SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
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[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant Rule 14a-12
ANDREA ELECTRONICS CORPORATION
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N/A
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ANDREA ELECTRONICS CORPORATION
45 Melville Park Road
Melville, New York 11747
_________________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 28, 2001
_________________
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of ANDREA
ELECTRONICS CORPORATION ("Company") will be held at the Melville Marriot Long
Island, 1350 Old Walt Whitman Road, Melville, New York 11747, on Thursday,
June 28, 2001 at 9:30 A.M. local time, for the following purposes:
1. To elect eight directors to hold office until the next Annual Meeting of
Shareholders and until their respective successors have been duly elected
and qualified;
2. To authorize an amendment to the Restated Certificate of Incorporation, as
amended, of the Company to increase the authorized shares of Common Stock to
70,000,000 shares from 35,000,000 shares;
3. To authorize an amendment to the Andrea Electronics Corporation 1998 Stock
Plan, to increase the number of shares of the Company's common stock
issuable thereunder to 4,375,000 shares from 3,675,000 shares;
4. To ratify the selection of Arthur Andersen LLP as the Company's independent
accountants for the year ending December 31, 2001; and
5. To transact such other business as may properly come before the meeting and
any adjournment thereof.
The transfer books will not be closed for the Annual Meeting. Only
shareholders of record at the close of business on May 11, 2001 will be entitled
to notice of, and to vote at, the meeting and any adjournments thereof. Our
2000 Annual Report, which is not a part of the proxy soliciting material, is
enclosed.
YOU ARE URGED TO READ THE ATTACHED PROXY STATEMENT, WHICH CONTAINS
INFORMATION RELEVANT TO THE ACTIONS TO BE TAKEN AT THE MEETING. IN ORDER TO
ASSURE THE PRESENCE OF A QUORUM, WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING
IN PERSON, PLEASE SIGN AND DATE THE ACCOMPANYING PROXY CARD AND MAIL IT PROMPTLY
IN THE ENCLOSED ADDRESSED, POSTAGE PREPAID ENVELOPE. YOU MAY REVOKE YOUR PROXY
IF YOU SO DESIRE AT ANY TIME BEFORE IT IS VOTED.
By Order of the Board of Directors
Richard A. Maue
Secretary
Melville, New York
May __, 2001
ANDREA ELECTRONICS CORPORATION
_________________
PROXY STATEMENT
_________________
GENERAL INFORMATION
ANNUAL MEETING
This Proxy Statement and the enclosed form of proxy are furnished in
connection with solicitation of proxies by the Board of Directors of Andrea
Electronics Corporation ("Company") to be used at the Annual Meeting of
Shareholders of the Company to be held on June 28, 2001 and any adjournment or
adjournments thereof ("Annual Meeting"). The matters to be considered at the
meeting are set forth in the attached Notice of Meeting.
The Company's executive offices are located at 45 Melville Park Road,
Melville, New York 11747. On or about May __, 2001, this Proxy Statement, the
enclosed form of proxy and the Company's Annual Report to Shareholders for the
fiscal year ended December 31, 2000, which contains audited financial
statements, are to be mailed to shareholders of record as of the close of
business on May 11, 2001. The Company will furnish to any shareholder copies of
any exhibits listed in the Form 10-K contained in the Annual Report upon such
shareholder's request and payment of a fee not exceeding the reasonable expenses
of furnishing such copies.
SOLICITATION AND REVOCATION
Proxies in the form enclosed are solicited by and on behalf of the Board of
Directors. The persons named in the proxy have been designated as proxies by
the Board of Directors. Any proxy given pursuant to such solicitation and
received in time for the Annual Meeting will be voted as specified in such
proxy. If no instructions are given, proxies will be voted "FOR" the election
of the nominees listed below under the caption "Election Of Directors", "FOR"
the increase in the number of authorized shares of Common Stock to 70,000,000
shares from 35,000,000 shares, "FOR" the amendment to the Andrea Electronics
Corporation 1998 Stock Plan (the "1998 Plan") under which the issuable number of
shares of the Company's common stock would be increased to 4,375,000 shares from
3,675,000 shares, "FOR" the selection of Arthur Andersen LLP to serve as the
Company's independent accountants for the year ending December 31, 2001, and, in
the discretion of the proxies named on the proxy card, with respect to any other
matters properly brought before the meeting and any adjournments thereof. In
the unanticipated event that any other matters are properly presented at the
Annual Meeting for action, the persons named in the proxy will vote the proxies
in accordance with their best judgment. Any proxy given pursuant to this
solicitation may be revoked by the shareholder at any time before it is
exercised by written notification delivered to the Secretary of the Company, by
voting in person at the Annual Meeting, or by delivering another proxy bearing a
later date. Attendance by a shareholder at the Annual Meeting does not alone
serve to revoke his or her proxy.
REQUIRED VOTE
The presence, in person or by proxy, of the holders of a majority of the
shares entitled to vote at the Annual Meeting is necessary to constitute a
quorum. Abstentions and broker "non-votes" are counted as present and entitled
to vote for purposes of determining a quorum. A broker "non-vote" occurs when a
nominee holding shares for a beneficial owner does not vote on a particular
proposal
1
because the nominee does not have discretionary voting power for that particular
item and has not received instructions from the beneficial owner.
A plurality of the votes cast is required for the election of Directors.
Abstentions and broker "non-votes" are not counted as votes cast for purposes of
the election of Directors. The affirmative vote of a majority of outstanding
shares of common stock entitled to vote is required to approve the amendment to
the Restated Certificate of Incorporation. Abstentions and broker "non-votes"
will have the effect of a vote against this proposal. The affirmative vote of a
majority of the votes cast is required to approve the amendment to the 1998
Plan, and the appointment of Arthur Andersen LLP, with abstentions and broker
"non-votes" not counted as votes cast for purposes of these two proposals.
RECORD DATE; OUTSTANDING SHARES
The Board of Directors has fixed the close of business on May 11, 2001 as
the record date for the determination of shareholders of the Company who are
entitled to receive notice of, and to vote at, the Annual Meeting. At the close
of business on May 11, 2001, an aggregate of 14,774,357 shares of Common Stock
were issued and outstanding, each of which is entitled to one vote on each
matter to be voted upon at the Annual Meeting. The Company's shareholders do
not have cumulative voting rights. The Company has no other class of voting
securities entitled to vote at the Annual Meeting.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of May 11, 2001 with
respect to the stock ownership of (i) those persons or groups who beneficially
own more than 5% of the Company's Common Stock, (ii) each director of the
Company, (iii) each executive officer named in the Summary Compensation Table
and (iv) all directors and executive officers of the Company as a group. The
total number of shares of Common Stock outstanding on May 11, 2001 was
14,774,357.
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF CLASS
NAME OF BENEFICIAL OWNER OWNERSHIP (1) (12)
Camille Andrea Casling (2) 753,507 5.1%
ANC-I Limited Partnership(2) 247,000 1.7%
Douglas J. Andrea (2) 682,338 (3) 4.4%
John N. Andrea (2) 571,492 (4) 3.7%
Christopher P. Sauvigne 228,750 (5) 1.5%
Richard A. Maue 102,000 (6) *
Paul M. Morris 32,250 (7) *
Scott Koondel 41,250 (8) *
Gary A. Jones 49,500 (9) *
Jack Lahav - *
John R. Larkin 29,250 (10) *
Directors and Executive
Officers as a group (9 persons) 1,736,830 (11) 10.7%
2
*Less than 1%
(1) Beneficial ownership is determined in accordance with Rule 13d-3
promulgated under the Securities Exchange Act of 1934. The information
concerning the shareholders is based upon information furnished to the
Company by such shareholders. Except as otherwise indicated, all of the
shares next to each identified person or group are owned of record and
beneficially by such person or each person within such group and such
persons have sole voting and investment power with respect thereto.
(2) Camille Andrea Casling is the aunt of John N. Andrea and Douglas J. Andrea.
ANC-I Limited Partnership is a Delaware limited partnership, of which John
N. Andrea and Douglas J. Andrea are limited partners. The address of each
of these individuals and the ANC-I Limited Partnership is c/o Andrea
Electronics Corporation, 45 Melville Park Road, Melville, New York 11747.
(3) Includes (i) 69,088 shares owned directly by Douglas J. Andrea ,
Mr. Andrea's spouse and Mr. Andrea's daughter, (ii) 12,000 of the 247,000
shares owned by ANC-I Limited Partnership, and (iii) 601,250 shares
issuable upon the exercise of options which are currently exercisable and
exercisable within 60 days from the date hereof. Does not include 193,750
shares issuable upon exercise of options that are not currently exercisable
or exercisable within 60 days from the date hereof.
(4) Includes (i) 50,438 shares owned directly by John N. Andrea and
Mr. Andrea's spouse, (ii) 39,804 shares owned by Mr. Andrea's minor
children, and (iii) 481,250 shares issuable upon the exercise of options
which are currently exercisable and exercisable within 60 days from the
date hereof. Does not include 193,750 shares issuable upon exercise of
options that are not currently exercisable or exercisable within 60 days
from the date hereof.
(5) Includes (i) 15,000 shares owned directly by Christopher P. Sauvigne
(ii) 15,000 shares owned by Mr. Sauvigne's spouse, (iii) 5,000 shares owned
by Mr. Sauvigne's minor children and (iv) 193,750 shares issuable upon the
exercise of options which are currently exercisable and exercisable within
60 days from the date hereof. Does not include 306,250 shares issuable upon
the exercise of options that are not currently exercisable or exercisable
within 60 days from the date hereof.
