<PAGE>
As filed with the Securities and Exchange Commission on July 19, 1999
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.)
45 MELVILLE PARK ROAD
MELVILLE, NEW YORK 11747
(516) 719-1800
--------------
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
-------------------------------------------------------
JOHN N. ANDREA
CO-CHAIRMAN AND CO-CHIEF EXECUTIVE OFFICER
ANDREA ELECTRONICS CORPORATION
45 MELVILLE PARK ROAD
MELVILLE, NEW YORK 11747
(516) 719-1800
--------------
(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 Unit Price Fee
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 215,189 $6.28(1) $ 1,351,656 $ 376
Common Stock Issuable Upon
Conversion of Series B
Convertible Preferred Stock 2,431,680 $6.28(1) $15,273,382 $4,246
Common Stock Issuable Upon
Exercise of Warrant 150,000 $8.775 $ 1,316,250 $ 366
- -----------------------------------------------------------------------------
Totals 2,796,869 $17,941,288 $4,988
- -----------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(c) of the Securities Act of 1933, as amended, and based on the
average of the high and low prices as quoted on the American Stock
Exchange on July 15, 1999.
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, July 19, 1999)
PROSPECTUS
ANDREA ELECTRONICS CORPORATION
45 Melville Park Road
Melville, New York 11747
2,796,869 Shares
COMMON STOCK
(Par Value $.50 Per Share)
This Prospectus relates to 2,796,869 shares of common stock, par value $.50
per share, of Andrea Electronics Corporation, a New York corporation, which may
be sold from time to time by the selling stockholders named herein, or their
transferees, pledgees, donees or successors. Such shares of common stock are
comprised of (i) 2,581,680 shares which may be issued subsequent hereto upon
conversion of our Series B Convertible Preferred Stock, par value $0.01 per
share, and upon the exercise of a warrant granted to one of the selling
stockholders and (ii) 215,189 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 Series B Convertible Preferred Stock
and related warrant were issued and sold on June 18, 1999 to a selling
stockholder named herein (the "Series B Holder"), pursuant to a Securities
Purchase Agreement, dated June 11, 1999, in a private placement exempt from the
registration requireme nts of the Securities Act of 1933, as amended. The holder
of the Series B Convertible Preferred Stock and related warrant and the holders
of the common stock that are outstanding are named herein under the caption
"Selling Stockholders."
The Series B Convertible Preferred Stock becomes convertible into common
stock according to a vesting schedule, with 12.5% of the shares becoming
convertible on October 17, 1999 and an additional 12.5% becoming convertible at
the end of each succeeding 30-day period, subject to acceleration upon the
occurrence of certain events. Each share of Series B Convertible Preferred Stock
has a stated value of $10,000 plus an additional amount equal to 4% per annum,
which sum is convertible into common stock a t a conversion price equal to the
lower of $8.775 and the average of the two lowest closing bid prices of the
common stock during the 15 consecutive trading days immediately preceding any
conversion date, subject to certain adjustments which are triggered upon, among
other things, certain stock splits, recapitalizations, or other dilutive
transactions, as well as issuances of common stock at a price below the fixed
conversion price in effect. See "Risk Factors--Shares Eligible For Future Sale
May Have An Adverse Effect On Market Price; You May Experience Substantial
Dilution." The 4% per annum additional amount with respect to each share of
Series B Convertible Preferred Stock may, at our option, be paid in cash at the
time of conversion. The Series B Convertible Preferred Stock pays no dividends,
has no-voting rights and will convert automatically into common stock at the
applicable conversion price then in effect on June 18, 2004, to the extent any
shares of such Series B Convertible Preferred Stock re main outstanding. The
warrant has an exercise price of $8.775 per share and expires on June 18, 2004.
We will not receive any of the proceeds from the sale of these shares,
although we have paid the expenses of preparing this Prospectus and the related
Registration Statement.
The shares are being registered to permit public secondary trading of them
and may be offered and sold from time to time by the selling stockholders. The
selling stockholders, or pledgees, donees, transferees, or other successors in
interest, may sell the common stock from time to time on the American Stock
Exchange ("AMEX"), in the over-the-counter market, in a negotiated transaction
or in a combination of such methods of sale, at market prices prevailing at the
time of sale, at prices related to su ch prevailing market prices or at prices
otherwise negotiated. See "Plan of Distribution."
We can not assure you that the selling stockholders will sell all or any
portion of the common stock offered hereby.
Our principal executive offices are located at 45 Melville Park Road,
Melville, New York, 11747. Our telephone number is (516) 719-1800. The closing
price of our common stock on AMEX on July 14, 1999 was $6.438.
INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CAREFULLY READ THE "RISK FACTORS" SECTION OF THIS PROSPECTUS. IT BEGINS ON
PAGE 5.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED WHETHER
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this Prospectus is July __, 1999
<PAGE>
TABLE OF CONTENTS
Where You Can Find More Information.. 3
Incorporated Documents............... 4
The Company.......................... 5
Forward-Looking Statements........... 6
Risk Factors......................... 7
Use of Proceeds...................... 13
Selling Stockholders................. 13
Capital Stock........................ 15
Plan of Distribution................. 20
Legal Matters........................ 22
Experts.............................. 22
__________
You should only rely on the information incorporated by reference or provided in
this Prospectus or any supplement. We have not authorized any person to provide
you with any information that is different. If anyone provides you with
different or inconsistent information you should not rely on it. The common
stock is not being offered in any state where the offer is not permitted. You
should not assume that the information in this Prospectus or any supplement is
accurate as of any date other than the date on the front of this Prospectus.
The information in this Prospectus may not contain all of the information
that may be important to you. You should read the entire Prospectus, as well as
the documents incorporated by reference in the Prospectus, before making an
investment decision. All references to "we", "us", "our", "Andrea" or the
"Company" in this Prospectus mean Andrea Electronics Corporation and its
subsidiaries.
"Andrea Anti-Noise", "Andrea QuietWare", and "Technology Enhancing
Communications" are registered trademarks of Andrea. "Andrea DSDA" is a
trademark of Andrea. All other trademarks in this Prospectus are the trademarks
of their respective owners.
Page 2
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and periodic reports, proxy statements and
other information with the Securities and Exchange Commission (the "Commission")
using the Commission's EDGAR system. You may inspect these documents and copy
information from them at the Commission's public reference facilities at 450
Fifth Street, N.W., Washington, D.C. 20549 or at the regional offices of the
Commission at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, Suite 1300, New York, New York
10048. Copies of such material can be obtained at prescribed rates from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of such
site is http//www.sec.gov.
We have filed a registration statement with the Commission relating to the
offering of the common stock. The registration statement contains information
which is not included in this Prospectus. You may inspect or copy the
registration statement at the Commission's public reference facilities or its
Web site.
We furnish our stockholders with annual reports containing audited
financial statements and with such other periodic reports as we from time to
time deem appropriate or as may be required by law.
Our common stock is listed on AMEX under the symbol "AND."
Page 3
<PAGE>
INCORPORATED DOCUMENTS
We have filed the following documents with the Commission. We are
incorporating these documents in this Prospectus, and they are a part of this
Prospectus.
(1) Our Annual Report on Form 10-K for the fiscal
year ended December 31, 1998 (including information specifically
incorporated by reference into our Form 10-K from our definitive
Proxy Statement for our 1999 Annual Meeting of Stockholders);
(2) Our Quarterly Report on Form 10-Q for the three month period
ended March 31, 1999;
(3) Our Current Reports on Form 8-K, dated March 1, 1999,
May 7, 1999 and June 22, 1999; and
(4) The description of our common stock, par value $.50 per share,
contained in (i) our registration statement filed under the Exchange
Act of 1934, as amended, No. 1-4324, as declared effective on
February 28, 1967, (ii) Article Third of our Restated Certificate of
Incorporation filed as Exhibit 3.1 to our Current Report on Form
8-K dated November 30, 1998 and (iii) any subsequent amendment(s)
or report(s) filed for the purpose of updating such description.
We are also incorporating by reference in this Prospectus all
documents which we file pursuant to Section 13(a), 13(c), 14 or 15 of the
Securities Exchange Act of 1934, as amended after the date of this Prospectus.
