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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 10, 2001
REGISTRATION NO. _______________As filed with the Securities and Exchange Commission on April 14, 2004
Registration No. 333-114245
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------
PRE-EFFECTIVE AMENDMENT NO. 1 TO THE
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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ANDREA ELECTRONICS CORPORATION
(Exact name of registrant as specified in its charter)
NEW YORK 11-0482020
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
45 MELVILLE PARK ROAD
MELVILLE, NEW YORK 11747
(631) 719-1800
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
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CHRISTOPHER P. SAUVIGNE with a copyCopies to:
PAUL E. DONOFRIO LAWRENCE M.F. SPACCASI, ESQ.
CHIEF EXECUTIVE OFFICER AND& PRESIDENT THOMAS J. HAGGERTY, ESQ.
ANDREA ELECTRONICS CORPORATION LORI M. BERESFORD, ESQ.MULDOON MURPHY FAUCETTE & AGUGGIA LLP
45 MELVILLE PARK ROAD MULDOON MURPHY & FAUCETTE LLP5101 WISCONSIN AVENUE, N.W.
MELVILLE, NEW YORK 11747 5101 WISCONSIN AVENUE, N.W.WASHINGTON, D.C. 20016
(631) 719-1800 WASHINGTON, D.C. 20016(202) 362-0840
(Name, address, including zip code, and (202) 362-0840 telephone number,
including area code, of agent for service)
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ApproximateAPPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after the effective date of commencement of proposed sale to the public:
From Time To Time After The Effective Date Of Thisthis Registration Statement.
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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.[X]
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
registrations 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. [ ]
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Calculation of Registration Fee
==============================================================================================================
Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Securities Amount To Be Offering Price Aggregate Offering Registration
To Be Registered Registered(1) Per Unit(2) Price (2) Fee(2)(3)
- --------------------------------------------------------------------------------------------------------------
Common Stock,
par value $.50 per share 8,748,113 $0.60 $5,248,868 $1,313
- --------------------------------------------------------------------------------------------------------------
(1) Shares of Common Stock that may be offered pursuant to this registration
statement consist of shares that may be issuable upon conversion of Series C
convertible preferred stock. For purposes of estimating the number of shares
of Common Stock to be included in this registration statement, we included
8,748,113 shares, which together with 2,142,298 shares registered under
Registration Statement No. 333-51424, initially filed by the Registrant on
December 7, 2000, represents 200% of the number of shares of Common Stock
issuable upon conversion in full of the outstanding Series C convertible
preferred stock as of September 7, 2001 at a conversion price of $1.44 per
share, plus shares that may be issued as a result of any stock split, stock
dividend or similar transaction as provided by Rule 416 under the Securities
Act.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act, on the basis of the
average of the high and low prices for shares of Common Stock as reported on
the American Stock Exchange on September 7, 2001.
(3) Pursuant to Rule 429 under the Securities Act of 1933, the Prospectus
contained in this Registration Statement also relates to an additional
2,463,058 shares previously registered on Registration Statement Number
333-51424, as to which a registration fee in the amount of $2,163 has
already been paid.
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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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTERTHEREFORE BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
In accordance with Rule 429 under the Securities Act of 1933, as
amended, the Prospectus contained in this Registration Statement relates to a
total of 11,211,171 shares of the Registrant's Common Stock, 8,748,113 of which
are being registered pursuant to this Registration Statement and 2,463,058 of
which were registered in the Registrant's Registration Statement No. 333-51424
filed with the Securities and Exchange Commission on December 7, 2000. This
Registration Statement, which is a new Registration Statement, also constitutes
Post- Effective Amendment No. 1 to Registration Statement No. 333-51424, which
shall hereafter become effective concurrently with the effectiveness of this
Registration Statement in accordance with Section 8(a) of the Securities Act of
1933, as amended.
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SUBJECT TO COMPLETION, DATED SEPTEMBER 10, 2001.
PROSPECTUS
ANDREA ELECTRONICS CORPORATION
11,211,171 SHARES
COMMON STOCK
This prospectus relates to 11,211,171 shares of our Common Stock which
may be sold from time to time by the selling stockholders, including their
transferees. Included in the 11,211,171 shares are 2,463,058 shares of our
common stock previously covered by an earlier registration statement.
We will not receive any of the proceeds from the sale of these shares,
although we have paid the expenses of preparing this prospectus and the related
registration statement.
Our Common Stock is quoted on the American Stock Exchange under the
symbol "AND." On September 7, 2001, the last reported sale price for the Common
Stock on the American Stock Exchange was $0.52 per share.
Investing in the Common Stock involves a high degree of risk. You should
carefully read the "Risk Factors" section of this prospectus beginning on page 3
of this prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined whether
this prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is September __, 2001
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TABLE OF CONTENTS
PROSPECTUS SUMMARY.............................................................2
RISK FACTORS...................................................................3
ANDREA ELECTRONICS............................................................12
FORWARD LOOKING STATEMENTS....................................................13
USE OF PROCEEDS...............................................................14
SELLING STOCKHOLDER...........................................................14
DESCRIPTION OF CAPITAL STOCK..................................................16
STOCKHOLDER DILUTION..........................................................26
NEW YORK ANTI-TAKEOVER LAW....................................................27
PLAN OF DISTRIBUTION..........................................................27
LEGAL MATTERS.................................................................29
EXPERTS.......................................................................29
WHERE YOU CAN FIND MORE INFORMATION...........................................29
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE.............................30
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PROSPECTUS SUMMARY
This summary may not contain all of the information that may be
important to you. You should read the entire prospectus before making an
investment decision. Our financial statements and related notes are not included
in this prospectus, but are incorporated by reference from the documents listed
under the caption "Incorporation of Certain Documents by Reference" located at
the end of this prospectus.
ANDREA ELECTRONICS
Andrea Electronics designs, develops and manufacturers state-of-the-art
microphone technologies and equipment for enhancing speech-based applications
software and communications that require high performance and high quality voice
input.
Andrea's products and technologies optimize the performance of
speech-based applications software and communications in markets such as:
o voice communication over the Internet;
o speech recognition and dictation to desktop, laptop and hand-held
computers;
o audio/video conferencing;
o computer-based automobile monitoring and control systems for use
by drivers and passengers;
o electronic equipment for incorporation into home appliances and
industrial and commercial office equipment that is activated and
controlled by voice;
o electronic intercom systems for incorporation into military and
commercial aircraft; and
o interactive games where one or more players participate over the
Internet.
Our patented Active Noise Cancellation microphone and Active Noise
Reduction earphone technologies help to ensure clear speech in personal computer
and telephone headset applications. Active Noise Cancellation microphone
technology uses electronic circuits that distinguish a speaker's voice from
background noise in the speaker's environment and then cancels the noise from
the signal to be transmitted by the microphone. Active Noise Reduction earphone
technology uses electronic circuits that distinguish the signal coming through
an earphone from background noise in the listener's environment and then reduces
the noise heard by the listener. Together with our lower-end noise cancelling
headset products, these technologies and related products comprise our Andrea
Anti-Noise line of business.
Our patented and patent-pending Andrea Digital Super Directional Array
and Andrea Direction Finding and Tracking Array technologies enable the person
speaking to be several feet from the microphone, and frees the speaker from
having to hold the microphone (we refer to this capability as "far-field"
microphone use). Our DSDA and DFTA microphone products convert sound received by
the array of microphones in the product into digital signals that are then
processed to cancel background noise from the signal to be transmitted. These
two technologies represent the core technologies within our portfolio of
far-field technologies. We are initially targeting our far-field microphone
technologies at the market for personal computers designed for use in
automobiles, trucks and buses to control sound systems, mobile telephones,
satellite-based navigation systems, and other devices within vehicles. These
technologies and related products comprise our Andrea Digital Signal Processing
(DSP) Microphone and Software line of business.
In May 1998, we acquired Lamar Signal Processing, Ltd., an Israeli
corporation engaged in the development of scalable, digital signal
processing-based directional, noise cancellation microphone technologies,
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which included primarily DSDA and DFTA. The consideration paid by Andrea for
Lamar was approximately 1,800,000 shares of restricted common stock, $1,000,000
in cash and $2,000,000 in notes payable. We recorded the cash at stated value.
We discounted the value of the notes payable to $1,615,000 to reflect Andrea's
borrowing rate as well as the time value of the payments on the notes, and we
discounted the value of the shares to $23,129,532 to reflect, among other
things, trading restrictions on the shares. We believe that the acquired
technologies, together with the research staff at Lamar, provide Andrea with
noise filtering capabilities and performance that is superior to other DSP-based
technologies in the marketplace, and unattainable in traditional
mechanical-based microphone solutions.
We are incorporated under the laws of the State of New York and have
been engaged in the electronic communications industry since 1934. For several
decades prior to our entry into the voice-activated computing market in the
1990's, our sole business was selling intercom systems for military and
industrial use. We refer to this line of business , which continues to represent
a significant portion of Andrea's business, as Aircraft Communications. We are
seeking to apply our knowledge of the military and industrial markets to develop
applications of our Andrea DSP Microphone and Software technologies.
You should read the following information about Andrea, together with
the more detailed information about the securities underlying this offering,
contained elsewhere in this prospectus. In particular, you should read the
section entitled "Risk Factors," which explains that your investment in shares
of our Common Stock involves a high degree of risk.
RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU
SHOULD CONSIDER CAREFULLY, ALONG WITH OTHER FACTORS, THE FOLLOWING RISKS AND
SHOULD CONSULT WITH YOUR OWN LEGAL, TAX AND FINANCIAL ADVISORS.
BECAUSE OUR OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATION, PERIOD-TO-
PERIOD COMPARISONS OF OUR OPERATING RESULTS MAY NOT NECESSARILY BE MEANINGFUL
AND YOU SHOULD NOT RELY ON THEM AS INDICATIONS OF OUR FUTURE PERFORMANCE.
Our results of operations have historically been and are subject to
continued substantial annual and quarterly fluctuations. The causes of these
fluctuations include, among other things:
o the volume of sales of our products under our collaborative
marketing arrangements;
o the cost of development of our products under our collaborative
development arrangements;
o the mix of products we sell;
o the mix of distribution channels we use;
o the timing of our new product releases and those of our
competitors;
o fluctuations in the computer and communications hardware and
software marketplace; and
o general economic conditions.
We cannot assure that the level of sales and gross profit, if any, that
we achieve in any particular fiscal period will not be significantly lower than
in other fiscal periods. Our revenues for the 2001 Second Quarter were
approximately $2.6 million compared to approximately $3.2 million in the 2000
Second Quarter. For both the 2001 Second Quarter and 2000 Second Quarter, we had
a net loss attributable to common shareholders of approximately
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$2.5 million. Our revenues for the 2001 First Half were approximately $5.2
million compared to approximately $6.4 million in the 2000 First Half. For the
2001 First Half we had a net loss attributable to common shareholders of
approximately $5.2 million compared to a net loss attributable to common
shareholders of $5.1 million in the 2000 First Half. We have experienced a
significant decline in headset unit shipments, offset to an extent, by an
increase in aircraft communication revenues. In response, we are examining
opportunities for cost-reduction, production efficiencies and further
diversification of our business. But to remain competitive, we intend to
continue incurring substantial research and development, marketing and general
and administrative expenses. We may not be able to easily and quickly reduce
these expenses if our sales revenue falls below our expectations and, therefore,
our net income or loss may be disproportionately affected by any reduction in
sales revenue. Furthermore, our acquisition in 1998 of Lamar Signal Processing,
Ltd. resulted in a substantial amount of goodwill and other intangible assets.
The amortization of these intangible assets has, and will continue to have, a
negative, non-cash impact on our results of operations. As a result of these
factors, we expect to continue to accumulate losses and the market price of our
Common Stock could decline.
IF WE FAIL TO OBTAIN ADDITIONAL CAPITAL, WE WILL BE REQUIRED TO SIGNIFICANTLY
REDUCE, SELL, OR REFOCUS OUR OPERATIONS AND OUR BUSINESS; RESULTS OF OPERATIONS
AND FINANCIAL CONDITION COULD BE MATERIALLY AND ADVERSELY AFFECTED.
From time to time during the past several years, we have raised
additional capital from external sources. We expect to continue to have to raise
additional capital from external sources. These sources may include private or
public financings through the issuance of debt, convertible debt or equity, or
collaborative arrangements. Andrea has engaged an investment banker to assist it
in seeking additional capital and funding. Additional capital and funding may
not be available on favorable terms, if at all. Additionally, we may only be
able to obtain additional capital or funds through arrangements that require us
to relinquish rights to our products, technologies or potential markets, in
whole or in part, or result in the sale of Andrea. In the event we are
unsuccessful in raising additional capital or funding, our funding will be
primarily reliant upon existing funding sources and gross cash flows from
operations which are expected to be insufficient to maintain our operations at
current levels. Additionally, Andrea's funding and capital raising efforts could
trigger change in control payments due to certain executive officers of Andrea
under their employment contracts.