(6) Includes (i) 2,000 shares owned directly by Richard A. Maue and Mr. Maue's
spouse and (ii) 100,000 shares issuable upon the exercise of options which
are currently exercisable and exerisable within 60 days from the date
hereof. Does not include 107,500 shares issuable upon the exercise of
options that are not currently exercisable or exercisable within 60 days
from the date hereof.
(7) Includes (i) 1,000 shares owned directly by Paul M. Morris, and (ii) 31,250
shares issuable upon the exercise of options which are currently
exercisable and exercisable within 60 days from the date hereof. Does not
include 38,750 shares issuable upon exercise of options that are not
currently exercisable or exercisable within 60 days from the date hereof.
(8) Includes 41,250 shares issuable upon the exercise of options that are
currently exercisable and exercisable within 60 days from the date hereof.
Does not include 38,750 shares issuable upon exercise of options that are
not currently exercisable or exercisable within 60 days from the date
hereof.
(9) Includes (i) 2,000 shares owned directly by Gary A. Jones, and (ii) 47,500
shares issuable upon the exercise of options that are currently exercisable
and exercisable within 60 days from the date
3
hereof. Does not include 12,500 shares issuable upon exercise of options
that are not currently exercisable or exercisable within 60 days from the
date hereof.
(10) Includes (i) 23,000 shares owned directly by John R. Larkin and (ii) 6,250
shares issuable upon the exercise of options that are currently exercisable
and exercisable within 60 days from the date hereof. Does not include
38,750 shares issuable upon exercise of options that are not currently
exercisable or exercisable within 60 days from the date hereof.
(11) Includes the shares directly owned and the shares issuable upon the
exercise of the options, which are currently exercisable and exercisable
within 60 days from the date hereof, discussed in notes (3) through (10)
above.
(12) Percentages with respect to each person or group of persons have been
calculated on the basis of 14,774,357 shares of Company's common stock,
which includes the number of shares of the Company's common stock
outstanding and entitled to vote as of May 11, 2001, plus the number of
shares of the Company's common stock which such person or group of persons
has the right to acquire within 60 days after May 11, 2001, by the exercise
of stock options.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and officers and persons who beneficially own more than
ten percent of the Company's Common Stock to file with the Securities and
Exchange Commission ("SEC") and the American Stock Exchange initial reports of
ownership and reports of changes in ownership of Common Stock in the Company.
Officers, directors and greater-than-ten percent shareholders are also required
to furnish the Company with copies of all Section 16(a) reports they file. To
the Company's knowledge, based solely on review of the copies of such reports
furnished to the Company and written representation that no other reports were
required, during the fiscal year ended December 31, 2000, the Company's
directors, officers and greater-than-ten percent holders met all applicable
Section 16(a) filing requirements.
PROPOSAL ONE:
ELECTION OF DIRECTORS
The By-laws of the Company provide that the Board of Directors shall
consist of not less than three and not more than ten directors as determined by
the Board. The Board has determined that the number of directors to be elected
at the annual meeting shall be eight. The persons listed below have been
designated by the Board as candidates for election as directors to serve until
the next annual meeting of shareholders and until their respective successors
have been elected and qualified. Such persons include the Co-Chief Executive
Officers and the President and Chief Operating Officer of the Company. Unless
otherwise specified in the form of proxy, the proxies solicited by management
will be voted "FOR" the election of these candidates. The election of directors
requires a plurality of those shares voted at the meeting with respect to the
election of directors. The nominees receiving the highest vote totals will be
elected as the directors of the Company. Accordingly, abstentions and broker
"non-votes" will not affect the outcome of the election of directors of the
Company. In case any of these nominees become unavailable for election to the
Board of Directors, an event which is not anticipated, the persons named as
proxies, or their substitutes, shall have full discretion and authority to vote
or refrain from voting for any other nominee in accordance with their judgment.
4
INFORMATION ABOUT NOMINEES
Information on Director nominees of the Company follows:
John N. Andrea, age 43, has been Co-Chairman and Co-Chief Executive Officer
since November 1998 and a Director of the Company since 1992. He served as Co-
President of the Company from November 1992 to November 1998, as Executive Vice
President of the Company from January 1992 to November 1992, and as Sales &
Marketing Director from September 1991 to November 1992. Mr. Andrea is the
brother of Douglas J. Andrea.
Douglas J. Andrea, age 38, has been Co-Chairman and Co-Chief Executive Officer
since November 1998 and a Director of the Company since 1991. He served as
Co-President of the Company from November 1992 to November 1998, as Vice
President - Engineering of the Company from December 1991 to November 1992, and
as Secretary of the Company from 1989 to January 1993. Mr.Andrea is the brother
of John N. Andrea.
Christopher P. Sauvigne, age 41, has been President and Chief Operating Officer
of the Company since November 1998 and a Director since June 2000. From 1982
until joining the Company in November 1998, Mr. Sauvigne was employed by Arthur
Andersen LLP, where he served in various capacities, the last of which was as
Partner.
Gary A. Jones, age 55, has been a Director of the Company since April 1996. He
served as President of Digital Technologies, Inc. from 1994 to 1998, and was
Chief Engineer at Allied Signal Ocean Systems from 1987 to 1994. From March 1998
to December 2000, Mr. Jones was the Managing Director of Andrea Digital
Technologies, Inc, a wholly-owned subsidiary of Andrea Electronics Corporation.
Scott Koondel, age 37, has been a Director of the Company since April 1995. He
has been the Eastern Manager, Off-Network Television, Paramount Pictures, a
subsidiary of Viacom International since June 1993, and was the National Sales
Manager for WPIX-TV, a division of Tribune Broadcasting, from June 1990 to June
1993.
Jack Lahav, age 53, has been a Director of the Company since November 1998. He
co-founded Lamar Signal Processing Ltd., a subsidiary of the Company that was
acquired in May 1998. Since August 1996, he has been the President of Advanced
Technology Inc., a manufacturer of robotic routing equipment used in
manufacturing printed circuit boards for advanced semiconductors, and from 1990
to 1996, was a Director of Vocaltec Communications Ltd., an Israeli Internet
telephony software company. In 1980, he founded Remarkable Products, Inc., a
direct mail company, and served as its President until the company was sold by
him in 1993.
John R. Larkin, age 57, has been a Director of the Company since June 1999. He
has been a Managing Director of Shields/Alliance, a division of Alliance Capital
Management LP, a global asset management company, since 1994. He joined Shields
Asset Management Inc., the predecessor of Shields/Alliance, in 1986 and held
various positions at that company, the last of which was Managing Director,
until that company was sold by Xerox Corporation to Alliance Capital Management
in 1994. Prior to 1986, Mr. Larkin was a Principal of Smilen & Safian Inc., a
New York-based economic consulting firm, and a Director and Member of the
Investment Committee of the Sector Investment Fund, a publicly held mutual fund.
Mr. Larkin has over 25 years experience in the investment management community
in both investment and marketing capacities.
5
Paul M. Morris, age 39, has been a Director of the Company since 1992. Since
1999, he has been a partner at Buena Vista Capital Partners, a limited
partnership for investments. From 1996 to 1999, Mr. Morris was Senior Managing
Director at Schroder Capital Management. From July 1995 to December 1996, he was
a Partner at Weiss, Peck & Greer, and from 1987 to June 1995 he was employed by
Union Bank of Switzerland, where his last position was Managing Director -
Equities.
INFORMATION ABOUT EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
Richard A. Maue, age 31, has been the Company's Senior Vice President, Chief
Financial Officer and Corporate Secretary since November 1999. Mr. Maue joined
the Company in April 1997 and served as Vice President, Controller, Treasurer
and Corporate Secretary until November 1999. From 1992 until joining the
Company in April 1997, Mr. Maue was employed in the audit and business advisory
division at Arthur Andersen LLP.
The executive officers of the Company are elected annually and hold office until
their successors have been elected and qualified or until they are removed or
replaced.
DIRECTORS' FEES, BOARD MEETINGS AND COMMITTEES
The Board is served by an Audit Committee, a Compensation Committee and a
Nominating Committee. The Audit Committee is comprised of Gary Jones, Jack Lahav
and Paul M. Morris. The Audit Committee meets with management and Company
financial personnel, as well as with the Company's independent accountants, to
consider the adequacy of the internal controls of the Company and the
objectivity of the Company's financial reporting. The Audit Committee met 3
times during 2000. The Compensation Committee is comprised of Scott Koondel,
John R. Larkin and Paul M. Morris. The Compensation Committee administers the
Company's stock option plans and makes recommendations to the Board of Directors
with respect to the compensation of management. The Compensation Committee met
4 times during 2000. The Board of Directors held 5 meetings during 2000. In
fiscal 2000, each of the Company's Directors attended at least 75% of such
meetings. During 2000, directors who are not officers or employees of the
Company were each paid $1,000 for physical attendance at meetings of the Board.
6
EXECUTIVE COMPENSATION
The following table sets forth information for the last three fiscal years
relating to compensation earned by the Co-Chief Executive Officers and the other
most highly compensated executive officers who received salary and bonuses over
$100,000 during the year ended December 31, 2000.
