<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
( x ) QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
OR
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to
________________
Commission file number 1-4324
-----
ANDREA ELECTRONICS CORPORATION
------------------------------------
(Exact name of registrant as specified in its charter)
New York 11-0482020
--------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
No.)
incorporation or organization)
11-40 45th Road, Long Island City, New York 11101
------------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
1-800-442-7787
--------------------------------------------------------------
(Registrant's telephone number, Including area code)
Indicate by check mark whether the registrant: (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the
past 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date. 3,016,360.
Page 1 of 31 Pages
Exhibit Index on Page 10
<PAGE>
PART I---FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
ANDREA ELECTRONICS CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION> ASSETS
June 30, 1995 December 31,1994
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $2,338,160 $3,313,043
Investment securities 89,125 89,125
Accounts receivable - trade, net of
allowance for doubtful accounts of
$2,183 and $69,771, respectively 1,133,082 569,505
Inventories 397,198 267,903
Prepaid expense and other current 223,263 123,219
receivables
Total current assets 4,180,828 4,362,795
Property, plant and equipment - net of
accumulated depreciation
of $789,889 and $726,750, respectively 663,246 652,635
Other assets 1,151 1,151
Total assets $ 4,845,225 $ 5,016,581
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 54,038 $ 135,459
Salaries and wages 125,688 84,000
Other current liabilities 63,618 52,213
Total current liabilities 243,344 271,672
Other liabilities 49,943 55,544
Total Liabilities 293,287 327,216
Shareholders equity
Capital stock - common - $.50 par value
Shares authorized - 10,000,000
Shares outstanding: 1995 - 3,016,360
1994 - 3,016,360 1,508,180 1,508,180
Additional paid-in capital 4,126,012 4,126,012
Retained earnings (accumulated deficit) (1,082,254) (944,827)
Total shareholders equity 4,551,938 4,689,365
Total liabilities and shareholders equity $ 4,845,225 $ 5,016,581
</TABLE> Page 2 of 31 Pages
<PAGE>
<TABLE> ANDREA ELECTRONICS CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
For the For the
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Sales $1,374,323 $ 921,834 $2,660,951 $1,569,300
Cost of sales 745,807 463,816 1,417,793 1,161,049
Gross profit (loss) 628,516 458,018 1,243,158 408,251
Research and development 363,060 292,730 862,461 409,822
General, administrative and selling
expenses 428,274 421,450 794,323 1,202,816
Operating income (loss) (162,818) (256,162) (413,626) (1,204,387)
Other income (expense)
Interest income 40,052 1,684 106,934 10,645
Interest (expense) (936) (2,125) (2,006) (4,622)
Rent & miscellaneous 125,071 79,735 171,271 127,654
164,187 79,294 276,199 133,677
Earnings (loss) before provision
(credit) for corporate income tax 1,369 (176,868) (137,427) (1,070,710)
Income tax provision -- --
-- --
Net earnings (loss) $ 1,369 $ (176,868) $ (137,427) $(1,070,710)
Net earnings (loss) per common and
common equivalent share $ -0- $ (.07) $ (.05) $ (.42)
Weighted average number of shares
outstanding 3,016,360 2,547,953 3,016,360 2,544,675
</TABLE>
Certain line items have been reclassified for presentation purposes only.
Page 3 of 31 Pages
<PAGE>
<TABLE> ANDREA ELECTRONICS CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)<CAPTION> For the Six Months Ended
June 30,
<CAPTION>
1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $ (137,427) $(1,070,710)
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization 63,139 63,179
(Increase) decrease in:
Accounts receivable (563,577) 593,602
Inventories (129,295) 94,296
Other current assets (100,044) (4,200)
Increase (decrease) in:
Accounts payable (81,422) (162,294)
Other current liabilities 57,090 (5,568)
(891,536) (491,695)
CASH FLOWS FROM INVESTING ACTIVITIES
Sales (Purchase) of investment securities -- 101,608
(Acquisition) of property, plant and equipment (73,750) (22,923)
(73,750) 78,685
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of Corporate Common Stock -- 1,964,950
(Payments) Acquisition of capital lease obligations (9,597) (24,056)
(9,597) 1,940,894
Net increase (decrease) in cash and cash equivalents (974,883) 1,527,884
Cash and cash equivalents - beginning 3,313,043 524,961
Cash and cash equivalents - end $ 2,338,160 $ 2,052,845
Supplemental disclosures
Cash paid:
Interest $ 936 $ 2,125
Income Taxes $ -- $ 31,585
</TABLE> Page 4 of 31 Pages
<PAGE>
<TABLE> ANDREA ELECTRONICS CORPORATION
STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<CAPTION>
Additional Retained Total
Shares Common Paid-In Earnings Shareholders'
Outstanding Stock Capital (Deficit) Equity
<S> <C> <C> <C> <C> <C>
3,016,360 $ 1,508,180 $ 4,126,012 $ (944,827) $ 4,689,365
Balance at
December 31, 1994
Net loss - (137,427) (137,427)
(unaudited) - -
Balance at June
30, 1995 3,016,360 $ 1,508,180 $ 4,126,012 $ (1,082,254) $ 4,551,938
(unaudited)
</TABLE>
Page 5 of 31 Pages
<PAGE>
Notes to Financial Statements
------------------------
1. In the opinion of the management of Andrea Electronics Corporation, the
accompanying unaudited financial statements contain all adjustments necessary
to present fairly Andrea Electronics Corporation's financial position as of
June 30, 1995 and the results of operations for the three and six months
ended June 30, 1995 and 1994 and cash flows for the six months ended June 30,
1995 and 1994. Additionally, it should be noted that
the accompanying financial statements do not purport to be a complete
disclosure in conformity with generally accepted accounting principles.
These statements should be read in conjunction with the Company's audited
financial statements for the fiscal year ended December 31, 1994.
2. On December 3, 1990, a complaint was filed by Charles Johnson
("Plaintiff") in the Suffolk County Supreme Court ("Court") alleging
wrongful discharge by the Company in violation of his employment
agreement. The complaint seeks damages relating to loss of salary, past
bonuses, lost commissions, unused sick pay, and a reimbursement of
a bank loan. In August, 1992, the Plaintiff moved for partial summary
judgment on three causes of action. On January 28, 1993, his motion was
granted with respect to two causes of action pursuant to which Plaintiff
sought damages in the approximate amount of $186,000. The Court, however, in
granting Plaintiff's motion, did not make a determination as to the amount of
damages and directed that a trial be held on the issue of damages. The
Company has commenced appropriate proceedings to appeal the Court's order and
the Company intends to continue to vigorously contest Plaintiff's claims.
Resolution of these claims is not expected to occur quickly and their
ultimate outcome cannot presently be predicted. In any event, it is the
opinion of management that any liability of the Company for claims or
proceedings will not materially affect its financial position.
3. In December 1994, a subpoena duces tecum was issued to the Company by
the United States Department of Defense, Office of the Inspector
General, seeking certain documents pertaining to contracts relating to
audio frequency amplifiers. Documents responding to the subpoena were
delivered by the Company in the first quarter of 1995 and to date no
claim has been made or threatened against the Company in connection with
this matter. The Company is unable to determine at this point if any
such claim will be made or to what extent, if any, such claim could
have on the financial position of the Company. Sales of this product to
various government agencies totalled approximately $1,500,000 for the past
three years.