SHARES ELIGIBLE FOR FUTURE SALE MAY HAVE AN ADVERSE EFFECT ON MARKET PRICE; YOU
MAY EXPERIENCE SUBSTANTIAL DILUTION.
Sales of a substantial number of shares of our Common Stock in the
public market could have the effect of depressing the prevailing market price of
our Common Stock. Of the 70,000,000 shares of Common Stock presently authorized,
15,503,866 were outstanding as of September 7, 2001. This does not include
5,915,625 shares of our Common Stock reserved for issuance upon exercise of
outstanding awards granted under our 1991 Performance Equity Plan and 1998 Stock
Plan and shares of our Common Stock reserved for further awards under the 1998
Stock Plan and 20,496,848 shares of Common Stock reserved for issuance upon
conversion of the Series B and Series C convertible preferred stock and exercise
of related warrants. In addition, in May 1998, we issued 1,800,000 shares of
Common Stock as part of the consideration for our acquisition of Lamar Signal
Processing, Ltd. Trading restrictions on these 1,800,000 shares have expired and
are subject to demand and piggyback registration rights. To date, 920,880 of the
1,800,000 shares have been registered for sale under the Securities Act of 1933.
CONVERSIONS OF OUR SERIES B CONVERTIBLE PREFERRED STOCK AND SERIES C CONVERTIBLE
PREFERRED STOCK MAY RESULT IN SUBSTANTIAL DILUTION TO OTHER HOLDERS OF OUR
COMMON STOCK.
As of September 7, 2001, we had 283 shares of Series B convertible
preferred stock and 750 shares of Series C convertible preferred stock
outstanding. Both the Series B convertible preferred stock and the Series C
convertible preferred stock are convertible into shares of Common Stock, subject
to ownership limitations that prohibit the holders of the preferred stock from
owning more than 4.99% of the outstanding shares of Common
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Stock at the time of conversion or 9.99% over the sixty day period prior to the
conversion. These restrictions do not prevent purchasers from converting and
selling some of their holdings and then later converting the rest of their
holdings.
AS THE PRICE OF OUR COMMON STOCK DECREASES, THE NUMBER OF SHARES OF COMMON STOCK
ISSUABLE UPON CONVERSION OF OUR SERIES B CONVERTIBLE PREFERRED STOCK AND SERIES
C CONVERTIBLE PREFERRED STOCK INCREASES.
The variable conversion price of the Series B convertible preferred
stock and any reset of the conversion price of the Series C convertible
preferred stock are functions of the market price of our Common Stock. If the
price of our Common Stock decreases over time, the number of shares of Common
Stock issuable upon conversion of each series will increase. In addition, In
accordance with the provisions of Emerging Issues Task Force Issue No. 98-5,
"Accounting for Convertible Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion Ratios", Andrea may be required to record, at
the time of exercise for such additional Preferred Shares, a charge to
accumulated deficit as a result of this beneficial conversion right.
The following table illustrates the varying amounts of shares of Common
Stock issuable upon conversion of all 283 shares of Series B Convertible
Preferred Stock at the indicated conversion prices (without regard to any
limitations on conversion) and assuming that the 4% additional amount is paid in
cash:
Percentage of
Assumed Number Number of Shares Outstanding
Assumed of Shares Outstanding after Common
Conversion Price Converted(1) Assumed Conversion Stock(2)
- ------------------- ------------------- ------------------- --------------
$0.50 5,660,000 21,163,886 27%
$1.50 1,886,667 17,390,553 11%
$2.50 1,132,000 16,635,886 7%
$3.50 808,571 16,312,457 5%
$4.50 628,889 16,132,775 4%
$5.50 514,545 16,018,431 3%
$6.50 435,385 15,939,271 3%
$7.50 377,333 15,881,219 2%
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(1) The Series B Holder is prohibited from converting its holdings of the Series
B Convertible Preferred Stock if after giving effect to such conversion it
would beneficially own in excess of 4.99% or, over the sixty day period
prior to the conversion, 9.99% of the outstanding shares of our Common Stock
following such conversion. The numbers in this column do not reflect these
limitations.
(2) Based on 15,503,866 shares of Common Stock outstanding as of September 7,
2001.
The following table illustrates, as of any reset date and assuming the
conversion price indicated is lower than the then applicable conversion price on
that date, the varying amounts of shares of Common Stock that would be issuable
upon conversion of all outstanding 750 shares of Series C convertible preferred
stock at the indicated
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conversion prices (without regard to any limitations on conversion) and assuming
that the 5% additional amount is paid in cash:
Percentage of
Assumed Number Number of Shares Outstanding
Assumed of Shares Outstanding after Common
Conversion Price Converted(1) Assumed Conversion Stock(2)
- ------------------- ------------------- ------------------- --------------
$0.40 18,750,000 34,253,886 55%
$0.55 13,636,364 29,140,250 47%
$0.70 10,714,286 26,218,172 41%
$0.85 8,823,529 24,327,415 36%
$1.00 7,500,000 23,003,886 33%
$1.15 6,521,739 22,025,625 30%
$1.30 5,769,231 21,273,117 27%
$1.44 5,208,333 20,712,219 25%
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(1) The Series C Holder is prohibited from converting its holdings of the Series
C Convertible Preferred Stock if after giving effect to such conversion it
would beneficially own in excess of 4.99% or, over the sixty day period
prior to the conversion, 9.99% of the outstanding shares of our Common Stock
following such conversion. The numbers in this column do not reflect these
limitations.
(2) Based on 15,503,866 shares of Common Stock outstanding as of September 7,
2001.
The following table illustrates the varying amounts of shares of Common
Stock that would be issuable upon conversion of all 283 outstanding shares of
Series B convertible preferred stock and all 750 outstanding shares of Series C
convertible preferred stock at the indicated conversion prices (without regard
to any limitations on conversion) and assuming that all additional amounts are
paid in cash:
Percentage of
Assumed Number Number of Shares Outstanding
Assumed of Shares Outstanding after Common
Conversion Price Converted(1)(2)(3) Assumed Conversion Stock(4)
- ------------------- ------------------- ------------------- --------------
$0.50 20,660,000 36,163,886 57%
$1.00 10,330,000 25,833,886 40%
$1.44 7,173,611 22,677,497 32%
$2.50 6,340,333 21,844,219 29%
$3.50 6,016,905 21,520,791 28%
$4.50 5,837,222 21,341,108 27%
$5.50 5,722,879 21,226,765 27%
$6.50 5,643,718 21,147,604 27%
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$7.50 5,585,667 21,089,553 26%
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(1) The calculation assumes that the conversion price of the Series B and Series
C convertible preferred stock are the same at the assumed conversion prices
of $.50, $1.00 and $1.44. This could only occur if the market price of
Andrea's Common Stock declines, and at a future reset date, the conversion
price of the Series C adjusts to the then prevailing market price (the
current fixed conversion price of the Series C is $1.44, and such conversion
price is fixed unless adjusted downward at a future reset date).
(2) The calculation assumes that for any conversion of the Series B convertible
preferred stock when the prevailing market price is above $1.44, the Series
C would still be converted at its maximum conversion price of $1.44.
(3) The Series B and Series C holder is prohibited from converting the Series C
or Series B convertible preferred stock, or from exercising the warrants
issued in connection with the Series B convertible preferred stock, if after
giving effect to such conversion it would beneficially own in excess of
4.99% or, over the sixty day period prior to the conversion, 9.99% of the
outstanding shares of our Common Stock following such conversion.
(4) Based on 15,503,866 shares of Common Stock outstanding as of September 7,
2001.
SALES OF AN INCREASED NUMBER OF SHARES OF COMMON STOCK ISSUED UPON CONVERSION OF
THE SERIES B CONVERTIBLE PREFERRED STOCK AND THE SERIES C CONVERTIBLE PREFERRED
STOCK RESULTING FROM A DECLINING MARKET PRICE FOR OUR COMMON STOCK CAN CAUSE THE
MARKET PRICE OF OUR COMMON STOCK TO DECLINE FURTHER.
Disregarding the manner in which the shares of Common Stock issued upon
conversion of the Series B convertible preferred stock and the Series C
convertible preferred stock are sold as well as any other factors such as
reactions to our operating results and general market conditions which may be
operative in the market at such time, an increase in the number of shares of
Common Stock eligible for sale can cause a decrease in the market price of our
Common Stock. This decrease would reduce the conversion prices of the Series B
convertible preferred stock and the Series C convertible preferred stock,
leading to a further increase in the number of shares of Common Stock issuable
upon future conversions and a further decline in our stock price.
SHORT SALES OF OUR COMMON STOCK MAY BE ATTRACTED BY OR ACCOMPANY CONVERSIONS OF
SERIES B CONVERTIBLE PREFERRED STOCK AND SERIES C CONVERTIBLE PREFERRED STOCK,
WHICH SALES MAY CAUSE DOWNWARD PRESSURE UPON THE PRICE OF OUR COMMON STOCK.
Short sales of our Common Stock may be attracted by or accompany the
sale of converted Common Stock, which in the aggregate could cause downward
pressure upon the price of the Common Stock, regardless of our operating
results, thereby attracting additional short sales of the Common Stock. The
result of conversions of the Series B and Series C convertible preferred stock
at declining conversion prices would be increasing and substantial dilution of
the interests of the other holders of Common Stock.
IF WE FAIL TO MARKET AND COMMERCIALIZE OUR ANDREA ANTI-NOISE AND ANDREA DIGITAL
SIGNAL PROCESSING MICROPHONE AND SOFTWARE PRODUCTS AS WELL AS OUR AIRCRAFT
COMMUNICATIONS PRODUCTS, OUR REVENUES MAY NOT INCREASE AT A HIGH ENOUGH RATE TO
IMPROVE OUR RESULTS OF OPERATIONS OR AT ALL.
Our business, results of operations and financial condition depend on
successful commercialization of our Andrea Anti-Noise and Andrea DSP Microphone
and Software products and technologies. Since we began sales of the initial
Andrea Anti-Noise products in 1995, we have been expanding the number of
products in this line. We introduced our first Andrea Digital Super Directional
Array products in 1998 and we are initially targeting these and our other Andrea
DSP Microphone and Software products at the market for computer-based automobile
monitoring and control systems for use by drivers and passengers. This market is
commonly referred to as the automobile
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telematics market. The success of these products is subject to the risks
frequently encountered by companies in an early stage of product
commercialization, particularly companies in the computing and communications
industries.
IF WE ARE UNABLE TO OBTAIN MARKET ACCEPTANCE OF OUR VOICE INTERFACE AND INTERNET
COMMUNICATIONS PRODUCTS AND TECHNOLOGIES, OR IF MARKET ACCEPTANCE OF THESE
PRODUCTS AND TECHNOLOGIES OCCURS AT A SLOW RATE, THEN OUR BUSINESS, RESULTS OF
OPERATIONS AND FINANCIAL CONDITION WILL BE MATERIALLY AND ADVERSELY AFFECTED.
We and our competitors are focused on developing and commercializing
products and technologies that enhance the use of voice, particularly in noisy
environments, for a broad range of computer and communications applications.
These products and technologies have been rapidly evolving and the number of our
competitors has grown, but the markets for these products and technologies are
subject to a high level of uncertainty and have been developing slowly. We,
alone or together with our industry, may be unsuccessful in obtaining market
acceptance of these products and technologies.
IF WE FAIL TO DEVELOP AND SUCCESSFULLY INTRODUCE NEW PRODUCTS AND TECHNOLOGIES
IN RESPONSE TO COMPETITION AND EVOLVING TECHNOLOGY, WE MAY NOT BE ABLE TO
ATTRACT NEW CUSTOMERS OR RETAIN CURRENT CUSTOMERS.
The markets in which we sell our Andrea Anti-Noise and Andrea DSP
Microphone and Software products and our Aircraft Communication products are
highly competitive. We may not compete successfully with any of our competitors.
Most of our current and potential competitors have significantly greater
financial, technology development, marketing, technical support and other
resources than we do. Consequently, these competitors may be able to respond
more quickly to new or emerging technologies and changes in customer
requirements, or devote greater resources to the development, marketing, and
sale of their products than we can. One or more of these competitors may
independently develop technologies that are substantially equivalent or superior
to our technology. The introduction of products incorporating new technologies
could render our products obsolete and unmarketable and could exert price
pressures on existing products.
We are currently engaged in the development of digital signal processing
products and technologies for the voice, speech and natural language interface
markets. We may not succeed in developing these new digital signal processing
products and technologies, and any of these new digital signal processing
products or technologies may not gain market acceptance.
In the markets for our aircraft communications products, we often
compete with major defense electronics corporations as well as smaller
manufacturing firms which -specialize in supplying products and technologies for
specific military initiatives. Further, the markets for our products and
technologies are characterized by evolving industry standards and specifications
that may require us to devote substantial time and expense to adapt our products
and technologies. We may not successfully anticipate and adapt our products and
technologies in a cost effective and timely manner to changes in technology and
industry standards or to introductions of new products and technologies by
others that render our then existing products and technologies obsolete.
