<PAGE>
As filed with the Securities and Exchange Commission on August 10, 1998
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM S-3
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
--------------------------
ANDREA ELECTRONICS CORPORATION
(Exact name of registrant as specified in its charter)
NEW YORK 11-0482020
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11-40 45TH ROAD
LONG ISLAND CITY, NEW YORK 11101
(718) 729-8500
--------------
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
-------------------------------------------------------
FRANK A.D. ANDREA, JR.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
ANDREA ELECTRONICS CORPORATION
11-40 45TH ROAD
LONG ISLAND CITY, NY 11101
(718) 729-8500
--------------
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
with a copy to:
ALAN L. JAKIMO, ESQ.
BROWN & WOOD LLP
ONE WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(212) 839-5300
------------------------
Approximate date of commencement of proposed sale to the public: FROM TIME TO
TIME AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
------------------------
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [_]
If any of the Securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), other than securities offered only
in connection with dividend or interest reinvestment plans, check the
following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement from the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- -----------------------------------------------------------------------------
Proposed
Maximum Proposed
Offering Maximum
Title of Amount Price Aggregate Amount of
Shares to be to be Per Offering Registration
Registered Registered(1) Unit(2) Price Fee
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 36,000 $6.34 $ 228,240 $ 68
Common Stock Issuable
Upon Conversion of
6% Convertible Notes 2,100,000 $6.34 $13,314,000 $3,929
- -----------------------------------------------------------------------------
Totals 2,136,000 $6.34 $13,542,240 $3,997
- -----------------------------------------------------------------------------
</TABLE>
(1) Subject to adjustment pursuant to the anti-dilution provisions as allowed
by Rule 416.
(2) Average of the closing bid and asked prices as quoted on the American Stock
Exchange on August 6, 1998, pursuant to Rule 457(c).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SECTION 8(a), MAY DETERMINE.
<PAGE>
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
(Subject to Completion, August 7, 1998)
PROSPECTUS
ANDREA ELECTRONICS CORPORATION
2,136,000 Shares of Common Stock
This Prospectus relates to 2,136,000 shares (the "Registered Shares") of
common stock, $.50 par value per share (the "Common Stock"), of Andrea
Electronics Corporation (together with its subsidiaries, "Andrea" or the
"Company"). The Registered Shares are comprised of: (i) 2,100,000 shares of
Common Stock which are issuable upon conversion of the Company's 6% Convertible
Notes Due June 10, 2000 (the "Notes"), which Notes were issued and sold by the
Company on June 10, 1998 in a private placement (the "Private Placement") exempt
from the registration requirements of the Securities Act of 1933, as amended
(the "Securities Act");.and (ii) 36,000 shares of Common Stock which are
currently outstanding and were issued in connection with the Company's
acquisition in May 1998 of Lamar Signal Processing, Ltd. The holders of the
Notes and the 36,000 Registered Shares that are outstanding are named herein
under "Selling Shareholders", and together with their transferees, pledgees,
donees or successors are collectively referred to in this Prospectus as the
"Selling Shareholders". The Company will not receive any of the proceeds from
the sale of the Registered Shares. See "Selling Stockholders."
The Registered Shares are being registered to permit public secondary
trading of them and may be offered and sold from time to time by the Selling
Shareholders. The Registered Shares may be sold by the Selling Shareholders from
time to time directly to purchasers or through agents, underwriters or dealers.
See "Selling Shareholders" and "Plan of Distribution." If required, the names of
any such agents or underwriters involved in the sale of the Registered Shares
and the applicable agent's commission, dealer's purchase price or underwriter's
discount, if any, will be set forth in an accompanying supplement to this
Prospectus (each a "Prospectus Supplement"). The Selling Shareholders will
receive all of the net proceeds from the sale of the Registered Shares and will
pay all underwriting discounts, selling commissions and transfer taxes, if any,
applicable to any such sale. The Company is responsible for payment of all other
expenses incident to the registration of the Registered Shares. The Selling
Shareholders and any broker-dealers, agents or underwriters that participate in
the distribution of the Registered Shares may be deemed to be "underwriters"
within the meaning of the Securities Act, and any commission received by them
and any profit on the resale of the Registered Shares purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act. See
"Plan of Distribution" for a description of indemnification arrangements.
The Notes may be converted, in whole or from time to time in part, into
shares of the Company's Common Stock at any time beginning on the earlier to
occur of (i) October 8, 1998 and (ii) the date that the registration statement
containing this Prospectus is declared effective by the Securities and Exchange
Commission. The last date on which the Notes may be converted is three business
days prior to June 10, 2000, maturity date. The Notes may be converted at a
price equal to the lesser of (i) $16.125 and (ii) the average of the two lowest
last reported bid prices for the Common Stock on the American Stock Exchange
during the 30 trading days preceding (but excluding) the date of conversion. The
closing price of the Company's Common Stock on the American Stock Exchange on
August 7, 1998 was $7.50.
THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" BEGINNING ON PAGE 5 OF THIS PROSPECTUS.
-----------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------------------------------------------
The date of this Prospectus is , 1998
<PAGE>
TABLE OF CONTENTS
Page
Available Information................................................. 2
Incorporation of Certain Documents by Reference....................... 3
Disclosure Regarding Forward-Looking Statements....................... 3
The Company........................................................... 4
Risk Factors.......................................................... 5
Use of Proceeds....................................................... 12
Description of Capital Stock.......................................... 12
Plan of Distribution.................................................. 15
Selling Shareholders.................................................. 17
Legal Matters......................................................... 20
Experts............................................................... 20
-----------------------------
"Andrea Anti-Noise", "Andrea QuietWare", and "Technology Enhancing
Communications" are registered trademarks of the Company. "Andrea DSP" is a
trademark of the Company. All other trademarks in this Prospectus are the
trademarks of their respective owners.
-----------------------------
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company with the Commission may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549-1004 and
at its Regional Offices located at Suite 1400, Citicorp Center, 500 West Madison
Street, Chicago, Illinois 60661-2511 and at Seven World Trade Center, 13th
Floor, New York, New York 10048, and copies of such material may be obtained
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549-1004, at prescribed fees. In addition, the Commission
maintains a Website that contains reports, proxy statements and other
information regarding registrants such as the Company that file electronically.
The address of the Commission's Website is http:/www.sec.gov. The Common Stock
is listed on the American Stock Exchange ("AMEX") under the symbol "AND."
The Company has filed with the Commission a Registration Statement (which
term shall include any amendments thereto) on Form S-3 under the the Securities
Act with respect to the Registered Shares (the "Registration Statement"). This
Prospectus, which constitutes part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement, certain
items of which are contained in exhibits to the Registration Statement as
permitted by the rules and regulations of the Commission. For further
information with respect to the Company and the Registered Shares, reference is
made to the Registration Statement, including exhibits thereto, and the
financial statements and notes thereto filed or incorporated by reference as a
part thereof, and the other documents incorporated by reference herein, each of
which are on file at the offices of the Commission and may be obtained upon
payment of the fee prescribed by the Commission or may be examined without
charge at the offices of the Commission. Statements made in this Prospectus
concerning the contents of any document referred to herein are not necessarily
complete, and, in each such instance, are qualified in all respects by reference
to the applicable documents filed with the Commission. The Registration
Statement and the exhibits thereto filed by the Company with the Commission may
be inspected and copied at the locations described above.
2
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents are incorporated by reference herein and are deemed
to be a part hereof from the date of filing such documents by the Company:
(a) The Company's Annual Report on Form 10-K, as amended for the fiscal
year ended December 31, 1997;
(b) The Company's Quarterly Report on Form 10-Q for the three month
period ended March 31, 1998; and
(c) The Company's Current Reports on Form 8-K, dated February 2, 1998,
April 17, 1998, May 8, 1998, July 15, 1998, and August 3, 1998.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Registered Shares shall be deemed to be
incorporated by reference in this Prospectus from the respective dates of filing
of such documents. Any statement contained herein or in a document incorporated
or deemed to be incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any subsequently filed document that also is or is deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
Copies of the above documents (excluding exhibits) may be obtained upon
request without charge from the Company. Requests for such copies should be
directed to the Company at its principal executive offices at Andrea Electronics
Corporation, 11-40 45th Road, Long Island City, New York
11101, Attention: Secretary or (718) 729-8500.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Certain of the statements contained in this Prospectus or in the
information incorporated by reference herein may constitute forward-looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. The words "anticipates," "believes", "estimates,"
"expects", "intends," "plans," "seeks," variations of such words, and similar
expressions are intended to identify forward-looking statements. Such
forward-looking statements are based on current expectations, estimates and
projections about the Company's business and industry, management's beliefs and
certain assumptions made by the Company's management. Investors are cautioned
that matters subject to forward-looking statements involve risks and
uncertainties including economic, competitive, governmental, technological and
other factors which may affect the Company's business and prospects. These
statements are not guarantees of future performance and are subject to certain
risks, uncertainties and assumptions that are difficult to predict. The Company
cautions 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 could cause them
to differ materially from those expressed in any such forward-looking
statements: the rate at which the Company's Anti-Noise technology is accepted by
the diverse range of users and applications within the global communications and
informatics marketplace; the ability of the Company to maintain a competitive
position for its Andrea Anti-Noise products in terms of technical
specifications, quality, price, reliability and service and to develop similarly
competitive Andrea DSP (digital signal processing) products, which will require
the Company to have sufficient funds for research and development, marketing and
general and administrative expenses; the ongoing 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 in the event
that the Company experiences continued significant growth in demand for Andrea
Anti-Noise products, 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 business,
results of operations and financial condition.
3
<PAGE>
THE COMPANY
The Company is engaged in the development, manufacture and marketing of its
Andrea Anti-Noise family of electronic headsets and handsets with noise
canceling and noise reducing features. Noise cancellation enhances
voice-activated computing, computerized speech recognition, and computer and
Internet telephony. The Company believes that its noise cancellation products,
which were commercially introduced in 1995, have become leading products for
these applications because Andrea noise cancellation products generate the high
levels of voice quality, intelligibility and reliability required by these
applications and are very competitively priced. Noise reduction enhances the
quality of sound heard in noisy environments and can also be used as a means of
environmental sound control. One of the Company's newest headsets combines its
active noise cancellation technology with its Andrea QuietWare active noise
reduction technology. The Company is also developing a new line of Andrea DSP
products with digital signal processing features to further its role in
technology enhanced communications.
The Company has been engaged in the electronic communications industry
since 1934. For three decades prior to the Company's entry into the
voice-activated computing market in the 1990's, its primary business was selling
intercom systems for military and industrial use. The Company continues to
manufacture replacement parts for these systems, but does not expect revenue
from this business to increase materially. The Company is, however, seeking to
apply its knowledge of the military and industrial markets to develop
applications of its Andrea Anti-Noise technologies for these markets. No
assurance can be given that these efforts will succeed, and the Company does not
expect any material revenues from such new products for the foreseeable future.
The Company's strategy is to maintain and extend its lead in noise
cancellation and noise reduction technologies and products. The Company intends
to continue to broaden its Andrea Anti-Noise product line with its existing
Andrea Anti-Noise technologies and to introduce new products based on digital
signal processing technology currently under development by the Company.
To leverage its research and development resources and direct sales
efforts, the Company collaborates with large enterprises in software publishing
and computer manufacturing and is seeking to increase on a global scale its
relationships with large retail chains and distributors.
The success of the Company's strategy will depend on its ability to
increase sales of its line of existing Andrea Anti-Noise products, introduce
additional Andrea Anti-Noise products and new Andrea DSP products, maintain the
competitiveness of its technologies through further research and development,
and achieve widespread adoption of its products and technologies. No assurance
can be given that the Company will be able to accomplish these objectives.
4
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered in evaluating the Company and its business before
purchasing the Common Stock offered hereby. This Prospectus contains, in
addition to historical information, forward-looking statements that involve
risks and uncertainties. The Company's actual results could differ materially.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed below as well as those discussed elsewhere in this
Prospectus. See "Disclosure Regarding Forward-Looking Statements."
DEPENDENCE ON NEW PRODUCT LINE; EARLY STAGE OF PRODUCT COMMERCIALIZATION;
ACCUMULATED DEFICIT
The Company's business, results of operations and financial condition
depend on successful commercialization of its Andrea Anti-Noise products and
technologies. Sales of the initial Andrea Anti-Noise products began in 1995, and
since 1995 the Company has been expanding the number of products in this line.
The success of these products is subject to the risks frequently encountered by
companies in an early stage of product commercialization, particularly companies
in the computing and communications industries. As of June 30, 1998, the Company
had an accumulated deficit of $578,716, reflecting losses of $1,450,153 for the
six months ended June 30, 1998. To achieve increased sales and profitability,
the Company must, among other things, increase market acceptance of its Andrea
Anti-Noise products, respond effectively to competitive pressures with the
timely introduction of new Andrea Anti-Noise and Andrea DSP products and
successfully market and support these products. There can be no assurance that
the Company will achieve or sustain significant sales or profitability of its
Andrea Anti-Noise products and Andrea DSP products. Failure to do so would have
a material adverse effect on the business, results of operations and financial
condition of the Company.
HISTORICAL AND POTENTIAL FLUCTUATIONS IN RESULTS OF OPERATIONS
The Company's results of operations have historically been and are subject
to continued substantial annual and quarterly fluctuations. The causes of these
fluctuations include, among others, the volume of sales of the Company's
products under the Company's collaborative marketing arrangements, the mix of
products sold by the Company, the mix of distribution channels used by the
Company, the timing of new product announcements and releases by the Company and
its competitors, fluctuations in the computer and communications hardware and
software marketplace, and general economic conditions. There can be no assurance
that the level of sales and gross profit, if any, achieved by the Company in any
particular fiscal period will not be significantly lower than in other fiscal
periods. In order to remain competitive, the Company intends to continue to
incur substantial research and development, marketing and general and
administrative expenses. These expenses may not be necessarily or easily reduced
if sales revenue is below expectations, and net income or loss, therefore, may
be disproportionately affected by any reduction in sales revenue. The Company
accordingly believes that period-to-period comparisons of its results of
operations may not necessarily be meaningful and should not be relied upon as
indications of future performance.
5
<PAGE>
HIGHLY COMPETITIVE INDUSTRY
The markets into which the Company sells its Andrea Anti-Noise products and
its traditional line of military and industrial products are highly competitive.
Competition in these markets is based on varying combinations of product
features, quality and reliability of performance, price, sales, marketing and
technical support, ease of use, compatibility with evolving industry standards
and other systems and equipment, brand recognition, and development of new
products and enhancements. Most of the Company's current and potential
competitors have significantly greater financial, technology development,
marketing, technical support and other resources than the Company. Consequently,
these competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements, or devote greater resources
to the development, marketing, and sale of their products than the Company. No
assurance can be given that one or more of these competitors will not
independently develop technologies that are substantially equivalent or superior
to the Company's technology. In the markets for its traditional products, the
Company often competes with major defense electronics corporations as well as
smaller manufacturing firms which specialize in supplying products and
technologies for specific military initiatives. The Company's performance in
this market is further subject to several factors, including dependence on
government appropriations, the time required for design and development, the
complexity of product design, the rapidity with which product designs and
technology become obsolete, the intense competition for available business, and
the acceptability of manufacturing contracts by government administrators. The
Company believes that its ability to compete successfully will depend upon its
capability to develop and maintain advanced technology, develop proprietary
products, attract and retain qualified personnel, obtain patent or other
proprietary protection for its products and technologies, and manufacture,
assemble and successfully market products, either alone or through third
parties. No assurance can be given that the Company will be able to compete
successfully, and failure to do so would have a material adverse effect on the
Company's business, results of operations and financial condition.
UNCERTAINTY OF PRODUCT ACCEPTANCE IN VOICE INTERFACE AND INTERNET
COMMUNICATIONS MARKETS
The Company and its competitors are focused on developing and
commercializing products and technologies that enhance the use of voice,
particularly in noisy environments, for a broad range of computer and
communications applications, including, among others, voice-enabled word
processing and other speech recognition applications, Internet-based and
conventional telephony, multi-point conferencing, multi-player Internet and
CD-ROM interactive games, multimedia, military and industrial communications,
and other applications and interfaces that rely on spoken natural language. The
markets for these products and technologies have only recently begun to develop,
are rapidly evolving, are characterized by a number of competitors, and are
subject to a high level of uncertainty. Broad market acceptance of these
products and technologies is critical to the Company's success and ability to
generate revenues. There can be no assurance that the Company in particular, or
its industry in general, will be successful in obtaining market acceptance of
its products and technologies. Failure to do so would have a material adverse
effect on the Company's business, results of operations and financial condition.
6
<PAGE>
NECESSITY TO DEVELOP AND INTRODUCE NEW AND ENHANCED PRODUCTS AND
TECHNOLOGIES; RISKS OF RAPID TECHNOLOGICAL CHANGE
The markets for the Company's products are characterized by rapidly
changing technology, and the introduction of products incorporating new
technologies could render the Company's products obsolete and unmarketable and
could exert price pressures on existing products. In particular, the Company is
currently engaged in the development of digital signal processing products and
technologies for the voice, speech and natural language interface markets. As
part of this effort, the Company has established its Andrea Digital Technologies
subsidiary in the United States and has acquired Lamar Signal Processing, Ltd.
in Israel. There can be no assurance that the Company will succeed in developing
these new DSP products and technologies, or that any such new DSP products or
technologies will gain market acceptance. Further, the markets for the Company's
products and technologies are characterized by evolving industry standards and
specifications that may require the Company to devote substantial time and
expense to adapt its products and technologies. No assurance can be given that
the Company will successfully anticipate and adapt in a cost effective and
timely manner to changes in technology and industry standards, develop,
introduce and gain market acceptance of new and enhanced products and
technologies, as well as additional applications for existing products and
technologies, or that the introduction of new products or technologies by others
will not render the Company's products and technologies obsolete. Failure of the
Company to develop new and enhanced products and technologies would have a
material adverse effect on the Company's business, results of operations and
financial condition.
RELIANCE ON COLLABORATIVE MARKETING ARRANGEMENTS
The Company has entered into several collaborative and distribution
arrangements with software publishers and computer hardware manufacturers
relating to the marketing and sale of Andrea Anti-Noise products. Under these
collaborative arrangements, the Company's products are sold to end users through
inclusion in the products of the Company's collaborators. The Company's revenue
derived from these arrangements will be based in large part upon the sale of its
collaborator's products. The success of the Company will therefore be dependent
to a substantial degree on the efforts of these collaborators in marketing
existing products and new products under development with which to include the
Company's products and technologies. There can be no assurance that any product
of any of the Company's collaborators incorporating the Company's products and
technologies will be marketed successfully. The Company's collaborators
generally are not contractually obligated to any minimum level of sales of the
Company's products or technologies. Furthermore, the Company's collaborators may
develop their own microphone or earphone products or technologies that compete
with the Company's products and technologies. There can be no assurance that
these collaborators will not replace the Company's products or technologies
with, or give higher priority to, the sales of these competitive products or
technologies. The Company has also established direct arrangements with large
electronic and computer retail chains in the United States, as well as with
certain distributors in Europe and the Americas. No assurance can be given that
any of these channels will devote sufficient resources to support the sale of
the Company's products. The Company is also currently discussing additional
arrangements with other software companies, several major personal computer
companies, consumer electronic manufacturers, and electronic and computer
retailers. No assurance can be given that any of these discussions will result
in any definitive agreements.
7
<PAGE>
DEPENDENCE ON SINGLE CUSTOMER
The Company is substantially dependent on its product procurement
relationship with International Business Machines Corporation ("IBM") (the "IBM
Agreement"). During the years ended December 31, 1996 and 1997 and the six month
period ended June 30, 1998, IBM and certain of IBM's affiliates, distributors,
licensees and integrators accounted for 46%, 56% and 50%, respectively, of the
Company's sales revenue. While the Company and IBM are parties to a procurement
agreement covering the purchase by IBM of certain of the Company's Andrea
Anti-Noise microphone and earphone products for inclusion with certain of IBM's
personal computer products, IBM is not obligated to purchase these products.