Such documents are incorporated by reference in this Prospectus and are a part
of this Prospectus from the date we file the documents with the Commission.
If we file with the Commission any document that contains information
which is different from the information contained in this Prospectus, you may
rely only on the most recent information which we have filed with the
Commission.
We will provide a copy of the documents referred to above without charge if
you request the information from us. Requests for such copies should be directed
to us at our principal executive offices at Andrea Electronics Corporation, 45
Melville Park Road, Melville, New York, 11747, attention: Secretary or (516)
719-1800.
Page 4
<PAGE>
THE COMPANY
We are engaged in the development, manufacture and marketing of our 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. Noise
reduction enhances the quality of sound heard in noisy environments and can also
be used as a means of environmental sound control. We commercially introduced
our noise cancellation products in 1995. We are also developing a new line of
Andrea DSP products with digital signal processing features. We introduced our
first digital signal processing product, the Andrea Digital Super Directional
Array ("Andrea DSDA") at the end of fiscal year 1998.
Our strategy is to maintain and extend our position in the market in noise
cancellation and noise reduction technologies and products. We intend to
continue to broaden our Andrea Anti-Noise product line with our existing Andrea
Anti-Noise technologies and to introduce new products based on our digital
signal processing technology currently under development.
To leverage our research and development resources and direct sales
efforts, we collaborate with large enterprises in software publishing
and computer manufacturing and are seeking to increase on a global scale our
relationships with large retail chains and distributors.
The success of our strategy will depend on our ability to:
- increase sales of our line of existing Andrea Anti-Noise products;
- introduce additional Andrea Anti-Noise products and new Andrea DSP
products;
- maintain the competitiveness of our technologies through further
research and development; and
- achieve widespread adoption of our products and technologies.
We cannot assure you that we will be able to accomplish these objectives.
We have been engaged in the electronic communications industry since 1934.
For several decades prior to our entry into the voice-activated computing market
in the 1990's, our primary business was selling intercom systems for military
and industrial use. We continue to manufacture replacement parts for these
systems, but we do not expect revenue from this business to increase materially.
We are seeking to apply our knowledge of the military and industrial markets to
develop applications of our Andrea Anti-Noise technologies for these markets. We
cannot, however, assure you that these efforts will succeed, and we do not
expect any material revenues from such new products for the foreseeable future.
Page 5
<PAGE>
FORWARD-LOOKING STATEMENTS
We make certain "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended, throughout this Prospectus
and in the documents we incorporate by reference into this Prospectus. The
words "anticipates," "believes," "estimates," "expects," "intends," "plans,"
"seeks," variations of such words, and similar expressions are intended to
identify forward-looking statements. We have based these forward-looking
statements on our current expectations, estimates and projections about our
business and industry, our beliefs and certain assumptions made by our
management. Investors are cautioned that matters subject to forward-looking
statements involve risks and uncertainties including economic, competitive,
governmental, technological and other factors which may affect our business
and prospects. These statements are not guarantees of future performance and
are subject to certain risks, uncertainties and assumptions that are difficult
to predict. Important factors which could cause our actual results to differ
materially from the forward-looking statements in this Prospectus include, but
are not limited to, those identified in this Prospectus under "Risk Factors"
and those described in Management's Discussion and Analysis of Financial
Conditions and Results of Operations in our Form 10-K for the fiscal year
ended December 31, 1998, the Form 10-Q for the quarter ended March 31, 1999,
and in any other filings which are incorporated by reference in this Prospectus.
You should read this Prospectus and the documents that we incorporate by
reference into this Prospectus completely and with the understanding that our
actual future results may be materially different from what we expect. We may
not update these forward-looking statements, even though our situation will
change in the future. All forward-looking statements attributable to us are
expressly qualified by these cautionary statements.
Page 6
<PAGE>
RISK FACTORS
An investment in our common stock involves a high degree of risk. You
should consider carefully, along with other factors, the following risks and
should consult with your own legal, tax and financial advisors.
OUR OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATION
Our results of operations have historically been and are subject to
continued substantial annual and quarterly fluctuations. The causes of these
fluctuations include, among other things:
- - the volume of sales of our products under our collaborative marketing
arrangements;
- - the mix of products we sell;
- - the mix of distribution channels we use;
- - the timing of our new product announcements and releases and those of our
competitors;
- - fluctuations in the computer and communications hardware and software
marketplace; and
- - general economic conditions.
We cannot assure that the level of sales and gross profit, if any, that we
achieve in any particular fiscal period will not be significantly lower than in
other fiscal periods. Our revenues for the year ended December 31, 1998 were
approximately $21.3 million compared to approximately $26.4 million in calendar
1997. For the year ended December 31, 1998, we had a net loss of approximately
$6.4 million versus net income of $3.4 million for the year ended December 31,
1997. For the first quarter ended March 31, 1999, our revenues were
approximately $4.7 million compared to revenues of approximately $4.5 million
over the same period in 1998. For the first quarter of 1999, we had a net loss
of approximately $1.5 million compared to net income of approximately $0.4
million in the same period in 1998.
While we are examining opportunities for cost-reduction, production
efficiencies and further diversification of our business, we may continue to
accumulate losses and the market price of our common stock could decline. In
order to remain competitive, we intend 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, therefore, net income or loss may be disproportionately
affected by any reduction in sales revenue. Accordingly, we believe that
period-to-period comparisons of our results of operations may not necessarily be
meaningful and should not be relied upon as indications of future performance.
OUR STOCK PRICE HAS BEEN AND MAY CONTINUE TO BE VOLATILE
The market price of our common stock has historically been highly volatile
and could be subject to wide fluctuations in response to quarterly and annual
variations in our results of operations, losses of significant customers,
announcements of technological innovations or new products by us or our
competitors, changes in the outlook of our industry, our company and our
competitors by securities analysts, or other events or factors, including the
risk factors described in this Report. 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.
MEETING OUR FUTURE CAPITAL NEEDS MAY ADVERSELY AFFECT OUR BUSINESS AND BE
DILUTIVE TO EXISTING SHAREHOLDERS
Our future capital requirements will depend on numerous factors, including:
- - the costs associated with developing, manufacturing and commercializing our
products;
- - maintaining existing, or entering into future, collaborative marketing and
distribution agreements;
- - protecting intellectual property rights; and
- - expanding facilities and consummating possible future acquisitions of
technologies, products or businesses.
From time to time during the past several years, we have raised additional
capital from external sources. We may continue to have to raise additional
capital from external sources. These sources may include private or public
financings through the issuance of debt, convertible debt or equity, or
collaborative arrangements. We cannot assure that additional capital will be
available on favorable terms, if at all. If adequate funds are not available, we
may be required to significantly reduce or refocus our operations or to obtain
funds through arrangements that may require us to relinquish rights to certain
of our products, technologies or potential markets, which would have a material
adverse effect on our 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 our existing
stockholders. In June 1999, we sold $7.5 million of Series B Convertible
Preferred Stock and a related warrant for 75,000 shares of our common stock and,
under certain conditions, we have the right to sell up to an additional $7.5
million of Series B Convertible Preferred Stock and warrants for up to 75,000
shares of our common stock. We cannot assure that such conditions will be
satisfied or, if they are, that we will sell any additional Series B Convertible
Preferred Stock or warrants.
Page 8
<PAGE>
WE MUST INCREASE SALES AND PROFITABILITY OF OUR PRODUCTS AND COMMERCIALIZE NEW
PRODUCTS
Our business, results of operations and financial condition depend on
successful commercialization of our Andrea Anti-Noise products and technologies.
Sales of the initial Andrea Anti-Noise products began in 1995, and since 1995 we
have 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. To achieve increased sales and profitability, we
must, among other things:
- - increase market acceptance of our Andrea Anti-Noise products;
- - respond effectively to competitive pressures with the timely introduction
of new Andrea Anti-Noise products; and
- - successfully market and support these products.
We cannot assure that we will achieve or sustain significant sales or
profitability of our Andrea Anti-Noise products. Failure to do so would have a
material adverse effect on our business, results of operations and financial
condition.
WE FACE INTENSE COMPETITION
The markets in which we sell our Andrea Anti-Noise products and our
traditional line of military and industrial products are highly competitive.
