act of 1933. Also, if required, the shares must be registered or qualified, or exempt from registration and qualification, under the securities or "blue sky" laws of the jurisdiction of residence of the exercising holder. Although we have caused all of the shares of common stock issuable upon exercise of the warrants, unit purchase options and warrants issuable upon exercise of the unit purchase options to be registered under the registration statement of which this prospectus forms a part and have used our best efforts to cause those shares to be qualified under applicable "blue sky" laws and have agreed to use our best efforts to maintain a current prospectus relating thereto until the expiration of the warrants, unit purchase options and warrants issuable upon exercise of the unit purchase options, there is no assurance that we will be able to do so. The value of the warrants, unit purchase options and warrants issuable upon exercise of the unit purchase options may be greatly reduced if a current prospectus covering the common stock issuable upon their exercise is not kept effective or if those securities are not qualified or exempt from qualification in the states in which their holders reside. See "Description of Securities - The Warrants." THERE ARE POTENTIAL ADVERSE EFFECTS IF WE ELECT TO REDEEM WARRANTS Beginning June 8, 2001, we may redeem outstanding warrants at a price of $0.01 per share upon 20 days' prior written notice after the common stock has traded at a closing bid price equal to or greater than 200% of the then exercise price of the warrants for a period of at least 20 consecutive trading days, provided that the shares of common stock and the warrants sold in the private placement are then the subject of an effective registration statement filed with the Securities and Exchange Commission and our common stock is then listed on a national securities exchange, the Nasdaq National Market, the Nasdaq SmallCap Market or quoted on the OTC Bulletin Board or similar electronic facility. If the warrants are redeemed, holders of the warrants will lose their rights to exercise the warrants. Upon receipt of a notice of redemption, holders would be required to (a) exercise the warrants and pay their exercise price at a time when it may be disadvantageous for them to do so, (b) sell the warrants at the then current market price, if any, when they might otherwise wish to hold the warrants or (c) accept the redemption price which is likely to be substantially less than the market value of the warrants prior to the notice of redemption . See "Description of Securities - The Warrants." NO PUBLIC MARKET EXISTS FOR THE WARRANTS, UNIT PURCHASE OPTIONS OR WARRANTS ISSUABLE UPON EXERCISE OF THE UNIT PURCHASE OPTIONS, AND THERE ARE RESTRICTIONS ON THE TRANSFERABILITY OF THOSE SECURITIES. There is no public market for the warrants, unit purchase options or warrants issuable upon exercise of the unit purchase options and no market therefor is likely to develop. The warrants, unit purchase options and warrants issuable upon exercise of the unit purchase options may be sold only to "accredited investors," within the meaning of Rule 501 under the Securities Act of 1933, even though registered under this prospectus. Therefore, purchasers of warrants, the unit purchase options and warrants issuable upon exercise of the unit purchase options should assume that those securities may have to be sold in a private transaction or held until exercised or redeemed. See "Description of Securities - The Warrants; Unit Purchase Options." -12- THE PLACEMENT AGENT MAY HAVE SIGNIFICANT INFLUENCE ON THE MARKET FOR OUR COMMON STOCK. The common stock and warrants sold by us in the private placement were sold to customers of the placement agent, some of whom are employees or affiliates of the placement agent. Therefore, it may be expected that customers of the placement agent may engage in transactions for the sale or purchase of our common stock and the warrants through or with the placement agent. If the placement agent participates in the market, the placement agent may exert a significant influence on the market for our common stock and, if one develops, for warrants. Such a market-making activity may be discontinued at any time. The price and liquidity of our common stock and warrants may be significantly affected by the degree, if any, of the placement agent's participation in the market. WE COULD LOSE OUR EXISTING CREDIT FACILITY IF OUR TANGIBLE NET WORTH DECLINES ----------------------------------------------------------------------------- We currently have a credit facility in the amount of $7.5 million, consisting of a $1.5 million term loan and a $6.0 million revolving credit facility. The revolving credit facility is limited by a borrowing base equal to 85% of eligible accounts receivable and 50% of eligible inventory, subject to reserves. At June 30, 2000, there were no borrowings outstanding under the revolving credit facility and the principal amount outstanding under the term loan was $1.5 million. The scheduled maturity date of the term loan is March 31, 2003 and of any revolving credit loans will be April 30, 2003. The credit facility requires us to maintain a tangible net worth of $21.0 million. As of March 31, 2000, our tangible net worth was approximately $26.2 million. Adjusted to give effect to the completion of the private placement (after estimated costs and expenses, including the placement agent's compensation) and the conversion after March 31, 2000 of a $750,000 loan into our common stock, our tangible net worth at March 31, 2000 would have been approximately $29.5 million. Our tangible net worth will also be increased by the exercise price of any warrants or unit purchase options or warrants underlying the unit purchase options if and when any are exercised. If operating losses we experienced prior to our quarter ended March 31, 2000 again occur and/or if we are required to redeem any significant amount of Series C preferred stock, we may cease to be in compliance with the tangible net worth covenant. In that event, if we are unable to obtain a waiver or amendment of the covenant, we may be unable to borrow under the credit facility and may have to immediately repay all loans then outstanding under the facility. If the credit facility is not available, or if the amount we may borrow under it is not sufficient for our needs, we may require financing from other sources. Our inability to obtain the financing could have a material adverse effect on our business, results of operations and financial condition. RISKS ASSOCIATED WITH CUSTOMERS AND CUSTOMER AGREEMENTS ------------------------------------------------------- OUR DEPENDENCE UPON KEY CUSTOMERS AND LACK OF LONG TERM COMMITMENTS WITH THEM MAKES IT EASIER FOR THOSE CUSTOMERS TO CEASE OR REDUCE PURCHASES FROM US. The U.S. telephone industry is highly consolidated, with the four Regional Bell Operating Companies servicing over 85% of all subscriber lines. Currently, all four Regional Bell Operating Companies have designated one or more of our overvoltage surge protectors for use at certain of their subscriber station locations. Direct sales to the Regional Bell Operating Companies, their distributors and original equipment manufacturers have historically accounted for a substantial majority of our net sales. In most instances, our sales are made under open purchase orders received from time to time from our customers under master supply contracts which cover one or more of our products. Some of those contracts permit the customer to terminate the contract due to (a) the availability of more advanced technology or (b) our inability to deliver a product that meets the specifications on time. Although most of our master supply contracts control terms such as the purchase price, they do not establish minimum purchase commitments. Certain supply contracts provide that the customer may terminate the contract at any time upon notice. -13- The loss of one or more Regional Bell Operating Company as purchasers of our products, or a substantial decrease in the orders received from those purchasers, could have a material adverse effect on our business, results of operations and financial condition. WE HAVE CERTAIN CONTRACTUAL LIMITATIONS ON PRICE INCREASES, WHICH COUPLED WITH PRICING PRESSURES, COULD ADVERSELY AFFECT OUR GROSS PROFIT MARGINS. Pricing pressures in the markets in which we operate are intense due in part to the consolidation of various telephone companies and their resulting purchasing power. Our master contracts generally prohibit us from increasing the price of our products to be sold under the contract for stated periods of time. Accordingly, any significant increase in our costs during those periods, without offsetting price increases, could adversely affect our gross profit margins. In addition, some of our contracts with the Regional Bell Operating Companies contain declining price provisions which also could adversely affect our gross margins if we cannot achieve corresponding reductions in unit manufacturing costs. RISKS ASSOCIATED WITH THE OVERVOLTAGE SURGE PROTECTORS INDUSTRY --------------------------------------------------------------- TECHNOLOGICAL CHANGES PERTAINING TO OUR OVERVOLTAGE SURGE PROTECTORS COULD RENDER THEM OBSOLETE. Our overvoltage surge protectors are based principally on gas tube technology. Solid state surge protectors have been developed for use in the telecommunications industry as a competitive technology to gas tubes. While solid state overvoltage surge protectors are faster at reacting to surges, gas tube overvoltage surge protectors have generally remained the surge protection technology of choice by most telephone companies because of the gas tube's ability to withstand significantly higher energy surges than solid state overvoltage surge protectors. However, as communications equipment becomes more complex, the speed of the protector in reacting to a surge may be perceived to be more critical than its energy handling capabilities. Also, solid state protectors can be combined with gas tubes into a hybrid overvoltage surge protector module. While hybrid surge protectors are generally more expensive and complex than gas tube surge protectors, the hybrid unit can combine the speed of a solid state unit with the energy handling capability of a gas tube unit. Although we have developed solid state and hybrid surge protectors, the development by competitors of similar products with increased energy handling capabilities, or the development of lower cost, more reliable hybrid surge protectors, could adversely affect our sales. NEW PRODUCT INTRODUCTIONS BY US AND EVOLVING INDUSTRY STANDARDS COULD BE COSTLY AND AFFECT OUR RELATIONSHIP WITH CUSTOMERS. We continually seek to improve our existing products and develop new products and enhancements to meet the needs of our customers and the marketplace. However, we cannot assure you that we will be able to respond timely to changing industry and customer needs. The market for our products is characterized by changing technology, evolving industry standards, changes in customer requirements, and product introductions and enhancements. Our success will depend, in large measure, upon our ability to timely: o identify and develop new, competitively priced products to keep pace with changes in technology and customer preferences, o enhance our current product offerings, and o develop new products that address our customers' needs for additional functionality and new technologies. In addition, product development cycles can be lengthy and are subject to changing requirements and unforeseen factors which can result in delays. Also, new products or features may contain defects -14- that, despite testing, are discovered only after a product has been installed and used by customers. Such delays, undetected defects or product recalls could have a material adverse effect on our business, results of operations and financial condition. WE FACE SIGNIFICANT COMPETITION ------------------------------- We are subject to significant competition with respect to all of our products. Specifically, a substantial portion of our overvoltage surge protectors are used in network interface devices which are manufactured by our competitors. Some of those competitors also market overvoltage surge protectors and station electronics. Most of our competitors and many of those who could enter the market in which we operate are well-established suppliers to the telephone companies. In addition, most are, or are part of, large corporations which have substantially greater assets, financial resources and larger sales forces, manufacturing facilities and research and development staffs than we have. As a result, the entry of any of those companies into the overvoltage surge protector market could reduce our sales. RISKS ASSOCIATED WITH OUR MANUFACTURING PROCESS AND INTERNATIONAL OPERATIONS ---------------------------------------------------------------------------- OFFSHORE MANUFACTURING POSES A NUMBER OF RISKS. Until earlier this year we had been producing all our overvoltage surge protectors, NIDs and station electronics at our facilities in Puerto Rico and the Dominican Republic. During fiscal 1999, we initiated a strategic operations re-alignment in an effort to enhance operating efficiencies and reduce costs. The plan includes outsourcing a significant portion of our production, closing our Dominican Republic facility, divesting our injection molding and metal stamping operations, and effecting workforce reductions and other cost-saving measures throughout our company. As of June 30, 2000, we had substantially completed this re-alignment. As a result, we had incurred significant charges to our 1999 fiscal year reported earnings in connection with effectuating this realignment. While we continue to produce our gas tubes at our facility in Puerto Rico, we have retained a United States company operating in China to be the principal manufacturer of our products. We depend on our contract manufacturer for timely delivery of high quality product. As a result, we are subject to risks of doing business outside the United States, including the potential delays and added delivery expenses in meeting rapid delivery schedules of our customers. In addition, the production of products in China could subject us to risks arising from: o potential U.S. government sanctions, like embargoes and restrictions on importation, o potential currency fluctuations, o potential labor unrest and political instability, o potential restrictions on the transfer of funds, o export duties and quotas, and o U.S. customs and tariffs. Furthermore, production in Puerto Rico has in the past, and could in the future, be interrupted by the effects of hurricanes. Based upon the success we have experienced to date in realigning our Dominican Republic and our plastic injection molding and metal stamping operations, we have begun to consider make-versus-buy, or in-house versus outsource, decisions for many of our present processes. If and when we conclude that outsourcing a process creates substantial economic benefit to us, we may implement further restructuring projects that may or may not result in additional charges in one or more future periods. -15- WE ARE DEPENDENT UPON SUPPLIERS, THE LOSS OF WHOM COULD RESULT IN DELAYS, AFFECT OUR ABILITY TO OBTAIN COMPONENTS AND INCREASE PRICES TO US. We have no orders with suppliers of components utilized in the manufacture of our products with delivery scheduled later than a year from now. Although we believe that substantially all raw materials we use will continue to be available to us in adequate quantities at competitive prices, we cannot assure you that we will not experience delays in delivery, the absence of components or supplies or increases in prices in the future. USE OF PROCEEDS The selling securityholders will receive all net proceeds from the sale of the shares, warrants and unit purchase options offered by this prospectus. Accordingly, we will not receive any proceeds from the resale of those securities. However, we received net proceeds of approximately $2,527,000 from the private placement on June 8, 2000 of those securities. We are using those proceeds for product development, marketing and sales, primarily to promote and expand our broadband and wireless surge protection products, as well as for working capital and general corporate purposes, including acquisitions. We are not presently engaged in negotiations with respect to any potential acquisitions. We have agreed not to use those proceeds, without the approval of the placement agent, to prepay any debt for borrowed funds (other than debt under our revolving credit facility) or to pay any debt or obligation owed to officers and directors. We intend to use the proceeds, if any, from the exercise of the warrants, as well as from the exercise of the unit purchase options and the exercise of the warrants issuable upon exercise of the unit purchase options, for working capital. Pending its use, we intend to invest net proceeds from the private placement in short-term, interest-bearing obligations of investment grade. PRICE RANGE OF OUR COMMON STOCK Our common stock trades on the Nasdaq National Market under the symbol "TIII." The following table sets forth, for each quarter during our 1999 and 2000 fiscal years and for fiscal 2001 through the date shown below, the high and low sales prices of our common stock:
High Low Fiscal 1999 First Quarter Ended September 25, 1998 . . . . . . . . . . . . . . 8-1/4 1-15/16 Second Quarter Ended December 25, 1997 . . . . . . . . . . . . . . 2-5/8 1-3/8 Third Quarter Ended March 26, 1998 . . . . . . . . . . . . . . . . 2-23/32 1-9/16 Fourth Quarter Ended June 25, 1998 . . . . . . . . . . . . . . . . 2-7/16 1-1/2 Fiscal 2000 First Quarter Ended September 24, 1999 . . . . . . . . . . . . . 2 1-1/2 Second Quarter Ended December 31 , 1999 . . . . . . . . . . . . . 1-5/8 1 Third Quarter Ended March 31, 2000 . . . . . . . . . . . . . . . 3-3/8 1-1/8 Fourth Quarter through June 30, 2000 . . . . . . . . . . . . . . 4-3/16 1-5/8 Fiscal 2001 First Quarter through July 20, 2000 . . . . . . . . . . . . . . . 3 1-15/16
As of June 30, 2000, we had approximately 600 holders of record of our Common Stock. -16- To date, we have paid no cash dividends. For the foreseeable future, we intend to retain all earnings generated from operations for use in our business. Additionally, our borrowing arrangements prohibit the payment of dividends until the related indebtedness has been repaid in full. SHARES ELIGIBLE FOR FUTURE SALE Of our 11,680,484 outstanding shares of common stock as of June 30, 2000, 8,507,228 shares are freely tradeable without restriction under the Securities Act of 1933. In addition, the 1,800,000 shares issued in the private placement can be sold by delivering a copy of this prospectus and 500,000 shares, owned by Alfred J. Roach and Timothy J. Roach, officers and directors of TII, can be sold by delivering a prospectus under another registration statement. Of our remaining 873,256 outstanding shares of our common stock, 819,685 are owned by persons who may be deemed to be our "affiliates" (including Alfred J. Roach and Timothy J. Roach) and are presently eligible for sale under Rule 144, subject to Rule 144's volume and other limitations, and 53,571 shares are owned by an unaffiliated third party and will become eligible for sale under Rule 144 commencing on June 27, 2001. Alfred J. Roach and Timothy J. Roach have agreed, in connection with the closing of the private placement, not to transfer any shares beneficially owned by them until twelve months after the date of this prospectus without obtaining the prior approval of the placement agent. We have also registered, for possible future issuance under the Securities Act: o 2,628,000 shares covered by this prospectus, of which 1,800,000 shares are issuable upon the exercise of the warrants issued in the private placement, 414,000 shares are issuable upon exercise of the unit purchase options and 414,000 shares are issuable upon exercise of the warrants included in the unit purchase options, all of which shares will be freely tradeable, subject to prospectus delivery requirements, upon issuance; and o 2,954,200 shares of common stock subject to our stock option plans (of which 2,772,941 shares were subject to outstanding options as of June 30, 2000). Any of those shares issued upon the exercise of options by persons who are not our affiliates will be freely tradeable upon issuance and any of those shares issued to our affiliates (815,000 of which are held by Alfred J. Roach and Timothy J. Roach and are subject to the transfer restrictions described above) will be eligible for sale under Rule 144 without any further holding period but subject to certain volume and other limitations. Furthermore, we have registered for potential resale following their issuance: o 3,007,526 shares of our common stock which may be issued upon conversion of our 1,626 outstanding shares of Series C preferred stock (this will cover all shares we may be required to issue if the conversion price should become as low as $.54 per share); o 200,000 shares of our common stock which may be issued upon the exercise of certain other warrants to purchase those shares until January 25, 2001 at an exercise price of $7.03 per share; and o 10,000 shares of our common stock subject which may be issued upon the exercise of certain other warrants to purchase those shares until July 15, 2001 at an exercise price of $6.46 per share. -17- PRIVATE PLACEMENT On June 8, 2000, we completed a private placement of 1,800,000 units, each unit consisting of one share of our common stock and one warrant to purchase a share of our common stock. The offering price per unit was 25% below the average of the mean between the closing bid and closing asked prices of our common stock for the five consecutive trading days ending on the last trading day prior to the closing of the offering, with a minimum offering price of $1.75 and a maximum offering price of $3.00 per unit. The final unit purchase price was $1.75. The closing price of our common stock on the Nasdaq National Market on June 8, 2000, the closing date of the private placement, was $2.34 per share. Each warrant entitles its holder to purchase, between December 9, 2000 and December 8, 2004, one share of our common stock at an exercise price of $2.79, subject to possible prior redemption and possible adjustment of the number of shares issuable upon exercise, and the exercise price, of the warrants if certain events occur. See "Description of the Securities - The Warrants." In connection with the private placement, we agreed to file the registration statement of which this prospectus is a part and to bear all fees and expenses incurred by us in connection with the preparation of the registration statement and up to $15,000 of the fees of special counsel for all holders of the securities registered. The holders of the common stock and warrants are also entitled, if at any time after December 5, 2000 the registration statement of which this prospectus forms a part shall not be effective, to have the securities which they are entitled to have registered included in any registration statement we file with the SEC for an offering of securities, subject to the right of any underwriters of that offering to require the holders to delay the sale of their securities for a period of 90 days after that registration statement is declared effective by the SEC. PLACEMENT AGENT ARRANGEMENTS M.H. Meyerson & Co., Inc. served as placement agent for the private placement. For its services, the placement agent received a 5% commission ($157,500); a 3% placement manager fee ($94,500); and a 2% non-accountable expense allowance ($63,000); and we reimbursed the placement agent for its legal, advertising and promotion expenses incurred of $134,823. Certain of the placement agent's employees and affiliates also received 414,000 options, each placement agent option entitling its holder to purchase, between December 9, 2000 and December 8, 20004, one share of our common stock and one warrant (containing the same terms as the warrants issued in the private placement) to purchase one additional share of our common stock at an exercise price of $2.69, subject to possible adjustment of the number of shares issuable upon exercise, and the exercise price, of the unit purchase options if certain events occur. See "Description of the Securities - Unit Purchase Options." We also agreed to pay to the placement agent a warrant solicitation fee of 4% of the exercise price of the warrants for each warrant exercised, other than those issued upon the exercise of the unit purchase options. In addition, we granted the placement agent a 30 day right of first refusal to underwrite or place any future offerings until March 7, 2001. Also, until June 7, 2003 (or such earlier time as 75% of the warrants have been exercised), at our discretion, we are to either (i) appoint a person to our Board of Directors that is mutually agreeable to the placement agent and us, or (ii) if such a person is not appointed, permit the placement agent to send a representative to observe each meeting of our Board of Directors. The placement agent will also be paid "source fees" if potential investors in the private placement introduced to us by the placement agent make subsequent investments in us before June 8, 2002. See "Plan of Distribution." -18- SELLING SECURITYHOLDERS The following table contains information regarding the selling securityholders' ownership of (a) shares of our common stock (excluding the shares issuable upon exercise of warrants and unit purchase options issued in the private placement and shares issuable upon exercise of the warrants issuable upon exercise of the unit purchase options), (b) warrants (exclusive of warrants issuable upon exercise of the unit purchase options) and (c) unit purchase options, each as of July 20, 2000, and to be sold hereunder. Following those sales, none of the selling securityholders will own one percent or more of our common stock, warrants or unit purchase options.
