SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period
from ____________ to ____________
Commission file number 1-4324
--------
ANDREA ELECTRONICS CORPORATION
---------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 11-0482020
- -------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
45 Melville Park Road, Melville, New York 11747
- ----------------------------------------- --------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 631-719-1800
-----------------
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No ___
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 13,814,572.
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
(unaudited) (audited)
-------------- -----------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 8,093,314 $ 9,153,148
Accounts receivable, net of allowance for doubtful accounts of
$202,521 2,737,273 2,770,703
Inventories 7,089,365 7,123,747
Prepaid expenses and other current assets 293,307 267,817
------------ ------------
Total current assets 18,213,259 19,315,415
PROPERTY, PLANT AND EQUIPMENT, net 1,848,314 1,930,506
DEFERRED INCOME TAXES 1,806,615 1,806,615
OTHER ASSETS 2,234,931 2,254,989
GOODWILL 24,085,929 24,545,877
------------ ------------
Total assets $ 48,189,048 $ 49,853,402
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 1,663,678 $ 2,134,873
Current portion of long-term debt 619,425 597,247
Convertible notes, net 1,492,539 1,485,077
Other current liabilities 1,065,688 1,076,733
------------ ------------
Total current liabilities 4,841,330 5,293,930
LONG-TERM DEBT 706,298 693,362
OTHER LIABILITIES 14,477 14,477
------------ ------------
Total liabilities 5,562,105 6,001,769
------------ ------------
SERIES B REDEEMABLE CONVERTIBLE PREFERRED STOCK, net, $.01 par value; 500
and 750 shares issued and outstanding, respectively 4,801,749 7,187,077
------------ ------------
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value; authorized: 5,000,000 shares; none
issued and outstanding -- --
Common stock, $.50 par value; authorized: 25,000,000 shares; issued
and outstanding: 13,808,072 and 13,242,538 shares, respectively 6,904,036 6,621,269
Additional paid-in capital 46,444,510 42,990,641
Accumulated deficit (15,523,352) (12,947,354)
------------ ------------
Total shareholders' equity 37,825,194 36,664,556
Total liabilities and shareholders' equity $ 48,189,048 $ 49,853,402
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
------------------------------------
2000 1999
---- ----
<S> <C> <C>
NET SALES $3,201,484 $4,664,135
COST OF SALES 2,399,175 3,299,316
----------- -----------
Gross profit 802,309 1,364,819
RESEARCH AND DEVELOPMENT EXPENSES 1,150,478 774,838
GENERAL, ADMINISTRATIVE AND SELLING EXPENSES 2,141,298 2,282,444
----------- -----------
Loss from operations (2,489,467) (1,692,463)
----------- -----------
OTHER INCOME (EXPENSE):
Interest income 106,838 23,315
Interest expense (87,172) (75,800)
Other (14,820) -
----------- -----------
4,846 (52,485)
----------- -----------
LOSS BEFORE PROVISION FOR INCOME TAXES (2,484,621) (1,744,948)
PROVISION FOR INCOME TAXES - -
----------- -----------
Net loss $(2,484,621) $(1,744,948)
=========== ===========
PREFERRED STOCK DIVIDENDS 91,377 -
----------- -----------
Net loss applicable to common shareholders
$(2,575,998) $(1,744,948)
=========== ===========
PER SHARE INFORMATION:
Net Loss Per Share:
Basic $(.19) $(.13)
========== ==========
Diluted $(.19) $(.13)
========== ==========
Shares used in computing net loss per share:
Basic 13,363,509 13,210,038
========== ==========
Diluted 13,363,509 13,210,038
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Additional Total
Shares Common Paid-In Accumulated Shareholders'
Outstanding Stock Capital Deficit Equity
----------- ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1999 13,242,538 $ 6,621,269 $ 42,990,641 $ (12,947,354) $36,664,556
Conversion of Series B Redeemable
Convertible Preferred Stock, net
of related costs 371,909 185,955 2,231,447 - 2,417,402
Exercise of stock options, net of
related costs 193,625 96,812 1,222,422 - 1,319,234
Preferred stock dividends - - - (91,377) (91,377)
Net (loss) - - - (2,484,621) (2,484,621)
---------- ------------ ------------- -------------- -----------
BALANCE, March 31, 2000 13,808,072 6,904,036 46,444,510 (15,523,352) 37,825,194
========== ============ ============= ============== ===========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
------------------------------------
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,484,621) $(1,744,948)
Adjustments to reconcile net loss to net cash used in operating
activities:
Non-cash interest expense 23,259 69,293
Depreciation and amortization 909,206 751,416
(Increase) Decrease in:
Accounts receivable, net 33,430 966,293
Inventories 34,382 305,548
Prepaid expenses and other current assets (197,462) 46,259
Other assets 1,207 (204,113)
Increase (Decrease) in:
Trade accounts payable (471,195) 39,353
Other current and long term liabilities (99,548) (511,820)
----------- -----------
Net cash used in operating activities (2,251,342) (282,719)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (127,726) (450,803)
----------- -----------
Net cash used in investing activities (127,726) (450,803)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock upon exercise of stock
options, net of related costs 1,319,234 --
----------- -----------
Net cash provided by financing activities 1,319,234 --
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,059,834) (733,522)
CASH AND CASH EQUIVALENTS, beginning of period 9,153,148 5,437,423
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $8,093,314 $4,703,901
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Non-cash investing and financing activities:
Conversion of Series B Redeemable Convertible Preferred Stock and related
accrued dividends into common stock $2,417,402 $ --
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
ANDREA ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation - The accompanying consolidated financial
statements include the accounts of Andrea Electronics Corporation and its
subsidiaries (collectively, the "Company"). All intercompany balances and
transactions have been eliminated in consolidation.