Competition in the markets for our Andrea Anti-Noise products is based on:
- - varying combinations of product features;
- - quality and reliability of performance;
- - price;
- - 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 our current and potential competitors have significantly greater
financial, technology development, marketing, technical support and other
resources than we do. Consequently, these competitors may be able to respond
more quickly to new or emerging technologies and changes in customer
requirements, or devote greater resources to the development, marketing, and
sale of their products than we can. We cannot assure that one or more of these
competitors will not independently develop technologies that are substantially
equivalent or superior to our technology.
In the markets for our traditional products, we often compete with major
defense electronics corporations as well as smaller manufacturing firms which
specialize in supplying products and technologies for specific military
initiatives. Our 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.
We believe that our ability to compete successfully will depend upon our
capability to:
- - develop and maintain advanced technology;
- - develop proprietary products;
- - attract and retain qualified personnel;
- - obtain patent or other proprietary protection for our products and
technologies; and
- - manufacture, assemble and successfully market products, either alone or
through third parties.
We cannot assure that we will be able to compete successfully, and failure
to do so would have a material adverse effect on our business, results of
operations and financial condition.
WE MAY BE UNABLE TO OBTAIN MARKET ACCEPTANCE OF OUR VOICE INTERFACE AND INTERNET
COMMUNICATIONS PRODUCTS
We and our competitors are focused on developing and commercializing
products and technologies that enhance the use of voice, particularly in noisy
environments, for a broad range of computer and communications applications. 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 our success and ability to generate
revenues. We cannot assure that we, or our industry in general, will be
successful in obtaining market acceptance of products and technologies. Failure
to do so would have a material adverse effect on our business, results of
operations and financial condition.
Page 9
<PAGE>
WE MAY BE UNABLE TO DEVELOP AND SUCCESSFULLY INTRODUCE NEW PRODUCTS AND
TECHNOLOGIES
The markets for our products are characterized by rapidly changing
technology, and the introduction of products incorporating new technologies
could render our products obsolete and unmarketable and could exert price
pressures on existing products. In particular, we are 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, we
have established our Andrea Digital Technologies subsidiary in the United States
and have acquired Lamar Signal Processing Ltd., in Israel. We cannot assure that
we 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 our products and technologies are characterized by evolving
industry standards and specifications that may require us to devote substantial
time and expense to adapt our products and technologies. We cannot assure that
we 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 our
products and technologies obsolete. Our failure to develop new and enhanced
products and technologies would have a material adverse effect on our business,
results of operations and financial condition.
OUR SUCCESS IS HIGHLY DEPENDENT ON OUR COLLABORATIVE MARKETING ARRANGEMENTS
We have entered into several collaborative and distribution arrangements
with software publishers and computer hardware manufacturers relating to the
marketing and sale of Andrea Anti-Noise products. Under these collaborative
arrangements, our products are sold to end users through inclusion of the
products of our collaborators. The revenue derived by us from these arrangements
will be based in large part upon the sale of our collaborator's products. Our
success 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 our products and technologies. We cannot
assure that any product of any of our collaborators incorporating our products
and technologies will be marketed successfully. Our collaborators generally are
not contractually obligated to any minimum level of sales of our products or
technologies. Furthermore, our collaborators may develop their own microphone or
earphone products or technologies that compete with our products and
technologies. We cannot assure that these collaborators will not replace our
products or technologies with, or give higher priority to, the sales of these
competitive products or technologies. We have 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. We
cannot assure that any of these channels will devote sufficient resources to
support the sale of our products. We are also currently discussing additional
arrangements with other software companies, several major personal computer
companies, consumer electronic manufacturers, and electronic and computer
retailers. We cannot assure that any of these discussions will result in any
definitive agreements.
WE DEPEND ON A SINGLE CUSTOMER FOR A SUBSTANTIAL PORTION OF OUR SALES
We are substantially dependent on our product procurement relationship with
IBM. During the years ended December 31, 1996, 1997 and 1998, IBM and certain of
IBM's affiliates, distributors, licensees and integrators accounted for 46%, 56%
and 61%, respectively, of our sales revenue. While we are a party to a
procurement agreement with IBM covering the purchase by IBM of certain of our
Andrea Anti-Noise microphone and earphone products for inclusion with certain of
IBM's personal computer products, IBM is not obligated to purchase these
products and is free to purchase microphone and earphone products and
technologies from our competitors. Our failure to maintain sales of Andrea
Anti-Noise products to IBM would have a material adverse effect on our business,
results of operations and financial condition.
WE MAY NOT BE ABLE TO MAINTAIN NEEDED CONTRACT MANUFACTURING
We conduct assembly operations at our facility in New York and through
subcontractors. During initial production runs of Andrea Anti-Noise products, we
perform assembly operations at our 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 our production and shipment schedules
could have a material adverse effect on our 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 specialized components for the Andrea AntiNoise products, such as
microphones and DSP boards, are available from a limited number of suppliers and
subject to long lead times. While we have, to date, been able to obtain
sufficient supplies of these more specialized components, we cannot assure that
we 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 our sales of Andrea Anti-Noise products.
We assemble traditional intercom products at our New York facility from
purchased components. Certain highly specialized components for our traditional
intercom products sold for military and industrial use have limited sources of
supply, the availability of which can affect certain of our projects. While we
do not believe that our results of operations have been, or will be, materially
affected if such components are unavailable, we cannot assure that this will
continue to be the case.
Page 10
<PAGE>
WE RELY ON PATENTS AND PROPRIETARY RIGHTS THAT MAY FAIL TO PROTECT OUR BUSINESS
We rely on a combination of patents, patent applications, trade secrets,
copyrights, trademarks, nondisclosure agreements with our employees, licensees
and potential licensees, limited access to and dissemination of our proprietary
information, and other measures to protect our intellectual property and
proprietary rights. We cannot assure, however, that the steps we have taken to
protect our intellectual property will prevent its misappropriation or
circumvention.
We have been granted 12 patents in the United States covering our Andrea
Anti-Noise technology, and we have other U.S. and non-U.S. patent applications
currently pending. We cannot assure that patents will be issued with respect to
these applications or any patent applications filed by us in the future.
Numerous patents have been granted in the fields of noise cancellation,
noise reduction, computer voice recognition and related subject matter. We
expect that products in these fields will increasingly be subject to claims
under these patents as the numbers of products and competitors in these fields
grow and the functionality of products overlap. Moreover, the laws of other
countries do not protect our proprietary rights to our technologies to the same
extent as the laws of the United States.
We cannot assure:
- - that any patents issued to us will provide us 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 our ability to do business;
- - that we will be able to obtain licenses to patents of others, if needed, on
acceptable terms or at all; or
- - that we will be able to develop additional patentable technology that may
be needed to successfully commercialize our existing technologies.
We are 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
in our favor.
OUR INTERNATIONAL OPERATIONS MAY BE SUBJECT TO CERTAIN RISKS
We have been seeking to increase our sales to regions outside the United
States, particularly in Europe and certain areas in the Americas and Asia. For
the year ended December 31, 1998, sales to customers outside the United States
accounted for approximately 31% of our sales revenue and for the first quarter
ended March 31, 1999, such sales accounted for approximately 41% of our 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, we have invoiced our international sales in U.S dollars, and have
not engaged in any foreign exchange or hedging transactions. We cannot assure
that this will continue to be the case. If we are required to invoice any
material amount of international sales in non-U.S. currencies, fluctuations in
the value of non-U.S. currencies relative to the U.S. dollar may adversely
affect our business, results of operations and financial condition or require us
to incur hedging costs to counter such fluctuations.
YEAR 2000 ISSUES COULD CAUSE INTERRUPTION OR FAILURE OF OUR COMPUTER SYSTEM
We are currently upgrading our information systems to accomplish several
objectives, including, among others, satisfaction of Year 2000 computing
requirements. We are currently assessing the ability of this upgrade to properly
address Year 2000 criteria, and we will be conducting significant transaction
testing throughout the upgrade process. We do not anticipate any material
deficiencies and, further, we do not anticipate difficulty or significant
additional expense in achieving full Year 2000 capability. The Year 2000 issue
is expected to affect the systems of various entities with which we interact,
including our marketing partners, suppliers, and various vendors, and we are
currently seeking to assess the efforts of these entities to satisfy Year 2000
computing requirements. While we believe that our own upgraded information
systems will satisfy Year 2000 computing requirements, we cannot assure 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 our systems, could have a material
adverse effect on our business, results of operations and financial condition.