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($)(1) STOCK OPTIONS (#)
- -----------------------------------------------------------------------------------------------------------------------------
John N. Andrea, Co-Chairman and Co-Chief
Executive Officer 2000 207,410 150,000 125,000
1999 208,505 150,000 150,000
1998 203,846 150,000 150,000
Douglas J. Andrea, Co-Chairman and Co-
Chief Executive Officer 2000 206,350 50,000 125,000
1999 208,505 150,000 150,000
1998 203,846 150,000 150,000
Christopher P. Sauvigne, President and Chief
Operating Officer 2000 211,718 75,000 125,000
1999 208,409 75,000 125,000
1998 (2) 19,230 16,849 250,000
Richard A. Maue, Senior Vice President, Chief
Financial Officer and Corporate Secretary 2000 145,528 0 70,000
1999 (3) 93,815 27,115 25,000
(1) Total bonus received by each of John N. Andrea, Douglas J. Andrea, and
Christopher P. Sauvigne was the minimum bonus payment pursuant to his
employment agreement. See "Employment Agreements and Change in Control
Arrangements."
(2) Christopher P. Sauvigne, age 42, joined the Company on November 20, 1998.
From 1982 until joining the Company, Mr. Sauvigne was employed by Arthur
Andersen LLP, where he served in various capacities, the last of which was
as Partner. See "Employment Agreements and Change in Control Arrangements"
for information regarding Mr. Sauvigne's employment agreement with the
Company.
(3) Richard A. Maue, age 31, joined the Company in April 1997 and served as
Vice President, Controller, Treasurer and Corporate Secretary until
November 4, 1999. Since November 4, 1999, Mr. Maue has served as the
Company's Senior Vice President, Chief Financial Officer and Corporate
Secretary. See "Employment Agreements and Change in Control Arrangements"
for information regarding Mr. Maue's employment agreement with the Company.
7
The following table summarizes for each of the named executive officers the
number of shares covered by options granted during 2000, the percent of total
options granted to employees of the Company in 2000, the exercise price of such
options, the expiration date, and the potential realizable value of such options
assuming appreciation rates of 5% and 10% per year through the expiration date
of such options.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Potential Realizable Value at
Assumed Annual rates of Stock
Price Appreciation for Option
Individual Grants (2) Term
-------------------------------------------------------------------------- -------------------------------
Number of Percentage of
securities total options
underlying granted to Exercise
Date of options employees in price Expiration
Name grant granted (#) fiscal year ($/share) Date 5% (1) 10% (1)
- -------------------------------------------------------------------------------------------------- -------------------------------
John N. Andrea 4/17/00 75,000 6.1% $6.875 4/17/10 $324,274 $822,746
8/1/00 50,000 4.1% $ 6.00 8/1/10 $188,668 $478,123
Douglas J. Andrea 4/17/00 75,000 6.1% $6.875 4/17/10 $324,274 $822,746
8/1/00 50,000 4.1% $ 6.00 8/1/10 $188,688 $478,123
Christopher P. Sauvigne 4/17/00 75,000 6.1% $6.875 4/17/10 $324,274 $822,746
8/1/00 50,000 4.1% $ 6.00 8/1/10 $188,688 $478,123
Richard A. Maue 4/17/00 35,000 2.8% $6.875 4/17/10 $151,328 $383,948
8/1/00 35,000 2.8% $ 6.00 8/1/10 $132,068 $334,686
(1) The dollar amounts represent certain assumed rates of appreciation. Actual
gains, if any, on stock option exercises and common stock holdings are
dependent upon future performance of the Company's common stock and overall
stock market conditions. There can be no assurance that the amounts
reflected in this table will be realized.
(2) Of the shares covered by each option granted, none can be purchased during
the first year following the grant; 25% can be purchased after the first
anniversary of the grant; an additional 25% can be purchased after the
second anniversary of the grant; and the remaining 50% can be purchased
after the third anniversary.
8
The following table summarizes for each of the named executive officers the
number of shares acquired and value realized upon exercise of options during
fiscal 2000 and the aggregate dollar value of in-the-money, unexercised options
at December 31, 2000. None of the named executive officers exercised or held any
SARs during the year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Shares Options at Fiscal Year Fiscal Year End -
Acquired on End - Exercisable/ Exercisable/
Name Exercise Value Realized Unexercisable (6) Unexercisable (1)
- ----------------------------------------------------------------------------------------------------------------------------------
John N. Andrea - $ - 362,500 / 312,500 (2) $ - / $ -
Douglas J. Andrea 15,000 $94,875 482,500 / 312,500 (3) $170,400 / $ -
Christopher P. Sauvigne - $ - 156,250 / 343,750 (4) $ - / $ -
Richard A. Maue - $ - 73,750 / 118,750 (5) $ - / $ -
(1) Values were based on a closing trade price for the Company's Common Stock on
December 31, 2000 of $2.10 per share.
(2) John N. Andrea was granted options to purchase 75,000 shares at a price of
$6.875 on April 14, 2000; and 50,000 shares at a price of $6.00 per share on
August 1, 2000.
(3) Douglas J. Andrea was granted options to purchase 75,000 shares at a price
of $6.875 on April 14, 2000; and 50,000 shares at a price of $6.00 per share
on August 1, 2000.
(4) Christopher P. Sauvigne was granted options to purchase 75,000 shares at a
price of $6.875 on April 14, 2000; and 50,000 shares at a price of $6.00
per share on August 1, 2000.
(5) Richard A. Maue was granted options to purchase 35,000 shares at a price of
$6.875 on April 14, 2000; and 35,000 shares at a price of $6.00 per share
on August 1, 2000.
(6) Of the shares covered by each option granted, none can be purchased during
the first year following the grant; 25% can be purchased after the first
anniversary of the grant; an additional 25% can be purchased after the
second anniversary of the grant; and the remaining 50% can be purchased
after the third anniversary.
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS
The Company entered into three-year employment agreements that commenced on
March 26, 2000 with John N. Andrea and Douglas J. Andrea, each as Co-Chairman
and Co-Chief Executive Officers of the Company. Under these agreements, the
annual base salaries of John N. Andrea and Douglas J. Andrea are $200,000. Each
agreement provides for additional short-term incentive compensation in the form
of annual cash bonuses based on the achievement of performance goals and which
shall not be less than $150,000 per annum, and long-term incentive compensation
in the form of cash or equity-based awards.
9
The Company entered into a two-year employment agreement that commenced on
March 26, 2000 with Richard A. Maue, as Senior Vice President and Chief
Financial Officer of the Company. The agreement provides an annual base salary
of not less than $150,000 per annum, plus additional short-term incentive
compensation in the form of annual cash bonuses, based on the achievement of
performance goals and which shall not be less than $25,000 per annum, and long-
term incentive compensation in the form of cash or equity-based awards.
The Company entered into an employment agreement with Christopher P.
Sauvigne, as President and Chief Operating Officer of the Company, that
commenced on November 20, 1998 and expires on December 31, 2002. The agreement
provides an annual base salary of not less than the greater of (i) $200,000 per
annum and (ii) the higher of the base salaries of the Co-Chief Executive
Officers of the Company, plus additional short-term incentive compensation in
the form of annual cash bonuses, based on the achievement of performance goals
and which shall not be less than $150,000 per annum, and long-term incentive
compensation in the form of cash or equity-based awards.
Under each of the aforementioned agreements, upon the occurrence of a
Change in Control (as defined in each of the employment agreements), the Company
shall pay the Executive, or in the event of his subsequent death, his
beneficiary or beneficiaries, or his estate, as the case may be, a sum equal to
the greater of (A) the payments due for the remaining term of the agreement or
(B) the product of (i) five (in the case of John N. Andrea, Douglas J. Andrea
and Christopher P. Sauvigne) and three (in the case of Richard A. Maue)
multiplied by (ii) the Executive's average annual total compensation for the
five (in the case of John N. Andrea, Douglas J. Andrea and Christopher P.
Sauvigne) and three (in the case of Richard A. Maue) preceding taxable years, or
if his employment by the Company is then less than five (in the case of John N.
Andrea, Douglas J. Andrea and Christopher P. Sauvigne) and three (in the case of
Richard A. Maue) preceding taxable years, the Executive's average annual
compensation during his employment by the Company.
In addition, under each of the aforementioned employment agreements, on the
occurrence of a Change in Control, all restrictions on any restricted stock then
held by Executive will lapse immediately, incentive stock options and stock
appreciation rights then held will become immediately exercisable, and any
performance shares or units then held will vest immediately in full, and
Executive will be entitled to receive benefits due him under or contributed by
the Company on his behalf pursuant to any retirement, incentive, profit sharing,
bonus, performance, disability or other employee benefit plan maintained by the
Company on his behalf to the extent such benefits are not otherwise paid to him
under a separate provision of the agreement. If, during the term of the
agreement, the Company terminates Executive's employment other than for Cause
(as defined in each employment agreement), or Executive resigns for Good Reason
(as defined in each employment agreement), the Company shall pay to him the
product of (A) a sum equal to (i) the amount of the remaining salary payments
that he would have earned if he continued his employment with the Company during
the remaining unexpired term of his employment agreement at his base salary at
the date of termination, (ii) the highest amount of bonus and any other
compensation paid to the executive, in any year, during the term of his
employment agreement times the remaining number of years of the agreement and
any fraction thereof and (iii) an amount equal to the highest amount of annual
contributions that were made on Executive' behalf, in any year, to any employee
benefit plans of the Company during the term of the agreement, multiplied by (B)
the remaining number of years of the agreement and any fraction thereof.
