<PAGE> 1
U.S. 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 March 31, 1996
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 filed 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)
Issuer's Telephone Number, Including Area Code: 1-800-442-7787
Check whether the issuer: (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
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date. 3,462,508.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS.
<TABLE>
ANDREA ELECTRONICS CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
<CAPTION>
March 31,1996 December 31, 1995
--------------- ------------------
<S> <C> <C>
CURRENT ASSETS: (UNAUDITED)
Cash and cash equivalents $ 923,682 $3,400,829
Investment securities 99,223 99,223
Accounts receivable - trade, net
of allowance for doubtful accounts
of $32,183 and $32,183, respectively 996,474 1,045,922
Inventories 2,802,478 1,122,993
Prepaid expenses and other
current assets 260,239 189,494
--------- ---------
Total current assets 5,082,096 5,858,461
PROPERTY, PLANT AND EQUIPMENT - net
of accumulated depreciation of
$875,737 and $849,228, respectively 713,823 691,498
OTHER ASSETS 1,151 1,151
--------- ---------
Total assets $5,797,070 $6,551,110
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of capital
lease obligations $ 11,655 $ 39,243
Accrued Interest Payable 65,823 --
Trade accounts payable 111,285 254,643
Accrued salaries and wages payable 33,662 50,571
Other current liabilities 9,847 197,485
--------- ---------
Total current liabilities 232,272 541,942
CAPITAL LEASE OBLIGATIONS, net of
current maturities 2,009 5,388
CONVERTIBLE DEBENTURES, net 1,402,000 2,000,000
OTHER LIABILITIES 38,500 38,500
--------- ---------
Total liabilities 1,674,781 2,585,830
--------- ---------
SHAREHOLDERS' EQUITY:
Common stock: $.50 par value;
authorized: 10,000,000 shares;
issued and outstanding: 3,344,361
and 3,286,860 shares, respectively 1,672,181 1,643,430
Additional paid-in capital 5,148,759 4,542,592
Accumulated deficit (2,698,651) (2,220,742)
---------- ----------
Total shareholders' equity 4,122,289 3,965,280
---------- ----------
Total liabilities and
shareholders' equity $5,797,070 $6,551,110
========== ==========
</TABLE>
2
<PAGE> 3
<TABLE>
ANDREA ELECTRONICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
For the Three Months Ended March 31,
------------------------------------
1996 1995
---- ----
<S> <C> <C>
SALES $1,749,883 $1,286,628
COST OF SALES 1,281,297 671,986
--------- ---------
Gross profit 468,586 614,642
--------- ---------
RESEARCH AND DEVELOPMENT EXPENSES 284,883 499,401
GENERAL, ADMINISTRATIVE AND SELLING EXPENSES 646,742 366,049
--------- ---------
(Loss) from operations (463,039) (250,808)
--------- ---------
OTHER INCOME (EXPENSE)
Interest income 18,329 66,882
Interest (expense) (79,495) (1,070)
Rent & Miscellaneous 46,296 46,200
--------- ---------
(14,870) 112,012
--------- ---------
LOSS BEFORE PROVISION FOR INCOME TAXES (477,909) (138,796)
PROVISION FOR INCOME TAXES -- --
--------- ---------
NET LOSS $ (477,909) $ (138,796)
========= =========
PRIMARY LOSS PER SHARE $ (.15) $ (.05)
========= =========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 3,290,322 3,016,360
========= =========
</TABLE>
3
<PAGE> 4
<TABLE>
ANDREA ELECTRONICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
For the Three Months Ended
March 31,
1996 1995
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ (477,909) $ (138,796)
Adjustments to reconcile net income to net cash
provided by (used by) operating activities:
Depreciation and amortization 26,509 30,067
(Increase) decrease in:
Accounts receivable 49,448 (443,817)
Inventories (1,679,485) 33,172
Prepaid expenses and other current assets (70,745) 26,345
Increase (decrease) in:
Accrued interest payable 86,584 --
Trade accounts payable (143,358) 14,976
Accrued salaries and wages payable ( 16,909) --
Other current liabilities (187,638) 60,295
----------- -----------
Net cash flows from operating activities (2,413,503) (417,758)
CASH FLOWS FROM INVESTING ACTIVITIES:
(Acquisition) of property, plant and equipment (48,834) --
----------- -----------
Total cash flows from investing activities (48,834) (48,834)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of capital lease obligations (30,966) (4,742)
Exercise of stock options 16,156 --
----------- -----------
Total cash flows from financing activities (14,810) (4,742)
----------- -----------
Net increase (decrease) in cash and cash equivalents (2,477,147) (422,500)
Cash and cash equivalents - beginning 3,400,829 3,313,043
---------- ----------
Cash and cash equivalents - end $ 923,682 $ 2,890,543
========== ==========
Supplemental disclosures
Cash paid:
Interest $ 309 $ 1,070
========== ==========
Income Taxes $ -- $ --
========== ==========
</TABLE>
4
<PAGE> 5
<TABLE>
ANDREA ELECTRONICS CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<CAPTION>
Additional Total
Shares Common Paid-In (Accumulated Shareholders'
Outstanding Stock Capital Deficit) Equity
----------- ------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at
December 31, 1995 3,286,860 $1,643,430 $4,542,592 $(2,220,742) $3,965,280
Exercise of Stock
Options 7,500 3,750 12,406 - 16,156
Issuance of Common
Stock due to
conversion of
debentures and
accrued interest
thereon 50,001 25,001 593,760 - 618,762
Net loss - - - (477,909) (477,909)
--------- -------- -------- ----------- ----------
Balance at
March 31, 1996
(Unaudited) 3,344,361 $1,672,181 $5,148,759 $(2,698,651) $4,122,289
========= ========= ========= =========== =========
</TABLE>
Page 5
<PAGE> 6
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 March
31, 1996 and the results of operations and cash flows for the three months ended
March 31, 1996 and 1995. The results of operations for the three months ended
March 31, 1996 are not necessarily indicative of the results to be expected for
the full year ended December 31, 1996. 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, 1995.
2. 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.
Page 6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
Andrea Electronics Corporation's mission is to provide state-of-the-art
communications products for the "voice interface" markets that are rapidly
emerging from the convergence of the telecommunications and personal computer
industries. Examples of these dynamic markets include computer telephony,
speech recognition, voice interactive games, multimedia, Internet speech and
telephony, and other applications which incorporate natural language
processing. The Company believes that end users of these applications will
require high quality microphone and earphone products which enhance voice
transmission particularly in noisy environments for use with personal
computers, business and residential telephones, military headsets, cellular
and other wireless telephones, and avionics communications systems. The
Company's strategy is to leverage its expertise in audio communication and
its patented Active Noise Cancellation (ANC) and Active Noise Reduction (ANR)
technology (together referred to "Andrea Anti-Noise(Registered Trademark)"
technology) and to develop and commercialize a line of Andrea
Anti-Noise(Registered Trademark) headsets, handsets and other communication
devices to enhance voice communications for end users of these applications on
a cost-effective basis. The Company also designs, manufactures and distributes
intercom systems and related components for military and industrial
applications ("Traditional Products").
The Company experienced an improvement of 36% in sales for the three months
ended March 31, 1996 (the "1996 First Quarter") compared to the three months
ended March 31, 1995 (the "1995 First Quarter"). Sales of the Andrea
Anti-Noise(Registered Trademark) computer headsets comprised approximately 44%
of the Company's $1.75 million 1996 First Quarter sales while for the 1995 First
Quarter sales of these products were immaterial. The Company continued to ship
under a procurement agreement Andrea Anti-Noise(Registered Trademark) computer
headsets to International Business Machines Corporation ("IBM"). The Company is
also marketing its Andrea Anti-Noise(Registered Trademark) computer headsets,
handsets, and communications devices to all major computer hardware and software
manufacturers and providers. Additionally, the Company has increased and
expects to continue to expand its retail distribution to include additional
major computer superstores in the second quarter of 1996.
Subsequent to the end of the 1996 First Quarter, the Company entered into
two licensing/bundling agreements with Voxware, Inc. ("Voxware") and Microsoft
Corporation ("Microsoft"). The Company will bundle Voxware's Internet
telephony software ("TeleVox(Registered Trademark)") and Microsoft's
MSPhone(Registered Trademark) and MSVoice(Registered Trademark) computer
telephony software with the Andrea Anti-Noise(Registered Trademark) computer
product lines for retail and direct distribution. The Company anticipates that
revenues as a result of these agreements will begin to be realized in the second
quarter of 1996.
As had been anticipated, the Company experienced a decrease in sales of
some of its Traditional Products during the 1996 First Quarter. The Company
expects a decrease in sales of this product line in 1996 when compared to 1995.
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.
7
<PAGE> 8
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain information contained in this Management's Discussion and Analysis
of Financial Condition and Results of Operations for the Three Months ended
March 31, 1996 are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 (the "Act"), which became law in
December 1995. In order to obtain the benefits of the "safe harbor" provisions
of the Act for any such forward-looking statements, the Company wishes to
caution investors and prospective investors about the following significant
factors, which, among others, have in some cases affected the Company's actual
results and are in the future likely to affect the Company's actual results and
cause them to differ materially from those expressed in any such forward-looking
statements. These factors include:
first, the rate at which the Company's Anti-Noise(Registered Trademark)
technology is accepted by the diverse range of users and applications within the
global communications and informatics marketplace;
second, the ability of the Company to maintain a competitive position for
its Anti-Noise(Registered Trademark) products in terms of technical
specifications, quality, price, reliability and service;
third, the on-going ability of the Company to enter into and maintain
collaborative relationships with larger companies in the fields of
telecommunications, computer manufacturing, software design and publishing,
Internet and online services, defense-related manufacturers and system
providers, and retail and direct marketing distributors; and
fourth, in the event that the Company does experience significant growth in
demand for its Anti-Noise(Registered Trademark) technology, the ability of the
Company to raise sufficient external capital to fund the working capital
requirements for meeting such demand.