QUALIFIED MANAGERIAL AND TECHNICAL PERSONNEL ARE SCARCE IN OUR INDUSTRY
Our performance is substantially dependent on the performance of our
executive officers and key employees. We are dependent on our ability to retain
and motivate high quality personnel, especially management and product and
technology development teams. The loss of the services of any of our executive
officers or other key employees could have a material adverse effect on our
business, results of operations and financial condition. Our future success also
depends on our continuing ability to attract and retain additional highly
qualified technical personnel. Competition for qualified personnel is intense
and we cannot assure that we will be able to attract, assimilate or retain
qualified personnel in the future. Our inability to attract and retain the
necessary technical and other personnel could have a material adverse effect on
our business, results of operations and financial condition.
ANTI-TAKEOVER PROVISIONS IN OUR CERTIFICATE OF INCORPORATION AND NEW YORK LAW
MAY ADVERSELY AFFECT OUR STOCKHOLDERS
The New York Business Corporation Law, our Certificate of Incorporation and
our Series A Junior Participating Preferred Stock each contain certain
provisions which may, in effect, deter, or make difficult, a change in control,
merger or other acquisition of Andrea. For example, our Board of Directors may
issue up to 4,974,250 shares of preferred stock without any stockholder vote or
action. The preferred stock could have voting, liquidation, dividend and other
rights superior to those of our common st ock, and, therefore, any issuance of
preferred stock could adversely affect the rights of holders of our common
stock.
Page 11
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE MAY HAVE AN ADVERSE EFFECT ON MARKET PRICE; YOU
MAY EXPERIENCE SUBSTANTIAL DILUTION
Sales of a substantial number of shares of our common stock in the public
market could have the effect of depressing the prevailing market price of the
our common stock. Of the 25,000,000 shares of common stock presently
authorized,13,251,288 were outstanding as of July 16, 1999. This does not
include (i) 3,452,500 shares of our common stock reserved for issuance upon
exercise of outstanding options granted under our 1991 Performance Equity Plan
and 1998 Stock Plan, (ii) 3,000 shares of common stock reserved for issuance
pursuant to securities exercisable or exchangeable for, or convertible into,
shares of common stock and (iii) 2,581,680 shares of comm on stock reserved for
issuance upon conversion of the Series B Convertible Preferred Stock and
exercise of the related warrant. In addition, we have 1,273,000 shares of common
stock available for further option grants under the 1998 Stock Plan. To the
extent that the Series B Convertible Preferred Stock is converted, the related
warrant is exercised, such options are exercised or we issue additional shares
of capital stock, the ownership interests of holders of common stock would be
diluted.
In May 1998 we issued 1,800,000 shares of common stock as part of the
consideration for our acquisition of Lamar Signal Processing, Ltd., of which
1,200,000 shares of common stock are subject to trading restrictions that expire
with respect to 600,000 shares in May 2000 and 600,000 in May 2001. As the
restrictions expire, the shares are subject to demand and piggyback registration
rights. The remaining 600,000 shares, of which 215,189 are being offered hereby,
became freely tradable on May 5, 1999 b y persons other than "affiliates" of the
Company, as defined under the Securities Act of 1933, as amended.
We also have 750 shares of Series B Convertible Preferred Stock and a
warrant for 75,000 shares of common stock outstanding and, subject to certain
conditions and limitations, we have the right during the six month period
beginning March 14, 2000 to sell to the current holder of Series B Convertible
Preferred Stock up to an additional 750 shares of Series B Convertible Preferred
Stock and a warrant for up to an additional 75,000 shares of common stock. The
number of shares of common stock issuable u pon the conversion of the Series B
Convertible Preferred Stock depends on the prices of the common stock as quoted
on the American Stock Exchange shortly before the date of conversion. We cannot
predict the price of the common stock in the future. If the price of our common
stock decreases over time, the number of shares of common stock issuable upon
conversion of the Series B Convertible Preferred Stock will increase and the
holders of common stock would experience substantial dilution of their
investment.
Each share of Series B Convertible Preferred Stock is convertible into that
number of shares of common stock equal to (i) $10,000 plus an additional amount
of 4% per annum, divided by (ii) the applicable conversion price. The applicable
conversion price is the lesser of a fixed conversion price or a variable
conversion price. The fixed conversion price for the outstanding shares of
Series B Convertible Preferred Stock is $8.775. The variable conversion price is
equal to the average of the two lowes t closing bid prices of the common stock
for the fifteen (15) consecutive trading days immediately before the date of
conversion. The number of shares of common stock issuable upon conversion is
subject to adjustment, among other things: for stock splits, recapitalizations,
or other dilutive transactions, as well as issuances of common stock at a price
below the fixed conversion price in effect, or the issuance of warrants,
options, rights, or convertible securities which have an exercise price or
convers ion price less than the fixed conversion price, other than for certain
previously outstanding securities and certain excluded securities. Based on an
assumed conversion date of July 16, the applicable conversion price for the
Series B Convertible Preferred Stock would be $6.1875. If all of the 750 shares
of Series B Convertible Preferred Stock outstanding were converted at this
conversion price (without regard to any limitations on conversion), the Series B
Convertible Preferred Stock would be convertibl e into 1,215,840 shares of
common stock, or 9.2% of the outstanding shares of common stock as of July 16,
1999.
All of the shares of common stock issuable upon conversion of the Series B
Convertible Preferred Stock and exercise of the related warrant, the 215,189
currently outstanding shares of common stock offered hereby and 213,900 shares
of the remaining 384,811 unrestricted shares of common stock issued in
connection with the acquisition of Lamar Signal Processing, Ltd. will be freely
tradable without restriction under the Securities Act of 1933, as amended, by
persons other than "affiliates" of the Company , as defined under the Securities
Act.
To the extent that common stock received upon conversion is sold into the
market, and disregarding the manner in which such shares are sold as well as any
other factors such as reactions to our operating results and general market
conditions which may be operative in the market at such time, such sales may
cause a decrease in the market price of the common stock, which in turn,
relative to additional conversions of the Series B Convertible Preferred Stock,
would reduce the variable conversion price an d, if such variable conversion
price were lower than the fixed conversion price, increase the number of shares
of common stock issued upon conversion and available for sale into the market
for the common stock. In addition, short sales of the common stock may be
attracted by or accompany conversions and sales of common stock from
conversions, which sales in the aggregate could cause downward pressure upon the
price of the common stock, excluding the effect of other market factors possibly
operative at the time.
WE DO NOT ANTICIPATE PAYING CASH DIVIDENDS ON OUR COMMON STOCK
We have not paid any cash dividends on our common stock and do not expect
to pay any cash dividends on our common stock in the foreseeable future.
Page 12
<PAGE>
USE OF PROCEEDS
All of the shares of common stock offered hereby are being offered for the
account of the selling stockholders. We will not receive any proceeds
from the sale by the selling stockholders of the common stock hereunder.
SELLING STOCKHOLDERS
The following table sets forth the names of the selling stockholders, the
number of shares of common stock owned beneficially by each of them as of July
16, 1999, calculated in the manner described below, the number of shares which
may be offered pursuant to this prospectus and the number of shares and
percentage of class to be owned by each selling stockholder after this offering.
With the exception of Joseph Marash who, since May 5, 1998, has been employed by
the Company as a General Manager of Lamar Signal Processing, Ltd., none of the
selling stockholders has held any position or office or has had any other
material relationship with the Company or any of its affiliates within the past
three years other than as a result of his or her ownership of shares of equity
securities. This information is based upon information provided by the selling
stockholders. Because the selling sto ckholders may offer all, some or none of
their common stock, no definitive estimate as to the number of shares thereof
that will be held by the selling stockholders after such offering can be
provided.
The number of shares set forth in the third column of the table represents
an estimate, as of July 16, 1999, of the number of shares of common stock to be
offered by the selling stockholders and includes (i) 200% of the common stock
issuable upon conversion of the Series B Convertible Preferred Stock and
exercise of the related warrants held by such selling stockholder (without
regard to any limitations on conversion), and (ii) 33.3% of the common stock
held by such selling stockholder that was issued in connection with the
acquisition of Lamar Signal Processing, Ltd. The information set forth in the
table assumes conversion of the Series B Convertible Preferred Stock and
exercise of the warrant as of July 16, 1999, and assumes a conversion price of
$6.1875.