IF OUR MARKETING COLLABORATORS DO NOT EFFECTIVELY MARKET THOSE OF THEIR PRODUCTS
WITH WHICH OUR PRODUCTS ARE INCLUDED OR INCORPORATED, OUR SALES GROWTH COULD BE
ADVERSELY AFFECTED.
We have entered into several collaborative and distribution arrangements
with software publishers and computer hardware manufacturers relating to the
marketing and sale of Andrea Anti-Noise products and Andrea DSP Microphone and
Software products through inclusion or incorporation with the products of our
collaborators. Our success will therefore be dependent to a substantial degree
on the efforts of these collaborators to market those of their products with
which our products are included or incorporated. Our collaborators may not
successfully market these products. In addition, our collaborators generally are
not contractually obligated to any minimum
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level of sales of our products or technologies, and we have no control over
their marketing efforts. Furthermore, our collaborators may develop their own
microphone, earphone or headset products that may replace our products or
technologies or to which they may give higher priority.
IF WE FAIL TO MAINTAIN SALES OF ANDREA ANTI-NOISE PRODUCTS AND ANDREA DSP
MICROPHONE AND SOFTWARE PRODUCTS TO IBM, WE WOULD EXPERIENCE A MATERIAL ADVERSE
EFFECT ON OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
We are substantially dependent on our product procurement relationship
with IBM. During the 2001 Second Quarter, IBM and certain of IBM's affiliates,
distributors, licensees and integrators accounted for 25% of our net sales. This
represents an approximate 49% decrease from the 2000 Second Quarter. While we
are a party to a procurement agreement with IBM covering the purchase by IBM of
certain of our Andrea Anti-Noise microphone and earphone products for inclusion
with certain of IBM's personal computer products, IBM is not obligated to
purchase these products and is free to purchase microphone and earphone products
and technologies from our competitors. Our failure to maintain sales of Andrea
Anti-Noise Products and Andrea DSP Microphone and Software Products to IBM would
have a material adverse effect on our business, results of operations and
financial condition.
IF WE FAIL TO MAINTAIN SALES OF AIRCRAFT COMMUNICATION PRODUCTS TO THE U.S.
GOVERNMENT, WE WOULD EXPERIENCE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS,
RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
We are substantially dependent on product sales to the U.S. Government.
During the 2001 Second Quarter, the U.S. Government accounted for 27% of our net
sales. The U.S. Government is not obligated to continue to purchase these
products and is free to purchase similar products from our competitors. Our
failure to maintain sales of Aircraft Communication Products to the U.S.
Government would have a material adverse effect on our business, results of
operations and financial condition.
SHORTAGES OF, OR INTERRUPTIONS IN, THE SUPPLY OF MORE SPECIALIZED COMPONENTS FOR
ALL OF OUR PRODUCTS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR SALES.
We conduct assembly operations at our facilities in New York and Israel
and through subcontractors using purchased components. Some specialized
components for our products, such as microphones, digital signal processing
boards and mechanical switches, as well as other discrete components, are
available from a limited number of suppliers and subject to long lead times. We
may not be able to continue to obtain sufficient supplies of these more
specialized components, particularly if our sales increase substantially or
market demand for these components otherwise increases.
IF OUR SUBCONTRACTOR FAILS TO MEET OUR PRODUCTION AND SHIPMENT SCHEDULES, OUR
BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION WOULD BE MATERIALLY AND
ADVERSELY AFFECTED.
We conduct assembly operations at our facilities in New York and Israel
and through subcontracting. During initial production runs of Andrea Anti-Noise
and Andrea DSP Microphone products, we perform assembly operations at our New
York facility from purchased components. As sales of any particular product
increase, assembly operations are primarily transferred to a subcontractor in
Asia.
OUR ABILITY TO COMPETE MAY BE LIMITED BY OUR FAILURE TO ADEQUATELY PROTECT OUR
INTELLECTUAL PROPERTY OR BY PATENTS GRANTED TO THIRD PARTIES.
We rely on a combination of patents, patent applications, trade secrets,
copyrights, trademarks, nondisclosure agreements with our employees, licensees
and potential licensees, limited access to and dissemination of our proprietary
information, and other measures to protect our intellectual property and
proprietary rights.
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However, the steps that we have taken to protect our intellectual property may
not prevent its misappropriation or circumvention. In addition, numerous patents
have been granted to other parties in the fields of noise cancellation, noise
reduction, computer voice recognition, digital signal processing and related
subject matter. We expect that products in these fields will increasingly be
subject to claims under these patents as the numbers of products and competitors
in these fields grow and the functionality of products overlap. Claims of this
type could have an adverse effect on our ability to manufacture and market our
products or to develop new products and technologies, because the parties
holding these patents may refuse to grant licenses or only grant licenses with
onerous royalty requirements. Moreover, the laws of other countries do not
protect our proprietary rights to our technologies to the same extent as the
laws of the United States.
AN UNFAVORABLE RULING IN ANY CURRENT LITIGATION PROCEEDING OR FUTURE PROCEEDING
MAY ADVERSELY AFFECT OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL
CONDITION.
From time to time we are subject to litigation incidental to our
business. For example, we are subject to the risk of adverse claims,
interference proceedings before the U.S. Patent and Trademark Office,
oppositions to patent applications outside the United States, and litigation
alleging infringement of the proprietary rights of others. Litigation to
establish the validity of patents, to assert infringement claims against others,
and to defend against patent infringement claims can be expensive and
time-consuming, even if the outcome is in our favor.
As more fully disclosed in "Item 3. Legal Proceedings" in our annual
report on Form 10-K for the year ended December 31, 2000 incorporated herein by
reference, on November 17, 1998 a complaint was filed against us in the U.S.
District Court for the Eastern District of New York by NCT Group, Inc. and NCT
Hearing Products, Inc., one of NCT's subsidiaries, requesting a declaration that
two of our patents, which relate to active noise reduction technology applicable
to aircraft passenger headphones, are invalid and unenforceable and that these
patents are not being infringed by NCT's products. The complaint also seeks to
enjoin us from engaging in certain alleged activities and seeks compensatory
damages of not less than $5 million, punitive damages of not less than $50
million and plaintiffs' costs and attorneys' fees.
On December 30, 1998, we filed and served an answer to the NCT
complaint, denying the allegations and asserting affirmative defenses and
counterclaims. The counterclaims seek injunctive relief for patent infringement,
trademark infringement, false designation of origin and unfair competition. We
are also seeking exemplary and punitive damages, prejudgment interest on all
damages, costs, reasonable attorneys' fees and expenses. During the second half
of 1999, both NCT and Andrea submitted briefs to the court on whether to have an
early hearing on the meaning of the claims in the two Andrea patents. This type
of hearing is called a "Markman Hearing." We are unable to anticipate when the
court will issue a decision on this question. We and NCT are proceeding with
discovery, including document production and depositions. If this suit is
ultimately resolved in favor of NCT, we could be materially adversely effected.
We believe, however, that NCT's allegations are without merit and we intend to
vigorously defend ourselves and to assert against NCT the claims described
above.
As more fully disclosed in "Item 3. Legal Proceedings" in our annual
report on Form 10-K for the year ended December 31, 2000 incorporated herein by
reference, on March 11, 1999, we were notified about a claim filed with the New
York State Environmental Protection and Spill Compensation Fund by the owners
(Mark J. Mergler and Ann Mergler) of property adjoining our former Long Island
City facility. This claim alleges property damages arising from petroleum
migrating from our former facility and was purportedly detected in the basement
of the claimants' property. In their claim to the fund, the claimants alleged
that their property has been damaged and that they have incurred remedial costs.
In the event the fund honors this claim in whole or in part, we may be liable to
reimburse the fund. The New York State Department of Environmental Conservation
has asserted a demand that we investigate and remediate the discharge of
petroleum from a fuel oil storage tank at our former Long Island City facility,
and determine whether the petroleum discharge has migrated to the claimants'
adjoining property.
We engaged environmental consultants to investigate the discharge from
the fuel oil storage tank and we are currently funding remediation work. We
denied, however, the allegations that any petroleum discharge has
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migrated to the claimant's property and objected to the claim made by the
claimant to the fund. On September 2, 1999, a civil action related to this
matter was commenced in the Nassau County Supreme Court by Mark J. Mergler and
Ann Mergler. The plaintiffs allege that the fuel oil released from the heating
system of our former facility has migrated beneath and onto the neighboring
property causing in excess of $1,000,000 in direct and consequential damages.
The plaintiffs' allegations against us include, negligence, nuisance and strict
liability under the New York State Navigation Law. We have submitted an answer
denying the allegations and all liability relating to the alleged property
damage. This lawsuit is at an early stage and we are unable to evaluate the
likelihood of an unfavorable outcome or estimate the amount or range of
potential loss, if any.
CHANGES IN ECONOMIC AND POLITICAL CONDITIONS OUTSIDE THE UNITED STATES COULD
ADVERSELY AFFECT OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
We have been seeking to increase our sales to regions outside the United
States, particularly in Europe and areas in the Americas and Asia. For the 2001
Second Quarter, sales to customers outside the United States accounted for
approximately 22% of our net sales. International sales and operations are
subject to a number of risks, including:
o trade restrictions in the form of license requirements;
o restrictions on exports and imports and other government
controls;
o changes in tariffs and taxes;
o difficulties in staffing and managing international operations;
o problems in establishing and managing distributor relationships;
o general economic conditions; and
o political and economic instability or conflict, particularly
current Middle Eastern hostilities which could impact our
research and development operations in Israel.
To date, we have invoiced our international sales in U.S. dollars, and
have not engaged in any foreign exchange or hedging transactions. We may not
continue to be able to invoice all our sales in U.S. dollars and to avoid
engaging in foreign exchange or hedging transactions. If we are required to
invoice any material amount of international sales in non-U.S. currencies,
fluctuations in the value of non-U.S. currencies relative to the U.S. dollar may
adversely affect our business, results of operations and financial condition or
require us to incur hedging costs to counter such fluctuations.
IF WE ARE UNABLE TO ATTRACT AND RETAIN THE NECESSARY MANAGERIAL, TECHNICAL AND
OTHER PERSONNEL NECESSARY FOR OUR BUSINESS, THEN OUR BUSINESS, RESULTS OF
OPERATIONS AND FINANCIAL CONDITION WILL BE HARMED.
Our performance is substantially dependent on the performance of our
executive officers and key employees. The loss of the services of any of these
executive officers or key employees could have a material adverse effect on our
business, results of operations and financial condition. Our future success
depends on our continuing ability to attract and retain additional highly
qualified managers and technical personnel. Competition for qualified personnel
is intense and we may not be able to attract, assimilate or retain qualified
personnel in the future.
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ANDREA ELECTRONICS
Our mission is to provide the emerging "voice interface" markets with
state-of-the-art communications products. The idea underlying these markets is
that natural language spoken by the human voice will become an important means
by which to control many types of computing devices and other appliances and
equipment that contain microprocessors. We are designing and marketing our
products and technologies to be used for these "natural language, human/machine"
interfaces with:
o desktop, laptop and hand-held computers and mobile personal
computing devices;
o military and commercial aircraft systems;
o cellular and other wireless communication devices; and
o automotive communication systems.
We believe that end users of these applications and interfaces will
require high quality microphone and earphone products that enhance voice
transmission, particularly in noisy environments. To improve our product
offering, we are utilizing digital signal processing technology. This technology
converts voice signals to digital signals which can then be processed in
microprocessors and similar electronic devices to reduce external interference
and increase clarity. In order to further our efforts to develop digital signal
processing technology, in May 1998, we acquired Lamar Signal Processing, Ltd.,
an Israeli corporation engaged in the development of noise cancellation
microphones covering a wide range of audio and acoustic applications.
High quality audio communication technologies is also required for
emerging applications for microphones located several feet from the person
speaking, or far-field microphone technology. Applications in this area range
include:
o continuous speech dictation to personal computer and personal
data assistants;
o multiparty video teleconferencing and software that allows
participants to see and jointly edit documents, spreadsheets and
other information; and
o natural language-driven interfaces for automobiles, home and
office automation.
We believe that an increasing number of these devices will be introduced
during the next several years.
We outsource the assembly of most of our Andrea Anti-Noise products from
purchased components, and we are currently assembling our Andrea DSDA microphone
and software products from purchased components at our New York and Israeli
facilities. We manufacture our Aircraft Communications products at our New York
facility.
Our strategy is to
o maintain and extend our market position with our Aircraft
Communications and Andrea Anti-Noise products;
o broaden our Andrea Anti-Noise product lines and Andrea DSDA
microphone and software product lines through internal research
and development and, from time to time, strategic acquisitions;
o design our products to satisfy specific end-user requirements
identified by our collaborative partners; and
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o outsource manufacturing of some of our products in order to
achieve economies of scale.
An important element of our strategy for expanding the channels of
distribution and broadening the base of users for our products is our
collaborative arrangements with manufacturers of computing and communications
equipment, software publishers, and distributors and retailers actively engaged
in the various markets in which our products have application. Under some of
these arrangements, we supply our products for sale by our collaborative
partners. Under others, the collaborative partners supply us with software that
we include with our products. In addition, we have been increasing our own
direct marketing efforts.