The failure of the Company to surmount the challenges posed by any one or
more of these factors could have a material adverse effect on the Company's
results of operations and growth.
8
<PAGE> 9
RESULTS OF OPERATIONS
Sales
Sales for the 1996 First Quarter were $1,749,883, an increase of 36% over
last year's comparable period. Sales of the Company's Andrea
Anti-Noise(Registered Trademark) computer headsets comprised approximately 44%
of total sales for the 1996 First Quarter and contributed significantly to the
increase in sales. For the first three months, sales from government orders
through both prime and subcontracted orders made up 28.7% or $503,178 of sales
versus 18.7% or $240,362 for the comparable period in 1995. For the 1996 First
Quarter, sales from industrial/commercial orders constituted 71.3% or $1,246,705
of sales versus 81.3% or $1,046,266 for the comparable period in 1995. The
Company's Anti-Noise(Registered Trademark) products which are included in the
industrial/commercial category represent an immaterial contribution to the
Company's sales for the 1995 First Quarter.
Cost of Sales
Cost of sales as a percentage of sales for the 1996 First Quarter
increased to 73% from 52% for the 1995 First Quarter. The increase in the cost
of sales as a percentage of sales was due to additional costs associated with
initial prototype and production runs for new Andrea Anti-Noise(Registered
Trademark) computer products to be introduced in the spring and summer of 1996.
Research and Development
Research and development expenses for the 1996 First Quarter decreased
43% to $284,883 from $499,401 for the 1995 First Quarter. The decrease in
research and development expenses for the 1996 First Quarter can be directly
attributed to increased allocation of engineering and technician time associated
with the natural migration from design and development to production. It is
anticipated, however, that research and development expenses will increase in
the 1996 Second Quarter from the 1996 First Quarter for future products and
applications.
General, Administrative and Selling Expenses
General, administrative and selling expenses for the 1996 First Quarter
increased 77% to $646,742 from $366,049 for the 1995 First Quarter. During the
1996 First Quarter, the Company incurred significant sales and marketing
expenses to market, promote and support the Andrea Anti-Noise(Registered
Trademark) products in personal computer magazines, on the Internet, at major
trade shows, and to potential major customers for personal computer,
telecommunications and military electronics applications.
Operating loss
Operating loss for the 1996 First Quarter increased 85% to $463,039 from
$250,808 for the 1995 First Quarter. This increase in operating loss reflects
the increase in sales and marketing expenses as well as the relative increase in
the cost of sales during 1996 First Quarter.
Other Income(Expense)
Other expense for the 1996 First Quarter was $14,870 compared to other
income of $112,012 for the First Quarter 1995. This reversal was due to an
increase in interest expense to $79,495 from $1,070 for the 1995 First Quarter
and primarily associated with interest accrued on the Company's subordinated
convertible debentures in the 1996 First Quarter. During the 1996 First
Quarter, $598,000 of the Company's subordinated convertible debentures were
converted and interest accrued was paid in common stock of the Company.
Subsequent to the close of the 1996 First Quarter, $1,100,000 of the Company's
subordinated convertible debentures were converted and interest accrued was paid
in common stock of the Company. Interest income for the 1996 First Quarter
decreased due to a decrease in the Company's average cash position for the 1996
First Quarter when compared to average cash position for the 1995 First Quarter.
Net loss
Net loss for the 1996 First Quarter was $477,909, compared to a net loss
of $138,796 for the 1995 First Quarter. This increase in net loss reflects
principally the factors described above.
9
<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES
Working capital (total current assets less total current liabilities) at
March 31,1996 was $4,849,824 compared to $5,316,519 December 31,1995. The
decrease in working capital reflects a decrease in current assets of $776,365
and a decrease in current liabilities of $309,670. The decrease in total
current assets reflects a decrease in cash of $2,477,147, a decrease in accounts
receivable of $49,448, an increase in inventory of $1,679,485, and an increase
of $70,745 in prepaid expenses and other current assets. The decrease in cash
can be attributed to the inventory of Andrea Anti-Noise(Registered Trademark)
computer headsets for distribution beginning in the second quarter of 1996,
as well as increase in sales and marketing expenses incurred during the 1996
First Quarter.
The decrease in cash of $2,477,147 reflects net cash used in operating
activities of $2,413,503 primarily used for the acquisition of components and
parts for Andrea Anti-Noise(Registered Trademark) headsets and handsets and net
cash used in investing activities for the acquisition of equipment (primarily
tooling and molds for Andrea Anti-Noise(Registered Trademark) products), offset
by the issuance of common stock as a result of the conversion of subordinated
convertible debentures.
The increase in inventory of $1,679,485 primarily results from an
increase of $967,906 for raw materials purchased for the Company's Andrea
Anti-Noise(Registered Trademark) products and an increase in work-in-process and
finished goods inventory of $515,419 for the Andrea Anti-Noise(Registered
Trademark) products.
The increase in prepaid expenses and other current assets includes
$68,276 in unexpired and prepaid insurance premiums.
The decrease in current liabilities reflects a $143,358 decrease in
trade accounts payable and a decrease of $187,638 in other current liabilities.
The decrease in trade accounts payable is associated with payments for
acquisition of raw materials for the Andrea Anti-Noise(Registered Trademark)
products. The decrease in other current liabilities includes $167,500 for the
settlement of a complaint by a former employee of the Company.
Subsequent to the close of the 1996 First Quarter, the Company received
$2,000,000 in net proceeds from an additional issuance of convertible
debentures.
Management believes that the Company's financial condition is adequate
to support the Company's current level of operations and demand for resources.
However, in the event that the Company experiences a significant increase in
demand for its Andrea Anti-Noise(Registered Trademark) products, the Company
will need to raise additional working capital to support its production
operations. Additionally, the Company believes that its ability to remedy its
existing accumulated deficit will depend on profitable growth from the sale of
its Andrea Anti-Noise(Registered Trademark) products. While the Company has
been exploring various forms of debt and equity financing, no assurance can be
given that, if the Company needs to raise additional capital, it will able to do
so on favorable terms or at all. No assurances 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 necessary working capital
to increase production and marketing resources to meet such demand.
<10>
<PAGE> 11
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit
Number Description
------- -----------
3.2 Amended By-Laws of Registrant
10.1 1991 Performance Equity Plan, as amended
11 Computation of Fully Diluted Earnings Per Common Share
27 Financial Data Schedule
(b) Reports on Form 8-K.
The registrant did not file any reports on Form 8-K during the
three month period ended March 31, 1996.
11
<PAGE> 12
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 November 13, 1995
- ---------------------------- and Chief Executive
Frank A.D. Andrea, Jr. Officer
/s/ Patrick D. Pilch Executive Vice President November 13, 1995
- - - ------------------------ and Chief Financial
Patrick D. Pilch Officer
12
<PAGE> 13
<PAGE> 14
Amended as of May 13, 1996
BY-LAWS OF
ANDREA ELECTRONICS CORPORATION
ARTICLE I
Offices
The principal office of the Corporation shall be at 11-40 45th Road,
Long Island City, New York 11101, or at such other place as the Board of
Directors may from time to time direct. The Corporation may also establish and
have such other offices or places, within or outside the State of New York or
any place in the world, as may from time to time be designated by the Board of
Directors.
ARTICLE II
Shareholders
2.1. Share Certificates. The certificates of stock of the Corporation
shall be numbered and shall be entered in the books of the Corporation as they
are issued. They shall exhibit the holder's name and number of shares, set forth
any other information prescribed by the New York Business Corporation Law
("Business Corporation Law") and by any other applicable provision of law, and
shall be signed by the President or a Vice President and the Secretary or an
Assistant Secretary of the Corporation. Certificates may be sealed with the seal
of the Corporation or a facsimile thereof. The signatures of the President or a
Vice President and the Secretary or an Assistant Secretary upon a certificate
may be facsimiles if the certificate is manually signed on behalf of a transfer
agent or a registrar. In case any officer who has signed or whose facsimile
signature has been placed upon such certificate shall have ceased to be such
officer before such certificate is issued, it may be issued by the Corporation
with the same effect as if he were such officer at the date of its issuance. The
Board of Directors may appoint banks or trust companies as transfer agent and as
registrar of stock until otherwise ordered by the Board of Directors. After the
appointment of such transfer agent and registrar, no certificate issued to
represent the Corporation's stock shall be binding upon the Corporation or have
any validity unless signed by such transfer agent and by such registrar, or
their respective successors as may be appointed by the Board of Directors.
No certificate shall be issued for any share until such share is fully
paid, except as otherwise provided in the New York Business Corporation Law.