There can be no assurance, therefore, as to the amount of Company products that
IBM will purchase, and there can be no assurance that IBM will not purchase
microphone and earphone products and technologies from the Company's
competitors. The failure of the Company to maintain sales of Andrea Anti-Noise
products to IBM would have a material adverse effect on the Company's business,
results of operations and financial condition.
DEPENDENCE ON CONTRACT MANUFACTURING
The Company conducts assembly operations at its facility in New York and
through subcontractors. During initial production runs of Andrea Anti-Noise
products, the Company performs assembly operations at its New York facility from
purchased components. As sales of any particular Andrea Anti-Noise product
increase, assembly operations are primarily transferred to a subcontractor in
Asia. Any failure on the part of this subcontractor to meet the Company's
production and shipment schedules could have a material adverse effect on the
Company's business, results of operations and financial condition. Most of the
components for the Andrea Anti-Noise products are available from several sources
and are not characteristically in short supply. However, certain more
specialized components for the Andrea AntiNoise products, such as microphones,
are available from a limited number of suppliers and subject to long lead times.
While the Company has, to date, been able to obtain sufficient supplies of these
more specialized components, no assurance can be given that it will continue to
be able to do so. Shortages of, or interruptions in, the supply of these more
specialized components could have a material adverse effect on the Company's
sales of Andrea Anti-Noise products. Traditional intercom products are assembled
by the Company at its New York facility from purchased components. Certain
highly specialized components for the Company's traditional intercom products
sold for military and industrial use have limited sources of supply, the
availability of which can affect particular projects of the Company. While the
Company does not believe that its results of operations have been, or will be,
materially affected if such components were unavailable, no assurance can be
given that this will continue to be the case.
RISKS OF INTERNATIONAL SALES AND OPERATIONS
The Company has been seeking to increase its sales to regions outside the
United States, particularly in Europe and certain areas in the Americas. For the
six months ended June 30, 1998, sales to customers outside the United States
accounted for approximately 35% of the Company's sales revenue. The Company
believes that international sales will account for a significant portion of the
Company's total sales revenue. International sales and operations are subject to
a number of risks, including trade restrictions in the form of license
requirements, restrictions on exports and imports and other government controls,
changes in tariffs and taxes, difficulties in staffing and managing
international operations, problems in establishing or managing distributor
relationships, general economic conditions, and political and economic
instability or conflict. To date, the Company has invoiced its international
sales in U.S dollars, and has not engaged in any foreign exchange or hedging
transactions. No assurance can be given that this will continue to be the case.
If the Company is required to invoice any material amount of international sales
in non-U.S. currencies, fluctuations in the value of non-U.S. currencies
relative to the U.S. dollar may adversely affect the Company's business, results
of operations and financial condition.
8
<PAGE>
UNCERTAINTY REGARDING PATENTS AND PROPRIETARY RIGHTS
The Company relies on a combination of patents, patent applications, trade
secrets, copyrights, trademarks, nondisclosure agreements with its employees,
licensees and potential licensees, limited access to and dissemination of its
proprietary information, and other measures to protect its intellectual property
and proprietary rights. There can be no assurance, however, that the steps taken
by the Company to protect its intellectual property will prevent
misappropriation or circumvention of the Company's intellectual property. The
Company has been granted several patents in the United States covering its
Andrea Anti-Noise technology, and the Company has other U.S. and non-U.S. patent
applications currently pending. No assurance can be given that patents will be
issued with respect to these applications or any future patent applications
filed by the Company. Numerous patents have been granted in the fields of noise
cancellation, noise reduction, computer voice recognition and related subject
matter. The Company expects that products in these fields will increasingly be
subject to claims under these patents as the numbers of products and competitors
in these fields grow and the functionality of products overlap. Moreover, the
laws of other countries do not protect the Company's proprietary rights to its
technologies to the same extent as the laws of the United States. There can be
no assurance that any patents issued to the Company will provide it with
competitive advantages or will not be infringed, challenged, invalidated, or
circumvented by others, that the patents or proprietary rights of others will
not have an adverse effect on the ability of the Company to do business, that
the Company will be able to obtain licenses to patents of others, if needed, on
terms acceptable to the Company or at all, or that the Company will be able to
develop additional patentable technology that may be needed to commercialize
successfully its existing technologies. The Company is also subject to the risk
of adverse claims, interference proceedings before the U.S. Patent and Trademark
Office, oppositions to patent applications outside the United States, and
litigation alleging infringement of the proprietary rights of others. Litigation
to establish the validity of patents, to assert infringement claims against
others, and to defend against patent infringement claims can be expensive and
time-consuming, even if the outcome is favorable to the Company.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
The Company's future capital requirements will depend on numerous factors,
including the costs associated with developing, manufacturing and
commercializing its products, maintaining existing, or entering into future,
collaborative marketing and distribution agreements, protecting intellectual
property rights, expanding facilities and consummating possible future
acquisitions of technologies, products or businesses. If the Company expends its
existing cash more rapidly than currently anticipated, resulting in the need for
external funding, the Company may be required to raise additional capital
through a variety of sources, including the public equity market, private equity
financings, collaborative arrangements, and public or private debt. There can be
no assurance that additional capital will be available on favorable terms, if at
all. If adequate funds are not available, the Company may be required to
significantly reduce or refocus its operations or to obtain funds through
arrangements that may require the Company to relinquish rights to certain of its
products, technologies or potential markets, which would have a material adverse
effect on the Company's business, results of operations and financial condition.
To the extent that additional capital is raised through the sale of equity, the
issuance of such securities would result in ownership dilution to the Company's
existing stockholders.
ABILITY TO MANAGE GROWTH
The Company has been rapidly expanding since the commencement of sales of
Andrea Anti-Noise products in 1995 and expects to continue to expand its
management, research and development, marketing, sales and customer service and
support operations, as well as its financial and accounting controls, all
9
<PAGE>
of which has and is expected to continue to place a significant strain on the
Company. If the Company's management is unable to manage growth effectively, the
quality of the Company's products, its ability to retain key personnel and its
business, results of operations and financial condition could be materially
adversely affected.
DEPENDENCE ON KEY PERSONNEL
The Company's performance is substantially dependent on the performance of
its executive officers and key employees. The Company is dependent on its
ability to retain and motivate high quality personnel, especially its management
and product and technology development teams. The loss of the services of any of
its executive officers or other key employees could have a material adverse
effect on the Company's business, results of operations and financial condition.
The Company's future success also depends on its continuing ability to attract
and retain additional highly qualified technical personnel. Competition for
qualified personnel is intense and there can be no assurance that the Company
will be able to attract, assimilate or retain qualified personnel in the future.
The inability to attract and retain the necessary technical and other personnel
could have a material adverse effect upon the Company's business, results of
operations and financial condition.
CERTAIN ANTI-TAKEOVER PROVISIONS
The Company plans to submit for shareholder approval at a shareholders'
meeting scheduled for September __, 1998 authorization to issue up to 5,000,000
shares of Preferred Stock, par value $.01 per share. The shares comprising each
issuance of Preferred Stock would have the relative powers, designations,
preferences, rights, and qualifications, limitations and restrictions and other
matters as the Board of Directors may determine. While the Company has no
present intention to issue shares of Preferred Stock, the voting and economic
rights of the holders of Common Stock would be subject to, and may be adversely
affected by, the rights of the holders of any Preferred Stock that could be
issued in the future, thus making it more difficult or less attractive for a
third party to acquire a majority of the outstanding voting stock of the
Company. In addition, any such issuance of shares of Preferred Stock of the
Company could dilute the equity of the outstanding shares of Common Stock and
have a material adverse effect on the market value of the Common Stock.
Furthermore, the Company is subject to the anti-takeover provisions of the New
York Business Corporation Law. These provisions relate to certain business
combinations with any "interested shareholder" and prohibit any person from
making a takeover bid for a New York corporation unless certain prescribed
disclosure requirements are satisfied. The proposed authorization of preferred
stock and the New York Business Corporation Law provisions could deter, or make
difficult, a change in control, merger or other acquisition of the Company.
VOLATILITY OF STOCK PRICE; ABSENCE OF DIVIDENDS
The market price of the Company's Common Stock has historically been highly
volatile and could be subject to wide fluctuations in response to quarterly and
annual variations in results of operations, losses of significant customers,
announcements of technological innovations or new
10
<PAGE>
products by the Company or its competitors, changes in financial estimates by
any securities analysts, or other events or factors, including the risk factors
described herein. In addition, the stock market has experienced significant
price and volume fluctuations that have particularly affected the market prices
of equity securities of many high technology companies and that often have been
unrelated to the operating performance of such companies. The Company has not
paid any dividends and does not expect to pay any dividends in the foreseeable
future.
SHARES ELIGIBLE FOR FUTURE SALE; DILUTION
Sales of a substantial number of shares of the Company's Common Stock in
the public market could have the effect of depressing the prevailing market
price of the Company's Common Stock. Of the 15,000,000 shares of Common Stock
presently authorized, 11,124,175 shares of Common Stock were outstanding on
August 7, 1998. This does not include 1,738,000 shares of Common Stock reserved
for issuance upon exercise of options granted under the Company's 1991
Performance Equity Plan, 18,750 shares of Common Stock reserved for issuance
upon exercise of previously issued warrants, and 2,100,000 shares of Common
Stock reserved as the maximum number of shares of Common Stock issuable upon
conversion of the Notes. The Company plans to submit for shareholder approval at
a shareholders' meeting scheduled for September __, 1998 an increase in the
authorized shares of Common Stock to 25,000,000 and the adoption of a new stock
option plan (the "1998 Stock Option Plan") covering 2,000,000 shares of Common
Stock. The Company has granted options under the proposed 1998 Stock Option Plan
covering 575,000 shares of Common Stock which are subject to shareholder
approval of the Plan. All of the shares of Common Stock into which the Notes are
convertible and the 36,000 currently outstanding shares of Common Stock offered
hereby will be freely tradable without restriction under the Securities Act of
1933, as amended (the "Securities Act"), by persons other than "affiliates" of
the Company, as defined under the Securities Act. To the extent that the Notes
are converted, such options and warrants are exercised, or additional issuances
of capital stock are made by the Company, the ownership interests of holders of
Common Stock would be diluted.
YEAR 2000 ISSUES
In July 1996, the Emerging Issues Task Force of the Financial Accounting
Standards Board reached a consensus on Issue 96-14, "Accounting for the Costs
Associated with Modifying Computer Software for the Year 2000," which requires
that costs associated with modifying computer software for the Year 2000 be
expensed as incurred. The Company is currently upgrading its information systems
to accomplish several objectives, including, among others, satisfaction of Year
2000 computing requirements. The cost of this upgrade is not expected to exceed
$1,000,000, and the proceeds from the sale of the Notes are being used in part
to fund this upgrade. Since the upgrade is designed to satisfy Year 2000
computing requirements, management has not separately assessed any additional
Year 2000 compliance expense and related potential effect on the Company's
results of operations or financial condition. The Year 2000 issue is expected to
affect the systems of various entities with which the Company interacts,
including the Company's marketing partners, suppliers, and various vendors, and
the Company is currently seeking to assess the efforts of these entities to
satisfy Year 2000 computing requirements. While the Company believes that its
own upgraded information systems will satisfy Year 2000 computing requirements,
no assurance can be given that the systems of these other entities will do so in
a timely manner. A failure by any of these systems to satisfy Year 2000
computing requirements in a timely manner, or in a manner that is incompatible
with the Company's systems, could have a material adverse effect on the
Company's business, results of operations and financial condition.
11
<PAGE>
USE OF PROCEEDS
All of the shares of Common Stock offered hereby are being offered for the
account of the Selling Shareholders. The Company will not receive any proceeds
from their sale of the Registered Shares hereunder.
DESCRIPTION OF CAPITAL STOCK
The Company's Certificate of Incorporation authorizes the issuance of
15,000,000 shares of Common Stock, having a par value of $.50 per share. Of the
15,000,000 shares of Common Stock presently authorized, 11,124,175 shares of
Common Stock were outstanding on August 7, 1998. This amount does not include
1,738,000 shares of Common Stock reserved for issuance upon exercise of options
granted under the Company's 1991 Performance Equity Plan, 18,750 shares of
Common Stock reserved for issuance upon exercise of previously issued warrants,
and 2,100,000 shares of Common Stock reserved as the maximum number of shares of
Common Stock issuable upon conversion of the Notes.
The Board of Directors of the Company has submitted for shareholder
approval at a shareholders' meeting scheduled for September __, 1998 amendments
to the Certificate of Incorporation that would (i) increase the Company's
authorized shares of Common Stock to 25,000,000, and (ii) authorize the issuance
of up to 5,000,000 shares of Preferred Stock, par value $.01 per share. The
Board of Directors has also submitted for shareholder approval the adoption of
the Company's 1998 Stock Option Plan covering 2,000,000 shares of Common Stock.
The Company has granted options under the proposed 1998 Stock Option Plan
covering 575,000 shares of Common Stock which are subject to shareholder
approval of the Plan.
COMMON STOCK
The holders of shares of Common Stock are entitled to one vote per share on
all matters to be voted on by shareholders. The holders of shares of Common
Stock are entitled to receive such dividends, if any, as may be declared, from
time to time, by the Board of Directors, in its discretion, from funds legally
available therefor.
The holders of Common Stock are not entitled to preemptive, subscription or
conversion rights, and there are no redemption or sinking fund provisions
applicable to the Common Stock. Upon the liquidation, dissolution or winding up
of the Company, the holders of shares of Common Stock are entitled to receive
all assets available for distribution to shareholders, subject to the rights of
any holders of shares of Preferred Stock that may be then outstanding. The
holders of Common Stock are not subject to further calls or assessments by the
Company. All outstanding shares of Common Stock are validly issued, fully paid
and nonassessable.
PROPOSED PREFERRED STOCK
If authorized by the Company's shareholders, the shares comprising each
issuance of Preferred Stock would have the relative powers, designations,
preferences, rights, and qualifications, limitations and restrictions and other
matters described below.
Shares of Preferred Stock would be issuable in one or more series at such
time or times and for such consideration as the Board of Directors may
determine, with all shares of any one series equal in rank and identical in all
respects.
Authority would be expressly granted to the Board of Directors of the
Company to fix from time to time, by resolution or resolutions providing for the
establishment and/or issuance of any series of Preferred Stock, the designation
of such series and the powers, preferences and rights of the shares of such
series, and the qualifications, limitations or restrictions
12
<PAGE>
thereof. These terms would include, without limitation: (a) the distinctive
designation and number of shares comprising each series of Preferred Stock,
which number could (except where otherwise provided by the Board of Directors in
creating such series) be increased or decreased (but not below the number of
shares then outstanding) from time to time by action of the Board of Directors;
(b) the rate of dividends, if any, on the shares of that series, whether
dividends shall be non-cumulative, cumulative to the extent earned or cumulative
(and, if cumulative, from which date or dates), whether dividends shall be
payable in cash, property or rights, or in shares of the Company's capital
stock, and the relative rights of priority, if any, of payment of dividends on
shares of that series over shares of any other series or class; (c) whether the
shares of that series would be redeemable and, if so, the terms and conditions
of such redemption, including the date or dates upon or after which they would
be redeemable, and the amount per share payable in case of redemption (which
amount could vary under different conditions and at different redemption dates)
or the property or rights, including securities of any other corporation,
payable in case of redemption; (d) whether the series shall have a sinking fund
for the redemption or purchase of shares of that series and, if so, the terms
and amounts payable into such sinking fund; (e) the rights to which the holders
of the shares of that series would be entitled in the event of voluntary or
involuntary liquidation, dissolution or winding-up of the Corporation, and the
relative rights of priority, if any, of payment of shares of that series in any
such event; (f) whether the shares of that series would be convertible into or
exchangeable for shares of stock of any other class or any other series and, if
so, the terms and conditions of such conversion or exchange, including the rate
or rates of conversion or exchange, the date or dates upon or after which they
would be convertible or exchangeable, the duration for which they would be
convertible or exchangeable, the event or events upon or after which they would
be convertible or exchangeable or at whose option they would be convertible or
exchangeable, and the method (if any) of adjusting the rates of conversion or
exchange in the event of a stock split, stock dividend, combination of shares or
similar event; (g) whether the issuance of any additional shares of such series,
or of any shares of any other series, would be subject to restrictions as to
issuance, or as to the powers, preferences or rights of any such other series;
(h) whether or not the shares of that series shall have voting rights, the
extent of such voting rights on specified matters or on all matters, the number
of votes to which the holder of shares of such series would be entitled in
respect of each share of such series, whether such series shall vote generally
with the Common Stock on all matters or (either generally or upon the occurrence
of specified circumstances) would vote separately as a class or with other
series of Preferred Stock; and (i) any other preferences, privileges and powers
and relative, participating, optional or other special rights and
qualifications, limitations or restrictions of such series, as the Board of
Directors could deem advisable and as would not be inconsistent with the
provisions of the Company's Certificate of Incorporation and to the full extent
permitted by the laws of the State of New York.
While the Company has no present intention to issue shares of Preferred
Stock, any such issuance of shares of Preferred Stock of the Company could
dilute the equity of the outstanding shares of Common Stock and could have the
effect of making it more difficult for a third party to acquire a majority of
the outstanding voting stock of the Company. In addition, such Preferred Stock
may have other rights, including economic rights senior to the Common Stock,
and, as a result, the issuance thereof could have a material adverse effect on
the market value of the Common Stock.
13
<PAGE>
NEW YORK ANTI-TAKEOVER LAW
The Company, as a New York corporation, is subject to certain provisions of
the New York Business Corporation Law (the "NYBCL") which relate to certain
business combinations with an "interested shareholder" and prohibit any person
from making a takeover bid for a New York corporation unless certain prescribed
disclosure requirements are satisfied.
Section 912 of the NYBCL provides, with certain exceptions, that a New York
corporation may not engage in a "business combination", such as a merger,
consolidation, recapitalization or disposition of stock, with any "interested
shareholder" for a period of five years from the date that such persons first
became an interested shareholder unless: (a) the transaction resulting in a
person becoming an interested shareholder, or the business combination, was
approved by the board of directors of the corporation prior to that person
becoming an interested shareholder, (b) the business combination is approved by
the holders of a majority of the outstanding voting stock not beneficially owned
by such interested shareholder, or (c) the business combination meets certain
valuation requirements for the stock of the New York corporation. An "interested
shareholder" is defined as any person that (x) is the beneficial owner of 20% or
more of the outstanding voting stock of a New York corporation or (y) is an
affiliate or associate of the corporation that at any time during the prior five
years was the beneficial owner, directly or indirectly, of 20% or more of the
corporation's then outstanding voting stock. The provisions of Section 912 of
the NYBCL apply if and for so long as a New York corporation has a class of
securities registered under Section 12 of the Exchange Act, at least 25% of its
total employees are employed primarily within New York, or at least 250
employees are so employed and at least 10% of the Company's voting stock is
owned beneficially by residents of the State of New York. The Company expects to
continue to meet one or more of these tests and, accordingly, to be subject to
Section 912 of the NYBCL. Article 16 of the NYBCL provides that persons
seeking to make takeover bids comply with certain registration and disclosure
requirements.
14
<PAGE>
PLAN OF DISTRIBUTION
The Registered Shares are being registered to permit public secondary
trading of such securities by the holders thereof. The Company will not receive
any proceeds from the sale of any of the Registered Shares. The Registered
Shares may be sold from time to time by the Selling Shareholders, including
pledgees, donees, transferees or other successors in interest. The Selling
Shareholders will act independently of the Company in making decisions with
respect to the timing, manner, price and size of each sale.
The Registered Shares may be sold from time to time to purchasers directly
by the Selling Shareholders. Alternatively, the Selling Shareholders may from
time to time offer the Registered Shares to or through underwriters,
broker/dealers or agents, who may receive compensation in the form of
underwriting discounts, concessions or commissions from the Selling Shareholders
or the purchasers of such securities for whom they may act as agents. The
Selling Shareholders and any underwriters, broker/dealers or agents that
participate in the distribution of Registered Shares may be deemed to be
"underwriters" within the meaning and subject to the Prospectus delivery
requirements of the Securities Act, and any profit on the sale of such
securities and any discounts, commissions, concessions or other compensation
received by any such underwriter, broker/dealer or agent may be deemed to be
underwriting discounts and commissions under the Securities Act.