The actual number of shares of common stock issuable upon conversion of the
Series B Convertible Preferred Stock and exercise of the warrant is
indeterminate, is subject to adjustment and could be materially less or more
than such estimated number depending on factors which cannot be predicted by us
at this time, including, among other factors, the future market price of the
common stock.
Pursuant to its terms, the Series B Convertible Preferred Stock and the
warrant issued in connection therewith are convertible or exercisable by the
Series B Holder only to the extent that the number of shares of common stock
thereby issuable, together with the number of shares of common stock owned by
the Series B Holder and its affiliates (but not including shares of common stock
underlying unconverted or unexercised options, warrants or convertible
securities) would not exceed 4.99% of the then outstanding common stock as
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended. Accordingly, the number of s hares of common stock set forth
in the table as beneficially owned by the Series B Holder before and after the
offering may exceed the number of shares of common stock that it could own
beneficially at any given time as a result of their ownership of the Series B
Convertible Preferred Stock and the warrant issued in connection therewith.
The 215,189 shares of common stock currently outstanding which are being
offered by the selling stockholders hereunder are part of 1,800,000 shares of
common stock issued as consideration for our acquisition of Lamar Signal
Processing, Ltd. 1,200,000 shares of such common stock are subject to trading
restrictions that expire with respect to 600,000 shares in May 2000 and 600,000
shares in May 2001. The remaining 384,811 shares of common stock issued in
connection with such acquisition were no longer subject to such trading
restrictions as of May 5, 1999.
Page 13
<PAGE>
Except as set forth in the footnotes to the table, the persons named in the
table have sole voting and investment power with respect to all shares of common
stock shown as beneficially owned by them, subject to community property laws,
where applicable.
The "Shares Beneficially Owned After the Offering" column assumes the sale
of all shares offered. The "Percentage of Class" column is based on 13,251,288
shares of common stock outstanding as of July 16, 1999.
<TABLE>
<CAPTION>
SHARES
SHARES BENEFICIALLY
BENEFICIALLY SHARES OFFERED OWNED
OWNED PRIOR TO BY THIS AFTER PERCENTAGE
SELLING STOCKHOLDER THE OFFERING PROSPECTUS THE OFFERING OF CLASS
- ------------------- --------------- -------------- ------------ ----------
<S> <C> <C> <C> <C>
HFTP Investment LLC(1) 1,290,840 2,581,680 -- --
Joseph Marash(2) 512,733 170,911 341,822 2.5%
Baruch Berdugo(3) 89,100 29,700 59,400 *
Ze'ev Steiner(4) 43,734 14,578 29,156 *
-------------- -------------- ------------ ----------
TOTALS 1,936,407 2,796,869 -- --
</TABLE>
- - -------------------------
* Represents less than 1%.
(1) Includes up to 2,431,680 shares of common stock issuable upon conversion of
the Series B Convertible Preferred Stock and up to 150,000 shares of common
stock issuable upon the exercise of the warrant issued in connection
therewith held of record by HFTP Investment LLC. Promethean Investment
Group LLC is the investment manager of HFTP Investment LLC and consequently
has voting control and investment dicretion over securities held by HFTP
Investment LLC. Promethean Investment Group LLC is indirectly controlled
by James F. O'Brien. Each of Mr. O'Brien and Promethean Investment Group
LLC disclaims beneficial ownership of the shares beneficially owned by HFTP
Investment LLC.
(2) Includes (i) 170,911 shares of common stock subject to trading restrictions
that expire on May 5, 2000, (ii) 42,729 shares of common stock subject to
trading restrictions that expire on May 5, 2001, and (iii) 128,182 shares
of common stock held in escrow by LaSalle National Bank until May 5, 2000.
(3) Includes (i) 29,700 shares of common stock subject to trading restrictions
that expire on May 5, 2000, (ii) 7,425 shares of common stock subject to
trading restrictions that expire on May 5, 2001, and (iii) 22,275 shares
of common stock held in escrow by LaSalle National Bank until May 5, 2000.
(4) Includes (i) 14,578 shares of common stock subject to trading restrictions
that expire on May 5, 2000, (ii) 3,642 shares of common stock subject to
trading restrictions that expire on May 5, 2001, and (iii) 10,936 shares
of common stock held in escrow by LaSalle National Bank until May 5, 2000.
The selling stockholders, their associates and affiliates may from time to
time be customers of, engage in transactions with, and/or perform services for
us or our subsidiaries in the ordinary course of business.
Page 14
<PAGE>
DESCRIPTION OF CAPITAL STOCK
As of July 16, 1999, our authorized capital stock totaled 30,000,000
shares, consisting of:
(1) 25,000,000 shares of common stock, par value $.50 per share, of
which 13,251,288 shares were issued and outstanding; and
(2) 5,000,000 shares of preferred stock, par value $.01 per share, of
which (A) 25,000 shares were designated Series A Junior
Participating Preferred Stock, none of which were issued and
outstanding, (B) 1,500 shares were designated as Series B
Convertible Preferred Stock, of which 750 shares were issued and
outstanding, and (C) 4,973,500 shares of preferred stock which have
not been designated.
Of the 13,251,288 shares of common stock outstanding on July 16, 1999, this
amount does not include 3,725,500 shares of common stock reserved for issuance
upon exercise of options granted under our 1991 Performance Equity Plan and 1998
Stock Plan, 3,000 shares of common stock reserved for issuance pursuant to
securities exercisable or exchangeable for, or convertible into, shares of
common stock.
COMMON STOCK
The holders 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 liquidation, dissolution or winding up, the
holders of shares of common stock are entitled to receive all assets available
for distribution to shareholders, subject to the rights of the holders of the
Series B Convertible Preferred Stock and any holders of shares of other
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, fu lly paid and nonassessable.
PREFERRED STOCK
Shares of Preferred Stock are 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 is expressly granted to our Board of Directors 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 thereof.
We currently have designated two (2) series of Preferred Stock, a summary
of the terms of which are set forth below. While we have no present intention to
issue shares of any additional series of Preferred Stock, any such issuance
could dilute the equity of the outstanding shares of common stock and could have
the effect of making it more difficult for a third party to acquire a majority
of our outstanding voting stock. In addition, such Preferred Stock may have
other rights, including economic righ ts 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.
Page 15
<PAGE>
Series A Junior Participating Preferred Stock
---------------------------------------------
Under our Shareholder Rights Plan, preferred stock purchase rights were
distributed as a dividend at the rate of one right for each share of common
stock outstanding as of the close of business on May 7, 1999. Each purchase
right entitles the holder to purchase one-thousandth of a share of our Series A
Junior Participating Preferred Stock, par value $0.01 per share, at an exercise
price of $50. These purchase rights will not be exercisable unless a person or
group acquires, or announces the intent t o acquire, beneficial ownership of 20%
or more of our common stock.
Each share of Series A Junior Participating Preferred Stock shall entitle
the holder thereof to one thousand (1,000) votes on all matters submitted to a
vote of our stockholders.
Subject to the rights of the holders of any series of preferred stock
ranking senior to the Series A Junior Participating Preferred Stock with respect
to dividends, each holder of a share of Series A Junior Participating Preferred
Stock, in preference to the holders of shares of common stock, will be entitled
to a dividend equal to one thousand times any dividend declared per share of
common stock.
Upon any liquidation, dissolution or winding up, no distribution shall be
made (1) to the holders of stock ranking junior to the Series A Junior
Participating Preferred Stock unless, prior thereto, the holders of Series A
Junior Participating Preferred Stock shall have received $1,000 per share, plus
an amount equal to accrued and unpaid dividends and distributions thereon, to
the date of such payment, provided that the holders of Series A Junior
Participating Preferred Stock shall be entitled to rece ive an aggregate amount
per share (subject to adjustment), equal to 1,000 times the aggregate amount to
be distributed per share to holders of common stock, or (2) to the holders of
stock ranking on a parity with the Series A Junior Participating Preferred
Stock, except distributions made ratably on the Series A Junior Participating
Preferred Stock and all such parity stock in proportion to the total amounts to
which the holders of all such stock are entitled.