The success of our strategy will depend on our ability to, among other
things,
o increase sales,
o contain costs,
o manage growth,
o introduce additional Andrea Anti-Noise products and Andrea DSDA
microphone and software products,
o maintain the competitiveness of our technologies through
successful research and development, and
o achieve widespread adoption of our products and technologies.
FORWARD LOOKING STATEMENTS
We make certain "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, throughout this prospectus and in
the documents we incorporate by reference into this prospectus. The words
"anticipates," "believes," "estimates," "expects," "intends," "plans," "seeks,"
variations of such words, and similar expressions are intended to identify
forward-looking statements. We have based these forward-looking statements on
our current expectations, estimates and projections about our business and
industry, our beliefs and certain assumptions made by our management. Investors
are cautioned that matters subject to forward-looking statements involve risks
and uncertainties including economic, competitive, governmental, technological
and other factors which may affect our business and prospects.
These statements are not guarantees of future performance and are
subject to certain risks, uncertainties and assumptions that are difficult to
predict. Important factors which could cause our actual results to differ
materially from the forward-looking statements in this prospectus include, but
are not limited to, those identified in this
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prospectus under "Risk Factors" and those described in Management's Discussion
and Analysis of Financial Condition and Results of Operations in our Form 10-K
for the fiscal year ended December 31, 2000, our Form 10-Q for the quarter ended
March 31, 2001, our Form 10-Q for the quarter ended June 30, 2001 and in any
other filings which are incorporated by reference in this prospectus.
You should read this prospectus and the documents that we incorporate by
reference into this prospectus completely and with the understanding that our
actual future results may be materially different from what we expect.
Forward-looking statements in this prospectus speak only as of the date of this
prospectus. We have ongoing disclosure obligations under the federal securities
laws to file periodic quarterly and annual reports as well as current reports
that cover events that are material to our business, results of operations and
financial condition. These reports could contain information that reflect
subsequent developments relating to forward-looking statements in this
prospectus. All forward-looking statements attributable to us are expressly
qualified by these cautionary statements.
USE OF PROCEEDS
All of the shares of Common Stock offered hereby are being offered for
the account of the selling stockholders. We will not receive any proceeds from
the sale by the selling stockholders of the Common Stock made pursuant to this
registration statement.
SELLING STOCKHOLDERS
We are registering the shares in order to permit the selling
stockholders to offer the shares of Common Stock for resale from time to time.
The shares of Common Stock being offered by HFTP Investment L.L.C. are issuable
upon conversion of the Series C convertible preferred stock. For additional
information regarding the Series C convertible preferred stock, see "Description
of Capital Stock -- Preferred Stock." None of the selling stockholders has had
any material relationship with us in the past three years.
The following table sets forth as of August 31, 2001 the name of the
selling stockholders, the number of shares of Common Stock owned beneficially by
the selling stockholders, calculated in the manner described below, the number
of shares which may be offered pursuant to this prospectus and the number of
shares and percentage of class to be owned by each of the selling stockholders
after this offering.
For HFTP Investment L.L.C., the second column lists the number of shares
of Common Stock held, plus the number of shares of Common Stock, based on its
ownership of Series C convertible preferred stock as well as Series B preferred
stock and related warrants, that would have been issuable to the selling
stockholder as of August 31, 2001 assuming conversion of all Series B and Series
C convertible preferred stock and exercise of the warrants issued in connection
with the Series B convertible preferred stock held by the selling stockholder on
that date, without regard to any limitations on conversions or exercise. Because
conversion of the Series B and Series C convertible preferred stock is based on
a formula that may depend on the market price of our Common Stock, the numbers
listed in the second column may fluctuate from time to time. The third column
lists the shares of Common Stock being offered by this prospectus by the selling
stockholders.
In accordance with the terms of the registration rights agreement with
the holder of the Series C convertible preferred stock, this prospectus covers
the resale of at least that number of shares of Common Stock equal to the
product of 2.0 and the number of shares of Common Stock issuable upon conversion
of the Series C convertible preferred stock, without regard to any limitations
on conversions, determined as if the outstanding Series C convertible preferred
stock was converted in full as of the date immediately preceding the filing of
the registration statement of which this prospectus is a part. Because of
adjustments at the reset dates, at maturity or upon dilutive issuances, the
number of shares that will actually be issued upon conversion of the Series C
convertible preferred stock may be more or less than the 10,890,411 shares being
offered by this prospectus for the holder of the Series C convertible preferred
stock.
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The fourth column assumes the sale of all of the shares offered by the
selling stockholders pursuant to this prospectus.
Under the certificate of amendment for the Series C convertible
preferred stock, the Series C Holder is prohibited from converting its holdings
of the Series C Convertible Preferred Stock or Series B Convertible Preferred
Stock or from exercising the Warrants issued in connection witht the Series B
Convertible Preferred Stock if after giving effect to such conversion or
exercise it would beneficially own in excess of 4.99% or, over the sixty day
period prior to the conversion, 9.99% of the outstanding shares of our Common
Stock following such conversion. The number of shares in the second column and
fourth column and the percentage in the fifth column for HFTP does not reflect
this limitation.
The selling stockholders may sell all, some or none of its shares in
this offering. See "Plan of Distribution."
The "Shares Beneficially Owned After the Offering" column assumes the
sale of all shares offered. The "Percentage of Class" column is based on
15,503,866 shares of Common Stock outstanding as of September 7, 2001.
Shares
Shares Beneficially
Beneficially Shares Offered Owned Percentage
Owned Prior To By This After of
Selling Stockholder The Offering(1) Prospectus The Offering Class
- -------------------------------- --------------- --------------- -------------- -----
HFTP Investment L.L.C.(1) 9,915,807 10,890,411 4,475,596 18.03%
Ventnor LLC (2) 92,835 61,890 30,945 *
Cherry Hill LLC (2) 144,738 96,492 48,246 *
Marla LLC (2) 144,663 96,442 48,221 *
Knighthawk Investment LLC (2) 98,904 65,936 32,968 *
- --------------------------------
* Represents less than 1%.
(1) In addition to the 5,440,211 shares issuable as of August 31, 2001 upon
conversion of the Series C preferred stock, includes up to 3,876,667
shares of Common Stock issuable upon conversion of the Series B
convertible preferred stock and exercise of related warrants held of
record by HFTP Investment LLC, without regard to any limitations on
conversions or exercises. Promethean Asset Management, LLC, a New York
limited liability company, serves as investment manager to HFTP
Investment L.L.C. and may be deemed to share beneficial ownership of the
shares beneficially owned by HFTP by reason of shared power to vote and
to dispose of the shares beneficially owned by HFTP. Promethean
disclaims beneficial ownership of the shares beneficially owned by HFTP.
Mr. James F. O'Brien, Jr. indirectly controls Promethean. Mr. O'Brien
disclaims beneficial ownership of the shares beneficially owned by
Promethean and HFTP. HFTP is not a registered broker-dealer. HFTP,
however, is under common control with, and therefore an affiliate of,
Promethean Capital Group LLC which is a registered broker-dealer.
(2) The natural person having the ultimate voting power over the ordinary
shares is Fred Knoll.
- --------------------------------
* Represents less than 1%.
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DESCRIPTION OF CAPITAL STOCK
As of September 7, 2001 our authorized capital stock totaled 75,000,000
shares, consisting of:
(1) 70,000,000 shares of Common Stock, par value $.50 per share, of
which 15,503,866 shares were issued and outstanding; and
(2) 5,000,000 shares of preferred stock, par value $.01 per share,
of which
(a) 25,000 shares were designated Series A junior
participating preferred stock, none of which were issued
and outstanding,
(b) 1,500 shares were designated as Series B convertible
preferred stock, of which 283 shares were issued and
outstanding,
(c) 1,000 shares were designated Series C preferred stock, of
which 750 shares were issued and outstanding and
(d) 4,972,500 shares of preferred stock which have not been
designated.
Of the 15,503,866 shares of Common Stock outstanding on September 7,
2001, this amount does not include 5,915,625 shares of Common Stock reserved for
issuance upon exercise of options granted under our 1991 Performance Equity Plan
and 1998 Stock Plan and 20,496,848 shares of common stock reserved for issuance
upon conversion of the Series B and Series C convertible preferred stock and
exercise of related warrants.
COMMON STOCK
The holders of our Common Stock are entitled to one vote per share on
all matters to be voted on by shareholders and are entitled to receive dividends
when declared by our board of directors, at their discretion, from legally
available funds. The holders of our Common Stock are not entitled to preemptive,
subscription or conversion rights, and there are no redemption or sinking fund
provisions applicable to our Common Stock.
Upon liquidation or dissolution, the holders of our Common Stock are
entitled to receive all assets available for distribution to shareholders,
subject to the preferential rights of the holders of Series B and Series C
convertible preferred stock and any other series of preferred stock that may be
then outstanding.
PREFERRED STOCK
Shares of preferred stock are issuable in one or more series at the time
or times and for the consideration as our board of directors may determine. All
shares of each series of preferred stock shall be equal in rank and identical in
all respects. Authority is expressly granted to our board of directors to fix
from time to time, by resolution or resolutions providing for
o the establishment and/or issuance of any series of preferred
stock,
o the designation of any series of preferred stock,
o the powers, preferences and rights of the shares of that series,
and
o the qualifications, limitations or restrictions of the preferred
stock.
We currently have designated three series of preferred stock. Each
series of preferred stock is summarized below. While we have no present
intention to issue shares of any additional series of preferred stock, any such
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issuance could dilute the equity of the outstanding shares of Common Stock and
could have the effect of making it more difficult for a third party to acquire a
majority of our outstanding voting stock. In addition, any newly issued
preferred stock may have other rights, including economic rights senior to the
Common Stock, and, as a result, the issuance thereof could have a material
adverse effect on the market value of the Common Stock.
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
Under our Shareholder Rights Plan, preferred stock purchase rights were
distributed as a dividend at the rate of one right for each share of Common
Stock outstanding as of the close of business on May 7, 1999. Each purchase
right entitles the holder to purchase one-thousandth of a share of our Series A
junior participating preferred stock, par value $0.01 per share, at an exercise
price of $50. These purchase rights will not be exercisable unless a person or
group acquires, or announces the intent to acquire, beneficial ownership of 20%
or more of our Common Stock.
Each share of Series A junior participating preferred stock shall
entitle the holder to 1,000 votes on all matters submitted to a vote of our
stockholders.
Subject to the rights of the holders of any series of preferred stock
ranking senior to the Series A junior participating preferred stock with respect
to dividends, each holder of a share of Series A junior participating preferred
stock, in preference to the holders of shares of Common Stock, will be entitled
to a dividend equal to one thousand times any dividend declared per share of
Common Stock.
Upon our liquidation or dissolution, holders of Series A junior
participating preferred stock are entitled to:
(1) $1,000 per share, plus accrued and unpaid dividends and
distributions, or an aggregate amount per share (subject to
adjustment) equal to 1,000 times the aggregate amount to be
distributed per share to holders of Common Stock, before we make
any distributions to the holders of stock ranking junior to the
Series A junior participating preferred stock; or
pro rata distributions in proportion to the total amounts to
which all holders of stock ranking in parity with the Series A
junior participating preferred stock are entitled before we make
any distributions to those other holders.
In the case of any consolidation, merger, combination or other
transaction in which shares of Common Stock are exchanged, each share of Series
A junior participating preferred stock shall be similarly exchanged into an
amount per share equal to 1,000 times the aggregate amount of stock, securities,
cash and/or any other property (payable in kind), as the case may be, into which
each share of Common Stock is exchanged.
The Series A junior participating preferred stock ranks, with respect to
the payment of dividends and the distribution of assets, junior to all series of
any other class of preferred stock. Whenever dividends or distributions payable
on the Series A junior participating preferred stock are in arrears, we cannot,
until all accrued and unpaid dividends and distributions, whether or not
declared, on the Series A junior participating preferred stock outstanding have
been paid:
o declare or pay dividends, or make any other distributions, on
any stock ranking junior to the Series A junior participating
preferred stock;
o declare or pay dividends, or make any other distributions, on any
stock ranking on a parity with the Series A junior participating
preferred stock, except dividends paid ratably on the Series A
junior participating preferred stock and all such parity stock on
which dividends are payable or in arrears in proportion to the
total amounts to which the holders of all such shares are then
entitled;
o redeem or purchase or otherwise acquire any stock ranking junior
to the Series A junior
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participating preferred stock, provided that we may at any time
redeem, purchase or otherwise acquire shares of any such junior
stock in exchange for any of our stock ranking junior to the
Series A junior participating preferred stock; or
o redeem or purchase or otherwise acquire any Series A junior
participating preferred stock, or any shares of stock ranking on
a parity with the Series A junior participating preferred stock,
except in accordance with a purchase offer made in writing or by
publication to all holders of such shares upon such terms as the
board of directors shall determine in good faith will result in
fair and equitable treatment among the respective series or
classes.