Common Securities Beneficially Owned (1) Securities to be Sold (2) Stock to be Unit Unit Owned After Common Purchase Common Purchase After Name Stock Warrants Options Stock Warrants Options Offering(3) - ---- ----- -------- ------- ----- -------- ------- ----------- ARS Revocable Family Trust................ 14,285 14,285 --- 14,285 14,285 --- 0 George L. Ball............................ 14,285 14,285 --- 14,285 14,285 --- 0 Jeffrey Barber and David Prado............ 14,285 14,285 --- 14,285 14,285 --- 0 Mark Berg................................. 42,857 42,857 --- 42,857 42,857 --- 0 Paul Bernstein and Judith Bernstein....... 11,428 11,428 --- 11,428 11,428 --- 0 Julian Marie Breslow...................... 5,714 5,714 --- 5,714 5,714 --- 0 Anthony Charos............................ 14,285 14,285 --- 14,285 14,285 --- 0 Delaware Charter Guarantee & Trust Co v FBO Kevin T. Charos IRA..................... 14,285 14,285 --- 14,285 14,285 --- 0 T. Hugh Crawford and Maria G. Crawford 14,285 14,285 --- 14,285 14,285 --- 0 Michael Cunningham........................ 28,571 28,571 --- 28,571 28,571 --- 0 Salvatore Dacunto......................... 14,285 14,285 --- 14,285 14,285 --- 0 William M. DeArman........................ 14,285 14,285 --- 14,285 14,285 --- 0 Donehew Fund Limited Partnership.......... 57,142 57,142 --- 57,142 57,142 --- 0 Robert H. Donehew......................... 15,428 15,428 --- 15,428 15,428 --- 0 James Doolan.............................. 5,714 5,714 --- 5,714 5,714 --- 0 Delaware Charter Guarantee & Trust Company Profit Sharing Plan for Empire Medical Diagnostic Employee Benefit Plan........ 14,285 14,285 --- 14,285 14,285 --- 0 Galt Asset Management LLC................. 57,142 57,142 --- 57,142 57,142 --- 0 R. Dave Garwood........................... 14,285 14,285 --- 14,285 14,285 --- 0 Generation Capital Associates............. 57,142 57,142 --- 57,142 57,142 --- 0 Steven Gersten............................ 11,428 11,428 --- 11,428 11,428 --- Stephen and Celeste Goldman............... 9,428 9,428 --- 9,428 9,428 --- 0 Barry Goldsmith and Florence Goldsmith.... 5,428 5,428 --- 5,428 5,428 --- 0 Eric Logan, Vincent Gugliemini and Marco Gugliemini.............................. 14,285 14,285 --- 14,285 14,285 --- 0 Howard Halle.............................. 14,285 14,285 --- 14,285 14,285 --- 0 Janice Halle-Nesses....................... 57,142 57,142 --- 57,142 57,142 --- 0 Paul W. Hawran............................ 28,571 28,571 --- 28,571 28,571 --- 0 The Heller Family Foundation.............. 71,428 71,428 --- 71,428 71,428 --- 0 Ronald Heller............................. --- --- 117,990 --- --- 117,990 0 Evan Todd Heller 1997 Trust(4)............ 71,428 71,428 --- 71,428 71,428 --- 0 Rachel Beth Heller 1997 Trust(4).......... 14,285 14,285 --- 14,285 14,285 --- 0 James Hoover.............................. 98,152 65,952 --- 65,952 65,952 --- 32,200 The Margaret C. Houlding 1993 Trust....... 14,285 14,285 --- 14,285 14,285 --- 0 J.N. Savasta Corp......................... 5,714 5,714 --- 5,714 5,714 --- 0 Peter Janssen IRA......................... 22,857 22,857 --- 22,857 22,857 --- 0 Archie Joyner............................. 5,714 5,714 --- 5,714 5,714 --- 0 George Kafkarkou.......................... 11,428 11,428 --- 11,428 11,428 --- 0 Richard M. Kirshner....................... 8,571 8,571 --- 8,571 8,571 --- 0
-19-
Common Securities Beneficially Owned (1) Securities to be Sold (2) Stock to be Unit Unit Owned After Common Purchase Common Purchase After Name Stock Warrants Options Stock Warrants Options Offering(3) - ---- ----- -------- ------- ----- -------- ------- ----------- Jacqueline Knapp.......................... 57,142 57,142 --- 57,142 57,142 --- 0 Larry Kupferberg(4)....................... 28,571 28,571 --- 28,571 28,571 --- 0 Joseph D. Mark............................ 14,285 14,285 14,285 14,285 --- 0 Martan & Co............................... --- --- 70,380 --- --- 70,380 0 Joseph Messina............................ --- --- 4,140 --- --- 4,140 0 Delaware Charter Guarantee & Trust Co FBO Jeffrey E. Meyerson IRA................. 14,285 14,285 --- 14,285 14,285 --- 0 Delaware Charter Guarantee & Trust Co FBO Martin H. Meyerson...................... 28,571 28,571 --- 28,571 28,571 --- 0 Martin H. Meyerson IRA.................... --- --- 78,660 --- --- 78,660 0 David Murdock............................. 14,285 14,285 --- 14,285 14,285 --- 0 David S. Nagelberg........................ --- --- 117,990 --- --- 117,990 0 Delaware Charter Guarantee & Trust Co FBO David S. Nagelberg IRA.................. 85,714 85,714 --- 85,714 85,714 --- 0 David Nagelberg as custodian for Jenna C. Nagelberg............................... 37,428 37,428 --- 37,428 37,428 --- 0 David S. Nagelberg as custodian for Jeremy Nagelberg............................... 34,086 34,086 --- 34,086 34,086 --- 0 Delaware Charter Guarantee & Trust Co FBO Nagelberg Family Trust.................. 28,571 28,571 --- 28,571 28,571 --- 0 Delaware Charter Guarantee & Trust Co FBO Murray J. Nagelberg Keogh Account....... 14,285 14,285 --- 14,285 14,285 --- 0 Gerald and Nessa Perman................... 14,285 14,285 --- 14,285 14,285 --- 0 Michael and Deborah Picker................ 11,428 11,428 --- 11,428 11,428 --- 0 Delaware Charter Guarantee & Trust Co FBO Roy D. Polatchek and Yvonna A. Polatchek, 1987 Family Trust....................... 85,714 85,714 --- 85,714 85,714 --- 0 Roy E. Reichbach.......................... 5,714 5,714 --- 5,714 5,714 --- 0 Don A. Sanders............................ 57,142 57,142 --- 57,142 57,142 --- 0 Ron Schweiger............................. 5,714 5,714 --- 5,714 5,714 --- 0 Lawrence J. Sheer DDS PA Profit Sharing Plan 57,142 57,142 --- 57,142 57,142 --- 0 Lawrence J. Sheer......................... 57,142 57,142 --- 57,142 57,142 --- 0 Delaware Charter Guarantee & Trust Co FBO Clare A. Sherwood IRA................... 28,571 28,571 --- 28,571 28,571 --- 0 Michael Silvestri......................... --- --- 20,700 --- --- 20,700 0 Michael Silvestri and Michelle Silvestri.. 7,142 7,142 --- 7,142 7,142 --- 0 Barbara Stone............................. 71,428 71,428 --- 71,428 71,428 --- 0 Leslie Strassberg and Sharon Strassberg... 11,428 11,428 --- 11,428 11,428 --- 0 Walter Sturm and Sandra Sturm............. 12,285 12,285 --- 12,285 12,285 --- 0 Janney Montgomery Scott LLC FBO Leonard W. Suroff, SEP-IRA (5)..................... 22,857 22,857 --- 22,857 22,857 --- 0 Janney Montgomery Scott LLC FBO Leonard W. Suroff IRA (5).......................... 36,785 34,285 --- 34,285 34,285 --- 2,500 Edwin and Shannan Thurston Family Trust 57,142 57,142 --- 57,142 57,142 --- 0 Warner Tillman............................ 11,428 11,428 --- 11,428 11,428 --- 0 Don and Julie Weir........................ 28,571 28,571 --- 28,571 28,571 --- 0 Eugene M. Whitehouse...................... 7,142 7,142 4,140 7,142 7,142 4,140 0 ------------ ----- -------------------- ----- --------- ---------- Totals 1,834,700 1,800,000 414,000 1,800,000 1,800,000 414,000 34,700
- -------------- (1) Common Stock beneficially owned does not include (i) shares issuable upon the exercise of warrants owned, (ii) shares issuable upon the exercise of unit purchase options owned or (iii) -20- shares issuable upon the exercise of warrants issuable upon the exercise of unit purchase options owned. Under Securities and Exchange Commission rules, the securities underlying the warrants, underlying the unit purchase options and underlying the warrants issuable upon exercise of unit purchase options will be deemed beneficially owned by their holder beginning on October 9, 2000, 60 days before they become exercisable. (2) Warrants beneficially owned will not include warrants issuable upon the exercise of unit purchase options until October 9, 2000, 60 days before the unit purchase options become exercisable. (3) Assumes all securities that may be sold under this prospectus are sold. No selling securityholder will own any warrants or unit purchase options after the offering assuming the sale of all warrants and unit purchase options that may be sold under this prospectus. (4) As trustee of the Evan Todd Heller 1997 Trust and Rachel Beth Heller 1997 Trust, Larry Kupferberg may be deemed the beneficial owner of the securities held by both trusts with sole voting and dispositive power with respect to those securities. (5) Mr. Suroff has served as our corporate counsel for more than the past three years. The shares reflected as owned by Mr. Suroff's IRA include 2,500 shares which represent the portion of an option held directly by Mr. Suroff under one of our stock option plans that is exercisable within 60 days of the date of this prospectus. Additional portions of this option, each exercisable as to 2,500 shares, will become exercisable on each of December 8, 2000, 2001, 2002 and 2003 and those shares will be deemed, under SEC rules, to become beneficially owned by Mr. Suroff 60 days prior to the applicable date. The shares reflected as owned by both Leonard W. Suroff, SEP-IRA and Leonard W. Suroff IRA are each beneficially owned by Mr. Suroff. None of the selling securityholders have been affiliated with us or have had any material relationship with us during the past three years. PLAN OF DISTRIBUTION The selling securityholders and their pledgees, donees, transferees and other subsequent holders of the securities covered by this prospectus may offer their shares at various times in one or more of the following transactions: o in or off the over-the-counter market; or o in privately negotiated transactions. The securities may be sold: o at prevailing market prices at the time of sale; o at prices related to those prevailing market prices; o at negotiated prices; or o at fixed prices. The transactions may be effected by one or more of the following methods: o ordinary brokerage transactions and transactions in which the broker solicits purchasers; -21- o purchases by a broker or dealer as principal, and the resale by that broker or dealer for its account under to this prospectus, including resale to another broker or dealer; o block trades in which the broker or dealer will attempt to sell securities as agent but may position and resell a portion of the block as principal to facilitate the transaction; or o negotiated transactions between selling securityholders and purchasers without a broker or dealer. However, the warrants, the unit purchase options and warrants issuable upon the exercise of the unit purchase options may only be sold to "accredited investors," within the meaning of Rule 501 under the Securities Act of 1933. In order to effectuate transfer of those securities, the transferee must certify, on the last page of the applicable security that the transferee is an "accredited investor." In connection with the distribution of their common stock or otherwise, the selling securityholders may enter into hedging transactions with broker-dealers or other financial institutions. In connection with hedging transactions, broker-dealers or other financial institutions may engage in short sales of our common stock in the course of hedging the positions they assume with selling securityholders. The selling securityholders may also sell our common stock short and redeliver the shares to close out the short positions. The selling securityholders may also enter into option or other transactions with broker-dealers or other financial institutions which require the delivery to the broker-dealer or other financial institution of shares of our common stock offered hereby, which shares those broker-dealers or other financial institutions may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction). The selling securityholders may also pledge their shares to a broker-dealer or other financial institution, and, upon a default, that broker-dealer or other financial institution may effect sales of the pledged shares pursuant to this prospectus (as supplemented or amended to reflect that transaction). The selling securityholders and any broker-dealers or other persons acting on the behalf of parties that participate in the distribution of securities may be deemed to be underwriters. If so, any commissions or profits they receive on the resale of securities may be deemed to be underwriting discounts and commissions under the Securities Act. The selling securityholders may also sell their shares of common stock under Rule 144 instead of under this prospectus, if Rule 144 is available for those sales. As of the date of this prospectus, we are not aware of any agreement, arrangement or understanding between any broker or dealer and any of the selling securityholders with respect to the offer or sale of the securities under this prospectus. We have advised the selling securityholders that during the time each is engaged in distributing securities covered by this prospectus, each must comply with the requirements of the Securities Act of 1933 and Rule 10b-5 and Regulation M under the Securities Exchange Act of 1934. Under those rules and regulations, they: o may not engage in any stabilization activity in connection with our securities; o must furnish each broker that offers securities covered by this prospectus with the number of copies of this prospectus that are required by each broker; and o may not bid for or purchase any of our securities or attempt to induce any person to purchase any of our securities other than as permitted under the Securities Exchange Act of 1934. -22- In the Subscription Agreement and Investor Information Statements we executed with each investor in the private placement, we agreed to indemnify and hold harmless each selling securityholder against liabilities, including liabilities under the Securities Act of 1933, which may be based upon, among other things, any untrue statement or alleged untrue statement of a material fact or any omission or alleged omission of a material fact, unless made or omitted in reliance upon written information provided to us by that investor. We have agreed to bear the expenses incurred by us in connection with the preparation of the registration statement and up to $15,000 of fees of one special counsel for all holders of the securities registered. Among other things, the selling securityholders will bear all selling discounts and commissions. DESCRIPTION OF SECURITIES GENERAL Our authorized capital consists of 30,000,000 shares of common stock, $.01 par value per share, and 1,000,000 shares of preferred stock, $1.00 par value per share. As of June 30, 2000, there were 11,680,481 shares of our common stock and 1,626 shares of our Series C preferred stock issued and outstanding. We have also authorized a series of 30,000 shares of our preferred stock, called Series D junior participating preferred stock, which may be issued pursuant to our Shareholder Rights Plan discussed below. CAPITAL STOCK COMMON STOCK. Each holder of common stock is entitled to one vote per share on all matters submitted to a vote of securityholders. Subject to the rights of holders of preferred stock, the holders of common stock are entitled to receive dividends when, as and if declared by our Board of Directors. In the event of the liquidation, dissolution or winding up of our operations, the holders of common stock are entitled to share ratably in all assets remaining after the payment of liabilities and after any liquidation preference of our preferred stock. The shares of common stock do not have any preemptive or other subscription rights, conversion rights or redemption or sinking fund provisions. All presently issued and outstanding shares of common stock are fully paid and non-assessable. PREFERRED STOCK. Our preferred stock is issuable in one or more series from time to time at the discretion of the Board of Directors. The Board is authorized, with respect to each series, to fix its designation, powers, preferences (including with respect to dividends and on liquidation), rights (including voting, dividend, conversion, sinking fund and redemption rights) and limitations. Shares of preferred stock issued by action of the Board of Directors could be utilized as a method of making it more difficult for a party to gain control of us without the approval of our Board of Directors (see "- - Shareholder Rights Plan," below). The Series C convertible preferred stock, of which 5,000 were originally authorized and issued and, after conversions through June 30, 2000, 1,626 shares remain outstanding, bear no dividends. Each share of Series C preferred stock is convertible at a conversion price per common share equal to the lower of $5.58 or 95% of the average closing bid prices of the common stock during the 10 consecutive trading days before conversion. The Series C preferred stock is redeemable at the option of the holders at a price of $1,150 per share in the event of certain business combinations involving us, sale of substantially all of our assets and certain other cases, including a failure to maintain the effectiveness of registration of the common stock underlying the Series C preferred stock and certain warrants issued concurrently with the issuance of the Series C preferred stock, to maintain the listing of its underlying common stock or failure to convert the Series C preferred stock. In the event of our voluntary or involuntary liquidation, dissolution or winding up, the holders of the Series C preferred stock are entitled to receive $1,150 per share before any amount is paid to holders of our common stock or any other class of our securities that may rank junior to the Series C preferred stock in respect of preferences as to distributions and payments on our liquidation, dissolution or winding up. Except as required by law, the holders of Series C preferred stock have no voting rights, except that the holders of two-thirds of the then outstanding shares -23- of Series C preferred stock are required to (a) authorize or issue any capital stock ranking senior in respect of preferences as to distributions and payments on our liquidation, dissolution or winding up, (b) amend our certificate of incorporation or by-laws or file any resolution which would adversely affect or impair the rights or relative priority of the Series C preferred stock, and (c) approve any change to the certificate of designation creating the Series C preferred stock or to our certificate of incorporation which would amend, alter, change or repeal any of the powers, designations, preferences and rights of, or to issue additional shares of, the Series C preferred stock. The Series D Junior Participating Preferred Stock is issuable upon exercise of the rights described below under "Shareholder Rights Plan." THE WARRANTS In the private placement, we issued warrants to purchase 1,800,000 shares of our common stock. To the extent the unit purchase options are exercised, we will issue up to 414,000 additional warrants. The following is a brief description of the warrants and is qualified in its entirety by reference to the form of warrant which has been filed as an exhibit to the registration statement of which this prospectus forms a part. GENERAL. The holder of each warrant is entitled to purchase one share of our common stock at an exercise price equal to $2.79. The warrants are exercisable during the four year period beginning on December 9, 2000 and ending December 8, 2004. REDEMPTION. Beginning June 8, 2001, we may redeem outstanding warrants at a price of $0.01 per share upon not less than 20 days' prior written notice after the closing bid price of our common stock has been equal to or greater than 200% of the then exercise price on each of the 10 consecutive trading days ending on the third day prior to the day on which notice of redemption is given, provided that the shares of common stock and warrants sold in the private placement are then the subject of an effective and current registration statement filed with the Securities and Exchange Commission and our common stock is then listed on a national securities exchange, the Nasdaq National Market, the Nasdaq SmallCap Market or quoted on the OTC Bulletin Board or similar electronic trading facility. Holders of warrants will automatically forfeit their rights to purchase the shares of common stock issuable upon exercise of the warrants unless the warrants are exercised before they are redeemed. HOW TO EXERCISE WARRANTS. The warrants may be exercised upon surrender of the certificate therefor on or prior to the expiration or redemption date of the warrants at our offices with the form of "Notice of Exercise" attached to the warrant filled out and executed as indicated, accompanied by payment of the full exercise price for the number of warrants being exercised. ANTI-DILUTION ADJUSTMENTS. The warrants contain provisions that protect the holders thereof against dilution by adjustment of the exercise price and the number of shares of our common stock issuable upon exercise of the warrants in the event of a stock dividend, stock split, stock combination or reverse stock split or reclassification or recapitalization of our common stock and with respect to reorganizations, consolidations or mergers of us with or into another entity (other than a merger or reorganization with respect to which we are the continuing corporation and that does not result in any reclassification of our common stock) or a transfer of all or substantially all of our assets or the payment of a liquidating distribution. NO STOCKHOLDER RIGHTS UNTIL EXERCISED. The holders of warrants will not possess any rights as holders of our common stock unless and until exercise of the warrants. RESTRICTIONS ON TRANSFER. The warrants may only be sold to "accredited investors" within the meaning of Rule 501 under the Securities Act of 1933. -24- REGISTRATION RIGHTS. The holders of warrants have certain registration rights. See "Private Placement - Registration Rights," below. UNIT PURCHASE OPTIONS We have sold to certain employees and affiliates designated by M.H. Meyerson & Co., Inc., the placement agent for our June 8, 2000 private placement, for nominal consideration, four-year unit purchase options to purchase 414,000 units, each unit consisting of one share of our common stock and a warrant to purchase an additional share of our common stock. The unit purchase options are exercisable during the four year period commencing December 9, 2000 and ending December 8, 2004. The warrants purchasable upon exercise of the unit purchase's options are identical to the warrants described above. The unit purchase options contain provisions for their cashless exercise and to protect the holders of the unit purchase options against dilution by adjustment of the exercise price and the number of shares of our common stock contained in the units in the event of merger, acquisition, recapitalization, stock dividends, stock split, reverse stock split or similar events. The unit purchase options may only be sold to "accredited investors," within the meaning of Rule 501 under the Securities Act of 1933. Holders of the unit purchase options and the underlying common stock and warrants are entitled to substantially the same registration rights as are holders of the common stock and warrants issued in the private placement. See "Private Placement - Registration Rights." RESTRICTIONS ON RESALE OF THE SECURITIES OFFERED HEREBY This offering of the shares and warrants issued in the private placement and the unit purchase options was made to only to "accredited investors" pursuant to the exemption from registration afforded by Section 4(2) of the Securities Act. The common stock, the warrants and the unit purchase options (and the underlying securities) cannot be sold, transferred, hypothecated, assigned or otherwise disposed of, unless they are subject to a registration statement under the Securities Act which is effective and current or, in the opinion of counsel, satisfactory to us, the sale, transfer, hypothecation, assignment or disposition is exempt from the registration requirements. Moreover, the securities are deemed "restricted securities" under the Securities Act, and their public sale, absent registration of the securities under the Securities Act, may only be made in compliance with Rule 144 or another exemption under the Securities Act. In general, under Rule 144, a person (or persons whose shares are aggregated) who has satisfied a one-year holding period may, under certain circumstances, sell within any three-month period a number of shares which does not exceed the greater of 1% of the then outstanding shares of our common stock or the average weekly trading volume during the four calendar weeks prior to such sale. The SEC has proposed to limit the trading volume requirement of Rule 144 to 1% of the outstanding shares of common stock. Rule 144 also permits, under certain circumstances, the sale of shares by a person who is not our affiliate and who has satisfied a two-year holding period without any quantity or other limitations. There is currently no public market for the warrants, the unit purchase options or the warrants issuable upon exercise of the unit purchase options, and it is unlikely that one would develop. In addition, the warrants, the unit purchase options and the warrants issuable upon exercise of the unit purchase options cannot be transferred unless the transferee certifies that it is an "accredited investor," within the meaning of Rule 501 of the Securities Act. SHAREHOLDER RIGHTS PLAN On May 7, 1998, our Board of Directors adopted a shareholder rights plan. Under the rights plan, we distributed one preferred stock purchase right to each holder of record of common stock at the opening -25- of business on May 21, 1998. Each right entitles securityholders to buy one one-thousandth of a share of Series D junior participating preferred stock at a purchase price of $30 per one one-thousandth of a share of Series D junior participating preferred stock. The rights do not become exercisable until a person or group acquires 20% or more of our common stock or announces a tender offer which would result in that person or group owning 20% or more of our common stock. Each right will entitle its holder (other than the acquirer) to purchase, at a purchase price of $30, a number of shares of common stock having a market value of $60. The rights may alternatively entitle holders to purchase shares of an acquirer's common stock. The rights may be redeemed upon action by our Board of Directors or exchanged for shares of our common stock. The rights expire on May 15, 2008 (unless extended). The terms of the rights are set forth in a Rights Agreement between us and Harris Trust & Savings Bank, as Rights Agent. See "Where You Can Find More Information about Us." CERTAIN PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BY-LAWS Supermajority Vote for Certain Transactions ------------------------------------------- Our certificate of incorporation requires the affirmative vote of the holders of at least 75% of the outstanding shares of our capital stock entitled to vote thereon to authorize the following: (1) any merger or consolidation of us or any of our subsidiaries with or into any other corporation; (2) any sale, lease or exchange by us of all or substantially all of our assets and those of our subsidiaries taken as a whole; and (3) our dissolution. The supermajority voting requirement applies in a transaction described in (1) and (2) only if, as of the record date for determining securityholders entitled to vote on the matter, the other party to the transaction beneficially owns 10% or more of our outstanding capital stock entitled to vote in the election of directors. The supermajority voting requirement does not apply to a transaction with a person or entity who became a 10% beneficial owner after our Board of Directors approved the transaction described in (1) or (2) above or, as to our dissolution, if the dissolution is substantially consistent with the approved transaction or with a person or entity who beneficially owned at least 10% of our voting capital stock at December 3, 1979. Classification of Board of Directors and Removal of Directors ------------------------------------------------------------- Our certificate of incorporation and by-laws divide our Board of Directors into three classes, designated Class I, Class II and Class III. Each class is to be as nearly equal in number as possible. At each annual meeting of securityholders, directors are elected to succeed those in the class whose terms then expire. Each elected director serves for a term expiring at the third annual meeting of securityholders after the director's election, and until the director's successor is elected and qualified. As a result, directors elected stand for election only once in three years. Our certificate of incorporation and by-laws also provide that directors may be removed only for cause by securityholders. Votes Required to Amend the Provisions on Supermajority Votes and Removal of - ---------------------------------------------------------------------------- Directors. - ---------- Our certificate of incorporation and by-laws provide that the affirmative vote of the holders of at least 75% of our outstanding voting stock is required to make, alter or repeal, or to adopt any provision inconsistent with, the supermajority voting requirements for transactions or the provisions for the classified board of directors and removal of directors. -26- DELAWARE BUSINESS COMBINATION PROVISIONS As a Delaware corporation, we are subject to Section 203 of the Delaware General Corporation Law which regulates large accumulations of shares, including those made by tender offers. Section 203 may have the effect of significantly delaying a purchaser's ability to acquire us if that acquisition is not approved by our Board of Directors before the purchaser becomes an "interested securityholder." In general, Section 203 prevents an "interested securityholder" from engaging in a "business combination" with a Delaware corporation for three years following the date that person became an Interested Securityholder. For purposes of Section 203, the term "interested securityholder" is defined generally as a person owning 15% or more of a corporation's outstanding voting stock. The term "business combination" is defined broadly to include: o mergers and other transactions with or caused by the interested securityholder; o sales or other dispositions to the interested securityholder (except proportionately with the corporation's other securityholders) of assets of the corporation or a subsidiary equal to 10% or more of the aggregate market value of the corporation's consolidated assets or outstanding stock; o the issuance or transfer by the corporation or a subsidiary of stock of the corporation or the subsidiary to the interested securityholder (except for transfers in a conversion or exchange or a pro-rata distribution or