The Registered Shares may be sold from time to time in one or more
transactions at fixed prices, at prevailing market prices at the time of sale,
at varying prices determined at the time of sale or at negotiated prices. The
sale of the Registered Shares may be effected in transactions (which may involve
crosses or block transactions) (i) on any national securities exchange or
quotation service on which the Registered Shares may be listed or quoted at the
time of sale, (ii) in the over-the-counter market, (iii) in transactions
otherwise than on such exchanges or in the over-the-counter market or (iv)
through the writing of options. In connection with sales of the Registered
Shares or otherwise, the Selling Shareholders may enter into hedging
transactions with broker-dealers which may in turn engage in short sales of the
Registered Shares in the course of hedging the positions they assume. The
Selling Shareholders may also sell Registered Shares short and deliver
Registered Shares to close out such short positions, or loan or pledge
Registered Shares to broker-dealers that in turn may sell such securities,
except that the purchaser of the Notes has agreed that it will not, for so long
as it owns any Notes or shares into which the Notes are convertible, purchase,
sell or enter into, any put option, short position or similar arrangement with
respect to the Common Stock and in any manner which violates the provisions of
the Securities Act or the Exchange Act. At the time a particular offering of the
Registered Shares is made, a Prospectus Supplement, if required, will be
distributed which will set forth the aggregate amount and type of Registered
Shares being offered and the terms of the offering, including the name or names
of any underwriters, broker/dealers or agents, any discounts, commissions and
other terms constituting compensation from the Selling Shareholders and any
discounts, commissions or concessions allowed or reallowed or paid to
broker/dealers and the proposed selling price to the public.
In addition, any securities covered by this Prospectus which qualify for
sale pursuant to Rule 144, Rule 144A or any other available exemption from
registration under the Securities Act may be sold under Rule 144, Rule 144A or
such other available exemption rather than pursuant to this Prospectus. There is
no assurance that any Selling Shareholder will sell any or all of the Registered
Shares, and any Selling Shareholder may transfer, gift or otherwise dispose of
such securities by other means not described herein.
15
<PAGE>
To comply with the securities laws of certain jurisdictions, if applicable,
the Registered Shares will be offered or sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain jurisdictions
the Registered Shares may not be offered or sold unless they have been
registered or qualified for sale in such jurisdictions or any exemption from
registration or qualification is available and is complied with.
The Selling Shareholders will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, which provisions may
limit the timing of purchases and sales of any of the Registered Shares by the
Selling Shareholders. The foregoing may affect the marketability of such
securities.
The Company has agreed with the Selling Shareholders to use its best
efforts to cause the Registration Statement to which this Prospectus relates to
become effective as promptly as is practicable and to keep the Registration
Statement effective until the earlier of (i) the sale pursuant to the
Registration Statement of all the Registered Shares and (ii) the expiration of
the holding period applicable to such securities under Rule 144(k) under the
Securities Act or any successor provision.
The Company has agreed to pay all expenses of the registration of the
Registered Shares, including, without limitation, Commission filing fees and
expenses of compliance with state securities or "blue sky" laws; provided,
however, that the Selling Shareholders will pay all underwriting discounts and
selling commissions, if any. Under the Registration Rights Agreement between the
Company and the purchaser of the Notes, the purchaser of the Notes will be
indemnified by the Company against certain civil liabilities, including certain
liabilities under the Securities Act, or will be entitled to contribution in
connection therewith, and the Company will be indemnified by the purchaser of
the Notes against certain civil liabilities, including certain liabilities under
the Securities Act, or will be entitled to contribution in connection therewith.
16
<PAGE>
SELLING SHAREHOLDERS
The holders of the Notes and the 36,000 Registered Shares that are
outstanding are named in the table below and together with their transferees,
pledgees, donees or successors are collectively referred to in this Prospectus
as the "Selling Shareholders".
The Notes were originally issued and sold by the Company in the Private
Placement, a transaction exempt from the registration requirements of the
Securities Act. As part of the Private Placement, the Company entered into a
registration rights agreement, under which the Company is obligated to use its
best efforts to register under the Securities Act the offering of the shares of
Common Stock into which the Notes are convertible, and the Company has filed the
registration statement that includes this Prospectus in furtherance of this
obligation. The Notes provide that they are not convertible to the extent that,
upon any conversion, the shares of Common Stock to be received upon such
conversion, together with shares of Common Stock then beneficially owned by the
holder and its affiliates, exceeds 4.9% of the outstanding shares of Common
Stock of the Company.
The Notes may be converted, in whole or from time to time in part, into
shares of the Company's Common Stock at any time beginning on the earlier to
occur of (i) October 8, 1998 and (ii) the date that the registration statement
containing this Prospectus is declared effective by the Commission. The last
date on which the Notes may be converted is three business days prior to June
10, 2000, maturity date. The Notes may be converted at a price equal to the
lesser of (i) $16.125 and (ii) the average of the two lowest last reported bid
prices for the Common Stock on the American Stock Exchange during the 30 trading
days preceding (but excluding) the date of conversion. The maximum number of
shares issuable upon conversion (including interest payable, at the Company's
option, in the form of shares of Common Stock) is 2,100,000 shares. If this
maximum number of shares were to be so issued and thereafter there were any
remaining unconverted principal amount of the Notes, the interest rate on such
remaining principal amount would be increased to 17% per annum. With respect to
any portion of the Notes converted prior to their maturity, accrued interest is
payable on such portion at the time of conversion, otherwise accrued interest is
payable at the maturity of the Notes. At the option of the Company, interest is
payable in the form of cash or shares of Common Stock at the conversion price
then in effect.
The actual number of shares of Common Stock that may be issued upon
conversions of the Notes and payments of interest on the Notes in the form of
shares of Common Stock will depend on the conversion price in effect from time
to time during the term of the Notes, the timing of any such conversions and the
decision by the Company to make any payments of interest in the form of shares
of Common Stock. The conversion price can vary from time to time during the term
of the Notes, and interest ceases to accrue on any portion of the principal
amount of the Notes that is converted at the time of conversion. Consequently,
it is not possible to estimate with any degree of certainty the total number of
shares of Common Stock that would actually be issued upon any conversions of the
Notes, the total number of shares of Common Stock, if available, that could be
issued in payment of interest, or the availability of shares of Common Stock for
payments of interest. The conversion price of the Notes could be substantially
below the market price of the Company's Common Stock on any date of conversion.
Based upon the thirty day period preceding August 7, 1998, the conversion
price would be $6.375. If the entire principal amount of the Notes were
converted at this conversion price, the Notes would be convertible into
1,686,745 shares of Common Stock, or 15.2% of the outstanding shares as of
August 7, 1998. Assuming that no conversions were to occur until immediately
prior to maturity of the Notes, the accrued interest at such time would be
$1,290,360. At the assumed conversion price as of August 7, 1998, such amount of
accrued interest would be convertible into 202,409 shares of Common Stock, or
approximately 1.8% of the outstanding shares as of August 7, 1998. No assurance
can be given that these assumptions would remain valid during the
17
<PAGE>
term of the Notes. The maximum number of 2,100,000 shares of Common Stock
issuable upon conversion of the Notes represents 18.9% of the outstanding shares
as of August 7, 1998. If the maximum number of shares of Common Stock issuable
upon conversions of the Notes and payments of interest in the form of shares of
Common Stock were in fact issued in connection with one or more conversions
during the term of the Notes, the weighted average conversion price per share
would be $5.12 per share, and the interest rate on any remaining Notes would
increase to a rate of 17% per annum. The following table illustrates the varying
amounts of shares of Common Stock issuable upon conversion of the principal
amount of the Notes at the indicated weighted average conversion prices:
<TABLE>
<CAPTION>
Number of Shares
of Common Stock
Weighted Average Issuable Upon
Conversion Price Conversion
---------------- ---------------
<S> <C>
$ 5.12 2,100,000 shares (1)
$ 7.00 1,536,143 shares
$ 9.00 1,195,778 shares
$11.00 977,545 shares
$13.00 827.154 shares
$15.00 716,867 shares
$16.125(2) 666,853 shares
- ----------------
</TABLE>
(1) The maximum number of shares of Commmon Stock issuable upon conversion of
the Notes, including shares used to make payment of interest, is 2,100,000
shares. The actual number of shares of Common Stock that may be issued
upon conversions of the Notes and payments of interest on the Notes in the
form of shares of Common Stock will depend on the conversion price in
effect from time to time during the term of the Notes, the timing of any
such conversions and the decision by the Company to make any payments of
interest in the form of shares of Common Stock. In addition, the Notes
provide that they are not convertible to the extent that, upon any
conversion, the shares of Common Stock to be received upon such
conversion, together with shares of Common Stock then beneficially owned
by the holder and its affiliates, exceeds 4.9% of the outstanding shares
of Common Stock of the Company.
(2) The maximum conversion price.
The 36,000 Registered Shares that are currently outstanding were issued in
connection with the Company's acquisition of Lamar Signal Processing, Ltd.
("Lamar") in May 1998. Under the terms of the acquisition agreement, the Company
and the prior owners of Lamar as a group were each responsible for payment of
one-half of an aggregate two percent finders' fee payable to certain persons.
The aggregate finders' fee was payable in $60,000 of cash and notes and 36,000
shares of Common Stock, and the Company agreed to register under the Securities
Act the offering of the 36,000 shares of Common Stock received by the finders.
18
<PAGE>
The following table sets forth certain information with respect to the
beneficial ownership of: (i) the Notes and the maximum number of shares of
Common Stock into which the Notes are convertible on a pro forma basis as if all
of the Notes had been converted into Common Stock as of the date of this
Prospectus; and (ii) the 36,000 Registered Shares that have been issued and are
currently outstanding. The actual number of shares of Common Stock into which
the Notes are convertible that may be beneficially owned or offered may vary and
will be reflected in a supplement to this Prospectus. See "Plan of
Distribution."
<TABLE>
<CAPTION>
Principal Common Stock Shares
Amount Beneficially of
of Notes Owned Common Common Stock
Selling Presently Prior to the Stock to Beneficially Owned
Shareholder Owned Offering be sold After the Offering
- ------------ --------- ------------- --------- -------------------
Maximum
Number of
Conversion Outstanding Number Percent of
Shares(1) Shares of Shares Outstanding
---------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Societe Generale $10,753,000 2,100,000 -- 2,100,000 -- --
ASCO Technologies,
Inc., Asa Yanai,
Stuart Honickman
and Juda
Slomovich -- -- 18,000 18,000 -- --
Israel Securities
Center Corporation -- -- 18,000 18,000 -- --
- ------------------
</TABLE>
(1) As of the date of this Prospectus, none of the Notes have been converted
into shares of Common Stock. The number of Conversion Shares indicated is
the maximum number of shares of Common Stock issuable upon exercise of the
Notes (including any shares used for the payment of interest). The actual
number of shares of Common Stock that may be issued upon conversions of the
Notes and payments of interest on the Notes in the form of shares of Common
Stock will depend on the conversion price in effect from time to time
during the term of the Notes, the timing of any such conversions and the
decision by the Company to make any payments of interest in the form of
shares of Common Stock. In addition, the Notes provide that they are not
convertible to the extent that, upon any conversion, the shares of Common
Stock to be received upon such conversion, together with shares of Common
Stock then beneficially owned by the holder and its affiliates, exceeds
4.9% of the outstanding shares of Common Stock of the Company.
None of the Selling Shareholders has, or within the past three years has
had, any position, office or other material relationship with the Company or any
of their predecessors or affiliates, except for the transactions described in
this Prospectus. Because the Selling Shareholders may, pursuant to this
Prospectus, offer all or some portion of the Registered Shares, no estimate can
be given as to the amount of the Registered Shares that will be held by the
Selling Shareholders upon termination of any such sales. In addition, the
Selling Shareholders identified above may have sold, transferred or otherwise
disposed of all or a portion of their Registered Shares since the date on which
they provided the information regarding their Registered Shares, in transactions
exempt from the registration requirements of the Securities Act.
19
<PAGE>
LEGAL MATTERS
Legal matters with respect to the Registered Shares being offered hereby
have been passed upon for the Company by Brown & Wood LLP, New York, New York.
EXPERTS
The consolidated financial statements and schedules of the Company included
in the Form 10-K and incorporated by reference herein have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are incorporated herein by reference in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports.
The financial statements and schedules of Lamar Signal Processing, Ltd.
included in the Company's Current Report on Form 8-K/A dated July 15, 1998 and
incorporated by reference herein have been audited by Luboshitz Kaiserer & Co.,
independent public accountants, as indicated in their report with respect
thereto, and are incorporated herein by reference in reliance upon the authority
of said firm as experts in accounting and auditing in giving said report.
------------------
NO DEALER, SALESMAN, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING HEREIN CONTAINED AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE SELLING SHAREHOLDERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT ANY INFORMATION CONTAINED HEREIN IS CORRECT AS TO ANY OF
THE TIME SUBSEQUENT TO ITS DATE.
20
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
Registration Fee - Securities and
Exchange Commission $ 3,997
American Stock Exchange Listing Fee 17,500
Legal Fees and Disbursements* 30,000
Accounting Fees and Disbursements* 5,000
------
Total $56,497
*Estimated.
Item 15. Indemnification of Directors and Officers
Section 722 of the Business Corporation Law of the State of New York
empowers a New York corporation to indemnify any person made, or threatened to
be made, a party to any action or proceeding (other than an action by or in the
right of the corporation to procure a judgment in its favor), whether civil or
criminal, including an action by or in the right of any other corporation of any
type or kind, domestic or foreign, or any partnership, joint venture, trust,
employee benefit plan or other enterprise, which any director or officer of the
corporation served in any capacity at the request of the corporation, by reason
of the fact that such person, such person's testator or such person's intestate
is or was a director or officer of the corporation, or was serving at the
request of the corporation as a director or officer of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise in
any capacity, against judgments, fines, amounts paid in settlement and
reasonable expenses, including attorneys' fees actually and necessarily incurred
as a result of such action or proceeding or any appeal therein, if such person
acted in good faith, for a purpose which such person reasonably believed to be
in, or, in the case of services for any other corporation or other enterprise,
not opposed to, the best interests of the corporation, and with respect to any
criminal action or proceeding, had no reasonable cause to believe that such
person's conduct was unlawful. The termination of any action or proceeding by
judgment, settlement, conviction, or upon plea of nolo contendere or its
equivalent, does not, of itself, create a presumption that such person did not
act in good faith, for a purpose which such person reasonably believed to be in,
or, in the case of services for any other corporation or other enterprise not
opposed to, the best interests of the corporation, or had reasonable cause to
believe that such person's conduct was unlawful.
In the case of an action by or in the right of the corporation, Section 722
empowers a corporation to indemnify any person made or threatened to be made a
party to any action in any of the capacities set forth above against amounts
paid in settlement and reasonable expenses, including attorneys' fees, actually
and necessarily incurred by such person in connection with the defense or
settlement of such action or an appeal therein, if such person acted in good
faith, for a purpose which such person reasonably believed to be in, or, in the
case of services for any other corporation or other enterprise, not opposed to,
the best interests of the corporation, except that indemnification is not
permitted in respect of (1) a threatened action or pending action which is
settled or otherwise disposed of or (2) any claim, issue, or matter as to which
such person is adjudged to be liable to the corporation unless and only to the
extent that the court in which such action was brought, or if no action was
brought, any court of competent jurisdiction, determines upon application that,
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such portion of the settlement amount and
expenses as the court deems proper.
Section 723 provides that a New York corporation is required to indemnify a
person who has been successful, on the merits or otherwise, in the defense of an
action described in Section 722.
II-1
<PAGE>
Section 721 provides that indemnification provided for by Section 722 shall
not be deemed exclusive of any other rights to which the indemnified party may
be entitled, whether contained in the certificate of incorporation or the
by-laws or, when authorized by such certificate of incorporation or by-laws, (i)
a resolution of shareholders, (ii) a resolution of directors, or (iii) an
agreement providing for such indemnification, provided that no indemnification
may be made to or on behalf of any director or officer if a judgment or other
final adjudication adverse to the director or officer establishes that such
person's acts were committed in bad faith or were the result of active and
deliberate dishonesty and were material to the cause of action so adjudicated.
The Corporation's Certificate of Incorporation provides that the personal
liability of the directors of the Corporation is eliminated to the fullest
extent permitted by Section 402(b) of the Business Corporation Law of the State
of New York. In addition, the By-Laws of the Corporation provide in substance
that, to the fullest extent permitted by New York law, each director and officer
shall be indemnified by the Corporation against reasonable expenses, including
attorneys' fees, and any liabilities which such officer may incur in connection
with any action to which such officer may be made a party by reason of being or
having been a director or officer of the Corporation. The indemnification
provided by the Corporation's ByLaws is not deemed exclusive of or in any way to
limit any other rights which any person seeking indemnification may be entitled.
Item 16. Exhibits
A. Exhibits
Exhibit
Number Description
- -------- -----------
4.1 Securities Purchase Agreement, dated as of June 10, 1998, relating to
the sale of the Company's 6% Convertible Notes due June 10, 2000 (with
form of Note attached thereto).
5 Opinion of Counsel
10.1 Registration Rights Agreement, dated as of June 10, 1998, relating to
registration rights granted to the holders of the Registrant's 6%
Convertible Notes due June 10, 2000.
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Luboshitz, Kasierer & Co.
23.3 Consent of Counsel (contained in Exhibit 5)
24 Power of Attorney relating to subsequent amendments (contained in
signature page)
B. Financial Statements & Schedules
All schedules for which provision is made in Regulation S-X of the
Securities and Exchange Commission either are not required under the related
instructions or the information required to be included therein has been
included in the financial statements of the Company.
II-2
<PAGE>
Item 17. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Securities and Exchange Commission by the registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in this registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offerstration by means of a post-effective amendment any of the securities
being registered which remain unsold at the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York on the 7th day of August,
1998.
ANDREA ELECTRONICS CORPORATION
By: /s/ John N. Andrea
------------------------------
John N. Andrea
Co-President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below under "SIGNATURES" constitutes and appoints Frank A.D. Andrea,
Jr., John N. Andrea, Douglas J. Andrea, and Patrick D. Pilch, his true and
lawful attorneys-in-fact and agents, each acting alone, with full powers of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any or all amendments to this registration
statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, each acting alone, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
/s/ Frank A.D. Andrea, Jr. Chairman of the Board August 7, 1998
- ---------------------------- and Chief Executive Officer
Frank A.D. Andrea, Jr.
/s/ Patrick D. Pilch Executive Vice President August 7, 1998
- ---------------------------- and Chief Financial Officer,
Patrick D. Pilch Director
/s/ John N. Andrea Co-President, Director August 7, 1998
- ----------------------------
John N. Andrea
/s/ Douglas J. Andrea Co-President, Director August 7, 1998
- ----------------------------
Douglas J. Andrea
/s/ Richard A. Maue Vice President, August 7, 1998
- ---------------------------- Controller and Secretary
Richard A. Maue
/s/ Christopher Dorney Director August 7, 1998
- ----------------------------
Christopher Dorney
/s/ Gary A. Jones Director August 7, 1998
- ----------------------------
Gary A. Jones
/s/ Scott Koondel Director August 7, 1998
- ----------------------------
Scott Koondel
/s/ Paul M. Morris Director August 7, 1998
- ----------------------------
Paul M. Morris
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
(Pursuant to Item 601 of Regulation S-K)
Exhibit
Number Description
- -------- -----------
<S> <C>
4.1 Securities Purchase Agreement, dated as of June 10, 1998, relating to
the sale of the Registrant's 6% Convertible Notes due June 10, 2000
(with form of Note attached thereto).
5 Opinion of Counsel
10.1 Registration Rights Agreement, dated as of June 10, 1998, relating to
registration rights granted to the holders of the Registrant's 6%
Convertible Notes due June 10, 2000.