COMPENSATION COMMITTEE REPORT
For the year ended December 31, 2000, the Compensation Committee of the Board
of Directors for the Company was composed of independent directors. Currently,
the Compensation Committee is
10
comprised of Scott Koondel, John R. Larkin and Paul M. Morris. The Compensation
Committee is responsible for establishing and monitoring compensation policies
of the Company, evaluating the performance of executives and establishing salary
rates and increases.
It is the policy of the Company to evaluate the performance of senior
management annually using subjective criteria established by the Committee.
Compensation increases are determined by the Committee based on annual
evaluations. In addition, the Committee supplements its criteria with
consultative studies of best compensation practices within the industry in which
the Company is engaged.
The Compensation Committee considerations include management skills,
long-term performance, shareholder returns, operating results, new product and
technological developments and introductions, asset-liability management, and
unusual accomplishments as well as economic conditions and other external events
that affect the operations of the Company. Compensation policies must promote
the attraction and retention of highly qualified executives and the motivation
of these executives for performance related to a financial interest in the
success of the Company and the enhancement of long-term shareholders' value.
In addition to salaries, the Company's compensation plan includes the
awarding of stock options based on performance, length of service and salary
grades. The awards of stock options should provide increased motivation to work
for the success of the Company, thereby increasing the potential for personal
financial success. Options granted to executives and employees are at a price
equal to the closing price of the Company's stock on the date of grant.
The Compensation Committee annually reviews and approves the compensation
of Douglas J. Andrea and John J. Andrea, the Co-Chief Executive Officers of the
Company. The Committee believes that the Co-Chief Executive Officers are paid a
reasonable salary, and the options granted to them are consistent with corporate
financial incentives provided to the other executive officers of the Company. To
the extent their performance translates into an increase in the value of the
Company's stock, all shareholders share the benefits. The Committee believes
that the Company continues to enhance its position as a global provider of
communications products for the emerging natural language human/machine
interface markets.
Compensation Committee
Scott Koondel
John R. Larkin
Paul M. Morris
11
STOCK PERFORMANCE GRAPH
The following graph compares the yearly percentage change in the cumulative
total shareholder return for the five years ended December 31, 2000 based upon
the market price of the Company's Common Stock with the cumulative total return
on the AMEX Market Value Index and a defined peer group based on companies in
the SIC industry code index entitled "Radio and Television Communication
Equipment". The graph assumes a $100 investment on December 29, 1995 and the
reinvestment of all dividends.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN AMONG
ANDREA ELECTRONICS CORPORATION, AMEX MARKET INDEX
AND SIC CODE INDUSTRY INDEX
FISCAL YEAR ENDING
COMPANY/INDEX/MARKET 12/29/1995 12/31/1996 12/31/1997 12/31/1998 12/31/1999 12/29/2000
Andrea Electronics Corporation 100.00 90.72 295.88 161.86 126.80 34.64
SIC Code Industry Index 100.00 101.89 99.47 107.56 407.93 211.85
AMEX Market Index 100.00 105.52 126.97 125.25 156.15 154.23
PROPOSAL TWO:
AMENDMENT OF CERTIFICATE OF INCORPORATION
The Board of Directors recommends the adoption by shareholders of an
Amendment to Article Third of the Company's Certificate of Incorporation", to
increase the number of shares of Common Stock that may be issued. The
Certificate of Incorporation currently authorizes the issuance of 35,000,000
shares of Common Stock, having a par value of $.50 per share. The Board of
Directors believes it to be in the best interests of the Company, and has
therefore proposed and declared it advisable, that the Certificate of
Incorporation be amended to increase the number of authorized shares of Common
Stock, par value $.50 per share, to 70,000,000 shares. Such amendment is
required to be approved by the shareholders by an affirmative vote of a majority
of outstanding shares of common stock entitled to vote at the Annual Meeting.
Abstentions and broker "non-votes" will have the effect of a vote against this
proposal.
Of the shares presently authorized, 14,774,357 shares of Common Stock were
outstanding on May 11, 2001. This does not include 1,623,500 shares of Common
Stock reserved for issuance upon exercise of awards granted under the Company's
1991 Performance Equity Plan, 3,025,625 shares of Common Stock reserved for
issuance upon exercise of awards granted under the 1998 Plan, 85,250 shares of
Common Stock reserved for additional awards under the 1991 Performance Equity
Plan, 493,750 shares of Common Stock reserved for additional awards under the
1998 Plan, 4,237,684 shares of Common Stock reserved for issuance upon
conversion of the Company's previously issued and outstanding Series B Preferred
Stock and related warrant, and 2,173,456 shares of Common Stock reserved for
issuance upon conversion of the Company's previously issued and outstanding
Series C Preferred Stock.
The Board of Directors believes that the increase in the authorized shares
will provide for flexibility in future planning and will enable the Company to
obtain financing on suitable terms. The Company last increased its authorized
shares of Common Stock in 2000, and the Board of Directors believes it important
in the years ahead for the Company to maintain an authorized capitalization that
will permit a broad range of financing alternatives. If the Certificate of
Incorporation is amended, the additional shares will be available for
12
issuance from time to time for use in obtaining funds for present and future
operations, for use in conjunction with possible acquisitions of businesses or
properties, for use in possible stock dividends and stock splits, or for any
other proper corporate purpose. The Board of Directors does not intend to seek
further shareholder approval prior to the issuance of any additional shares in
future transactions unless required by law, by the Company's Certificate of
Incorporation, or by the rules of any stock exchange upon which the stock may be
listed, or unless the Company deems it advisable to do so to qualify (or to
continue to qualify) an employee benefit plan under the Securities Exchange Act
of 1934. Common Stock would be issued only if the Company believed the issuance
favorable to, and in the interests of, the Company and its shareholders.
The newly authorized shares of Common Stock will have voting and other
rights identical to those of the currently authorized shares of Common Stock.
Any issuance of additional shares of Common Stock of the Company would
dilute the equity of the outstanding shares of Common Stock.
Under the Certificate of Incorporation of the Company, holders of Common
Stock do not have preemptive rights.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ADOPTION OF THIS PROPOSAL.
PROPOSAL THREE:
APPROVAL AND AUTHORIZATION OF AN INCREASE
IN THE NUMBER OF SHARES SUBJECT TO THE
ANDREA ELECTRONICS CORPORATION 1998 STOCK PLAN
The Board of Directors of the Company believes that in order to attract and
retain employees and consultants of the highest caliber, provide increased
incentive for directors, officers and key employees and to continue to promote
the well-being of the Company, it is in the best interests of the Company and
its shareholders to provide directors, officers, key employees and consultants
of the Company and its subsidiaries, through the grant of stock or stock-
related incentive awards, the opportunity to participate in the value and/or
appreciation in value of the Company's common stock. As of May 11, 2001, awards
covering an aggregate of 3,025,625 shares of the Company's common stock had been
granted under the 1998 Plan with 493,750 shares remaining for additional awards
thereunder, and unexercised awards covering an aggregate of 1,623,500 shares
remain outstanding under the Company's 1991 Performance Equity Plan with 85,250
shares remaining for additional grants thereunder. The Board of Directors has
therefore approved an amendment to the 1998 Plan to increase the number of
shares of common stock available for grant under the 1998 Plan to 4,375,000
shares from 3,675,000 shares. No awards have been granted pursuant to the 1998
Plan to purchase any of the shares added to the 1998 Plan by this amendment. At
the Annual Meeting, shareholders will be asked to approve and authorize this
amendment. The affirmative vote of a majority of the votes cast by the
shareholders is required for approval of the amendment, with abstentions and
broker "non-votes" not counted as votes cast.
The following discussion summarizes certain material provisions of the 1998
Plan and is qualified in its entirety by reference to the text of the 1998 Plan,
which is attached as Appendix A to this Proxy Statement.
13
Summary of the 1998 Plan
- ------------------------
Administration. The 1998 Plan is administered, at the discretion of the
--------------
Board of Directors of the Company, by its Compensation Committee (in such
capacity, the "Administrator"). The Administrator has full authority, subject to
the provisions of the 1998 Plan, to award (i) Stock Options, (ii) Stock Purchase
Rights and/or (iii) other stock-based awards (collectively "Awards"). Subject
to the provisions of the 1998 Plan, the Administrator determines, among other
things, the persons to whom from time to time Awards may be granted ("Holders"
or "Participants"), the specific type of Awards to be granted, the number of
shares subject to each Award, share prices, any restrictions or limitations on
such Awards, and any vesting, exchange, deferral, surrender, cancellation,
acceleration, termination, exercise or forfeiture provisions related to such
Awards. The interpretation and construction by the Administrator of any
provisions of, and the determination by the Administrator of any questions
arising under, the 1998 Plan or any rule or regulation established by the
Administrator pursuant to the 1998 Plan are final, conclusive and binding on all
persons interested in the 1998 Plan. Awards under the 1998 Plan are evidenced
by agreements ("Agreements").
In the event of a merger or sale of substantially all of the assets of the
Company, each outstanding Award shall be assumed or an equivalent award
substituted by the successor corporation, unless full and immediate vesting is
otherwise provided in the Agreement covering that award or in the employment
agreement of the Holder. In the event that a successor corporation refuses to
assume or substitute for Awards, Holders shall fully vest in and have the right
to exercise such Awards as to all shares of Common Stock issuable thereunder,
including shares which would not otherwise be vested or exercisable.