certain other transactions, none of which increase the interested securityholder's proportionate ownership of any class or series of the corporation's or the subsidiary's stock); or o receipt by the interested securityholder (except proportionately as a securityholder), directly or indirectly, of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation or a subsidiary. The three-year moratorium imposed on business combinations by Section 203 does not apply if: (a) before the date on which a securityholder becomes an interested securityholder, the target's board of directors approves either the business combination or the transaction that resulted in the person becoming an interested securityholder; (b) the interested securityholder owns 85% of the corporation's voting stock upon consummation of the transaction that made him or her an interested securityholder (excluding from the 85% calculation shares owned by directors who are also officers of the corporation and shares held by employee stock plans which do not permit employees to decide confidentially whether to accept a tender or exchange offer); or (c) on or after the date a person becomes an interested securityholder, the target's board of directors approves the business combination, and it is also approved at a stockholders' meeting by two-thirds of the voting stock not owned by the interested securityholder. The restrictions described above also do not apply to business combinations proposed by an interested securityholder following the announcement or notification of extraordinary transactions involving the corporation and a person who had not been an interested securityholder during the previous three years or who became an interested securityholder with the approval of a majority of the corporation's directors. -27- ANTI-TAKEOVER EFFECTS The provisions of our certificate of incorporation and by-laws described above and the effects of Section 203 of the Delaware General Corporation Law could discourage potential acquisition proposals and could delay or prevent a change in control of our company. These provisions are intended to enhance the continuity and stability of our Board of Directors and the policies formulated by our Board of Directors and to discourage some types of transactions that may involve an actual or threatened change in control of our company. These provisions are also designed to reduce our vulnerability to an unsolicited acquisition proposal and to discourage tactics that may be used in proxy fights. However, those provisions may discourage or prevent third parties from making offers for our shares. As a result, the market price of the common stock may not benefit from any premium that might occur in anticipation of a threatened or actual change in control. Such provisions also may have the effect of preventing or delaying changes in our management. INDEMNIFICATION We indemnify our officers and directors to the fullest extent permitted under Delaware law against all liabilities incurred in connection with their service to us. TRANSFER AGENT AND REGISTRANT The transfer agent and registrar for our common stock is Harris Trust & Savings Bank, c/o Computer Share Investor Services, 2 North LaSalle Street, Chicago, Illinois 60602. Initially, we will serve as agent for the transfer and registration of the warrants. LEGAL MATTERS The validity of the shares of common stock being offered will be passed upon for us by Parker Chapin LLP, New York, New York and for the selling securityholders by Graubard Mollen & Miller, New York, New York. EXPERTS The audited consolidated financial statements, including the related notes thereto, incorporated by reference in this prospectus and elsewhere in the registration statement have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report with respect thereto. Such financial statements and report are incorporated by reference herein in reliance upon the authority of said firm as experts in accounting and auditing in giving said reports. WHERE YOU CAN FIND MORE INFORMATION ABOUT US We file annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission. You may read and copy any document we file at the SEC's public reference rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Our SEC filings are also available to the public over the Internet at the SEC's Website at "http://www.sec.gov." We have filed with the SEC a registration statement on Form S-3 to register the shares of common stock, warrants and unit purchase options, warrants issuable upon exercise of the unit purchase options and common stock underlying all of those rights to purchase our common stock being offered. As permitted by the SEC's rules, this prospectus does not contain all the information included in the registration statement. For further information with respect to us and the securities covered by this prospectus, you should refer to the registration statement (SEC File No. 333-______) and to the exhibits and schedules filed as part of that registration statement, as well as the documents listed below. You can -28- review and copy the registration statement, its exhibits and schedules, as well as the documents listed below, at the public reference facilities maintained by the SEC as described above. The registration statement, including its exhibits and schedules, are also available on the SEC's Website. The SEC allows us to "incorporate by reference" the information we file with them, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is an important part of this prospectus, and information that we file later with the SEC will automatically update or supersede this information. We incorporate by reference the documents listed below and any future filings we will make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 (File No. 1-8048) before our filing a post-effective amendment to the registration statement which indicates that all securities offered under this prospectus have been sold or which deregisters all securities remaining unsold: o Annual Report on Form 10-K for the fiscal year ended June 26, 1999; o Quarterly Reports on Form 10-Q for the fiscal quarters ended September 24, 1999, December 31, 1999 and March 31, 2000; and o The description of our common stock contained in the Registration Statement on Form 8-A filed on November 3, 1980, including all amendments or reports filed for the purpose of updating that description. o The description of our Series D junior participating preferred stock and preferred stock purchase rights under the Rights Agreement between the Company and Harris Trust & Savings Bank, as rights agent, contained in the Registration Statement on Form 8-A filed on May 15, 1998, including all amendments or reports filed for the purpose of updating that description. This prospectus and the reports we incorporate by reference may contain summaries of contracts or other documents. Because they are summaries, they will not contain all of the information that may be important to you. If you would like complete information about a contract or other document, you should read the copy filed as an exhibit to the registration statement or to the reports we incorporate by reference. You may request a copy of these filings, at no cost, by writing or telephoning us at the following address: Mr. Paul G. Sebetic Vice President - Finance TII Industries, Inc. 1385 Akron Street Copiague, New York 11726 (631) 789-5000 -29-
======================================================== ======================================================== WE HAVE NOT AUTHORIZED ANYONE TO GIVE ANY INFORMATION OR TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST NOT RELY ON ANY UNAUTHORIZED INFORMATION. THIS PROSPECTUS DOES NOT OFFER TO SELL OR BUY ANY SECURITIES IN ANY TII INDUSTRIES, INC. JURISDICTION WHERE IT IS UNLAWFUL. THE INFORMATION IN THIS PROSPECTUS IS CURRENT ONLY AS OF ITS DATE. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE AS OF ANY OTHER DATE, AND NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER WILL CREATE AN IMPLICATION TO THE CONTRARY. -------------------- --------------------- PROSPECTUS -------------------- TABLE OF CONTENTS --------------------- Page ---- Prospectus Summary..................................2 Forward-Looking Statements..........................6 Risk Factors........................................6 Use of Proceeds....................................16 Shares Eligible for Future Sale....................17 Private Placement..................................18 Selling Securityholders ...........................19 ________ __, 2000 Plan of Distribution...............................21 Description of Securities..........................23 Legal Matters......................................28 Experts ...........................................28 Where You Can Find More Information About Us..........................28 ======================================================== ========================================================
PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. It is estimated that the following expenses will be incurred in connection with the proposed offering hereunder. We will bear all of the following expenses: Registration fee - Securities and Exchange Commission $ 4,851.38 Nasdaq Listing Fees 17,500.00 Legal fees and expenses 25,000.00 Accounting fees and expenses 10,000.00 Printing and engraving expenses 10,000.00 Miscellaneous 7,648.62 ------------- Total $ 75,000.00 ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 145 of the General Corporation Law of the State of Delaware provides, in general, that a corporation incorporated under the laws of the State of Delaware, like the registrant, may indemnify any person who was or is a party, or is threatened to be made a party, to any threatened, pending or completed action, suit or proceeding , whether civil, criminal, administrative or investigative (other than a derivative action by or in the right of the corporation) by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by that person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person's conduct was unlawful. In the case of a derivative action, a Delaware corporation may indemnify any such person against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the court determines such person is fairly and reasonably entitled to indemnity for such expenses. Article XII of the registrant's By-laws provides that the registrant shall so indemnify such persons. In addition, Article 12 of the registrant's Restated Certificate of Incorporation, as amended, provides, in general, that no director of the registrant shall be personally liable to the registrant or any of its securityholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the corporation or its securityholders; (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) under Section 174 of the DGCL (which provides that, under certain circumstances, directors may be jointly and severally liable for willful or negligent violations of the DGCL provisions regarding the payment of dividends or stock repurchases or redemptions), as the same exists or hereafter may be amended; or (iv) for any transaction from which the director derived an improper personal benefit. II-1 ITEM 16. EXHIBITS: ---------
Exhibit Number Description - -------------- ----------- 4.1(a) Restated Certificate of Incorporation of the Registrant, as filed with the Secretary of State of the State of Delaware on December 10, 1996. Incorporated by reference to Exhibit 3 to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended December 27, 1996 (File No. 1-8048). 4.1(b) Certificate of Designation, as filed with the Secretary of State of the State of Delaware on January 26, 1998. Incorporated by reference to Exhibit 4.1 to the Registrant's Report on Form 8-K dated (date of earliest event reported) January 26, 1998 (File No. 1-8048). 4.1(c) Certificate of Designation, as filed with the Secretary of State of the State of Delaware on May 15, 1998. Incorporated by reference to Exhibit 4.1 to the Registrant's Report on Form 8-K dated (date of earliest event reported) May 7, 1998 (File No. 1-8048). 4.2 By-laws of the Registrant, as amended. Incorporated by reference to Exhibit 4.02 to Amendment No. 1 to the Company's Registration Statement on Form S-3 (File No. 33-64980). 4.3 Rights Agreement, dated as of May 15, 1998, between the Registrant and Harris Trust & Savings Bank (formerly Harris Trust of Chicago). Incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K dated (date of earliest event reported) May 7, 1998 (File No. 1-8048). *4.4 Form of warrant issued to the investors in the Registrant's June 8, 2000 private placement and underlying the unit purchase option. *4.5 Form of unit purchase option issued to the placement agent for Registrant's June 8, 2000 private placement. *5 Opinion of Parker Chapin LLP as to the legality of the securities being offered and consent. *23.1 Consent of Arthur Andersen LLP. *23.2 Consent of Parker Chapin LLP (included in Exhibit 5). *24 Powers of Attorney of certain officers and directors of the Registrant (included in the signature page, page II-4). *99.2 Subscription Agreement and Investor Information Statement, including registration rights undertaking of the Registrant, by and among the Registrant and the investors in the Registrant's June 8, 2000 private placement. *99.3 Placement Agent Agreement dated as of May 15, 2000 by and among the Registrant and M.H. Meyerson & Co., Inc., as placement agent, with respect to the Registrant's June 8, 2000 private placement
- ------------- * Filed herewith. All other exhibits are incorporated by reference to the indicated exhibit in the indicated filing. II-2 ITEM 17. UNDERTAKINGS (a) The undersigned Registrant undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to the information in this Registration Statement; provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the Registrant under Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in this Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of those securities at the time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) The undersigned Registrant undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant's annual report under Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference in the Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of those securities at that time shall be deemed to be the initial bona fide offering thereof. (c) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant under the Registrant's By-Laws, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against those liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by the director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether that indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of that issue. II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the Town of Copiague, State of New York, on the 21st day of July, 2000. TII INDUSTRIES, INC. By: /s/ Timothy J. Roach ----------------------------- Timothy J. Roach, President POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints each of Timothy J. Roach, Paul G. Sebetic and Leonard W. Suroff and each of them with power of substitution, as his attorney-in-fact, in all capacities, to sign any amendments to this registration statement (including post-effective amendments) and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-facts or their substitutes may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities indicated on the 21st day of July, 2000. Signature Title /s/ Alfred J. Roach Chairman of the Board - --------------------------------------- Alfred J. Roach /s/ Timothy J. Roach President (Chief Executive Officer) - --------------------------------------- and Director Timothy J. Roach /s/ Paul G. Sebetic Vice President - Finance (Chief - --------------------------------------- Financial and Accounting Officer) Paul G. Sebetic /s/ C. Bruce Barksdale Director - --------------------------------------- C. Bruce Barksdale /s/ George S. Katsarakes Director - --------------------------------------- George S. Katsarakes /s/ James R. Grover, Jr. Director - --------------------------------------- James R. Grover, Jr. /s/ Joseph C. Hogan Director - --------------------------------------- Joseph C. Hogan /s/ Dorothy Roach Director - --------------------------------------- Dorothy Roach II-4 EXHIBIT INDEX ------------- Exhibit Number Description - -------------- ----------- 4.1(a) Restated Certificate of Incorporation of the Registrant, as filed with the Secretary of State of the State of Delaware on December 10, 1996. Incorporated by reference to Exhibit 3 to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended December 27, 1996 (File No. 1-8048). 4.1(b) Certificate of Designation, as filed with the Secretary of State of the State of Delaware on January 26, 1998. Incorporated by reference to Exhibit 4.1 to the Registrant's Report on Form 8-K dated (date of earliest event reported) January 26, 1998 (File No. 1-8048). 4.1(c) Certificate of Designation, as filed with the Secretary of State of the State of Delaware on May 15, 1998. Incorporated by reference to Exhibit 4.1 to the Registrant's Report on Form 8-K dated (date of earliest event reported) May 7, 1998 (File No. 1-8048). 4.2 By-laws of the Registrant, as amended. Incorporated by reference to Exhibit 4.02 to Amendment No. 1 to the Company's Registration Statement on Form S-3 (File No. 33-64980). 4.3 Rights Agreement, dated as of May 15, 1998, between the Registrant and Harris Trust & Savings Bank (formerly Harris Trust of Chicago). Incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K dated (date of earliest event reported) May 7, 1998 (File No. 1-8048). *4.4 Form of warrant issued to the investors in the Registrant's June 8, 2000 private placement and underlying the unit purchase option. *4.5 Form of unit purchase option issued to the placement agent for Registrant's June 8, 2000 private placement. *5 Opinion of Parker Chapin LLP as to the legality of the securities being offered and consent. *23.1 Consent of Arthur Andersen LLP. *23.2 Consent of Parker Chapin LLP (included in Exhibit 5). *24 Powers of Attorney of certain officers and directors of the Registrant (included in the signature page, page II-4). *99.2 Subscription Agreement and Investor Information Statement, including registration rights undertaking of the Registrant, by and among the Registrant and the investors in the Registrant's June 8, 2000 private placement. *99.3 Placement Agent Agreement dated as of May 15, 2000 by and among the Registrant and M.H. Meyerson & Co., Inc., as placement agent, with respect to the Registrant's June 8, 2000 private placement - ------------- * Filed herewith. All other exhibits are incorporated by reference to the indicated exhibit in the indicated filing. EX-4.4 2 0002.txt FORM OF WARRANT THIS WARRANT HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS. THIS WARRANT AND THE WARRANT SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR PURSUANT TO AN EXEMPTION THEREFROM UNDER THE ACT AND SUCH LAWS, SUPPORTED BY AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED. THIS WARRANT AND THE COMPANY'S SUBSCRIPTION AGREEMENT WITH THE HOLDER SET FORTH THE COMPANY'S OBLIGATIONS TO REGISTER FOR RESALE THIS WARRANT AND THE WARRANT SHARES. A COPY OF SUCH SUBSCRIPTION AGREEMENT IS AVAILABLE FOR INSPECTION AT THE COMPANY'S OFFICE. THIS WARRANT MAY NOT, IN ANY EVENT, BE TRANSFERRED TO ANY PERSON OR ENTITY THAT IS NOT AN ACCREDITED INVESTOR WITHIN THE MEANING OF RULE 501, PROMULGATED UNDER THE ACT. For the Purchase of shares No. - REDEEMABLE COMMON STOCK PURCHASE WARRANT FOR THE PURCHASE OF SHARES OF COMMON STOCK OF TII INDUSTRIES, INC. TII Industries, Inc., a Delaware corporation ("Company"), hereby certifies that, for value received,, or his, her or its registered assigns ("Registered Holder"), is entitled, subject to the terms set forth below, to purchase from the Company, at any time or from time to time during the period commencing on December 9, 2000 ( "Commencement Date") and ending on December 8, 2004, ("Initial Number") shares of common stock, $.01 par value, of the Company ("Common Stock"), at an initial exercise price of $2.79. This Warrant is one of a series of Warrants of even date herewith. The number of shares of Common Stock purchasable upon exercise of this Warrant, and the exercise price per share, each as adjusted from time to time pursuant to the provisions of this Warrant, are hereinafter referred to as the "Warrant Shares" and the "Exercise Price," respectively. 1. Exercise. -------- (a) This Warrant may be exercised by the Registered Holder, in whole or in part, by the surrender of this Warrant (with the Notice of Exercise Form attached hereto duly executed by such Registered Holder) at the principal office of the Company, or at such other office or agency as the Company may designate, accompanied by payment in full, in lawful money of the United States, of an amount equal to the then applicable Exercise Price multiplied by the number of Warrant Shares then being purchased upon such exercise. (b) Each exercise of this Warrant shall be deemed to have been effected immediately prior to the close of business on the day on which this Warrant shall have been surrendered to the Company as provided in subsection 1(a) above. At such time, the person or persons in whose name or names any certificates for Warrant Shares shall be issuable upon such exercise as provided in subsection 1(c) below shall be deemed to have become the holder or holders of record of the Warrant Shares represented by such certificates. (1) Within three (3) business days after the exercise of the purchase right represented by this Warrant, the Company at its expense will use its best efforts to cause to be issued in the name of, and delivered to, the Registered Holder, or, subject to the terms and conditions hereof, to such other individual or entity as such Holder (upon payment by such Holder of any applicable transfer taxes) may direct: (1) a certificate or certificates for the number of full shares of Warrant Shares to which such Registered Holder shall be entitled upon such exercise plus, in lieu of any fractional share to which such Registered Holder would otherwise be entitled, cash in an amount determined pursuant to Section 3 hereof, and (2) in case such exercise is in part only, a new Warrant or Warrants (dated the date hereof) of like tenor, stating on the face or faces thereof the number of shares currently stated on the face of this Warrant minus the number of such shares purchased by the Registered Holder upon such exercise as provided in subsection 1(a) above (prior to any adjustments made thereto pursuant to the provisions of this Warrant). 2. Adjustments. ----------- (1) Split, Subdivision or Combination of Shares. At any time after June 8, 2000 and until this Warrant is exercised or redeemed or expires by its terms, if the outstanding shares of the Company's Common Stock shall be subdivided or split into a greater number of shares or a dividend in Common Stock shall be paid in respect of Common Stock, the Exercise Price in effect immediately prior to such subdivision or at the record date of such dividend shall, simultaneously with the effectiveness of such subdivision or split or immediately after the record date of such dividend (as the case may be), be proportionately decreased. If the outstanding shares of Common Stock shall be combined or reverse-split into a smaller number of shares, the Exercise Price in effect immediately prior to such combination or reverse split shall, simultaneously with the effectiveness of such combination or reverse split, be proportionately increased. When any adjustment is required to be made in the Exercise Price, the number of Warrant Shares purchasable upon the exercise of this Warrant shall be changed to the number determined by dividing (i) an amount equal to the number of shares issuable upon the exercise of this Warrant immediately prior to such adjustment, multiplied by the Exercise Price in effect immediately prior to such adjustment, by (ii) the Exercise Price in effect immediately after such adjustment. (2) Reclassification, Reorganization, Consolidation or Merger. At any time after June 8, 2000 and until this Warrant is exercised or redeemed or expires by its terms, if there is any reclassification of the Common Stock (other than a change in par value or a subdivision or combination as provided for in subsection 2(a) above), or any reorganization, consolidation or merger of the Company with or into another entity (other than a merger or reorganization with respect to which the Company is the continuing corporation and that does not result in any reclassification of the Common Stock), or a transfer of all or substantially all of the assets of the Company, or the payment of a liquidating distribution, then, as part of any such reorganization, reclassification, consolidation, merger, sale or liquidating distribution, lawful 2 provision shall be made so that the Registered Holder of this Warrant shall have the right thereafter to receive upon the exercise hereof (to the extent, if any, still exercisable) the kind and amount of shares of stock or other securities or property that such Registered Holder would have been entitled to receive if, immediately prior to any such reorganization, reclassification, consolidation, merger, sale or liquidating distribution, as the case may be, such Registered Holder had held the number of shares of Common Stock that were then purchasable upon the exercise of this Warrant, provided, that, in the case of any such liquidating distribution, the value of such property (as reasonably determined by the Company's Board of Directors) exceeds the Exercise Price. In any such case, appropriate adjustment (as reasonably determined by the Board of Directors of the Company) shall be made in the application of the provisions set forth herein with respect to the rights and interests thereafter of the Registered Holder of this Warrant such that the provisions set forth in this Section 2 (including provisions with respect to the Exercise Price) shall thereafter be applicable, as nearly as is reasonably practicable, in relation to any shares of stock or other securities or property thereafter deliverable upon the exercise of this Warrant. (3) Price Adjustment. No adjustment in the per share Exercise Price shall be required unless such adjustment would require an increase or decrease in the Exercise Price by at least $0.01; provided, however, that any adjustments that by reason of this subsection are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 2 shall be made to the nearest cent or to the nearest 1/100th of a share, as the case may be. (4) Price Reduction. Notwithstanding any other provision set forth in this Warrant, at any time and from time to time during the period that this Warrant is exercisable, the Company in it sole discretion may reduce the Exercise Price or extend the period during which this Warrant is exercisable. (5) No Impairment. The Company will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company but will at all times in good faith assist in the carrying out of all the provisions of this Section 2 and in the taking of all such actions as may be necessary or appropriate in order to protect against impairment of the rights of the Registered Holder of this Warrant to adjustments in the Exercise Price. (6) Notice of Adjustment. Upon the happening of any event requiring an adjustment of the Exercise Price hereunder, the Company shall forthwith give written notice thereof to the Registered Holder of this Warrant stating the adjusted Exercise Price and the adjusted number of Warrant Shares resulting from such event and setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. 3. Fractional Shares. The Company shall not be required upon the exercise of this Warrant to issue any fractional shares, but shall make an adjustment thereof in cash on the basis of the Closing Price (as defined in Section 4) of the Company's Common Stock on the trading day immediately prior to the date of exercise, applicable, or if there is no Closing Price, then on the basis of the then fair market value of the Company's Common Stock as shall be reasonably determined by the Board of Directors of the Company. 4. Redemption. Beginning on June 8, 2001 this Warrant may be redeemed by the Company, upon not less than 20 days' prior written notice to the holder, at the redemption price 3 of $.01 per share for every share of Common Stock purchasable upon exercise hereof at the time of such redemption (the "Redemption Price"), if the closing bid price of the Common Stock has been equal to or greater than 200% of the then Exercise Price on each of the 10 consecutive trading days ending on the third day prior to the day on which notice of redemption is given to the Registered Holder; provided, however, that this Warrant may be redeemed only if, on the first day of the aforementioned 10 consecutive trading days and thereafter at all times up to and including the date on which notice is given and the subsequent date fixed for redemption, (i) this Warrant is exercisable into shares of Common Stock registered for resale under the Securities Act pursuant to an effective and current registration statement, and (ii) the Common Stock subject to this Warrant is then listed on a national securities exchange, the Nasdaq National Market or the Nasdaq SmallCap Market or quoted on the OTC Bulletin Board or similar electronic trading facility. For purposes of this Section 4, "closing bid price" shall mean the closing bid price of the Common Stock as officially reported by the principal securities exchange on which the Common Stock is listed or admitted to trading, or, if the Common Stock is not listed or admitted to trading on any national securities exchange or if any such exchange on which the Common Stock is listed is not its principal trading market, the closing bid price as furnished by the NASD through the Nasdaq National Market or the Nasdaq SmallCap Market, or, if applicable, the OTC Bulletin Board or similar electronic facility. This Warrant may not be redeemed unless each and every condition set forth in this Section 4 is satisfied. On and after the date of redemption the holder shall have only the right to receive $.01 per share of Common Stock purchasable upon exercise hereof at the time of such redemption. 