The consolidated financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial
reporting. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. The results of
operations for any interim period are not necessarily indicative of the
results to be expected for the fiscal year. For further information,
refer to the consolidated financial statements and accompanying footnotes
included in the Company's annual report on Form 10-K for the year ended
December 31, 1999.
2. Earnings Per Common Share - Basic net income (loss) per common share is
computed by dividing net income (loss) by the weighted-average number of
common shares outstanding. Diluted net income (loss) per common share is
computed by dividing net income (loss) by the weighted-average number of
common shares and dilutive common share equivalents and convertible
securities then outstanding.
The following chart provides a reconciliation of information used in
calculating the per share amounts:
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
------------------------------------
2000 1999
---- ----
<S> <C> <C>
Numerator:
Net loss $(2,484,621) $(1,744,948)
----------- -----------
Preferred stock dividends 91,377 --
----------- -----------
Net loss applicable to common
shareholders $(2,575,998) $(1,744,948)
=========== ===========
Denominator:
Weighted-average common shares outstanding 13,363,509 13,210,038
-- Basic
Effect of dilutive employee stock options -- --
----------- -----------
Weighted-average common shares outstanding
-- Diluted 13,363,509 13,210,038
=========== ===========
Net loss per share:
Basic $(.19) $(.13)
=========== ===========
Diluted $(.19) $(.13)
=========== ===========
</TABLE>
3. Comprehensive Income - The Company follows the provisions of SFAS No.
130, "Reporting Comprehensive Income", which requires companies to report
all changes in equity during a period, except those resulting from
investment by owners and distribution to owners, in a financial statement
for the period in which they are recognized. Comprehensive income is the
total of net income (loss) and all other non-owner changes in equity (or
other comprehensive income) such as unrealized gains/losses on securities
available-for-sale, foreign currency translation adjustments and minimum
pension liability adjustments. Comprehensive and other comprehensive
income must be reported on the face of the annual financial statements
or, in the case of interim reporting, in the footnotes to the financial
statements. For the three months ended March 31, 2000 and 1999, the
Company's operations did not give rise to items includible in
comprehensive income (loss), which were not already included in net
income (loss). Accordingly, the Company's comprehensive income (loss) is
the same as its net income (loss) for all periods presented.
4. Derivative Instruments - In June 1998, the Financial Accounting Standards
Board issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities". This statement establishes accounting and reporting
standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. SFAS
No. 133 is effective for all fiscal years beginning after June 15, 1999
(subsequently amended by SFAS No. 137, to be effective for all fiscal
years beginning after June 15, 2000) and will not require retroactive
restatement of prior period financial statements. This statement requires
the recognition of all derivative instruments as either assets or
liabilities in the balance sheet measured at fair value. Derivative
instruments will be recognized as gains or losses in the period of
change. If certain conditions are met where the derivative instrument has
been designated as a fair value hedge, the hedge items may also be marked
to market through earnings, thus creating an offset. If the derivative is
designed and qualifies as a cash flow hedge, the changes in fair value of
the derivative instrument may be recorded in comprehensive income. While
the Company operates in international markets, it does so presently
without the use of derivative instruments.
5. Procurement Agreement - The Company has an agreement with International
Business Machines and its subsidiaries ("IBM") to produce and procure
certain products, as defined. The agreement continues in full force and
effect unless terminated earlier for material breach by either party, as
defined. For the three month period ending March 31, 2000, sales of the
Company's products to IBM and certain of IBM's affiliates, distributors,
licensees and integrators accounted for approximately 41% of the
Company's total net sales.
6. Convertible Notes - On June 10, 1998, the Company issued and sold in a
private placement, $10,753,000 aggregate principal amount of 6%
Convertible Notes (the "Notes") due June 10, 2000. The Notes are
convertible into shares of the Company's common stock at a conversion
price equal to the average of the two lowest closing prices of the common
stock during the thirty trading days preceding any date of conversion,
subject to a maximum conversion price of $16.125 per share. At the option
of the Company, interest is payable in the form of cash or shares of
common stock at the conversion price then in effect. The maximum number
of shares issuable upon conversion is 2,100,000 shares, and if this
maximum number of shares is issued, any remaining unconverted principal
amount of the Notes will bear interest at 17% per annum. During 1998,
$9,253,000 of the Notes, together with related accrued interest, was
converted into 2,097,000 shares of the Company's common stock. At March
31, 2000, the remaining obligation from the Notes is recorded net of an
unaccreted discount of $7,462.
7. Series B Redeemable Convertible Preferred Stock - On June 22, 1999, the
Company issued and sold in a private placement $7,500,000 of Series B
Redeemable Convertible Preferred Stock (the "Preferred Stock"), and a
warrant covering 75,000 shares of the Company's common stock. Each of the
750 shares of Preferred Stock has a stated value of $10,000 plus
dividends of 4% per annum, which sum is convertible into common stock at
a conversion price equal to the lower of $8.775 (the "Maximum Conversion
Price") and the average of the two lowest closing bid prices of the
common stock during the 15 consecutive trading days immediately preceding
a conversion date (the "Market Price"), subject to certain adjustments,
including anti-dilution. The 4% dividends may, at the option of the
Company, be paid in cash. The warrant has an exercise price of $8.775 per
share and expires on June 18, 2004.
The Preferred Stock becomes convertible into the Company's common stock
according to a vesting schedule, with 12.5% of the shares becoming
convertible at the end of each of the eight succeeding 30-day periods
beginning on October 17, 1999. The vesting schedule will lapse for
conversions occurring at the Maximum Conversion Price and upon the
occurrence of certain extraordinary events, as defined. Any unconverted
Preferred Stock that remains outstanding on June 18, 2004, will
automatically convert into the Company's common stock. The Company has
reserved 1,744,235 of common stock for issuance upon conversion of the
shares of the Preferred Stock.