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Luboshitz, Kasierer & Co.
23.3 Consent of Counsel (contained in Exhibit 5)
24 Power of Attorney relating to subsequent amendments (contained in
signature page)
</TABLE>
<PAGE>
SECURITIES PURCHASE AGREEMENT
between
ANDREA ELECTRONICS CORPORATION
and
SOCIETE GENERALE
dated as of
June 10, 1998
<PAGE>
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of June 10, 1998,
between ANDREA ELECTRONICS CORPORATION, a New York corporation (the "Company"),
and Societe Generale, a bank organized under the laws of France (the
"Purchaser").
W I T N E S S E T H :
WHEREAS, the Company proposes to issue and sell to the Purchaser on a
private placement basis pursuant to an exemption from registration under Section
4(2) of the Securities Act of 1933, as amended (the "Securities Act"), and the
Purchaser desires to purchase from the Company on such basis, an aggregate of
U.S. $10,753,000 aggregate principal amount of the Company's 6% Convertible
Notes Due June 10, 2000 (the "Notes"), on the terms and subject to the
conditions set forth herein.
WHEREAS, the Notes will be convertible into shares of common stock, par
value $0.50 per share, of the Company (the "Common Stock"), pursuant to the
terms of the Notes, and the holders of the Notes will have registration rights
with respect to such shares of Common Stock issuable upon conversion of the
Notes (the "Conversion Shares") pursuant to the terms of the Registration Rights
Agreement dated as of the date hereof, between the Company and the Purchaser
(the "Registration Rights Agreement").
NOW THEREFORE, in consideration of the premises, the representations,
warranties, covenants and agreements contained herein, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, intending to be legally bound hereby, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Definitions. For purposes of this Agreement, the
following terms shall have the following meanings:
"Affiliate" of a Person means a Person that directly or indirectly, through
one or more intermediaries, controls, is controlled by, or is under common
control with, the first mentioned Person. The term "control" (including the
terms "controlling," "controlled by" and "under common control with") means the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of a person, whether through the ownership of voting
securities, by contract, or otherwise.
<PAGE>
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of corporate
stock, including each class of common stock and preferred stock of such Person.
"Closing" has the meaning set forth in Section 2.02.
"Commission" means the United States Securities and Exchange Commission.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Governmental Authority" means any federal, state or other political
subdivision thereof and any agency or other entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Lamar Transaction" shall mean the purchase by the Company of all of the
outstanding capital stock of Lamar Signal Processing, Ltd., an Israeli company,
on May 5, 1998.
"Material Adverse Effect" has the meaning set forth in Section 3.01.
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock company,
Governmental Authority or other entity of any kind.
"SEC Reports" means the Company's Annual Report on Form 10-K for the year
ended December 31, 1997, as amended, the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998 and the Company's Current Report on Form
8-K filed on May 8, 1998.
"Securities Act" means the Securities Exchange Act of 1933, as amended.
"Transaction Documents" means, collectively, this Agreement, the
Registration Rights Agreement and the Notes.
"United States" has the meaning ascribed to such term in Rule 902(p) of
Regulation S under the Securities Act.
"U.S. Person" has the meaning ascribed to such term in Rule 902(o) of
Regulation S under the Securities Act.
2
<PAGE>
ARTICLE II
SALE AND PURCHASE
SECTION 2.01. Agreement to Sell and to Purchase; Purchase Price. On the
terms and subject to the conditions set forth in this Agreement, the Company
hereby agrees to issue and sell to the Purchaser, and the Purchaser hereby
agrees to purchase from the Company, an aggregate of U.S. $10,753,000 aggregate
principal amount of Notes at an aggregate purchase price of $10,000,000
(92.9973% of the aggregate principal amount thereof), payable in immediately
available funds (the "Purchase Price"). A copy of the form of Note is attached
as Exhibit A hereto and the terms thereof are hereby expressly incorporated by
reference herein.
SECTION 2.02. Closing. The closing of the sale and purchase of the Notes
(the "Closing") shall be deemed to take place concurrently with the execution
and delivery of this Agreement by the parties hereto. At the Closing, the
following closing transactions shall take place, each of which shall be deemed
to occur simultaneously with the Closing: (i) the Company shall execute, issue
and deliver the Notes to the Purchaser; (ii) the Purchaser shall pay the
Purchase Price by wire transfer to the account designated by the Company in
writing prior to the Closing; (iii) the Company shall pay the expenses set forth
in Section 6.02 hereof by wire transfer to the account designated by the
Purchaser in writing prior to the Closing; provided that if the Company and the
Purchaser so agree, such expenses may be netted against the Purchase Price; (iv)
the Company and the Purchaser shall execute and deliver the Registration Rights
Agreement; (v) the Company shall deliver to the Purchaser a certificate executed
by the secretary of the Company, signing in such capacity, dated the date of the
Closing (A) certifying that attached thereto are true and complete copies of the
resolutions duly adopted by the Board of Directors of the Company authorizing
the execution and delivery of the Transaction Documents and the consummation of
the transactions contemplated thereby (including, without limitation, the
issuance and sale of the Notes and the reservation and issuance of the
Conversion Shares upon conversion of the Notes), which authorization shall be in
full force and effect on and as of the date of such certificate, and (B)
certifying and attesting to the office, incumbency, due authority and specimen
signatures of each Person who executed any Transaction Document for or on behalf
of the Company; and (vi) Brown & Wood LLP, as counsel to the Company, shall
deliver to the Purchaser an opinion, dated the date of the Closing and addressed
to the Purchaser, in form and substance acceptable to the Purchaser.
3
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As a material inducement to the Purchaser to purchase the Notes, the
Company hereby represents and warrants to the Purchaser that on and as of the
date hereof:
SECTION 3.01. Organization and Standing. The Company and each of its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has all
requisite corporate power and authority, and all authorizations, licenses,
permits and certifications necessary to own its properties and assets and to
carry on its business as it is now being conducted (and as described in the SEC
Reports) and proposed to be conducted. The Company and each of its subsidiaries
is duly qualified to transact business and is in good standing in each
jurisdiction in which the character of the properties owned or leased by it or
the nature of its businesses makes such qualification necessary, except where
the failure to so qualify or be in good standing would not have a material
adverse effect on the business, assets, operations, properties, condition
(financial or otherwise) or prospects of the Company and its subsidiaries, taken
as a whole, or any material adverse effect on the Company's ability to
consummate the transactions contemplated by, and to execute, deliver and perform
its obligations under, each of the Transaction Documents (a "Material Adverse
Effect").
SECTION 3.02. Securities of the Company. The authorized Capital Stock of
the Company consists of 15,000,000 shares of Common Stock, of which 11,083,175
shares were issued and outstanding as of June 10, 1998. Except as set forth in
the SEC Reports and the proposed increase in the number of authorized shares of
Common Stock and the authority to issue up to 5,000,000 shares of preferred
stock, which such increase and authority is set forth in the Company's
preliminary proxy statement dated June 1, 1998 and are subject to the approval
of the shareholders of the Company, the Company has no other authorized, issued
or outstanding equity securities or securities containing any equity features,
or any other securities convertible into, exchangeable for or entitling any
person to otherwise acquire any other securities of the Company containing any
equity features. All of the outstanding shares of Capital Stock of the Company
have been duly and validly authorized and issued, and are fully paid and
nonassessable. The Notes and all of the Conversion Shares have been duly and
validly authorized. When issued against payment therefor as provided in this
Agreement, the Notes will be validly issued and will constitute valid and
enforceable obligations of the Company, enforceable against the Company in
accordance with their terms (subject to the effects of applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and by general principles of equity). When issued
upon conversion of the Notes, the Conversion Shares will
4
<PAGE>
be validly issued, fully paid and nonassessable,
free and clear all preemptive rights, claims, liens, charges, encumbrances and
security interests of any nature whatsoever. A sufficient number of shares of
Common Stock has been duly reserved and will remain available for issuance upon
conversion of the Notes. Except as set forth in the SEC Reports, there are no
outstanding options, warrants, agreements, conversion rights, subscription
rights, preemptive rights, rights of first refusal or other rights or agreements
of any nature outstanding to subscribe for or to purchase any shares of Capital
Stock of the Company or any other securities of the Company of any kind, other
than options to purchase Common Stock granted under the Company's 1991
Performance Equity Plan, the Company's 1998 Stock Option Plan (the adoption of
which is subject to shareholder approval) and the proposed issuance of 18,000
shares of Common Stock in connection with the payment of a finder's fee relating
to the Lamar Transaction. Neither the issuance of the Notes nor the Conversion
Shares is subject to any preemptive rights, rights of first refusal or other
similar limitation. Except as otherwise required by law, there are no
restrictions upon the voting or transfer of any shares of the Company's Capital
Stock pursuant to the Company's organizational and other governing documents or
any agreement or other instruments to which the Company is a party or by which
the Company or its properties or assets are bound (other than Common Stock
issued or issuable in connection with the Lamar Transaction). There are no
agreements or other obligations (contingent or otherwise) that may require the
Company to repurchase or otherwise acquire any shares of its Capital Stock.
SECTION 3.03. Authorization; Enforceability. The Company has the corporate
power and authority to execute, deliver and perform the terms and provisions of
each of the Transaction Documents, and has taken all necessary corporate action
to authorize the execution, delivery and performance by it of each of the
Transaction Documents and to consummate the transactions contemplated thereby
(other than any shareholder approval as may be required by the rules applicable
to companies whose common stock is traded on the American Stock Exchange
("Amex")). No other corporate proceedings on the part of the Company are
necessary and no consent of the shareholders of the Company is required for the
valid execution and delivery by the Company of the Transaction Documents and the
performance and consummation by the Company of the transactions contemplated
thereby. The Company has duly executed and delivered each of the Transaction
Documents. The Transaction Documents constitute the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by general principles of equity.
5
<PAGE>
SECTION 3.04. No Violation; Consents. (a) The execution, delivery and
performance by the Company of the Transaction Documents and the consummation of
the transactions contemplated thereby do not and will not (i) contravene the
applicable provisions of any law, statute, rule, regulation, order, writ,
injunction, judgment or decree of any court or Governmental Authority to or by
which the Company or any of its subsidiaries or any of its respective property
or assets is bound, (ii) violate, result in a breach of or constitute (with due
notice or lapse of time or both) a default or give rise to an event of
acceleration under any contract, lease, loan or credit agreement, mortgage,
security agreement, trust indenture or other agreement or instrument to which
the Company is a party or by which it or any of its subsidiaries is bound or to
which any of its respective properties or assets is subject, nor result in the
creation or imposition of any lien, security interest, charge or encumbrance of
any kind upon any of the properties, assets or Capital Stock of the Company or
any of its subsidiaries, or (iii) violate any provision of the organizational
and other governing documents of the Company or any of its subsidiaries.
(b) No consent, approval, authorization or order of, or filing or
registration with, any court or Governmental Authority or other Person is
required to be obtained or made by the Company for the execution, delivery and
performance of the Transaction Documents or the consummation of any of the
transactions contemplated thereby (other than the registration of the resale of
the Conversion Shares with the SEC and pursuant to any state "blue sky" laws as
contemplated by the Registration Rights Agreement and other than any shareholder
approval as may be required by the rules applicable to companies whose common
stock is quoted on Amex), except for those consents or authorizations previously
obtained and those filings previously made.
SECTION 3.05. Securities Act Representations. The Company has not offered
or sold and will not offer or sell any Notes in this offering other than the
Notes being sold to the Purchaser hereunder. Assuming the accuracy of the
Purchaser's representations pursuant to Section 4.02 hereof, the sale of the
Notes hereunder is, and the issuance of the Conversion Shares upon conversion of
the Notes will be, exempt from the registration requirements of the Securities
Act. Neither the Company, nor any of its affiliates, or, to its knowledge, any
person acting on its or their behalf has engaged in any form of general
solicitation or general advertising (within the meaning of Regulation D under
the Securities Act) in connection with the offer or sale of the Notes or
Conversion Shares. Neither the Company, nor any of its affiliates, nor to its
knowledge, any person acting on its or their behalf has, directly or indirectly,
made any offers or sales of any security or solicited any offers to buy any
security other than pursuant to this Agreement, under circumstances that would
require registration under the Securities Act of the Notes to be issued under
this Agreement. The Company is eligible to use Form S-3 under the Securities Act
6
<PAGE>
for a primary issuance of its securities and to file the Registration Statement
(as defined in the Registration Rights Agreement) on Form S-3.
SECTION 3.06. Solvency; No Default. (a) The Company is, and upon giving
effect to the transactions contemplated hereby will be, Solvent (as defined
below). "Solvent" means that, as of the date of determination, (i) the then fair
saleable value of the assets of the Company exceeds the then total amount of its
debts and other liabilities (including any guarantees and other contingent,
subordinated, unmatured or unliquidated liabilities whether or not reduced to
judgment, disputed or undisputed, secured or unsecured), (ii) the Company has
sufficient funds and cash flow to pay its liability on its existing and
anticipated debts as they become absolute and matured, (iii) final judgments
against the Company in pending or threatened actions for money damages will not
be rendered at a time when, or in an amount such that the Company will be unable
to satisfy any such judgments promptly in accordance with their terms (taking
into account the maximum reasonable amount of such judgments in any such actions
(other than amounts that would be remote) and the earliest reasonable time at
which such judgments would be rendered), and (iv) the Company does not have
unreasonably small capital with which to engage in its present or anticipated
business.
(b) The Company is not, and immediately after the consummation of the
transactions contemplated hereby will not be, in default under or in violation
of (whether upon the passage of time, the giving of notice or both), its
organizational and other governing documents, or any provision of any security
issued by the Company, or of any agreement, instrument or other undertaking to
which the Company is a party or by which it or any of its property or assets is
bound, or the applicable provisions of any law, statute, rule, regulation,
order, writ, injunction, judgment or decree of any court or Governmental
Authority to or by which the Company or any of its property or assets is bound)
which default or violation, either individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect.
SECTION 3.07. No Brokers. No broker, finder, agent or similar intermediary
is entitled to any broker's, finder's, placement or similar fee or other
commission in connection with the transactions contemplated hereby based on any
agreement, arrangement or understanding with the Company.
SECTION 3.08. SEC Reports; Financial Condition; No Adverse Changes. (a) The
audited financial statements of the Company and the related notes thereto as at
December 31, 1997 reported on by Arthur Andersen LLP, independent accountants,
copies of which have heretofore been furnished to the Purchaser, present fairly
the financial condition, results of operations and cash flows of the Company at
such date and for the periods set forth therein. The unaudited balance sheets,
statements of operations and statements of cash flows at and for the period
ended March 31,
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1998 (such audited and unaudited financial statements, collectively, the
"Financial Statements"), copies of which have heretofore been furnished to the
Purchaser, present fairly the financial condition, results of operations and
cash flows of the Company at such date and for the periods set forth therein.
The Financial Statements, including the related schedules and notes thereto (if
any), have been prepared in accordance with generally accepted accounting
principles as set forth in the opinions and pronouncements of the Accounting
Principles Board of American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board as in
effect on the date of filing of such documents with the Commission, applied on a
consistent basis (except for changes concurred in by the Company's independent
public accountants) unless otherwise expressly stated therein. During the period
from March 31, 1998 to and including the date hereof, except for the Lamar
Transaction and the issuance of shares of Common Stock in connection therewith,
there has been no sale, transfer or other disposition by the Company of any
material part of the business, property or securities of the Company and no
purchase or other acquisition of any business, property or securities by the
Company material in relation to the financial condition of the Company.
(b) Except as are fully reflected or reserved against in the Financial
Statements and the notes thereto, there are no liabilities or obligations with
respect to the Company or any of its subsidiaries of any nature whatsoever
(whether absolute, accrued, contingent or otherwise and whether or not due)
which, either individually or in the aggregate, could reasonably be expected to
have a Material Adverse Effect.
(c) Since April 1, 1998, there has been no development or event, nor any
prospective development or event known to the Company or any of its
subsidiaries, or any litigation, proceeding or other action seeking an
injunction or other restraining order, damages or other relief from a court or
administrative agency of competent jurisdiction pending or, to the best
knowledge of the Company, threatened or contemplated, or any action of any
Governmental Authority, which has had or could reasonably be expected to have a
Material Adverse Effect.
SECTION 3.09. Use of Proceeds; Federal Regulations. No part of the net
proceeds from the sale of the Notes will be used for any purpose which violates
the provisions of Regulation G, T, U or X of the Board of Governors of the
Federal Reserve System.
SECTION 3.10. Subsidiaries. As of the date hereof, the Company has the
subsidiaries listed on Exhibit 21 of the Company's Annual Report on 10-K for the
year ended December 31, 1997 and Lamar Signal Processing, Ltd.
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SECTION 3.11. Disclosure. The representations and warranties of the Company
in this Agreement and the statements contained in the SEC Reports and the
schedules, certificates and exhibits furnished to the Purchaser by or on behalf
of the Company in connection herewith do not contain any untrue statement of a
material fact and do not omit to state any material fact necessary to make the
statements herein or therein not misleading. The SEC Reports contain all
material information concerning the Company, and no event or circumstance has
occurred or exists since March 31, 1998 which would require the Company to
disclose such event or circumstance in order to make the statements in the SEC
Reports not misleading as of the date of the Closing but which has not been so
disclosed. The Company hereby acknowledges that the Purchaser is and will be
relying on the SEC Reports and the Company's representations, warranties and
covenants contained herein in making an investment decision with respect to the
Notes and Conversion Shares and will be relying thereon (together with future
reports filed with the Commission) in connection with any transfer of Notes and
Conversion Shares.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby acknowledges, represents and warrants to the Company
as follows:
SECTION 4.01. Authorization; Enforceability; No Violations. (a) The
Purchaser is a bank, duly organized, validly existing and in good standing under
the laws of France, and has all requisite corporate power and authority to
execute, deliver and perform the terms and provisions of this Agreement and has
taken all necessary corporate action to authorize the execution, delivery and
performance by it of this Agreement and to consummate the transactions
contemplated hereby.
(b) The execution, delivery and performance by such Purchaser of this
Agreement and the consummation by such Purchaser of the transactions
contemplated hereby do not and will not violate any provision of (i) such
Purchaser's organizational documents and (ii) any law, statute, rule,
regulation, order, writ, injunction, judgment or decree to which such Purchaser
is subject. Such Purchaser has duly executed and delivered this Agreement.
Assuming the due execution hereof by the Company, this Agreement constitutes the
legal, valid and binding obligation of such Purchaser, enforceable against such
Purchaser in accordance with its terms, except as enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and by general
principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law).
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SECTION 4.02. Securities Act Representations; Legends. (a) The Purchaser
understands that (i) the offering and sale of the Notes to be issued and sold
hereunder is intended to be exempt from the registration requirements of the
Securities Act; (ii) neither the Notes nor the Conversion Shares have been
registered under the Securities Act or any other applicable securities laws and
such securities may be resold only if registered under the Securities Act or if
an exemption from such registration requirements is available; and (iii) the
Company is required to register any resale of the Notes or the Conversion Shares
under the Securities Act only to the extent provided in the Registration Rights
Agreement.
(b) The Notes to be acquired by the Purchaser pursuant to this Agreement
are being acquired for its own account, for investment purposes, and not with a
view to, or for sale in connection with, any distribution thereof or of
Conversion Shares issuable upon conversion of the Notes in violation of the
Securities Act or any other securities laws which may be applicable.
(c) The Purchaser is not an affiliate of the Company (as such term is
defined in the Securities Act).
(d) The Purchaser is not a U.S. Person and, at the time the buy order for
the Notes being purchased hereunder was originated, such Purchaser was outside
of the United States.