5. Limitation on Sales. Each holder of this Warrant acknowledges that this Warrant and the Warrant Shares have not been registered under the Securities Act of 1933, as amended ("Act"), as of the date of issuance hereof and agrees not to sell, pledge, distribute, offer for sale, transfer or otherwise dispose of this Warrant, or any Warrant Shares issued upon its exercise, in the absence of (i) an effective registration statement under the Act as to this Warrant or such Warrant Shares, as the case may be, and registration or qualification of this Warrant or such Warrant Shares, as the case may be, under any applicable Blue Sky or state securities law then in effect or (ii) an opinion of counsel, satisfactory to the Company, that such registration and qualification are not required. In addition, this Warrant may only be transferred to a transferee who certifies in writing to the Registered Holder and to the Company that such transferee is an "accredited investor" within the meaning of Rule 501(a) promulgated by the Securities and Exchange Commission under the Act. Without limiting the generality of the foregoing, unless the offering and sale of the Warrant Shares to be issued upon the particular exercise of the Warrant shall have been effectively registered under the Act, the Company shall be under no obligation to issue the shares covered by such exercise unless and until the Registered Holder shall have executed an investment letter in form and substance satisfactory to the Company, including a warranty at the time of such exercise that it is then an "accredited investor" within the meaning of Rule 501(c) promulgated by the Securities and Exchange Commission under the Act, is acquiring such shares for its own account, and will not transfer the Warrant Shares unless pursuant to an effective and current registration statement under the Act or an exemption from the registration requirements of the Act and any other applicable restrictions, in which event the Registered Holder shall be bound by the provisions of a legend or legends to such effect that shall be endorsed upon the certificate(s) representing the Warrant Shares issued pursuant to such exercise. In such event, the Warrant Shares issued upon exercise hereof shall be imprinted with a legend in substantially the following form: 4 This security has been acquired for investment and has not been registered under the Securities Act of 1933, as amended, or applicable state securities laws. This security may not be sold, pledged or otherwise transferred in the absence of such registration or pursuant to an exemption therefrom under said Act and such laws, supported by an opinion of counsel, reasonably satisfactory to the Company and its counsel, that such registration is not required. 6. Registration Rights of Warrant Holder. The Company has agreed to register this Warrant and the Warrant Shares for resale in accordance with the Subscription Agreement and Investor Information Statement entered into between the Company and the Registered Holder. 7. Warrant Solicitation and Warrant Solicitation Fee. (1) The Company has engaged M.H. Meyerson & Co., Inc. ("Meyerson"), on a non-exclusive basis, as its agent for the solicitation of the exercise of the Warrants. The Company, at its cost, will (i) assist Meyerson with respect to such solicitation, if requested by Meyerson and (ii) provide Meyerson lists of the Registered Holders, and, to the extent known, beneficial owners of the Company's Warrants. In addition to the conditions set forth in Section 7(b) herein below, Meyerson shall accept payment of the warrant solicitation fee provided in Section 7(b) only if it has provided bona fide services in connection with the exercise of the Warrants. In addition to soliciting, either orally or in writing, the exercise of Warrants by a Warrant holder, such services may also include disseminating information, either orally or in writing, to Warrant holders about the Company or the market for the Company's securities, or assisting in the processing of the exercise of Warrants. (2) If, upon the exercise of any Warrant (other than Warrants issued by the Company upon exercise of the Purchase Options issued by the Company to Meyerson and/or its designees in connection with the original offering), (i) the market price of the Common Stock is greater than the Exercise Price, (ii) disclosure of compensation arrangements was made both at the time of the original offering and at the time of exercise, (iii) the exercise of the Warrant was solicited by Meyerson, (iv) the Warrant was not held in a discretionary account, and (v) the solicitation of the exercise of the Warrant was not in violation of Regulation M (as such rule or any successor rule may be in effect as of such time of exercise) promulgated under the Securities Exchange Act of 1934, as amended, then the Company shall pay from the proceeds received upon exercise of the Warrant(s), a fee of 4% of the Exercise Price to Meyerson, provided that Meyerson delivers to the Company a certificate that the conditions set forth in the preceding clauses (ii), (iii), (iv) and (v) have been satisfied. 8. Notices of Record Date. In case: (1) the Company shall take a record of the holders of its Common Stock (or other stock or securities at the time deliverable upon the exercise of this Warrant) for the purpose of entitling or enabling them to receive any dividend or other distribution, or to receive any right to subscribe for or purchase any shares of any class or any other securities, or to receive any other right, or (2) of any capital reorganization of the Company, any reclassification of the capital stock of the Company, any consolidation or merger of the Company with or into another corporation (other than a consolidation or merger in which the Company is the surviving entity), or any transfer of all or substantially all of the assets of the Company, or 5 (3) of the voluntary or involuntary dissolution, liquidation or winding-up of the Company, then, and in each such case, the Company will mail or cause to be mailed to the Registered Holder of this Warrant a notice specifying, as the case may be, (i) the date on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, or (ii) the effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up is to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such other stock or securities at the time deliverable upon the exercise of this Warrant) shall be entitled to exchange their shares of Common Stock (or such other stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up. Such notice shall be mailed at least fifteen (15) days prior to the record date or effective date for the event specified in such notice, provided that the failure to mail such notice shall not affect the legality or validity of any such action. 9. Reservation of Stock. The Company will at all times reserve and keep available, solely for issuance and delivery upon the exercise of this Warrant, such Warrant Shares and other stock, securities and property, as from time to time shall be issuable upon the exercise of this Warrant. 10. Replacement of Warrants. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and (in the case of loss, theft or destruction) upon delivery of an indemnity agreement (with surety if reasonably required) in an amount reasonably satisfactory to the Company, or (in the case of mutilation) upon surrender and cancellation of this Warrant, the Company will issue, in lieu thereof, a new Warrant of like tenor. 11. Transfers, etc. (1) The Company (or an agent of the Company) will maintain a register containing the names and addresses of the Registered Holders of this Warrant. Any Registered Holder may change its, his or her address as shown on the warrant register by written notice to the Company requesting such change. (2) Until any transfer of this Warrant is made in the warrant register, the Company may treat the Registered Holder of this Warrant as the absolute owner hereof for all purposes; provided, however, that if and when this Warrant is properly assigned in blank, the Company may (but shall not be obligated to) treat the bearer hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary. 12. No Rights as Stockholder. Until the exercise of this Warrant, the Registered Holder of this Warrant shall not have or exercise any rights by virtue hereof as a stockholder of the Company. 13. Successors. The rights and obligations of the parties to this Warrant will inure to the benefit of and be binding upon the parties hereto and their respective heirs, successors, assigns, pledgees, transferees and purchasers. Without limiting the foregoing, the registration rights referred to in Section 6 of this Warrant shall inure to the benefit of the Registered Holder and all the Registered Holder's successors, heirs, pledgees, assignees, transferees and purchasers of this Warrant and the Warrant Shares. 6 14. Change or Waiver. Any term of this Warrant may be changed or waived only by an instrument in writing signed by the party against whom enforcement of the change or waiver is sought. 15. Headings. The headings in this Warrant are for purposes of reference only and shall not limit or otherwise affect the meaning of any provision of this Warrant. 16. Governing Law. This Warrant shall be governed by and construed in accordance with the laws of the State of New York as such laws are applied to contracts made and to be fully performed entirely within that state between residents of that state except to the extent the laws of the State of Delaware mandatorily apply because the Company is incorporated in the State of Delaware. 17. Jurisdiction and Venue. The Company (i) agrees that any legal suit, action or proceeding arising out of or relating to this Warrant shall be instituted exclusively in New York State Supreme Court, County of New York or in the United States District Court for the Southern District of New York, (ii) waives any objection to the venue of any such suit, action or proceeding and the right to assert that such forum is not a convenient forum, and (iii) irrevocably consents to the jurisdiction of the New York State Supreme Court, County of New York, and the United States District Court for the Southern District of New York in any such suit, action or proceeding, and the Company further agrees to accept and acknowledge service or any and all process that may be served in any such suit, action or proceeding in New York State Supreme Court, County of New York or in the United States District Court for the Southern District of New York in person or by certified mail addressed as provided in the following Section. 18. Mailing of Notices, etc. All notices and other communications under this Warrant (except payment) shall be in writing and shall be sufficiently given if delivered to the addressees in person, by Federal Express or similar overnight courier service, or if mailed, postage prepaid, by certified mail, return receipt requested, as follows: Registered Holder: To his or her last known address as indicated on the Company's books and records. The Company TII Industries, Inc. 1385 Akron Street Copiague, NY 11726 Attn: Chief Financial Officer Fax: (631) 789-2228 In either case, with a copy to: Graubard Mollen & Miller 600 Third Avenue New York, New York 10016 Attn: David Alan Miller, Esq. Fax: (212) 818-8881 7 or to such other address as any of them, by notice to the others, may designate from time to time. Notice shall be deemed given (a) when personally delivered, (b) the scheduled delivery date if sent by Federal Express or other overnight courier service or (c) the fifth day after sent by certified mail. TII INDUSTRIES, INC. By: ------------------------------------ Paul G. Sebetic Vice President - Finance 8 NOTICE OF EXERCISE To Be Executed by the Registered Holder In Order to Exercise Warrants The undersigned Registered Holder hereby irrevocably elects to exercise ______ Warrants represented by this Warrant, and to purchase the shares of Common Stock issuable upon the exercise of such Warrants, and requests that certificates for such shares of Common Stock shall be issued in the name of PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER [ ] - ----------------------------------------------------------------------------- - ---------------------------------------------------------------------------- - ---------------------------------------------------------------------------- - ---------------------------------------------------------------------------- (please print or type name and address) and be delivered to - ----------------------------------------------------------------------------- - ---------------------------------------------------------------------------- - ---------------------------------------------------------------------------- - ---------------------------------------------------------------------------- (please print or type name and address) and if such number of Warrants shall not be all the Warrants evidenced b this Warrant Certificate, that a new Warrant Certificate for the balance of such Warrants be registered in the name of, and delivered to, the Registered Holder at the address stated below. Dated:_____________ (Signature of Registered Holder) -------------------------------------- (Address) (Taxpayer Identification Number) -------------------------------------- Signature Guaranteed 9 ASSIGNMENT FORM To be executed by the Registered Holder In order to Assign Warrants FOR VALUE RECEIVED,____________________________________ hereby sell, assigns and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER [ ] - ----------------------------------------------------------------------------- - ---------------------------------------------------------------------------- - ---------------------------------------------------------------------------- - ---------------------------------------------------------------------------- (please print or type name and address) ______________________ of the Warrants represented by this Warrant, and hereby irrevocably constitutes and appoints ________________________ Attorney to transfer this Warrant on the books of the Company, with full power of substitution in the premises. Dated:________________ X__________________________________ (Signature of Registered Holder) ----------------------------------- (Signature Guaranteed) THE SIGNATURE ON THE ASSIGNMENT OR THE PURCHASE FORM MUST CORRESPOND TO THE NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR MIDWEST STOCK EXCHANGE. CERTIFICATION OF STATUS OF TRANSFEREE TO BE EXECUTED BY THE TRANSFEREE OF THIS WARRANT The undersigned transferee hereby certifies to the registered Holder and to TII Industries, Inc. that the transferee is an "accredited investor" within the meaning of Rule 501 of Regulation D promulgated under the Securities Act of 1933, as amended. Dated:________________ X__________________________________ (Signature of Transferee) EX-4.5 3 0003.txt PURCHASE OPTION THIS PURCHASE OPTION HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS. THIS PURCHASE OPTION AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS PURCHASE OPTION MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR PURSUANT TO AN EXEMPTION THEREFROM UNDER THE ACT AND SUCH LAWS, SUPPORTED BY AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED. THIS PURCHASE OPTION MAY NOT, IN ANY EVENT, BE TRANSFERRED TO ANY PERSON OR ENTITY THAT IS NOT AN ACCREDITED INVESTOR WITHIN THE MEANING OF RULE 501, PROMULGATED UNDER THE ACT. UNIT PURCHASE OPTION FOR THE PURCHASE OF _______ UNITS OF TII INDUSTRIES, INC. (A DELAWARE CORPORATION) 1. Purchase Option. --------------- THIS CERTIFIES THAT, in consideration of $________ and other good and valuable consideration duly paid by or on behalf of _________________________ ("Holder"), as registered owner of this Purchase Option, to TII Industries, Inc. ("Company"), Holder is entitled, at any time or from time to time at or after December 9, 2000 ("Commencement Date"), and at or before 5:00 p.m., Eastern time, December 8, 2004 ("Expiration Date"), but not thereafter, to subscribe for, purchase and receive, in whole or in part, up to ____ Units, each Unit consisting of one share of the Company's common stock, par value $.01 per share (the "Common Stock"), and one Redeemable Common Stock Purchase Warrant ("Warrant") to purchase one share of Common Stock. The Units and the shares of Common Stock and Warrants comprising the Units, including the "Extra Warrants" (as described in Section 5 hereof), are sometimes collectively referred to herein as the "Securities." If the Expiration Date is a day on which banking institutions are authorized by law to close, then this Purchase Option may be exercised on the next succeeding day that is not such a day in accordance with the terms herein. During the period ending on the Expiration Date, the Company agrees not to take any action that would terminate this Purchase Option. This Purchase Option is initially exercisable at a per Unit purchase price equal to $2.69; provided, however, that upon the occurrence of any of the events specified in Section 6 hereof, the rights granted by this Purchase Option, including the exercise price and the number of shares of Common Stock, Warrants and Extra Warrants, if any, to be received upon such exercise, shall be adjusted as therein specified. The term "Exercise Price" shall mean the initial exercise price or the adjusted exercise price, depending on the context. This Purchase Option is one of a series of Purchase Options, which, in the aggregate, entitle the Holders thereof to purchase 414,000 Units and are being issued in connection with the issuance and sale by the Company of identical Units to investors in a private placement for which M.H. Meyerson & Co., Inc. has acted as placement agent ("TII-MHM Private Placement"). 2. Exercise. -------- 2.1. Exercise Form. In order to exercise this Purchase Option, the exercise form attached hereto must be duly executed and completed and delivered to the Company, together with this Purchase Option and payment of the Exercise Price (except as provided in Section 2.3 hereof) in cash or by certified check or official bank check for the Units being purchased. If the subscription rights represented hereby shall not be exercised at or before 5:00 p.m., Eastern time, on the Expiration Date, except as otherwise provided in Section 1 hereof, this Purchase Option shall become null and be void without further force or effect, and all rights represented hereby shall cease and expire. 2.2. Legend. The Warrants and any Extra Warrants purchased under this Purchase Option shall bear the legends contained on the Warrants (and Extra Warrants) issued to investors in the TII-MHM Private Placement. Each certificate for Common Stock purchased under this Purchase Option shall bear a legend substantially as follows unless the issuance of such Securities by the Company have been registered under the Securities Act of 1933, as amended ("Securities Act"): This security has been acquired for investment and has not been registered under the Securities Act of 1933, as amended, or applicable state securities laws. The securities may not be sold, pledged or transferred in the absence of such registration or an exemption therefrom under said Act and such laws, supported by an opinion of counsel, reasonably satisfactory to the Company and its counsel, that such registration is not required. 1.1. Conversion Right. ---------------- 2.2.1. Determination of Amount. In lieu of the payment of the Exercise Price (and in lieu of being entitled to receive Common Stock (except as provided below), Warrants or Extra Warrants) in the manner required by Section 2.1, the Holder shall have the right (but not the obligation) to convert any exercisable but unexercised portion of this Purchase Option into Common Stock ("Conversion Right") as follows: upon exercise of the Conversion Right, the Company shall deliver to the Holder (without payment by the Holder of any portion of the Exercise Price in cash) that number of shares of Common Stock equal to the quotient obtained by dividing (x) the "Value" (as determined below) of the portion of the Purchase Option being converted by (y) the Market Price (as defined below) on the second trading day prior to the date the Company receives this Purchase Option for conversion pursuant to Section 2.3.2 hereof. The "Value" of the portion of the Purchase Option being converted shall equal the remainder derived from subtracting (a) (i) the Exercise Price multiplied by (ii) the number of Units underlying the portion of this Purchase Option being converted from (b) the product derived from multiplying (i) two multiplied by the remainder derived from subtracting the exercise price of the Warrant from the Market Price of the Common Stock by (ii) the number of Units underlying the portion of this Purchase Option being converted. If any Extra Warrants are issuable upon exercise of this Purchase Option, then there shall be added to "value" an amount equal to the remainder derived from subtracting (a) the Exercise Price of the Extra Warrants from (b) the Market Price of the Common Stock, multiplied by the number of Extra Warrants issuable upon exercise of this Purchase Option. As used herein, the term "Market Price" at any date shall be deemed to be the average last reported sale price of the Common Stock for the five trading days immediately preceding such date, as officially reported by the principal securities 2 exchange on which the Common Stock is listed or admitted to trading, or, if the Common Stock is not listed or admitted to trading on any national securities exchange or if any such exchange on which the Common Stock is listed is not the principal trading market for the Common Stock, the average last reported sale price of the Common Stock for the five trading days immediately preceding such date as furnished by the National Association of Securities Dealers, Inc. ("NASD") through the Nasdaq National Market or the Nasdaq SmallCap, or, if applicable, the OTC Bulletin Board, or if the Common Stock is not listed or admitted to trading on the Nasdaq National Market or the Nasdaq SmallCap or OTC Bulletin Board or similar organization, as determined in good faith by resolution of the Board of Directors of the Company, based on the best information available to it. 2.2.2. Mechanics of Conversion Right. The Conversion Right may be exercised by the Holder on any business day on or after the Commencement Date and not later than the Expiration Date, except as otherwise provided in Section 1 hereof, by delivering to the Company this Purchase Option with a duly executed exercise form attached hereto with the conversion section completed exercising the Conversion Right. 3. Transfer. -------- 3.1. General Restrictions; Accredited Investors Only. The Holder of this Purchase Option, by its acceptance hereof, agrees that it will not sell, transfer or assign or hypothecate this Purchase Option to anyone except upon compliance with, or pursuant to exemptions from, applicable securities laws and only if the transferee shall certify to the Company that the transferee is an "accredited investor" as defined in Rule 501 promulgated under the Securities Act. In order to make any permitted assignment, the Holder must deliver to the Company the assignment form attached hereto duly executed and completed both by the Holder and the transferee as applicable, together with this Purchase Option and payment of all transfer taxes, if any, payable in connection therewith. The Company shall immediately transfer this Purchase Option on the books of the Company and shall execute and deliver a new Purchase Option or Purchase Options of like tenor to the appropriate assignee(s) expressly evidencing the right to purchase the aggregate number of shares of Common Stock purchasable hereunder or such portion of such number as shall be contemplated by any such assignment. 3.2. Restrictions Imposed by the Securities Act. This Purchase Option and the Securities underlying this Purchase Option shall not be transferred unless and until (i) the Company has received the opinion of counsel for the Holder that this Purchase Option or the Securities, as the case may be, may be transferred pursuant to an exemption from registration under the Securities Act and applicable state law, the availability of which is established to the reasonable satisfaction of the Company, or (ii) a registration statement relating to such Purchase Option or Securities, as the case may be, has been filed by the Company and declared effective by the Securities and Exchange Commission ("Commission") and remains effective and current and is in compliance with applicable state law. 3 4. New Purchase Options to be Issued. --------------------------------- 4.1. Partial Exercise or Transfer. Subject to the restrictions in Section 3 hereof, this Purchase Option may be exercised or assigned in whole or in part. In the event of the exercise or assignment hereof in part only, upon surrender of this Purchase Option for cancellation, together with the duly executed exercise or assignment form and funds sufficient to pay any Exercise Price and/or transfer tax, the Company shall cause to be delivered to the Holder without charge a new Purchase Option of like tenor to this Purchase Option in the name of the Holder evidencing the right of the Holder to purchase the aggregate number of Units purchasable hereunder as to which this Purchase Option has not been exercised or assigned. 4.2. Lost Certificate. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Purchase Option and of reasonably satisfactory indemnification, the Company shall execute and deliver a new Purchase Option of like tenor and date. Any such new Purchase Option executed and delivered as a result of such loss, theft, mutilation or destruction shall constitute a substitute contractual obligation on the part of the Company. 5. Registration Obligation. ----------------------- 5.1. The Holder of this Purchase Option shall be entitled to the same registration rights with respect to (i) this Purchase Option, (ii) the Common Stock and Warrants comprising the Units issuable upon exercise of this Purchase Option, (iii) the Extra Warrants referred to below, and (iv) the Common Stock issuable upon exercise of the Warrants included in the Units and the Extra Warrants referred to below (collectively, the "Registrable Securities") as the Company has granted to investors in the TII-MHM Private Placement as set forth in the Subscription Agreement and Investor Information Statement entered into by the Company and each such investor ("Subscription Agreement"), including, without limitation and subject to the limitations and obligations set forth therein, the mandatory registration obligation set forth in Section 7.1.1(a) of Schedule 1 to the Subscription Agreement and the provisions relating thereto as set forth in Section 7.1 of Schedule 1 to the Subscription Agreement; provided, however, that if the registration statement referred to in Section 7.1.1.(a) of Schedule 1 to the Subscription Agreement is not declared effective by the Securities and Exchange Commission by the Target Date referred to therein, then in lieu of the actual issuance of additional Warrants to the Holder (as the Company has agreed to issue to investors in the TII-MHM Private Placement), on the Target Date and on each monthly anniversary of the Target Date until the earlier of the effective date of such registration statement or the nineteenth monthly anniversary of the Target Date, the number of Warrants purchasable upon exercise of this Purchase Option shall be increased (without any increase in the Exercise Price of this Purchase Option) by 5% of the number of Warrants purchasable hereunder prior to the first such adjustment made on the Target Date (such increase in the number of Warrants purchasable hereunder being referred to herein as the "Extra Warrants"). In connection with the registration statements to be filed by the Company as provided in the Subscription Agreement, the Company shall register for resale under the Securities Act this Purchase Option, the Common Stock and Warrants comprising the Units, the Extra Warrants and the Common Stock issuable upon exercise of the Warrants and Extra Warrants and, alternatively, if permitted by the Securities and Exchange Commission, the Company shall register the issuance by the Company of the Common Stock, Warrants and Extra Warrants, if any, upon exercise of this Purchase Option, and the issuance by the Company of the Common Stock upon exercise of the Warrants and Extra Warrants, if any. 4 5.2. Successors and Assigns. The registration rights granted to the Holders inure to the benefit of all the Holders' successors, heirs, pledgees, assignees, transferees and purchasers of the Registrable Securities. 6. Adjustments. ----------- 6.1. Adjustments to Exercise Price and Number of Securities. The Exercise Price and the number of Units (as well as the number of any Extra Warrants issuable hereunder) underlying the Purchase Option shall be subject to adjustment from time to time as hereinafter set forth: 6.1.1. Stock Dividends, Recapitalization, Reclassification, Split-Ups. If after the date hereof, and subject to the provisions of Section 6.2 below, the number of outstanding shares of Common Stock is increased by a stock dividend payable in shares of Common Stock or by a split-up, recapitalization or reclassification of shares of Common Stock or other similar event, then, on the effective date thereof, the number of shares of Common Stock (but not the Warrants or Extra Warrants issuable upon exercise of the Purchase Options since adjustments made under the anti-dilution of such Warrants and Extra Warrants are deemed made for events occurring after the date of original issuance of this Purchase Option) issuable on exercise of this Purchase Option shall be increased in proportion to such increase in outstanding shares. For example, if the Company declares a two-for-one stock dividend and at the time of such dividend this Purchase Option is for the purchase of 1,000 Units at $2.20 per Unit and 50 Extra Warrants will be issued upon exercise of this Purchase Option, upon effectiveness of the dividend, this Purchase Option will be adjusted to allow for the purchase, at $1.10 per Unit, of 2,000 shares of Common Stock, 1,000 Warrants (which Warrants would entitle the holder, under the anti-dilution provisions thereof, to purchase 2,000 shares of Common Stock) and 50 Extra Warrants (which Extra Warrants would entitle the holders, under the anti-dilution provisions thereof, to purchase 100 shares of Common Stock). 6.1.2. Aggregation of Shares. If after the date hereof, and subject to the provisions of Section 6.2, the number of outstanding shares of Common Stock is decreased by a consolidation, combination or reclassification of shares of Common Stock or other similar event, then, upon the effective date thereof, the number of shares of Common Stock (but not the Warrants or Extra Warrants issuable upon exercise of the Purchase Options since adjustments made under the anti-dilution of such Warrants and Extra Warrants are deemed made for events occurring after the date of original issuance of this Purchase Option) issuable on exercise of this Purchase Option shall be decreased in proportion to such decrease in outstanding shares. 