Prior to June 22, 2000, the Company has the option to redeem any
Preferred Stock presented for conversion if the conversion price is less
than or equal to $4.725 per share, at a redemption price equal to 110% of
the stated value plus any accrued dividends. Upon the announcement of a
major transaction, as defined, the investor shall have the right to
require the Company to redeem all or a portion of the investor's
Preferred Shares at a redemption price equal to the greater of 120% of
the stated value plus any accrued dividends and the Market Price on the
day of announcement. In addition, upon the occurrence of certain
triggering events, as defined, and depending on the Company's control
over such events, the investor may have the right to require the Company
to a) redeem all or a portion of the Preferred Shares at a redemption
price equal to the greater of 120% of the stated value plus any accrued
dividends and the Market Price on the day of announcement, or b) pay a
penalty equal to 1% of the remaining principal amount outstanding for a
period not to exceed 20 days in any 365 day period, and adjust the
Maximum Conversion Price, as defined.
During the six month period beginning March 14, 2000, the Company,
subject to certain conditions, may exercise an option to sell to the
investor up to an additional $7.5 million of its Preferred Stock, and
warrants for up to an additional 75,000 shares of common stock.
On February 25, 2000, 250 shares of the Preferred Stock, together with
related accrued dividends, were converted into 371,909 shares of common
stock. As of March 31, 2000, the Preferred Stock is recorded net of the
unaccreted present value of the warrants of $198,252. Due to the
redemption features discussed above, the Preferred Stock is presented
outside of stockholders' equity in the accompanying consolidated balance
sheet.
8. Acquisition Of Business -On May 5, 1998, the Company acquired all of the
outstanding shares of capital stock of Lamar (the "Acquisition"). The
consideration paid by the Company for the Acquisition was approximately
1,800,000 shares of restricted common stock and $3,000,000 in cash and
notes payable. Of the approximately 1,800,000 shares issued to the
sellers, one-third became freely transferable on the first anniversary of
the closing, an additional one-third became transferable on the second
anniversary and the last one-third becomes transferable on the third
anniversary. Of the aggregate cash consideration to be paid by the
Company, $2,000,000 was paid through 1999, $500,000 was paid on May 5,
2000, and the remaining $500,000 is payable on May 5, 2001. The
Acquisition was accounted for under the purchase method of accounting
and, accordingly, the operating results of Lamar have been included in
the consolidating operating results since the date of acquisition. The
Acquisition was valued using an independent appraisal of the fair value
of the consideration paid and the assets purchased, and resulted in
goodwill of approximately $27.6 million, which is being amortized over 15
years. Goodwill at March 31, 2000 is approximately $24.1 million, which
is net of approximately $3.5 million in accumulated amortization.
9. Segment Information - The Company follows the provisions of SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information."
Reportable operating segments are determined based on the Company's
management approach. The management approach, as defined by SFAS No. 131,
is based on the way that the chief operating decision-maker organizes the
segments within an enterprise for making operating decisions and
assessing performance. While the Company's results of operations are
primarily reviewed on a consolidated basis, the chief operating
decision-maker also manages the enterprise in three segments: (i) Andrea
Anti-Noise Products, (ii) Aircraft Communications Products, and (iii)
Far-field Digital Audio Technology Products. The following represents
selected consolidated financial information for the Company's segments
for the three months ended March 31, 2000, and 1999:
<TABLE>
<CAPTION>
Far-field
Andrea Aircraft Digital Audio
Anti-Noise Communications Technology
Segment Data Products Products Products March 31, 2000
------------ ---------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Net sales $2,415,737 $ 604,700 $ 181,047 $ 3,201,484
Income (loss) from operations 119,205 (152,823) (2,455,849) (2,489,467)
Depreciation 100,015 47,464 70,587 218,066
</TABLE>
<TABLE>
<CAPTION>
Far-field
Andrea Aircraft Digital Audio
Anti-Noise Communications Technology
Segment Data Products Products Products March 31, 1999
------------ ---------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Net sales $ 3,701,390 $ 962,745 $ - $ 4,664,135
Income (loss) from operations (1,817,620) 125,157 - (1,692,463)
Depreciation 160,354 23,290 - 183,644
</TABLE>
For the three months ended March 31, 2000 and 1999, sales and accounts
receivable by geographic area are as follows:
Geographic Data March 31, 2000 March 31, 1999
--------------- -------------- --------------
Sales:
United States $ 2,336,711 $ 2,753,100
Europe 390,686 1,105,973
Other foreign 474,087 805,062
----------- ------------
$ 3,201,484 $ 4,664,135
=========== ============
Accounts receivable:
United States $ 1,837,008 $ 1,814,873
Europe 560,163 834,090
Other foreign 340,102 1,252,526
----------- ------------
$ 2,737,273 $ 3,901,489
=========== ============
10. Legal Proceedings - As previously reported in "Item 3. Legal Proceedings"
in the Company's Annual Report on Form 10-K for the year ended December
31, 1999, on November 17, 1998 a complaint was filed against us in the
U.S. District Court for the Eastern District of New York by NCT Group,
Inc. ("NCT"; formerly Noise Cancellation Technologies, Inc.) and NCT
Hearing Products, Inc., one of NCT's subsidiaries. The complaint involves
two of Andrea's patents, U.S. Patent No. 5,732,143 and U.S. Patent No.