In order to prevent the dilution or enlargement of the rights of Holders
under the 1998 Plan, the number of shares of Common Stock covered by each
outstanding Stock Option and Stock Purchase Right, and the number of shares of
Common Stock authorized by the 1998 Plan is subject to adjustment by the Board
in the event of any increase or decrease in the number of shares of outstanding
Common Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company. The shares of Common Stock acquirable pursuant
to the Awards are made available from authorized and unissued shares of Common
Stock. If any unexercised Award granted under the 1998 Plan is forfeited or
terminated, the shares of Common Stock that were available pursuant to such
Award are again available for distribution under the 1998 Plan.
Unless determined otherwise by the Administrator, Awards granted under the
1998 Plan may not be sold, pledged, assigned, hypothecated, transferred, or
disposed of in any manner other than by will or by the laws of descent and
distribution and may be exercised only by the Holder during his or her lifetime.
Eligibility. Subject to the provisions of the 1998 Plan, Awards may be
-----------
granted to employees, officers, directors and consultants who are deemed to be
engaged by the Company to render services and who are compensated for such
services. Incentive Stock Options may be awarded only to persons who, at the
time of such awards, are employees of the Company.
Types of Awards.
Options. The 1998 Plan provides both for "incentive" stock options
-------
("Incentive Options") as defined in Section 422 of the Internal Revenue Code of
1986, as amended (the "Code") and for options
14
not qualifying as Incentive Options ("Non-Statutory Stock Options"), both of
which may be granted with any other stock based award under the 1998 Plan. The
Administrator will determine the exercise price per share of Common Stock
purchasable under each Incentive Option or Non-Statutory Stock Option
(collectively, "Options"). The exercise price of an Incentive Option may not be
less than 100% of the fair market value on the last trading day before the date
of grant (or, in the case of an Incentive Option granted to a person possessing
more that 10% of the total combined voting power of all classes of stock of the
Company, not less than 110% of such fair market value). The exercise price of a
Non-Statutory Stock Option which is intended to be performance-based
compensation under Section 162(m) of the Code may not be less that 100% of the
fair market value on the last trading day before the date of the grant. An
Incentive Option may only be exercised within 10 years of the date of the grant
(or within five years in the case of an Incentive Option granted to a person
who, at the time of the grant, owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company) or such other
lesser period as the Administrator may specify at the time of the grant. Subject
to any limitations or conditions the Administrator may impose, Options may be
exercised, in whole or in part, at any time during the term of the Option by
giving written or electronic notice of exercise from the person entitled to
exercise the Option. Such notice must be accompanied by payment in full of the
purchase price, such payment consisting of any consideration and/or method of
payment authorized by the Administrator and permitted by the Agreement.
Generally, if the Holder ceases to be an employee, officer, director or
consultant of the Company other than as a result of death or disability, then
the portion of any Option that has vested by the date of such termination may be
exercised for such period as is specified in the Agreement or, if not specified,
for the shorter of three months after termination or the remainder of the
Option's term. In the event the Holder's employment with the Company is
terminated due to disability, the Holder may still exercise the portion of his
or her Option that had vested by the date of termination for a period of twelve
months (or such other shorter period as the Administrator may specify at the
time of grant) from the date of such termination or until the expiration of the
stated term of the Option, whichever period is shorter. Similarly, should a
Holder die while in the employment of the Company or a Subsidiary, his or her
legal representative or legatee under his or her will may exercise the portion
of the decedent Holder's Option that had vested by the time of death for a
period of twelve months from such death (or such other greater or lesser period
as the Administrator specifies at the time of grant) or until the expiration of
the stated term of the Option, whichever is shorter.
Stock Purchase Rights. The Administrator may grant Stock Purchase Rights
---------------------
in conjunction with any Option granted under the 1998 Plan. The Administrator
shall determine, in its sole discretion, the terms, provisions and conditions of
each Agreement under which Stock Purchase Rights may be granted. Unless
otherwise provided in the Agreement, the Company will have a repurchase option,
at a price equal to the original price paid by the purchaser, which is
exercisable upon the voluntary or involuntary termination of the purchaser's
service with the Company, including death or disability.
Withholding Taxes. Upon the exercise of any Award granted under the 1998
-----------------
Plan, the Administrator may allow, subject to the provisions of the 1998 Plan,
Holders to satisfy Federal, state and local withholding tax obligations by
electing to have the Company withhold from the shares of Common Stock to be
issued upon exercise of an Option or Stock Purchase Right that number of shares
which have a fair market value (determined on the last trading day before the
date the amount of tax to be withheld is determined) equal to the amount of the
withholding tax due under applicable Federal, state and local laws.
15
Terms and Amendments. Unless terminated by the Board, the 1998 Plan shall
--------------------
continue in effect for a term of 10 years. The Board may at any time, and from
time to time, amend, alter, suspend or terminate the 1998 Plan.
Federal Income Tax Consequences
The following discussion of the federal income tax consequences of
participation in the 1998 Plan is only a summary of the general rules applicable
to the grant and exercise of Options and does not give specific details or
cover, among other things, state, local and foreign tax treatment of
participation in the 1998 Plan. The information contained in this section is
based on present law and regulations, which are subject to being changed
prospectively or retroactively.
Incentive Options. The Participant will recognize no taxable income upon
-----------------
the grant or exercise of an Incentive Option. The Company will not qualify for
any deduction in connection with the grant or exercise of Incentive Options.
Upon a disposition of the shares after the later of two years from the date of
grant or one year after the transfer of the shares to the Participant, the
Participant will recognize the difference, if any, between the amount realized
and the exercise price as long-term capital gain or long-term capital loss (as
the case may be) if the shares are capital assets. The excess, if any, of the
fair market value of the shares on the date of exercise of an Incentive Option
over the exercise price will be treated as an item of tax preference for a
Participant's taxable year in which the exercise occurs and may result in an
alternative minimum tax liability for the Participant. The Participant will
recognize the excess, if any, of the amount realized over the fair market value
of the shares on the date of exercise, if the shares are capital assets, as
short-term or long-term capital gain, depending on the length of time that the
Participant held the shares, and the Company will not qualify for a deduction
with respect to such excess.
If Common Stock acquired upon the exercise of an Incentive Option is
disposed of prior to the expiration of the holding periods described above,
(i) the Participant will recognize ordinary compensation income in the taxable
year of disposition in an amount equal to the excess, if any, of the lesser of
the fair market value of the shares on the date of exercise or the amount
realized on the disposition of the shares, over the exercise price paid for such
shares; and (ii) the Company will qualify for a deduction equal to any such
amount recognized, subject to the limitation that the compensation be
reasonable. In the case of a disposition of shares in the same taxable year as
the exercise of the option, there will be no item of tax preference for
alternative minimum tax purposes.
Non-Statutory Stock Options. With respect to Non-Statutory Stock Options
---------------------------
(i) upon grant of the option, the Participant will recognize no income;
(ii) upon exercise of the option (if the shares of Common Stock are not subject
to a substantial risk of forfeiture), the Participant will recognize ordinary
compensation income in an amount equal to the excess, if any, of the fair market
value of the shares on the date of exercise over the exercise price, and the
Company will qualify for a deduction in the same amount, subject to the
requirement that the compensation be reasonable; and (iii) the Company will be
required to comply with applicable Federal income tax withholding requirements
with respect to the amount of ordinary compensation income recognized by the
Participant. On a disposition of the shares, the Participant will recognize gain
or loss equal to the difference between the amount realized and the sum of the
exercise price and the ordinary compensation income recognized. Such gain or
loss will be treated as capital gain or loss if the shares are capital assets
and as short-term or long-term capital gain or loss, depending upon the length
of time that the participant held the shares. If the shares acquired upon
exercise of a Non-Statutory Stock Option are subject to a substantial risk of
forfeiture, the Participant will recognize income at the time when the
substantial risk of forfeiture is removed and the Company will qualify for a
corresponding deduction at such time.
16
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ADOPTION OF THIS
PROPOSAL.
PROPOSAL FOUR:
RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
The Audit Committee of the Board of Directors has selected the firm of
Arthur Andersen LLP to serve as the Company's independent accountants for the
fiscal year ending December 31, 2001, subject to ratification by the
shareholders. Arthur Andersen LLP served as the Company's independent
accountants for the year ended December 31, 2000. A representative of Arthur
Andersen LLP is expected to be present at the meeting with an opportunity to
make a statement if such representative desires to do so and is expected to be
available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION OF THIS SELECTION.
AUDIT FEES. The aggregate fees the Company incurred with Arthur Andersen
LLP for the annual audit and for the review of the Company's Forms 10-Q for the
fiscal year 2000 totaled $89,000.
ALL OTHER FEES. The aggregate fees the Company incurred with Arthur
Andersen LLP for all other non-audit services, including fees for tax-related
services, during fiscal year 2000 totaled $139,936, which included fees for tax-
related employee benefits, and other accounting related services. The Audit
Committee has determined that the non-audit fees paid to Arthur Andersen LLP are
compatible with maintaining Arthur Andersen LLP's independence.
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors is responsible for assisting
the Board of Directors in fulfilling its responsibility to the stockholders
relating to corporate accounting, reporting practices and the quality and
integrity of the financial reports of the Company. Additionally, the Audit
Committee selects the auditors and reviews their independence and their annual
audit.