6.1.3. Adjustments in Exercise Price. Whenever the number of shares issuable upon exercise of this Purchase Option is adjusted, as provided in this Section 6.1, the Exercise Price shall be adjusted (to the nearest cent) by multiplying such Exercise Price immediately prior to such adjustment by a fraction (x) the numerator of which shall be the number of shares purchasable upon the exercise of this Purchase Option immediately prior to such adjustment, and (y) the denominator of which shall be the number of shares so purchasable immediately thereafter. 6.1.4. Replacement of Securities upon Reorganization, etc. In case of any reclassification or reorganization of the outstanding shares of Common Stock (other than a change covered by Section 6.1.1 or 6.1.2 hereof or that solely affects the par value of such 5 shares of Common Stock), or in the case of any merger or consolidation of the Company with or into another corporation (other than a consolidation or merger in which the Company is the continuing corporation and that does not result in any reclassification or reorganization of the outstanding shares of Common Stock), or in the case of any sale or conveyance to another corporation or entity of the property of the Company as an entirety or substantially as an entirety in connection with which the Company is dissolved, the Holder of this Purchase Option shall have the right thereafter (until the expiration of the right of exercise of this Purchase Option) to receive upon the exercise hereof, for the same aggregate Exercise Price payable hereunder immediately prior to such event, the kind and amount of shares of stock or other securities or property (including cash) receivable upon such reclassification, reorganization, merger or consolidation, or upon a dissolution following any such sale or other transfer, by a Holder of the number of shares of Common Stock of the Company obtainable upon exercise of this Purchase Option immediately prior to such event. The provisions of this Section 6.1.4 shall similarly apply to successive reclassifications, reorganizations, mergers or consolidations, sales or other transfers. 6.1.5. Changes in Form of Purchase Option. This form of Purchase Option need not be changed because of any change pursuant to this Section, and Purchase Options issued after such change may state the same Exercise Price and the same number of Units as are stated in the Purchase Options initially issued pursuant to this Purchase Option. The acceptance by any Holder of the issuance of new Purchase Options reflecting a required or permissive change shall not be deemed to waive any rights to a prior adjustment or the computation thereof. 6.2. Redemption of Warrants. Notwithstanding anything to the contrary contained in the form of Warrants issued to investors in the TII-MHM Private Placement, the Warrants and Extra Warrants, if any, issuable upon exercise of this Purchase Option cannot, under any circumstances, be redeemed by the Company until such time as they have been issued to the Holder. 6.3. Elimination of Fractional Interests. The Company shall not be required to issue certificates representing fractions of a share of Common Stock issuable upon the exercise or transfer of this Purchase Option, nor shall it be required to issue scrip or pay cash in lieu of any fractional interests, it being the intent of the parties that all fractional interests shall be eliminated by rounding any fraction up or down to the nearest whole number of shares of Common Stock or other securities, properties or rights. 6.4. Notice of Adjustment. Upon the happening of any event requiring an adjustment of the Exercise Price hereunder, the Company shall forthwith give written notice thereof to the Holders stating the adjusted Exercise Price and the adjusted number of shares of Common Stock issuable upon exercise of this Purchase Option resulting from such event and setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. 7. Reservation and Listing. The Company shall at all times reserve and keep available out of its authorized shares of Common Stock, solely for the purpose of issuance upon exercise of this Purchase Option and the Warrants and Extra Warrants, if any, issuable upon exercise of this Purchase Option, such number of shares of Common Stock or other securities, properties or rights as shall be issuable upon the exercise thereof. The Company covenants and agrees that, upon exercise of the Purchase Options and payment of the Exercise Price therefor, all 6 shares of Common Stock and other securities issuable upon such exercise shall be duly and validly issued, fully paid and non-assessable and not subject to preemptive rights of any stockholder. As long as the Purchase Options shall be outstanding, the Company shall use its best efforts to cause all shares of Common Stock issuable upon exercise of the Purchase Options to be listed (subject to official notice of issuance) on all securities exchanges (or, if applicable, on Nasdaq) on which the Common Stock is then listed and/or quoted. 8. Notices of Record Date. In case: ---------------------- (a) the Company shall take a record of the holders of its Common Stock (or other stock or securities at the time deliverable upon the exercise of this Purchase Option) for the purpose of entitling or enabling them to receive any dividend or other distribution, or to receive any right to subscribe for or purchase any shares of any class or any other securities, or to receive any other right, or (b) of any capital reorganization of the Company, any reclassification of the capital stock of the Company, any consolidation or merger of the Company with or into another corporation (other than a consolidation or merger in which the Company is the surviving entity), or any transfer of all or substantially all of the assets of the Company, or (c) of the voluntary or involuntary dissolution, liquidation or winding-up of the Company, then, and in each such case, the Company will deliver or cause to be delivered to the Holder a notice specifying, as the case may be, (i) the date on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, or (ii) the effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up is to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such other stock or securities at the time deliverable upon the exercise of this Purchase Option) shall be entitled to exchange their shares of Common Stock (or such other stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up. Such notice shall be mailed at least fifteen (15) days prior to the record date or effective date for the event specified in such notice, provided that the failure to mail such notice shall not affect the legality or validity of any such action. 8.1. Transmittal of Notices. All notices, requests, consents and other communications under this Purchase Option shall be in writing and shall be deemed to have been duly made on the date of delivery if delivered personally or sent by overnight courier, with acknowledgment of receipt to the party to whom notice is given, or on the fifth day after mailing if mailed to the party to whom notice is to be given, by registered or certified mail, return receipt requested, postage prepaid and properly addressed as follows: (i) if to the registered Holder of the Purchase Option, to the address of such Holder as shown on the books of the Company, or (ii) if to the Company, to its principal executive office. 9. Miscellaneous. ------------- 9.1. Amendments. The Company and M.H. Meyerson & Co., Inc. ("MHM") may from time to time supplement or amend this Purchase Option without the approval of any of the Holders in order to cure any ambiguity, to correct or supplement any provision contained herein 7 which may be defective or inconsistent with any other provisions herein, or to make any other provisions in regard to matters or questions arising hereunder that the Company and MHM may deem necessary or desirable and that the Company and MHM deem shall not adversely affect the interest of the Holders. All other modifications or amendments shall require the written consent of the party against whom enforcement of the modification or amendment is sought. 9.2. Headings. The headings contained herein are for the sole purpose of convenience of reference, and shall not in any way limit or affect the meaning or interpretation of any of the terms or provisions of this Purchase Option. 9.3. Entire Agreement. This Purchase Option (together with the registration rights provisions in the Subscription Agreement referred to in this Purchase Option) constitutes the entire agreement of the parties hereto with respect to the subject matter hereof, and supersedes all prior agreements and understandings of the parties, oral and written, with respect to the subject matter hereof. 9.4. Binding Effect. This Purchase Option shall inure solely to the benefit of and shall be binding upon, the Holder and the Company and their respective successors, legal representatives and assigns, and no other person shall have or be construed to have any legal or equitable right, remedy or claim under or in respect of or by virtue of this Purchase Option or any provisions herein contained. 9.5. Governing Law; Submission to Jurisdiction. This Purchase Option shall be governed by and construed and enforced in accordance with the laws of the State of New York, without giving effect to conflict of laws. Each of the Company and the Holder hereby agrees that any action, proceeding or claim against it arising out of, or relating in any way to this Purchase Option shall be brought and enforced in the courts of the State of New York or of the United States of America for the Southern District of New York, and irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive. Each of the Company and the Holder hereby waives any objection to such exclusive jurisdiction and that such courts represent an inconvenient forum. Any process or summons to be served upon the Company may be served by transmitting a copy thereof by registered or certified mail, return receipt requested, postage prepaid, addressed to it at its principal business offices. Such mailing shall be deemed personal service and shall be legal and binding upon the Company in any action, proceeding or claim. The prevailing party(ies) in any such action shall be entitled to recover from the other party(ies) all of its reasonable attorneys' fees and expenses relating to such action or proceeding and/or incurred in connection with the preparation therefor. 9.6. Waiver, Etc. The failure of the Company or the Holder to at any time enforce any of the provisions of this Purchase Option shall not be deemed or construed to be a waiver of any such provision, nor to in any way affect the validity of this Purchase Option or any provision hereof or the right of the Company or any Holder to thereafter enforce each and every provision of this Purchase Option. No waiver of any breach, non-compliance or non-fulfillment of any of the provisions of this Purchase Option shall be effective unless set forth in a written instrument executed by the party or parties against whom or which enforcement of such waiver is sought; and no waiver of any such breach, non-compliance or non-fulfillment shall be construed or deemed to be a waiver of any other or subsequent breach, non-compliance or non-fulfillment. 9.7. Exchange Agreement. As a condition of the Holder's receipt and acceptance of this Purchase Option, Holder agrees that, at any time prior to the complete exercise of this 8 Purchase Option by Holder, if the Company and Meyerson enter into an agreement ("Exchange Agreement") pursuant to which they agree that all outstanding Purchase Options will be exchanged for securities or cash or a combination of both, then Holder shall agree to such exchange and become a party to the Exchange Agreement. IN WITNESS WHEREOF, the Company has caused this Purchase Option to be signed by its duly authorized officer as of the 8th day of June, 2000. TII INDUSTRIES, INC. By: /s/ Paul G. Sebetic ----------------------------- Name: Paul G. Sebetic Title: Vice President-Finance 9 NOTICE OF EXERCISE To Be Executed by the Registered Holder In Order to Exercise this Unit Purchase Option The undersigned registered Holder hereby irrevocably elects to exercise the attached Purchase Option and to purchase ___ Units of TII Industries, Inc. (and to receive any Extra Warrants issuable upon such exercise) and hereby makes payment of $________ (at the rate of $____ per Unit) in payment of the Exercise Price pursuant thereto. Please issue the securities comprising the Units as to which this Purchase Option is exercised in accordance with the instructions given below. or The undersigned Registered Holder hereby irrevocably elects to exercise the attached Purchase Option and to purchase ___ Units of TII Industries, Inc. (and to receive any Extra Warrants issuable upon such exercise) by surrender of the unexercised portion of the attached Purchase Option (with a "Value" of $______ based on a "Market Price" of $______). Please issue the securities comprising the Units as to which this Purchase Option is exercised in accordance with the instructions given below. PLEASE ISSUE CERTIFICATES AS FOLLOWS: PLEASE INSERT SOCIAL SECURITY OR OTHER [ ] IDENTIFYING NUMBER - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- (please print or type name and address) and be delivered to - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- (please print or type name and address) and if such number of Units exercised shall not be all the Units evidenced by the attached Purchase Option, that a new Purchase Option for the balance of such Purchase Option be registered in the name of, and delivered to, the registered Holder at the address stated below. Dated:_____________ _______________________________________ (Signature of Registered Holder) --------------------------------------- --------------------------------------- (Address) --------------------------------------- (Taxpayer Identification Number) --------------------------------------- Signature Guaranteed 10 ASSIGNMENT FORM To be executed by the Registered Holder In order to Assign Purchase Option FOR VALUE RECEIVED,____________________________________ hereby sell, assigns and transfer unto PLEASE INSERT SOCIAL SECURITY OR [ ] OTHER IDENTIFYING NUMBER - ----------------------------------------------------------------------------- - ---------------------------------------------------------------------------- - ---------------------------------------------------------------------------- - ---------------------------------------------------------------------------- (please print or type name and address) ______________________ of the Purchase Options represented by the attached instrument, and hereby irrevocably constitutes and appoints ________________________ Attorney to transfer these Purchase Options on the books of the Company, with full power of substitution in the premises. Dated:________________ X__________________________________ (Signature of Registered Holder) ----------------------------------- (Signature Guaranteed) THE SIGNATURE ON THE ASSIGNMENT OR THE PURCHASE FORM MUST CORRESPOND TO THE NAME AS WRITTEN UPON THE FACE OF THIS PURCHASE OPTION CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR MIDWEST STOCK EXCHANGE. CERTIFICATION OF STATUS OF TRANSFEREE TO BE EXECUTED BY THE TRANSFEREE OF THIS PURCHASE OPTION The undersigned transferee hereby certifies to the registered Holder and to TII Industries, Inc. that the transferee is an "accredited investor" within the meaning of Rule 501 of Regulation D promulgated under the Securities Act of 1933, as amended. Dated:________________ X__________________________________ (Signature of Transferee) 11 EX-5 4 0004.txt OPINION OF PARKER CHAPIN LLP Exhibit 5 July 21, 2000 TII Industries, Inc. 1385 Akron Street Copiague, New York 11726 Gentlemen: We have acted as counsel to TII Industries, Inc, a Delaware corporation (the "Company"), in connection with a Registration Statement on Form S-3 (the "Registration Statement") being filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "Act"), covering: (a) 1,800,000 shares of the Company's Common Stock, $.01 par value (that class of stock being referred to as the "Common Stock" and those shares of Common Stock being referred to as the "Outstanding Shares"), (b) 1,800,000 redeemable stock purchase warrants to purchase 1,800,000 shares of Common Stock (the "Outstanding Warrants"), (c) 1,800,000 shares of the Company's Common Stock issuable upon exercise of the Outstanding Warrants (the "Outstanding Warrant Shares"), (d) 414,000 placement agent options, each entitling its holder to purchase one share of Common Stock and a redeemable stock purchase warrant to purchase an additional share of Common Stock (the "Placement Agent Options"), (e) 414,000 shares of Common Stock issuable upon exercise of the Placement Agent Options (the "Placement Agent Option Shares"), (f) 414,000 warrants issuable upon exercise of the Placement Agent Options (the "Placement Agent Option Warrants"), and (g) 414,000 shares of Comon Stock issuable upon exercise of the Placement Agent Option Warrants (the "Placement Agent Warrant Shares"). In connection with the foregoing, we have examined originals or copies, satisfactory to us, of the exhibits to the Registration Statement and all such corporate records and of all such agreements, certificates and other documents as we have deemed relevant and necessary as a basis for the opinion hereinafter expressed. In such examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals and the conformity with the original documents of all documents submitted to us as copies or facsimiles. As to any facts material to such opinion, we have, to the extent that relevant facts were not independently established by us, relied on certificates of public officials and certificates of officers or other representatives of the Company. Based upon and subject to the foregoing, we are of the opinion that: (a) the Outstanding Shares are legally issued, fully paid and non-assessable; -30- (b) the Outstanding Warrants are legal, valid and binding obligations of the Company; (c) the Outstanding Warrant Shares, when sold, paid for and issued upon exercise of the Outstanding Warrants in accordance with the terms and provisions of the Outstanding Warrants, will be legally issued, fully paid and non-assessable; (d) the Placement Agent Options are legal, valid and binding obligations of the Company; (e) the Placement Agent Option Shares, when sold, paid for and issued in accordance with the terms and provisions of the Placement Agent Options, will be legally issued, fully paid and non-assessable; (f) the Placement Agent Option Warrants, when sold, paid for and issued in accordance with the terms and provisions of the Placement Agent Options, will be legal, valid and binding obligations of the Company; and (g) the Placement Agent Warrant Shares, when sold, paid for and issued in accordance with the terms and provisions of the Placement Agent Options, will be legally issued, fully paid and non-assessable. We hereby consent to the use of our name under the caption "Legal Matters" in the Prospectus constituting a part of the Registration Statement and to the filing of this opinion as an exhibit to the Registration Statement. In giving this consent, we do not thereby admit that we are within the category of persons whose consent is required under Section 7 of the Act, the rules and regulations of the Securities and Exchange Commission promulgated thereunder, or Item 509 of Regulation S-K promulgated under the Act. This opinion letter is rendered as of the date first written above and we disclaim any obligation to advise you of facts, circumstances, events or developments which hereafter may be brought to our attention and which may alter, affect or modify the opinion expressed herein. Very truly yours, /s/ PARKER CHAPIN LLP -2- EX-23.1 5 0005.txt CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS Exhibit 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in this registration statement of our report dated September 15, 1999, included in TII Industries, Inc.'s Form 10-K for the year ended June 25, 1999, and to all references to our firm included in this registration statement. /s/ ARTHUR ANDERSEN LLP San Juan, Puerto Rico, July 18, 2000. EX-99.2 6 0006.txt SUBSCRIPTION AGREEMENT TII INDUSTRIES, INC. SUBSCRIPTION AGREEMENT AND INVESTOR INFORMATION STATEMENT INSTRUCTIONS IMPORTANT: PLEASE READ CAREFULLY BEFORE SIGNING. SIGNIFICANT REPRESENTATIONS ARE CONTAINED IN THIS DOCUMENT. THERE ARE TWO AGREEMENTS ATTACHED. BOTH AGREEMENTS NEED TO BE REVIEWED, COMPLETED AND EXECUTED AS FOLLOWS: 1. Fill in the missing information on Page 1. 2. Individual Investors must complete and sign Question 7.7 on Page 4 and complete and sign the signature page on Page 8. 3. Entity Investors must complete Question 7.8 on Page 5 and sign the signature page on Page 9 (certain persons affiliated with the entity may be required to complete Question 7.7 and, if so, copies of Page 4 should be added, completed and signed by those persons). DELIVER THE EXECUTED AGREEMENTS TO: M.H. MEYERSON & CO., INC. 525 WASHINGTON BOULEVARD 34TH FLOOR JERSEY CITY, NJ 07310 ATTENTION: MS. TRACY R. CEPEDA (800) 444-4114 Print Name of Subscriber ___________________________ SUBSCRIPTION AGREEMENT AND INVESTOR INFORMATION STATEMENT IMPORTANT: PLEASE REFER TO SCHEDULE 1 COMMENCING ON PAGE 10 WHEN REVIEWING THIS DOCUMENT. THE SCHEDULE IS INCORPORATED HEREIN AND MADE A PART HEREOF. The Company and the Investor hereby agree as follows: 1. SUBSCRIPTION FOR SECURITIES. I (sometimes referred to herein as the "Investor") hereby subscribe for and agree to purchase $________________ of the securities being offered by the Company described on SCHEDULE 1 hereto ("Securities") upon the terms and conditions set forth in this Agreement and SCHEDULE 1. M.H. Meyerson & Co., Inc. ("M.H. Meyerson") is acting as exclusive placement agent for the offering. 2. OFFERING PERIOD. The Securities are currently being offered by the Company through the date set forth on SCHEDULE 1 ("Termination Date"). 3. INVESTOR DELIVERY OF DOCUMENTS AND PAYMENT. I hereby tender to M.H. Meyerson, as placement agent for the Company (i) the full purchase price for all Securities subscribed for by me by check or wire in accordance with the instructions set forth on SCHEDULE 1, and (ii) two manually executed copies of this Subscription Agreement. Prior to the earlier of a Closing (as defined in Section 5 hereof) or the Termination Date, my wire transfer will be held by M.H. Meyerson in a non-interest bearing bank, segregated bank account subject to the terms and conditions herein. If the Company does not receive and accept the minimum subscriptions required to have a Closing as set forth on SCHEDULE 1 by the Termination Date, my payment will be returned to me without interest or deduction. 4. ACCEPTANCE OR REJECTION OF SUBSCRIPTION. The Company and M.H. Meyerson have the right to reject this subscription for the Securities, in whole or in part, for any reason and at any time prior to the Closing, notwithstanding prior receipt by me of notice of acceptance of my subscription. In the event of the rejection of this subscription, my payment will be returned promptly to me without interest or deduction and, if my subscription is rejected in whole, this Subscription Agreement will have no force or effect. The Securities subscribed for herein will not be deemed issued to or owned by me until two copies of this Subscription Agreement have been executed by me and countersigned by the Company and the Closing with respect to my subscription has occurred. 5. CLOSING AND DELIVERY OF SECURITIES. A closing ("Closing") may occur at the office of Graubard Mollen & Miller at such time as determined jointly by the Company and M.H. Meyerson provided that M.H. Meyerson has received and the Company has accepted subscriptions for the minimum amount of Securities as set forth on SCHEDULE 1. In the event my subscription is accepted and there is a Closing, my payment will be released to the Company and the certificates representing the Securities will be delivered promptly to me along with a fully executed version of this Agreement. 6. OFFERING TO ACCREDITED INVESTORS. This offering is limited to accredited investors as defined in Rule 501(a) of Regulation D promulgated under the Securities Act of 1933, as amended ("Securities Act"), and is being made without registration under the Securities Act in reliance upon the exemptions contained in Section 4(2) of the Securities Act and applicable state securities laws. As indicated by my responses on page 7 or 8 hereof, I am an "accredited investor" within the meaning of Rule 501 promulgated thereunder. 1. 7. INVESTOR REPRESENTATIONS AND WARRANTIES. I acknowledge, represent and warrant to the Company and M.H. Meyerson as follows: 7.1 Obligations of the Company and the Investor. The Company has no obligation to me other than as set forth in this Agreement, including but not limited to the obligations described in Section 7.1 of SCHEDULE 1. I have read and agree to the restrictions set forth in Section 7.1 of SCHEDULE 1. I am aware that, except for any rescission rights that may be provided under applicable laws, I am not entitled to cancel, terminate or revoke this subscription, and any agreements made in connection herewith will survive my death or disability. In order to induce the Company to issue and sell the Securities to me, I represent and warrant that the information relating to me stated herein is true and complete as of the date hereof and will be true and complete as of the date on which my purchase of Securities becomes effective. If, prior to the final consummation of the offer and sale of the Securities, there should be any change in such information or any of such information becomes incorrect or incomplete, I agree to notify the Company and supply the Company promptly with corrective information. 7.2 Information About the Company. (1) I have read the confidential private placement memorandum relating to this offering ("Memorandum") and all exhibits listed therein and fully understand the Memorandum, including the Section entitled "Risk Factors" and the Memorandum's exhibits. I have been given access to full and complete information regarding the Company and have utilized such access to my satisfaction for the purpose of verifying the information included in the Memorandum and exhibits thereto, and I have either met with or been given reasonable opportunity to meet with officers of the Company for the purpose of asking reasonable questions of such officers concerning the terms and conditions of the offering of the Securities and the business and operations of the Company and all such questions have been answered to my full satisfaction. I have also been given an opportunity to obtain any additional relevant information to the extent reasonably available to the Company. I have received all information and materials regarding the Company that I have reasonably requested. After my reading of the materials about the Company, I understand that there is no assurance as to the future performance of the Company. (2) I have received no representation or warranty from the Company or M.H. Meyerson or any of their respective officers, directors, employees or agents in respect of my investment in the Company. I (i) have not seen any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television, radio or the Internet and (ii) have not participated in any seminar or meeting whose attendees have been invited by any general solicitation or general advertising. 7.3 Speculative Investment. I am aware that the Securities are a speculative investment that involves a high degree of risk including, but not limited to, the risk of losses from operations of the Company and the total loss of my investment. I have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment in the Securities and have obtained, in my judgment, sufficient information from the Company to evaluate the merits and risks of an investment in the Company. I have either used a purchaser representative (as defined in Regulation D) or I do not require any person to serve as my purchaser representative (as defined in Regulation D) in connection with evaluating such merits and risks as I am capable of relying on my own investigation in making a decision to invest in the Company. I have been advised to seek independent advice from my professional advisors relating to the suitability of an investment in the Company in view of my overall financial needs and with respect to the legal and tax implications of such investment. I believe that the investment in the Securities is suitable for me based upon my investment objectives and financial needs, and I have adequate means for providing for my current financial needs and contingencies and have no need for liquidity with respect to my investment in the Company. The investment in the Company will not constitute a substantial part of my investment portfolio. 7.4 Restrictions on Transfer. I understand that (i) the Securities have not been registered under the Securities Act or the securities laws of certain states in reliance on specific exemptions from registration, (ii) no securities administrator of any state or the federal government has recommended or endorsed this offering or made any finding or determination relating to the fairness of an investment in the Company, and (iii) the Company is relying on my representations and agreements for the purpose of determining whether this transaction meets the requirements of the exemptions afforded by the Securities Act and applicable state securities laws. I acknowledge that there is no assurance that the Company will file any Registration Statement for the Securities I am purchasing, that such Registration Statement, if filed, will be declared effective or, if declared effective, that the Company will be able to keep it effective until I sell the securities registered thereon. 7.5 No Market for Securities. I am purchasing the Securities for my own account for investment and not with a view to, or for sale in connection with, any subsequent distribution of the Securities, nor with any present intention of selling or otherwise disposing of all or any part of the Securities. I understand that, although there is a public market for the Common Stock included in the Securities, there is no assurance that such market will continue and there is no market at present for the Units themselves or the Warrants included in the Securities and it is unlikely that a market will ever develop for these two securities in the future (the term Securities will be deemed hereinafter to include the underlying securities). I agree that (i) the purchase of the Securities is a long-term investment, (ii) I may have to bear the economic risk of investment for an indefinite period of time because the Securities have not been registered under the Securities Act and may never be registered and, cannot be resold, pledged, assigned or otherwise disposed of unless they are subsequently registered under the Securities Act and under applicable securities laws of certain states, or an exemption from such registration is available. I understand that the Company is under no obligation to register the Securities, except as may be set forth in Section 7.1 of SCHEDULE 1, or to assist me in complying with any exemption from such registration under the Securities Act or any state securities laws. I hereby authorize the Company to place a legend denoting the restrictions on the certificates representing the Securities and corresponding "stop transfer" instructions with respect to the Securities. 7.6 Entity Authority. If the Investor is a corporation, limited liability company, partnership, company, trust, employee benefit plan, individual retirement account, Keogh Plan or other tax-exempt entity, it is authorized and qualified to become an investor in the Company and the person signing this Subscription Agreement on behalf of such entity has been duly authorized 3 by such entity to do so and to carry out such subscriber's obligations under the Subscription Agreement, including making such entity's representations and warranties made hereby. 4 7.7 ACCREDITED INVESTOR STATUS FOR INDIVIDUALS. (INVESTORS THAT ARE CORPORATIONS, LIMITED LIABILITY COMPANIES, PARTNERSHIPS, REVOCABLE TRUSTS, IRREVOCABLE TRUSTS, EMPLOYEE BENEFIT PLAN TRUSTS AND INDIVIDUAL RETIREMENT ACCOUNTS SHOULD IGNORE THE FOLLOWING QUESTIONS AND PROCEED TO SECTION 7.8). (a) I am an accredited investor within the meaning of Section 2(15) of the Securities Act and Rule 501 promulgated thereunder because (check any boxes that apply): My individual annual income during each of the two most recent [ ] years exceeded $200,000 and I expect my annual income during the current year will exceed $200,000. If I am married, my joint annual income with my spouse during [ ] each of the two most recent years exceeded $300,000 and I expect my joint annual income with my spouse during the current year will exceed $300,000. [ ] My individual or joint (together with my spouse) net worth (including my home, home furnishings and automobiles) exceeds $1,000,000. (b) The aggregate value of my assets is approximately $___________. (c) My aggregate liabilities are approximately $___________. (d) My current and expected income is:
--------------------------------------- ------------------------------- YEAR INCOME --------------------------------------- ------------------------------- 2000 (estimated) $ --------------------------------------- ------------------------------- 1999 (Actual) $ --------------------------------------- ------------------------------- 1998 (Actual) $ --------------------------------------- -------------------------------
I hereby confirm the answers to Section 7.7 are true and correct in all respects as of the date hereof and will be on the date of the purchase of Securities. Executed this ____ day of ________, 2000. Signature: Print Name: INDIVIDUAL INVESTORS MAY SKIP TO SECTION 7.9 ON PAGE 6. EACH PERSON ASSOCIATED WITH AN ENTITY INVESTOR WHO IS REQUIRED UNDER SECTION 7.8 TO SEPARATELY COMPLETE THE QUESTIONS IN THIS SECTION 7.7 MUST COMPLETE THIS SECTION 7.7 AND SIGN THE ABOVE CONFIRMATION. 5 7.8 ACCREDITED INVESTOR STATUS FOR ENTITIES. (INVESTORS WHO ARE INDIVIDUALS SHOULD IGNORE THESE QUESTIONS.) (a) The entity is a (check applicable box): |_| Corporation |_| Limited Liability Company |_| Partnership |_| Revocable Trust |_| Irrevocable Trust (if the Investor is an Irrevocable Trust, a supplemental questionnaire must be completed by the person directing the decision for the trust. Please contact M.H. Meyerson for a copy of such supplemental questionnaire. Its address and telephone number are on SCHEDULE 1.) |_| Employee Benefit Plan Trust |_| Individual Retirement Account (If you are an IRA, skip (b)) (b) Check all boxes which apply: |_| The Entity was NOT formed for the specific purpose of investing in the Company |_| The Entity has total assets in excess of $5 million dollars |_| For Employee Benefit Plan Trusts Only: The decision to invest in the Company was made by a plan fiduciary, as defined in Section 3(21) of ERISA, who is either a bank, insurance company or registered investment advisor. (c) If you did not check the first two of the three boxes in Question (b) OR if the Entity is an Individual Retirement Account, a Self-directed Employee Benefit Plan Trust or an Irrevocable Trust, list the name of each person who: (i) owns an equity interest in the Entity (i.e., each shareholder if the Entity is a corporation, each member if the Entity is a limited liability company and each partner if the Entity is a partnership); or (ii) is a grantor for the revocable trust or Individual Retirement Account; or (iii) is the person making the investment decision for a self-directed Employee Benefit Plan Trust; or (iv) is the person making the investment decisions for an Irrevocable Trust. --------------------------- -------------------------- --------------------------- -------------------------- EACH PERSON LISTED ABOVE MUST SEPARATELY COMPLETE AND SUBMIT TO THE COMPANY THE ANSWERS TO QUESTION 7.7 AND SIGN THE WRITTEN CONFIRMATION AT THE END OF SECTION 7.7. 7.9 No Offer Until Determination of Suitability. I acknowledge that any delivery to me of the documents relating to the offering of the Securities prior to the determination by the Company of my suitability will not constitute an offer of the Securities until such determination of suitability is made. 7.10 For Florida Residents. The Securities have not been registered under the Securities Act of 1933, as amended, or the Florida Securities Act, by reason of specific exemptions thereunder relating to the limited availability of the Offering. The Securities cannot be sold, transferred or otherwise disposed of to any person or entity unless subsequently registered under the Securities Act of 1933, as amended, or the Securities Act of Florida, if such registration is required. Pursuant to Section 517.061(11) of the Florida Securities Act, when sales are made to five (5) or more persons in Florida, any sale made pursuant to Subsection 517.061(11) of the Florida Securities Act will be voidable by such Florida purchaser either within three days after the first tender of consideration is made by the purchaser to the issuer, an agent of the issuer, or an escrow agent, or within three days after the availability of the privilege is communicated to such purchaser, whichever occurs later. This constitutes such communication. In addition, as required by Section 517.061(11) (a)(3), Florida Statutes and by Rule 3-500.05(a) thereunder, if I am a Florida resident I have had, at the offices of the Company, at any reasonable hour, after reasonable notice, access to the materials set forth in the Rule that the Company can obtain without unreasonable effort or expense. 8. INDEMNIFICATION. I hereby agree to indemnify and hold harmless the Company and M.H. Meyerson, their respective officers, directors, stockholders, employees, agents, and attorneys against any and all losses, claims, demands, liabilities, and expenses (including reasonable legal or other expenses incurred by each such person in connection with defending or investigating any such claims or liabilities, whether or not resulting in any liability to such person or whether incurred by the indemnified party in any action or proceeding between the indemnitor and indemnified party or between the indemnified party and any third party) to which any such indemnified party may become subject, insofar as such losses, claims, demands, liabilities and expenses (a) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact made by me and contained herein or omission to make a statement made herein not misleading, or (b) arise out of or are based upon any breach by me of any representation, warranty, or agreement made by me contained herein. M.H. Meyerson is a third-party beneficiary of this Section and this Section may not be modified or amended without the prior written agreement of M.H. Meyerson. 9. SEVERABILITY; REMEDIES. In the event any parts of this Subscription Agreement are found to be void, the remaining provisions of this Subscription Agreement are nevertheless binding with the same effect as though the void parts were deleted. 10. GOVERNING LAW AND JURISDICTION. This Subscription Agreement will be deemed to have been made and delivered in New York City and will be governed as to validity, interpretation, construction, effect and in all other respects by the internal laws of the State of New York. Each of the Company and the Investor hereby (i) agrees that any legal suit, action or proceeding arising out of or relating to this Subscription Agreement will be instituted exclusively in New York State Supreme Court, County of New York, or in the United States District Court for the Southern District of New York, (ii) waives any objection to the venue of any such suit, action or proceeding and the right to assert that such forum is not a convenient forum for such suit, action or proceeding, (iii) irrevocably consents to the jurisdiction of the New York State Supreme Court, County of New York, and the United States District Court for the Southern District of New York in any such suit, action or proceeding, (iv) agrees to accept and acknowledge service of any and all process that may be served in any such suit, action or proceeding in New York State Supreme Court, County of New York or in the United States District Court for the Southern District of New 7 York and (v) agrees that service of process upon the Investor may be made by certified mail to the Investor's address set forth on the signature page will be deemed in every respect effective service of process upon it in any suit, action or proceeding. 11. COUNTERPARTS. This Subscription Agreement may be executed in one or more counterparts, each of which will be deemed an original but all of which together will constitute one and the same instrument. The execution of this Subscription Agreement may be by actual or facsimile signature. 12. BENEFIT. This Subscription Agreement is binding upon and inures to the benefit of the parties hereto (and M.H. Meyerson to the extent it is a third-party beneficiary hereof) and their respective heirs, executors, personal representatives, successors and assigns. M.H. Meyerson is a third-party beneficiary with respect to any sections hereof that so state or that otherwise indicate that M.H. Meyerson would be entitled to rely on the representations, warranties or covenants made by me therein. 13. NOTICES. All notices, offers, acceptance and any other acts under this Subscription Agreement (except payment) must be in writing, and is sufficiently given if sent to the addressees in person, by overnight courier service, or, if mailed, postage prepaid, by certified mail (return receipt requested), and will be effective three days after being placed in the mail if mailed, or upon receipt or refusal of receipt, if delivered personally or by courier or confirmed telecopy, in each case addressed to a party. All communications to me should be sent to my preferred address on the signature page hereto. All communications to the Company should be sent to the addresses set forth on SCHEDULE 1. Each party may designate another address by notice to the other parties. 14. ORAL EVIDENCE. This Subscription Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior oral and written agreements between the parties hereto with respect to the subject matter hereof. This Subscription Agreement may not be changed, waived, discharged, or terminated orally, but rather, only by a statement in writing signed by the party or parties against which enforcement or the change, waiver, discharge or termination is sought. 15. SECTION HEADINGS. Section headings herein have been inserted for reference only and will not be deemed to limit or otherwise affect, in any matter, or be deemed to interpret in whole or in part, any of the terms or provisions of this Subscription Agreement. 16. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. The representations, warranties and agreements contained herein will survive the delivery of, and the payment for, the Securities. 17. ACCEPTANCE OF SUBSCRIPTION. The Company may accept this Subscription Agreement at any time on or before the Termination Date for all or any portion of the Securities subscribed for by executing a copy hereof as provided and notifying me within a reasonable time thereafter. 8 SIGNATURE PAGE FOR INDIVIDUAL INVESTORS - COMPLETE ALL INFORMATION --------------------------------------- Name: ____________________ Name of Joint Investor (if any): ___________________ Residence Address: ____________________________________________________________ Telephone: (H) ___________________ (W) _____________________ Fax ______________ Occupation: _________________________ Employer: ______________________________ Business Address: _____________________________________________________________ Send communications to: |_| Home |_| Office Age: _______________ Social Security Number: ____________________ Check Manner in which securities are to be held: [ ] [ ] [ ] Individual Tenants in Joint Tenants with Ownership common Right of Survivorship (both parties must sign) [ ] Community [ ] Property Other (please indicate) ALL INVESTORS MUST SIGN AND PRINT NAME BELOW Signature: _______________________________ Print Name: _______________________________ Signature: _______________________________ Print Name: _______________________________ The foregoing subscription is accepted as to _________________ Units and the Company hereby agrees to be bound by its terms. 9 TII INDUSTRIES, INC. Dated: ______________________ By:_____________________________ Name: Paul G. Sebetic Title: Vice President - Financial SIGNATURE PAGE FOR ENTITY INVESTORS - COMPLETE ALL INFORMATION - ----------------------------------- Name of Entity: ________________________________________________________________ Address of Principal Office: __________________________________________________ Telephone: ___________________ Fax: ___________________ Taxpayer Identification Number: ______________________ Check type of Entity:
[ ] [ ] [ ] [ ] Individual Retirement Employee Benefit Limited General Account Plan Trust Partnership Partnership [ ] [ ] [ ] [ ] Limited Trust Corporation Other (please indicate) Liability __________________ Company Date of Formation or incorporation: ___________ State of Formation or incorporation: __________
Describe the business of the Entity: ___________________________________________ - ------------------------------------------------------------------------------ List the names and positions of the executive officers, managing members, partners or trustees authorized to act with respect to investments by the Entity generally and specify who has the authority to act with respect to this investment.
------------------------------------------------- ------------------------------------- ------------------------------ Authority for this Name Position investment (yes or no) ------------------------------------------------- ------------------------------------- ------------------------------ ------------------------------------------------- ------------------------------------- ------------------------------ ------------------------------------------------- ------------------------------------- ------------------------------ ------------------------------------------------- ------------------------------------- ------------------------------ ------------------------------------------------- ------------------------------------- ------------------------------
10
--------------------------------------------------- ------------------------------------------------------------ INVESTOR: The foregoing subscription is accepted as to ____________ Units and the Company hereby agrees to be bound by its terms. TII INDUSTRIES, INC. --------------------------- Signature of Authorized Signatory By: _____________________________ Name: Name: Paul G. Sebetic Title: Title: Vice President - Financial --------------------------------------------------- ------------------------------------------------------------
SCHEDULE 1 1. Subscription. TII INDUSTRIES, INC. is offering a minimum of 1,300,000 and a maximum of 1,800,000 Units, each consisting of one share of the Company's Common Stock, par value $0.01 per share ("Common Stock"), and one Redeemable Common Stock Purchase Warrant ("Warrant"). The per-Unit offering price shall be equal to 75% of the average of the mean between the closing bid and closing asked prices for the Common Stock for the five consecutive trading days ending on the last trading day prior to the closing of the Offering (100% of such average being referred to as the "Market Price"), with a minimum offering price of $1.75 and maximum offering price of $3.00. Each investor must subscribe for a minimum of $50,000, although a lower amount may be accepted in the discretion of the Company and M.H. Meyerson. The actual number of Units each Investor will receive will be based upon the actual per-Unit offering price. Any monies deposited by an Investor in excess of such Investor's actual accepted investment will be promptly returned without interest or deduction following the Closing. The form of the Warrant is attached as Exhibit B to the Memorandum. 2. Offering Period. The Company is offering the Securities until the earlier of (i) the date by which 1,800,000 Units are sold, or (ii) June 29, 2000, unless such newer date is extended, which may be without notice, to the Investor, by the mutual consent of M.H. Meyerson and the Company to a date not later than August 14, 2000 ("Termination Date"). 3. Purchase. You must remit payment of the amount subscribed for as follows: PNC Bank, NA Pittsburgh, PA ABA #: 031-207-607 Account Name: M.H. Meyerson & Co., Inc. - TII Industries Special Account Account #: 8013-62-0715 4. Not applicable. 5. Closing. In order to close this Offering, the Company must receive and accept subscriptions for a minimum of 1,300,000 Units on or before the Termination Date. A Closing (the "Closing") will be held promptly following the earlier of the 11 acceptance of subscriptions for 1,800,000 Units and, provided at least 1,300,000 Units are sold, the Termination Date. 6. Not applicable 7.1 Obligations of the Company and the Investor. 1. Registration Rights. (a) Mandatory Registration. The Company shall file, within 45 days after the Closing, a Registration Statement ("Registration Statement") under the Securities Act and make appropriate filings under "blue sky" laws in such states as M.H. Meyerson shall reasonably specify, registering for resale the Common Stock and Warrants included in the Units and the "Extra Warrants" referred to below and the Common Stock underlying the Warrants and the Extra Warrants, and, to the extent permitted, registering the issuance of such Common Stock upon the exercise of the Warrants and Extra Warrants, as the case may be (collectively, the "Registrable Securities"). The Company shall use its best efforts to have the Registration Statement declared effective by the 180th day after the Closing ("Target Date"). If the Registration Statement is not declared effective by the SEC by the Target Date, then on the Target Date and on each monthly anniversary of the Target Date thereafter until the earlier of the effective date of the Registration Statement ("Effective Date") or the nineteenth monthly anniversary of the Target Date, the Company shall issue to each purchaser of Units in the Offering, Warrants ("Extra Warrants") to purchase a number of shares of Common Stock equal to 5% of the number of Warrants purchased by him in the Offering. The Extra Warrants shall have the same terms as the Warrants included in the Units sold in the Offering. The Company shall keep the Registration Statement current and effective until all the securities registered thereunder are sold or can be sold freely under an appropriate exemption under the Securities Act and the "blue sky" laws of the states reasonably specified by M.H. Meyerson, without limitation. The Company shall bear all fees and expenses incurred by the Company in connection with the preparation of the Registration Statement and filing it with the SEC and the NASD, including the fees (no more than $15,000) and disbursement of one special counsel for all of the holders of the Registrable Securities in connection with the registration of the Registration Securities and the preparation, filing, modifying and amending of the Registration Statement. M.H. Meyerson has selected Graubard Mollen & Miller as such special counsel and the investor acknowledges and agrees to this selection. (b) "Piggy-back" Registration. If at any time commencing 180 days after the Closing, if the Registration Statement referred to in 7.1 (a) above shall not be effective, and the Company shall file a registration statement (excluding registration statements on Forms S-4 and S-8), the holders of the Registrable Securities shall have the right to include the Registrable Securities in such registration statement. If the registration statement is filed in connection with an underwritten offering on behalf of the Company, and the managing underwriters advise the Company in writing that, in their good faith opinion, the number of securities requested to be included in such registration statement exceeds the number which can be sold in such offering, the Company will include in such registration statement the Registrable Securities provided that such holders agree not to sell any of such Registrable Securities for a period of 90 days from the effective date of such Registration Statement without the prior consent of such managing underwriter. The Company shall keep the Registration Statement 12 effective and current until the earlier of the date by which all the securities registered thereunder have been sold or can be sold freely under an appropriate exemption under the Securities Act. (c) Indemnification by Company. The Company shall indemnify the Holders of the Registrable Securities to be sold pursuant to any registration statement hereunder, the officers and directors of each Holder and each person, if any, who controls such Holders within the meaning of Section 15 of the Securities Act or Section 20(a) of the Securities Exchange Act of 1934, as amended ("Exchange Act"), or any state securities law or regulation, against all loss, claim, damage, expense or liability (including all reasonable attorneys' fees and other expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever incurred by the indemnified party in any action or proceeding between the indemnitor and indemnified party or between the indemnified party and any third party or otherwise) to which any of them may become subject under the Securities Act, the Exchange Act or any other statute or at common law, arising from such registration statement or based upon any untrue statement or alleged untrue statement of a material fact contained in (i) any preliminary prospectus, the registration statement or prospectus (as from time to time each may be amended and supplemented); (ii) any post-effective amendment or amendments or any new registration statement and prospectus in which is included the Underlying Common Shares; or (iii) any application or other document or written communication (collectively called "application") executed by the Company or based upon written information furnished by the Company in any jurisdiction in order to qualify the Underlying Common Shares under the securities laws thereof or filed with the Securities and Exchange Commission, any state securities commission or agency, Nasdaq or any securities exchange; or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, unless such statement or omission is made in reliance upon, and in conformity with, written information furnished to the Company by and with respect to such registered holders ("Purchaser Information") expressly for use in any preliminary prospectus, the registration statement or prospectus (including any new registration and prospectus), or any amendment (including any post-effective amendment) or supplement thereof, or in any application, as the case may be, or unless the indemnities failed to deliver a final prospectus in which the material misstatement or omission was corrected. The Company agrees promptly to notify such Holders of the commencement of any litigation or proceedings against the Company or any of its officers, directors or controlling persons in connection with the issue and sale or resale of the Underlying Common Shares or in connection with the registration statement or prospectus. (d) Successors and Assigns. The registration rights granted to the holders of the Registrable Securities inure to the benefit of all the holders' successors, heirs, pledges, assignees, transferees and purchasers of any of the Registrable Securities. (e) Permissible Delays and Exceptions (i) The Company shall be entitled to postpone the filing of any Registration Statement otherwise required to be prepared and filed by it (other than the Registration Statement required under Section 7.1.1(a) of this Schedule 1) or suspend keeping any Registration Statement or 13 prospectus current and/or effective without suspending such effectiveness by instructing the holders of Registrable Securities not to sell any Registrable Securities included in any such Registration Statement for a period not to exceed 15 calendar days in any consecutive 120-day period and not to exceed 23 calendar days in any consecutive 365-day period, if the Company would be required to disclose in such Registration Statement any material business situation, transaction or negotiation not otherwise disclosed as to which the Company's Board of Directors has determined, in good faith, that valid, significant and material business reasons exist that warrant that such information not be disclosed and, in the opinion of counsel to the Company, such disclosure would be required in the Registration Statement to keep the corresponding prospectus current. Nothing in this Section 7.1.1(e) shall relieve the Company of its obligation to issue Extra Warrants pursuant to Section 7.1.1(a) of this Schedule 1. (ii) The Company shall not be obligated to include in any Registration Statement the Registrable Securities held by any holder thereof unless such holder has furnished to the Company in writing the information regarding such holder required by law to be disclosed in such Registration Statement pursuant to Sections 507 and 508 of Regulation S-K promulgated under the Securities Act. 8.-12. Not Applicable. 13. Notices. All communications to the Company should be sent to: TII Industries, Inc. 1385 Akron Street Copiague, New York 11726 Attention: Chief Financial Officer (631) 789-5000 (phone) (631) 789-2228 (fax) with copies to: 1. Parker Chapin LLP The Chrysler Building 405 Lexington Avenue New York, New York 10174 Attention: Richard A. Rubin, Esq. (212) 704-6130 (phone) (212) 704-6288 (fax) M.H. Meyerson & Co., Inc. 525 Washington Boulevard 34th Floor Jersey City, New Jersey 07310 Attention: Ronald J. Heller (800) 444-4114 (phone) (201) 459-9458 (fax) and Graubard Mollen & Miller 14 600 Third Avenue New York, New York 10016 Attention: David Alan Miller, Esq. (212) 818-8661 (phone) (212) 818-8881 (fax) 14. - 17. Not applicable 15 EX-99.3 7 0007.txt AGENCY AGREEMENT TII INDUSTRIES, INC. AGENCY AGREEMENT As of May 15, 2000 M.H. Meyerson & Co., Inc. 525 Washington Boulevard Jersey City, New Jersey 07310 Gentlemen: TII Industries, Inc., a Delaware corporation ("Company"), proposes to offer for sale in a private placement ("Offering") a minimum of 1,300,000 and a maximum of 1,800,000 units ("Units") at a purchase price equal to 75% of the average of the mean between the closing bid and asked prices for the Company's common stock for the five consecutive trading days ending on the last trading day prior to the closing of the Offering (100% of such average being referred to as the "Market Price") with a minimum offering price of $1.75 and a maximum offering price of $3.00 per Unit. Each Unit consists of one share ("Share(s)") of the Company's Common Stock ("Common Stock") and one warrant ("Warrant(s)") to purchase an additional share of the Company's Common Stock at an exercise price equal to the lower of 125% of the Market Price or $4.75, but in either case not less than $2.69 per share. The Units will be offered on a "best efforts, minimum 1,3000,000 Units, maximum 1,800,000 Units" basis, in accordance with Section 4(2) of the Securities Act of 1933, as amended ("Securities Act"), and Regulation D ("Reg D") promulgated thereunder, only to "accredited investors," as defined in Reg D. The minimum subscription amount will be $50,000, although subscriptions for amounts less than $50,000 may be accepted at the discretion of the Placement Agent (as hereinafter defined) with the Company's consent. The Units, Shares and Warrants have the terms and conditions reflected in the Company's Confidential Private Placement Memorandum dated May 15, 2000 to be delivered to each purchaser of the Units ("Memorandum"). The Memorandum, together with all exhibits thereto, will be referred to herein as the "Offering Documents." 1. Appointment of Placement Agent; The Offering Period. - ------------------------------------------------------------ 1.1 Appointment of Placement Agent. M.H. Meyerson & Co., Inc. ("Meyerson" or "Placement Agent") is hereby appointed exclusive Placement Agent of the Company during the offering period herein specified ("Offering Period") for the purpose of assisting the Company in placing the Units with purchasers who are qualified accredited investors ("Subscribers"). The Placement Agent hereby accepts such agency and agrees to assist the Company in placing the Units with the Subscribers. The Placement Agent's agency hereunder is not terminable by the Company except upon termination of the Offering, a breach by the Placement Agent of its material obligations hereunder or as otherwise provided in Section 7 hereon. 