2.2. Fractional Share Interests or Scrip. The Corporation may, when
necessary or desirable in order to effect share transfers, share distributions
or reclassifications, mergers, consolidations or reorganizations, issue a
fraction of a share, make arrangements or provide reasonable opportunity for any
person entitled to a fractional interest in a share to sell such fractional
interest or to purchase such additional fractional interests as may be necessary
to acquire a full share, pay in cash the fair value of fractions of a share as
of the time when those entitled to receive such fractions are determined, or
issue scrip in registered or bearer form, over the manual or facsimile signature
of an officer of the Corporation or its agent, which shall entitle the holder to
receive a certificate for a full share upon the surrender of such scrip
aggregating a full share. A certificate for a fractional share shall, but scrip
shall not unless otherwise provided therein, entitle the holder to exercise
voting rights, to receive dividends thereon and to participate in any of the
assets of the Corporation in the event of liquidation.
The Board of Directors may cause scrip to be issued subject to the
condition that it shall become void if not exchanged for certificates
representing full shares before a specified date, or subject to the condition
that the shares for which scrip is exchangeable may be sold by the Corporation
and the proceeds thereof distributed to the holders of scrip, or subject to any
other conditions which the Board of Directors may deem advisable. Such
conditions shall be stated or fairly summarized on the face of the certificate.
2.3. Share Transfers. Upon compliance with any provisions
restricting the transferability of shares that may be set forth in the
Certificate of Incorporation, these By-Laws, or any written agreement in respect
thereof, transfers of shares of the Corporation shall be made only on the books
of the Corporation by the registered holder thereof, or by his attorney
thereunto authorized by power of attorney duly executed and filed with the
Secretary of the Corporation, or with a transfer agent or a registrar and on
surrender of the certificate or certificates for such shares properly endorsed
and the payment of all taxes thereon, if any. Except as may be otherwise
provided by law, the person in whose name shares stand on the books of the
Corporation shall be deemed the owner thereof for all purposes as regards the
Corporation; provided that whenever any transfer of shares shall be made for
collateral security, and not absolutely, such fact, if known to the Secretary of
the Corporation, shall be so expressed in the entry of transfer.
2.4. Record Date for Shareholders. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or entitled to receive payment of any dividend, or in
order to make a determination of shareholders for any other purpose, the Board
of Directors of the Corporation may fix in advance a date as the record date for
any such determination of shareholders, such date in any case to be not more
than fifty days and, in case of a meeting of shareholders, not less than ten
days prior to the date on which the particular action, requiring such
determination of shareholders, is to be taken. If no record date is fixed for
the determination of shareholders entitled to notice of or to vote at a meeting
of shareholders, or shareholders entitled to receive payment of a dividend, the
day next preceding the day which notice of the meeting is given or if no notice
is given, the day on which the meeting is held shall be the record date for
determination of shareholders. The record date for determining shareholders for
any other purpose shall be the date on which the resolution of the Board of
Directors relating thereto is adopted. When a determination of shareholders
entitled to vote at any meeting of shareholders has been made as provided in
this section, the determination shall apply to any adjournment thereof, unless
the Board of Directors fixes a new record date under this section for the
adjourned meeting.
2.5. Meaning of Certain Terms. As used herein in respect of the
right to notice of a meeting of shareholders or a waiver thereof or to
participate or vote thereat or to consent or dissent in writing in lieu of a
meeting, as the case may be, the term "share" or "shares" or "shareholder" or
"shareholders" refers to an outstanding share or shares and to a holder or
holders of record of outstanding shares when the Corporation is authorized to
issue only one class of shares, and said reference is also intended to include
any outstanding share or shares and any holder or holders of record of
outstanding shares of any class upon which or upon whom the Certificate of
Incorporation confer such rights where there are two or more classes or series
of shares or upon which or upon whom the Business Corporation Law confers such
rights notwithstanding that the Certificate of Incorporation may provide for
more than one class or series of shares, one or more of which are limited or
denied such rights thereunder.
ARTICLE III
Meetings of Shareholders
3.1. Annual Meetings.
3.1.1. Date. The annual meeting of the shareholders of the
Corporation for the election of the Board of Directors and for the transaction
of such other business as may properly come before such meeting shall be held at
10:00 A.M., Eastern Standard Time, or at such other hour as may be stated in the
notice of the meeting, on the second Thursday in May of each year or on such
date and at such time as may be determined by the Board of Directors.
3.1.2. Purpose. At each annual meeting, the shareholders
shall elect the members of the Board of Directors for the succeeding year. At
any such annual meeting any proper business properly brought before the meeting
may be transacted. To be properly brought before an annual meeting, business
must be (i) specified in the notice of the meeting (or any supplement thereto)
given by or at the direction of the Board of Directors, (ii) otherwise properly
brought before the meeting by or at the direction of the Board of Directors or
(iii) otherwise properly brought before the meeting by a shareholder. For
business to be properly brought before an annual meeting by a shareholder, the
shareholder must have given written notice thereof, either by personal delivery
or by United States mail, postage prepaid, to the Secretary of the Corporation,
not later than 90 days in advance of such meeting. Any such notice shall set
forth as to each matter the shareholder proposes to bring before the annual
meeting (i) a brief description of the business desired to be brought before the
meeting and the reasons for conducting such business at the meeting and, in the
event that such business includes a proposal to amend either the Certificate of
Incorporation or By-laws of the Corporation, the language of the proposed
amendment, (ii) the name and address of the shareholder proposing such business,
(iii) a representation that the shareholder is a holder of record of stock of
the Corporation entitled to vote at such meeting and intends to appear in person
or by proxy at the meeting to propose such business, and (iv) any material
interest of the shareholder in such business. No business shall be conducted at
an annual meeting of shareholders except in accordance with this paragraph, and
the chairman of any annual meeting of shareholders may refuse to permit any
business to be brought before an annual meeting without compliance with the
foregoing procedures.
3.1.3. Nominations for Directors. Nominations for the election of
directors may be made by the Board of Directors or by any shareholder entitled
to vote for the election of directors. Any shareholder entitled to vote for the
election of directors at a meeting may nominate a person or persons for election
as directors only if written notice of such shareholder's intent to make such
nomination is given, either by personal delivery or by United States mail,
postage prepaid, to the Secretary of the Corporation not later than (i) with
respect to an election to be held at an annual meeting of shareholders, 90 days
in advance of such meeting, and (ii) with respect to an election to be held at a
special meeting of shareholders for the election of directors, the close of
business on the seventh day following the date on which notice of such meeting
is first given shareholders. Each such notice shall set forth: (a) the name and
address of the shareholder who intends to make the nomination and the person or
persons to be nominated; (b) a representation that the shareholder is a holder
of record of stock of the Corporation entitled to vote at the meeting and
intends to appear in person or by proxy at the meeting to nominate the person or
persons specified in the notice; (c) a description of all arrangements or
understandings between the shareholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the shareholder; (d) such other information
regarding each nominee proposed by the shareholder as would have been required
to be included in a proxy statement filing pursuant to the proxy rules of the
Securities and Exchange Commission had each nominee been nominated, or intended
to be nominated, by the Board of Directors; and (e) the consent of each nominee
to serve as a Director of the Corporation if so elected. The chairman of any
meeting of shareholders to elect directors and the Board of Directors may refuse
to acknowledge the nomination of any person not made in compliance with the
foregoing procedure.
3.2. Special Meetings. A special meeting of the shareholders may be
called at any time by the President, any Vice President or the Board of
Directors, and shall be called by the President or a Vice President upon the
written request of shareholders of the Corporation pursuant to Section 603 of
the Business Corporation Law.
3.3. Place of Meetings. The meetings of the shareholders of the
Corporation shall be held at its principal office in the State of New York or at
such other place within or without the State of New York as shall be designated
by the Board of Directors.
3.4. Notice of Meetings. Except as otherwise required by statute,
notice of each meeting of the shareholders, whether annual or special, shall be
in writing over the name of the President or the Secretary. Such notice shall
state the place, day and hour of the meeting, and, in the case of a special
meeting, the purpose or purposes for which the meeting is called. A copy of such
notice shall be served, either personally or by mail at the direction of the
President or the officer calling the meeting to each shareholder, upon each
shareholder of record entitled to vote at such meeting not less than ten days
(or not less than any such other minimum period of days as may be prescribed by
the Business Corporation Law) nor more than fifty days before such meeting. The
notice of any annual or special meeting shall also include, or be accompanied
by, any additional statements, information, or documents prescribed by statute.
If mailed, such notice shall be deemed to be delivered when deposited in the
United States mail addressed to the shareholder at his address as it appears on
the stock transfer books of the Corporation, with postage thereon prepaid.
Attendance of a shareholder at a meeting shall constitute a waiver of notice of
the meeting, except where the shareholder attends the meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting was not lawfully called or convened. Whenever any
notice is required to be given to any shareholder, a waiver thereof in writing
signed by him or his authorized attorney-in-fact, whether before or after such
meeting, shall be the equivalent to the giving of such notice. When a meeting is
adjourned to another time or place, it shall not be necessary to give any notice
of the adjourned meeting if the time and place to which the meeting is adjourned
are announced at the meeting at which the adjournment is taken, and at the
adjourned meeting any business may be transacted that might have been transacted
on the original date of the meeting. If, however, the Board of Directors shall
fix a new record date for the adjourned meeting, notice of the adjourned meeting
shall be given each shareholder of record of the new record date.