The shares of Series A junior participating preferred stock are also
subject to antidilution provisions which are triggered in the event of stock
splits, recapitalizations, or other dilutive transactions. The Series A junior
participating preferred stock is not redeemable.
SERIES B CONVERTIBLE PREFERRED STOCK AND WARRANT
BACKGROUND. On June 18, 1999, we issued 750 shares of the Series B
Convertible Preferred Stock, $10,000 stated value per share, and a warrant to
purchase, at an exercise price of $8.725 per share, 75,000 shares of Common
Stock, for $7.5 million in a private placement to one investor (the "Investor").
At September 7, 2001, 283 shares of B Preferred Stock remain outstanding; 467
shares (including the applicable premium) of B Preferred Stock have been
converted into a total of 1,950,723 shares of Common Stock.
GENERAL TERMS OF THE SERIES B CONVERTIBLE PREFERRED STOCK. The B
Preferred Stock has no voting rights, other than as required by law and is not
entitled to the payment of dividends. However, the holder is entitled to receive
an additional amount in cash or shares of Common Stock, at our option, upon
conversion of the B Preferred Stock. The additional amount is calculated based
on an annual premium of 4% on the $10,000 per share stated value of the B
Preferred Stock.
In the event of our liquidation or dissolution, the holder of the B
Preferred Stock is entitled to receive in cash out of our assets an amount per
share equal to $10,000 plus the additional amount described above. The holder of
B Preferred Stock is entitled to these amounts in preference to the holders of
our Common Stock and any other junior class of our capital stock.
CONVERSION. Each share of B Preferred Stock is convertible into shares
of the Common Stock at the option of the holder, at our option under certain
circumstances after June 18, 2002, and mandatorily on the maturity date for the
B Preferred Stock, which, subject to a possible required extension, is June 18,
2004. The number of shares of Common Stock into which a share may be converted
(the "conversion rate") is equal to $10,000 divided by the conversion price of
the B Preferred Stock. The conversion price is variable and, at the time of
conversion, will be equal to the average of the two lowest closing bid prices of
the Common Stock during the 15 consecutive trading days immediately preceding
conversion. However, the conversion price cannot exceed $8.775 per share. There
is no minimum conversion price, but the number of shares that may be converted
at any one time may be limited. For more information about limitations, see
"--Limitations on Conversion."
We have reserved 9,606,437 shares of Common Stock for issuance upon
conversion of shares of the B Preferred Stock (including to satisfy the
additional amounts discussed above) and the exercise of the warrant. Depending
on the conversion price, this amount may or may not be adequate to account for
the total number of shares of Common Stock issuable upon such conversion.
The following table illustrates the varying amounts of shares of Common
Stock issuable upon conversion of all 283 shares of Series B convertible
preferred stock at the indicated conversion prices (without regard to any
limitations on conversion) and assuming that the 4% additional amount is paid in
cash:
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Percentage of
Assumed Number Number of Shares Outstanding
Assumed of Shares Outstanding after Common
Conversion Price Converted(1) Assumed Conversion Stock(2)
- ------------------- ------------------- ------------------- --------------
$0.50 5,660,000 21,163,886 27%
$1.50 1,886,667 17,390,553 11%
$2.50 1,132,000 16,635,886 7%
$3.50 808,571 16,312,457 5%
$4.50 628,889 16,132,775 4%
$5.50 514,545 16,018,431 3%
$6.50 435,385 15,939,271 3%
$7.50 377,333 15,881,219 2%
- --------------------------------------------------------------------------------
- ----------------------------------
(1) The Series B Holder is prohibited from converting its holdings of the Series
B Convertible Preferred Stock if after giving effect to such conversion it
would beneficially own in excess of 4.99% or, over the sixty day period
prior to the conversion, 9.99% of the outstanding shares of our Common Stock
following such conversion. The numbers in this column do not reflect these
limitations.
(2) Based on 15,503,866 shares of Common Stock outstanding as of September 7,
2001.
REDEMPTION. The holder of the B Preferred Stock has the right to require
Andrea to redeem all or a portion of its shares upon the announcement of a major
transaction or the happening of a triggering event. Major transactions include a
merger, consolidation, tender offer or sale of substantially all of Andrea's
assets. Triggering events include a default under Andrea's registration
obligations with respect to the Series B convertible preferred stock, the
delisting of the Common Stock and a default with respect to Andrea's conversion
obligations, among other things.
The redemption price upon the happening of these events would be equal
to the greater of 120% of the liquidation value of the B Preferred Stock, and
o in the case of a major transaction, the product of the conversion
rate in effect for the B Preferred Stock and the closing bid
price on the date of the public announcement of the transaction;
o in the case of a triggering event, the product of the conversion
rate in effect for the B Preferred Stock and the closing bid
price immediately before the triggering event or on the date of
the holder's redemption notice.
In addition, to the extent that Andrea is not able to issue the shares
of Common Stock required to be issued upon the voluntary or mandatory conversion
of the B Preferred Stock, Andrea could be required to redeem the shares of B
Preferred Stock that cannot be converted into Common Stock.
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The redemption price for the B Preferred Stock under these circumstances
would be the product of the conversion rate in effect for the B Preferred Stock
and the closing bid price for the Common Stock on the applicable conversion
date. If Andrea does not timely pay the redemption price, such unpaid amount
bears interest at the rate of 2% per month.
LIMITATIONS ON CONVERSION. The issuance of shares of Common Stock upon
conversion of the B Preferred Stock is limited to an amount which, after giving
effect to the conversion, would cause the holder to beneficially own in excess
of 4.99%, or, together with other shares beneficially owned during the 60-day
period prior to such conversion, beneficially own in excess of 9.99% of the
outstanding shares of the Common Stock. This calculation excludes the number of
shares of Common Stock which would be issuable upon:
o conversion of the remaining, nonconverted shares of B Preferred
Stock beneficially owned by the holder and its affiliates;
o exercise or conversion of any of the unexercised or unconverted
portion of any other of Andrea's securities (including, without
limitation, any warrants or convertible preferred stock) subject
to a limitation on conversion or exercise analogous to this
limitation beneficially owned by the holder and its affiliates.
This limitation does not prevent the holder from reducing its beneficial
ownership by sale or other transfer of Common Stock, and then acquiring
additional shares of Common Stock, up to the beneficial ownership limits, by
conversion of shares of B Preferred Stock.
GENERAL TERMS OF THE WARRANT. In connection with the sale of the B
Preferred Stock, Andrea issued a warrant to purchase up to 75,000 shares of
Common Stock, exercisable at the price of $8.775 per share. The warrant expires
on June 18, 2004, subject to certain possible extensions. The right to exercise
the warrant is also limited by the 4.99% and 9.99% beneficial ownership
limitations described above with respect to the B Preferred Stock. The exercise
price and number of shares that may be purchased upon exercise of the warrants
are subject to adjustment upon the occurrence of certain dilution events (as
defined in the warrant). Andrea intends to use the proceeds, if the warrants are
exercised, for working capital and general corporate purposes.
SERIES C CONVERTIBLE PREFERRED STOCK
The following is a summary of the material terms of the Series C
convertible preferred stock. The underlying documents for the Series C
convertible preferred stock are a securities purchase agreement, registration
rights agreement and a certificate of amendment, all filed as exhibits to our
Form 8-K dated October 12, 2000.
BACKGROUND. On October 10, 2000, Andrea issued 750 shares of the C
Preferred Stock, $10,000 stated value per share, for $7.5 million in a private
placement to the Investor. Subject to various terms and conditions, the C
Preferred Stock, among other things, is convertible into shares of Common Stock
at the election of the holder and mandatorily at the maturity date of the C
Preferred Stock. The C Preferred Stock has an initial maturity date of October
10, 2002 for those outstanding shares of C Preferred Stock which can be
converted into shares of Common Stock on that date without exceeding various
limitations on such conversion. In general, for the outstanding shares of C
Preferred Stock in excess of those subject to the October 10, 2002 maturity
date, the maturity date is extended until five trading days after such shares
can be converted into Common Stock without violating the applicable limitations
on conversion (or after a triggering event as discussed below under
"--Triggering Events").
ADDITIONAL CLOSINGS. In addition to the issuance of 750 shares of C
Preferred Stock on October 10, 2000 as described above, the holder of the C
Preferred Stock has an option to purchase additional shares. During the period
beginning on October 10, 2000, the initial closing date, and ending on April 11,
2002, the holder, on not more than two occasions, may purchase from Andrea up to
an aggregate of 250 additional shares of the C Preferred Stock for up to an
additional $2,500,000. The terms and conditions of these additional shares of C
Preferred Stock would be identical to existing C Preferred Stock. The conditions
to the additional closings include:
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o that our representations in the transaction documents are true
and correct as of the date of the additional closing,
o our Common Stock is listed with The American Stock Exchange,
o we deliver all required certificates, opinions, and documents
required under the securities purchase agreement, and
o satisfaction of other terms and conditions, all as more fully set
forth in the securities purchase agreement.
We are using the proceeds from the offering of the Series C convertible
preferred stock, including the initial closing and any additional closing, for
working capital and general corporate purposes, including the expansion of our
sales and marketing capabilities for the commercialization of our anti-noise
products and the expansion of our research and development activities.
GENERAL TERMS OF THE SERIES C CONVERTIBLE PREFERRED STOCK. The C
Preferred Stock has no voting rights other than as required by law, and is not
entitled to receive dividends. However, the holder of C Preferred Stock is
entitled to receive an additional amount in cash or shares of Common Stock, at
Andrea's option, upon conversion of the C Preferred Stock. The additional amount
is calculated based on an annual premium of 5% on the $10,000 per share stated
value of the C Preferred Stock.
In the event of Andrea's liquidation or dissolution, the holder of the C
Preferred Stock is entitled to receive in cash out of Andrea's assets an amount
per share of equal to $10,000 plus the additional amount described above. The
holder of C Preferred Stock is entitled to receive these amounts in preference
to the holders of Andrea's Common Stock and any other junior class of Andrea's
capital stock.
CONVERSION. Each share of C Preferred Stock is convertible into shares
of the Common Stock at the option of the holder, at the option of Andrea under
certain circumstances after October 10, 2001, and mandatorily on the "maturity
date" for the C Preferred Stock. The C Preferred Stock has an initial maturity
date of October 10, 2002 for those outstanding shares of C Preferred Stock which
can be converted into shares of Common Stock on that date without exceeding
various limitations on such conversion. In general, for the outstanding shares
of C Preferred Stock in excess of those subject to the October 10, 2002 maturity
date, the maturity date is extended until five trading days after such shares
can be converted into Common Stock without violating the applicable limitations
on conversion (or after a triggering event as discussed below).
The number of shares of Common Stock into which a share of C Preferred
Stock may be converted (the "conversion rate,") is equal to $10,000 divided by
the conversion price of the C Preferred Stock. The conversion price was
initially equal to $7.0565 per share for the first nine months or 110% of the
average of the two lowest closing bid prices of the Common Stock during the five
consecutive trading days immediately proceeding the issuance of October 10,
2000. The conversion price will be reset every six months thereafter to the
lesser of the then existing conversion price or the average of the two lowest
closing bid prices of the Common Stock during the five consecutive trading days
immediately preceding the six-month reset dates or, for the period beginning on
the day two years after the initial issuance and ending on the maturity of the
Series C Preferred Stock, the least of: (i) the then existing conversion price,
(ii) the average of the two lowest closing bid prices of the Common Stock during
the 15 consecutive trading days immediately proceding such two year date, or
(iii) the closing bid price on the day of conversion, subject in each case to
certain adjustments. The current conversion price is $1.44. There is no minimum
conversion price, but the number of shares that may be converted at any one time
may be limited. For more information about limitations, see "--Limitations on
Conversion."
Andrea has reserved 10,890,411 shares of Common Stock for issuance upon
conversion of the shares of the C Preferred Stock (including to satisfy the
additional amounts discussed above). Depending on the conversion
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price, this amount may or may not be adequate to account for the total number of
shares of Common Stock issuable upon such conversion.
The following table illustrates the varying amounts of shares of Common
Stock that would be issuable upon conversion of all outstanding 750 shares of
Series C convertible preferred stock at the indicated conversion prices (without
regard to any limitations on conversion) and assuming that the 5% additional
amount is paid in cash:
Percentage of
Assumed Number Number of Shares Outstanding
Assumed of Shares Outstanding after Common
Conversion Price Converted(1) Assumed Conversion Stock(2)
- ------------------- ------------------- ------------------- --------------
$0.40 18,750,000 34,253,886 55%
$0.55 13,636,364 29,140,250 47%
$0.70 10,714,286 26,218,172 41%
$0.85 8,823,529 24,327,415 36%
$1.00 7,500,000 23,003,886 33%
$1.15 6,521,739 22,025,625 30%
$1.30 5,769,231 21,273,117 27%
$1.44 5,208,333 20,712,219 25%
- --------------------------------------------------------------------------------
- ----------------------------------
(1) The Series C Holder is prohibited from converting its holdings of the Series
C Convertible Preferred Stock if after giving effect to such conversion it
would beneficially own in excess of 4.99% or, over the sixty day period
prior to the conversion, 9.99% of the outstanding shares of our Common Stock
following such conversion. The numbers in this column do not reflect these
limitations.