Page 6 of 31 Pages
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
The Company experienced a significant improvement in sales during the
three months ended June 30, 1995 (the "1995 Second Quarter") and the six
months ended June 30, 1995 (the "1995 First Half") compared to the three
months ended June 30, 1994 (the "1994 Second Quarter") and the six months
ended June 30, 1994 (the "1994 First Half"), respectively. This increase in
sales, together with a cost-cutting and operating efficiency improvement
program that was initiated during the 1994 First Half, has allowed the
Company to substantially reduce its operating loss.
During the 1995 Second Quarter and the 1995 First Half, the Company has
continued to increase its expenditures on research and development,
reflecting the Company s commitment to its patented Anti-Noise(Trademark)
technology. In June 1995, the Company executed a non-obligatory procurement
agreement with International Business Machines Corporation ("IBM") for Andrea
Anti-Noise(Trademark) Active Noise Cancellation products
for the personal computer market (the "IBM/Andrea Procurement Agreement").
This agreement contains a non-obligatory, two-year procurement schedule for
approximately $14 million of Andrea Anti-Noise(Trademark) headsets. The term
of the agreement is for two years and grants IBM certain exclusive
worldwide rights to market, sell, distribute and support Andrea Anti-
Noise(Trademark) products in the personal computer market. The Company has
retained under the IBM/Andrea Procurement Agreement the right to distribute
these products under the Company's label to the retail market for personal
computers. While the Company has began to deliver products to IBM under
the Agreement during the 1995 Second Quarter, sales of the Company s Anti-
Noise(Trademark) products represented an insignificant contribution to the
Company s sales for that quarter.
During the 1995 Second Quarter, the Company also announced that it had
formed a strategic alliance with the David Clark Company, a leading
manufacturer and distributor of noise-attentuating aviation headsets sold
worldwide. The purpose of the alliance is to jointly develop active noise
reduction headsets for David Clark s noise attentuating line of headsets.
While the Company experienced an increase in sales of some of its
traditional military products during the 1995 First Half, the Company expects
long-term sales of its military products to decline as a result of the
substantial decrease in military appropriations in the United States and the
highly competitive nature of the military supply industry.
The interim results of operations of the Company presented in this
report are not necessarily indicative of the sales or results of operations
for the full year.
RESULTS OF OPERATIONS
Sales
Sales for the 1995 Second Quarter increased 49.1% to $1,374,323 from
$921,834 for the 1994 Second Quarter. Sales for the 1995 First Half
increased 69.6% to $2,660,951 from $1,569,300 for the 1994 First Half. These
increases reflected growth in sales of the Company's traditional products to
both the military market and the industrial/commercial market.
The increase in sales to the military market has been contrary to the
downward trend in the Company's sales to this market in recent years due to
decreases in military appropriations by the U.S. government. Management does
not believe that the increase during the 1995 First Half in sales to the
military market reflects a reversal of this trend. The Company's sales
to the industrial/commercial market grew at a slightly higher rate than sales
to the military market during the 1995 First Half. As a result, sales to the
industrial/commercial market as a percentage of total sales increased from
70.4% during the 1994 First Half to 71.8% during the 1995 First Half. During
the 1995 Second Quarter, the Company began shipments of
its Andrea Anti-Noise(Trademark) headsets. While sales of these new products
have not to date been significant, the Company expects such sales,
including, without limitation, sales to IBM under the IBM/Andrea Procurement
Agreement to increase. No assurance can be given, however, that sales of
these new products will increase.
Cost of Sales
Cost of sales as a percentage of sales for the 1995 Second Quarter
increased to 54.3% from 50.3% for the 1994
Page 7 of 31 Pages
<PAGE>
Second Quarter. Cost of sales as a percentage of sales for the 1995 First
Half decreased to 53.3% from 74.0% for the 1994 First Half. The sharp
decline in cost of sales as a percentage of sales since the 1994 First Half
reflects the results of a cost-cutting and operating efficiency improvement
program implemented by the Company at the end of the first quarter of 1994.
The increase in cost of sales as a percentage of sales for the 1995 Second
Quarter compared to the 1994 Second Quarter reflects the addition of
personnel during the 1995 Second Quarter in anticipation of increasing sales
of the Company's Andrea Anti-Noise/TM/ products.
Research and Development
Research and development expenses for the 1995 Second Quarter increased
24.0% to $363,060 from $292,730 for the 1994 Second Quarter. Research and
development expenses for the 1995 First Half increased 110.4% to $862,461
from $409,822 for the 1994 First Half. Upon the commencement of sales of the
first of the Company's Active Noise Cancellation products during the 1995
Second Quarter, research and development as a percentage of sales for the
1995 Second Quarter decreased to 26.4%, compared to 31.8% for the 1994 Second
Quarter. Management believes this relative decrease is temporary and that
research and development expenses will increase in both absolute terms and
relative terms as the Company seeks to develop further its Active
Noise Cancellation technology.
General, Administrative and Selling Expenses
General, administrative and selling expenses for the 1995 Second Quarter
increased 1.6% to $428,274 from $421,450 for the 1994 Second Quarter.
General, administrative and selling expenses for the 1995 First Half
decreased 34.0% to $794,323 from $1,202,816 for the 1994 First Half. These
amounts reflect the implementation of the cost-cutting and operating
efficiency program implemented by the Company at the end of the first quarter
of 1994. As the Company expands its endeavors to increase the sales of its
Active Noise Cancellation products, Management expects that the expenses
associated with such endeavors will cause general, administrative and selling
expenses to increase. No assurance can be given
that such increased sales will result.
Operating Income
Operating loss for the 1995 Second Quarter decreased 36.4% to $162,818
from $256,162 for the 1994 Second Quarter. Operating loss for the 1995 First
Half decreased 65.7% to $413,626 from $1,204,387 for the 1994 First Half.
These declines in operating loss reflect the increase in sales during 1995
and the favorable result from the Company's cost-cutting and
operating efficiency program implemented at the end of the first quarter in
1994.
Other Income
Other income for the 1995 Second Quarter increased 107.1% to $164,187
from $79,294 for the 1994 Second Quarter. Other income for the 1995 First
Half increased 106.6% to $276,199 from $133,677 for the 1994 First Half.
These increases were due to interest income on the cash received by the
Company from two private offerings of its Common Stock during the summer of
1994 and the receipt of approximately $37,500 in product development revenues
from a third party during the first quarter of 1995.
Net earnings (loss)
Net earnings for the 1995 Second Quarter were $1,369, compared to a net
loss of $176,868 for the 1994 Second Quarter. Net loss for the 1995 First
Half was $137,426, compared to a net loss of $1,070,710 for the 1994 First
Half. The break-even status of the Company for the 1995 Second Quarter, as
well as the substantial decline in net loss for the 1995 First Half,
resulted from the significant decline in operating loss and increase in other
income described above.
LIQUIDITY AND CAPITAL RESOURCES
Working capital (current assets less current liabilities) at June 30,
1995 was $3,937,484, compared to $4,091,123 at December 31, 1994. Total
current assets declined during the 1995 First Half by $181,967, reflecting a
decrease in cash of $974,883 that was partially offset by an increase in
accounts receivable of $563,577 and an increase in inventories of
Page 8of 31 Pages
<PAGE>
$129,295. The decrease in cash resulted primarily from the significant
increase in research and development expenses. These expenses are comprised
largely of labor costs incurred by engineering and technical professionals as
well as special molds, designs and tooling costs.