3.5. Quorum. At all meetings of the shareholders the presence in
person or by proxy of the holders of record of a majority of the shares then
issued and outstanding and entitled to vote shall be necessary and sufficient to
constitute a quorum for the transaction of business. After a quorum has been
established at a shareholders' meeting, the subsequent withdrawal of
shareholders, so as to reduce the number of shareholders at the meeting below
the number required for a quorum, shall not affect the validity of any action
taken at the meeting or any adjournment thereof. In the absence of a quorum, a
majority in interest of the shareholders entitled to vote, present in person or
by proxy, may adjourn the meeting. At any such adjourned meeting at which a
quorum may be present, any business may be transacted which might have been
transacted at the meeting as originally called.
3.6. Inspectors of Election. The Board of Directors shall appoint
two persons, who need not be shareholders, to act as Inspectors of Election at
all meetings of the shareholder" until the close of the next annual meeting. No
candidate for the office of director shall act as an Inspector of Election. If
there be a failure to appoint Inspectors, or if any Inspector appointed be
absent or refuse to act, or if his office becomes vacant, the Board of Directors
present at the meeting may choose temporary Inspectors of the number required.
The Inspectors appointed to act at any meeting of the Board of Directors, before
entering upon the discharge of their duties, shall be sworn faithfully to
execute the duties of Inspectors at such meeting with strict impartiality, and
according to the best of their ability.
3.7. Voting. Each shareholder entitled to vote in accordance with
the terms of the Certificate of Incorporation and in accordance with the
provisions of these By-Laws shall be entitled to one vote, in person or by
proxy, for each share of stock entitled to vote held by such shareholder, but no
proxy shall be voted after eleven months from its date unless such proxy
provides for a longer period. Every proxy shall be signed by the shareholder or
by his duly authorized attorney-in-fact, and filed with the Secretary of the
Corporation. Upon the demand of any shareholder, the vote for directors and the
vote upon any question before the meeting, shall be by ballot. At all meetings
of the shareholders, all matters shall be decided by a vote of a majority of the
number of shares of stock present in person or represented by proxy at such
meeting, except as otherwise provided in these By-Laws or by the Certificate of
Incorporation or the laws of the State of New York.
3.8. Voting List. The officer or agent having charge of the stock
transfer books for shares of the Corporation shall make a complete list, in
alphabetical order, of the shareholders entitled to vote at such meeting or any
adjournment thereof, with the address of and the number and class and series, if
any, of the shares held by each. Such list shall be produced at the meeting upon
the request thereat or prior thereto of any shareholder. The original stock
transfer book shall be prima facie evidence as to who are the shareholders
entitled to examine such list or transfer books or to vote at any meeting of
shareholders.
3.9. Waiver of Irregularities. All informalities and irregularities
in calls, notices of meeting and in the manner of voting, form of proxy,
credentials, and methods of ascertaining those present, shall be deemed waived
if no objection~is made thereto at the meeting.
ARTICLE IV
Board of Directors
4.1. General Powers and Qualifications. The property, affairs and
business of the Corporation shall be managed by the Board of Directors. The
Board of Directors may exercise all of the powers of the Corporation, except
such as are by law or by the Certificate of Incorporation or by these By-Laws
expressly conferred upon or reserved to the shareholders.
4.2. Number, Election and Term of Office. Until changed as
hereinafter provided, the number of directors shall be not less than three (3)
nor more than eight (8) as may be from time to time fixed by resolution of the
Board of Directors, but no decrease in the number of directors shall have the
effect of shortening the term of an incumbent director. Subject to the
provisions of Section 4.4.2 of this Article IV, the directors shall be elected
annually by the shareholders entitled to vote at the annual meeting of
shareholders, by a plurality of the votes at such election. Each director
(whether elected at an annual meeting or to fill a vacancy or otherwise) shall
continue in office until the annual meeting of shareholders held next after his
election and until his successor shall have been elected and qualified or until
his earlier death, resignation or removal in the manner hereinafter provided.
4.3. Meetings.
4.3.1. Time. Meetings shall be held at such time as the Board
of Directors shall fix, except that the first meeting of a newly elected Board
of Directors shall be held as soon after its election as the directors may
conveniently assemble.
4.3.2. Place. Meetings shall be held at such place (within or
without the State of New York), as shall be fixed by the Board of Directors.
4.3.3. Call. Special meetings of the Board of Directors may
be called by the Chairman of the Board, if any, the President, any Vice
President, or any two directors.
4.3.4. Notice. No notice shall be required for regular
meetings for which the time and place have been fixed. Written, oral or any
other mode of notice of the time and place shall be given for special meetings
no less than two days before the day on which the meeting is to be held. Unless
otherwise provided herein, the notice or a waiver of notice of any meeting need
not specify the business to be transacted or the purposes of the meeting.
Attendance of a director at a meeting shall constitute a waiver of notice of
such meeting and a waiver of any and all objections to the place of the meeting,
the time of the meeting, or the manner in which it has been called or convened,
except when a director states, at the beginning of the meeting, any objection to
the transaction of business because the meeting is not lawfully called or
convened. A director may waive notice of a meeting, before or after such
meeting, in writing or by telegraph, radio, cable or telecopy.
4.3.5. Telephonic Participation. Members of the Board of
Directors may participate in a meeting of said Board by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other at the same time, and
participation by such means shall be deemed to constitute presence in person at
a meeting.
4.3.6. Chairman of the Meeting. Meetings of the Board of
Directors shall be presided over by the following directors in the order of
seniority and if present and acting: Chairman of the Board, if any, the
President, or any other director chosen by the Board.
4.3.7. Quorum. The presence, at any meeting, of a majority of
the total number of directors constituting the entire Board of Directors shall
be necessary and sufficient to constitute a quorum of the transaction of
business, and except as otherwise required by statute, the Certificate of
Incorporation or these ByLaws, the act of a majority of the directors present at
a meeting at which a quorum is present shall be the act of the Board of
Directors. In the absence of a quorum, a majority of the directors present at
the time and place of any meeting may adjourn such meeting. Notice of any
adjourned meeting need not be given to the directors who were not present at the
time of the adjournment.
4.4. Resignations, Vacancies and Removal.
4.4.1. Resignation. Any director may resign at any time by
giving written notice of such resignation to either the Board of Directors, the
President, a Vice President, the Secretary, or an Assistant Secretary of the
Corporation. Unless otherwise specified therein, such resignation shall take
effect upon receipt thereof by the Board of Directors or by any such officer.
4.4.2. Vacancies. If any vacancy shall occur among the
directors by reasons of death, resignation, disqualification, removal with cause
or by reason of an increase in the number of directors or otherwise, such
vacancy may be filled by a majority vote of the remaining directors, though less
than a quorum. Any such vacancy and a vacancy resulting from a removal without
cause may also be filled by a majority of the shareholders present and entitled
to vote at any meeting held during the existence of such vacancy, provided that
the notice of such meeting shall have mentioned such vacancy or expected
vacancy.
4.4.3. Removal. Any or all of the directors may be removed
with cause, by the majority vote of the class of stock by which he was elected.
4.5. Written Action. Any action required to be taken at a meeting
of directors, or any action which may be taken at a meeting of directors or a
committee thereof, if any, may be taken without a meeting if a consent in
writing, setting forth the action so to be taken, shall be signed by all of the
directors or all the members of the committee, as the case may be, and is filed
in the minutes of the proceedings of the Board or of the committee, as the case
may be.
4.6. Compensation. The directors shall receive such compensation
for their services as may be authorized by resolution of the Board of Directors,
which compensation may include an annual fee and reimbursement for actual
expenses incurred in connection with the attendance at regular or special
meetings of the Board or any committee thereof. Nothing herein contained shall
be construed to preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor.
4.7. Committees. By resolutions adopted by a majority of the Board
of Directors then in office, the Board may designate an executive committee and
one or more other committees, each such committee to consist of three or more
directors of the Corporation. The executive committee shall have and may
exercise all the powers and authority of the Board in the management of the
business and affairs of the Corporation (except as otherwise expressly limited
by statute). Each such committee shall have such of the powers and authority of
the Board as may be provided from time to time in resolutions adopted by a
majority of the Board then in office.
4.8. Chairman of the Board. The Board of Directors may elect a
Chairman of the Board who may be designated as an officer of the Corporation as
provided in these By-Laws to perform such duties and have such responsibilities
as from time to time may be assigned to him by the Board of Directors.
ARTICLE V
Officers
5.1. Titles. The officers of the Corporation shall be a President,
one or more Vice Presidents, a Secretary, a Treasurer, one or more Assistant
Secretaries and Assistant Treasurers, and such other officers and agents as may
be appointed from time to time by the Board of Directors.
5.2. Election, Term of Office and Qualifications. Each officer
specifically designated in Section 5.1 of this Article V shall be chosen by the
Board of Directors and shall hold his office until his successor shall have been
duly chosen and qualified or until his death or until he shall resign or shall
have been removed.
5.3. Removal, Resignations and Vacancies.
5.3.1. Removal. Any officer may be removed either with or
without cause by vote of a majority of the Board of Directors then in office.
5.3.2. Resignations. Subject to any employment agreement with
the Corporation to the contrary, any officer may resign at any time by giving
written notice of such resignation to the Board of Directors or to the
President, a Vice President, the Secretary or an Assistant Secretary. Unless
otherwise specified therein, such resignation shall take effect upon receipt
thereof by the Board of Directors or by the President, a Vice President, the
Secretary or an Assistant Secretary.
5.3.3. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause may be filled for the
unexpired portion of the term by a majority of the directors then in office,
although less than a quorum.
5.4. The President. The President, unless otherwise determined by
the Board of Directors, shall be the chief executive officer of the Corporation.