(2) Based on 15,503,866 shares of Common Stock outstanding as of September 7,
2001.
REDEMPTION. The holder of the C Preferred Stock has the right to require
Andrea to redeem all or a portion of its shares upon the announcement of a major
transaction or the happening of a triggering event. For more information about
triggering events, see "--Triggering Events." Major transactions include a
merger, consolidation, tender offer or sale of substantially all Andrea's
assets.
The redemption price upon the happening of these events would be equal
to the greater of 120% of the liquidation value of the C Preferred Stock, and:
o in the case of a major transaction, the product of the conversion
rate in effect for the C Preferred Stock and the closing bid
price on the date of the public announcement of the transaction;
or
o in the case of a triggering event, the product of the conversion
rate in effect for the C Preferred Stock and the closing bid
price immediately before the triggering event or on the date of
the holder's redemption notice.
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In addition, to the extent that Andrea is not able to issue the shares
of Common Stock required to be issued upon the voluntary or mandatory conversion
of the C Preferred Stock, Andrea could be required to redeem the shares of C
Preferred Stock that cannot be converted into Common Stock.
The redemption price for the C Preferred Stock under these circumstances
would be the product of the conversion rate in effect for the C Preferred Stock
and the closing bid price for the Common Stock on the applicable conversion
date. If Andrea does not timely pay the redemption price, such unpaid amount
bears interest at the rate of 2% per month.
TRIGGERING EVENTS. A triggering event will occur upon:
o the lapse of the effectiveness of the registration statement for
ten consecutive trading days or for an aggregate of fifteen
trading days per year;
o the unavailability of the registration statement for the sale of
all of the shares of Common Stock into which the Series C
convertible preferred stock is convertible for a period of ten
consecutive trading days or an aggregate of fifteen trading days
per year;
o the delisting of our Common Stock by AMEX for five consecutive
trading days or for an aggregate of ten trading days per year;
o the failure of us or our transfer agent to comply with the
conversion obligations of the Series C convertible preferred
stock within ten business days after a conversion notice is
submitted;
o our inability to issue conversion shares due to limitations
imposed by the requirements of AMEX;
o our failure to make any excluded redemption event daily payment
(as defined in certificate of amendment); and
o the breach of our representations, warranties, covenants (that
are not cured in fewer than ten days) or terms of the transaction
documents which would have a material adverse effect (as defined
in the certificate of amendment).
LIMITATIONS ON CONVERSION. The issuance of shares of Common Stock upon
conversion of the C Preferred Stock is limited to that amount which, after
giving effect to the conversion, would cause the holder to beneficially own in
excess of 4.99% or, together with other shares beneficially owned during the
60-day period prior to such conversion, beneficially own in excess of 9.99% of
the outstanding shares of the Common Stock. These calculations exclude the
number of shares of Common Stock which would be issuable upon:
o conversion of the remaining, nonconverted shares of C Preferred
Stock beneficially owned by the holder and its affiliates;
o conversion of any of the B Preferred Stock or exercise of the
warrants issued in connection with the B Preferred Stock
beneficially owned by the holder and its affiliates; and
o exercise or conversion of any of the unexercised or unconverted
portion of any other of Andrea's securities (including, without
limitation, any warrants or convertible preferred stock) subject
to a limitation on conversion or exercise analogous to this
limitation beneficially owned by the holder and its affiliates.
These limitations do not prevent the holder from reducing its beneficial
ownership by sale or other transfer of Common Stock, and then acquiring
additional shares of Common Stock, up to the beneficial ownership limits, by
conversion of shares of C Preferred Stock.
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CONVERSION AT OUR OPTION. As more fully set forth in the certificate of
amendment, after one year we may require that the shares of Series C convertible
preferred stock be submitted for conversion. We may only exercise this right if
the last reported sale price (as reported by Bloomberg) for our Common Stock is
greater than $17.64125, among other conditions.
REGISTRATION OF SHARES. We are obligated by a registration rights
agreement to register the Common Stock issuable upon conversion of the Series C
convertible preferred stock. We are required by this agreement to initially
register with the Commission the resale of at least the number of shares of
Common Stock equal to the product of
(a) 2.0 and
(b) the number of initial registrable securities (without regard to
any limitation on conversion).
We are also required by the registration rights agreement to initially
register with the Commission the resale of at least the number of shares of
Common Stock equal to the product of
(a) 2.0 and
(b) the number of additional registrable securities (without regard
to any limitation on conversion) as of the date immediately
preceding the date the registration statement is initially filed.
We filed the registration statement with respect to the initial shares
of Series C convertible preferred stock on December 7, 2000, no later than 60
days after the initial closing date, the initial filing deadline, and had the
registration statement declared effective by the Commission on February 14,
2001, no later than 120 days after the initial closing, the initial
effectiveness deadline. If the holder elects to purchase additional shares of
Series C convertible preferred stock, we have agreed to use our best efforts to
file the registration statement with respect to the additional shares of Series
C convertible preferred stock as soon as possible but no later than 30 days
after the additional closing date and have the registration statement declared
effective by the Commission no later than 120 days after the additional closing.
If we are unable to have the registration statement filed or declared
effective in the time required, we shall pay to each holder of registrable
securities an amount in cash per registrable security held equal to the product
of
(a) $10,000 multiplied by
(b) the sum of
(1) .01, if the registration statement is not filed by the
initial filing deadline described above, plus
(2) .01, if the registration statement is not declared
effective by the initial effectiveness deadline described
above, plus
(3) the product of
(i) .0005 multiplied by
(ii) the sum of
(x) the number of days after the scheduled
filing date that such registration statement
is not filed with the Commission, plus
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(y) the number of days after the scheduled
effective date that the registration statement is not declared effective by the
Commission, plus
(z) the number of days that sales cannot be made
pursuant to the registration statement after
the registration statement has been declared
effective by the Commission (excluding days
during any allowable grace period set forth
in the registration rights agreement).
We have agreed to indemnify the holders of registrable securities
against liabilities under the Securities Act in connection with the registration
of the Common Stock issuable upon conversion of the Series C convertible
preferred stock. To the extent any indemnification is prohibited or limited by
law, we have agreed to make the maximum contribution with respect to any amounts
for which we would otherwise be liable under the registration rights agreement
to the fullest extent permitted by law. The holders will similarly indemnify us.
OTHER TERMS. The transaction documents relating to the Series C
convertible preferred stock contain other representations, warranties,
agreements and indemnification obligations of Andrea. The operative agreements
o contain a right of first refusal in favor of the investors which
applies to certain of our private equity financings for one year
after the initial closing,
o restrict our ability to redeem, pay any cash dividends and make
certain distributions on our Common Stock,
o limit our ability to issue any senior preferred stock, and
o prohibit us from entering into certain related party transactions
except as set forth in the securities purchase agreement.
The shares of Series C convertible preferred stock are also subject to
antidilution provisions which are triggered in the event of certain stock
splits, recapitalizations, or other dilutive transactions, as well as issuances
of Common Stock at a price below the conversion price in effect, or the issuance
of warrants, options, rights, or convertible securities which have an exercise
price or conversion price less than the conversion price, other than for certain
previously outstanding securities and certain "excluded securities" (as defined
in the certificate of amendment). In the event that we issue securities in the
future which have a conversion price or exercise price which varies with the
market price and the terms of such variable price are more favorable than the
conversion price in the Series C convertible preferred stock, the purchasers may
elect to substitute the more favorable variable price when making conversions of
the Series C convertible preferred stock.
PLACEMENT AGENT COMPENSATION. We and the purchaser each acknowledges
that it has not engaged any placement agent in connection with the sale of the
Series C convertible preferred stock.
USE OF PROCEEDS. The net proceeds of the Series C convertible preferred
stock received by us have been and will continue to be used for working capital
and general corporate purposes, including the expansion of our sales and
marketing capabilities for the commercialization of our anti-noise products and
the expansion of our research and development activities. We will not receive
any of the proceeds from the sale of Common Stock by the selling stockholder.
INTERESTS OF CERTAIN PERSONS. None of the investors in the Series C
convertible preferred stock transactions is a director, executive officer or
five percent or greater shareholder of us or is our affiliate.
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STOCKHOLDER DILUTION
The conversion of the B Preferred Stock and the C Preferred Stock may
result in substantial dilution to other shareholders of the Common Stock.
The following table illustrates the varying amounts of shares of Common
Stock that would be issuable upon conversion of all 283 outstanding shares of B
Preferred Stock and all 750 outstanding shares of C Preferred Stock at the
indicated conversion prices (without regard to any limitation on conversion),
assuming that all additional amounts are paid cash.
Percentage of
Assumed Number Number of Shares Outstanding
Assumed of Shares Outstanding after Common
Conversion Price Converted(1)(2)(3) Assumed Conversion Stock(4)
- ------------------- ------------------- ------------------- --------------
$0.50 20,660,000 36,163,886 57%
$1.00 10,330,000 25,833,886 40%
$1.44 7,173,611 22,677,497 32%
$2.50 6,340,333 21,844,219 29%
$3.50 6,016,905 21,520,791 28%
$4.50 5,837,222 21,341,108 27%
$5.50 5,722,879 21,226,765 27%
$6.50 5,643,718 21,147,604 27%
$7.50 5,585,667 21,089,553 26%
- --------------------------------------------------------------------------------
- -------------------------
(1) The calculation assumes that the conversion price of the Series B and Series
C convertible preferred stock are the same at the assumed conversion prices
of $.50, $1.00 and $1.44. This could only occur if the market price of
Andrea's Common Stock declines, and at a future reset date, the conversion
price of the Series C adjusts to the then prevailing market price (the
current fixed conversion price of the Series C is $1.44, and such conversion
price is fixed unless adjusted downward at a future reset date).
(2) The calculation assumes that for any conversion of the Series B convertible
preferred stock when the prevailing market price is above $1.44, the Series
C would still be converted at its maximum conversion price of $1.44.
(3) The Series B and Series C holder is prohibited from converting the Series C
or Series B convertible preferred stock, or from exercising the warrants
issued in connection with the Series B convertible preferred stock, if after
giving effect to such conversion it would beneficially own in excess of
4.99% or, over the sixty day period prior to the conversion, 9.99% of the
outstanding shares of our Common Stock following such conversion.
(4) Based on 15,503,866 shares of Common Stock outstanding as of September 7,
2001.
ADDITIONAL INFORMATION REGARDING THE TERMS OF THE SERIES B CONVERTIBLE
PREFERRED STOCK AND WARRANTS AND THE SERIES C CONVERTIBLE PREFERRED STOCK
Copies of the relevant documents regarding the issuance of the B
Preferred Stock and the C Preferred Stock were filed with the Securities and
Exchange Commission as exhibits to Andrea's Reports on Form 8-K, dated June 22,
1999 and October 12, 2000, respectively. Shareholders desiring a more complete
understanding of these securities are urged to refer to such disclosures and
exhibits.
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Andrea will furnish to any shareholder upon receipt of a written or oral
request, copies of these Reports on Form 8-K, including exhibits, without
charge, to the Corporate Secretary, Andrea Electronics Corporation, 45 Melville
Park Road, Melville, New York 11747 (631) 719-1800.
In connection with Andrea's issuance of the B Preferred Stock and the
related warrant and the C Preferred Stock, Andrea filed registration statements
on Form S-3 with the Securities and Exchange Commission on July 17, 1999, as
amended September 13, 1999 and October 13, 1999, and on December 7, 2000, as
amended January 16, 2001, January 31, 2001 and February 14, 2001, respectively.
Those registration statements relate to the resale of the shares of Common Stock
that are issuable upon conversion of the B Preferred Stock, and upon exercise of
the warrants, and upon conversion of the C Preferred Stock.
NEW YORK ANTI-TAKEOVER LAW
We are also subject to provisions of the New York Business Corporation
Law which relate to certain business combinations with an "interested
shareholder" and prohibit any person from making a takeover bid for a New York
corporation unless certain prescribed disclosure requirements are satisfied.
Section 912 of the NYBCL provides, with certain exceptions, that a New
York corporation may not engage in a "business combination," such as a merger,
consolidation, recapitalization or disposition of stock, with any "interested
shareholder" for a period of five years from the date that such persons first
became an interested shareholder unless:
(a) the transaction resulting in a person becoming an interested
shareholder, or the business combination, was approved by the
board of directors of the corporation prior to that person
becoming an interested shareholder,
(b) the business combination is approved by the holders of a majority
of the outstanding voting stock not beneficially owned by such
interested shareholder, or
(c) the business combination meets certain valuation requirements for
the stock of the New York corporation.
An "interested shareholder" is defined as any person that
(x) is the beneficial owner of 20% or more of the outstanding
voting stock of a New York corporation or
(y) is an affiliate or associate of the corporation that at
any time during the prior five years was the beneficial
owner, directly or indirectly, of 20% or more of the
corporation's then outstanding voting stock.