5,825,897. These patents relate to certain active noise reduction
technology that is particularly applicable to aircraft passenger
headphones. Andrea does not currently derive any sales or licensing
revenue from aircraft passenger headphones. The complaint requests a
declaration that these two patents are invalid and unenforceable and that
NCT's products do not infringe upon these two patents. The complaint
alleges that Andrea has engaged in unfair competition by misrepresenting
the scope of the two patents, tortiously interfering with prospective
contractual rights between NCT and its existing and potential customers,
making false and disparaging statements about NCT and its products, and
falsely advertising Andrea's ANR products. The complaint seeks to enjoin
Andrea from engaging in these alleged activities and seeks compensatory
damages of not less than $5 million, punitive damages of not less than
$50 million and plaintiffs' costs and attorneys' fees. On December 30,
1998, we filed and served an answer to the NCT complaint, denying the
allegations and asserting affirmative defenses and counterclaims. Our
counterclaims allege that NCT has infringed U.S. Patents Nos. 5,732,143
and 5,825,897, and that NCT has engaged in trademark infringement, false
designation of origin, and unfair competition. The counterclaims also
allege that NCT's patent infringement has been and is willful. The
counterclaims seek injunctive relief with respect to the allegations of
patent infringement, trademark infringement, false designation of origin
and unfair competition. We are also seeking exemplary and punitive
damages, prejudgment interest on all damages, costs, reasonable
attorneys' fees and expenses. During the second half of 1999, both NCT
and Andrea submitted briefs to the Court on whether to have an early
hearing on the meaning of the claims in the two Andrea patents. This type
of hearing is called a "Markman Hearing." We anticipate that the Court
will issue a decision on this question by the middle of 2000, but we
cannot assure this. We and NCT are proceeding with discovery, including
document production and depositions. If this suit is ultimately resolved
in favor of NCT, we could be materially adversely effected. We believe,
however, that NCT's allegations are without merit and we intend to
vigorously defend Andrea and to assert against NCT the claims described
above.
On March 11, 1999, we were notified about a claim filed with the New York
State Environmental Protection and Spill Compensation Fund (the "Fund")
by the owners (Mark J. Mergler and Ann Mergler, the "Claimants") of
property adjoining our former Long Island City facility. This claim
alleges property damages arising from petroleum migrating from our former
facility and was purportedly detected in the basement of the Claimants'
property. In their claim to the Fund, the Claimants alleged that their
property has been damaged and that they have incurred remedial costs. In
the event the Fund honors this claim in whole or in part, we may be
liable to reimburse the Fund. The New York State Department of
Environmental Conservation has asserted a demand that we investigate and
remediate the discharge of petroleum from a fuel oil storage tank at our
former Long Island City facility, and determine whether the petroleum
discharge has migrated to the Claimants' adjoining property. We engaged
environmental consultants to investigate the discharge from the fuel oil
storage tank and we are currently funding remediation work. We denied,
however, the allegations that any petroleum discharge has migrated to the
Claimant's property and objected to the claim made by the Claimant to the
Fund. On September 2, 1999, a civil action related to this matter was
commenced in the Nassau County Supreme Court by Mark J. Mergler and Ann
Mergler. The plaintiffs allege that the fuel oil released from the
heating system of our former facility has migrated beneath and onto the
neighboring property causing an excess of $1,000,000 in direct and
consequential damages. The plaintiffs' allegations against us include,
negligence, nuisance and strict liability under the New York State
Navigation Law. We have submitted an answer denying the allegations and
all liability relating to the alleged property damage. This lawsuit is at
an early stage and we are unable to evaluate the likelihood of an
unfavorable outcome or estimate the amount or range of potential loss, if
any.
In addition to the litigation described above, we are from time to time
subject to routine litigation incidental to our business.
11. Reclassifications - Certain prior year amounts have been reclassified to
conform to the current year presentation.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
Our mission is to provide the emerging "voice interface" markets with
state-of-the-art communications products that facilitate natural language,
human/machine interfaces.
Examples of the applications and interfaces for which Andrea Anti-Noise
Products and Andrea digital signal processing ("DSP") Microphone and Software
Products provide benefits include: Internet and other computer-based speech;
telephony communications; telematics; multi-point conferencing; speech
recognition; multimedia; multi-player Internet and CD ROM interactive games;
military and commercial aircraft communications; and other applications and
interfaces that incorporate natural language processing. We believe that end
users of these applications and interfaces will require high quality
microphone and earphone products that enhance voice transmission, particularly
in noisy environments, for use with personal computers, mobile personal
computing devices, military and commercial aircraft systems, cellular and
other wireless communication devices and automotive communication systems.
High quality audio communication technologies will also be required for
emerging "far-field" voice applications, ranging from continuous speech
dictation, to multiparty video teleconferencing and collaboration, to natural
language-driven interfaces for automobiles, home and office automation and
other machines and devices into which voice-controlled microprocessors are
expected to be introduced during the next several years.
Our strategy is to maintain and extend our market position with our Andrea
Anti-Noise Products; broaden our Andrea Anti-Noise Product lines and Andrea
DSP Microphone and Software Product lines through internal research and
development and, from time to time, strategic acquisitions; design our
products to satisfy specific end-user requirements identified by our
collaborative partners; and outsource manufacturing of certain products in
order to achieve economies of scale. An important element of our strategy for
expanding the channels of distribution and broadening the base of users for
our products is our collaborative arrangements with OEMs, software publishers,
and distributors and retailers actively engaged in the various markets in
which our products have application. Under some of these arrangements, we
supply our products for sale by our collaborative partners. Under others, the
collaborative partners supply us with software that we include with our
products. In addition, we have been increasing our own direct marketing
efforts.
The success of our strategy will depend on our ability to, among other things,
increase sales of our line of Andrea Anti-Noise Products and Andrea DSP
Microphone and Software Products, contain costs, manage growth, introduce
additional Andrea Anti-Noise Products and Andrea DSP Microphone and Software
Products, maintain the competitiveness of our technologies through successful
research and development, and achieve widespread adoption of our products and
technologies.
In order to complement our internal efforts to develop DSP technology, in May
1998, we acquired Lamar Signal Processing, Ltd. ("Lamar"), an Israeli
corporation engaged in the development of DSP noise cancellation microphone
solutions for voice-driven interfaces covering a wide range of audio and
acoustic applications. This acquisition resulted in a substantial amount of
goodwill. The amortization of this goodwill had, and will continue to have, a
negative, non-cash impact on our results of operations.