In the case of any consolidation, merger, combination or other transaction
in which shares of common stock are exchanged, each share of Series A Junior
Participating Preferred Stock shall be similarly exchanged into an amount per
share equal to one thousand (1,000) times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which each share of common stock is exchanged.
The Series A Junior Participating Preferred Stock shall rank, with respect
to the payment of dividends and the distribution of assets, junior to all series
of any other class of Preferred Stock. Whenever dividends or distributions
payable on the Series A Junior Participating Preferred Stock are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on the Series A Junior Participating Preferred Stock
outstanding shall have been paid in full, we c annot:
(i) declare or pay dividends, or make any other distributions, on any
stock ranking junior to the Series A Junior Participating Preferred Stock;
(ii) declare or pay dividends, or make any other distributions, on any
stock ranking on a parity with the Series A Junior Participating Preferred
Stock, except dividends paid ratably on the Series A Junior Participating
Preferred Stock and all such parity stock on which dividends are payable or in
arrears in proportion to the total amounts to which the holders of all such
shares are then entitled;
(iii) redeem or purchase or otherwise acquire any stock ranking junior to
the Series A Junior Participating Preferred Stock, provided that we may at any
time redeem, purchase or otherwise acquire shares of any such junior stock in
exchange for any of our stock ranking junior to the Series A Junior
Participating Preferred Stock; or
(iv) redeem or purchase or otherwise acquire any Series A Junior
Participating Preferred Stock, or any shares of stock ranking on a parity with
the Series A Junior Participating Preferred Stock, except in accordance with a
purchase offer made in writing or by publication to all holders of such shares
upon such terms as the Board of Directors shall determine in good faith will
result in fair and equitable treatment among the respective series or classes.
The shares of Series A Junior Participating Preferred Stock are also
subject to antidilution provisions which are triggered in the event of certain
stock splits, recapitalizations, or other dilutive transactions. The Series A
Junior Participating Preferred Stock shall not be redeemable.
Page 16
<PAGE>
Series B Convertible Preferred Stock
------------------------------------
As of July 15, 1999, we had outstanding 750 shares of Series B Convertible
Preferred Stock. Subject to certain conditions and limitations, we have the
right on not more than two occasions during the six month period beginning March
14, 2000 to sell to the current holder of Series B Convertible Preferred Stock
up to an additional 750 shares of Series B Convertible Preferred Stock
(including a warrant for up to an additional 75,000 shares of common stock).
Each share of Series B Convertible Preferred Stock, par value $0.01 per
share, has a stated value of $10,000 plus an additional amount equal to 4% per
annum, which sum is convertible into our common stock at a conversion price
equal to the lower of (i) a fixed conversion price of $8.775 and (ii) a variable
conversion price equal to the average of the two lowest closing bid prices of
the common stock during the 15 consecutive trading days immediately preceding
any conversion date. The 4% per annum add itional amount with respect to each
share of Series B Convertible Preferred Stock may, at our option, be paid in
cash at the time of conversion. The number of shares of common stock issuable
upon conversion is subject to adjustment, among other things: for stock splits,
recapitalizations, or other dilutive transactions, as well as issuances of
common stock at a price below the fixed conversion price in effect, or the
issuance of warrants, options, rights, or convertible securities which have an
exercise p rice or conversion price less than the fixed conversion price, other
than for certain previously outstanding securities and certain excluded
securities. The shares of Series B Convertible Preferred Stock become
convertible into common stock according to a vesting schedule, with 12.5% of the
shares becoming convertible on October 17, 1999 and an additional 12.5% becoming
convertible at the end of each succeeding 30-day period, subject to acceleration
upon the occurrence of certain events. The 750 shares o f Series B Convertible
Preferred Stock outstanding will convert automatically into common stock at the
applicable conversion price then in effect on June 18, 2004 (subject to
extension), to the extent any shares remain outstanding.
Pursuant to its terms, the Series B Convertible Preferred Stock and the
warrant issued in connection therewith are convertible or exercisable by any
holder only to the extent that the number of shares of common stock thereby
issuable, together with the number of shares of common stock owned by such
holder and its affiliates (but not including shares of common stock underlying
unconverted or unexercised options, warrants or convertible securities) would
not exceed 4.99% of the then outstanding common stock as determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended.
In the event that we do not timely effect a conversion or reissuance of the
remaining shares of Series B Convertible Preferred Stock, we are subject to
certain liquidated damage penalties, adjustments to the applicable fixed
conversion price and certain other penalties. In order to comply with the rules
of the American Stock Exchange, we must obtain stockholder approval prior to
issuing shares of common stock upon conversion of our Series B Convertible
Preferred Stock in excess of 19.99% of our commo n stock outstanding as of June
18, 1999, the date of issuance of the Series B Convertible Preferred Stock. If
the holders of the Series B Convertible Preferred Stock submit a conversion
request and we are not able to issue the required amount of shares of common
stock due to an inability to comply with such rules of the American Stock
Exchange or upon certain other events, a Triggering Event (as defined below)
would occur.
We may be required, upon the occurrence of a Triggering Event or Major
Transaction (as defined below), to redeem each share of Series B Convertible
Preferred Stock at the greater of (a) $12,000 plus any additional amount of 4%
per annum, or (b) the product of the applicable conversion rate in effect on the
date of the Major Transaction, or the date a notice of redemption is delivered
by the holder in the case of a Triggering Event, and the closing bid price of
the common stock on the date of the publi c announcement of the Major
Transaction, or, in the case of a Triggering Event, the trading date immediately
preceding such date on which the Triggering Event occurred. Further, upon a
Triggering Event, we must, if so directed by the holders of a majority of the
Series B Convertible Preferred Stock then outstanding, issue in lieu of
redemption, in exchange for such holder's Series B Convertible Preferred Stock,
a senior secured note in the amount of the applicable redemption price of such
holder's Series B Convertible Preferred Stock. The senior secured note shall
have a term of one week, shall be senior to any other of our indebtedness and
shall contain other mutually acceptable credit terms.
A "Major Transaction" includes certain mergers, consolidations, tender
offers, or the sale of substantially all the assets of the Company.
A "Triggering Event" includes:
- - failure of the registration statement covering the resale of the common
stock issuable upon conversion of the Series B Convertible Preferred Stock
and exercise of the related warrant to be declared effective prior to
December 15, 1999;
- - the unavailability or lapse in the effectiveness of such registration
statement for ten (10) consecutive trading days or an aggregate of fifteen
(15) trading days per year;
- - the suspension or halting from trading, suspension from listing or
delisting of our common stock by the American Stock Exchange for five
(5) consecutive trading days or for an aggregate of ten (10) trading days
per year;
- - our failure to comply with conversions of the Series B Convertible
Preferred Stock within ten (10) trading days after a conversion notice is
submitted;
- - our inability to issue common stock upon conversion of the Series B
Convertible Preferred Stock due to limitations imposed by the requirements
of the American Stock Exchange;
- - our failure to timely make any liquidated damage payment upon the
occurrence of an Excluded Redemption Event (as defined below); and
- - certain breaches of representations, warranties, covenants (that are not
cured in fewer than ten (10) days or terms of the documents delivered in
connection with the purchase and sale of the Series B Convertible Preferred
Stock which would have a material adverse effect on us.
Page 17
<PAGE>
Notwithstanding the foregoing, the following events shall be excluded from
the definitions of Major Transaction and Triggering Event (each, an "Excluded
Redemption Event"):
- - the failure of such registration statement to be declared effective prior
to December 12, 1999, provided that we have used and continue to use our
best efforts to have such registration statement declared effective;
- - while such registration statement is required to be maintained effective,
the effectiveness of such registration statement lapses or is unavailable
for sale for a period of ten (10) consecutive trading days, provided that
we have used our best efforts to maintain the effectiveness of such
registration statement;
- - the suspension or the delisting of the common stock from the American Stock
Exchange for a period of five (5) consecutive days or for an aggregate of
ten (10) trading days in any 365 day period, provided that we (A) have used
our best efforts to maintain the listing of the common stock on such
exchange or (B) have voluntarily delisted the common stock because we are
not permitted to issue the common stock upon conversion of the Series B
Convertible Preferred Stock due to limitations imposed by the requirements
of the American Stock Exchange and we delist the common stock so that such
limitations no longer apply; and
- - a purchase, tender or exchange offer made to and accepted by the holders of
more than 50% of the outstanding shares of common stock which is not
approved or recommended by our Board of Directors.