Subject to the supervision and direction of the Board of Directors, he shall be
responsible for managing the affairs of the Corporation. He shall have
supervision and direction of all of the other officers of the Corporation and
shall have the powers and duties usually and customarily associated with the
office of the President. He shall preside at meetings of the shareholders and
the Board of Directors.
5.5. The Vice Presidents. The Vice Presidents shall have such
powers and duties as may be delegated to them by the President or by the Board
of Directors.
5.6. Secretary and Assistant Secretary.
5.6.1. Secretary. The Secretary shall attend all meetings of
the Board of Directors and of the shareholders, and shall record the minutes of
all proceedings in a book to be kept for that purpose. He shall perform like
duties for the committees of the Board when required. The Secretary shall give,
or cause to be given, notice of meetings of the shareholders, of the Board of
Directors and of the committees of the Board. He shall keep in safe custody the
seal of the Corporation, and when authorized by the President, an Executive Vice
President or a Vice President, shall affix the same to any instrument requiring
it, and when so affixed it shall be attested by his signature or by the
signature of an Assistant Secretary. He shall have such other powers and duties
as may be delegated to him by the President.
5.6.2. Assistant Secretary. The Assistant Secretary shall, in
case of the absence of the Secretary, perform the duties and exercise the powers
of the Secretary, and shall have such other powers and duties as may be
delegated to him by the President.
5.7. Treasurer and Assistant Treasurer.
5.7.1. Treasurer. The Treasurer shall have the custody of the
corporate funds and securities, and shall deposit or cause to be deposited under
his direction all moneys and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by the Board
of Directors or pursuant to authority granted by it. He shall render to the
President and the Board whenever they may require it an account of all his
transactions as Treasurer and of the financial condition of the Corporation. He
shall have such other powers and duties as may be delegated to him by the
President.
5.7.2. Assistant Treasurer. The Assistant Treasurer shall, in
case of the absence of the Treasurer, perform the duties and exercise the powers
of the Treasurer, and shall have such other powers and duties as may be
delegated to him by the President.
5.8. Additional Officers. Each other officer (including, if
designated as such, the Chairman of the Board) appointed by the Board shall hold
office for such period, have such authority and perform such duties as directed
by the Board of Directors.
5.9. Compensation. The salaries or other compensation of the
officers shall be fixed from time to time by the Board of Directors, and no
officer shall be prevented from receiving such salary or other compensation by
reason of the fact that he is also a director of the Corporation.
ARTICLE VI
Corporate Seal
The corporate seal shall have inscribed thereon the name of the
Corporation and shall be in such form and contain such other words and/or
figures as the Board of Directors shall determine or the law require.
ARTICLE VII
Fiscal Year
The fiscal year of the Corporation shall be as determined from time to
time by resolution duly adopted by the Board of Directors.
ARTICLE IX
Indemnification
Each director or officer who the Corporation is empowered to indemnify
pursuant to the provisions of Section 722 of the Business Corporation Law (or
any similar provision or provisions of applicable law at the time in effect)
shall be indemnified by the Corporation to the full extent permitted thereby.
The foregoing right of indemnification shall not be deemed to be exclusive of
any other such rights to which those directors and officers seeking
indemnification from the Corporation may be entitled, including, but not limited
to, any rights of indemnification to which they may be entitled pursuant to any
agreement, insurance policy, other by-law or charter provision, vote of
shareholders or directors, or otherwise. No repeal or amendment of this Article
IX shall adversely affect any rights of any person pursuant to this Article IX
which existed at the time of such repeal or amendment with respect to acts or
omissions occurring prior to such repeal or amendment
ARTICLE X
Amendments
10.1 Shareholders. These By-Laws may be altered or amended by a
majority of the holders of the outstanding voting stock of the Corporation
present in person or by proxy at any annual or special meeting of the
shareholders.
10.2 Board of Directors. These By-Laws may be altered or amended by
a majority of the Board of Directors then in office to the full extent permitted
by law or regulation. If any By-Law resulting in impending election of directors
is adopted, amended or repealed by the Board of Directors, there shall be set
forth in the notice of the next meeting of shareholders for the election of
directors the By-Law so adopted, amended or repealed, together with a concise
statement of the changes made.
<PAGE> 15
<PAGE> 16
As Amended by Stockholder Vote
on September 8, 1995
ANDREA ELECTRONICS CORPORATION
1991 Performance Equity Plan
Section 1. Purpose; Definitions.
1.1. Purpose. The purpose of the Andrea Electronics Corporation (the
"Company") 1991 Performance Equity Plan (the "Plan") is to enable the Company to
offer to its key employees, officers, directors and consultants whose past,
present and/or potential contributions to the Company and its Subsidiaries have
been, are or will be important to the success of the Company, an opportunity to
acquire a proprietary interest in the Company. The various types of long-term
incentive awards which may be provided under the Plan will enable the Company to
respond to changes in compensation practices, tax laws, accounting regulations
and the size and diversity of its businesses.
1.2. Definitions. For purposes of the Plan, the following terms shall
be defined as set forth below:
(a) "Agreement" means the agreement between the Company and
the Holder setting forth the terms and conditions of an award under the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended
from time to time, and any successor thereto and the regulations promulgated
thereunder.
(d) "Committee" means the Stock Option Committee of the Board
or any other committee of the Board which the Board may designate to administer
the Plan or any portion thereof. If no Committee is so designated, then all
references in this Plan to "Committee" shall mean the Board.
(e) "Common Stock" means the Common Stock of the Company, par
value $.50 per share.
(f) "Company" means Andrea Electronics Corporation, a
corporation organized under the laws of the State of New York.
(g) "Deferred Stock" means stock to be received, under an
award made pursuant to Section 8 below, at the end of a specified deferral
period.
(h) "Disability" means disability as determined under
procedures established by the Committee for purposes of the Plan.
(i) "Effective Date" means the date set forth in Section 11.
(j) "Fair Market Value", unless otherwise required by any
applicable provision of the Code or any regulations issued thereunder, means, as
of any given date: (i) if the Common Stock is listed on a national securities
exchange or quoted on the NASDAQ National Market System, the last sale price of
the Common Stock on the last preceding day on which the Common Stock was traded,
as reported an the composite tape or by NASDAQ/NMS System Statistics, as the
case may be; (ii) if the Common Stock is not listed on a national securities
exchange or quoted on the NASDAQ National Market System, but is traded in the
over-the-counter market the average of the high bid and low asked prices for the
Common Stock on the last preceding day for which such quotations are reported by
NASDAQ; and (iii) if the fair market value of the Common Stock cannot be
determined pursuant to clause (i) or (ii) above, such price as the Committee
shall determine, in good faith.
(k) "Family Group Member" shall mean the spouse, sibling or
lineal descendant of the Holder or a trust established for any such person.
(l) "Holder" means a person who has received an award under
the Plan.
(m) "Incentive Stock Option" means any Stock Option intended
to be and designated as an "incentive stock option" within the meaning of
Section 422 of the Code.
(n) "Non-Qualified Stock Option" means any Stock Option that
is not an Incentive Stock Option.
(o) "Normal Retirement" means retirement from active
employment with the Company or any Subsidiary on or after age 65.
(p) "Other Stock-Based Award" means an award under Section 9
below that is valued in whole or in part by reference to, or is otherwise based
upon, Stock.
(q) "Parent" means any present or future parent corporation of
the Company, as such term is defined in Section 424(e) of the Code.
(r) "Plan" means the Andrea Electronics Corporation 1991
Performance Equity Plan, as hereinafter amended from time to time.
(s) "Restricted Stock" means stock, received under an award
made pursuant to Section 7 below, that is subject to restrictions under said
Section 7.
(t) "SAR Value" means the excess of the Fair Market Value of
one share of Common Stock over the exercise price per share specified in a
related Stock Option in the case of a Stock Appreciation Right granted in
tandem with a Stock Option and the Stock Appreciation Right price per share
in the case of a Stock Appreciation Right awarded on a free standing basis,
in each case multiplied by the number of shares in respect of which the
Stock Appreciation Right shall be exercised, on the date of exercise.
(u) "Stock" means the Common Stock of the Company, par value
$.50 per share.
(v) "Stock Appreciation Right" means the right, pursuant to
an award granted under Section 6 hereof, to recover an amount equal to the SAY
Value.
(w) "Stock Option" or "option" means any option to purchase
shares of Stock which is granted pursuant to the Plan.
(x) "Stock Reload Option" means any option granted under
Section 5.3 as a result of the payment of the exercise price of a Stock option
and/or the withholding tax related thereto in the form of stock owned by the
Holder or the withholding of Stock by the Company.
(y) "Subsidiary" means any present or future subsidiary
corporation of the Company, as such term is defined in section 424(f) of the
Code.
Section 2. Administration.
2.1. Committee Membership. The Plan shall be administered by the Board
or a Committee. Committee members shall serve for such term as the Board may in
each case determine, and shall be subject to removal at any time by the Board.
2.2. Powers of Committee. The Committee shall have full authority,
subject to Section 4.2 hereof, to award, pursuant to the terms of the Plan: (i)
Stock Options, (ii) Stock Appreciation Rights, (iii) Restricted Stock, (iv)
Deferred Stock, (v) Stock Reload Options and/or (vi) Other Stock-Based Awards.