Management believes that the Company s financial condition is adequate
to support the Company s current level of operations, including research and
development during the second half of 1995 at a level similar to that
undertaken during the 1995 First Half. The Company believes, however, that
in the foreseeable future it will have an opportunity to increase in sales of
its Anti-Noise(Trademark) products and technology, including, without
limitation, sales to IBM under the IBM/Andrea Procurement Agreement. The
Company commenced commercial deliveries of its Anti-Noise(Trademark) products
during the 1995 Second Quarter. In the event that demand for the Company's
Anti-Noise(Trademark) products does increase, the Company will
need additional working capital to exploit this opportunity. The Company,
therefore, has been investigating several alternative financing arrangements,
but has not yet decided upon pursuing any one or more of such
alternatives. No assurance can be given that demand will increase for any of
the Company's products or, that if such demand does increase, that the
Company will be able to obtain the required working capital to increase
production to meet such demand.
Page 9 of 31 Pages
<PAGE>
PART II---OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At the annual meeting of shareholders of the Company on June 19, 1995
the shareholders were asked to vote on the following two proposals: Proposal
One to elect Frank A.D. Andrea, Jr.; Douglas J. Andrea; John N. Andrea;
Christopher Dorney; George Feinman; Scott Koondel; Paul M. Morris; and
Patrick D. Pilch as directors of the Company; and Proposal Two to approve and
authorize an increase in the number of shares subject to the Company's 1991
Performance Equity Plan.
<TABLE>
<CAPTION> Matter For Against or Withheld Absentions Broker Nonvotes
<S> <C> <C> <C> <C>
Proposal One:
Election
of Directors
Frank A.D. Andrea, Jr. 2,822,653 39,714 153,993 -0-
Douglas J. Andrea 2,820,173 42,194 153,993 -0-
John N. Andrea 2,820,153 42,214 153,993 -0-
Christopher Dorney 2,823,373 38,994 153,993 -0-
George Feinman 2,823,373 39,094 153,893 -0-
Scott Koondel 2,821,053 41,314 153,993 -0-
Paul M. Morris 2,823,371 38,996 153,993 -0-
Patrick D. Pilch 2,821,373 40,994 153,993 -0-
</TABLE>
The annual meeting was adjourned to September 8, 1995, at which time Proposal
Two will be submitted to a vote of the shareholders.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit Page Number
Number Description of this Report
----- --------- -----------
10.1 Procurement Agreement, dated June 16, 1995, by and between 12
International Business Machines Corporation and the Company.
11 Computation of Fully Diluted Earnings Per Common Share 31
(b) Reports on Form 8-K.
On May 5, 1995, the Company filed a report on Form 8-K to report
that, on May 4, 1995, the Company dismissed Raich Ende Malter Lerner & Co. as
its independent accountants and subsequently engaged Arthur Andersen LLP
as its new independent accountants for its fiscal year ending December 31,
1995.
Page 10 of 31 Pages
<PAGE>
SIGNATURES
In accordance with the requirements of Section 13 and 15(d) of the
Exchange Act, the Registrant caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
ANDREA ELECTRONICS CORPORATION
/s/ Frank A.D. Andrea, Jr. Chairman of the Board August 11, 1995
------------------------ and Chief Executive Officer
Frank A.D. Andrea, Jr.
/s/ Patrick D. Pilch Executive Vice President, August 11, 1995
-------------------- and Chief Financial Officer
Patrick D. Pilch
Page 11 of 31 Pages
<PAGE>
Exhibit 10.1
PROCUREMENT AGREEMENT
(AGREEMENT NUMBER PCC950121)
This is a Procurement Agreement ("Agreement"), number PCC950121, dated as of
June 16th, 1995, by and between International Business Machines Corporation,
a New York corporation ("IBM"), with an address for purposes of this
agreement at 3039 Cornwallis Road, Research Triangle, NC 27709 and Andrea
Electronics Corporation, a New York corporation ("Andrea"), with an address
for purposes of this Agreement at 11-40 45th Road, Long Island City, New York
11101. This Agreement is not a commitment by IBM to market or purchase
Andrea products, nor a restriction on IBM's ability to develop and/or
purchase the same or similar products from other vendors.
The parties agree as follows:
1.0 RELATIONSHIP
IBM and Andrea enter into this Agreement, respectively as buyer and
seller, with the goal of having a long term business relationship with
the mutual goal of: attaining continuous quality improvement,
shortening material lead times, improving manufacturing volume
flexibility, improving material inventory management and maintaining a
lead in Product price competitiveness.
2.0 DEFINITIONS
The singular and plural uses of the capitalized terms listed below will
have the following meanings in this Agreement.
2.2 "Days" shall mean calendar days.
2.3 "Delivery", "Delivered" shall mean delivery of Product(s) to IBM at
IBM's facility in (CONFIDENTIAL TREATMENT), and/or such other locations
as may be designated in IBM's Purchase Orders. F.O.B. point shall be
IBM's facility. Risk of loss and title to Product(s) shall pass to IBM
upon Delivery.
2.4 "Documentation" shall mean written materials or graphic files
(including but not limited to user manuals, promotional brochures,
materials useful for design such as Product functional specifications)
that are displayed or printed which relate to and support Product(s) as
specified in Attachment A1. Documentation shall include any
Maintenance Modifications and Enhancements to Documentation.
2.5 "Effective Date" shall mean the date of this Agreement as set forth
above.
2.6 "End User" shall mean a party who acquires Product(s) for its own
use, and not for resale.
2.7 "Field Replaceable Unit(s)", "FRU's" shall mean field replaceable
unit(s) (including the entire Product or portions/components thereof)
Page 12 of 31 Pages
<PAGE>
of the Product(s).
2.8 "Latent Defect" shall mean a defect that adversely affects the
performance of the Product(s) which is not readily evident upon visual
inspection and does not surface as a result of the normal testing
program(s), but rather becomes apparent by the function of the
Product(s) and is determined to have been present at the time of
Delivery.
2.9 "Maintenance Modifications" shall mean any modifications or
revisions, other than Enhancements, to the Product(s) that correct
Latent Defects and/or Patent Defects, or other corrections to the
Product(s).
2.10 "Patent Defect" shall mean a defect in the Product(s) which is
readily evident upon visual inspection and/or surfaces as a result of normal
testing program(s) within the warranty period specified in Subsection 10.2.
2.11 "Section," "Subsection," "Appendix" or "Attachment" shall mean,
respectively, a section, subsection, appendix or an attachment, of or to
this Agreement.
2.12 "Subsidiary" means a corporation, company or other entity:
a. more than fifty percent (50%) of whose outstanding shares or
securities (representing the right to vote for the election of directors
or other managing authority) are; or
b. which does not have outstanding shares or securities, as may be the
case in a partnership, joint venture or unincorporated association, but more
than fifty (50%) of the ownership interest representing the right to make the
decisions for such corporation, company or other entity is;
now or hereafter owned or controlled, directly or indirectly, by a Party
hereto, but such corporation, company or entity shall be deemed to be a
Subsidiary only so long as such ownership or control exists.