We outsource the assembly of most of our Andrea Anti-Noise Products from
purchased components, and we are currently assembling our Andrea DSP
Microphone and Software Products from purchased components at our New York and
Israeli facilities. We manufacture our Aircraft Communications Products at our
New York facility.
The interim results of operations of the Company presented in this report are
not necessarily indicative of the actual sales or results of operations to be
realized for the full year.
Cautionary Statement Regarding Forward-Looking Statements
Certain information contained in this Management's Discussion and Analysis of
Financial Condition and Results of Operations for the three months ended March
31, 2000 (the "2000 First Quarter") compared to the three months ended March
31, 1999 (the "1999 First Quarter") are 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. 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 that 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. In order to obtain the benefits of these "safe harbor" provisions for
any such forward-looking statements, we wish to caution investors and
prospective investors about the following significant factors, which, among
others, have in some cases affected our actual results and are in the future
likely to affect our actual results and could cause them to differ materially
from those expressed in any such forward-looking statements. These factors
include:
o 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 cost of development of our products under our collaborative
development arrangements;
- the mix of products we sell;
- the mix of distribution channels we use;
- the timing of our new product releases and those of our competitors;
- fluctuations in the computer and communications hardware and
software marketplace; and
- general economic conditions.
o 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 2000 First
Quarter were approximately $3.2 million compared to approximately $4.7
million in the 1999 First Quarter. For the 2000 First Quarter, we had a
net loss of approximately $2.5 million versus a net loss of $1.7 million
for the 1999 First Quarter.
o While we are examining opportunities for further cost-reduction, production
efficiencies and 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.
o 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
our common stock. Of the 25,000,000 shares of common stock presently
authorized, 13,814,572 were outstanding as of May 10, 2000. This does not
include (i) 4,651,125 shares of our common stock reserved for issuance
upon exercise of outstanding options granted under our 1991 Performance
Equity Plan and 1998 Stock Plan and shares of our common stock reserved
for further option grants under the 1991 Performance Equity Plan and 1998
Stock Plan and (ii) 1,744,235 shares of common stock reserved for
issuance upon conversion of the Series B Convertible Preferred Stock and
exercise of the related warrant. To the extent that 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.
We have 500 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
upon 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. On February 25, 2000, 250 shares of the Series B
Convertible Preferred Stock were converted into 371,909 shares of common
stock.
In addition, 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.
o 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.
o 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 and Andrea DSP
Microphone and Software Products. Under these collaborative arrangements,
our products are or will be 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 automotive 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 are substantially dependent on
our product procurement relationship with IBM. During the 2000 First
Quarter, IBM and certain of IBM's affiliates, distributors, licensees and
integrators accounted for 41% of our net sales. 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 and Andrea DSP Microphone and
Software Products to IBM would have a material adverse effect on our
business, results of operations and financial condition.
o We conduct assembly operations at our facilities in New York and Israel
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 and Andrea DSP
Microphone and Software Products are available from several sources and
are not characteristically in short supply. However, certain specialized
components, such as microphones and DSP boards, are available from a
limited number of suppliers and subject to long lead times. To date we
have been able to obtain sufficient supplies of these more specialized
components, but 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 and Andrea DSP Microphone and Software
Products.
We assemble our Aircraft Communications Products at our New York facility
from purchased components. Certain highly specialized components for our
Aircraft Communications Products sold for military and industrial use
have limited sources of supply, the availability of which can affect
particular products. We do not believe, however, that our earnings have
been, or will be, materially affected due to unavailability of these
components.
o 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.
o We have been granted 18 patents in the United States covering our Andrea
Anti-Noise and Andrea DSP Microphone and Software Products, 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.
o 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.
<PAGE>
Results Of Operations
Quarter Ended March 31, 2000 Compared to the Quarter Ended March 31, 1999
Sales
- -----
Sales for the 2000 First Quarter were $3,201,484, a decrease of 31% from sales
of $4,664,135 for the 1999 First Quarter. The decrease in sales for the 2000
First Quarter reflects an approximate 35% decrease in sales of Andrea Anti-
Noise Products to $2,415,737, or 75% of total sales, and an approximate 37%
decrease in sales of our Aircraft Communications Products, to $604,700, or 19%
of total sales, these decreases being offset by initial sales of Far-field
Digital Audio Technology Products of $181,047, or 6% of total sales. The
decreases in sales are due to 1) lower volumes and lower price/lower margin
sales of PC headsets to the Company's original equipment manufacturer (OEM)
customers, and 2) a decrease in unit sales of higher-margin Aircraft
Communications Products during the 2000 First Quarter. For the 2000 First
Quarter, sales of our computer headsets IBM and certain of its affiliates,
distributors, licensees and integrators accounted for approximately 41% of
our total sales; and sales of computer headsets to Radio Shack and certain
of its affiliates and distributors accounted for approximately 15% of our total
sales.
Cost of Sales
- -------------
Cost of sales as a percentage of sales for the 2000 First Quarter increased to
75% from 71% for the 1999 First Quarter. This increase in cost of sales
percentage is primarily a result of the decreases in unit production and sales,
as described above, over which to spread the Company's pool of fixed overhead
costs.
Research and Development
- ------------------------
Research and development expenses for the 2000 First Quarter increased 48% to
$1,150,478 from $774,838 for the 1999 First Quarter. This increase is due to
the Company's continuing efforts to develop its Far-field Digital Audio
Technologies, coupled with, to a lesser extent, efforts in Aircraft
Communication product technologies and Andrea Anti-Noise Product technologies.