For purposes of illustration and not of limitation, the Committee shall have the
authority (subject to the express provisions of this Plan):
(a) to select the officers, key employees, directors and
consultants of she Company or any Subsidiary to whom Stock Options, Stock
Appreciation Rights, Restricted Stock, Deferred Stock, Reload Stock Options
and/or Other Stock-Based Awards may from time to time be awarded hereunder;
(b) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder (including, but not
limited to, number of shares, share price, any restrictions or limitations, and
any vesting, exchange, surrender, cancellation, acceleration, termination,
exercise or forfeiture provisions, as the Committee shall determine);
(c) to determine any specified performance goals or such other
factors or criteria which need to be attained for the vesting of an award
granted hereunder;
(d) to determine the terms and conditions under which awards
granted hereunder are to operate on a tandem basis and/or in conjunction with or
apart from other equity awarded under this Plan and cash awards made by the
Company or any Subsidiary outside of this Plan;
(e) to permit a Holder to elect to defer a payment under the
Plan under such rules and procedures as the Committee may establish, including
the crediting of interest on deferred amounts denominated in cash and of
dividend equivalent on deferred amounts denominated in stock;
(f) to determine the extent and circumstances under which
Stock and other amount so payable with respect to an award hereunder shall be
deferred which may be either automatic or at the election of the Holder; and
(g) to substitute (i) new Stock Options for previously granted
Stock Options, which previously granted Stock Options have higher option
exercise prices and/or contain other less favorable terms, and (ii) new awards
of any other type for previously granted awards of the same type, which
previously granted awards are upon less favorable terms.
2.3. Interpretation of Plan.
(a) Committee Authority. Subject to Section 10 hereof, the
Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable, to interpret the terms and provisions of the
Plan and any award issued under the Plan (and to determine the form and
substance of all Agreements relating thereto), and to otherwise supervise the
administration of the Plan. Subject to Section 10 hereof, all decisions made by
the Committee pursuant to the provisions of the Plan shall be made in the
Committee's sole discretion and shall be final and binding upon all persons,
including the Company, its Subsidiaries and Holders.
(b) Incentive Stock Options. Anything in the Plan to the
contrary notwithstanding, no term or provision of the Plan relating to Incentive
Stock Options (including but limited to Stock Reload Options or Tandem Stock
Appreciation rights granted in conjunction with an Incentive Stock Option) or
any Agreement providing for Incentive Stock Options shall be interpreted,
amended or altered, nor shall any discretion or authority granted under the Plan
be so exercised, so as to disqualify the Plan under Section 422 of the Code, or,
without the consent of the Holder(s) affected, to disqualify any Incentive Stock
option under such Section 422.
Section 3. Stock Subject to Plan
3.1. Number of Shares. The total number of shares of Common Stock
reserved and available for distribution under the Plan shall be 1,500,000
shares. Shares of stock under the Plan may consist, in whole or in part, of
authorized and unissued shares or treasury shares. If any shares of Stock that
have been optioned cease to be subject to a Stock Option, or if any shares of
stock that are subject to any Stock Appreciation Right, Restricted Stock,
Deferred Stock Award, Reload Stock Option or Other Stock-Based Award granted
hereunder are forfeited or any such award otherwise terminates without a payment
being made to the Holder in the form of Stock, such shares shall again be
available for distribution in connection with future grants in and awards under
the Plan. Only net shares issued upon a stock-for-stock exercise (including
stock used for withholding taxes) shall be counted against the number of shares
available under the Plan.
3.2. Adjustment Upon Changes in Capitalization, Etc. In the event of
any merger, or organization, consolidation, recapitalization, dividend (other
than a cash dividend), stock split, reverse stock split, or other change in
corporate structure affecting the Stock, such substitution or adjustment shall
be made in the aggregate number of shares reserved for issuance under the Plan,
in the number and exercise price of shares subject to outstanding Options, in
the number of shares and Stock Appreciation Right price relating to Stock
Appreciation Rights, and ln the number of shares subject to, and in the related
terms of, other outstanding awards (including but not limited to awards of
Restricted Stock, Deferred Stock, Reload Stock Options and other Stock-Based
Awards) granted under the Plan as may be determined to be appropriate by the
Committee in order to prevent dilution or enlargement of rights, provided that
the number of shares subject to any award shall always be a whole number.
Section 4. Eligibility.
Awards may be made or granted to key employees, officers, directors and
consultants who are deemed to have rendered or to be able to render significant
services to the Company or its Subsidiaries and who are deemed to have
contributed or to have the potential to contribute to the success of the
Company. No Incentive Stock Option shall be granted to any person who is not an
employee of the Company or a Subsidiary at the time of grant.
Section 5. Stock Options.
5.1. Grant and Exercise. Stock Options granted under the Plan may be
of two types: (i) Incentive Stock Options and (ii) Non-Qualified Stock Options.
Any Stock Option granted under the Plan shall contain such terms, not
inconsistent with this Plan, or with respect to Incentive Stock Options, the
Code, as the Committee may from time to time approve. The Committee shall have
the authority to grant Incentive Stock Options, Non-Qualified Stock Options, or
both types of Stock Options and may be granted alone or in addition to other
awards granted under the Plan. To the extent that any Stock Option intended to
qualify as an Incentive Stock Option does not so qualify, it shall constitute a
separate Non-Qualified Stock Option. An Incentive Stock Option may only be
granted within the ten year period commencing from the Effective Date and may
only be exercised within ten years of the date of grant (or five years in the
case of an Incentive Stock Option granted to an optionee ("10% Stockholder")
who, at the time of grant, owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or a Parent or
Subsidiary.
5.2. Terms and Conditions. Stock Options granted under the Plan shall
be subject to the following terms and conditions:
(a) Exercise Price. The exercise price per share of Stock
purchasable under a Stock Option shall be determined by the Committee at the
time of grant and may be less than 100% of the Fair Market Value of the Stock at
the time of grant; provided, however, that the exercise price of an Incentive
Stock Option shall not be less than 100% of the Fair Market Value of the Stock
at the time of grant (110%, in the case of 10% Holder).
(b) Option Term. Subject to the limitations contained in
Section 5.1, the term of each Stock Option shall be fixed by the Committee.
(c) Exercisability. Stock Options shall be exercisable at
such time or times and subject to such terms and conditions as shall be
determined by the Committee. If the Committee provides, in its discretion, that
any Stock Option is exercisable only in installments, i.e., that it vests over
time, the Committee may waive such installment exercise provisions at any time
at or after the time of grant in whole or in part, based upon such factors as
the Committee shall determine.
(d) Method of Exercise. Subject to whatever installment,
exercise and waiting period provisions are applicable in a particular case,
Stock Options may be exercised in whole or in part at any time during the term
of the Option, by giving written notice of exercise to the Company specifying
the number of shares of Stock to be purchased. Such notice shall be accompanied
by payment in full of the purchase price, which shall be in cash or, unless
otherwise provided in the Agreement, in shares of Stock (including Restricted
Stock and other contingent awards under this Plan) or, partly in cash and partly
in such Stock, or such other means which the Committee determines are consistent
with the Plan's purpose and applicable law. Cash payments shall be made by wire
transfer, certified or bank check or personal check, in each case payable to the
order of the Company; provided, however, that the Company shall not be required
to deliver certificates for shares of stock with respect to which an Option is
exercised until the Company has confirmed the receipt of good and available
funds in payment of the purchase price thereof. Payments in the form of Stock
shall be valued at the Fair Market Value of a share of Stock on the date prior
to the date of exercise. Such payments shall be made by delivery of stock
certificates in negotiable form which are effective to transfer good and valid
title thereto to the Company, free of any liens or encumbrances. Subject to the
terms of the Agreement, the Committee may, in its sole discretion, at the
request of the Holder, deliver upon the exercise of a Non-Qualified Stock Option
a combination of shares of Deferred Stock and Common Stock; provided that,
notwithstanding the provisions of Section 8 of the Plan, such Deferred Stock
shall be fully vested and not subject to forfeiture. A Holder shall have none
of the rights of a stockholder with respect to the shares subject to the Option
until such shares shall be transferred to the holder upon the exercise of the
Option.
(e) Transferability. No Stock Option shall be transferable
by the Holder, otherwise than by will or by the laws of descent and
distribution, and all Stock options shall be exercisable, during the Holder's
lifetime, only by the Holder; provided however that, notwithstanding anything to
the contrary contained herein, the Committee may in its sole discretion allow a
Non-Incentive Stock Option to be transferred to a Family Group Member.
(f) Termination by Reason of Death. If a Holder's employment
by the Company or a Subsidiary terminates by reason of death, any Stock Option
held by such Holder, unless otherwise determined by the Committee at the time of
grant and set forth in the Agreement, shall be fully vested and may thereafter
be exercised by the legal representative of the estate or by the legatee of the
Holder under the will of the Holder, for a period of one year (or such other
greater or lesser period as the Committee may specify at grant) from the date of
such death or until the expiration of the stated term of such Stock Option,
whichever period is the shorter.
(g) Termination by Reason of Disability. If a Holder's
employment by the Company or any subsidiary terminates by reason of Disability,
any Stock Option held by such Holder, unless otherwise determined by the
Committee at the time of grant and set forth in the Agreement, shall be fully
vested and may thereafter be exercised by the Holder for a period of one year
(or such other lesser period as the Committee may specify at the time of grant)
from the date of such termination of employment or until the expiration of the
stated term of such Stock Option, whichever period is the shorter.