(e) The Purchaser (i) has sufficient knowledge and experience in financial
and business matters so as to be capable of evaluating the merits and risks of
its investment in the Notes and is capable of bearing the economic risks of such
investment, including a complete loss of its investment in the Notes; (ii)
believes that its investment in the Notes is suitable for it based upon its
objectives and financial needs, and the Purchaser has adequate means for
providing for its current financial needs and business contingencies and has no
present need for liquidity of investment with respect to the Notes; (iii) has no
present plan, intention or understanding and has made no arrangement to sell the
Notes or the Conversion Shares at any predetermined time or for any
predetermined price; (iv) has not purchased, sold or entered into, any put
option, short position or similar arrangement with respect to the Common Stock,
and will not, for so long as it owns any Notes or Conversion Shares, purchase,
sell or enter into, any such option, position or understanding with any
Conversion Shares and in any manner which violates the provisions of the
Securities Act or the Exchange Act.
(f) No oral or written statements or representations have been made to such
Purchaser by or on behalf of the Company in connection with the offering and
sale of the Notes hereunder other than those set forth in the SEC Reports, the
Notes or as set forth herein, and such Purchaser is not subscribing for the
Notes as a result of, or in response to, any advertisement, article, notice or
other communication
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published in any newspaper, magazine or similar media or broadcast over
television or radio, or presented at any seminar or meeting.
(g) The Purchaser acknowledges that the Securities Act restricts the
transferability of securities, such as the Notes and Conversion Shares, issued
in reliance upon the exemption from the registration requirements of the
Securities Act provided by Section 4(2) thereunder, and that, subject to Section
5.02 hereof, the certificates representing the Notes and the Conversion Shares
will bear a legend in substantially the form included in the form of Note
attached as Exhibit A hereto by which such Purchaser and each subsequent holder
of such securities will be bound.
(h) The Purchaser acknowledges that as the Common Stock is currently listed
on a national securities exchange, Rule 144A under the Securities Act may not be
available with respect to resales of the Notes or the Conversion Shares.
SECTION 4.03. No Brokers. No broker, finder, agent or similar intermediary
is entitled to any broker's, finder's, placement or similar fee or other
commission in connection with the transactions contemplated hereby based on any
agreement, arrangement or understanding with such Purchaser.
ARTICLE V
COVENANTS OF THE COMPANY
SECTION 5.01. Exemption from Registration. The Company will not make any
offer to sell, solicit any offer to buy, agree to sell or sell any security or
right to acquire any security, except at such time and in such manner so as not
to cause the loss of any of the exemptions for the offer and sale of the Notes
hereunder and for the issuance of the Conversion Shares upon conversion of the
Notes from the registration requirements under the Securities Act or under the
securities or "blue sky" laws of any jurisdiction in which such offer, sale or
issuance is made. Without limiting the generality of the foregoing (and
excluding any shares of Common Stock issuable to finders in connection with the
Lamar Transaction), the Company will not make any offer to sell, solicit any
offer to buy, agree to sell or sell any securities similar in tenor to the Notes
or any Common Stock or right to acquire any securities similar in tenor to the
Notes or any Common Stock during the period commencing on the date of the
Closing and ending on the earlier to occur of (i) thirty (30) days after the
effectiveness of initial Registration Statement (as defined in the Registration
Rights Agreement) and (ii) one hundred and eighty (180) days thereafter, except
for the shares of Common Stock issuable upon conversion of the Notes.
SECTION 5.02 Transfer Restrictions. (a) The Purchaser acknowledges
that any proposed offer, sale, pledge or other transfer of Notes or
Conversion Shares
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prior to the date which is two (2) years from the Closing (or such other date as
may be required pursuant to Rule 144 under the Securities Act (or similar
successor provision) as in effect from time to time), in the absence of
registration under the Securities Act, is limited. Accordingly, prior to such
passage of time or such registration, the Notes or the Conversion Shares may be
offered, sold, pledged or otherwise transferred only to (i) the Company, (ii) in
an offshore transaction in accordance with Rule 904 under the Securities Act,
(iii) pursuant to any other exemption from registration provided by the
Securities Act, and (iv) pursuant to Rule 144 under the Securities Act; in the
case of any transfer pursuant to clause (ii), (iii) or (iv), the Company shall
be entitled to receive an opinion of counsel, in form and substance reasonably
satisfactory to the Company, to the effect that registration is not required in
connection with such disposition. Any Notes or Conversion Shares sold to the
Company may not be reissued or resold.
(b) The Company agrees to issue certificates representing the Notes or
Conversion Shares without the legend referenced in clause (a) above at such time
as (i) the holder thereof is permitted to dispose of such Notes or Conversion
Shares pursuant to Rule 144 (k) under the Act, (ii) such Notes or Conversion
Shares are sold to a purchaser or purchasers who (in the opinion of counsel to
the seller or such purchaser(s), in form and substance reasonably satisfactory
to the Company) are able to dispose of such securities publicly without
registration under the Act and such legend is no longer required to be included
on the Notes or Conversion Shares or (iii) such Notes or Conversion Shares are
sold in a registered offering under the Securities Act.
(c) In the alternative to physical delivery of certificates for Conversion
Shares, if delivery of the Conversion Shares pursuant to any conversion
thereunder may be effectuated by electronic book-entry through The Depositary
Trust Company ("DTC"), then delivery of Conversion Shares pursuant to such
conversion shall, if requested by the Purchaser (or holder of Conversion
Shares), settle by book-entry transfer through DTC by the third trading day
following the Date of Conversion (as defined in the Note). The parties agree to
coordinate with DTC to accomplish this objective.
SECTION 5.03. Rules 144; Current Information. For so long as any Notes or
Conversion Shares are outstanding, the Company will (i) cause its Common Stock
to continue to be registered under Section 12(g) of the Exchange Act, file all
reports required to be filed by it under the Securities Act and the Exchange Act
and will take such further actions as any Purchaser may reasonably request, all
to the extent required from time to time to enable such Purchaser to sell Notes
and Conversion Shares without registration under the Securities Act pursuant to
the safe harbors and exemptions provided by Rule 144 under the Securities Act,
as such rules may be amended from time to time, or any similar rule or
regulation hereafter adopted by the Commission, and (ii) furnish each Purchaser
with all reports, proxy statements
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<PAGE>
and registration statements which the Company files with the Commission or
distributes to its securityholders pursuant to the Securities Act and the
Exchange Act at the times of such filings and distributions. Upon the request of
any Purchaser, the Company will deliver to such Purchaser a written statement as
to whether it has complied with the foregoing requirements.
SECTION 5.04. Reservation of Conversion Shares. The Company shall at all
times reserve and keep available, free from preemptive rights, out of its
authorized but unissued shares of Common Stock or its issued shares of Common
Stock held in its treasury, or both, sufficient shares of Common Stock to
provide for the issuance of the Conversion Shares from time to time as the Notes
become convertible pursuant to their terms.
SECTION 5.05. Stock Listing. The Company shall endeavor to have the
Conversion Shares approved for listing, prior to issuance, upon the Amex or upon
such other national securities exchange or the Nasdaq National Market or any
similar system of automated dissemination of securities prices upon which the
Common Stock is listed or traded at the time of issuance of such Conversion
Shares.
ARTICLE VI
MISCELLANEOUS
SECTION 6.01. Press Releases and Disclosure. No party hereto shall issue
any press release or make any other public disclosure related to this Agreement
or any of the transactions contemplated hereby without the prior written
approval of the other party hereto, except as may be necessary or appropriate in
the opinion of the party seeking to make disclosure to comply with the
requirements of applicable law or stock exchange rules. If any such press
release or public disclosure is so required, the party making such disclosure
shall consult with the other party prior to making such disclosure, and the
parties shall use all reasonable efforts, acting in good faith, to agree upon a
text for such disclosure which is satisfactory to all parties.
SECTION 6.02. Expenses. Except as otherwise expressly provided for
herein, the Company will pay all of its and all of the Purchaser's expenses
(including
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attorneys' fees and expenses) up to $26,000 in connection with the negotiation
of the Transaction Documents, the performance of the obligations of the
Purchaser thereunder, and the consummation of the transactions contemplated
thereby (whether consummated or not). Such Purchaser's expenses shall be payable
at the Closing and may be netted against the Purchase Price otherwise payable by
the Purchaser. In addition to the foregoing, as provided in the Registration
Rights Agreement, the Company will also pay all of its and all of the
Purchaser's expenses (including attorneys' fees and expenses) in connection with
the review of the Registration Statement contemplated by the Registration Rights
Agreement, the conduct of due diligence in connection therewith, and all matters
related thereto; the Company agrees to promptly pay such expenses, as incurred
by the Purchaser.
SECTION 6.03. Notices. All notices, demands, requests, consents, approvals
or other communications requwhich are given with respect to this Agreement shall
be in writing and shall be personally served or deposited in the mail,
registered or certified, return receipt requested, postage prepaid, or delivered
by reputable air courier service with charges prepaid, or transmitted by hand
delivery, telegram, telex or facsimile, addressed as set forth below, or to such
other address as such party shall have specified most recently by written
notice: (i) if to the Company, to: Andrea Electronics Corporation, 11-40 45th
Road, Long Island City, New York 11101, Attention: Patrick D. Pilch, Facsimile
No.: (718) 784-8457; with copies (which shall not constitute notice) to: Brown &
Wood LLP, One World Trade Center, New York, New York 10048, Attention: Alan L.
Jakimo, Esq., Facsimile No.: (212) 839-5599; and (ii) if to the Purchaser: c/o
Societe Generale Securities Corporation, 1221 Avenue of the Americas, New York,
New York, Attention: Guillaume Pollet, Facsimile No.: (212) 278-5467 with copies
(which shall not constitute notice) to: Dorsey & Whitney LLP, 250 Park Avenue,
New York, New York 10177, Attention: J. Eric Maki, Esq., Facsimile No. (212)
953-7201. Notice shall be deemed given on the date of service or transmission if
personally served or transmitted by telegram, telex or facsimile. Notice
otherwise sent as provided herein shall be deemed given on the third business
day following the date mailed or on the next business day following delivery of
such notice to a reputable air courier service.
SECTION 6.04. Entire Agreement. This Agreement (together with the other
Transaction Documents and all other documents delivered pursuant hereto and
thereto) constitutes the entire agreement of the parties with respect to the
subject matter hereof and supersedes all prior and contemporaneous agreements,
representations, understandings, negotiations and discussions between the
parties, whether oral or written, with respect to the subject matter hereof.
SECTION 6.05. Amendment and Waiver. This Agreement may not be amended,
modified, supplemented, restated or waived except by a writing executed by the
party against which such amendment, modification or waiver is sought to been
forced. Waivers may be made in advance or after the right waived has arisen or
the breach or default waived has occurred. Any waiver may be conditional. No
waiver of any breach of any agreement or provision herein contained shall be
deemed a waiver of any preceding or succeeding breach thereof nor of any other
agreement or provision herein contained. No waiver or extension of time for
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<PAGE>
performance of any obligations or acts shall be deemed a waiver or extension of
the time for performance of any other obligations or acts.
SECTION 6.06. Assignment; No Third Party Beneficiaries. This Agreement and
the rights, duties and obligations hereunder may not be assigned or delegated by
either the Company, on the one hand, or the Purchaser, on the other hand,
without the prior written consent of the other parties hereto; provided that the
Purchaser may assign or delegate its rights, duties and obligations hereunder to
any Affiliate of the Purchaser. Except as provided in the preceding sentence,
any purported assignment or delegation of rights, duties or obligations
hereunder made without the prior written consent of the other parties hereto
shall be void and of no effect. This Agreement and the provisions hereof shall
be binding upon and shall inure to the benefit of each of the parties and their
respective successors and permitted assigns. This Agreement is not intended to
confer any rights or benefits on any Persons other than as set forth above.
SECTION 6.07. Severability. This Agreement shall be deemed severable, and
the invalidity or unenforceability of any term or provision hereof shall not
affect the validity or enforceability of this Agreement or of any other term or
provision hereof. Furthermore, in lieu of any such invalid or unenforceable term
or provision, the parties hereto intend that there shall be added as a part of
this Agreement a provision as similar in terms to such invalid or unenforceable
provision as may be possible and be valid and enforceable.
SECTION 6.08. Further Assurances. Each party hereto, upon the request of
any other party hereto, shall do all such further acts and execute, acknowledge
and deliver all such further instruments and documents as may be necessary or
desirable to carry out the transactions contemplated by this Agreement.
SECTION 6.09. Titles and Headings. Titles, captions and headings of the
sections of this Agreement are for convenience of reference only and shall not
affect the construction of any provision of this Agreement.
SECTION 6.10. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY,
INTERPRETED UNDER, AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE
STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED WITHIN THE
STATE OF NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAWS
THEREOF.
SECTION 6.11. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, all of which taken
together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by the undersigned, thereunto duly authorized, as of the date first set
forth above.
ANDREA ELECTRONICS CORPORATION
By: /s/ Patrick Pilch
Name: Patrick Pilch
Title: Executive Vice President,
Chief Financial Officer
SOCIETE GENERALE
By: /s/ Guillaume Pollet
Name: Guillaume Pollet
Title: Authorized Signatory
16
<PAGE>
EXHIBIT A
ANDREA ELECTRONICS CORPORATION
6% CONVERTIBLE NOTE DUE JUNE 10, 2000
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER
APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH SECURITIES
LAWS. THE SECURITIES REPRESENTED BY THIS CERTIFICATE OR ANY SECURITIES ISSUABLE
UPON THE CONVERSION HEREOF MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED OTHER THAN (A) TO ANDREA ELECTRONICS CORPORATION (THE "COMPANY") OR
ANY SUBSIDIARY THEREOF, (B) PURSUANT TO RULE 144 UNDER THE SECURITIES ACT, (C)
OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904
UNDER THE SECURITIES ACT, (D) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, OR (E) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT; EACH HOLDER OF THIS CERTIFICATE
AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY OR ANY SECURITY
ISSUED UPON CONVERSION HEREOF IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE
EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY PROPOSED TRANSFER PURSUANT TO
CLAUSES (B), (C) OR (D) ABOVE, THE COMPANY MAY REQUIRE THAT THE TRANSFEROR
FURNISH IT WITH AN OPINION OF COUNSEL CONFIRMING THAT SUCH TRANSFER IS BEING
MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS
"OFFSHORE TRANSACTION", AND "UNITED STATES" HAVE THE RESPECTIVE MEANINGS
ASSIGNED TO THEM IN REGULATION S UNDER THE SECURITIES ACT.
Certificate No. U.S. $
FOR VALUE RECEIVED, ANDREA ELECTRONICS CORPORATION, a corporation duly organized
and existing under the laws of the State of New York (the "Company"), hereby
promises to pay to Societe Generale, or registered assigns, the principal sum of
$ (or such lesser amount as a result of partial conversions of this Note as set
forth on Schedule I hereto) on June 10, 2000, and to pay interest thereon in the
manner set forth on the reverse hereof from June 10, 1998 at the rate of 6% per
annum until the principal hereof is paid or made available for payment.
Reference is hereby made to the further provisions set forth on the reverse
hereof, which further provisions shall for all purposes have the same effect as
if set forth in this place.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed
by an officer thereunto duly authorized.
Dated: June 10, 1998 ANDREA ELECTRONICS CORPORATION
By:
Name: Patrick D. Pilch
Title: Executive Vice President,
Chief Financial Officer
<PAGE>
- REVERSE OF NOTE -
ANDREA ELECTRONICS CORPORATION
6% CONVERTIBLE NOTE DUE JUNE 10, 2000
THIS NOTE WAS ISSUED WITH ORIGINAL ISSUE DISCOUNT. FOR INFORMATION AS TO THE
ISSUE PRICE, THE AMOUNT OF ORIGINAL ISSUE DISCOUNT, THE ISSUE DATE AND THE YIELD
TO MATURITY OF THIS NOTE, THE HOLDER OF THIS NOTE MAY CONTACT THE CHIEF
FINANCIAL OFFICER OF ANDREA ELECTRONICS CORPORATION AT 11-40 45TH ROAD, LONG
ISLAND CITY, NEW YORK, NEW YORK 11101.
1. ISSUANCE. This Note is one of a duly authorized issue of Notes of the Company
designated as its 6% Convertible Notes Due June 10, 2000 in an aggregate
principal amount of $10,753,000.
2. INTEREST. The Company promises to pay interest on the principal amount of
this Note at the rate of 6% per annum; provided that the applicable rate of
interest on this Note will increase to 17% per annum upon the occurrence of the
events described in Section 3 below. Interest on this Note will accrue from June
10, 1998 until payment in full of the principal amount hereof has been made or
duly provided for and will be based on the actual number of days and months
elapsed and computed on a 360-day year consisting of twelve 30-day months.
Interest shall be payable in arrears on the earlier to occur of (i) the date of
conversion to Common Stock (as defined in Section 4 below) as provided herein of
all or a portion of this Note (if this Note shall be converted in part, then
interest only with respect to the portion of this Note so converted shall be
payable at such time) and (ii) June 10, 2000 (the "Maturity Date"). Interest on
this Note is payable to the holder of this Note registered on the books of the
Company (the "Holder") at the option of the Company in the form of either (i)
such coin or currency of the United States of America as at the time of payment
is legal tender for payment of public and private debts or (ii) the number of
full shares of Common Stock which the amount of interest payable would entitle
the Holder to acquire based upon a price per share equal to the Conversion Price
(as defined in Section 4 below). The Company shall notify the Holder in writing
within three (3) business days of the date Notice of Conversion by the Holder is
received by the Company or three business days prior to the Maturity Date, as
applicable, of the form in which the Company elects to pay accrued interest. In
the event the Company fails to timely provide such notice, payments of interest
shall be in Common Stock.
3. PRINCIPAL. On the Maturity Date, upon surrender of this Note by the Holder to
the Company, the Company shall pay to the Holder the outstanding principal
amount hereof in such coin or currency of the United States of America
-A2-
<PAGE>
ANDREA ELECTRONICS CORPORATION
6% CONVERTIBLE NOTE DUE JUNE 10, 2000
as at the time of payment is legal tender for payment of public and private
debts, together with accrued interest on such outstanding principal amount as
set forth in Section 2 above.
4. CONVERSION.
(a) Conversion Price; Amount; Maximum Share Issuance. Subject to this
Section 4, the Holder of this Note has the right to convert this Note, in whole
or from time to time in part, into shares of common stock, par value $.50 per
share, of the Company (the "Common Stock"). The price at which the Holder may
convert this Note (or any portion thereof) into shares of Common Stock (the
"Conversion Price") shall be the lesser of (i) $16.125 (the "Maximum Conversion
Price") and (ii) the average of the two lowest Closing Prices (as defined below)
of the Common Stock during the 30 trading days preceding (but excluding) the
Date of Conversion (as defined below). The "Closing Price" with respect to the
per share price of Common Stock on any day means the last reported bid price
regular way on the American Stock Exchange or, if the Common Stock is not listed
or admitted to trading on such Exchange, on the principal national securities
exchange on which the Common Stock is listed or admitted to trading or, if not
listed or admitted to trading on any national securities exchange, on the Nasdaq
National Market or, if the Common Stock is not listed or admitted to trading on
any national securities exchange or quoted on such national market system, the
closing bid price in the over-the-counter market as furnished by any New York
Stock Exchange member firm that is selected from time to time by the Company for
that purpose. In lieu of any fractional share of Common Stock to which the
Holder would otherwise be entitled upon conversion of this Note (or portion
thereof), the number of shares of Common Stock issuable upon conversion of this
Note shall be rounded up to the nearest whole number. In the case of a dispute
as to the calculation of the Conversion Price, the Holder's calculation shall be
deemed conclusive absent manifest error.
The maximum number of shares of Common Stock (the "Maximum Share Issuance")
issuable upon conversion of the entire aggregate principal amount of the Notes
(including shares of Common Stock which the Company elects to issue in payment
of interest as provided in Section 2 hereof) is 2,100,000 (subject to adjustment
for stock splits, stock dividends, reclassification or other similar events). As
of the date which the Maximum Share Issuance has occurred, the interest rate
payable on the remaining unconverted portion of this Note shall permanently
increase to 17% per annum.