The provisions of Section 912 of the NYBCL apply if and for so long as a
New York corporation has a class of securities registered under Section 12 of
the Exchange Act, at least 25% of its total employees are employed primarily
within New York, or at least 250 employees are so employed and at least 10% of
our voting stock is owned beneficially by residents of the State of New York. We
expect to continue to meet one or more of these tests and, accordingly, to be
subject to Section 912 of the NYBCL. Article 16 of the NYBCL provides that
persons seeking to make takeover bids comply with certain registration and
disclosure requirements.
PLAN OF DISTRIBUTION
We are registering the shares of Common Stock to permit the resale of
shares of Common Stock by the holder from time to time after the date of this
prospectus. We will not receive any of the proceeds from the sale by the selling
stockholder of the shares of Common Stock. We will bear all fees and expenses
incident to our
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obligation to register the shares of Common Stock.
The selling stockholders may sell all or a portion of the Common Stock
beneficially owned by them and offered hereby from time to time directly or
through one or more underwriters, broker-dealers or agents. If the Common Stock
is sold through underwriters or broker-dealers, the selling stockholder will be
responsible for underwriting discounts or commissions or agent's commissions.
The Common Stock may be sold in one or more transactions at fixed prices, at
prevailing market prices at the time of the sale, at varying prices determined
at the time of sale, or at negotiated prices. These sales may be effected in
transactions, which may involve crosses or block transactions,
o on any national securities exchange or quotation service on which
the securities may be listed or quoted at the time of sale,
o in the over-the-counter market,
o in transactions otherwise than on these exchanges or systems or
in the over-the-counter market,
o through the writing of options, whether such options are listed
on an options exchange or otherwise, or
o through short sales.
If the selling stockholder effects such transactions by selling shares
of Common Stock to or through underwriters, broker-dealers or agents, such
underwriters, broker-dealers or agents may receive commissions in the form of
discounts, concessions or commissions from the selling stockholder or
commissions from purchasers of the shares of Common Stock for whom they may act
as agent or to whom they may sell as principal (which discounts, concessions or
commissions as to particular underwriters, brokers-dealers or agents may be in
excess of those customary in the types of transactions involved). In connection
with sales of the Common Stock or otherwise, the selling stockholder may enter
into hedging transactions with broker-dealers, which may in turn engage in short
sales of the Common Stock in the course of hedging in positions they assume. The
selling stockholder may also sell shares of Common Stock short and deliver
shares of Common Stock covered by this prospectus to close out short positions,
provided that the short sale is made after the registration statement is
declared effective and a copy of this prospectus is delivered in connection with
the short sale. The selling stockholder may also loan or pledge shares of Common
Stock to broker-dealers that in turn may sell such shares.
The selling stockholder may pledge or grant a security interest in some
or all of the shares of Common Stock owned by them and, if they default in the
performance of their secured obligations, the pledgees or secured parties may
offer and sell the shares of Common Stock from time to time pursuant to the
prospectus. The selling stockholder also may transfer and donate the shares of
Common Stock in other circumstances in which case the transferees, donees,
pledgees or other successors in interest will be the selling beneficial owners
for purposes of the prospectus.
The selling stockholder and any broker-dealer participating in the
distribution of the shares of Common Stock may be deemed to be "underwriters"
within the meaning of the Securities Act, and any commissions paid, or any
discounts or concessions allowed to any such broker-dealer may be deemed to be
underwriting commissions or discounts under the Securities Act. At the time a
particular offering of the shares of Common Stock is made, a prospectus
supplement, if required, will be distributed which will set forth the aggregate
amount of shares of Common Stock being offered and the terms of the offering,
including the name or names of any broker-dealers or agents, any discounts,
commissions and other terms constituting compensation from the selling
stockholder and any discounts, commissions or concessions allowed or reallowed
or paid to broker-dealers.
Under the securities laws of some states, the shares of Common Stock may
be sold in such states only through registered or licensed brokers or dealers.
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There can be no assurance that any selling stockholder will sell any or
all of the shares of Common Stock registered pursuant to the shelf registration
statement, of which this prospectus forms a part.
The selling stockholder and any other person participating in sales of
shares pursuant to this prospectus will be subject to applicable provisions of
the Exchange Act and the Exchange Act's rules and regulations, including,
without limitation, Regulation M of the Exchange Act, which may limit the timing
of purchases and sales of any of the shares of Common Stock by the selling
stockholder and any other participating person. Regulation M may also restrict
the ability of any person engaged in a distribution of the shares of Common
Stock to engage in market-making activities with respect to the shares of Common
Stock. All of the foregoing may affect the marketability of the shares of Common
Stock and the ability of any person or entity to engage in market-making
activities with respect to the shares of Common Stock.
We will pay all expenses of the registration of the shares of Common
Stock pursuant to the registration rights agreement estimated to be $45,000 in
total, including, without limitation, Commission filing fees and expenses of
compliance with state securities or "blue sky" laws; provided, however, that the
selling stockholder will pay all underwriting discounts and selling commissions,
if any.
In connection with sales made pursuant to this prospectus, we will
indemnify the selling stockholder against liabilities, including some
liabilities under the Securities Act, in accordance with the registration rights
agreement or the selling stockholder will be entitled to contribution. We will
be indemnified by the selling stockholder against civil liabilities, including
liabilities under the Securities Act that may arise from any written information
furnished to us by the selling stockholder for use in this prospectus or we will
be entitled to contribution.
Once sold under the shelf registration statement, of which this
prospectus forms a part, the shares of Common Stock will be freely tradable in
the hands of persons other than our affiliates.
HFTP, the selling stockholder, has advised us that it purchased the
Series C convertible preferred stock in the ordinary course of its business and,
at the time HFTP purchased the Series C convertible preferred stock, it was not
a party to any agreement or other understanding to distribute the securities,
directly or indirectly.
LEGAL MATTERS
Legal matters with respect to our Common Stock being offered hereby have
been passed upon for us by our counsel, Muldoon Murphy & Faucette LLP,
Washington, D.C.
EXPERTS
The consolidated financial statements and schedules of Andrea
incorporated in this prospectus and registration statement by reference to our
annual report on Form 10-K have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
incorporated by reference in reliance upon the authority of said firm as experts
in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and periodic reports, proxy statements and
other information with the Securities and Exchange Commission using the
Commission's EDGAR system. You may inspect these documents and copy information
from them at the Commission's public reference facilities at 450 Fifth Street,
N.W., Washington, D.C. 20549 or at the regional offices of the Commission at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of
such
29
32
material can be obtained at prescribed rates from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The
Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. The address of such site is http://www.sec.gov.
We have filed a registration statement with the Commission relating to
the offering of the Common Stock. The registration statement contains
information which is not included in this prospectus. You may inspect or copy
the registration statement at the Commission's public reference facilities or
its web site.
We furnish our stockholders with annual reports containing audited
financial statements and with such other periodic reports as we from time to
time deem appropriate or as may be required by law.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
We have filed the following documents with the Commission. We are
incorporating these documents in this prospectus, and they are a part of this
prospectus.
(1) Our annual report on Form 10-K for the fiscal year ended December
31, 2000;
(2) Our quarterly reports on Form 10-Q for the quarters ended March
31, 2001 and June 30, 2001;
(3) Our current report on Form 8-K dated June 6, 2001;
(4) Our current report on Form 8-K dated March 1, 2001; and
(5) The description of our Common Stock, par value $.50 per share,
contained in
(a) our registration statement filed under the Exchange Act
of 1934, as amended, No. 1-4324, as declared effective on
February 28, 1967,
(b) Article Third of our Restated Certificate of Incorporation
filed as Exhibit 3.1 to our current report on Form 8-K
dated November 30, 1998 as amended by our certificate of
Amendment dated June 10, 1999 filed as Exhibit 3.1 to our
current report on Form 8-K dated June 18, 1999 and as
subsequently amended by our Certificate of Amendment dated
October 5, 2000 filed as Exhibit 3.1 to our Current Report
on Form 8-K dated October 12, 2000 and
(c) any subsequent amendment(s) or report(s) filed for the
purpose of updating such description.
We are also incorporating by reference in this prospectus all documents
which we file pursuant to Section 13(a), 13(c), 14 or 15 of the Securities
Exchange Act of 1934, as amended, after the date of this prospectus. Such
documents are incorporated by reference in this prospectus and are a part of
this prospectus from the date we file the documents with the Commission.
If we file with the Commission any document that contains information
that is different from the information contained in this prospectus, you may
rely only on the most recent information which we have filed with the
Commission.
We will provide a copy of the documents referred to above without charge
if you request the information from us. Requests for such copies should be
directed to us at our principal executive offices at Andrea Electronics
Corporation, 45 Melville Park Road, Melville, New York, 11747, attention:
Secretary or (631) 719-1800.
You should only rely on the information incorporated by reference or
provided in this prospectus or any supplement. We have not authorized any person
to provide you with any different information. If anyone provides
30
33
you with different or inconsistent information you should not rely on it. The
Common Stock is not being offered in any state where the offer is not permitted.
You should not assume that the information in this prospectus or any supplement
is accurate as of any date other than the date on the front of this prospectus.
The information in this prospectus may not contain all of the
information that may be important to you. You should read the entire prospectus,
as well as the documents incorporated by reference in the prospectus, before
making an investment decision.
No dealer, salesman, or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus in connection with the offering herein contained and, if given or
made, such information or representations must not be relied upon as having been
authorized by us or the selling stockholders. This prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy, the
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make an offer or solicitation.
Neither the delivery of this prospectus nor any sale made hereunder
shall, under any circumstances, create an implication that there has been no
change in our affairs since the date hereof or that any information contained
herein is correct as to any of the time subsequent to its date. However, we have
undertaken to amend the registration statement of which this prospectus is a
part to reflect any facts or events arising after the effective date thereof
which individually or in the aggregate represent a fundamental change in the
information set forth in the registration statement. It is anticipated, however,
that most updated information will be incorporated herein by reference to our
reports filed under the securities exchange act of 1934. See "documents
incorporated by reference."
All dealers effecting transactions in the Common Stock offered hereby,
whether or not participating in this distribution, may be required to deliver a
prospectus. This is in addition to the obligation of dealers to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
31
34
11,211,171 SHARES
ANDREA ELECTRONICS CORPORATION
COMMON STOCK
------------------------------------
PROSPECTUS
------------------------------------
SEPTEMBER __, 2001
32
35
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Registration Fee - Securities and Exchange Commission $ 1,313470
American Stock Exchange Listing Fee* 17,500Fee 45,000
Legal Fees and Disbursements* 15,00030,000
Accounting Fees and Disbursements* 5,000
Legal Fees and Expenses in Connection with Blue Sky Filings* 2,000
Miscellaneous* 4,187
-----Filings 1,200
Total $ 45,000$81,670
- ---------------------
*Estimated.
II-1 3
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 722 of the Business Corporation Law of the State of New York
empowers a New York corporation to indemnify any person made, or threatened to
be made, a party to any action or proceeding (other than an action by or in the
right of the corporation to procure a judgment in its favor), whether civil or
criminal, including an action by or in the right of any other corporation of any
type or kind, domestic or foreign, or any partnership, joint venture, trust,
employee benefit plan or other enterprise, which any director or officer of the
corporation served in any capacity at the request of the corporation, by reason
of the fact that such person, such person's testator or such person's intestate
is or was a director or officer of the corporation, or was serving at the
request of the corporation as a director or officer of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise in
any capacity, against judgments, fines, amounts paid in settlement and
reasonable expenses, including attorneys' fees actually and necessarily incurred
as a result of such action or proceeding or any appeal therein, if such person
acted in good faith, for a purpose which such person reasonably believed to be
in, or, in the case of services for any other corporation or other enterprise,
not opposed to, the best interests of the corporation, and with respect to any
criminal action or proceeding, had no reasonable cause to believe that such
person's conduct was unlawful.
The termination of any action or proceeding by judgment, settlement,
conviction, or upon plea of nolo contendere or its equivalent, does not, of
itself, create a presumption that such person did not act in good faith, for a
purpose which such person reasonably believed to be in, or, in the case of
services for any other corporation or other enterprise not opposed to, the best
interests of the corporation, or had reasonable cause to believe that such
person's conduct was unlawful.
In the case of an action by or in the right of the corporation, Section 722
empowers a corporation to indemnify any person made or threatened to be made a
party to any action in any of the capacities set forth above against amounts
paid in settlement and reasonable expenses, including attorneys' fees, actually
and necessarily incurred by such person in connection with the defense or
settlement of such action or an appeal therein, if such person acted in good
faith, for a purpose which such person reasonably believed to be in, or, in the
case of services for any other corporation or other enterprise, not opposed to,
the best interests of the corporation, except that indemnification is not
permitted in respect of
(1) a threatened action or pending action which is settled or
otherwise disposed of or
33
36
(2) any claim, issue, or matter as to which such person is adjudged to be
liable to the corporation unless and only to the extent that the court
in which such action was brought, or if no action was brought, any
court of competent jurisdiction, determines upon application that, in
view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such portion of the settlement
amount and expenses as the court deems proper.