(h) Other Termination. Subject to the provisions of Section
12.3 below and unless otherwise determined by the Committee at the time of grant
and set forth in the Agreement, if a Holder is an employee of the Company or a
Subsidiary at the time of grant and if such Holder's employment by the
Company or any Subsidiary terminates for any reason other than death or
Disability, the Stock Option shall thereupon automatically terminate, except
that if the Holder's employment is terminated by the Company or a Subsidiary
without cause or due to Normal Retirement, then the portion of such Stock Option
which has vested on the date of the termination of employment may be exercised
for the lesser of three months after termination of employment or the balance of
such Stock Option's term.
(i) Additional Incentive Stock Option Limitation. In the case
of an Incentive Stock Option, the amount of aggregate Fair Market Value of Stock
(determined at the time of grant of the Option) with respect to which Incentive
Stock Options are exercisable for the first time by a Holder during any calendar
year (under all such plans of the Company and its Parent and Subsidiary) shall
not exceed $100,000.
(j) Buyout and Settlement Provisions. The Committee may at
any time offer to buy out a Stock Option previously granted, based upon such
terms and conditions as the Committee shall establish and communicate to the
Holder at the time that such offer is made.
(k) Stock Option Agreement. Each grant of a Stock Option
shall be confirmed by, and shall be subject to the terms of, the Agreement
executed by the Company and the Holder.
5.3. Stock Reload Option. The Committee may also grant to the Holder
(concurrently with the grant of an Incentive Stock Option and at or after the
time of grant in the case of a Non-Incentive stock Option) a Stock Reload Option
up to the amount of shares of Stock held by the Holder for at least six months
and used to pay all or part of the exercise price of an Option and, if any,
withheld by the Company as payment for withholding taxes. Such Stock Reload
Option shall have an exercise price of the Fair Market Value as of the date of
the Stock Reload Option grant, Unless the Committee determines otherwise, a
Stock Reload Option may be exercised commencing one year after it is granted and
shall expire on the date of expiration of the Option to which the Reload Option
is related.
Section 6. Stock Appreciation Rights.
6.1. Grant and Exercise. Stock Appreciation Rights may be granted in
tandem with ("Tandem Stock Appreciation Right") or in conjunction with all or
part of any Stock Option granted under the Plan or may be granted on a
free-standing basis. In the case of a Non-Qualified Stock Option, a Tandem
Stock Appreciation Right may be granted either at or after the time of the grant
of such Non-Qualified Stock Option. In the case of an Incentive Stock Option, a
Tandem Stock Appreciation Right may be granted only at the time of the grant of
such Incentive Stock Option.
6.2. Terms and Conditions. Stock Appreciation Rights shall be subject
to the following terms and conditions:
(a) Exercisability. Tandem Stock Appreciation Rights shall
be exercisable only at such time or times and to the extent that the Stock
Options to which they relate shall be exercisable in accordance with the
provisions of Section 5 hereof and this Section 6 and may be subject to the Code
with respect to related Incentive Stock Options and such additional limitations
on exercisability as shall be determined by the Committee and set forth in the
Agreement. Other Stock Appreciation Rights shall be exercisable at such time or
times and subject to such terms and conditions as shall be determined by the
Committee and set forth in the Agreement.
(b) Termination. A Tandem Stock Appreciation Right shall
terminate and shall no longer be exercisable upon the termination or exercise of
the related Stock Option, except that, unless otherwise determined by the
Committee at the time of grant, a Tandem Stock Appreciation Right granted with
respect to less than the full number of shares covered by a related Stock Option
shall not be reduced until after the number of shares remaining under the
related Stock Option equals the number of shares covered by the Tandem Stock
Appreciation Right.
(c) Method of Exercise. A Tandem Stock Appreciation Right may
be exercised by a Holder by surrendering the applicable portion of the related
Stock Option. Upon such exercise and surrender, the Holder shall be entitled to
receive such amount in the form determined pursuant to Section 6.2(d) below.
Stock Options which have been so surrendered, in whole or in part, shall no
longer be exercisable to the extent the related Tandem Stock Appreciation Rights
have been exercised.
(d) Receipt of SAR Value. Upon the exercise of a Stock
Appreciation Right, a Holder shall be entitled to receive up to, but not more
than, an amount in cash and/or shares of Stock equal to the SAR Value with the
Committee having the right to determine the form of payment.
(e) Shares Affected Upon Plan. Upon the exercise of a Tandem
Stock Appreciation Right, the Stock Option or part thereof to which such Tandem
Stock Appreciation Right is related shall be deemed to have been exercised for
the purpose of the limitation set forth in Section 3 hereof on the number of
shares of Common Stock to be issued under the Plan, but only to the extent of
the number of shares, if any, issued under the Tandem Stock Appreciation Right
at the time of exercise based upon the SAR Value.
Section 7. Restricted Stock.
7.1. Grant. Shares of Restricted Stock may be awarded either alone or
in addition to other awards granted under the Plan. The Committee shall
determine the eligible persons to whom, and the time or times at which, grants
of Restricted Stock will be awarded, the number of shares to be awarded, the
price (if any) to be paid by the Holder, the time or times within which such
awards may be subject to forfeiture (the "Restriction Period"), the vesting
schedule and rights to acceleration thereof, and all other terms and conditions
of the awards.
7.2. Terms and Conditions. Each Restricted Stock award shall be
subject to the following terms and conditions:
(a) Certificates. Restricted Stock, when issued, will be
represented by a stock certificate or certificates registered in the name of the
Holder to whom such Restricted Stock shall have been awarded. During the
Restriction Period, certificates representing the Restricted Stock and any
securities constituting Retained Distributions (as defined below) shall bear a
legend to the effect that ownership of the Restricted Stock (and such Retained
Distributions), and the enjoyment of all rights appurtenant thereto, are subject
to the restrictions, terms and conditions provided in the Plan and the
Agreement. Such certificates shall be deposited by the Holder with the Company,
together with stock powers or other instruments of assignment, each endorsed in
blank, which will permit transfer to the Company of all or any portion of the
Restricted Stock and any securities constituting Retained Distributions that
shall be forfeited or that shall not become vested in accordance with the Plan
and the Agreement.
(b) Rights of Holder. Restricted Stock shall constitute
issued and outstanding shares of Common Stock for all corporate purposes. The
Holder will have the right to vote such Restricted Stock, to receive and retain
all regular cash dividends and other cash equivalent distributions as the Board
may in its sole discretion designate, pay or distribute on such Restricted Stock
and to exercise all other rights, powers and privileges of a holder of Common
Stock with respect to such Restricted Stock, with the exceptions that (i) the
Holder will not be entitled to delivery of the stock certificate or certificates
representing such Restricted Stock until the Restriction Period shall have
expired and unless all other vesting requirements with respect thereto shall
have been fulfilled; (ii) the Company will retain custody of the stock
certificate or certificates representing the Restricted Stock during the
Restriction Period; (iii) other than regular cash dividends and other cash
equivalent distributions as the Board may in its sole discretion designate, pay
or distribute, the Company will retain custody of all distributions ("Retained
Distributions") made or declared with respect to the Restricted Stock (and such
Retained Distributions will be subject to the same restrictions, terms and
conditions as are applicable to the Restricted Stock) until such time, if ever,
as the Restricted Stock with respect to which such Retained Distributions shall
have been made, paid or declared shall have become vested and with respect to
which the Restriction Period shall have expired; (iv) a breach of any of the
restrictions, terms or conditions contained in this Plan or the agreement or
otherwise established by the Committee with respect to any Restricted Stock or
Retained Distributions will cause a forfeiture of such Restricted Stock and any
Retained Distributions with respect thereto.
(c) Vesting; Forfeiture. Upon the expiration of the Restriction
Period with respect to each award of Restricted Stock and the satisfaction of
any other applicable restrictions, terms and conditions (i) all or part of such
Restricted Stock shall become vested in accordance with the terms of the
Agreement, and (ii) any Retained Distributions with respect to such Restricted
Stock shall become vested to the extent that the Restricted Stock related
thereto shall have become vested. Any such Restricted Stock and Retained
Distributions that do not vest shall be forfeited to the Company and the Holder
shall not thereafter have any rights with respect to such Restricted Stock and
Retained Distributions that shall have been so forfeited.
Section 8. Deferred Stock.
8.1. Grant. Shares of Deferred Stock may be awarded either alone or
in addition to other awards granted under the Plan. The Committee shall
determine the eligible persons to whom and the time or times at which grants of
Deferred Stock shall be awarded, the number of shares of Deferred Stock to be
awarded to any person, the duration of the period (the "Deferral Period") during
which, and the conditions under which, receipt of the shares will be deferred
and all the other term and conditions of the awards.
8.2. Terms and Conditions. Each Deferred Stock award shall be subject
to the following terms and conditions:
(a) Certificates. At the expiration of the Deferral Period
(or the Additional Deferral Period referred to in Section 8.2(c) below, where
applicable), share certificates shall be delivered to the Holder, or his legal
representative, representing the number equal to the shares covered by the
Deferred Stock award.
(b) Vesting; Forfeiture. Upon the expiration of the Deferral
Period (or the Additional Deferral Period, where applicable) with respect to
each award of Deferred Stock and the satisfaction of any other applicable
limitations, term or conditions, such Deferred Stock shall become vested in
accordance with the terms of the Agreement. Any Deferred Stock that does not
vest shall be forfeited to the Company and the Holder shall not thereafter have
any rights with respect to such Deferred Stock that has been so forfeited.