Specifically, Far-field Digital Audio Technology efforts were $916,509, or 80%
of total research and development expenses, Aircraft Communications technology
efforts were $152,914, or 13% of total research and development expenses and
Andrea Anti-Noise Product efforts were $81,055, or 7% of total research and
development expenses. With respect to Far-field Digital Audio Technologies,
research efforts are primarily focused on the pursuit of commercializing a
natural language-driven human/machine interface by developing optimal
far-field microphone solutions for various voice-driven interfaces,
incorporating the Company's digital super directional array microphone
technology ("DSDA") and certain other related technologies obtained through
the acquisition of Lamar in May 1998. Correspondingly, the activities of Lamar
accounted for approximately 18% of the total research and development expenses
during the 2000 First Quarter. The Company believes that the acquisition of
Lamar significantly reinforces its position in digital signal processing by
extending the Company's marketing programs to other industries, including the
consumer electronics and professional audio markets, among others. With
respect to Aircraft Communication technologies, research efforts are primarily
focused on developing intercom systems that are capable of accepting the
Company's digital audio software technologies. The Company anticipates
continued significant increases in research and development expenses as the
year progresses, with particular emphasis on Far-field Digital Audio
Technologies.
General, Administrative and Selling Expenses
- --------------------------------------------
General, administrative and selling expenses decreased approximately 6% to
$2,141,298 for the 2000 First Quarter from $2,282,444 for the 1999 First
Quarter. The high level of general, administrative and selling expenses,
primarily attributable to the Far-field Digital Audio Technology product line,
reflects significant business development expenses relating to existing and
prospective collaborative arrangements with OEMs, software publishers and
developers. The Company also incurs significant promotional, marketing and
sales expenses to promote product awareness and acceptance of the Far-field
Digital Audio Technology product line. In addition, included in general,
administrative and selling expenses in the 2000 First Quarter and 1999 First
Quarter is goodwill amortization expense of $459,948.
Other Income (Expense)
- ----------------------
Other income for the 2000 First Quarter was $4,846 compared to other expense
of $52,485 for the 1999 First Quarter. This change was due to interest earned
on higher cash balances resulting from the sale of the Company's Series B
Redeemable Convertible Preferred Stock.
Provision for Income Taxes
- --------------------------
The Company did not record income tax expense for the 2000 First Quarter in
light of the net loss recorded for the period. Furthermore, the realization of
a portion of the Company's reserved deferred tax assets, if and when realized,
will not result in a tax benefit in the consolidated statement of operations,
but will result in an increase in additional paid in capital as they are
related to tax benefits associated with the exercise of stock options. The
Company will be continually re-assessing its reserves on deferred income tax
assets in future periods on a quarterly basis.
Net Income (Loss)
- -----------------
Net loss for the 2000 First Quarter was $2,484,621 compared to a net loss of
$1,744,948 for the 1999 First Quarter. The net loss for the 2000 First Quarter
principally reflects the factors described above.
Liquidity And Capital Resources
The Company's principal sources of funds have historically been, and are
expected to continue to be, cash flow from operations and proceeds from the
sale of convertible notes, preferred stock or other securities to certain
financial institutions. At March 31, 2000, we had cash and cash equivalents of
$8,093,314 compared with $4,703,901 at March 31, 1999. The balance of cash and
cash equivalents at March 31, 2000 is primarily a result of the Company's
issuance and sale in a private placement of $7,500,000 of its Series B
Redeemable Convertible Preferred Stock (the "Preferred Stock"), and from the
Company's June 1998 private placement of $10.75 million aggregate principal
amount of 6% Convertible Notes ("Notes"). All but $1.5 million of the Notes
have been converted to common stock, with the remaining outstanding principal
amount convertible into 3,000 shares of common stock, which amount is recorded
as a current liability, net of an unaccreted discount of $7,461 in the
accompanying consolidated balance sheet as of March 31, 2000. Furthermore, on
February 25, 2000, 250 shares of the Preferred Stock were converted into
371,909 shares of common stock at a conversion price of $6.91 per share. The
Company is using the net proceeds from the issuance of the Preferred Stock and
Notes for costs associated with technology development, tooling costs,
creating and maintaining strategic alliances, payment of certain debt
obligations and general working capital requirements.
In connection with the acquisition of Lamar, of the aggregate cash
consideration to be paid by the Company, $1,000,000 was paid on May 5, 1998,
the closing date, and $500,000 was paid on each of the six, twelve and
twenty-four month anniversaries of the closing date, with the remainder
payable on the thirty-six month anniversary of the closing. The $500,000 in
additional cash consideration remaining, due on the thirty-six month
anniversary of the closing, is recorded as long-term debt on the accompanying
consolidated balance sheet.
Working capital at March 31, 2000, was $13,371,929 compared to $14,021,485 at
December 31, 1999. The decrease in working capital reflects decreases in total
current assets and total current liabilities of $1,102,156 and $452,600,
respectively. The decrease in total current assets reflects a decrease in cash
of $1,059,834, a decrease in accounts receivable of $33,430, and
a decrease in inventory of $34,382, partially offset by an increase
in prepaid expenses and other current assets of $25,490. The decrease in current
liabilities reflects a decrease in trade accounts payable of $471,495, and a
decrease in other current liabilities of $11,045, partially offset by increases
in the current portion of long term debt and convertible debentures of $22,178
and $7,462, respectively.
The decrease in cash from December 31, 1999 to the period ending March 31,
2000 of $1,059,834 reflects $2,251,342 of net cash used in operating
activities, $127,726 of net cash used in investing activities and $1,319,234
of net cash provided by financing activities.