Section 723 provides that a New York corporation is required to indemnify a
person who has been successful, on the merits or otherwise, in the defense of an
action described in Section 722.
Section 721 provides that indemnification provided for by Section 722 shall
not be deemed exclusive of any other rights to which the indemnified party may
be entitled, whether contained in the certificate of incorporation or the
by-laws or, when authorized by such certificate of incorporation or by-laws,
(a) a resolution of shareholders,
(b) a resolution of directors, or
(c) an agreement providing for such indemnification, provided that no
indemnification may be made to or on behalf of any director or officer
if a judgment or other final adjudication adverse to the director or
officer establishes that such person's acts were committed in bad faith
or were the result of active and deliberate dishonesty and were
material to the cause of action so adjudicated.
II-2
4
Andrea's Certificate of Incorporation provides that the personal liability
of the directors of Andrea is eliminated to the fullest extent permitted by
Section 402(b) of the Business Corporation Law of the State of New York. In
addition, the By-Laws of Andrea provide in substance that, to the fullest extent
permitted by New York law, each director and officer shall be indemnified by
Andrea against reasonable expenses, including attorneys' fees, and any
liabilities which such officer may incur in connection with any action to which
such officer may be made a party by reason of being or having been a director or
officer of Andrea. The indemnification provided by Andrea's By-Laws is not
deemed exclusive of or in any way to limit any other rights which any person
seeking indemnification may be entitled.
ITEM 16. EXHIBITS.
A. Exhibits
Exhibit
Number Description
3.1*3.1 Amended and Restated Certificate of Incorporation of Registrant
(incorporated by reference to Exhibit 3.1 of the Registrant's
Form 10-K for the year ended December 31, 1992)
3.2 Certificate of Amendment of the Restated Certificate of
Incorporation of Registrant (incorporated by reference to
Exhibit 3.2 of the Registrant's Form 10-K for the year ended
December 31, 1997)
3.3 Certificate of Amendment of the Restated Certificate of
Incorporation of Registrant (incorporated by reference to
Exhibit 3.1 of the Registrant's Current Report on Form 8-K
filed November 30, 1998)
3.4 Certificate of Amendment of the Restated Certificate of
Incorporation of Registrant (incorporated by reference to
Exhibit 3.1 of the Registrant's Current Report on Form 8-K
filed June 22, 1999)
3.5 Certificate of Amendment of the Restated Certificate of
Incorporation of Registrant (incorporated by reference to
Exhibit 3.1 of the Registrant's Current Report on Form 8-K
filed October 12, 2000)
3.6 Certificate of Amendment of the Restated Certificate of
Incorporation of Registrant dated August 22, 2001
(incorporated by reference to Exhibit 3.6 of the Registrant's
Annual Report on Form 10-K filed April 1, 2002)
3.7 Certificate of Amendment of the Restated Certificate of
Incorporation of Registrant dated February 5, 2003
(incorporated by reference to Exhibit 3.1 of the Registrant's
Registration Statement on Form 8-A/A filed February 6, 2003)
3.8 Certificate of Amendment to the Certificate of Incorporation of
the Registrant.
4.1*Registrant dated February 23, 2004 (incorporated by
reference to Exhibit 3.1 of the Registrant's Registration
Statement on Form 8-K filed February 26, 2004)
3.9 Amended By-Laws of Registrant (incorporated by reference to
Exhibit 3.2 of the Registrant's Current Report on Form 8-K
filed November 30, 1998)
4.1 Securities Purchase Agreement, dated as of June 10, 1998,
relating to the sale of the Registrant's 6% Convertible Notes
due June 10, 2000 (with forms of Note and Registration Rights
Agreement attached thereto) (incorporated by reference to
Exhibit 4.1 of the Registrant's Form S-3, No. 333-61115, filed
August 10, 1998)
4.2 Securities Purchase Agreement, dated October 5, 2000, by and
between HFTP Investment L.L.C. and the Registrant.
4.2*Registrant (incorporated
by reference to Exhibit 10.1 of the Registrant's Current Report
on Form 8-K filed October 12, 2000)
II-3
5
4.3 Registration Rights Agreement, dated October 5, 2000, by and
between HFTP Investment L.L.C. and the Registrant.Registrant (incorporated
by reference to Exhibit 4.1 of the Registrant's Current Report
on Form 8-K filed October 12, 2000)
4.4 Rights Agreement, dated as of April 23, 1999 between Andrea and
Continental Stock Transfer and Trust Company, as Rights Agent,
including the form of Certificate of Amendment to Certificate
of Incorporation as Exhibit A, the form of Rights Certificate
as Exhibit B and the Summary of Rights to Purchase Shares of
Series A Preferred Stock (incorporated by reference to Exhibit
4.1 of the Registrant's Current Report on Form 8-K filed
May 7, 1999)
4.5 Securities Purchase Agreement, dated as of February 20, 2004,
by and between the Selling Stockholders and the Registrant
(incorporated by reference to Exhibit 4.1 of the Registrant's
Current Report on Form 8-K filed February 26, 2004)
4.6 Registration Rights Agreement, dated as of February 23, 2004,
by and between the Selling Stockholders and the Registrant
(incorporated by reference to Exhibit 4.2 of the Registrant's
Current Report on Form 8-K filed February 26, 2004)
5.1 Form of Opinion of Counsel Removed Exhibits 13.1-5 (Form 10-K, 10-Q's, 8-K's)(previously filed)
23.1 Consent of Independent Public Accountants 34
37(previously filed)
23.2 Consent of Counsel (contained in Exhibit 5.1) (previously
filed)
24.1 Power of Attorney relating to subsequent amendments (contained
in a signature page)
- -----------------------------
* Incorporated by reference to the registrant's current report on Form 8-K,
dated October 12, 2000.(previously
filed)
B. FINANCIAL STATEMENTS & SCHEDULES
All schedules for which provision is made in Regulation S-X of the
Securities and Exchange Commission either are not required under the related
instructions or the information required to be included therein has been
included in the financial statements of Andrea.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby 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. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would
not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b), if, in
the aggregate, the changes in volume and price represent
no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement;
II-4
6
(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 such
information in the 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 with or furnished to the
Securities and Exchange Commission by the registrant
pursuant to 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 such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities
at that 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.
35
38
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing
of the registrant's annual report pursuant to 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 such 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 pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such 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 such 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 such 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 of whether such indemnification by it is against public policy
as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.
36II-5
397
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, 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 City of New York, State of New York on the 10th14th day of September, 2001.April,
2004.
ANDREA ELECTRONICS CORPORATION
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below under "SIGNATURES" constitutes and appoints, John N. Andrea, Douglas J.
Andrea, Christopher P. Sauvigne and Richard A. Maue, his true and lawful
attorneys-in-fact and agents, each acting alone, with full powers of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any or all amendments to this registration
statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, each acting alone, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
By: /s/ Christopher P. Sauvigne/s/ Paul E. Donofrio
-------------------------------------
Christopher P. SauvignePaul E. Donofrio
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
/s/ Christopher P. Sauvigne
Chairman of the Board and
* Corporate Secretary
- -------------------------------
Douglas J. Andrea
President and Chief Executive
- ------------------------------ Officer and Director September 10, 2001
Christopher P. Sauvigne
/s/ Richard A. Maue Executive
Officer and Director April 14, 2004
- ------------------------------- (principal executive officer)
Paul E. Donofrio
Vice President and
Chief Financial Officer April 14, 2004
- ------------------------------- (principal financial and accounting officer)
Corisa L. Guiffre
* Director
- -------------------------------
John R. Croteau
* Director
- -------------------------------
Gary A. Jones
* Director
- -------------------------------
Scott Koondel
* Director
- --------------------------------
Louis Libin
* Director
- --------------------------------
Joseph J. Migliozzi
* Director
- --------------------------------
Jonathan Spaet
8
*Pursuant to the Power of Attorney filed as Exhibit 24.1 to the Registration
Statement on Form S-3 for Andrea Electronics Corporation on April 6, 2004.
Vice President - ------------------------------and
/s/ Corisa L. Guiffre Chief Financial Officer Richard A. Maue Secretary and Chief
Accounting Officer September 10, 2001
/s/ Douglas J. Andrea Chairman of the Board September 10, 2001
- ------------------------------
Douglas J. Andrea
/s/ John N. Andrea Director September 10, 2001April 14, 2004
- -------------------------------
John N. Andrea
/s/ Gary A. Jones Director September 10, 2001
- -------------------------------
Gary A. Jones
/s/ Paul M. Morris Director September 10, 2001
- -------------------------------
Paul M. Morris
37Corisa L. Guiffre
40
/s/ Jack Lahav Director September 10, 2001
- -------------------------
Jack Lahav
/s/ John Larkin Director September 10, 2001
- -------------------------
John Larkin
38
439
EXHIBIT INDEX
(PURSUANT TO ITEM 601 OF REGULATION S-K)
Exhibit
Number Description
3.1*3.1 Amended and Restated Certificate of Incorporation of Registrant
(incorporated by reference to Exhibit 3.1 of the Registrant's
Form 10-K for the year ended December 31, 1992)
3.8 Certificate of Amendment of the Restated Certificate of
Incorporation of Registrant (incorporated by reference to
Exhibit 3.2 of the Registrant's Form 10-K for the year ended
December 31, 1997)
3.9 Certificate of Amendment of the Restated Certificate of
Incorporation of Registrant (incorporated by reference to
Exhibit 3.1 of the Registrant's Current Report on Form 8-K
filed November 30, 1998)
3.10 Certificate of Amendment of the Restated Certificate of
Incorporation of Registrant (incorporated by reference to
Exhibit 3.1 of the Registrant's Current Report on Form 8-K
filed June 22, 1999)
3.11 Certificate of Amendment of the Restated Certificate of
Incorporation of Registrant (incorporated by reference to
Exhibit 3.1 of the Registrant's Current Report on Form 8-K
filed October 12, 2000)
3.12 Certificate of Amendment of the Restated Certificate of
Incorporation of Registrant dated August 22, 2001
(incorporated by reference to Exhibit 3.6 of the Registrant's
Annual Report on Form 10-K filed April 1, 2002)
3.13 Certificate of Amendment of the Restated Certificate of
Incorporation of Registrant dated February 5, 2003
(incorporated by reference to Exhibit 3.1 of the Registrant's
Registration Statement on Form 8-A/A filed February 6, 2003)
3.8 Certificate of Amendment to the Certificate of Incorporation of
the Registrant.
4.1* securities purchase agreement,Registrant dated February 23, 2004 (incorporated by
reference to Exhibit 3.1 of the Registrant's Registration
Statement on Form 8-K filed February 26, 2004)
3.9 Amended By-Laws of Registrant (incorporated by reference to
Exhibit 3.2 of the Registrant's Current Report on Form 8-K
filed November 30, 1998)
4.1 Securities Purchase Agreement, dated as of June 10, 1998,
relating to the sale of the Registrant's 6% Convertible Notes
due June 10, 2000 (with forms of Note and Registration Rights
Agreement attached thereto) (incorporated by reference to
Exhibit 4.1 of the Registrant's Form S-3, No. 333-61115, filed
August 10, 1998)
4.2 Securities Purchase Agreement, dated October 5, 2000, by and
between HFTP Investment L.L.C. and the Registrant.
4.2*Registrant (incorporated
by reference to Exhibit 10.1 of the Registrant's Current Report
on Form 8-K filed October 12, 2000)
4.3 Registration Rights Agreement, dated October 5, 2000, by and
between HFTP Investment L.L.C. and the Registrant.Registrant (incorporated
by reference to Exhibit 4.1 of the Registrant's Current Report
on Form 8-K filed October 12, 2000)
4.4 Rights Agreement, dated as of April 23, 1999 between Andrea and
Continental Stock Transfer and Trust Company, as Rights Agent,
including the form of Certificate of Amendment to Certificate
of Incorporation as Exhibit A, the form of Rights Certificate
as Exhibit B and the Summary of Rights
10
to Purchase Shares of Series A Preferred Stock (incorporated by
reference to Exhibit 4.1 of the Registrant's Current Report on
Form 8-K filed May 7, 1999)
4.5 Securities Purchase Agreement, dated as of February 20, 2004,
by and between the Selling Stockholders and the Registrant
(incorporated by reference to Exhibit 4.1 of the Registrant's
Current Report on Form 8-K filed February 26, 2004)
4.6 Registration Rights Agreement, dated as of February 23, 2004,
by and between the Selling Stockholders and the Registrant
(incorporated by reference to Exhibit 4.2 of the Registrant's
Current Report on Form 8-K filed February 26, 2004)
5.1 Form of Opinion of Counsel (previously filed)
23.1 Consent of Independent Public Accountants (previously filed)
23.2 Consent of Counsel (contained in Exhibit 5.1) (previously
filed)
24.1 Power of Attorney relating to subsequent amendments (contained
in a signature page) - ---------------------------------------
* Incorporated by reference to the registrant's current report on Form 8-K,
dated October 12, 2000.
39(previously filed)