If an Excluded Redemption Event occurs, we may, at our option, either (1)
redeem the Series B Convertible Preferred Stock at the applicable redemption
price or (2) be subject to certain liquidated damage penalties and certain
permanent adjustments to the applicable fixed conversion price.
If we are unable to effect a redemption, interest will accumulate on the
value of the Series B Convertible Preferred Stock that we are unable to redeem
at the rate of 2.0% per month. Additionally, if we are unable to effect a
redemption, the holders are also entitled to void their redemption notices and
receive a reset of their applicable conversion price. The fixed conversion price
on the Series B Convertible Preferred Stock would be reset to the lesser of (A)
the fixed conversion price as in effec t on the date the holders deliver notice
to us of their intention to void their redemption notice and (B) the lowest
closing bid price during the period beginning on the date the holders deliver
the notice of redemption to us and ending on the date on which we receive notice
that the holders intend to void such redemption notice.
Additionally, upon advance notice, until June 18, 2000 we may redeem the
shares of Series B Convertible Preferred Stock submitted for conversion but only
if the conversion price for the shares submitted for conversion is less than or
equal to $4.725 per share. If we elect to redeem such shares, the redemption
price of each share of Series B Convertible Preferred Stock is equal to $11,000
plus any accrued additional amount of 4% per annum.
The holders of the Series B Convertible Preferred Stock are not entitled to
receive dividends. The holders are entitled to receive upon conversion, payable
in cash or common stock at our election, a 4% per annum additional amount on the
aggregate stated value per share of Series B Convertible Preferred Stock of
$10,000.
The holders of the Series B Convertible Preferred Stock have no voting
rights except as provided by law, and except to the extent such holders own
common stock.
In the event of any voluntary or involuntary liquidation, dissolution or
winding up, the holders of the Series B Convertible Preferred Stock shall be
entitled to receive in cash out of our assets, whether from capital or from
earnings available for distribution to our stockholders, before any amount shall
be paid to any class junior in rank to the Series B Convertible Preferred Stock,
an amount per share of Series B Convertible Preferred Stock equal to $10,000
plus any additional amount of 4% per annum.
Page 18
<PAGE>
The shares of Series B Convertible Preferred Stock are also subject to
antidilution provisions which are triggered in the event of certain stock
splits, recapitalizations, or other dilutive transactions, as well as issuances
of common stock at a price below the fixed conversion price in effect, or the
issuance of warrants, options, rights, or convertible securities which have an
exercise price or conversion price less than the fixed conversion price, other
than for certain previously outstanding secur ities and certain excluded
securities.
WARRANTS
In connection with the sale of the Series B Preferred Stock, we issued to
the purchaser a warrant to purchase 75,000 shares of common stock. The warrant
has an exercise price of $8.775 per share and expires on June 18, 2004 (subject
to extension). The warrant is subject to certain anti-dilution provisions in the
event we sell common stock or securities convertible or exercisable into common
stock at a price less than $8.775, subject to adjustment.
NEW YORK ANTI-TAKEOVER LAW
We are also 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 our voting stock is
owned beneficially by residents of the State of New York. We expect to
continue to meet one or more of these tests and, accordingly, to be subject to
Section 912 of the NYBCL. Article 16 of the NYBCL provides that persons
seeking to make takeover bids comply with certain registration and disclosure
requirements.
Page 19
<PAGE>
PLAN OF DISTRIBUTION
The selling stockholders, or pledgees, donees, transferees, or other
successors in interest, may sell the common stock from time to time on the
American Stock Exchange, in the over-the-counter market, in privately negotiated
transactions or otherwise, at fixed prices that may be changed, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at prices otherwise negotiated. The common stock may be sold by the
selling stockholders by one or more of the fo llowing methods, without
limitation:
(a) block trades in which the broker or dealer so engaged will
attempt to sell the shares as agent but may position and resell a
portion of the block as principal to facilitate the transaction;
(b) purchases by a broker or dealer as principal and resale by such
broker or dealer for its account pursuant to this Prospectus;
(c) an exchange distribution in accordance with the rules of such
exchange;
(d) ordinary brokerage transactions and transactions in which the
broker solicits purchases;
(e) privately negotiated transactions;
(f) short sales;
(g) through the writing of options on the shares;
(h) one or more underwritten offerings on a firm commitment or best
efforts basis; and
(i) any combination of such methods of sale.
The selling stockholders may also transfer shares by gift. We do not know
of any arrangements by the selling stockholders for the sale of any of the
common stock.
In effecting sales, brokers and dealers engaged by the selling stockholders
may arrange for other brokers or dealers to participate. Broker-dealers may
agree with the selling stockholders to sell a specified number of such shares at
a stipulated price per share. To the extent such broker-dealer is unable to do
so acting as agent for a selling stockholder, it may purchase as principal any
unsold shares at the stipulated price. Broker-dealers who acquire shares as
principals may thereafter resell suc h shares from time to time in transactions
in the American Stock Exchange at prices and on terms then prevailing at the
time of sale, at prices related to the then-current market price or in
negotiated transactions. Broker-dealers may use block transactions and sales to
and through broker-dealers, including transactions of the nature described
above. The selling stockholders may also sell the shares in accordance with Rule
144 under the Securities Act of 1933, as amended, rather than pursuant to this
pro spectus, regardless of whether such shares are covered by this prospectus.
From time to time, one or more of the selling stockholders may pledge,
hypothecate or grant a security interest in some or all of the shares owned by
them. The pledgees, secured parties or persons to whom such securities have been
hypothecated will, upon foreclosure in the event of default, be deemed to be
selling stockholders. The number of a selling stockholder's shares offered under
this prospectus will decrease as and when it takes such actions. The plan of
distribution for such selling stockho lder's shares will otherwise remain
unchanged. In addition, a selling stockholder may, from time to time, sell short
our common stock, and, in such instances, this prospectus may be delivered in
connection with such short sales and the shares offered under this prospectus
may be used to cover short sales.
Page 20
<PAGE>
To the extent required under the Securities Act of 1933, as amended, the
aggregate amount of selling stockholders' shares of common stock being offered
and the terms of the offering, the names of any such agents, brokers, dealers or
underwriters and any applicable commission with respect to a particular offer
will be set forth in an accompanying prospectus supplement. Any underwriters,
dealers, brokers or agents participating in the distribution of the common stock
may receive compensation in the for m of underwriting discounts, concessions,
commissions or fees from a selling stockholder and/or purchasers of selling
stockholders' shares of common stock, for whom they may act (which compensation
as to a particular broker-dealer might be in excess of customary commissions).
The selling stockholders and any broker-dealers that participate in the
distribution of the common stock may be deemed to be "underwriters" within the
meaning of the Securities Act of 1933, as amended, and any commissions received
by them and any profit on the resale of the common stock sold by them may be
deemed be underwriting discounts and commissions.
A selling stockholder may enter into hedging transactions with
broker-dealers and the broker-dealers may engage in short sales of the common
stock in the course of hedging the positions they assume with such selling
stockholder, including, without limitation, in connection with distributions of
the common stock by such broker-dealers. A selling stockholder may enter into
option or other transactions with broker-dealers that involve the delivery of
the shares offered hereby to the broker-dealers, who may then resell or
otherwise transfer such shares. A selling stockholder may also loan or pledge
the shares offered hereby to a broker-dealer and the broker-dealer may sell the
shares offered hereby so loaned or upon a default may sell or otherwise transfer
the pledged shares offered hereby.
The selling stockholders and other persons participating in the sale or
distribution of the shares will be subject to applicable provisions of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder, which provisions may limit the timing of purchases and sales of any
of the shares of the selling stockholders or any other such person. The
foregoing may affect the marketability of the shares.