3.0 PRODUCT
Andrea shall provide IBM with materials, products, components,
Documentation and FRU's ("Product(s)") and/or related services
according to IBM product, functional, quality and packaging
specifications made part of this Agreement as Attachment A1.
Additional Products may be added to this Agreement by amending the Agreement
to include additional Attachments (i.e., A2, A3,...).
---
4.0 EXCLUSIVITY
IBM desires certain exclusive marketing rights with respect to Andrea
Microphone Products, and Andrea is willing to grant exclusive marketing
rights under the terms set forth below.
Page 13 of 31 Pages
<PAGE>
4.1 EXCLUSIVE MARKETING RIGHTS:
Subject to the provisions of Sections 4.2, 4.3 and 4.5 below, during the
period of exclusivity and extensions thereof, Andrea hereby grants IBM
the exclusive worldwide right to market, sell, distribute, and support
the Andrea Microphone Products on and in conjunction with personal
computer products as that term is commonly understood in the industry.
Personal computer products include but are not limited to handheld,
mobile and desktop personal computers, and personal computer peripherals
and components, and personal computer application software and operating
systems.
For purposes of this Section 4.0, EXCLUSIVITY, "Andrea Microphone
Product(s)" shall mean i) any microphone manufactured by or for Andrea
or any microphone utilizing Andrea technology, ii) the additions and
modifications made to such microphones or technology, and iii) any
follow-on generation(s) of Andrea microphones and microphone
technology. "IBM Products" shall mean offerings by IBM or an IBM Subsidiary
to customers which include the Andrea Microphone Product(s).
Notwithstanding anything to the contrary in this Agreement, IBM grants
Andrea the following exception to the exclusive marketing rights
provided for hereunder: Andrea, either itself or through its
distributors, may distribute the Product directly, on a stand-alone
basis (i.e., not integrated or "bundled" with other components or
offerings), only to retail stores for retail sales. Retail stores are
those that receive a majority of their revenue from retail operations.
Examples of such stores include, but are not limited to, office product
superstores, computer product superstores, department stores and electronic
stores.
4.2 EXCLUSIVITY TERM:
The period during which the rights granted to IBM in Section 4.1 shall
be exclusive shall begin upon the Effective Date of this Agreement and
shall continue for so long during the term of this Agreement as IBM
purchases from Andrea by the end of each of the (CONFIDENTIAL TREATMENT)
periods specified below the cumulative volume of Products as set forth
opposite such period.
Months following the Effective Date Cumulative Quantities
----------------------------- -----------------
(CONFIDENTIAL TREATMENT)
Page 14 of 31 Pages
<PAGE>
In the event Product is ordered but not delivered, the exclusivity
period shall be extended until such delivery occurs.
In the event IBM agrees to further license Andrea microphone technology,
the Parties agree to negotiate in good faith the terms for purposes of
this exclusivity provision.
4.2.1 Verification:
Andrea shall maintain records to substantiate IBM purchases of the
Product(s). IBM shall have the right, by written notification, to audit
such Andrea records.
4.3 EXCLUSIVITY RIGHTS:
If IBM's cumulative volume of purchases of Products during the first
(CONFIDENTIAL TREATMENT) months following the Effective Date of this
Agreement equals or exceeds the cumulative quantity set forth in the
table in Section 4.2 for such period, Andrea agrees to negotiate in good
faith with IBM as to an extension of this Agreement which such
negotiations shall cover, but not be limited to, terms and conditions
set forth in this Agreement, and which such extension shall not take
effect unless the cumulative volume of purchases of Products during the
twenty-four (24) months following the Effective Date of this Agreement equals
or exceeds the cumulative quantity set forth in the table in Section
4.2 for such period.
4.4 MARKETING ASSISTANCE FROM ANDREA:
During the period of exclusivity set forth herein and in support of
IBM's marketing of IBM Products, Andrea will provide to IBM the
following marketing assistance:
4.4.1 Review of materials:
Andrea shall promptly and upon IBM's request, review and comment on any
IBM press release or marketing materials and provide IBM with changes
necessary to achieve accuracy as to any reference to the Product prior to
IBM's announcement of the IBM Products. After IBM's announcement, Andrea
shall make press releases which relate to IBM, IBM Products, or this
Agreement only with the prior review and approval of IBM's media relations
department, which review shall be made promptly following the submission to
IBM of any such approval request and which approval shall not be
unreasonably withheld.
4.4.2 Demonstrations:
Andrea shall participate, upon IBM's request and at reasonable times and
places, and upon reasonable notice in demonstrations of the IBM Products
at trade shows, conference, and sales meetings (up to (CONFIDENTIAL
TREATMENT) per year).
4.4.3 Sales calls:
Andrea shall participate, upon IBM's request and at reasonable times and
places, in executive sales calls with IBM marketing
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representatives on IBM's large prospects and major distributors (up to
(CONFIDENTIAL TREATMENT) per year).
4.5 EXCLUSIVITY TERMINATION:
IBM's exclusive marketing rights shall terminate and become non-
exclusive:
4.5.1 during the term of this Agreement if, at the end of a period
specified in Section 4.2 hereof, the cumulative volume of Products
purchased by IBM during such specified period is less than the
cumulative volume of Products required to have been purchased by IBM
during such period.
4.5.2 with respect to a specific Product, (CONFIDENTIAL TREATMENT)
following general availability of a product with similar features and
functions offered for sale by a party unrelated to Andrea, with IBM's
written consent.
4.6 NO GUARANTEE OF MARKETING SUCCESS:
Andrea acknowledges that the personal computer industry is subject to
rapid change and that successful marketing of personal computer products
depends on many factors and cannot be guaranteed by IBM.
4.6.1 No representations:
IBM makes not representations, warranties or promises, express or
implied, as to the success of its marketing efforts pursuant to this
Agreement or with respect to the achievement of the volumes specified in
Section 4.2.
4.6.2 Freedom to market:
IBM shall have full freedom and flexibility in the design and
implementation of its marketing for IBM Products including, but not
limited to, the decision of whether to market or discontinue marketing
any particular IBM Product, the selection of marketing channels, the
timing and sequence of IBM Product announcements and roll-out programs,
the determination of pricing strategy, and the offering of IBM Products in
connection with any computer hardware equipment. Notwithstanding anything to
the contrary in this Section 4.6.2, FREEDOM TO MARKET hereof, IBM agrees
to announce and make available Product(s) within (CONFIDENTIAL TREATMENT) of
IBM's Acceptance of such product under this Agreement, as such term is
defined in Section 7.4. For the purpose of this Section, IBM's obligation to
"announce" and
"make available" shall be satisfied by any of IBM's then existing
marketing programs such as General Availability, special bids, and
request for price quotations (RPQ). IBM shall provide Andrea written
notice of such announcement and availability. If IBM fails to announce
and make available any such Products within such (CONFIDENTIAL
TREATMENT) period, Andrea shall provide IBM written notice of such failure.
Promptly after the receipt of such notice, IBM shall provide Andrea with
IBM's plan to announce and make available such Product within (Confidential
Treatment) of IBM's receipt of such notice. If IBM fails to announce
and make available such Product within such additional (CONFIDENTIAL
TREATMENT) period, IBM's marketing rights to such Product, and only such
Product, shall become non-exclusive. This Subsection 4.6.2 sets
forth IBM's entire
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obligation to announce and make available Products, and Andrea's sole
and exclusive remedy for IBM's failure to announce and make available
such Products.