1.2 Offering Period. The Offering Period shall commence on May 15, 2000, the day the Offering Documents are first made available to the Placement Agent by the Company and shall continue until June 29, 2000; provided, however, that the Offering Period may be extended for up to an additional period of forty-five (45) days by the mutual decision of the Placement Agent and the Company without notice to any Subscriber (the last day of the Offering Period, as it may be extended, is referred to as the "Termination Date"). If, at any time during the Offering Period, subscriptions for at least 1,300,000 of the Units have been received and accepted by you and the Company (and funds in payment therefor have cleared), then, upon the mutual consent of the Company and the Placement Agent, a closing ("Closing") shall take place with respect to such accepted subscriptions and the Offering shall terminate. If subscriptions for at least 1,300,000 of the Units are not received and accepted (and funds in payment therefor cleared) by the Termination Date, then the Offering will be terminated and all funds received from Subscribers will be returned, without interest and without any deduction. 1.3 Placement Agent's Purchase Option. The Company hereby agrees to issue and sell to the Placement Agent (and/or its designees) at the Closing, for an aggregate purchase price of $100.00, an option ("Placement Agent's Purchase Option") to purchase a number of Units equal to that percentage of Units sold in the Offering as set forth on Schedule 1.3 hereto, ("Placement Agent's Units") which percentage will be dependent on the Market Price, at an exercise price equal to 110% of the Market Price, but in any event, not less than $2.69 per Unit. The Placement Agent Purchase Option will be in the form attached hereto. The Placement Agent's Units shall be identical to the Units sold in the Offering. The Placement Agent's Purchase Option shall be exercisable for a period of four years commencing on the day following the six-month anniversary of the Closing. 1.4 Offering Documents. The Company will provide the Placement Agent with a sufficient number of copies of the Offering Documents and the forms of Subscription Agreement and Investor Information Statement ("Subscription Agreement"), to be executed by each Subscriber for delivery to potential Subscribers and such other information, documents and instruments that the Placement Agent deems reasonably necessary to act as Placement Agent hereunder and to comply with the rules, regulations and judicial and administrative interpretations respecting compliance with applicable state and federal statutes related to the Offering. 1.5 Segregation of Funds. Each Subscriber for the Units shall tender to the Placement Agent a wire transfer payable to the order of "M.H. Meyerson & Co., Inc.--TII Industries Special Account" in the amount of the investment subscribed for, which funds shall be held by Meyerson in a segregated, non-interest-bearing bank account, in accordance with Rules 10b-9 and 15c2-4 promulgated under the Securities Exchange Act of 1934 ("Exchange Act"). 1.6 No Firm Commitment. The Company understands and acknowledges that the undertaking by the Placement Agent pursuant to this Agreement is not a "firm commitment" offering and that the Placement Agent is not obligated in any way to purchase or sell the Units offered hereby. 1.7 Participation by Selected Dealers. The Placement Agent may engage other persons that are members of the National Association of Securities Dealers, Inc. ("NASD") or registered representatives of such members to assist the Placement Agent in the Offering (each such person being hereinafter referred to as a "Selected Dealer") and the Placement Agent may allow such persons such part of the compensation and payment of expenses payable to the Placement Agent hereunder as the Placement Agent shall determine. 2. Representations and Warranties of the Company. The Company hereby represents and warrants to the Placement Agent and the Selected Dealers upon the execution of this Agreement and again at each Closing as follows: 2 2.1 Due Incorporation and Qualification. The Company has been duly incorporated, is validly existing and is in good standing under the laws of its state of incorporation and is duly qualified as a foreign corporation for the transaction of business and is in good standing in each jurisdiction in which the ownership or leasing of its properties or the conduct of its business requires such qualification, except where the failure to so qualify would not have a material adverse effect on the business, operations, assets, financial condition or prospects of the Company and its subsidiaries taken as a whole ("Material Adverse Effect"). The Company has all requisite corporate power and authority necessary to own or hold its properties and conduct its business as described in the Offering Documents. 2.2 Authorized Capital; Outstanding Securities. As of the date hereof, the Company's capitalization, including all options, warrants and convertible securities, is as described on SCHEDULE 2.2. Except as set forth on SCHEDULE 2.2, the Company does not have outstanding any option, warrant, convertible security, or other right permitting or requiring it to issue, or otherwise to purchase or convert any obligation into, shares of Common Stock or other securities of the Company and the Company has not agreed to issue or sell any shares of Common Stock or other securities of the Company. As of the date of Closing, there will be no other securities of the Company outstanding, except for (i) stock options granted to employees since the date hereof in the ordinary course with exercise prices no less than fair market value on the date of grant, and (ii) additional Common Stock issued upon conversion or exercise of such outstanding options, warrants and convertible securities. All of the issued and outstanding shares of Common Stock have been duly and validly authorized and issued and are fully paid and non-assessable. None of the holders of such outstanding shares of Common Stock is subject to personal liability solely by reason of being such a holder. The offers and sales of all securities of the Company within the last three years were at all relevant times either registered under the Securities Act and the applicable state securities or Blue Sky laws or exempt from such registration. 2.3 No Preemptive Rights; Registration Rights. Except as set forth on SCHEDULE 2.3, there are no preemptive or other rights to subscribe for or purchase, or any restriction upon the voting or transfer of, any shares of Common Stock or other securities of the Company, under the Certificate of Incorporation or By-Laws of the Company or under any agreement or other outstanding instrument to which the Company is a party or by which it is bound. No holder of any of the Company's securities has any "piggyback" or demand registration rights with respect to which the Company has not already registered such securities. The Company has reserved for issuance a sufficient number of shares of Common Stock to be issued to the Subscribers upon the issuance of the Units, the exercise of the Warrants ("Warrant Shares") and upon the exercise of the Placement Agent's Purchase Option and the exercise of the Warrants underlying the Placement Agent's Purchase Option. 2.4 Financial Statements. The financial statements of the Company included in the Offering Documents ("Financials") fairly present the financial position and results of operations of the Company at the dates thereof and for the periods covered thereby, subject, in the case of interim periods, to year-end adjustments and normal recurring accruals. The Company has no material liabilities or obligations, contingent, direct, indirect or otherwise except (i) as set forth in the latest balance sheet included in the Financials or the footnotes thereto (the date of such balance sheet being referred to as the "Balance Sheet Date"), and (ii) those incurred in the ordinary course of business since the Balance Sheet Date. Except as may be disclosed in the Financials, there are no amounts due to any officers, directors or 5% or greater stockholders of the Company, or to any of their respective affiliates, other than salary and other compensation disclosed in the Offering Documents and expense reimbursements. 3 2.5 No Material Adverse Changes. Except as otherwise stated in the Offering Documents, since the Balance Sheet Date, there has not been any material adverse change in the condition, financial or otherwise, of the Company. 2.6 Subsidiaries. Except for the subsidiaries set forth on SCHEDULE 2.8, the Company has no subsidiaries and has no interest in, shares of capital stock of or right to acquire an interest in or shares of capital stock of any other corporation, limited liability company, partnership or other entity. 2.7 Taxes. The Company has filed all federal tax returns and all state and municipal and local tax returns (whether relating to income, sales, franchise, withholding, real or personal property or other types of taxes) required to be filed under the laws of the United States and applicable states, and has paid in full all taxes that have become due pursuant to such returns or claimed to be due by any taxing authority; provided, however, that the Company has not paid any tax, assessment, charge, levy or license fee that it is contesting in good faith and by proper proceedings and adequate reserves for the accrual of same are maintained if required by generally accepted accounting principles. The Company has withheld, collected and paid all levies, assessments, license fees and taxes to the extent required. As used herein, "tax" or "taxes" include all taxes, charges, fees, levies or other assessments imposed by any Federal, state, local, or foreign taxing authority, including, without limitation, income, premium, recapture, credit, excise, property, sales, use, occupation, service, service use, leasing, leasing use, value added, transfer, payroll, employment, license, stamp, franchise or similar taxes (including any interest earned thereon or penalties or additions attributable thereto). 2.8 Finder's Fees; Other Underwriters. The Company is not obligated to pay a finder's fee to anyone in connection with the introduction of the Company to the Placement Agent or the consummation of the Offering contemplated hereunder. Since May 15, 1999, the Company has not paid or issued any monies, securities or other compensation to any member of the NASD or to any affiliate or associate of such a member or to any other person in consideration for such person raising funds for the Company or providing financial or public relations consulting services to the Company, except as set forth on SCHEDULE 2.8. The Company does not owe any monies or other obligations to any NASD member, affiliate or associate other than as may be owed to the Placement Agent under this Agreement. 2.9 No Pending Actions. There are no actions, suits, proceedings, claims or hearings of any kind or nature existing or pending or, to the best knowledge of the Company, threatened and, to the best knowledge of the Company, no investigations or inquiries, before or by any court, or other governmental authority, tribunal or instrumentality (or, to the Company's best knowledge, any state of facts that would give rise thereto), pending or threatened against the Company, or involving the properties of the Company, that, as to any matter covered by this Section 2.9, are reasonably likely to result in any Material Adverse Effect or that might adversely affect the transactions or other acts contemplated by this Agreement or the validity or enforceability of this Agreement. 4 2.10 Private Offering Exemption; Offering Documents. The Offering Documents taken as a whole do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. The Units, Warrants and "Extra Warrants" (as defined in the Subscription Agreement and the Placement Agent's Purchase Option) ("Extra Warrants"), if any, and the Placement Agent's Purchase Option, conform in all material respects to the descriptions thereof contained in the Offering Documents. Assuming that (i) a proper Form D is filed in accordance with Rule 503 of Reg D, (ii) the offer and the sale of the Units by the Placement Agent was made in compliance with Rule 502(c) of Reg D and/or Section 4(2) of the Securities Act, and (iii) the representations of the Subscribers in the Subscription Agreements signed by them are true and correct (which facts will not be independently verified by the Company), the sale of Units in the Offering is exempt from registration under the Securities Act and is in compliance with Reg D. 2.11 Due Authorization. The Company has full right, power and authority to enter into this Agreement, the Subscription Agreements, the Warrants, Extra Warrants, if any, and the Placement Agent's Purchase Option, to issue the Units, Shares, Warrants, Extra Warrants, if any, and the Placement Agent's Purchase Option and to perform all of its obligations hereunder and thereunder. This Agreement has been, and the Subscription Agreements, Warrants, Extra Warrants, if any, and the Placement Agent's Purchase Option, when executed and delivered, will have been, duly authorized by all necessary corporate action and no further corporate action or approval is or will be required for their respective execution, delivery and performance. This Agreement constitutes, and the Subscription Agreements, Warrants, Extra Warrants, if any, and the Placement Agent's Purchase Option, upon execution and delivery will constitute, valid and binding obligations of the Company, enforceable in accordance with their respective terms, except (i) as the enforceability thereof may be limited by bankruptcy, fraudulent conveyance, insolvency, moratorium, reorganization or similar laws affecting creditors' rights generally, (ii) that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceedings therefor may be brought, and (iii) that the enforceability of the indemnification and contribution provisions of the respective agreements may be limited by the federal and state securities laws and public policy. 2.12 Non-Contravention; Consents. The Company's execution and delivery of this Agreement, the Subscription Agreements, Warrants, Extra Warrants, if any, and the Placement Agent's Purchase Option, and the incurrence of the obligations herein and therein set forth, and the consummation of the transactions contemplated herein and therein will not (i) conflict with, or constitute a breach of, or a default under, the certificate of incorporation or by-laws of the Company, or any contract, lease or other agreement or instrument to which the Company is a party or in which the Company has a beneficial interest or by which the Company is bound; (ii) violate any existing applicable law, rule, regulation, judgment, order or decree of any governmental agency or court, domestic or foreign, having jurisdiction over the Company or any of its properties or business (collectively, "Laws"), except where such violation(s) would not, singly or in the aggregate, result in a Material Adverse Effect; or (iii) have any effect on any permit, certification, registration, approval, consent, license or franchise (collectively, "Permits") necessary for the Company to own or lease and operate any of its properties or to conduct its business, except for such effects as would not, singly or in the aggregate, have a Material Adverse Effect. No consent, Permit, approval, authorization, order of, or filing with, any court or governmental authority or any other third party is required to consummate the transactions contemplated by this Agreement, the Subscription Agreements, Warrants, Extra Warrants, if any, and the Placement Agent's Purchase Option, and the issuance of the Shares, Warrants, Extra Warrants, if any, and the securities underlying the Placement Agent's Purchase Option, except that the offer and sale of such 5 securities in certain jurisdictions may be subject to the provisions of the securities or Blue Sky laws of such jurisdictions. 2.13 Valid Issuances. The Warrants included in the Units and underlying the Placement Agent's Purchase Option and the Extra Warrants, if any, when issued and delivered in accordance with the terms of the Subscription Agreement, the Placement Agent's Purchase Option and this Agreement, will be duly and validly issued. The Shares included in the Units and underlying the Placement Agent's Purchase Option and underlying the Warrants and Extra Warrants, if any, have been duly and validly authorized and, when issued and delivered in accordance with the terms of this Agreement, Warrants, Extra Warrants and the Placement Agent's Purchase Option will be duly and validly issued, fully paid and non-assessable. The holders of the Shares will not be subject to personal liability by reason of being such holders and will not be subject to the preemptive rights of any holders of any security of the Company or similar contractual rights granted by the Company. 2.14 No Right to Purchase. Except for the reduction in the maximum conversion price of the Series C Convertible Preferred Stock from $7.08 per share to approximately $5.55 per share, the issuance of the Units or underlying Shares and Warrants in the Offering and upon exercise of the Placement Agent's Purchase Option will not give any holder of any of the Company's outstanding shares of Common Stock, options, warrants or other convertible securities or rights to purchase securities of the Company (i) the right to purchase any additional shares of Common Stock or any other securities of the Company, or (ii) the right to purchase any securities at a reduced price. 2.15 No Regulatory Problems. The Company (i) has not filed a registration statement that is the subject of any pending proceeding or examination under Section 8 of the Securities Act, and is not and has not been the subject of any refusal order or stop order thereunder; (ii) is not subject to any pending proceeding under Rule 258 of the Securities Act or any similar rule adopted under Section 3(b) of the Securities Act, or to an order entered thereunder; (iii) has not been convicted of any felony or misdemeanor in connection with the purchase or sale of any security or involving the making of any false filing with the Commission; (iv) is not subject to any order, judgment, or decree of any court of competent jurisdiction temporarily or preliminarily restraining or enjoining, or any order, judgment, or decree of any court of competent jurisdiction permanently restraining or enjoining, the Company from engaging in or continuing any conduct or practice in connection with the purchase or sale of any security or involving the making of any false filing with the Securities and Exchange Commission ("Commission"); and (v) is not subject to a United States Postal Service false representation order entered under Section 3005 of Title 39, United States Code or a temporary restraining order or preliminary injunction entered under Section 3007 of Title 39, United States Code, with respect to conduct alleged to have violated Section 3005 of Title 39, United States Code. To the Company's knowledge, none of the Company's directors, officers, or beneficial owners of 10 percent or more of any class of its equity securities (i) has been convicted of any felony or misdemeanor in connection with the purchase or sale of any security, involving the making of a false filing with the Commission, or arising out of the conduct of the business of an underwriter, broker, dealer, municipal securities dealer, or investment advisor; (ii) is subject to any order, judgment or decree of any court of competent jurisdiction temporarily or preliminarily enjoining or restraining, or is subject to any order, judgment or decree of any court of competent jurisdiction permanently enjoining or restraining, such person from engaging in or continuing any conduct or practice in connection with the purchase or sale of any security, or involving the making of a false filing with the Commission, or arising out of the conduct of the business of an underwriter, broker, dealer, municipal securities dealer, or investment adviser; (iii) is subject to an order of the Commission entered pursuant to Section 15(b), 15B(a) or 15B(c) of the Exchange Act, or is subject to an order of the Commission entered pursuant to Section 203(e) or (f) of the Investment Advisers Act of 1940; (iv) is suspended or expelled from membership in, or suspended or barred from 6 association with a member of, an exchange registered as a national securities exchange pursuant to Section 6 of the Exchange Act, an association registered as a national securities association under Section 15A of the Exchange Act, or a Canadian securities exchange or association for any act or omission to act constituting conduct inconsistent with just and equitable principles of trade; or (v) is subject to a United States Postal Service false representation order entered under Section 3005 of Title 39, United States Code, or is subject to a restraining order or preliminary injunction entered under Section 3007 of Title 39, United States Code, with respect to conduct alleged to have violated Section 3005 of Title 39, United States Code. 2.16 Material Contracts; No Defaults. The exhibit index set forth in the Form 10-K annexed as Exhibit C to the Memorandum, as it may have been updated with subsequent filings by the Company with the Securities and Exchange Commission, contains a true and complete list of all material contracts, agreements, instruments, indentures, mortgages, loans, leases, licenses, arrangements or undertakings of any nature, of the Company that are required to be filed with the Securities and Exchange Commission (collectively, "Contracts"). Except in instances which singly or in the aggregate would not cause a Material Adverse Effect, each of the Contracts is in full force and effect, the Company has performed in all material respects all of its obligations thereunder and is not in default thereunder, and no party to a Contract has made a claim to the effect that the Company has failed to perform any obligations thereunder. To the knowledge of the Company, there is no plan, intention, or indication of any contracting party to a Contract to cause termination, cancellation or modification of such Contract or to reduce or otherwise change its activity thereunder so as to adversely affect in any material respect the benefits derived or expected to be derived therefrom by the Company. The Company does not know of the occurrence of any event or the existence of any state of facts that with notice or the passage of time or both could cause it to be in default under any Contract which could result in a Material Adverse Effect. 2.17 Conduct of Business; Compliance with Law. The Company has all requisite corporate power and authority, and has all necessary Permits, to own or lease its properties and conduct its business as described in the Offering Documents, except where the failure to have such Permits would not have a Material Adverse Effect. The Company has been operating its business in compliance with all such Permits, except where such noncompliance would not have a Material Adverse Effect. The disclosures in the Offering Documents concerning the effects of federal, state and local regulation on the Company's business as currently contemplated are correct in all material respects and do not omit to state a material fact. The Company is in compliance with all Laws except where noncompliance, singly or in the aggregate, would not have a Material Adverse Effect. The Company is not in violation of any term or provision of its certificate of incorporation or by-laws. 2.18 Title to Property; Insurance. The Company has good and marketable title to, or valid and enforceable leasehold estates in, all items of real and personal property (tangible and intangible) owned or leased by it, free and clear of all liens, encumbrances, claims, security interests, defects and restrictions of any material nature whatsoever, except (a) as reflected in the Financials and (b) such as would not, singly or in the aggregate, have a Material Adverse Effect. The Company has adequately insured its properties against loss or damage by fire or other casualty and maintains such insurance in adequate amounts. 2.19 Intangibles. The Company owns, licenses or possesses or, to its knowledge, can acquire "off-the-shelf" on an as needed basis, the requisite licenses or rights to use all trademarks, service marks, service names, trade names, patents and patent applications, and copyrights (collectively, "Intangibles") to be used by the Company in its business as described in the Memorandum. There is no claim or action by any person pertaining to, or proceeding pending or, to the Company's knowledge, threatened and the Company has not received any notice of conflict with, the asserted rights of others that challenges the exclusive right (except that "off-the-shelf" 7 licenses may be non-exclusive) of the Company with respect to any Intangibles used in the conduct of the Company's proposed business except in instances which would not cause a Material Adverse Effect. To the best of the Company's knowledge, the Intangibles and the Company's proposed services and processes do not infringe on any intangibles held by any third party. To the best of the Company's knowledge, no others have infringed upon the Intangibles of the Company, except in instances which would not cause a Material Adverse Effect. 2.20 Employee Matters. The Company has generally enjoyed a satisfactory employer-employee relationship with its employees and is in compliance in all material respects with all federal, state and local laws and regulations respecting the employment of its employees and employment practices, terms and conditions of employment and wages and hours relating thereto, except where noncompliance, singly or in the aggregate, would not have a Material Adverse Effect. To the best of the Company's knowledge, there are no pending investigations involving the Company by any government Department of Labor or any other governmental agency responsible for the enforcement of employment laws and regulations. There is no unfair labor practice charge or complaint against the Company pending before a Labor Relations Board or any strike, picketing, boycott, dispute, slowdown or stoppage pending or, to the best of the Company's knowledge, threatened against or involving the Company or any predecessor entity. To the best of the Company's knowledge, no questions concerning representation exist respecting the employees of the Company. No collective bargaining agreement or modification thereof is currently being negotiated by the Company. No grievance or arbitration proceeding is pending under any expired or existing collective bargaining agreements of the Company, if any. 2.21 Subsidiaries Included in Representations and Warranties. The representations and warranties made by the Company in this Agreement shall also apply and be true with respect to each subsidiary, individually and taken as a whole with the Company and all other subsidiaries, as if each representation and warranty contained herein made specific reference to the subsidiary each time the term "Company" was used, except as the context of the representation of warranty clearly indicates otherwise. 3. Representations, Warranties and Certain Covenants of the Placement Agent and Selected Dealers. The Placement Agent, and each Selected Dealer that the Placement Agent may from time to time appoint, by signing the Selected Dealer Agreement, severally represents and warrants as follows: 3.1 Due Incorporation. Such Placement Agent or Selected Dealer is duly incorporated and validly existing and in good standing under the laws of its state of incorporation and is duly qualified as a foreign corporation for the transaction of business and is in good standing in each jurisdiction where the failure to be so qualified would have a material adverse effect on the business of such Placement Agent or Selected Dealer. 3.2 Broker/Dealer Registration. Such Placement Agent or Selected Dealer is registered as a broker-dealer under Section 15 of the Exchange Act. 3.3 Good Standing. Such Placement Agent or Selected Dealer is a member in good standing of the NASD. 3.4 Sale In Certain Jurisdictions. Sales of Units by such Placement Agent or Selected Dealer will be made only in such jurisdictions in which (i) the Placement Agent or Selected Dealer is a registered broker-dealer or where an applicable exemption from such registration exists and (ii) the Offering and sale of the Units is registered under, or is exempt from, applicable registration requirements. 8 3.5 Compliance with Laws. Offers and sales of the Units by the Placement Agent or Selected Dealer will be made in compliance with the provisions of Rule 502(c) of Reg D and Section 4(2) of the Securities Act, and the Placement Agent or Selected Dealer will furnish to each investor a copy of the Offering Documents prior to accepting any payments for the Units. 4. Closing. 4.1 Closing. At any time prior to the Termination Date and after the sale of 1,300,000 Units and the clearance of the funds representing the sale of such Units, upon the mutual consent of the Company and the Placement Agent that there shall be a closing, a closing ("Closing") shall take place at the offices of Graubard Mollen & Miller ("GM&M"), 600 Third Avenue, New York, New York or such other location as may be agreed upon by the parties. At the Closing, payment for the Units issued and sold by the Company (by certified check or wire transfer payable to the order of the Company), less the amount deductible by the Placement Agent pursuant to Section 4.4 hereof, shall be made against delivery of certificates representing Shares and Warrants comprising the Units. If certificates representing the Shares and Warrants are not available at the time of Closing, the other items to be delivered hereunder and the payments to be made hereunder shall be held in escrow by Placement Agent's counsel for a maximum of three business days pending delivery of such certificates. 4.2 Deliveries at Closing. At the Closing, and as a condition to the Closing, the Company shall deliver or cause to be delivered to the Placement Agent: 4.2.1 Opinion of Counsel. The opinions of Parker Chapin LLP and Leonard W. Suroff, Esq., dated as of the date of the Closing, in the forms annexed hereto as Exhibits A and B and the letter of Parker Chapin LLP, dated as of the date of the Closing, in the form annexed hereto as Exhibit C. 4.2.2 Officers' Certificate. A certificate of the Company, signed by two executive officers thereof, stating (a) that the representations and warranties contained in Section 2 hereof are true and accurate at the Closing as applied to the Company with the same effect as though expressly made at the Closing, and (b) that the Company has complied with all covenants and agreements required to be complied with as of the Closing. 4.2.3 Subscription Agreements. Subscription Agreements signed by the Company and each of the Subscribers. 4.2.4 Certificates. The certificates representing the Shares and the Warrants. 4.2.5 Consents. Consents of any parties required to consummate this Offering. 4.2.6 Placement Agent's Purchase Option. The Placement Agent's Purchase Option in the names and denominations designated by the Placement Agent. 