The Audit Committee is comprised of three directors, each of whom is
independent under the American Stock Exchange's listing standards. The Audit
Committee acts under a written charter adopted by the Board of Directors, a copy
of which is attached to this proxy statement as Appendix B. The Audit Committee
reviewed and discussed the annual financial statements with management and the
independent accountants. As part of this process, management represented to the
Audit Committee that the financial statements were prepared in accordance with
generally accepted accounting principles. The Audit Committee also received and
reviewed written disclosures and a letter from the accountants concerning their
independence as required by Independence Standard No. 1. The Audit Committee
discussed with the accountants the contents of such materials, the accountant's
independence and the additional matters required under Statement on Auditing
Standards No. 61. Based on such review and
17
discussions, the Audit Committee recommended that the Board of Directors include
the audited consolidated financial statements in the Company's Annual Report on
Form 10-K for the year ended December 31, 2000 for filing with the Securities
and Exchange Commission.
Audit Committee
Gary A. Jones
Jack Lahav
Paul M. Morris
SOLICITATION OF PROXIES
The solicitation of proxies in the enclosed form is made on behalf of the
Company and the cost of this solicitation is being paid by the Company. In
addition to the use of the mails, proxies may be solicited personally or by
telephone or telegraph using the services of directors, officers and regular
employees of the Company at nominal cost. Banks, brokerage firms and other
custodians, nominees and fiduciaries will be reimbursed by the Company for
expenses incurred in sending proxy material to beneficial owners of the
Company's stock.
SHAREHOLDER PROPOSALS AND NOMINATIONS
Proposals of shareholders intended to be presented at the annual meeting
for the fiscal year 2001 must be received at the Company's offices by
January __, 2002 for inclusion in the proxy materials relating to that meeting.
The Company's Bylaws provide that in order for a stockholder to make
nominations for the election of directors or proposals for business to be
brought before the annual meeting, a stockholder must give written notice of
such nominations and/or proposals to the Secretary not less than 90 days prior
to the date of the annual meeting. A copy of the Bylaws may be obtained from
the Company.
18
OTHER BUSINESS
Action may be taken on the business to be transacted at the meeting on the
date provided in the Notice of the Annual Meeting or any date or dates to which
an original or later adjournment of such meeting may be adjourned. As of the
date of this Proxy Statement, the management does not know of any other matters
to be presented at the Annual Meeting. If, however, other matters properly come
before the Annual Meeting, whether on the original date provided in the Notice
of Annual Meeting or any dates to which any original or later adjournment of
such meeting may be adjourned, it is intended that the holders of the proxy will
vote in accordance with their best judgment. Unless otherwise required, any
such matter properly coming before the Annual Meeting will be decided by a
majority of the votes cast with respect to such matter, with abstentions and
broker "non-votes" not considered as votes cast and, accordingly, having no
effect on the vote with respect to such matter.
By Order of the Board of Directors
Richard A. Maue
Secretary
Melville, New York
May __, 2001
19
Appendix A
ANDREA ELECTRONICS CORPORATION
1998 STOCK PLAN
1. PURPOSES OF THE PLAN. The purposes of this Stock Plan are: to attract
and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees, Directors and
Consultants, and to promote the success of the Company's business. Options
granted under the Plan may be Incentive Stock Options or Nonstatutory Stock
Options, as determined by the Administrator at the time of grant. Stock Purchase
Rights may also be granted under the Plan.
2. DEFINITIONS. As used herein, the following definitions shall apply:
a. "Administrator" means the Board or any of its Committees as shall be
administering the Plan, in accordance with Section 4 of the Plan.
b. "Applicable Laws" means the requirements relating to the administration
of stock option plans under U.S. state corporate laws, U.S. federal and
state securities laws, the Code, any stock exchange or quotation system
on which the Common Stock is listed or quoted and the applicable laws
of any foreign country or jurisdiction where Options or Stock Purchase
Rights are, or will be, granted under the Plan.
c. "Board" means the Board of Directors of the Company.
d. "Code" means the Internal Revenue Code of 1986, as amended.
e. "Committee" means a committee of Directors appointed by the Board in
accordance with Section 4 of the Plan.
f. "Common Stock" means the Common Stock of the Company.
g. "Company" means Andrea Electronics Corporation, a New York
corporation.
h. "Consultant" means any person, including an advisor, engaged by the
Company or a Parent or Subsidiary to render services and who is
compensated for such services.
i. "Director" means a member of the Board.
j. "Disability" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
k. "Employee" means any person, including Section 16(b) Officers and
Directors, employed by the Company or any Parent or Subsidiary of the
Company. A Service Provider shall not cease to be an Employee in the
case of (i) any leave of absence approved by the Company or
(ii) transfers between locations of the Company or between the Company,
its Parent, any Subsidiary, or any successor. For purposes of Incentive
Stock Options, no such leave may exceed ninety days, unless
reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence
approved by the Company is not so guaranteed, on the 181st day of such
leave any Incentive Stock Option held by the Optionee shall cease to be
treated as an Incentive Stock Option and shall be treated for tax
purposes as a Nonstatutory Stock Option. Neither service as a Director
nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
A-1
l. "Exchange Act" means the Securities Exchange Act of 1934, as amended.
m. "Fair Market Value" means, as of any date, the value of Common Stock
determined as follows:
(i) if the Common Stock is listed on any established stock exchange or
a national market system, including without limitation the Nasdaq
National Market or The Nasdaq Small Cap Market of The Nasdaq Stock
Market, its Fair Market Value shall be the closing sales price for such
stock (or the closing bid, if no sales were reported) as quoted on such
exchange or system for the last market trading day prior to the time of
determination, as reported in The Wall Street Journal or such other
source as the Administrator deems reliable;
(ii) if the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market
Value of a Share of Common Stock shall be the mean between the high bid
and low asked prices for the Common Stock on the last market trading
day prior to the day of determination, based on such source as the
Administrator deems reliable;
(iii) in the absence of an established market for the Common Stock, the
Fair Market Value shall be determined in good faith by the
Administrator.
n. "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code
and the regulations promulgated thereunder.
o. "Nonstatutory Stock Option" means an Option not intended to qualify as
an Incentive Stock Option.
p. "Notice of Grant" means a written or electronic notice evidencing
certain terms and conditions of an individual Option or Stock Purchase
Right grant. The Notice of Grant is part of the Option Agreement.
q. "Section 16(b) Officer" means a person who is an officer of the Company
within the meaning of Section 16(b) of the Exchange Act and the rules
and regulations promulgated thereunder.
r. "Option" means a stock option granted pursuant to the Plan.
s. "Option Agreement" means an agreement between the Company and an
Optionee evidencing the terms and conditions of an individual Option
grant. The Option Agreement is subject to the terms and conditions of
the Plan.
t. "Option Exchange Program" means a program whereby outstanding options
are surrendered in exchange for options with a lower exercise price.
u. "Optioned Stock" means the Common Stock subject to an Option or Stock
Purchase Right.
v. "Optionee" means the holder of an outstanding Option or Stock Purchase
Right granted under the Plan.
w. "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
x. "Plan" means this 1998 Stock Plan.
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y. "Restricted Stock" means shares of Common Stock acquired pursuant to a
grant of Stock Purchase Rights under Section 11 below.
z. "Restricted Stock Purchase Agreement" means a written agreement between
the Company and the Optionee evidencing the terms and restrictions
applying to stock purchased under a Stock Purchase Right. The
Restricted Stock Purchase Agreement is subject to the terms and
conditions of the Plan and the Notice of Grant.
aa. "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor to
Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
bb. "Section 16(b)" means Section 16(b) of the Securities Exchange Act of
1934, as amended.
cc. "Service Provider" means an Employee, Director or Consultant.
dd. "Share" means a share of the Common Stock, as adjusted in accordance
with Section 13 of the Plan.
ee. "Stock Purchase Right" means the right to purchase Common Stock
pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
ff. "Subsidiary" means a "subsidiary corporation", whether now or hereafter
existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 13 of the
Plan, the maximum aggregate number of Shares that may be optioned and sold under
the Plan is 3,675,000 Shares, plus any adjustments as provided for herein. If an
Option or Stock Purchase Right expires or becomes unexercisable without having
been exercised in full, or is surrendered pursuant to an Option Exchange
Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued under
the Plan, whether upon exercise of an Option or Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, such Shares shall become available for future
grant under the Plan.
4. ADMINISTRATION OF THE PLAN.
a. PROCEDURE.
(i) Multiple Administrative Bodies. The Plan may be administered by
different Committees with respect to different groups of Service Providers.
(ii) Section 162(m). To the extent that the Administrator
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify transactions
hereunder as exempt under Rule 16b-3, the Plan shall be administered by the
Board or a Committee of two or more "non-employee directors" within the meaning
of Rule 16b-3.