5.0 PURCHASE ORDERS
An IBM issued purchase order ("Purchase Order"), in either written or
electronic form, is the only document that provides authorization to
Andrea to perform any work or produce any Products under this Agreement.
Only Purchase Orders which specifically reference this Agreement shall
be valid. IBM procurement personnel have the sole authority to issue
Purchase Orders or direct work activity under the terms and conditions
of this Agreement.
5.1 Purchase Order Cancellation/Re-Schedule/Modification.
IBM may cancel a Purchase Order, reschedule and order for delivery or
change the place and/or manner of delivery without charge to IBM as long
as any such change occurs within the appropriate lead time and
flexibility limits (if any) specified in an Attachment. If Purchase
Orders are cancelled, inside of the lead time and/or above the
flexibility limits and are not rescheduled by IBM, Andrea will make
every reasonable effort to minimize liability to IBM. For that
liability remaining, the parties will negotiate in good faith an
appropriate cancellation charge. In no event shall the cancellation
charge for a particular Purchase Order exceed (CONFIDENTIAL
TREATMENT).
6.0 DELIVERY
6.1 Delivery Requirements.
IBM will require Andrea to participate in Just-In-Time, Line-Side-
Stocking and/or other delivery arrangement for any Product as may be
specified in the Attachment relating to such Product. Upon
specification of such terms and conditions by IBM in any Attachment,
those terms and conditions shall become part of this Agreement.
6.2 On-Time Delivery.
Andrea agrees to provide to IBM Products in accordance with the delivery
requirements specified in a Purchase Order. If Andrea cannot meet a
scheduled delivery date, Andrea shall promptly notify IBM of Andrea's
revised delivery date and IBM may, at its option (i) cancel Products not
delivered without charge and/or (ii) buy elsewhere and charge Andrea any
cost differential, and/or (iii) charge Andrea for any
premium costs (including, without limitation, shipping and handling costs)
incurred as a result of the late delivery and/or (iv) exercise all other
remedies provided at law, in equity or in this Agreement.
6.3 Field Replacement Units.
During the term of this Agreement and for a period of
(CONFIDENTIAL TREATMENT) thereafter, for each Product ordered by
IBM under this Agreement Andrea shall maintain the capability
to supply Field Replacement Units ("FRU's") packaged to
IBM's specifications and at Andrea's expense in
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volumes (based on Andrea's quality performance) to be agreed to from
time to time between the parties. The initial quantity of FRU's shall
be (CONFIDENTIAL TREATMENT) of the units estimated to be delivered
during the first year of this Agreement.
7.0 PRICING AND PAYMENT:
7.1 Prices.
Prices specified by Andrea to IBM shall be inclusive to the point of
delivery. All prices shall be specified in US dollars.
7.2 Most Favored Customer.
The prices provided by Andrea to IBM will not exceed those offered to
other customers purchasing similar products or services in like or
lesser volumes. If Andrea offers prices to a third party which are
lower than those offered to IBM in like or lesser volumes, then those
prices shall become available to IBM at the time of their availability
to that third party. The parties agree that an independent auditor,
acceptable to both IBM and Andrea, may audit Andrea records to confirm that
IBM is receiving pricing equal or better than that offered by Andrea to other
customers. If the audit determines that Andrea pricing should be reduced,
then Andrea shall bear the cost of such audit in addition to reimbursing IBM
for any overpayment. However, if such audit determines that Andrea's pricing
is acceptable, then IBM shall bear the cost of the audit.
7.3 Payments.
Unless otherwise stated in an Attachment to this Agreement payment shall
be made NET (CONFIDENTIAL TREATMENT) by IBM upon Product consumption (in
the case of Line-Side-Stocking) or delivery and the associated receipt
of an acceptable invoice from Andrea. The manner and method of payment
shall be as provided in a Purchase Order.
Payment shall not be deemed acceptance with respect to any Products delivered
hereunder.
7.4 Product Acceptance.
Acceptance of Product will be determined by the terms and conditions of
this Agreement.
8.0 SUPPLIER ACTIONS
8.1 Engineering Changes.
IBM may direct design, electrical, mechanical, or Documentation changes
to the Product in writing at any time, and Andrea agrees to incorporate such
changes into the Products. Such changes will be within the general scope of
this Agreement. If any such change will result in an increase or decrease to
the cost or time required for performance of the work, or if Andrea expects
the change to affect the form, fit, or function of the Products, then Andrea
shall so notify IBM within (CONFIDENTIAL TREATMENT) of receiving such
direction from IBM. Prior to any implementation of such
directed changes, the Parties will negotiate in good faith any necessary
adjustments to the price, schedule, and/or specifications. Unless authorized
by IBM in writing,
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Andrea shall not implement any change prior to the Parties' written
agreement on such adjustments.
Andrea may make design, electrical, mechanical, or Documentation changes
to the Product at any time, provided that such changes and all known
ramifications of these changes (e.g., pricing, schedule, or form,
fit or function of the Product) are agreed to in writing by the Parties prior
to any implementation. Such changes shall be within the general scope of
this Agreement and shall also be intended to promote the Product and any IBM
Products which incorporate the Product.
8.2 Withdrawal of Products.
Andrea shall notify IBM (CONFIDENTIAL TREATMENT) prior to its withdrawal
of any Products. In such event, Andrea agrees and understands that
Purchase Orders for the Products will be accepted by Andrea until such
withdrawal date and that IBM's Purchase Orders during
such period may significantly exceed its prior orders.
8.3 Inspection.
Andrea shall permit IBM to inspect Andrea's facilities upon request and
shall provide such assistance (including, without limitation, providing
documentation) to IBM reasonably necessary, in IBM's discretion, for IBM to
evaluate the quality and reliability of the Products.
9.0 IBM INVENTORY BALANCING (DEFECT FREE)
IBM shall have the right to return any Product to Andrea and shall be
entitled to the greater of (a) (CONFIDENTIAL TREATMENT), or (b)
(CONFIDENTIAL TREATMENT).
10.0 SUPPLIER REPRESENTATIONS/WARRANTIES AND INDEMNITY
10.1 Representations and Warranties.
Andrea represents and warrants that at all times: (i) it has the right
to enter into this Agreement; (ii) Andrea's performance of this Agreement
does not violate the terms of any license, contract, note or other obligation
to which Andrea is a party or any statute, law, regulation or ordinance to
which Andrea is subject, including, without limitation, all health, safety
and environmental statutes, laws, regulations and ordinances; (iii) no claim,
lien or action is pending or threatened against
Andrea or any third party which would interfere with IBM's, it Subsidiaries',
distributor's or customer's use of the Products; (iv) the Products and/or any
combination of the Products with other programs and/or products do not
infringe any patent, trademark, copyright or other intellectual property
rights of a third party; (v) the Products purchased hereunder and the
Documentation typically provided with such Products conform to the
specifications hereunder and will operate in accordance with
IBM's intended use; and (vi) none of the Products contain nor are any of the
Products manufactured using ozone depleting substances including, without
limitation, chloroflurocarbons, halons, methyl chloroform
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and carbon tetrachloride and each of the Products is safe for normal
use, is non-toxic, presents no abnormal hazards to persons or the
environment and may be disposed of as normal refuse.