The cash used in operating activities, excluding non-cash charges, is
primarily attributable to the $2,484,621 net loss for the 2000 First Quarter,
a $197,462 increase in prepaid and other current assets, a $471,195 decrease
in accounts payable and a $99,548 decrease in other current and long term
liabilities, partially offset by a $33,430 decrease in accounts receivable, a
$34,382 decrease in inventory and a $1,207 decrease in other assets. The
increase in prepaid expenses and other current assets primarily includes the
recognition of increased premiums for prepaid property taxes and insurance, as
well as increases in other service costs related to the remainder of 2000. The
decrease in accounts payable and other current and long term liabilities as
well as the decrease in inventory primarily reflect differences in the timing
related to both the payments for and the acquisition of raw materials as well
as for other services in connection with ongoing efforts related to the
Company's various product lines. The decrease in other current and long term
liabilities is also partially attributable to a decrease in accrued interest
expense associated with the partial conversion of the Series B Redeemable
Convertible Preferred stock on February 25, 2000.
The cash used in investing activities is primarily attributable to investments
in the Company's existing information systems, as well as, to a lesser extent,
capital expenditures consisting of the ongoing upgrade of manufacturing dies
and molds for Andrea Anti-Noise Products.
The net cash provided by financing activities reflects exercises of employee
stock options.
Demand for the Company's products and technologies has required the Company to
raise additional working capital to support operations. In addition, the
acquisition of Lamar will require the Company to continue to provide working
capital to support Lamar's operations and to repay notes to the sellers of
Lamar. In June 1998, the Company raised $10 million through the issuance and
sale of the Notes. In June 1999, the Company raised $7.5 million through the
issuance and sale of Preferred Stock. In addition, the Company entered into a
revolving credit agreement in September 1997 that provides maximum borrowings
of up to $8 million based on eligible accounts receivable and inventory, as
defined. At March 31, 2000, there were no outstanding amounts under the
revolving credit agreement. We believe that our current levels of cash, as
well as our access to financing sources, provide sufficient liquidity and
capital resources to fund working capital requirements for at least twelve to
eighteen months. Notwithstanding the significance of sales of Andrea
Anti-Noise Products as a percentage of our total sales during the 2000 First
Quarter, we cannot assure that demand will continue for these products or any
of our other products, including future products related to our Andrea
Microphone Array Products and Software Technologies, or, that if such demand
does exist, that we will be able to obtain the necessary working capital to
increase production and marketing resources to meet such demand on favorable
terms, or at all.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our principal source of financing activities includes debt under a revolving
credit facility that provides for interest at a spread above the prime rate,
as well as the issuance of convertible debt and convertible preferred stock
with financial institutions. We are affected by market risk exposure primarily
through the effect of changes in interest rates on amounts payable in cash by
us under the revolving credit facility, as well as the amount payable in stock
by us under convertible debt and convertible preferred stock. A significant
rise in interest rates could materially adversely affect our financial
condition and results of operations. At March 31, 2000, there were no
outstanding borrowings under our credit facility, and approximately $1.5
million of remaining unconverted debt and $5 million of unconverted redeemable
preferred stock. We do not utilize derivative financial instruments to hedge
against changes in interest rates or for any other purpose. In addition,
substantially all transactions by us are denominated in U.S. dollars. As such,
we have shifted foreign currency exposure onto its foreign customers. As a
result, if exchange rates move against foreign customers, we could experience
difficulty collecting unsecured accounts receivable, the cancellation of
existing orders or the loss of future orders. The foregoing could materially
adversely affect our business, financial condition and results of operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Number Description
-------------- -----------
10.1 Employment Agreement, between the Company and
John N. Andrea, dated as of April 12, 2000.
10.2 Employment Agreement, between the Company and
Doug J. Andrea, dated as of April 12, 2000.
10.3 Employment Agreement, between the Company and
Richard A. Maue, dated as of April 12, 2000.
27 Financial Data Schedule
(b) Reports on Form 8-K
The registrant did not file any reports on Form 8-K during the three-month
period ended March 31, 2000.
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Exchange Act, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ANDREA ELECTRONICS CORPORATION
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Christopher P. Sauvigne President and Chief Operating Officer May 15, 2000
- -------------------------------
Christopher P. Sauvigne
/s/ Richard A. Maue Senior Vice President, Chief May 15, 2000
- -------------------------------
Richard A. Maue Financial Officer, and Secretary
</TABLE>
ANDREA ELECTRONICS CORPORATION
EMPLOYMENT AGREEMENT
This AGREEMENT is made effective as of April 12, 2000 (the "Effective
Date") by and between Andrea Electronics Corporation (the "Company"), a New
York corporation and John N. Andrea (the "Executive").
WHEREAS, the Company wishes to assure itself of the services of the
Executive for the period provided in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of the Company
on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and upon the other terms and conditions hereinafter provided, the
parties hereby agree as follows:
1. DUTIES AND RESPONSIBILITIES
The Executive shall serve as Co-Chairman and Co-Chief Executive Officer
of the Company. Subject to the supervision and direction of the Board of
Directors of the Company (the "Board") and unless otherwise determined by the
Board, the Executive in such capacity shall: be responsible for managing the
affairs of the Corporation; have the powers and duties usually and customarily
associated with the office of the Co-Chairman and Co-Chief Executive Officer;
and have such commensurate responsibilities, duties and authority as may from
time to time be assigned to the Executive by the Board. The Executive shall
devote substantially all his time, energy and skill during reasonable business
hours to the service of the Company. The Executive's office shall be located
at the Company's headquarters, which shall be located at 45 Melville Park Rd.,
Melville, New York, 11747.
2. TERM OF AGREEMENT
The Company shall employ the Executive and the Executive shall serve as a
full-time employee of the Company for a term of three (3) years from the date
hereof (such period and any additional periods thereafter in respect of which
this Agreement is extended in accordance herewith being each an "Employment
Period"). Each Employment Period and this Agreement shall be automatically
extended for an additional one (1) year term following the expiration of such
Employment Period, unless either the Company or the Employee notifies the
other in writing at least twelve months prior to such expiration that the
Employment Period and this Agreement shall not be so extended. Further, if
employment is terminated for any reason other than death, such termination
will not result in the expiration of the term of this Agreement.