4.2.7 Lock-Up Agreements. The Lock-Up Agreements executed by Alfred Roach and Timothy Roach (together, the "Insiders") referred to in Section 5.10 hereof. 4.2.8 Other Documents. Such other closing documents as shall be reasonably requested by the Placement Agent or its counsel. 4.3 Conditions. 4.3.1 Conditions to the Placement Agent's Obligations. The obligations of the Placement Agent under this Agreement shall be subject to the following conditions: 9 (1) All representations and warranties of the Company set forth in this Agreement shall be true and accurate as of the Closing with the same effect as though expressly made at the Closing; (2) The Company has complied with all covenants and agreements required to be complied with as of the date of the Closing; (3) The Company has obtained all consents of third parties required to be obtained in connection with this Offering; and (4) There shall be no action, lawsuit, administrative or other proceeding pending or threatened that seeks to enjoin the transactions contemplated by this Agreement. 4.3.2 Conditions to Company's Obligations. The obligations of the Company under this Agreement shall be subject to the conditions that: (1) The representations and warranties of the Placement Agent set forth in this Agreement are true and accurate as of the Closing with the same effect as though expressly made at the Closing; and (2) There shall be no action, lawsuit, administrative or other proceeding pending or threatened that seeks to enjoin the transactions contemplated by this Agreement; and (3) The Placement Agent has complied with all covenants and agreements required to be complied with as of the Closing; and (4) The Company shall have received the payments contemplated to be made to it under the Agreement; and (5) The Company shall have received Subscription Agreements signed by each Subscriber. 4.4 Placement Agent's Fees and Expenses. At Closing, the Company shall pay to the Placement Agent a cash commission equal to 5% of the gross proceeds of the sale of the Units, a cash Placement Manager's fee equal to 3% of the gross proceeds of the sale of the Units, a nonaccountable expense allowance equal to 2% of the gross proceeds of the sale of the Units less the $25,000 deposit paid by the Company upon the execution of the Letter of Intent dated May 3, 2000. No compensation shall be payable to the Placement Agent with respect to the sale of the Placement Agent's Purchase Option, the exercise thereof, or the exercise of the Warrants contained in the Units issuable upon exercise of the Placement Agent's Purchase Option. At the Closing, the Company also shall reimburse the Placement Agent for the expenses described in Section 5.3 hereof. All the foregoing amounts and any other expenses to be paid pursuant to Section 5.3 are payable at the Placement Agent's direction directly to the parties who are owed same by deduction from the aggregate purchase price of the Units sold. 5. Covenants. The Company covenants and agrees that: 5.1 Amendments to Offering Documents. Until the Offering has been completed or terminated, if there shall occur any event relating to or affecting, among other things, the Company or any affiliate, or the proposed operations of the Company as described in the Offering Documents, as a result of which it is necessary, in the reasonable opinion of Parker Chapin LLP or counsel for the Placement Agent, to amend or supplement the Offering Documents in order that the Offering Documents will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances 10 under which they were made, not misleading, the Company shall promptly prepare and furnish to the Placement Agent a reasonable number of copies of an appropriate amendment of or supplement to the Offering Documents, in form and substance satisfactory to counsel for the Placement Agent. 5.2 Use of Proceeds. The proceeds of the Offering will be used for such purposes as described in the Memorandum and no proceeds will be used to prepay any indebtedness for borrowed funds (other than debt under the Company's revolving credit facility) or any obligations owed to any Insider, without the Placement Agent's prior written consent. 5.3 Expenses of Offering and Other Expenses. The Company shall be responsible for, and shall pay, all fees, disbursements and expenses incurred in connection with the Offering, including, but not limited to, the Company's legal and accounting fees and disbursements, the costs of preparing, printing, mailing and delivering, and filing, where necessary, the Offering Documents and all amendments and supplements thereto (all in such quantities as the Placement Agent may reasonably require), preparing and printing the certificates for the Shares and Warrants, and Extra Warrants, if any, preparation of transaction "bibles" in such reasonable quantities as requested by the Placement Agent, the reasonable costs of any "due diligence" meetings held by the Company, filing fees, costs and expenses as incurred (including fees and disbursements of Graubard Mollen & Miller, blue sky counsel as provided in Section 5.4) incurred in qualifying the Offering under the "blue sky" laws of the states reasonably specified by the Placement Agent, the substantiated costs of "tombstone" and other advertisements in various publications selected by the Placement Agent, as well as lucite momentos and transfer taxes, transfer and warrant agent and registrar fees. The Company shall also reimburse the Placement Agent for legal fees and disbursements. Notwithstanding the foregoing, the Company shall not be required to spend more than an aggregate of $120,000 for "due diligence" meetings, tombstone and other advertisements and the Placement Agent's legal fees and disbursements. The Company shall also prepay an on account retainer to Placement Agent's counsel of $15,000 for legal fees in connection with their engagement as special counsel for the Investors under the Subscription Agreement in connection with the preparation of the Registration Statement provided for therein, which amount shall be an "on account" retainer from which any amounts in excess of actual time (at regular hourly rates) and disbursements expended shall be refunded to the Company. 5.4 Blue Sky Requirements. The Company shall "Blue Sky" the Offering in such states as the Placement Agent shall reasonably request and shall pay for all blue sky filing fees and costs and expenses of any necessary blue sky registration or qualification or notice filings associated with an exemption from registration or qualification, including the fees and disbursements of counsel. All blue sky work shall be undertaken by counsel designated by the Placement Agent. Upon the commencement of blue sky filings (which shall be at or prior to the Commencement Date), the Company shall pay $2,500 to such counsel for such professional services (plus the filing fees to be paid to the various states), with the balance due for professional services of $2,500, plus counsel's other out-of-pocket disbursements, due at the Closing. 5.5 Board of Directors. For a period of three years from the closing (or such earlier time as 75% of the Warrants have been exercised) at the Company's discretion, the Company will either (i) appoint a person to the Board of Directors of the Company that is mutually agreeable to the Placement Agent and the Company, or (ii) if such a person is not appointed, permit the Placement Agent to send a representative (who need not be the same individual from meeting to meeting) to observe each meeting of the Board of Directors. Such representative shall be entitled to receive reimbursement for all reasonable costs incurred in attending such meetings, including, but not limited to, food, lodging and transportation. The Company agrees to give the Placement Agent written notice of each such meeting and to provide the Placement Agent with an agenda and 11 minutes of the meeting no later than it gives such notice and provides such items to the other directors. 5.6 Right of First Refusal. The Company hereby grants the Placement Agent a right of first refusal to manage or co-manage any underwriting or private placement of debt or equity securities (excluding sales to employees under any compensation or stock option plan approved by the stockholders of the Company and shares issued in payment of the consideration for an acquisition) of the Company or any subsidiary or successor of the Company during the nine-month period following the Closing. If the Placement Agent fails to accept in writing any such proposal for such public or private sale within 30 days after receipt of a written notice from the Company containing such proposal, then the Placement Agent shall have no claim or right with respect to any such sale contained in any such notice. If, thereafter, such proposal is modified in any material respect, the Company shall adopt the same procedure as with respect to the original proposed public or private sale. 5.7 Warrant Solicitation Fees. The Company will pay the Placement Agent a warrant solicitation fee of four percent of the exercise price of the Warrants for each Warrant exercised, payable within five days from the receipt of the proceeds received upon exercise of the Warrant(s). The Company will not solicit the exercise of the Warrants other than through the Placement Agent. The Company will not be obligated to be pay any warrant solicitation fees for the exercise of Warrants issued upon exercise of the Placement Agent's Purchase Option. 5.8 Issuance of Securities. For a period of one year after the Effective Date (as defined in the Subscription Agreement), without the prior consent of Placement Agent, the Company shall not issue any securities pursuant to Reg D or Regulation S, subject to the proviso that this restriction will lapse at such earlier time as 75% of the Warrants have been exercised. 5.9 Transfer Sheets. Upon Placement Agent's reasonable request, the Company shall provide Placement Agent with copies of the Company's daily stock transfer sheets and lists of the beneficial and record holders of the Company's securities from the Company's transfer agent and the Weekly Position Listings from the Depository Trust Company, at the Company's sole cost and expense. 5.10 Transfer Restrictions. The Company agrees not to permit or cause a private or public sale or private or public offering of any securities of the Company (in any manner, including pursuant to Rule 144 under the Act) that are owned or to be owned of record, or beneficially by Alfred or Timothy Roach (excluding shares held by any family member as of the date hereof) (collectively, "Insiders") for a period commencing on the date of this letter and terminating twelve months after the Effective Date (as defined in the Subscription Agreement) without obtaining the prior written approval of the Placement Agent. The Company shall cause the Insiders to execute an agreement ("Lock-Up Agreement") with the Placement Agent regarding such restrictions, subject to the proviso that this restriction will lapse at such earlier time as 75% of the Warrants have been exercised. 5.11 Further Assurances. The Company will take such actions as may be reasonably required or desirable to carry out the provisions of this Agreement and the transactions contemplated hereby. 5.12 Accuracy of Representations and Warranties. The Company hereby agrees that, prior to the Termination Date or the Closing, as the case may be, it will not enter into any transaction or take any action, and will use its best efforts to prevent the occurrence of any event, that could result in any of its representations, warranties or covenants contained in this Agreement or any of the Offering Documents not to be true and correct, or not to be performed as contemplated, at and as of the time immediately after the occurrence of such transaction or event. 12 5.13 Reservation of Shares. If the Company becomes obligated to issue any Extra Warrants, it will promptly reserve with its transfer agent and register the number of shares of Common Stock issuable upon exercise thereof. 6. Indemnification and Contribution. 6.1 Indemnification of the Placement Agent by the Company. The Company agrees to indemnify and hold harmless the Placement Agent and each person, if any, who controls the Placement Agent within the meaning of the Securities Act and/or the Exchange Act against any losses, claims, damages or liabilities, joint or several, to which such Placement Agent or controlling person may become subject, under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of a material fact contained (A) in the Offering Documents, or (B) in any blue sky application or other document executed by the Company specifically for blue sky purposes or based upon any other written information furnished by the Company or on its behalf to any state or other jurisdiction in order to qualify any or all of the Shares under the securities laws thereof (any such application, document or information being hereinafter called a "Blue Sky Application"), (ii) any breach by the Company of any of its representations, warranties or covenants contained herein or in any of the Offering Documents, or (iii) the omission or alleged omission by the Company to state in the Offering Documents or in any Blue Sky Application a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; and will reimburse the Placement Agent and each such controlling person for any legal or other expenses reasonably incurred by the Placement Agent or such controlling person in connection with investigating or defending any such loss, claim, damage, liability or action, whether arising out of an action between the Placement Agent and the Company or the Placement Agent and a third party; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon (i) an untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with written information regarding the Placement Agent that is furnished to the Company by the Placement Agent specifically for inclusion in the Offering Documents or any such Blue Sky Application or (ii) any breach by the Placement Agent of the representations, warranties or covenants contained herein (together, (I) and (ii) above are referred to as the "Placement Agent Non-Indemnity Events"), or (iii) a Selected Dealer Non-Indemnity Event, as defined below. 6.2 Indemnification of the Company by the Placement Agent. The Placement Agent agrees to indemnify and hold harmless the Company and each person, if any, who controls the Company within the meaning of the Securities Act and/or the Exchange Act against any losses, claims, damages or liabilities, joint or several, to which the Company or such controlling person may become subject, under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any Placement Agent Non-Indemnity Event; and will reimburse the Company and each such controlling person for any legal or other expenses reasonably incurred by the Company or such controlling person in connection with investigating or defending any such loss, claim, damage, liability or action, provided that such loss, claim, damage or liability is found ultimately to arise out of or be based upon any Placement Agent Non-Indemnity Event. 6.3 Indemnification of the Selected Dealers by the Company. The Company agrees to indemnify and hold harmless each Selected Dealer and each person, if any, who controls a Selected Dealer within the meaning of the Securities Act and/or the Exchange Act against any losses, claims, damages or liabilities, joint or several, to which such Selected Dealer or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon (I) any untrue 13 statement or alleged untrue statement of a material fact contained (A) in the Offering Documents, or (B) in any Blue Sky Application, (ii) any breach by the Company of any of its representations, warranties or covenants contained herein or in any of the Offering Documents, or (iii) the omission or alleged omission by the Company to state in the Offering Documents or in any Blue Sky Application a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; and will reimburse each Selected Dealer and each such controlling person for any legal or other expenses reasonably incurred by such Selected Dealer or controlling person in connection with investigating or defending any such loss, claim, damage, liability or action, whether arising out of an action between such Selected Dealer and the Company or such Selected Dealer and a third party; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon (i) an untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with written information regarding such Selected Dealer specifically for inclusion in the Offering Documents or any such Blue Sky Application or (ii) any breach by such Selected Dealer of the representations, warranties or covenants contained herein together, (i) and (ii) above are referred to as the "Selected Dealer Non-Indemnity Events") or (iii) a Placement Agent Non-Indemnity Event. 6.4 Indemnification of the Company by the Selected Dealers. The Selected Dealers, severally and not jointly, agree to indemnify and hold harmless the Company and each person, if any, who controls the Company within the meaning of the Securities Act and/or the Exchange Act against any losses, claims, damages or liabilities, joint or several, to which the Company or such controlling person may become subject, under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any Selected Dealer Non-Indemnity Event; and will reimburse the Company and each such controlling person for any legal or other expenses reasonably incurred by the Company or such controlling person in connection with investigating or defending any such loss, claim, damage, liability or action provided that such loss, claim, damage or liability is found ultimately to arise out of or be based upon any Selected Dealer Non-Indemnity Event. 6.5 Procedure. Promptly after receipt by an indemnified party under this Section 6 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 6, notify in writing the indemnifying party of the commencement thereof; and the omission so to notify the indemnifying party will relieve the indemnifying party from any liability under this Section 6 as to the particular item for which indemnification is then being sought, but not from any other liability that it may have to any indemnified party. In case any such action is brought against any indemnified party, and it notifies an indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein, and to the extent that it may wish, jointly with any other indemnifying party, similarly notified, to assume the defense thereof, with counsel who shall be to the reasonable satisfaction of such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section 6 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. Any such indemnifying party shall not be liable to any such indemnified party on account of any settlement of any claim or action effected without the consent of such indemnifying party. 14 6.6 Contribution. If the indemnification provided for in this Section 6 is unavailable to any indemnified party (other than as a result of the failure to notify the indemnifying party as provided in Section 6.5 hereof) in respect to any losses, claims, damages, liabilities or expenses referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party, will contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand, and the Placement Agent or Selected Dealer, on the other hand, from the Offering, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above, but also the relative fault of the Company, on the one hand, and of the Placement Agent or Selected Dealer, on the other hand, in connection with the statements or omissions that resulted in such losses, claims, damages, liabilities or expenses as well as any other relevant equitable considerations. The relative benefits received by the Company, on the one hand, and the Placement Agent or Selected Dealer, on the other hand, shall be deemed to be in the same proportion as the total proceeds from the Offering (net of sales commissions and the nonaccountable expense allowance, but before deducting other expenses) received by the Company bear to the commissions and nonaccountable expense allowance received by the Placement Agent or Selected Dealer. The relative fault of the Company, on the one hand, and the Placement Agent or Selected Dealer, on the other hand, will be determined with reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Company, on the one hand, and the Placement Agent or Selected Dealer, on the other hand, and their relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. 6.7 Equitable Considerations. The Company, the Placement Agent and each Selected Dealer agree that it would not be just and equitable if contribution pursuant to this Section 6 were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph. 6.8 Attorneys' Fees. The amount payable by a party under this Section 6 as a result of the losses, claims, damages, liabilities or expenses referred to above will be deemed to include any reasonable legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any action or claim (including, without limitation, fees and disbursements of counsel incurred by an indemnified party in any action or proceeding between the indemnifying party and indemnified party or between the indemnified party and any third party or otherwise). 7. Termination. Placement Agent reserves the right not to proceed with the Offering for any reason, including if: (i) material adverse information known to management and not previously disclosed to Placement Agent by the Company comes to Placement Agent's attention relating to the Company, its management or its position in the industry which would preclude a successful Offering; (ii) a material adverse change not yet reported in the Company's public filings has occurred in the financial condition, business or prospects of the Company; or (iii) the Company has breached any of its material representations, warranties or obligations hereunder, or failed to expeditiously proceed with the Offering. If Placement Agent elects not to proceed with the Offering as a result of the conditions enumerated in either of clauses (i) or (iii) above, or (except as provided in the next sentence) if the Company elects not to proceed with the Offering for any reason, then the Company, in full satisfaction of its obligations to Placement Agent hereunder (other than with respect to the payment of "Source Fees," described below), shall reimburse Placement Agent in full for its reasonable out-of-pocket expenses (including, without limitation, its legal fees and disbursements), against which the Deposit shall be applied as a credit and, in addition, pay to Placement Agent a fee of $150,000 ("Break-up Fee"). Notwithstanding anything contained herein to the contrary, if (a) the Closing does not occur within 90 days of the Commencement Date through no fault of the Company (it being deemed to be the Company's "fault" if it refuses to accept 15 subscriptions from qualified investors sufficient to have a Closing), or (b) the Offering requires stockholder approval under NASD Marketplace Rule 4310, then the Company may elect to abandon the Offering. In such event, or in the event Placement Agent elects not to proceed with the Offering other than as a result of the condition enumerated in clauses (i) or (iii) above, Placement Agent shall be entitled to be reimbursed for its expenses, including legal fees and disbursements, and shall apply the Deposit against such expenses, but the Company shall not be liable to Placement Agent for any other expenses or the Break-up Fee. Notwithstanding anything contained herein to the contrary, whether or not the Offering is consummated, the Company shall pay to Placement Agent the commissions and Placement Manager's Fees referenced herein ("Source Fees") with respect to, and based on, any investment in the Company by any "Source" (as defined below) made at any time within 24 months after May 3, 2000. A Source shall be any person whose name had not been first provided to the Placement Agent in writing by the Company and who shall have received a copy of the Memorandum from Placement Agent in connection with the Offering, a list of whom shall be provided to the Company by Placement Agent promptly following the Closing or the abandonment of the Offering, as the case may be. 8. Notices. Any notice hereunder shall be in writing and shall be effective when delivered in person or by facsimile transmission or mailed by certified mail, postage prepaid, return receipt requested, to the appropriate party or parties, at the following addresses: if to the Placement Agent, to M.H. Meyerson & Co., Inc., 525 Washington Boulevard, Jersey City, New Jersey 07310, Attention: Mr. Ronald I. Heller (Fax No. (201) 459-9458); with a copy to Graubard Mollen & Miller, 600 Third Avenue, New York, New York 10016, Attention: Peter M. Ziemba, Esq. (Fax No. (212) 818-8881); if to the Company, to TII Industries, Inc., 1385 Akron Street, Copiague, New York 11726, Attention: Paul G. Sebetic, (Fax No. (631) 789-2228); with a copy to Parker Chapin LLP, 405 Lexington Avenue, New York, New York 10174, Attention: Richard A. Rubin, Esq. (Fax No. (212) 704-6288); or, in each case, to such other address as the parties may hereinafter designate by like notice. 9. Parties. This Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns. Neither party may assign this Agreement or its obligations hereunder without the prior written consent of the other party. This Agreement is intended to be, and is, for the sole and exclusive benefit of the parties hereto and the persons described in Sections 6.1 through 6.4 hereof and their respective successors and assigns, and for the benefit of no other person, and no other person will have any legal or equitable right, remedy or claim under, or in respect of this Agreement. 10. Amendment and/or Modification. Neither this Agreement, nor any term or provision hereof, may be changed, waived, discharged, amended, modified or terminated orally, or in any manner other than by an instrument in writing signed by each of the parties hereto. 11. Further Assurances. Each party to this Agreement will perform any and all acts and execute any and all documents as may be necessary and proper under the circumstances in order to accomplish the intents and purposes of this Agreement and to carry out its provisions. 12. Validity. In case any term of this Agreement will be held invalid, illegal or unenforceable, in whole or in part, the validity of any of the other terms of this Agreement will not in any way be affected thereby. 13. Waiver of Breach. The failure of any party hereto to insist upon strict performance of any of the covenants and agreements herein contained, or to exercise any option or right herein conferred in any one or more instances, will not be construed to be a waiver or relinquishment of any such option or right, or of any other covenants or agreements, and the same will be and remain in full force and effect. 16 14. Entire Agreement. This Agreement contains the entire agreement and understanding of the parties with respect to the subject matter hereof, and there are no representations, inducements, promises or agreements, oral or otherwise, not embodied in this Agreement. Any and all prior discussions, negotiations, commitments and understanding relating to the subject matter of this Agreement are superseded by this Agreement. 15. Counterparts. This Agreement may be executed in counterparts and each of such counterparts will for all purposes be deemed to be an original, and such counterparts will together constitute one and the same instrument. 16. Law. Pursuant to Section 5-401 of the New York General Obligation Law, this Agreement will be governed as to validity, interpretation, construction, effect and in all other respects by the internal law of the State of New York. The Company and the Placement Agent each (i) agree that any legal suit, action or proceeding arising out of or relating to this Agreement shall be instituted exclusively in the New York State Supreme Court, County of New York, or in the United States District Court for the Southern District of New York, (ii) waives any objection to the venue of any such suit, action or proceeding, and the right to assert that such forum is an inconvenient forum, and (iii) irrevocably consents to the jurisdiction of the New York State Supreme Court, County of New York, and the United States District Court for the Southern District of New York in any such suit, action or proceeding. The Company and the Placement Agent further agree to accept and acknowledge service of any and all process that may be served in any such suit, action or proceeding in the New York State Supreme Court, County of New York, or in the United States District Court for the Southern District of New York and agree that service of process upon either of them mailed by certified mail to their respective addresses shall be deemed in every respect effective service of process in any such suit, action or proceeding. 17. Representations, Warranties and Covenants to Survive Delivery. The respective representations, indemnities, agreements, covenants, warranties and other statements of the Company and the Placement Agent shall survive execution of this Agreement and delivery of the Units and/or the termination of this Agreement prior thereto. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] 17 If you find the foregoing is in accordance with our understanding, kindly sign and return to us a counterpart hereof, whereupon this instrument along with all counterparts will become a binding agreement between us. Very truly yours, TII INDUSTRIES, INC. By: --------------------------------------- Paul G. Sebetic, Vice President-Finance AGREED: M.H. MEYERSON & CO., INC. By: --------------------------------- Eugene Whitehouse, Vice President 18 SCHEDULE 1.3 PLACEMENT AGENT PURCHASE OPTION --------------------------------------------
----------------------------------------- -------------------------------------- Percentage Market Price ----------------------------------------- -------------------------------------- 20% $2.50 or more ----------------------------------------- -------------------------------------- 21% $2.40 to $2.49 ----------------------------------------- -------------------------------------- 22% $2.30 to $2.39 ----------------------------------------- -------------------------------------- 23% $2.20 to $2.29 ----------------------------------------- -------------------------------------- 24% $2.10 to $2.19 ----------------------------------------- -------------------------------------- 25% Less than $2.10 ----------------------------------------- --------------------------------------
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