10.2 Product Warranty.
Andrea guarantees that all Products provided to IBM under this Agreement
are free from defects in material and workmanship for a period of
(CONFIDENTIAL TREATMENT) from the date of delivery to the designated IBM
delivery point. Andrea must determine and provide to IBM a process
and/or method of tracking the start of the warranty period for those
Products delivered to IBM. If Andrea fails to identify a method and/or
process for determining the start of the warranty period, then the
warranty period under this Agreement shall be
(CONFIDENTIAL TREATMENT) from the date code identified on the Product.
(CONFIDENTIAL TREATMENT) for all costs associated with returning of such non-
conforming Products, including but not limited to transportation costs and
published charges for service calls. The Parties shall negotiate in good
faith for the disposition of failed Product. Andrea's warranty does not
cover damage to or malfunction of a Product resulting from accident,
disaster, neglect, abuse or misuse.
10.3 Breach of Warranty.
IBM shall determine in its sole discretion whether delivered Products
meet all applicable specifications and comply with all warranties. If
not in compliance with the above warranty (in addition to any other
remedy provided at law, in equity or in this Agreement), Products may be
returned, at Andrea's expense, to Andrea for (at IBM's option); (i)
repair, (ii) replacement, or (iii) refund. Andrea shall credit IBM's
account for the purchase price of the Products which have been rejected
and for any costs of shipping the Products to Andrea by IBM. Andrea shall,
at IBM's option and at no charge to IBM, either (i) promptly take the
specific corrective action specified by IBM (repair or replace) and re-
invoice IBM upon shipment of the corrected Products, or (ii) take no
corrective action and accept return of the Products, issuing the appropriate
refund to IBM. If Andrea replaces or repairs the returned Product, the
Product will be repaired or replaced to the specifications at
the time of replacement or repair. Andrea shall bear all risks and costs
associated with any returns (including cost of labor, material, recall,
inspection, testing and transportation). Within (CONFIDENTIAL TREATMENT) of
IBM's request, Andrea shall provide IBM with a written failure analysis and a
corrective action report.
10.4 (CONFIDENTIAL TREATMENT)
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10.5 Indemnification.
Andrea agrees to defend, indemnify and hold harmless IBM, its
Subsidiaries, affiliates, distributors and customers and their
respective officers and employees (collectively, the "Indemnified
Parties"), from and against any and all claims regardless of merit by a
third party (whether such claim is against Andrea, IBM or other third party)
arising out of, or in connection with, Andrea's performance or
nonperformance of its obligations under this Agreement or a breach by Andrea
of its representations and warranties in this Agreement (including, without
limitation, claims of infringement), at Andrea's expense, and pay all costs,
damages, losses and liabilities and attorney's fees incurred by the
Indemnified Parties in connection therewith; provided that:
1) Andrea is notified promptly in writing by IBM of any such claim or
threatened or actual suit;
2) Andrea has control of the defense and settlement of such suit, claim
or the like and related settlement negotiations; and
3) IBM cooperates in the defense and settlement of such suit, claim or
the like.
If a claim of infringement is or appears likely to be made with respect
to Products, Andrea shall secure for the Indemnified Parties the right to
continue to use and market the Product as provided herein or replace it with
a non-infringing product.
11.0 INTELLECTUAL PROPERTY RIGHTS
Except as provided below, Andrea shall own or have the right to license
all U.S. and foreign copyrights and patents applicable in the Products and
Andrea grants IBM all rights and licenses necessary for IBM to exercise its
rights under this Agreement (including without limitation, the right and
license to combine the Products with other products and/or programs).
For the purpose of this Agreement, "Invention" shall mean any idea,
design, concept, technique, Invention, discovery, or improvement,
whether or not patentable, that is conceived or reduced to practice in
performance under this Agreement. Andrea shall own each Invention,
patent application filed thereon, and patent issuing thereon, except (1)
Andrea and IBM shall jointly own (without accounting) Inventions, patent
applications filed thereon and patents issuing thereon, which were
developed with any IBM employees; and (2) Andrea shall assign to IBM
Inventions, as well as patent applications filed thereon and patents
issuing thereon, which relate to an appearance design which was
furnished to Andrea by IBM. Andrea and IBM shall assist each other
preparing and prosecuting any patent
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applications filed on Inventions. Andrea and IBM shall promptly apprise
each other in writing of Inventions.
In the event that Andrea discontinues and/or otherwise makes the
Product(s) unavailable after the term of this Agreement, Andrea shall
negotiate in good faith concerning the granting to IBM of an
intellectual property license and other rights necessary to enable IBM
to manufacture, have manufactured, use and sell the Product(s). The
maximum royalty IBM shall pay for such license and rights shall not
exceed (CONFIDENTIAL TREATMENT). In addition, Andrea shall negotiate in good
faith with IBM concerning providing to IBM all materials reasonably necessary
to exercise the foregoing rights and concerning the purchase by IBM the
purchase of any unique tooling or capital equipment.
12.0 TRADEMARKS AND TRADE NAMES
Andrea may not use any of IBM's or its Subsidiaries' trademarks, trade
names or brand names without IBM's written consent.
13.0 LIMITATION OF LIABILITY
NEITHER IBM NOR ITS SUBSIDIARIES SHALL BE LIABLE TO ANDREA, ITS
OFFICERS, ITS DIRECTORS, AFFILIATES OR CUSTOMERS FOR ANY LOST REVENUE,
LOST PROFITS OR OTHER CONSEQUENTIAL, INCIDENTAL OR PUNITIVE DAMAGES EVEN
IF ADVISED IN ADVANCE OF THE POSSIBILITY OF SUCH DAMAGES. IN NO EVENT
SHALL IBM OR ITS SUBSIDIARIES BE LIABLE TO SUPPLIER (i) UNDER A PURCHASE
ORDER FOR AN AMOUNT GREATER THAN THE PRICE TO BE PAID UNDER SUCH
PURCHASE ORDER AND (ii) UNDER THIS AGREEMENT FOR AN AMOUNT GREATER
THAN THE PRICE TO BE PAID UNDER ALL OUTSTANDING PURCHASE ORDERS, AS
APPLICABLE.
14.0 TERM AND TERMINATION
14.1 Term
This Agreement shall commence on the date of execution by the parties
and shall continue in full force and effect for a period of two (2)
years thereafter, unless earlier terminated as provided in this
Agreement. IBM may terminate this Agreement for convenience by
providing Andrea (CONFIDENTIAL TREATMENT) prior written notice of such
termination. Either party may terminate this Agreement for material
breach of the other party upon (CONFIDENTIAL TREATMENT) written notice;
provided, however, if such breach is cured within such (CONFIDENTIAL
TREATMENT) period, such termination shall not be effective and the Agreement
shall continue in full force and effect. IBM's failure to achieve the
volumes set forth in Subsection 4.2 hereof, shall only result in termination
of IBM's exclusive marketing rights as set forth in Subsection 4.5.1 but
shall not constitute a material breach of this Agreement.
14.2 Rights Upon Termination
(i) In the event that IBM terminates this Agreement for its
convenience, IBM shall have the right to cancel all outstanding
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Purchase Orders and return to Andrea all inventory of Product not yet
sold or delivered by IBM for (CONFIDENTIAL TREATMENT). If such orders
are not canceled all of the terms and conditions of this Agreement with
respect to the Products subject to such Purchase Orders shall survive.