-A3-
<PAGE>
ANDREA ELECTRONICS CORPORATION
6% CONVERTIBLE NOTE DUE JUNE 10, 2000
The Holder of this Note shall be entitled to convert this Note into Common
Stock at any time beginning on the earlier to occur of (i) 120 days following
the date of original issuance of this Note (or any predecessor security) and
(ii) the date that a registration statement covering the resale of the shares of
Common Stock issuable upon conversion of the Notes is declared effective by the
Securities and Exchange Commission. The last date on which this Note may be
converted is three (3) business days prior to the Maturity Date. Subject to the
foregoing, the Holder may convert a portion of this Note into Common Stock at
any time if the portion converted (exclusive of accrued interest with respect
thereto) is equal to or exceeds $10,000.
Notwithstanding any other provision of this Section 4, as of any date prior
to the Maturity Date, the aggregate number of shares of Common Stock into which
this Note, all other Notes and all other securities convertible into Common
Stock held by the Holder of this Note and its affiliates shall be convertible,
together with the shares of Common Stock then beneficially owned (as defined in
the U.S. Securities Exchange Act of 1934, as amended) by such Holder and its
affiliates (excluding shares of Common Stock otherwise deemed beneficially owned
as a result of the convertibility of the Notes held by the Holder or its
affiliates), shall not exceed 4.9% of the total outstanding shares of Common
Stock as of such date.
(b) Mechanics of Conversion. To convert this Note (or a portion thereof)
the Holder must (i) complete and sign the Notice of Conversion set forth as
Exhibit A to this Note (the "Notice of Conversion") and deliver the Notice of
Conversion to the Company as herein provided and (ii) on or prior to the date on
which delivery of Common Stock is required to be made hereunder, (x) deliver
this Note, duly endorsed, to the Company and (y) pay any transfer or similar tax
if required. The Holder shall surrender this Note and the Notice of Conversion
to the Company (with an advance copy by facsimile of the Notice of Conversion).
The date on which Notice of Conversion is given (the "Date of Conversion") shall
be deemed to be the date of receipt by the Company of the facsimile of the
Notice of Conversion, provided that this Note is received by the Company within
five (5) business days thereafter. The Company shall not be obligated to cause
the transfer agent for the Common Stock (the "Transfer Agent") to issue
certificates evidencing the shares of Common Stock issuable upon such conversion
unless either this Note has been received by the Company or, if this Note has
been lost, stolen or destroyed, the Holder executes an agreement satisfactory to
the Company to indemnify the Company from any loss incurred by it in connection
with this Note.
-A4-
<PAGE>
ANDREA ELECTRONICS CORPORATION
6% CONVERTIBLE NOTE DUE JUNE 10, 2000
The Company shall cause the Transfer Agent to issue and deliver within two
(2) business days after delivery to the Company of this Note to the Holder of
this Note at the address of the Holder on the books of the Company, as
contemplated by the Securities Purchase Agreement or as otherwise directed
pursuant to the Notice of Conversion, a certificate or certificates for the
number of shares of Common Stock to which such Holder shall be entitled as
aforesaid. The person or persons entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock on such date. Notwithstanding
that the Holder is required to deliver this Note, duly endorsed, within five (5)
business days after the Date of Conversion, if this Note is not received by the
Company within ten (10) business days after the Date of Conversion, the Notice
of Conversion shall become null and void.
Following conversion of this Note, or a portion thereof, the principal,
together with the interest payable on this Note, or portion thereof so
converted, will be deemed paid in full and satisfied, and such Note or portion
thereof will no longer be outstanding. In the event this Note is converted in
part, the Company will issue to the Holder a new Note in a principal amount
equal to the portion of this Note not converted.
(c) Reservation of Stock Issuable Upon Conversion. The Company shall at all
times reserve and keep available out of its authorized but unissued shares of
Common Stock or shares of Common Stock held in treasury, or both, solely for the
purpose of effecting the conversion of this Note, such number of shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of the Notes and all other securities of the Company convertible or exchangeable
into Common Stock.
(d) Adjustment to Maximum Conversion Price.
(i) If, prior to the conversion of the entire principal amount of this
Note, the number of outstanding shares of Common Stock is increased by a stock
split, stock dividend of shares of Common Stock or other shares of capital
stock, reclassification or other similar event, the Maximum Conversion Price
shall be proportionately reduced, or if the number of outstanding shares of
Common Stock is decreased by a combination or reclassification of shares or
other similar event, the Maximum Conversion Price shall be proportionately
increased, in each case, such that the Holder of this Note will have the right
to receive upon conversion of this Note the number of shares of Common Stock (or
other shares of Capital Stock) of
-A5-
<PAGE>
ANDREA ELECTRONICS CORPORATION
6% CONVERTIBLE NOTE DUE JUNE 10, 2000
the Company (notwithstanding the limitation set forth in the third paragraph of
Section 4(a)) which such Holder would have been entitled to receive had the
Holder converted this Note immediately prior to such action.
(ii) If, prior to the conversion of the entire principal amount of
this Note, there shall be any merger, consolidation, exchange of shares,
recapitalization, reorganization or other similar event (a "Conversion
Reclassification Event"), as a result of which shares of Common Stock of the
Company shall be changed into the same or a different number of shares of the
Company or the same or another class or classes of stock or securities of the
Company or another entity, then the Holder of this Note shall thereafter have
the right to receive upon conversion of this Note, upon the basis and the terms
and conditions specified herein, such shares of stock and/or securities as may
be issued or payable with respect to or in exchange for the number of shares of
Common Stock immediately theretofore receivable upon the conversion of this Note
(irrespective of the limitations set forth in Section 4(a)) had such Conversion
Reclassification Event not taken place, and in any such case appropriate
provisions shall be made with respect to the rights and interests of the Holder
of this Note such that the provisions hereof (including, without limitation,
provisions for adjustment of the Maximum Conversion Price and of the number of
shares issuable upon conversion of this Note) shall thereafter be applicable, as
nearly as may be practicable in relation to any shares of stock or securities
thereafter deliverable upon the conversion of this Note. The Company shall not
effect any Conversion Reclassification Event unless the resulting successor or
acquiring entity (if not the Company) assumes by written instrument the
obligation to deliver to the Holder of this Note such shares of stock and/or
securities as the Holder of this Note is entitled to receive upon conversion in
accordance with the foregoing.
(iii) In addition to the adjustments set forth above, if the Company
distributes to all holders of its Common Stock any of its assets or debt
securities or any rights or warrants to purchase securities other than Common
Stock, then the Maximum Conversion Price shall be adjusted in such a manner as
shall be agreed to by the Company and the Holder as shall fairly preserve the
economic rights and benefits of the Holder as contemplated by this Note. In the
event that within 15 days of any such event, the Company and the Holder do not
reach an agreement as to the appropriate adjustment, the Company shall retain,
and pay for, a nationally recognized investment bank or accounting firm to
determine the appropriate adjustment as soon as possible, but in any event not
later than 45 days from the date of such event.
-A6-
<PAGE>
ANDREA ELECTRONICS CORPORATION
6% CONVERTIBLE NOTE DUE JUNE 10, 2000
No adjustment shall be required for cash dividends or distributions
except to the extent that any such cash dividend or distribution made on any
date would, upon payment, cause the aggregate fair market value (as determined
in good faith by the Board of Directors, whose determination shall be
conclusive) of all such dividends and distributions which have occurred on such
date and during the 365-day period immediately preceding such date (other than
any dividends or distributions in respect of which an adjustment to the Maximum
Conversion Price pursuant to this Section 4(d) had previously been made) exceed
the product of (x) .20 times (y) the Closing Price on the record date for such
most recent dividend or distribution times (z) the number of shares of Common
Stock outstanding on such date.
(iv) In the event that the Company shall at any time after the date of
the issuance of this Note (A) issue shares of Common Stock without consideration
(other than in the form of a dividend) or at a price per share less than the
Closing Price on the date of issue, (B) issue options, rights or warrants to
subscribe for or purchase Common Stock (or securities convertible into Common
Stock) without consideration or at a price per share (or having a conversion
price per share, if a security convertible into Common Stock) less than the
Closing Price of the Common Stock on the date of issue or (C) in the case of
securities convertible into Common Stock having a conversion price less than the
Closing Price of the Common Stock on the date of conversion, the Maximum
Conversion Price to be in effect after the date of such issuance shall be
adjusted by multiplying the Maximum Conversion Price in effect immediately prior
to the date of such issuance by a fraction, of which the numerator shall be the
number of shares of Common Stock outstanding on the date of such issuance plus
the number of shares of Common Stock which the aggregate offering price of the
total number of shares of Common Stock so to be issued (or the aggregate initial
conversion price of the convertible securities so to be issued) would purchase
at the Closing Price on the date of such issue and of which the denominator
shall be the number of shares of Common Stock outstanding on the date of such
issuance plus the number of additional shares of Common Stock to be issued (or
into which the convertible securities so to be issued are initially
convertible). In case the subscription price for such securities may be paid in
a consideration part or all of which shall be in a form other than cash, the
value of such consideration shall be as determined in good faith by the Board of
Directors of the Company, whose determination shall be conclusive. Such
adjustment shall be made successively whenever the date of such issuance is
fixed and, in the event that such shares or option, rights or warrants (or
portions thereof)
-A7-
<PAGE>
ANDREA ELECTRONICS CORPORATION
6% CONVERTIBLE NOTE DUE JUNE 10, 2000
expire without being issued, the Maximum Conversion Price shall again be
adjusted to reflect such occurrence.
(v) If any adjustment under this Section 4(d) would create a
fractional share of Common Stock or a right to acquire a fractional share of
Common Stock, such fractional share shall be disregarded and the number of
shares of Common Stock issuable upon conversion shall be the next higher number
of shares.
5. RANKING. The Notes constitute senior unsecured indebtedness of the Company,
rank pari passu in right of payment with other unsubordinated and unsecured
indebtedness of the Company and rank senior in right of payment to all
subordinated indebtedness of the Company.
6. REGISTERED HOLDER. The Company may for all purposes treat the registered
holders on its books and records of this Note as the Holder.
7. DENOMINATIONS. Notes (and any Note issued in exchange, upon transfer or upon
conversion) may be issued in a minimum principal amount of $100,000 (or such
lesser amount upon a conversion in part of a Note provided such lesser amount
represents such Holder's entire holding of Notes).
8. EVENTS OF DEFAULT.
(a) An "Event of Default" under this Note occurs if:
(1) the Company defaults in effecting a conversion of this Note in
accordance with the provisions hereof and such default continues for a period of
10 days (which period shall be 60 days in the event that the Company defaults in
effecting a conversion of this Note solely as a result of the requirements of
the exchange or market on which its Common Stock is then trading to obtain
shareholder approval to effect such issuance, and the Company is diligently
proceeding to obtain such approval);
(2) the Company defaults in the payment of the principal of or
interest on this Note when the same becomes due and payable;
-A8-
<PAGE>
ANDREA ELECTRONICS CORPORATION
6% CONVERTIBLE NOTE DUE JUNE 10, 2000
(3) the Company fails to comply in any material respect with any of
its agreements in this Note or the provisions of the Securities Purchase
Agreement (the "Securities Purchase Agreement") or the Registration Rights
Agreement, each dated as of the date of the original issuance of this Note
between the Company and the original Holder of this Note (other than those
referred to in clauses (1) and (2) above), and such failure continues for 30
days after the notice specified below (or 75 days in the event that the Company
has undertaken in good faith to cure such failure and such failure is reasonably
likely to be cured within such period);
(4) indebtedness of the Company or any subsidiary is not paid within
any applicable grace period after maturity or is accelerated by the holders
thereof because of a default, the total amount of such indebtedness unpaid or
accelerated exceeds $2,500,000 and such default continues for 10 days after the
notice specified below;
(5) the Company or any subsidiary pursuant to or within the meaning of
any federal or state bankruptcy, insolvency or other law for the relief of
debtors ("Bankruptcy Law"):
(A) commences a voluntary case or proceeding;
(B) consents to the entry of an order for relief against it in an
involuntary case or proceeding;
(C) consents to the appointment of any receiver, trustee,
assignee, liquidator, custodian or similar official under any Bankruptcy Law (a
"Custodian") of it or for any substantial part of its property; or
(D) makes a general assignment for the benefit of its
creditors;
or takes any comparable action under any foreign laws relating to insolvency;
(6) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(A) is for relief against the Company or any subsidiary in an
involuntary case or proceeding;
-A9-
<PAGE>
ANDREA ELECTRONICS CORPORATION
6% CONVERTIBLE NOTE DUE JUNE 10, 2000
(B) appoints a Custodian of the Company or any subsidiary or for
any substantial part of its property; or
(C) orders the winding up or liquidation of the Company
or any subsidiary;
or similar relief is granted under any foreign laws and the order or decree
remains unstayed and in effect for 60 days; or
(7) any final judgment or decree for the payment of money in excess of
$2,500,000 (to the extent not covered by insurance) is rendered against the
Company or any subsidiary and is not discharged and either (A) an enforcement
proceeding has been commenced by any creditor upon such judgment or decree or
(B) there is a period of 60 days following such judgment during which such
judgment or decree is not discharged, waived or the execution thereof stayed
and, in the case of (B), such default continues for 10 days after the notice
specified below.
The foregoing will constitute Events of Default whatever the reason for any
such Event of Default and whether it is voluntary or involuntary or is effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body.
A default under clause (3), (4) or (7) above is not an Event of Default
until the Holder of this Note notifies the Company of such default and the
Company does not cure such default within the time specified after receipt of
such notice. Such notice must specify the default, demand that it be remedied
and state that such notice is a "Notice of Default".
The Company shall deliver to the Holder of this Note, within 30 days after
the occurrence thereof, written notice of any event which with the giving of
notice, the lapse of time or both would become an Event of Default under clause
(3), (4) or (7) above, its status and what action the Company is taking or
proposes to take with respect thereto.
(b) If an Event of Default (other than an Event of Default specified in
clauses (5) or (6) above) occurs and is continuing, the Holder of this Note may
declare the principal of and accrued interest on this Note to be immediately due
and payable and upon such declaration, such principal and interest shall be due
and payable immediately. If an Event of Default specified in clauses (5) or (6)
above
-A10-
<PAGE>
ANDREA ELECTRONICS CORPORATION
6% CONVERTIBLE NOTE DUE JUNE 10, 2000
occurs, the principal of and interest on this Note shall ipso facto become and
be immediately due and payable without any declaration or other act on the part
of the Holder of this Note.
9. NO AMENDMENT. No provision of this Note may be amended, altered or modified
without the written agreement of the Holder and the Company.
10. NO VOTING RIGHTS. This Note shall not entitle the Holder hereof to any of
the rights of a stockholder of the Company, including without limitation, the
right to vote, to receive dividends and other distributions, or to attend any
meetings of stockholders or any other proceedings of the Company.
11. LOST OR DESTROYED NOTE. If this Note shall be mutilated, lost, stolen or
destroyed, the Company shall execute and deliver, in exchange and substitution
for and upon cancellation of a mutilated Note, or in lieu of or in substitution
for a lost, stolen or destroyed Note, a new Note for the principal amount of
this Note so mutilated, lost, stolen or destroyed but only upon receipt of
evidence of such loss, theft or destruction of such Note, and of the ownership
thereof, and indemnity, if requested, all reasonably satisfactory to the
Company.
12. SALES IN COMPLIANCE WITH APPLICABLE LAW. The Holder of this Note, by
acceptance hereof, agrees that it will not offer, sell or otherwise dispose of
this Note or the shares of Common Stock issuable upon conversion hereof except
under circumstances which will not result in a violation of the Securities Act
of 1933, as amended (the "Securities Act"), or any applicable state blue sky
laws relating to the sale of securities and the Holder agrees to provide the
Company with such documentation as the Company shall deem necessary in
accordance with this Note and the Securities Purchase Agreement to demonstrate
that such offer, sale or disposition complies with applicable securities laws.
13. GOVERNING LAW. This Note shall be governed by, enforced under and construed
in accordance with the laws of the State of New York, without giving effect to
the principles of conflicts of laws thereof.
14. BUSINESS DAY DEFINITION. For purposes hereof, the term "business day" shall
mean any day on which banks are generally open for business in the City of New
York.
-A11-
<PAGE>
ANDREA ELECTRONICS CORPORATION
6% CONVERTIBLE NOTE DUE JUNE 10, 2000
15. NOTICE. Any notice or other communication required or permitted to be given
hereunder shall be given as provided herein or delivered against receipt if to
(i) the Company at 11-40 45th Road, Long Island City, New York 11101; Facsimile
No.: 718-784-8457, Attention: Executive Vice President, Chief Financial Officer
and (ii) the Holder of this Note, to such Holder at its last address as shown on
the Note register (or to such other address as any such party shall have
furnished to the Company in writing). Any notice or other communication mailed
or otherwise delivered shall be deemed given at the time of receipt thereof.
-A12-
<PAGE>
ANDREA ELECTRONICS CORPORATION
6% CONVERTIBLE NOTE DUE JUNE 10, 2000
16. WAIVER.
(a) The Company hereby waives presentment for payment, notice of dishonor,
protest and notice of protest and, in the event of default hereunder, the
Company agrees to pay all costs of collection, including reasonable attorneys'
fees.
(b) Any waiver by the Company or the Holder hereof of a breach of any
provision of this Note shall not operate as or be construed to be a waiver of
any other breach of such provision or of any breach of any other provision of
this Note. The failure of the Company or the Holder hereof to insist upon strict
adherence to any term of this Note on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Note.
Any waiver must be in writing.
17. UNENFORCEABLE PROVISIONS. If any provision of this Note is invalid, illegal
or unenforceable, the remaining provisions of this Note shall remain in effect,
and if any provision is inapplicable to any person or circumstance, it shall
nevertheless remain applicable to all other persons and circumstances.
-A13-
<PAGE>
SCHEDULE I
REDUCTION OF PRINCIPAL AMOUNT ON CONVERSION
The following reductions of the principal amount of this Note upon
partial conversions thereof have been made:
Principal Notation Made
Amount of Aggregate Principal by or on Behalf
Date of Conversion Reduction Amount resulting of Company
- ------------------ --------- ------------------- ---------------
- ------------------ --------- ------------------- ---------------
- ------------------ --------- ------------------- ---------------
- ------------------ --------- ------------------- ---------------
- ------------------ --------- ------------------- ---------------
- ------------------ --------- ------------------- ---------------
- ------------------ --------- ------------------- ---------------
- ------------------ --------- ------------------- ---------------
- ------------------ --------- ------------------- ---------------
- ------------------ --------- ------------------- ---------------
- ------------------ --------- ------------------- ---------------
-A14-
<PAGE>
ANDREA ELECTRONICS CORPORATION
6% CONVERTIBLE NOTE DUE JUNE 10, 2000
ANDREA ELECTRONICS CORPORATION - NOTICE OF CONVERSION
6% CONVERTIBLE NOTE DUE JUNE 10, 2000
(To be executed by the Holder in order to convert the Note or portion
thereof)
The undersigned hereby irrevocably elects to convert [the entire principal
amount] [$ principal amount] of Note No. into shares of Common Stock, $.50 par
value (the "Common Stock"), of Andrea Electronics Corporation (the "Company") as
of the Date of Conversion (which shall be the date of receipt by facsimile by
the Company of this Notice of Conversion). If shares are to be issued in the
name of a person other than the undersigned, the undersigned will pay all
transfer taxes payable with respect thereto and is delivering herewith such
certificates as reasonably requested by the Company or its Transfer Agent. No
fee will be charged to the Holder for any conversion, except for transfer taxes,
if any.
The undersigned represents and warrants that all offers and sales by the
undersigned of the shares of Common Stock issuable to the undersigned upon
conversion of the Note shall be made pursuant to registration under the
Securities Act or in compliance with an exemption from registration under the
Securities Act. The undersigned also represents and warrants that the number of
shares of Common Stock to be received upon conversion, together with the shares
of Common Stock beneficially owned by the undersigned (and its affiliates) on
the Date of Conversion (excluding shares of Common Stock otherwise deemed
beneficially owned as a result of the convertibility of such Notes held by the
undersigned a its affiliates), do not exceed 4.9% of the outstanding shares of
Common Stock of the Company (as set forth in the Company's most recent filing
with the Securities and Exchange Commission unless the Company shall notify the
Holder that a greater or lesser number of shares is outstanding).