We have agreed to indemnify in certain circumstances the selling
stockholders and the broker-dealers and agents who may be deemed to be
underwriters, if any, of the securities covered by the registration statement,
against certain liabilities, including liabilities under the Securities Act of
1933, as amended. The selling stockholders have agreed to indemnify us in
certain circumstances against certain liabilities, including liabilities under
the Securities Act of 1933, as amended.
The shares of common stock offered hereby were originally issued to the
selling stockholders pursuant to an exemption from the registration requirements
of the Securities Act of 1933, as amended. We agreed to register the common
stock under the Securities Act of 1933, as amended. We have agreed to pay all
reasonable legal expenses of the Series B Holder incident to the filing of this
registration statement, other than underwriting discounts and commissions, and
incurred in purchase of the Series B C onvertible Preferred Stock and related
warrant, up to a maximum of $50,000.
We can not assure you that the selling stockholders will sell all or any
portion of the common stock offered hereby.
We will pay all expenses in connection with this offering and will not
receive any proceeds from sales of any common stock by the selling stockholders.
Page 21
<PAGE>
LEGAL MATTERS
Legal matters with respect to our common stock being offered hereby have
been passed upon for us by our counsel, Brown & Wood LLP, New York, New York.
EXPERTS
The consolidated financial statements and schedules of the Company included
in our 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.
Page 22
<PAGE>
NO DEALER, SALESMAN, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING HEREIN CONTAINED AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY US OR THE SELLING STOCKHOLDERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN OUR AFFAIRS SINCE THE DATE HEREOF
OR THAT ANY INFORMATION CONTAINED HEREIN IS CORRECT AS T O ANY OF THE TIME
SUBSEQUENT TO ITS DATE. HOWEVER, WE HAVE UNDERTAKEN TO AMEND THE REGISTRATION
STATEMENT OF WHICH THIS PROSPECTUS IS A PART TO REFLECT ANY FACTS OR EVENTS
ARISING AFTER THE EFFECTIVE DATE THEREOF WHICH INDIVIDUALLY OR IN THE AGGREGATE
REPRESENT A FUNDAMENTAL CHANGE IN THE INFORMATION SET FORTH IN THE REGISTRATION
STATEMENT. IT IS ANTICIPATED, HOWEVER, THAT MOST UPDATED INFORMATION WILL BE
INCORPORATED HEREIN BY REFERENCE TO OUR REPORTS FILED UNDER THE SECURITIES
EXCHANGE ACT OF 1934. SE E "DOCUMENTS INCORPORATED BY REFERENCE."
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
2,796,869 SHARES
ANDREA ELECTRONICS CORPORATION
COMMON STOCK
---------------------
PROSPECTUS
---------------------
July __, 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
Registration Fee - Securities and
Exchange Commission $ 4,988
American Stock Exchange Listing Fee 17,500
Legal Fees and Disbursements* 20,000
Accounting Fees and Disbursements* 3,000
Legal Fees and Expenses in Connection
with Blue Sky Filings* 2,000
Miscellaneous* 2,512
-----------
Total $ 50,000
*Estimated.
<PAGE>
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.
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 Company's Certificate of Incorporation provides that the personal
liability of the directors of the Company 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 Company provide in substance
that, to the fullest extent permitted by New York law, each director and officer
shall be indemnified by the Company 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 Company. The indemnification
provided by the Company's By-Laws is not deemed exclusive of or in any way
to limit any other rights which any person seeking indemnification may be
entitled.
<PAGE>
ITEM 16. EXHIBITS.
A. Exhibits
Exhibit
Number Description
- -------- -----------
3.1* Certificate of Amendment to the Certificate of
Incorporation of the Registrant.
4.1* Securities Purchase Agreement, dated June 11, 1999, by and
between HFTP Investment L.L.C. and the Registrant.
4.2* Registration Rights Agreement, dated June 11, 1999, by
and between HFTP Investment L.L.C. and the Registrant.
4.3* Form of Warrant by and between HFTP Investment L.L.C.
and the Registrant.
4.4** Stock Purchase Agreement, dated April 6, 1998, as amended
on May 5, 1998, among Lamar Signal Processing, Ltd., its
stockholders and the Registrant.
5.1 Opinion of Counsel
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Counsel (contained in Exhibit 5.1)
24.1 Power of Attorney relating to subsequent amendments
(contained in signature page)
- -------------------
* Incorporated by reference to the Registrant's Current Report on Form 8-K,
dated June 22, 1999.
** Incorporated by reference to the Registrant's Current Report on Form
8-K, dated May 8, 1998.
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.
<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 offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
(d) The undersigned registrant hereby undertakes that:
(1) For the purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus 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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, State of New York on the
19th day of July, 1999.
ANDREA ELECTRONICS CORPORATION
By: /s/ John N. Andrea
---------------------------------
John N. Andrea
Co-Chairman and Co-Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below under "SIGNATURES" constitutes and appoints , John N. Andrea, Douglas J.
Andrea, Christopher P. Sauvigne and 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 Emeritus of the Board July 19, 1999
- --------------------------- and Director
Frank A.D. Andrea, Jr.
/s/ John N. Andrea Co-Chairman, Co-Chief Executive July 19, 1999
- --------------------------- Officer and Director
John N. Andrea
/s/ Douglas J. Andrea Co-Chairman, Co-Chief Executive July 19, 1999
- --------------------------- Officer and Director
Douglas J. Andrea
/s/ Christopher P. Sauvigne President and Chief Operating July 19, 1999
- --------------------------- Officer
Christopher P. Sauvigne
/s/ Patrick D. Pilch Executive Vice President, July 19, 1999
- --------------------------- Chief Financial Officer
Patrick D. Pilch and Director
/s/ Richard A. Maue Vice President, Controller July 19, 1999
- --------------------------- Treasurer and Secretary
Richard A. Maue
/s/ Christopher Dorney Director July 19, 1999
- ---------------------------
Christopher Dorney
/s/ Gary A. Jones Director July 14, 1999
- ---------------------------
Gary A. Jones
/s/ Scott Koondel Director July 19, 1999
- ---------------------------
Scott Koondel
/s/ Paul M. Morris Director July 15, 1999
- ---------------------------
Paul M. Morris
/s/ Jack Lahav Director July 19, 1999
- ---------------------------
Jack Lahav
/s/ John Larkin Director July 19, 1999
- ---------------------------
John Larkin
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
(Pursuant to Item 601 of Regulation S-K)
Exhibit
Number Description
- -------- -----------
<S> <C>
3.1* Certificate of Amendment to the Certificate of
Incorporation of the Registrant.
4.1* Securities Purchase Agreement, dated June 11, 1999, by and
between HFTP Investment L.L.C. and the Registrant.
4.2* Registration Rights Agreement, dated June 11, 1999, by
and between HFTP Investment L.L.C. and the Registrant.
4.3* Form of Warrant by and between HFTP Investment L.L.C.
and the Registrant.
4.4** Stock Purchase Agreement, dated April 6, 1998, as amended
on May 5, 1998, among Lamar Signal Processing, Ltd., its
stockholders and the Registrant.
5.1 Opinion of Counsel
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Counsel (contained in Exhibit 5.1)
24.1 Power of Attorney relating to subsequent amendments
(contained in signature page)
- -------------------
* Incorporated by reference to the Registrant's Current Report on Form 8-K,
dated June 22, 1999.
** Incorporated by reference to the Registrant's Current Report on Form
8-K, dated May 8, 1998.
</TABLE>
EXHIBIT 5.1
(LETTERHEAD)
July 19, 1999
Andrea Electronics Corporation
45 Melville Park Road
Melville, New York 11747
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 (the "Company"), in connection with the registration of
2,796,869 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 conversion of the Company's Series B Convertible Preferred Stock and upon
exercise of the related warrant when issued and delivered upon such conversion
or exercise, as the case may be, in accordance with the terms of the Series B
Convertible Preferred Stock and the warrant, will be validly issued, fully paid
and non-assessable and the 215,189 Shares that are currently outstanding were
validly issued and are fully paid a nd 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
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 reports dated
January 26, 1999 (except with respect to the matter discussed in the last
paragraph of Note 12, as to which the date is March 29, 1999) included in the
Andrea Electronics Corporation Form 10-K for the year ended December 31, 1998
and to all references to our Firm included in this Form S-3 registration
statement.
ARTHUR ANDERSEN LLP
Melville, New York
July 16, 1999