(ii) In the event that IBM terminates this Agreement for a material
breach of Andrea, IBM shall, in addition to all other remedies IBM has
at law or in equity, have the right to cancel all outstanding Purchase
Orders issued hereunder (CONFIDENTIAL TREATMENT) and return to Andrea,
at Andrea's expense, all inventory of Product not yet sold or delivered
by IBM for (CONFIDENTIAL TREATMENT). If such orders are not canceled, all of
the terms and conditions of this Agreement with respect to the Products
subject to such Purchase Orders shall survive.
(iii) In the event that Andrea terminates this Agreement for a material
breach of IBM, Andrea, in Andrea's sole discretion, shall have
the right to cancel any outstanding Purchase Orders.
(iv) All obligations and duties that by their nature survive the
expiration, or termination of this Agreement shall remain in effect
after such expiration, or termination including Section 6.0, "Delivery",
Section 10, "Supplier Representations/Warranties and Indemnity", Section
11, "Intellectual Property Rights", Section 12, "Trademarks and Trade
Names", Section 13, "Limitation of Liability", Section 14, "Term and
Termination", and Section 15, "General", and shall bind the parties and
their legal representatives, successors and assigns.
15.0 GENERAL
15.1 Confidentiality.
Andrea agrees that it will not disclose the terms of this Agreement to a
third party, except to the extent required by law, without IBM's written
approval. Except as otherwise provided in this Section 15.1 and Section
11.0, all exchanges of information between the parties pursuant to this
Agreement shall be deemed non-confidential. All confidential
information disclosed by either Party hereunder shall be disclosed and
treated in accordance with CIEA (Confidential Information
Exchange Agreement) CIEA0164. A copy is attached hereto as Attachment 3.
15.2 No Agent.
Andrea is an independent contractor and is not an agent of IBM for any
purpose whatsoever. Andrea is solely responsible for the acts of its
employees and agents, including any negligent acts, and shall hold
harmless, defend and indemnify IBM against all claims based on acts of
its employees or agents.
15.3 Insurance.
Andrea shall maintain comprehensive general liability insurance for
claims for damages because of bodily injury or death and property damage
caused by or arising out of acts or omissions of its employees.
15.4 Notices.
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All notices required to be given under this Agreement will be in writing
and deemed received (i) two Days after mailing if sent by certified
mail, return receipt requested, or (ii) on the date confirmation is
received if sent by facsimile transmittal to the party at the address
provided below:
IBM: Andrea:
(CONFIDENTIAL TREATMENT) (CONFIDENTIAL TREATMENT)
(CONFIDENTIAL TREATMENT) 11-40 45th Road
(CONFIDENTIAL TREATMENT) Long Island City
(CONFIDENTIAL TREATMENT) NY 11101
Phone:(CONFIDENTIAL TREATMENT) Phone: (CONFIDENTIAL TREATMENT)
15.5 Choice of Law; Waiver of Jury Trial.
THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF NEW YORK, WITHOUT REGARD
TO ITS PRINCIPLES OF CONFLICTS OF LAWS. THE PARTIES HERETO EXPRESSLY
WAIVE ANY RIGHT THEY MAY HAVE TO A JURY TRIAL.
15.6 Severability.
If any section or subsection of this Agreement is found by competent
judicial authority to be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of any such section
or subsection in every other respect and the remainder of this Agreement
shall continue in effect.
15.7 Force Majeure.
Neither IBM nor Andrea shall be in default or liable for any delay or
failure of compliance with this Agreement due to an act of nature,
public enemy, government action, freight embargo, or strike beyond the
control of the defaulting party and the defaulting party shall provide
the non-defaulting party immediate notice of any such anticipated delay
or failure of compliance; provided, however, that any such act shall not
relieve the defaulting party's obligations hereunder and such party hereby
agrees to perform its obligations as soon as practicable after the conditions
causing such delay or failure have subsided.
15.8 Assignment.
Andrea shall not assign this Agreement or any rights or obligations
hereunder without the prior written consent of IBM. Any act of
derogation of the foregoing shall be null and void. IBM may assign this
Agreement or any rights or obligations hereunder without limitation.
15.9 Rights of Subsidiaries.
Each of IBM's Subsidiaries may exercise any of the rights of IBM under
this Agreement; provided, however, when an IBM Subsidiary exercises such
rights under this Agreement, such Subsidiary shall be solely responsible
for its own obligations under this Agreement and IBM shall have no
liability for such Subsidiary's failure to comply with any of the
obligations hereunder.
15.10 Waiver.
Any waiver under this Agreement to be effective must be in writing
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signed by the party so waiving its rights. The waiver by either party
of any instance of the other party's noncompliance with any obligation
or responsibility herein shall not be deemed a waiver of subsequent
instances or of either party's remedies for such noncompliance.
15.11 Assurances.
Andrea agrees to provide further assurances, commercially reasonable
assistance and any written legal documents necessary for IBM, in IBM's
sole discretion, to exercise the rights granted under this Agreement.
15.12 Order of Precedence.
In the event of an inconsistency in the various documents which govern
the parties' performance of this Agreement, the order of precedence will
be:
(i) this Agreement, without the Attachments (unless the Attachments
specifically modify a term of this Agreement, in which case the terms of
such Attachment shall govern);
(ii) the Attachments;
(iii) the face side of a Purchase Order; and
(iv) the reverse side of a Purchase Order.
15.13 Amendments.
This Agreement may only be amended in writing signed by authorized
representatives of each of the parties. To be effective such amendment
must specifically reference this Agreement.
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THIS AGREEMENT AND ITS ATTACHMENTS, CONFIDENTIAL INFORMATION EXCHANGE
AGREEMENT (CIEA0164) AND THE PURCHASE ORDERS ISSUED HEREUNDER CONSTITUTE
THE ENTIRE AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE
SUBJECT MATER HEREOF AND SUPERSEDE ALL COMMUNICATIONS AND UNDERSTANDINGS
BETWEEN THE PARTIES, WHETHER WRITTEN OR ORAL, WITH RESPECT TO THE SUBJECT
MATTER HEREOF.
ACCEPTED AND AGREED TO: ACCEPTED AND AGREED TO:
INTERNATIONAL BUSINESS ANDREA ELECTRONICS CORPORATION
MACHINES CORPORATION
By: (CONFIDENTIAL TREATMENT) By: /s/ John N. Andrea
-------------------- ---------------------
Name: (CONFIDENTIAL TREATMENT) Name: John N. Andrea
-------------------- --------------------
(Typed or Printed) (Typed or Printed)
Title: Title: Co-President
------------------- --------------------
Date: 6/15/95 Date: 6/16/95
------------------- --------------------
By:___________________________
Name:_________________________
(Typed or Printed)
Title:________________________
Date:_________________________
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ATTACHMENT A1
PRODUCTS SPECIFICS
Andrea shall provide IBM with the Product specified in Section 1.0 of
this Attachment to the extent authorized by Purchase Orders issued by
IBM.
1.0 PRODUCT NAME:
The Product for purposes of this Attachment A1 is the Andrea ANC-100
Earmount Headset unit, Part Number ANC-100 (which includes the
following components: (CONFIDENTIAL TREATMENT).