If the stock certificate is to be made out in another person's name, fill in the
form below:
(Print or type other person's name, address and zip code)
(Insert assignee's U.S. social security or tax identification number, if any)
Conversion calculations:
------------------
Date of Conversion
------------------
Applicable Conversion Price
- ---------------------- $
Total number of shares -------------------
(assuming interest payable Accrued Interest
in shares)
[Name of Holder]
By:
Name:
Title:
-A15-
<PAGE>
ANDREA ELECTRONICS CORPORATION
6% CONVERTIBLE NOTE DUE JUNE 10, 2000
ASSIGNMENT FORM
To assign this Note, fill in the form below:
I or we assign and transfer this Note to
- ---------------------------------------------------------------
(Print or type assignee's name, address and zip code)
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
(Insert assignee's social security or tax identification number,
if any)
and irrevocably appoint
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for him.
Date:
-------------- -------------------------
(Sign exactly as your name
appears on the face of
this Note)
-A16-
EXHIBIT 5
(LETTERHEAD)
August 10, 1998
Andrea Electronics Corporation
11-40 45th Road
Long Island City, New York 11101
Re: Andrea Electronics Corporation
REGISTRATION STATEMENT ON FORM S-3
Ladies and Gentlemen:
We have acted as counsel to Andrea Electronics Corporation, a New York
corporation (theion of 2,136,000 shares of common stock, $.50 par value (the
"Shares"), with the Securities and Exchange Commission (the "Commission") under
the Securities Act of 1933, as amended (the "1933 Act") pursuant to a
registration statement on Form S-3 (the "Registration Statement").
This opinion is being delivered in accordance with the requirements of Item
601(b)(5)(i) of Regulation S-K under the 1933 Act.
As counsel to the Company, we have examined such documents and records as
we deemed appropriate.
In rendering this opinion, we have relied, as to matters of fact, upon
representations and certificates of officers and employees of the Company, and
communications from, government authorities and public officials; and we have
assumed the genuineness of signatures of all persons signing any documents, the
authority of all persons signing any document, the authority of all governmental
authorities and public officials, the truth and accuracy of all matters of fact
set forth in all certificates furnished to us, the authenticity of all documents
submitted to us as originals and the conformity to original documents of all
documents submitted to us as certified, conformed or photostatic copies.
Based upon the foregoing, we are of the opinion that the Shares issuable
upon exercise of the Company's 6% Convertible Notes due June 10, 2000 when
issued and delivered upon exercise of such Notes in accordance with the terms of
the Notes, will be validly issued, fully paid and non-assessable and the 36,000
Shares that are currently outstanding were validly issued and are fully paid and
non-assessable.
We are not admitted to practice in any jurisdiction other than the State of
New York. We do not purport to be expert on, and we are not expressing an
opinion with respect to, laws other than the laws of the United States and the
State of New York.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving this consent, we do not thereby admit that we
are in the category of persons whose consent is required under Section 7 of the
1933 Act or the rules and regulations of the Commission thereunder.
Very truly yours,
/s/ Brown & Wood LLP
<PAGE> REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of
June 10, 1998 is made and entered into between ANDREA ELECTRONICS CORPORATION, a
New York corporation ("AEC"), and Societe Generale (the "Purchaser").
WHEREAS, AEC and the Purchaser have entered into that certain
Securities Purchase Agreement, dated as of the date hereof (the "Subscription
Agreement"), pursuant to which AEC has issued to the Purchaser U.S. $10,753,000
aggregate principal amount of its 6% Convertible Notes Due June 10, 2000 (the
"Notes"), which Notes, together with, in certain circumstances, accrued interest
thereon, are convertible into such number of shares of Common Stock, $.50 par
value per share, of AEC as are specified in the Notes (the "Convertible
Shares");
WHEREAS, pursuant to the terms of, and in partial consideration for,
the Purchaser's agreement to enter into the Subscription Agreement, the Company
has agreed to provide the Purchaser with certain registration rights with
respect to the Conversion Shares (as defined below);
NOW, THEREFORE, in consideration of the premises, the representations,
warranties, covenants and agreements contained herein and in the Subscription
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, intending to be legally bound
hereby, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions. Capitalized terms defined in the Subscription
Agreement shall have the same meanings herein as are ascribed to them therein.
In addition, the following terms shall have the meanings ascribed to them below:
"Purchaser" shall mean the Purchaser referenced in the preamble, and,
unless the context otherwise requires, shall include the Purchaser for so long
as it owns any Registrable Securities and any assignee or transferee of the
Notes or Registrable Securities to whom the registration rights conferred by
this Agreement have been transferred in compliance with this Agreement.
"Registrable Securities" means all of the Convertible Shares and any
other securities issued or issuable upon conversion of the Notes as provided
therein (together, the "Conversion Shares") until (i) a registration statement
under the Securities Act covering the offering of such Conversion Shares has
been declared
<PAGE>
effective by the Commission and such Conversion Shares have been disposed of
pursuant to such effective registration statement, (ii) such Conversion Shares
are sold under circumstances in which all of the applicable conditions of Rule
144 (or any similar provision then in force) under the Securities Act ("Rule
144") are met, (iii) such Conversion Shares have been otherwise transferred and
AEC has delivered a new certificate or other evidence of ownership for such
securities not bearing a restrictive legend or (iv) such time as, in the opinion
of counsel to the Company, which counsel shall be acceptable to the Purchasers
in their sole discretion, such Conversion Shares may be sold without any time,
volume or manner limitation pursuant to Rule 144(k) (or any similar provision
then in effect) under the Securities Act.
"Registration Statement" means the initial Registration Statement
filed by AEC pursuant to Section 2.1(a) and any additional Registration
Statement or Registration Statements filed by AEC pursuant to Section 2.2.
"Underwriter" means a securities dealer who purchases any Registrable
Securities as principal in an underwritten offering and not as part of such
dealer's market-making activities.
ARTICLE II
REGISTRATION RIGHTS
SECTION 2.1. Registration Requirements. The Company shall use its best
efforts to effect the registration of the Registrable Securities (including
without limitation the execution of an undertaking to file post-effective
amendments, appropriate qualification under applicable blue sky or other state
securities laws appropriate compliance with applicable regulations issued under
the Securities Act and, if necessary, the filing of an additional Registration
Statement or Registration Statements registering the resale of additional
Conversion Shares) as would permit or facilitate the sale or distribution of all
the Registrable Securities in the manner (including manner of sale) and in all
states reasonably requested by the Holders. Such best efforts by the Company
shall include the following:
(a) AEC will as expeditiously as possible (and in no event more
than thirty (30) days from the date hereof (the "Filing Deadline") prepare and
file with the Commission a registration statement (the "Registration Statement")
on Form S-3 (if use of such form is then available to AEC pursuant to the rules
of the Commission and, if not, on such other form promulgated by the Commission
for which AEC then qualifies and which counsel for AEC shall deem appropriate
and which form shall be available for the sale of the Registrable Securities to
be registered thereunder in accordance with the provisions of this Agreement and
in accordance with the intended method of such Registrable Securities), and use
its commercially reasonable efforts to cause such filed Registration Statement
to become effective
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within one hundred and twenty (120) days from the date hereof (the
"Effectiveness Deadline"). AEC will as expeditiously as possible prepare and
file with the Commission such amendments and supplements to a Registration
Statement and the prospectus used in connection therewith as may be necessary to
keep such Registration Statement effective, for a period of not less than: (i)
in the case of a non-underwritten offering of Registrable Securities, until
there shall no longer be any Registrable Securities or (ii) with respect to an
underwritten offering of Registrable Securities, ninety (90) days after the
commencement of the distribution of all Registrable Securities covered by such
Registration Statement (but not before the expiration of the period referred to
in Section 4(3) of the Securities Act and Rule 174 thereunder, if applicable)
and comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such Registration Statement during such
period in accordance with the intended methods of disposition by the Purchaser
set forth in such Registration Statement.
(b) The number of Registrable Securities covered by the initial filing
of the Registration Statement shall equal 200% of the number of Registrable
Securities into which the Notes would be convertible as of the date preceding
date of filing. The Company shall increase (but not decrease) the number of
Registrable Securities covered by such initial Registration Statement on the
date of filing of each subsequent pre-effective amendment to such initial
Registration Statement to an amount equal to 200% of the number of Conversion
Shares into which the Notes would be convertible as of the date preceding the
date of filing of such amendment.
(c) AEC will, prior to filing a Registration Statement or prospectus
or any amendment or supplement thereto, furnish to the Purchaser, and Dorsey &
Whitney LLP, counsel to the Purchaser, and each Underwriter, if any, of the
Registrable Securities covered by such Registration Statement copies of such
Registration Statement as proposed to be filed, together with exhibits thereto,
which documents will be subject to review and approval by the foregoing, and
thereafter furnish to the Purchaser, its counsel and each Underwriter, if any,
for their review and comment such number of copies of such Registration
Statement, each amendment and supplement thereto (in each case including all
exhibits thereto and documents incorporated by reference therein), the
prospectus included in such Registration Statement (including each preliminary
prospectus) and such other documents or information as the Purchaser, counsel or
each Underwriter may reasonably request in order to facilitate the disposition
of the Registrable Securities.
(d) After the filing of a Registration Statement, AEC will promptly
notify the Purchaser of any stop order issued or threatened by the Commission in
connection therewith and take all reasonable actions required to prevent the
entry of such stop order or to remove it if entered.
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(e) AEC will use its reasonable efforts to (i) register or qualify
such Registrable Securities under such other securities or blue sky laws of such
jurisdictions in the United States as the Purchaser may reasonably (in light of
its intended plan of distribution) request, and (ii) cause such Registrable
Securities to be registered with or approved by such other governmental agencies
or authorities in the United States as may be necessary by virtue of the
business and operations of AEC and do any and all other acts and things that may
be reasonably necessary or advisable to enable the Purchaser to consummate the
disposition of the Registrable Securities; provided that AEC will not be
required to (A) qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify but for this paragraph (e), (B)
subject itself to taxation in any such jurisdiction or (C) consent or subject
itself to general service of process in any such jurisdiction.
(f) AEC will immediately notify the Purchaser upon the occurrence of
any of the following events in respect of a registration statement or related
prospectus in respect of an offering of Registrable Securities; (i) receipt of
any request for additional information by the Commission or any other federal or
state governmental authority during the period of effectiveness of the
Registration Statement for amendments or supplements to such Registration
Statement or related prospectus; (ii) the issuance by the Commission or any
other federal or state governmental authority of any stop order suspending the
effectiveness of such Registration Statement or the initiation of any
proceedings for that purpose; (iii) receipt of any notification with respect to
the suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; (iv) the happening of any event
which makes any statement made in such Registration Statement or related
prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or which requires the making of any
changes in such Registration Statement, related prospectus or documents so that,
in the case of such Registration Statement, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
that in the case of the related prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and (vi) AEC's
reasonable determination that a post-effective amendment to such Registration
Statement would be appropriate; and AEC will promptly make available to the
Purchaser any such supplement or amendment to the related prospectus.
(g) AEC will enter into customary agreements (including, if
applicable, an underwriting agreement in customary form and which is reasonably
satisfactory to AEC) and take such other actions as are reasonably required in
order to expedite or facilitate the disposition of such Registrable Securities
(the Purchaser
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may, at its option, require that any or all of the representations, warranties
and covenants of AEC or to or for the benefit of such Underwriters also be made
to and for the benefit of the Purchaser).
(h) AEC will make available to the Purchaser (and will deliver to
Purchasers's counsel) and each Underwriter, if any, subject to restrictions
imposed by the United States federal government or any agency or instrumentality
thereof, copies of all correspondence between the Commission and AEC, its
counsel or auditors and will also make available for inspection by the
Purchaser, any Underwriter participating in any disposition pursuant to a
Registration Statement and any attorney, accountant or other professional
retained by the Purchaser or such Underwriter (collectively, the "Inspectors"),
all financial and other records, pertinent corporate documents and properties of
AEC (collectively, the "Records") as shall be reasonably necessary to enable
them to exercise their due diligence responsibility, and cause AEC's officers
and employees to supply all information reasonably requested by any Inspectors
in connection with such Registration Statement. Records which AEC determines, in
good faith, to be confidential and which it notifies the Inspectors are
confidential shall not be disclosed by the Inspectors unless (i) the disclosure
of such Records is necessary to avoid or correct a misstatement or omission in
such registration statement or (ii) the disclosure or release of such Records is
requested or required pursuant to oral questions, interrogatories, requests for
information or documents or a subpoena or other order from a court of competent
jurisdiction or other process; provided that prior to any disclosure or release
pursuant to clause (ii), the Inspectors shall provide AEC with prompt notice of
any such request or requirement so that AEC may seek an appropriate protective
order or waive such Inspectors' obligation not to disclose such Records; and,
provided further, that if failing the entry of a protective order or the waiver
by AEC permitting the disclosure or release of such Records, the Inspectors,
upon advice of counsel, are compelled to disclose such Records, the Inspectors
may disclose that portion of the Records which counsel has advised the
Inspectors that the Inspectors are compelled to disclose. The Purchaser agrees
that information obtained by it solely as a result of such inspections (not
including any information obtained from a third party who, insofar as is known
to the Purchaser after reasonable inquiry, is not prohibited from providing such
information by a contractual, legal or fiduciary obligation to AEC) shall be
deemed confidential and shall not be used by it as the basis for any market
transactions in the securities of AEC or its Affiliates unless and until such
information is made generally available to the public. The Purchaser further
agrees that it will, upon learning that disclosure of such Records is sought in
a court of competent jurisdiction, give notice to AEC and allow AEC, at its
expense, to undertake appropriate action to prevent disclosure of the Records
deemed confidential.
(i) AEC will furnish to the Purchaser and to each Underwriter, if any,
a signed counterpart, addressed to the Purchaser or such Underwriter, of (1) an
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opinion or opinions of counsel to AEC, and (2) a comfort letter or comfort
letters from AEC's independent public accountants, each in customary form and
covering such matters of the type customarily covered by opinions or comfort
letters, as the case may be, as the Purchaser or the managing Underwriter
therefor reasonably requests. AEC agrees that, upon effectiveness of the initial
Registration Statement, it will cause to be delivered to the Purchaser (i) a
comfort letter in customary form from its independent public accountants and
(ii) an opinion of Brown & Wood, counsel to the Company, covering customary
matters, including the absence of any untrue statement of a material fact or
omission to state any material fact required to be stated therein or necessary
to make the statements contained in the Initial Registration Statement and the
related prospectus not misleading.
(j) AEC will otherwise comply with all applicable rules and
regulations of the Commission, including, without limitation, compliance with
applicable reporting requirements under the Exchange Act, and will make
available to its securityholders, as soon as reasonably practicable, an earnings
statement covering a period of twelve (12) months, beginning within three (3)
months after the effective date of the registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the Securities Act.
(k) AEC will (i) if the Common Stock shall be listed on the New York
Stock Exchange or the American Stock Exchange at the time of effectiveness of a
Registration Statement, use commercially reasonable efforts to cause all such
Registrable Securities covered thereby to be listed on such exchange (if the
listing of such Registrable Securities is then permitted under the rules of such
exchange) and, if not, (ii) use commercially reasonable efforts to secure
designation of all such Registrable Securities covered by such Registration
Statement as a NASDAQ "national market system security" within the meaning of
Rule 11Aa2-1 of the Commission, and, in the case of clause (ii) above, to
arrange for at least two market makers to register as such with respect to such
Registrable Securities with the National Association of Securities Dealers, Inc.
(the "NASD").
(l) AEC will appoint a transfer agent and registrar for all such
Registrable Securities covered by a Registration Statement not later than the
effective date of such Registration Statement.
(m) AEC shall take all steps necessary to enable the Holders to avail
themselves of the prospectus delivery mechanism set forth in Rule 153 (or
successor thereto) under the Securities Act, if available.
(n) In connection with an underwritten offering, AEC will participate,
to the extent reasonably requested by the managing Underwriter for the offering
or the Purchaser, in customary efforts to sell the securities under the
offering, including, without limitation, participating in "road shows"; provided
that
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AEC shall not be obligated be to participate in more than one such offering in
any twelve (12)-month period and any such participation by AEC shall be at the
expense of the managing Underwriter or the Purchaser unless AEC shall also be
offering securities in such underwritten offering.
AEC may require the Purchaser to promptly furnish in writing to AEC
such information regarding the distribution of the Registrable Securities as AEC
may from time to time reasonably request and such other information as may be
legally required in connection with such registration including, without
limitation, all such information as may be requested by the Commission or the
NASD. If the Purchaser fails to provide such information requested in connection
with such registration within ten (10) business days after receiving such
written request, then AEC may cease pursuit of such registration until such
information is provided.
The Purchaser agrees that, upon receipt of any notice from AEC of the
happening of any event of the kind described in Section 3.1(e) hereof, the
Purchaser will forthwith discontinue disposition of Registrable Securities
pursuant to the registration statement covering such Registrable Securities
until the Purchaser's receipt of the copies of the supplemented or amended
prospectus contemplated by Section 3.1(e) hereof, and, if so directed by AEC,
the Purchaser will deliver to AEC all copies, other than permanent file copies
then in the Purchaser's possession, of the most recent prospectus covering such
Registrable Securities at the time of receipt of such notice. In the event AEC
shall give such notice, AEC shall extend the period during which a Registration
Statement shall be maintained effective (including the period referred to in
Section 3.1(a) hereof) by the number of days during the period from and
including the date of the giving of notice pursuant to Section 3.1(e) hereof to
the date when AEC shall make available to the Purchaser a prospectus
supplemented or amended to conform with the requirements of Section 3.1(e)
hereof.
SECTION 2.2 Additional Registration. In the event the number of Registrable
Securities available under a Registration Statement filed pursuant to this
Agreement is for any three (3) consecutive trading days (the last of such three
(3) trading days being the "Registration Trigger Date"), insufficient to cover
one hundred twenty-five percent (125%) of the Registrable Securities issued or
issuable upon conversion of the Notes outstanding (based on the conversion
formula set forth in the Notes), AEC shall file an additional Registration
Statement so as to cover two hundred percent (200%) of the Registrable
Securities issued or issuable to such Purchaser as of the date immediately
preceding such filing, as soon as practicable, but in any event within fifteen
(15) business days after the Registration Trigger Date. Notwithstanding the
foregoing, the number of shares of Common Stock which the Company is obligated
to cover pursuant to Registration Statements is limited to the Maximum Share
Issuance (as defined in the Note). The Purchaser agrees to provide to AEC such
information as it reasonably requests to allow AEC to
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assess whether a Registration Trigger Date has occurred or may occur. AEC shall
cause such additional Registration Statement to become effective as soon as
practicable following the filing thereof. The requirement of AEC to file further
additional Registration Statements under this Section 2.2 shall continue to
apply with respect to each additional Registration Statement.
SECTION 2.3. Registration Expenses. In connection with any registration
hereunder, AEC shall pay the following registration expenses incurred in
connection with the registration thereunder (the "Registration Expenses"): (i)
all registration and filing fees, (ii) fees and expenses of compliance with
securities or blue sky laws (including reasonable fees and disbursements of
counsel in connection with blue sky qualifications of the Registrable
Securities), (iii) printing expenses, (iv) AEC's internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), (v) the fees and expenses incurred in
connection with the listing of the Registrable Securities, (vi) reasonable fees
and disbursements of counsel for AEC and customary fees and expenses for
independent certified public accountants retained by AEC (including the expenses
of any comfort letters or costs associated with the delivery by independent
certified public accountants of a comfort letter or comfort letters requested
pursuant to Section 3.1(h) hereof), (vii) the fees and expenses of any special
experts retained by AEC in connection with such registration and (viii)
reasonable fees and expenses of one firm of counsel for the Holders retained as
the Holder's counsel with respect to such registration. AEC shall have no
obligation to pay any underwriting fees, discounts or commissions attributable
to the sale of Registrable Securities, or the cost of any special audit required
by the Purchaser, such costs to be borne by the Purchaser.