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(iv) Other Administration. Other than as provided above, the Plan
shall be administered by (A) the Board or (B) a Committee, which Committee shall
be constituted to satisfy Applicable Laws.
b. POWERS OF THE ADMINISTRATOR. Subject to the provisions of the Plan, and
in the case of a Committee, subject to the specific duties delegated by the
Board to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and Stock
Purchase Rights may be granted hereunder;
(iii) to determine the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any Option or Stock Purchase Right granted hereunder. Such
terms and conditions include, but are not limited to, the exercise price, the
time or times when Options or Stock Purchase Rights may be exercised (which may
be based on performance criteria), any vesting acceleration or waiver of
forfeiture restrictions, and any restriction or limitation regarding any Option
or Stock Purchase Right or the shares of Common Stock relating thereto, based in
each case on such factors as the Administrator, in its sole discretion, shall
determine;
(vi) to institute an Option Exchange Program;
(vii) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;
(viii) to prescribe, amend and rescind rules and regulations relating
to the Plan, including rules and regulations relating to subplans established
for the purpose of qualifying for preferred tax treatment under foreign tax
laws;
(ix) to modify or amend each Option or Stock Purchase Right
(subject to Section 15(c) of the Plan), including the discretionary authority to
extend the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;
(x) to allow Optionees to satisfy withholding tax obligations by
electing to have the Company withhold from the Shares to be issued upon exercise
of an Option or Stock Purchase Right that number of Shares having a Fair Market
Value equal to the amount required to be withheld. The Fair Market Value of the
Shares to be withheld shall be determined on the date that the amount of tax to
be withheld is to be determined. All elections by an Optionee to have Shares
withheld for this purpose shall be made in such form and under such conditions
as the Administrator may deem necessary or advisable;
(xi) to authorize any person to execute on behalf of the Company any
Instrument required to effect the grant of an Option or Stock Purchase Right
previously granted by the Administrator;
(xii) to make all other determinations deemed necessary or advisable
for administering the Plan.
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c. EFFECT OF ADMINISTRATOR'S DECISION. The Administrator's decisions,
determinations and interpretations shall be final and binding on all Optionees
and any other holders of Options or Stock Purchase Rights.
5. ELIGIBILITY. Nonstatutory Stock Options and Stock Purchase Rights may be
granted to Service Providers. Incentive Stock Options may be granted only to
Employees.
6. LIMITATIONS.
a. Each Option shall be designated in the Option Agreement as either an
Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding
such designation, to the extent that the aggregate Fair Market Value of the
Shares with respect to which Incentive Stock Options are exercisable for the
first time by the Optionee during any calendar year (under all plans of the
Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be
treated as Nonstatutory Stock Options. For purposes of this Section 6(a),
Incentive Stock Options shall be taken into account in the order in which they
were granted. The Fair Market Value of the Shares shall be determined as of the
time the Option with respect to such Shares is granted.
b. Neither the Plan nor any Option or Stock Purchase Right shall confer
upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere in
any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without cause.
c. The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal year of the
Company, Options to purchase more than 500,000 Shares.
(ii) The foregoing limitations shall be adjusted proportionately in
connection with any change in the Company's capitalization as described in
Section 13.
(iii) If an Option is canceled in the same fiscal year of the Company
in which it was granted (other than in connection with a transaction described
in Section 13), the canceled Option will be counted against the limits set forth
in subsections (i) and (ii) above. For this purpose, if the exercise price of an
Option is reduced, the transaction will be treated as a cancellation of the
Option and the grant of a new Option.
7. TERM OF PLAN. Subject to Section 19 of the Plan, the Plan shall become
effective upon its adoption by the Board. It shall continue in effect for a
term of ten (10) years unless terminated earlier under Section 15 of the Plan.
8. TERM OF OPTION. The term of each Option shall be stated in the Option
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Option Agreement. Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the term of the Incentive
Stock Option shall be five (5) years from the date of grant or such shorter term
as may be provided in the Option Agreement.
9. OPTION EXERCISE PRICE AND CONSIDERATION.
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a. EXERCISE PRICE. The per share exercise price for the Shares to be
issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option:
(A) granted to an Employee who, at the time the Incentive Stock
Option is granted, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the per Share exercise price shall be no less than 110% of the Fair Market Value
per Share on the date of grant;
(B) granted to any Employee other than an Employee described in
paragraph (A) immediately above, the per Share exercise price shall be no less
than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted with a per
Share exercise price of less than 100% of Fair Market Value on the date of grant
pursuant to a merger or other corporate transaction.
b. WAITING PERIOD AND EXERCISE DATES. At the time an Option is granted,
the Administrator shall fix the period within which the Option may be exercised
and shall determine any conditions which must be satisfied before the Option may
be exercised.
c. FORM OF CONSIDERATION. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six months
on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;
(v) consideration received by the Company under a formal cashless
exercise program adopted by the Company in connection with the Plan;
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;
(vii) any combination of the foregoing methods of payment; or
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(viii) such other consideration and method of payment for the issuance
of Shares to the extent permitted by Applicable Laws.
10. EXERCISE OF OPTIONS.
a. PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option granted
hereunder shall be exercisable according to the terms of the Plan and at such
times and under such conditions as determined by the Administrator and set forth
in the Option Agreement. Unless the Administrator provides otherwise, vesting of
Options granted hereunder shall be tolled during any unpaid leave of absence. An
Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives: (i) written
or electronic notice of exercise (in accordance with the Option Agreement) from
the person entitled to exercise the Option, and (ii) full payment for the Shares
with respect to which the Option is exercised. Full payment may consist of any
consideration and method of payment authorized by the Administrator and
permitted by the Option Agreement and the Plan. Shares issued upon exercise of
an Option shall be issued in the name of the Optionee or, if requested by the
Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the
books of the Company or of a duly authorized transfer agent of the Company), no
right to vote or receive dividends or any other rights as a shareholder shall
exist with respect to the Optioned Stock, notwithstanding the exercise of the
Option.
The Company shall issue (or cause to be issued) such Shares promptly after
the Option is exercised. No adjustment will be made for a dividend or other
right for which the record date is prior to the date the Shares are issued,
except as provided in Section 13 of the Plan.
Exercising an Option in any manner shall decrease the number of Shares
thereafter available, both for purposes of the Plan and for sale under the
Option, by the number of Shares as to which the Option is exercised.
b. TERMINATION OF RELATIONSHIP AS A SERVICE PROVIDER. If an Optionee
ceases to be a Service Provider, other than upon the Optionee's death or
Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that he or she is
entitled to exercise it on the date of termination (but in no event later than
the expiration of the term of such Option as set forth in the Option Agreement).
In the absence of a specified time in the Option Agreement, the Option
shall remain exercisable for three (3) months following the Optionee's
termination. If, on the date of termination, the Optionee is not entitled to
exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified by the
Administrator, the Option shall terminate, and the Shares covered by such Option
shall revert to the Plan.
c. DISABILITY OF OPTIONEE. If an Optionee ceases to be a Service Provider
as a result of the Optionee's Disability, the Optionee may exercise his or her
Option at any time within twelve (12) months from the date of termination, but
only to the extent that the Optionee is entitled to exercise it on the date of
termination (and in no event later than the expiration of the term of the Option
as set forth in the Option Agreement). If, on the date of termination, the
Optionee is not entitled to exercise his or her entire Option, the Shares
covered by the unexercisable portion of the Option shall revert to the Plan.
If,
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after termination, the Optionee does not exercise his or her Option within
the time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.
d. DEATH OF OPTIONEE. If an Optionee dies while a Service Provider, the
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the expiration of the term of such Option
as set forth in the Notice of Grant), by the Optionee's estate or by a person
who acquires the right to exercise the Option by bequest or inheritance, but
only to the extent that the Optionee would have been entitled to exercise the
Option on the date of death. If, at the time of death, the Optionee is not
entitled to exercise his or her entire Option, the Shares covered by the
unexercisable portion of the Option shall immediately revert to the Plan. The
Option may be exercised by the executor or administrator of the Optionee's
estate or, if none, by the person(s) entitled to exercise the Option under the
Optionee's will or the laws of descent or distribution. If the Option is not so
exercised within the time specified herein, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
e. BUYOUT PROVISIONS. The Administrator may at any time offer to buy out
for a payment in cash or Shares, an Option previously granted based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
11. STOCK PURCHASE RIGHTS.
a. RIGHTS TO PURCHASE. Stock Purchase Rights may be issued either alone,
in addition to, or in tandem with other awards granted under the Plan and/or
cash awards made outside of the Plan. After the Administrator determines that it
will offer Stock Purchase Rights under the Plan, it shall advise the offeree in
writing or electronically, by means of a Notice of Grant, of the terms,
conditions and restrictions related to the offer, including the number of Shares
that the offeree shall be entitled to purchase, the price to be paid, and the
time within which the offeree must accept such offer. The offer shall be
accepted by execution of a Restricted Stock Purchase Agreement in the form
determined by the Administrator.
b. REPURCHASE OPTION. Unless the Administrator determines otherwise, the
Restricted Stock Purchase Agreement shall grant the Company a repurchase option
exercisable upon the voluntary or involuntary termination of the purchaser's
service with the Company for any reason (including death or Disability). The
purchase price for Shares repurchased pursuant to the Restricted Stock Purchase
Agreement shall be the original price paid by the purchaser and may be paid by
cancellation of any indebtedness of the purchaser to the Company. The
repurchase option shall lapse at a rate determined by the Administrator.
c. OTHER PROVISIONS. The Restricted Stock Purchase Agreement shall
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.
d. RIGHTS AS A SHAREHOLDER. Once the Stock Purchase Right is exercised,
the purchaser shall have the rights equivalent to those of a shareholder, and
shall be a shareholder when his or her purchase is entered upon the records of
the duly authorized transfer agent of the Company. No adjustment will be made
for a dividend or other right for which the record date is prior to the date the
Stock Purchase Right is exercised, except as provided in Section 13 of the Plan.
12. NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS. Unless
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of
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descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee. If the Administrator makes an Option or Stock
Purchase Right transferable, such Option or Stock Purchase Right shall contain
such additional terms and conditions as the Administrator deems appropriate.
13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER OR
ASSET SALE.
a. CHANGES IN CAPITALIZATION. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares
of stock of any class, or securities convertible into shares of stock of any
class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an Option
or Stock Purchase Right.
b. DISSOLUTION OR LIQUIDATION. In the event of the proposed dissolution
or liquidation of the Company, the Administrator shall notify each Optionee as
soon as practicable prior to the effective date of such proposed transaction.
The Administrator in its discretion may provide for an Optionee to have the
right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse
as to all such Shares, provided the proposed dissolution or liquidation takes
place at the time and in the manner contemplated. To the extent it has not been
previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
c. MERGER OR ASSET SALE. In the event of a merger of the Company with or
into another corporation, or the sale of substantially all of the assets of the
Company, each outstanding Option and Stock Purchase Right shall be assumed or an
equivalent option or right substituted by the successor corporation or a Parent
or Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the Option or Stock Purchase
Right, the Optionee shall fully vest in and have the right to exercise the
Option or Stock Purchase Right as to all of the Optioned Stock, including Shares
as to which it would not otherwise be vested or exercisable. If an Option or
Stock Purchase Right becomes fully vested and exercisable in lieu of assumption
or substitution in the event of a merger or sale of assets, the Administrator
shall notify the Optionee in writing or electronically that the Option or Stock
Purchase Right shall be fully vested and exercisable for a period of fifteen
(15) days from the date of such notice, and the Option or Stock Purchase Right
shall terminate upon the expiration of such period. For the purposes of this
paragraph, the Option or Stock Purchase Right shall be considered assumed if,
following the merger or sale of assets, the option or right confers
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the right to purchase or receive, for each Share of Optioned Stock subject to
the Option or Stock Purchase Right immediately prior to the merger or sale of
assets, the consideration (whether stock, cash, or other securities or property)
received in the merger or sale of assets by holders of Common Stock for each
Share held on the effective date of the transaction (and if holders were offered
a choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding Shares); provided, however, that if such
consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option or Stock Purchase Right, for each Share
of Optioned Stock subject to the Option or Stock Purchase Right, to be solely
common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in the
merger or sale of assets.
14. DATE OF GRANT. The date of grant of an Option or Stock Purchase Right
shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall
be provided to each Optionee within a reasonable time after the date of such
grant.
15. AMENDMENT AND TERMINATION OF THE PLAN.
a. AMENDMENT AND TERMINATION. The Board may at any time amend, alter,
suspend or terminate the Plan.
b. SHAREHOLDER APPROVAL. The Company shall obtain shareholder approval of
any Plan amendment to the extent necessary and desirable to comply with
Applicable Laws.
c. EFFECT OF AMENDMENT OR TERMINATION. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
16. CONDITIONS UPON ISSUANCE OF SHARES.
a. LEGAL COMPLIANCE. Shares shall not be issued pursuant to the exercise
of an Option or Stock Purchase Right unless the exercise of such Option or Stock
Purchase Right and the issuance and delivery of such Shares shall comply with
Applicable Laws and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
b. INVESTMENT REPRESENTATIONS. As a condition to the exercise of an
Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.
17. INABILITY TO OBTAIN AUTHORITY. The inability of the Company to obtain
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
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18. RESERVATION OF SHARES. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
19. SHAREHOLDER APPROVAL. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
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APPENDIX B
Andrea Electronics Corporation (the "Company")
The Audit Committee Charter
The primary function of the Audit Committee is to assist the Company's Board of
Directors in fulfilling its oversight responsibilities by reviewing the systems
of internal controls that management and the Board of Directors have
established, the financial information that will be provided to the Company's
shareholders and others, and the overall audit process.
The Audit Committee shall have the power to conduct or authorize investigations
within the Committee's scope of responsibilities, as outlined below. The
Committee shall be empowered to retain independent counsel, accountants, or
others to assist in the conduct of any investigation.
The Committee shall meet at least four times per year or more frequently as
circumstances require. The Committee may ask members of management or others to
attend the meeting and provide pertinent information as necessary.
The Committee shall be comprised of at least three independent directors, one of
which shall be appointed as Chairman of the Committee by the Company's Chairman
of the Board of Directors. The membership of the Committee shall be renewed
annually by the Board of Directors.
The Committee will perform such other functions as assigned by law, the
Company's charter or bylaws, or the Board of Directors.
In meeting its responsibilities, the Audit Committee shall:
1. Inquire of management, the Chief Financial Officer, and the Independent
Public Accountants about significant risks or exposures and assess the
steps management has taken to minimize such risks to the Company.
2. With input from internal and external auditors, periodically discuss with
management the state of the Company's internal control system and
provide guidance and oversight as needed.
Consider and review with the Independent Public Accountants and the Chief
Financial Officer:
a. The adequacy of the Company's internal controls including computerized
information systems controls and information security;
b. Any related significant findings and recommendations of the Independent
Public Accountants together with management's responses thereto;
3. Review and evaluate the audit scope and plan of the Independent Public
Accountants.
4. Review with management, including the Chief Financial Officer, and the
Independent Public Accountants at the completion of the annual examination:
a. The Company's annual financial statements and related footnotes;
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b. The Independent Public Accountant's audit of the financial statements
and their report thereon;
c. Any significant changes required in the Independent Public Accountant's
audit plan;
d. Any difficulties or disputes with management encountered during the
course of the audit;
e. Other matters related to the conduct of the audit, which are to be
communicated to the Committee under generally accepted auditing
standards;
5. Review and discuss, without management or the outside auditors present, the
information disclosed to the audit committee described in 1 through 4,
above.
6. Review legal and regulatory matters that may have a material impact on the
financial statements, related Company compliance policies, and programs and
reports received from regulators.
7. Require presentations from management personnel on key functional
activities of the Company, including information technology, taxes,
treasury, environmental and legal matters.
8 . Review policies, procedures, and summary reports with respect to officers'
expense accounts and perquisites, including their use of corporate assets,
and consider the results of any review of these areas by the Independent
Public Accountants.
9. Review with the Independent Public Accountants the results of their review
of the Company's monitoring compliance with the Company's code of conduct.
10. Meet with the Chief Financial Officer, the Independent Public Accountants,
and management in separate executive sessions to discuss any matters that
the Audit Committee or these groups believe should be discussed privately
with the Audit Committee.
11. Review filings with the SEC and other published documents containing the
Company financial statements and consider whether the information contained
in these documents is consistent with the information contained in the
financial statements.
12. Confirm and assure the independence of the Independent Public Accountants
by reviewing evidence of such presented orally or in writing. Included in
this confirmation shall be a review and discussion of all outstanding job
arrangement letters and corresponding fees provided by the Independent
Public Accountants.
13. Review and update the Committee's charter with the Board of Directors
annually.
14. Recommend to the Board of Directors the Independent Public Accountants to
be nominated, approve the compensation of the Independent Public
Accountants, and review and approve the discharge of the Independent Public
Accountants should the need occur.
15. Provide an open avenue of communication between the Chief Financial
Officer, the Independent Public Accountants, and the Board of Directors.
16. Report Committee actions to the Board of Directors with such
recommendations, as the Committee may deem appropriate, including an
estimated timetable to complete such actions.
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ANDREA ELECTRONICS CORPORATION
Solicited By The Board Of Directors for Annual Meeting To Be Held on June 28,
2001.
PROXY
The undersigned Shareholder(s) of ANDREA ELECTRONICS CORPORATION, a New York
corporation ("Company"), hereby appoints John N. Andrea and Douglas J. Andrea,
or either of them, with full power of substitution and to act without the other,
as the agents, attorneys and proxies of the undersigned, to vote the shares
standing in the name of the undersigned at the Annual Meeting of Shareholders of
the Company to be held on June 28, 2001 and at all adjournments thereof. This
proxy will be voted in accordance with the instructions given below. If no
instructions are given, this proxy will be voted "FOR" all of the following
proposals.
1. To elect the following Directors: John N. Andrea.; Douglas J. Andrea;
Christopher P. Sauvigne; Gary A. Jones; Scott Koondel; Jack Lahav; John R.
Larkin; and Paul M. Morris.
FOR ( ) WITHHELD ( )
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
the nominee's name in the space provided)
2. To authorize an amendment to the Restated Certificate of Incorporation, as
amended, of the Company to increase the authorized shares of Common Stock to
70,000,000 shares from 35,000,000 shares.
FOR ( ) AGAINST ( ) ABSTAIN ( )
3. To approve and authorize an amendment to the Andrea Electronics Corporation
1998 Stock Plan, to increase the number of shares of common stock issuable
thereunder to 4,375,000 shares from 3,000,000 shares.
FOR ( ) AGAINST ( ) ABSTAIN ( )
4. To ratify the selection of Arthur Andersen LLP as the Company's independent
accountants for the year ending December 31, 2001.
FOR ( ) AGAINST ( ) ABSTAIN ( )
( ) I plan on attending the Annual Meeting.
Date , 2000
Signature
Signature if held jointly
Please sign exactly as name appears above. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.