2.0 SPECIFICATIONS:
The Product will conform to Andrea's Product Functional Specification
PFS-1002100, and Andrea's "Method For Measuring Noise Cancellation
Properties of The Andrea Active Noise Cancellation ANC-100
Headset/Microphone". Copies are attached hereto as Attachment 2.
3.0 PRICE:
The Price of the Product is: (CONFIDENTIAL TREATMENT).
The price quoted in this section 3.0 of Attachment A1 is F.O.B. IBM's
manufacturing facility (CONFIDENTIAL TREATMENT).
4.0 PURCHASE ORDERS
4.1 Purchase Order Re-Scheduling.
IBM may re-schedule the ship date of undelivered Products ordered
pursuant to a Purchase Order (CONFIDENTIAL TREATMENT). Any such re-
schedule shall be for no more than (CONFIDENTIAL TREATMENT) and shall
not extend beyond the expiration date of this Agreement, unless
otherwise agreed to in writing by both Parties. Items re-scheduled and
subsequently cancelled will be subject to (CONFIDENTIAL TREATMENT).
4.2 Standard Lead Time
Andrea agrees that IBM will be offered the shortest possible lead time
for Product but in no case shall this lead time exceed (CONFIDENTIAL
TREATMENT) after Andrea's receipt of an authorized Purchase Order.
4.2.1 Short Lead Time
In the event IBM requires shipment of Product in less than the
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(CONFIDENTIAL TREATMENT) lead time specified in Section 4.2 of this
Attachment, Andrea agrees to use best efforts to expedite such shipment.
5.0 FORECASTS:
Andrea agrees to build and stock a (CONFIDENTIAL TREATMENT) supply of
IBM Product based upon a monthly (CONFIDENTIAL TREATMENT) rolling
forecast provided by IBM. IBM may notify Andrea that IBM has reduced
requirements or has no further need for Products as projected in the
then current IBM (CONFIDENTIAL TREATMENT) rolling forecast. In such
event, Andrea shall make every reasonable effort to reduce IBM's
liability hereunder. In no event shall IBM be required to purchase more than
the volume of Products projected to be purchased within the (CONFIDENTIAL
TREATMENT) period following the date of IBM's notification, provided such
Products are actually in Andrea's finished goods inventory at
the time of IBM's notification. In addition, IBM's liability under this
Section includes and is not additive to IBM's liability for Purchase Orders
cancelled under Section 5.1 of the Agreement.
6.0 JUST-IN-TIME DELIVERY:
At a minimum, Andrea shall be responsible for maintaining the capability
of providing Product to IBM on an as needed basis, and providing all
necessary Product support activities. Andrea will maintain
responsibility over delivery and ownership of Product until the point of
delivery. IBM may designate a point internal to its
facility as the point of delivery. In such an event, IBM will allow Andrea
access to this location to execute Product delivery.
7.0 ENGINEERING TOOLING/CAPITAL EQUIPMENT:
Those features and processes provided by IBM as well as any other
features and processes which may be subsequently developed under IBM's
direction and at IBM's expense, are the proprietary and confidential
designs of IBM, and are the sole and exclusive property of IBM. Andrea
agrees that all right, title and interest therein shall at all times vest in
and remain in IBM. Nothing in this Agreement shall be construed as
establishing, transferring, or otherwise conveying to Andrea any rights,
interest or license in such features and processes, whether by implication,
estoppel or otherwise.
8.0 PRODUCT SUPPORT
8.1 All customer Product inquiries will be supported by the IBM
technical representative.
8.2 In those cases where additional assistance is required, the IBM
technical representative will contact Andrea at the telephone number
provided to IBM. Andrea, at its own expense, shall support IBM by
providing to IBM's technical representative with a published telephone
number between the hours of (CONFIDENTIAL TREATMENT) a.m. through
(CONFIDENTIAL TREATMENT) p.m. Eastern Standard Time, five days a week.
Andrea will provide the necessary technical staff to answer all calls between
the above stated hours.
9.0 PRODUCT RETURNS/REPAIR
IBM may inspect and test all Product(s) at IBM's facility prior to
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acceptance or rejection, and may refuse to accept Products which do not
conform to the specifications referenced in this Agreement. If IBM rejects
Product(s), Andrea shall replace the rejected Products within (CONFIDENTIAL
TREATMENT) of IBM's notification, and shall pay for all costs
associated with said Product replacement, including but not limited to
expenses associated with the return of the defective Products. IBM shall
notify Andrea to obtain a Return Material Authorization ("RMA") number prior
to returning Product(s) for non-conformance, which RMA Andrea agrees to
promptly issue upon request. IBM shall furnish the following information
with Product(s) returned to Andrea: a) IBM's complete address,
b) name(s) and telephone numbers of IBM's employee(s) to contact in case of
questions about the product, c) a complete list of Product(s) returned, d)
the nature of the defect or failure if known, and e) whether or not returned
Product(s) is in warranty.
10.0 OTHER INTELLECTUAL PROPERTY RIGHTS:
10.1 Andrea Product Names and Trademarks.
Andrea hereby grants to IBM, IBM Subsidiaries and its and their
successors, assigns, agents and distributors a nonexclusive, royalty
free right and license to use, in connection with the marketing of the
Product, the Product name(s) and trademark(s) used by Andrea to identify
the Product including any portions thereof. If Andrea informs
IBM in writing that it objects to IBM's use of its Product names and
trademarks, IBM will take reasonable steps to modify it.
Page 29 of 31 Pages
<PAGE>
IN WITNESS WHEREOF, THE PARTIES HERETO HAVE CAUSED THIS ATTACHMENT A1
TO AGREEMENT PCC950121 TO BE EXECUTED BY THEIR RESPECTIVE AUTHORIZED
REPRESENTATIVES.
ACCEPTED AND AGREED TO: ACCEPTED AND AGREED TO:
INTERNATIONAL BUSINESS ANDREA ELECTRONICS CORPORATION
MACHINES CORPORATION
By: (CONFIDENTIAL TREATMENT) By: /s/ John N. Andrea
-------------------- --------------------
Name:(CONFIDENTIAL TREATMENT) Name: John N. Andrea
-------------------- --------------------
(Type or Printed) (Type or Printed)
Title:(CONFIDENTIAL TREATMENT) Title: Co-President
-------------------- --------------------
Date: 6/15/95 Date: 6/16/95
------------------- --------------------
By:
--------------------
Name:
--------------------
(Type or Printed)
Title:
--------------------
Date:
--------------------
Page 30 of 31 Pages
<PAGE>
EXHIBIT 11
ANDREA ELECTRONICS CORPORATION
COMPUTATION OF FULLY DILUTED EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION> For the Six Months Ended
June 30,
1995 1994
<S> <C> <C>
EARNINGS
Pro forma income (loss) applicable to common stock* $ (137,427) $(1,070,710)
SHARES
Weighted average number of common shares outstanding 3,016,360 2,544,675
Assuming conversion of options and warrants 980,069 907,536
Pro forma shares 3,996,429 3,452,211
Fully diluted income (loss) per common share $ (.04) $ (.42)
</TABLE>
* Entire proceeds of assumed conversion of options were used to purchase
treasury shares; therefore, no adjustments are necessary in computing pro
forma loss applicable to common stock.
This calculation is submitted in accordance with Regulation S-B, Item
601(b)(11) although it is contrary to paragraph 40 of ABP Opinion No. 15
because it produces anti-dilutive results.
Page 31 of 31 Pages