ARTICLE III
PAYMENTS BY AEC
SECTION 3.1 Payments by AEC. In the event the initial Registration
Statement is not filed by the Filing Deadline or declared effective by the
Effectiveness Deadline (or after the initial Registration Statement has been
declared effective by the Commission, sales of all the Registrable Securities
(including any Registrable Securities required to be registered pursuant to
Section 3.2 hereof) cannot be made pursuant to the initial or any additional
Registration Statement (by reason of a stop order or AEC's failure to update
such Registration Statement, the lack of an adequate number of Registrable
Securities covered by the initial (or any additional) Registration Statement or
any other reason outside the control of the Purchaser), then the Company will
make payments to the Purchaser in such amounts and at such times as shall be
determined pursuant to this Section 3.1 as partial relief for the damages to the
Purchaser by reason of any such delay in or reduction of their ability to sell
the Registrable Securities (which remedy shall not be exclusive of any other
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remedies available at law or in equity). The Company shall pay to the Purchaser
an amount equal to (i) (A) .01 times (B) the aggregate principal amount of the
Notes held by the Purchaser (including, without limitation, Notes that have been
converted into Registrable Securities then held by such Purchaser but excluding
any Notes as to which the Notes received upon conversion or exercise, as the
case may be, have been sold) times (ii) the sum of: (A) the number of months
following the Filing Deadline that the initial Registration Statement is not
filed pursuant to Section 2.1(a) or following the Effectiveness Deadline that
the initial Registration Statement is not declared effective by the SEC, as the
case may be, plus (B) the number of months (prorated per day for partial months)
following the Effectiveness Deadline that sales cannot be made pursuant to the
initial or any additional Registration Statement after the initial Registration
Statement has been declared effective. Such amounts shall be paid in cash or, at
the Purchaser's option, may be convertible into Common Stock at the Conversion
Price (as defined in the Notes). Any shares of Common Stock issued upon
conversion of such amounts shall constitute Registrable Securities. If the
Purchaser desires to convert or exercise the amounts due hereunder into
Registrable Securities it shall so notify AEC in writing within two (2) business
days prior to the date on which such amounts are first payable in cash and such
amounts shall be so convertible (pursuant to the terms of the Notes), beginning
on the last day upon which the cash amount would otherwise be due in accordance
with the following sentence. Payments of cash pursuant hereto shall be made
within three (3) business days after the end of each period that gives rise to
such obligation, provided that, if any such period extends for more than thirty
(30) days, payments shall be made for each such thirty (30) day period within
three (3) business days after the end of such thirty (30) day period.
ARTICLE IV
INDEMNIFICATION AND CONTRIBUTION
SECTION 4.1. Indemnification by AEC. AEC agrees to indemnify and hold
harmless the Purchaser, its partners, Affiliates, officers, directors, employees
and duly authorized agents, and each Person or entity, if any, who controls the
Purchaser within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act, together with the partners, Affiliates, officers,
directors, employees and duly authorized agents of such controlling Person or
entity (collectively, the "Controlling Persons"), from and against any loss,
claim, damage, liability, reasonable attorneys' fees, costs or expenses and
costs and expenses of investigating and defending any such claim (collectively,
"Damages"), joint or several, and any action in respect thereof to which the
Purchaser, its partners, Affiliates, officers, directors, employees and duly
authorized agents, and any such Controlling Person may become subject under the
Securities Act or otherwise, insofar as such Damages (or proceedings in respect
thereof) arise out of, or are based upon, any untrue statement or alleged untrue
statement of a material fact contained in any registration statement or
prospectus relating to the Registrable Securities or any preliminary prospectus,
or
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arises out of, or are based upon, any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as the same are based upon
information furnished in writing to AEC by the Purchaser or an Underwriter
expressly for use therein, and shall reimburse the Purchaser, its partners,
Affiliates, officers, directors, employees and duly authorized agents, and each
such Controlling Person for any legal and other expenses reasonably incurred by
the Purchaser, its partners, Affiliates, officers, directors, employees and duly
authorized agents, or any such Controlling Person in investigating or defending
or preparing to defend against any such Damages or proceedings; provided,
however, that AEC shall not be liable to the Purchaser to the extent that any
such Damages arise out of or are based upon an untrue statement or omission made
in any preliminary prospectus if (i) the Purchaser failed to send or deliver a
copy of the final prospectus with or prior to the delivery of written
confirmation of the sale by the Purchaser to the Person asserting the claim from
which such Damages arise, and (ii) the final prospectus would have corrected
such untrue statement or alleged untrue statement or such omission or alleged
omission; provided further, however, that AEC shall not be liable in any such
case to the extent that any such Damages arise out of or are based upon an
untrue statement or alleged untrue statement or omission or alleged omission in
any prospectus if (x) such untrue statement or omission or alleged omission is
corrected in an amendment or supplement to such prospectus, and (y) having
previously been furnished by or on behalf of AEC with copies of such prospectus
as so amended or supplemented, the Purchaser thereafter fails to deliver such
prospectus as so amended or supplemented prior to or concurrently with the sale
of a Registrable Security to the Person asserting the claim from which such
Damages arise. AEC also agrees to indemnify any Underwriters of the Registrable
Securities, their officers and directors and each Person or entity who controls
such Underwriters on customary terms.
SECTION 4.2. Indemnification by the Purchaser. The Purchaser agrees to
indemnify and hold harmless AEC, its partners, Affiliates, officers, directors,
employees and duly authorized agents and each Person or entity, if any, who
controls AEC within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act, together with the partners, Affiliates, officers,
directors, employees and duly authorized agents of such controlling Person, to
the same extent as the foregoing indemnity from AEC to the Purchaser, but only
with reference to information related to the Purchaser or its plan of
distribution, furnished in writing by the Purchaser or on the Purchaser's behalf
expressly for use in any registration statement or prospectus relating to the
Registrable Securities, or any amendment or supplement thereto, or any
preliminary prospectus. In case any action or proceeding shall be brought
against AEC or its partners, Affiliates, officers, directors, employees or duly
authorized agents or any such controlling Person or its partners, Affiliates,
officers, directors, employees or duly authorized agents, in respect of which
indemnity may be sought against the Purchaser, the Purchaser shall have the
rights
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and duties given to AEC, and AEC or its
partners, Affiliates, officers, directors, employees or duly authorized agents,
or such controlling Person, or its partners, Affiliates, officers, directors,
employees or duly authorized agents, shall have the comparable rights and duties
given to the Purchasers by Section 4.1. The Purchaser also agrees to indemnify
and hold harmless any Underwriters of the Registrable Securities with reference
to the same information as to which it agrees to indemnify AEC referenced above,
their officers and directors and each Person who controls such Underwriters on
customary terms. AEC shall be entitled to receive indemnities on customary terms
from Underwriters, selling brokers, dealer managers and similar securities
industry professionals participating in the distribution, to the same extent as
provided above, with respect to information so furnished in writing by such
persons specifically for inclusion in any prospectus or registration statement.
SECTION 4.3. Conduct of Indemnification Proceedings. Promptly after receipt
by any person or entity in respect of which indemnity may be sought pursuant to
Section 4.1 or 4.2 (an "Indemnified Party") of notice of any claim or the
commencement of any action, the Indemnified Party shall, if a claim in respect
thereof is to be made against the person or entity against whom such indemnity
may be sought (an "Indemnifying Party"), notify the Indemnifying Party in
writing of the claim or the commencement of such action; in the event an
Indemnified Party shall fail to give such notice as provided in this Section 4.3
and the Indemnifying Party to whom notice was not given was unaware of the
proceeding to which such notice would have related and was materially prejudiced
by the failure to give such notice, the indemnification provided for in Section
4.1 or 4.2 shall be reduced to the extent of any actual prejudice resulting from
such failure to so notify the Indemnifying Party; provided, that the failure to
notify the Indemnifying Party shall not relieve it from any liability which it
may have to an Indemnified Party otherwise than under Section 4.1 or 4.2. If any
such claim or action shall be brought against an Indemnified Party, and it shall
notify the Indemnifying Party thereof, the Indemnifying Party shall be entitled
to participate therein, and, to the extent that it wishes, jointly with any
other similarly notified Indemnifying Party, to assume the defense thereof with
counsel reasonably satisfactory to the Indemnified Party. After notice from the
Indemnifying Party to the Indemnified Party of its election to assume the
defense of such claim or action, the Indemnifying Party shall not be liable to
the Indemnified Party for any legal or other expenses subsequently incurred by
the Indemnified Party in connection with the defense thereof other than
reasonable costs of investigation; provided that the Indemnified Party shall
have the right to employ separate counsel to represent the Indemnified Party and
its controlling persons who may be subject to liability arising out of any claim
in respect of which indemnity may be sought by the Indemnified Party against the
Indemnifying Party, but the fees and expenses of such counsel shall be for the
account of such Indemnified Party unless (i) the Indemnifying Party and the
Indemnified Party shall have mutually agreed to the retention of such counsel
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or (ii) in the reasonable judgment of AEC and such Indemnified Party,
representation of both parties by the same counsel would be inappropriate due to
actual or potential conflicts of interest between them, it being understood,
however, that the Indemnifying Party shall not, in connection with any one such
claim or action or separate but substantially similar or related claims or
actions in the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the fees and expenses of more than one separate
firm of attorneys (together with appropriate local counsel) at any time for all
Indemnified Parties, or for fees and expenses that are not reasonable. No
Indemnifying Party shall, without the prior written consent of the Indemnified
Party, effect any settlement of any claim or pending or threatened proceeding in
respect of which the Indemnified Party is or could have been a party and
indemnity could have been sought hereunder by such Indemnified Party, unless
such settlement includes an unconditional release of such Indemnified Party from
all liability arising out of such claim or proceeding. Whether or not the
defense of any claim or action is assumed by the Indemnifying Party, such
Indemnifying Party will not be subject to any liability for any settlement made
without its consent, which consent will not be unreasonably withheld.
SECTION 4.4. Contribution. If the indemnification provided for in this
Article IV is unavailable to the Indemnified Parties in respect of any Damages
referred to herein, then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Damages (i) as between AEC and the
Purchaser on the one hand and the Underwriters on the other, in such proportion
as is appropriate to reflect the relative benefits received by AEC and the
Purchaser on the one hand and the Underwriters on the other from the offering of
the Registrable Securities, or if such allocation is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits but also the relative fault of AEC and the Purchaser on the one hand
and of the Underwriters on the other in connection with the statements or
omissions which resulted in such Damages, as well as any other relevant
equitable considerations, and (ii) as between AEC on the one hand and the
Purchaser on the other, in such proportion as is appropriate to reflect the
relative fault of AEC and of the Purchaser in connection with such statements or
omissions, as well as any other relevant equitable considerations. The relative
benefits received by AEC and the Purchaser on the one hand and the Underwriters
on the other shall be deemed to be in the same proportion as the total proceeds
from the offering (net of underwriting discounts and commissions but before
deducting expenses) received by AEC and the Purchaser bear to the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover page of the prospectus. The relative
fault of AEC and the Purchaser on the one hand and of the Underwriters on the
other shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by AEC and
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the Purchaser or by the Underwriters. The relative fault of AEC on the one hand
and of the Purchaser on the other shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by such party, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
AEC and the Purchaser agree that it would not be just and equitable if
contribution pursuant to this Section 4.4 were determined by pro rata allocation
(even if the Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an Indemnified Party as a result of the Damages referred to
in the immediately preceding paragraph shall be deemed to include, subject to
the limitations set forth above, any legal or other expenses reasonably incurred
by such Indemnified Party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 4.4, no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Registrable Securities underwritten by it
and distributed to the public were offered to the public exceeds the amount of
any damages which such Underwriter has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission, and
the Purchaser shall in no event be required to contribute any amount in excess
of the amount by which the total price at which the Registrable Securities of
the Purchaser were offered to the public (less underwriting discounts and
commissions) exceeds the amount of any damages which the Purchaser has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No Person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
ARTICLE V
MISCELLANEOUS
SECTION 5.1. Term. The registration rights provided to the holders of
Registrable Securities hereunder shall terminate on such date as there shall be
no Registrable Securities; provided, however, that the provisions of Article IV
hereof shall survive any termination of this Agreement.
SECTION 5.2. Rule 144. AEC covenants that it will file all reports required
to be filed by it under the Securities Act and the Exchange Act and that it will
take such further action as holders of Registrable Securities may reasonably
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request, all to the extent required from time to time to
enable the Purchaser to sell Registrable Securities without registration under
the Securities Act within the limitation of the exemptions provided by (a) Rule
144, as such Rule may be amended from time to time, or (b) any similar rule or
regulation hereafter adopted by the Commission. If at any time AEC is not
required to file such reports, it will, upon the request of any holder of
Registrable Securities, make publicly available other information so long as
necessary to permit sales pursuant to Rule 144. Upon the request of the
Purchaser, AEC will deliver to the Purchaser a written statement as to whether
it has complied with such requirements.
SECTION 5.3. Restrictions on Sale by AEC and Others. AEC agrees and it
shall use its best efforts to cause its affiliates to agree (i) not to effect
any public sale or distribution of any securities similar to those being
registered in accordance with Section 2.1 hereof, or any securities convertible
into or exchangeable or exercisable for such securities, during the thirty (30)
days prior to, and during the period beginning on the effective date of any
registration statement (except as part of such registration statement) until all
of the Registrable Securities offered thereof have been sold if, and to the
extent, reasonably requested by the managing Underwriter or Underwriters in the
case of an underwritten public offering, provided, however, that such period
shall not exceed ninety (90) days, and (ii) to use commercially reasonable
efforts to ensure that any agreement entered into after the date hereof shall
contain a provision under which holders of such securities agree not to effect
any sale or distribution of any such securities during the periods described in
(i) above, in each case including a sale pursuant to Rule 144 under the
Securities Act (except as part of any such registration, if permitted);
provided, however, that the provisions of this Section 5.3 shall not prevent (x)
the conversion or exchange of any securities pursuant to their terms into or for
other securities, (y) the issuance of any securities to employees of AEC or
pursuant to any employee plan or (z) issuances of shares of Common Stock and the
registration and resale thereof, in connection with the Lamar Transaction.
SECTION 5.4. Amendment and Modification. Any provision of this Agreement
may be waived, provided that such waiver is set forth in a writing executed by
the party against whom the enforcement of such waiver is sought. The provisions
of this Agreement, including the provisions of this sentence, may not be
amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given, unless AEC has obtained the written
consent of the holders of a majority of the then outstanding Registrable
Securities. Notwithstanding the foregoing, the waiver of any provision hereof
with respect to a matter that relates exclusively to the rights of holders of
Registrable Securities whose securities are being sold pursuant to a
registration statement and does not directly or indirectly affect the rights of
other holders of Registrable Securities may be given by holders of at least a
majority of the Registrable Securities being sold by such holders; provided that
the provisions of this sentence may not be amended,
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modified or supplemented except in accordance with the provisions of the
immediately preceding sentence. No course of dealing between or among any Person
having any interest in this Agreement will be deemed effective to modify, amend
or discharge any part of this Agreement or any rights or obligations of any
person under or by reason of this Agreement.
SECTION 5.5. Successors and Assigns; Entire Agreement. This Agreement and
all of the provisions hereof shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns. The Purchaser
may assign its rights under this Agreement to any subsequent holder of Notes or
Conversion Shares, provided that AEC shall have the right to require any holder
of Notes or Registrable Securities to execute a counterpart of this Agreement as
a condition to such holder's claim to any rights hereunder. This Agreement,
together with the Subscription Agreement and the Notes sets forth the entire
agreement and understanding between the parties as to the subject matter hereof
and merges and supersedes all prior discussions, agreements and understandings
of any and every nature among them.
SECTION 5.6. Separability. In the event that any provision of this
Agreement or the application of any provision hereof is declared to be illegal,
invalid or otherwise unenforceable by a court of competent jurisdiction, the
remainder of this Agreement shall not be affected except to the extent necessary
to delete such illegal, invalid or unenforceable provision unless that provision
held invalid shall substantially impair the benefits of the remaining portions
of this Agreement.
SECTION 5.7. Notices. All notices, demands, requests, consents, approvals
or other communications required or permitted to be given hereunder or which are
given with respect to this Agreement shall be in writing and shall be personally
served or deposited in the mail, registered or certified, return receipt
requested, postage prepaid, or delivered by reputable air courier service with
charges prepaid, or transmitted by hand delivery, telegram, telex or facsimile,
addressed as set forth below, or to such other address as such party shall have
specified most recently by written notice: (i) if to the Company, to: Andrea
Electronics Corporation, 11-40 45th Road, Long Island City, New York 11101,
Attention: Patrick D. Pilch, Facsimile No.: (718) 784-8457; with copies (which
shall not constitute notice) to: Brown & Wood LLP, One World Trade Center, New
York, New York 10048, Attention: Alan L. Jakimo, Esq., Facsimile No.: (212)
839-5599; and (ii) if to the Purchaser: c/o Societe Generale Securities
Corporation, 1221 Avenue of the Americas, New York, New York, Attention:
Guillaume Pollet, Facsimile No.: (212) 278-5467, with copies (which shall not
constitute notice) to: Dorsey & Whitney LLP, 250 Park Avenue, New York, New York
10177, Attention: J. Eric Maki, Esq., Facsimile No. (212) 953- 7201. Notice
shall be deemed given on the date of service or transmission if personally
served or transmitted by telegram, telex or facsimile. Notice otherwise sent as
provided
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<PAGE>
herein shall be deemed given on the third
business day following the date mailed or on the second business day following
delivery of such notice by a reputable air courier service.
SECTION 5.8. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAW OF THE STATE OF NEW YORK, WITHOUT
GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
SECTION 5.9. Headings. The headings in this Agreement are for convenience
of reference only and shall not constitute a part of this Agreement, nor shall
they affect their meaning, construction or effect.
SECTION 5.10. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original instrument and
all of which together shall constitute one and the same instrument.
SECTION 5.11. Further Assurances. Each party shall cooperate and take such
action as may be reasonably requested by another party in order to carry out the
provisions and purposes of this Agreement and the transactions contemplated
hereby.
SECTION 5.12. Remedies. In the event of a breach or a threatened breach by
any party to this Agreement of its obligations under this Agreement, any party
injured or to be injured by such breach will be entitled to specific performance
of its rights under this Agreement or to injunctive relief, in addition to being
entitled to exercise all rights provided in this Agreement and granted by law.
The parties agree that the provisions of this Agreement shall be specifically
enforceable, it being agreed by the parties that the remedy at law, including
monetary damages, for breach of any such provision will be inadequate
compensation for any loss and that any defense or objection in any action for
specific performance or injunctive relief that a remedy at law would be adequate
is waived.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by the undersigned, thereunto duly authorized, as of the date first
set forth above.
ANDREA ELECTRONICS CORPORATION
By: /s/ Patrick Pilch
Name: Patrick Pilch
Title: Executive Vice President,
Chief Financial Officer
SOCIETE GENERALE
By: /s/ Guillaume Pollet
Name: Guillaume Pollet
Title: Authorized Signatory
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EXHIBIT 23.1
Consent of Independent Public Accountants
----------------------
As independent public accountants, we hereby consent to the incorporation by
reference in this Form S-3 registration statement of our report dated January
28, 1998 included in the Andrea Electronics Corporation Form 10-K for the year
ended December 31, 1997 and to all references to our Firm included in this Form
S-3 registration statement.
ARTHUR ANDERSEN LLP
Melville, New York
August 7, 1998
EXHIBIT 23.2
Consent of Independent Public Accountants
----------------------
As independent public accountants, we hereby consent to the incorporation by
reference of our report on Lamar Signal Processing, Ltd. dated July 12, 1998,
appearing in the Current Report on Form 8-K/A of Andrea Electronics Corporation
(the "Company"), into the Company's Form S-3 Registration Statements, and to all
references to our firm included in this Form S-3 Registration Statement.
LUBOSHITZ KASIERER & CO.
Certified Public Accountants (Isr.)
Member Firm of Arthur Andersen
Haifa, Israel
August 7, 1998