(c) Additional Deferral Period. A Holder may request to, and
the Committee may at any time, defer the receipt of an award (or an installment
of an award) for an additional specified period or until a specified event (the
"Additional Deferral Period"). Subject to any exceptions adopted by the
Committee, such request must generally be made at least one year prior to
expiration of the Deferral Period for such Deferred Stock award (or such
installment).
Section 9. Other Stock-Based Awards.
9.1. Grant and Exercise. Other Stock-Based Awards may be awarded,
subject to limitations under applicable law, that are denominated or payable in,
valued in whole or in part by reference to, or otherwise based on, or related
to, shares of Common Stock, as deemed by the Committee to be consistent with the
purposes of the Plan, including, without limitation, purchase rights, shares of
Common Stock awarded which are not subject to any restrictions or conditions,
convertible or exchangeable debentures, or other rights convertible into shares
of Common Stock and awards valued by reference to the value of securities of or
the performance of specified Subsidiaries. Other Stock-Based Awards may be
awarded either alone or in addition to or in tandem with any other awards under
this Plan or any other plan of the Company.
9.2. Eligibility. The Committee shall determine the eligible persons
to whom and the time or times at which grants of such award shall be made, the
number of shares of Common Stock to be awarded pursuant to such awards, and all
other terms and conditions of the awards.
9.3. Terms and Conditions. Each Other Stock-Based Award shall be
subject to such terms and conditions, as may be determined by the Committee.
Section 10. Amendments and Termination.
The Board (but not the Committee) may at any time amend, alter, suspend
or discontinue the Plan, but no amendment, alteration, suspension or
discontinuance shall be made which would impair the rights of a Holder under any
Agreement theretofore entered into hereunder, without his consent.
Section 11. Term of Plan.
11.1. Effective Date. The Plan shall be effective as of December 31,
1991 ("Effective Date"), subject to the approval of the Plan by the stockholders
of the Company within one year after the Effective Date. Any awards granted
under the Plan prior to such approval shall be effective when made (unless
otherwise specified by the Committee at the time of grant), but shall be
conditioned upon, and subject to, such approval of the Plan by the Company's
Stockholders. If the Plan shall not be so approved, all awards granted
thereunder shall be of no effect and any Stock received by a Holder upon the
exercise of an award shall be deemed forfeited and the Holder shall return the
Stock to the Company.
11.2. Termination Date. Unless terminated by the Board, this Plan
shall continue to remain effective until such time no further awards may be
granted and all awards granted under the Plan are no longer outstanding.
Notwithstanding the foregoing, grants of Incentive Stock Options may only be
made during the ten year period following the Effective Date.
Section 12. General Provisions.
12.1. Written Agreements. Each award granted under the Plan shall be
confirmed by, and shall be subject to the terms of the Agreement executed by the
Company and the Holder. The Committee may terminate any award made under the
Plan if the Agreement relating thereto is not executed and returned to the
Company within 60 days after the Agreement has been delivered to the Holder for
his or her execution.
12.2. Unfunded Status of Plan. The Plan is intended to constitute an
"unfunded" plan for incentive and deferred compensation. With respect to any
payments not yet made to a Holder by the Company, nothing contained herein shall
give any such Holder any rights that are greater than those of a general
creditor of the Company.
12.3. Employees.
(a) Engaging in Competition With the Company. In the event
an employee Holder terminates his employment with the Company or a Subsidiary
for any reason whatsoever, and within eighteen (18) months after the date
thereof accepts employment with any competitor of, or otherwise engages in
competition with, the Company, the Committee, in its Bole discretion, may
require such Holder to return to the Company the economic value of any award
which was realized or obtained (measured at the date of exercise, vesting or
payment) by such Holder at any time during the period beginning on that date
which is six months prior to the date of such Holder's termination of employment
with the Company.
(b) Termination for Cause. The Committee may, in the event
an employee is terminated for cause, annul any award granted under the Plan to
such employee and in such event the Committee, in its sole discretion, may
require such Holder to return to the Company the economic value of any award
which was realized or obtained (measured at the date of exercise, vesting or
payment) by such Holder at any time during the period beginning on that date
which is six months prior to the date of such Holder's termination of
employment with the Company.
(c) No Right of Employment. Nothing contained in the Plan or
in any award hereunder shall be deemed to confer upon any employee of the
Company or any Subsidiary any right to continued employment with the Company or
any Subsidiary, nor shall it interfere in any way with the right of the Company
or any Subsidiary to terminate the employment of any of its employees at any
time.
12.4. Investment Representations. The Committee may require each
0person acquiring shares of Stock pursuant to a Stock Option or other award
under the Plan to represent to and agree with the Company in writing that the
Holder is acquiring the shares for investment without a view to distribution
thereof.
12.5. Additional Incentive Arrangements. Nothing contained in the Plan
shall prevent the Board from adopting such other or additional incentive
arrangements as it may deem desirable, including, but not limited to, the
granting of stock options and the awarding of stock and cash otherwise than
under the Plan; and such arrangements may be either generally applicable or
applicable only in specific cases.
12.6. Withholding Taxes. Not later than the date as of which an amount
first becomes includible in the gross income of the Holder for Federal income
tax purposes with respect to any option or other award under the Plan, the
Holder shall pay to the Company, or make arrangements satisfactory to the
Committee regarding the payment of, any Federal, state and local taxes of any
kind required by law to be withheld or paid with respect to such amount. If
permitted by the Committee, tax withholding or payment obligations may be
settled with Common Stock, including Common Stock that is part of the award that
gives rise to the withholding requirement. The obligations of the Company under
the Plan shall be conditional upon such payment or arrangements and the Company
or the Holder's employer (if not the Company) shall, to the extent permitted by
law, have the right to deduct any such taxes from any payment of any kind
otherwise due to the Holder from the Company or any Subsidiary.
12.7. Governing Law. The Plan and all awards made and actions taken
thereunder shall be governed by and construed in accordance with the laws of the
State of New York (without regard to choice of law provisions).
12.8. Other Benefit Plans. Any award granted under the Plan shall not
be deemed compensation for purposes of computing benefits under any retirement
plan of the Company or any Subsidiary and shall not affect any benefits under
any other benefit plan now or subsequently in effect under which the
availability or amount of benefits is related to the level of compensation
(unless required by specific reference in any such other plan to awards under
this Plan).
12.9. Non-Transferability. Except as otherwise expressly provided in
the Plan, no right or benefit under the Plan may be alienated, sold, assigned,
hypothecated, pledged, exchanged, transferred, encumbranced or charged, and any
attempt to alienate, sell, assign, hypothecate, pledge, exchange, transfer,
encumber or charge the same shall be void.
12.10. Applicable Laws. The obligations of the Company with respect to
all Stock Options and awards under the Plan shall be subject to (i) all
applicable laws, rules and regulations and such approvals by any governmental
agencies as may be required, including, without limitation, the effectiveness of
a registration statement under the Securities Act of 1933, as amended, and (ii)
the rules and regulations of any securities exchange on which the Stock may be
listed.
12.11. Conflicts. If any of the terms or provisions of the Plan
conflict with the requirements of with respect to Incentive Stock Options,
Section 422A of the Code, then such terms or provisions shall be deemed
inoperative to the extent they so conflict with the requirements of said Section
422A of the Code. Additionally, if this Plan does not contain any provision
required to be included herein under Section 422A of the Code, such provision
shall be deemed to be incorporated herein with the same force and effect as if
such provision had been set out at length herein.
12.12. Non-Registered Stock. The shares of Stock being distributed
under this Plan have not been registered under the Securities Act of 1933, as
amended (the "1933 Act"), or any applicable state or foreign securities laws and
the Company has no obligation to any Holder to register the Stock or to assist
the Holder in obtaining an exemption from the various registration requirements,
or to list the Stock on a national securities exchange.
<PAGE> 17
<PAGE> 18
EXHIBIT 11
<TABLE>
ANDREA ELECTRONICS CORPORATION
Computation of Fully Diluted Earnings Per Common Share
<CAPTION>
For the Three Months Ended
March 31,
1996 1995
----------- -----------
<S> <C> <C>
EARNINGS
Pro forma income (loss) applicable to common stock* $ (477,909) $ (138,796)
========== ==========
SHARES
Weighted average number of common shares outstanding 3,290,322 3,016,360
Assuming conversion of options and warrants 776,909 978,050
--------- ---------
Pro forma shares 4,067,230 3,994,410
========= =========
Fully diluted income (loss) per common share $ (.12) $ (.03)
========= =========
</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> 19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 923,682
<SECURITIES> 99,223
<RECEIVABLES> 1,028,657
<ALLOWANCES> 32,183
<INVENTORY> 2,802,478
<CURRENT-ASSETS> 5,082,096
<PP&E> 1,589,560
<DEPRECIATION> 875,737
<TOTAL-ASSETS> 5,797,070
<CURRENT-LIABILITIES> 232,272
<BONDS> 1,402,000
<COMMON> 1,672,181
0
0
<OTHER-SE> 2,450,108
<TOTAL-LIABILITY-AND-EQUITY> 5,797,108
<SALES> 1,749,883
<TOTAL-REVENUES> 1,749,883
<CGS> 1,281,297
<TOTAL-COSTS> 1,281,297
<OTHER-EXPENSES> 931,625
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 61,166
<INCOME-PRETAX> (477,909)
<INCOME-TAX> 0
<INCOME-CONTINUING> (477,909)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (477,909)
<EPS-PRIMARY> (.15)
<EPS-DILUTED> (.68)
</TABLE>