3. COMPENSATION DURING TERM OF AGREEMENT
(a) Base Salary
The Company shall pay the Executive a salary (the "Base Salary") of
not less than (i) $200,000 per annum. Base Salary shall include any amounts of
compensation deferred by the Executive under any employee benefit plan
maintained by the Company. Such Base Salary shall be payable weekly. The
Executive's Base Salary shall be reviewed annually. Such review shall be
conducted by a Compensation Committee designated by the Board, and the Board
shall increase the Executive's Base Salary by a Cost of Living Allowance
("COLA") percentage and a 7% merit increase based on performance as determined
by the Board. The increased Base Salary shall become the "Base Salary" for
purposes of this Agreement. In addition to the Base Salary provided in this
Section 3(a), the Company shall also provide the Executive, at no cost to the
Executive, with all such other benefits as are provided uniformly to permanent
full-time employees of the Company.
(b) Short-Term Incentive Compensation Program
The Executive shall participate in the Company's Short-Term Incentive
Compensation Program. Annual cash awards ("Short-Term Awards") under this
program will be based on the achievement of performance goals, both corporate
(80%) and individual (20%), expressed as a percentage of the Executive's Base
Salary or dollar amount adopted on or after the date of this Agreement.
Performance measures will include sales from new sources and operating income.
Performance goals, measures and annual awards will be determined by the
Compensation Committee and approved by the Board. The Company will pay the
Short-Term Award to the Executive within 60 days following the last day of the
Company's fiscal year. Notwithstanding whether any such performance goals are
achieved, the Short-Term Awards payable to the Executive shall be not less
than $150,000 per annum in respect of each year or fraction thereof of
employment under this Agreement.
(c) Long-Term Incentive Compensation Program
In addition to the Base Salary and Short-Term Award, the Executive
shall be entitled to participate, during the Employment Period, in the
Company's Long-Term Incentive Compensation Program. Long-term cash or
equity-based awards ("Long-Term Awards") may include (i) stock options, (ii)
stock appreciation rights, (iii) restricted stock, (iv) deferred stock, (v)
stock reload options and/or (vi) other stock-based awards. Each equity-based,
Long-Term Award granted to the Executive shall vest as follows: 25% shall vest
on the first anniversary of such award; an additional 25% shall vest on the
second anniversary of such award; and the remaining 50% shall vest on the
third anniversary of such award.
(d) The Company will provide the Executive with employee benefit plans,
arrangements and perquisites substantially equivalent to those in which the
Executive was participating or otherwise deriving benefit from immediately
prior to the beginning of the term of this Agreement, and the Company will
not, without the Executive's prior written consent, make any changes in such
plans, arrangements or perquisites which would adversely affect the
Executive's rights or benefits thereunder. Without limiting the generality of
the foregoing provision of this Section 3(d), the Executive will be entitled
to (i) participate in or receive benefits under any employee benefit plans
including, but not limited to, retirement plans, supplemental retirement
plans, pension plans, profit-sharing plans, health-and-accident plans, medical
coverage or any other employee benefit plan or arrangement made available by
the Company in the future to its senior executives and key management
employees, subject to and on a basis consistent with the terms, conditions and
overall administration of such plans and arrangements, (ii) a car to be leased
and appropriately maintained and insured by the Company, (iii) annual fixed
costs (including dues, capital assessments and the like) not to exceed $6,500
per annum related to membership in a club of the Executive's choice, and (iv)
four weeks of vacation per year, with the right to carry vacation time not
used in any year (excluding vacation time so carried over) to the immediately
subsequent year.
(e) In addition to the Base Salary provided for by Section 3(a) and other
compensation provided for by Sections 3(b), (c) and (d) hereof, the Company
shall pay or reimburse the Executive for all reasonable travel and other
reasonable expenses incurred by the Executive performing his obligations under
this Agreement and may provide such additional compensation in such form and
such amounts as the Board may from time to time determine.
4. TERMINATION OF EMPLOYMENT
(a) Death or Disability:
This Agreement shall terminate automatically upon the Executive's
death. The Company may terminate this Agreement, after having established the
Executive's Disability (pursuant to the definition of "Disability" set forth
below), by giving to the Executive written notice of its intention to
terminate the Executive's employment. In such a case, this Agreement (but not
the Executive's employment with the Company) shall terminate effective on the
90th day after receipt of such notice (the "Disability Effective Date"),
provided that, within 90 days after such receipt, the Executive shall fail to
return to full-time performance of the Executive's duties. For purposes of
this Agreement, "Disability" means disability which, after the expiration of
more than 52 weeks after its commencement, is determined to be total and
permanent by a physician selected by the Company or its insurers and
acceptable to the Executive or the Executive's legal representative (such
agreement upon acceptability not to be withheld unreasonably).
(b) Cause:
The Company may terminate the Executive's employment for Cause (as
defined below). For purposes of this Agreement, "Cause" means:
(i) an act or acts of dishonesty (other than insubstantial or
inadvertent acts that do not materially affect the business, results
of operations or financial condition of the Company) taken by the
Executive at the expense of the Company;
(ii) repeated material violations by the Executive of the
Executive's obligations under Section 1 of this Agreement; or
(iii) the conviction of the Executive of a felony.
(c) Good Reason:
The Executive's employment may be terminated by the Executive for
Good Reason (as defined below). For purposes of this Agreement, "Good Reason"
means:
(i) (A) the assignment to the Executive of any duties inconsistent
in any respect with the Executive's position (including status,
offices, titles, and reporting requirements), authority, duties or
responsibilities as contemplated by Section 1 of this Agreement or
(B) any other action by the Company which results in a diminishment
in such position, authority, duties or responsibilities, other than
an insubstantial and inadvertent action which is remedied by the
Company promptly after receipt of notice thereof given by the
Executive;
(ii) any failure by the Company to comply with any of the provisions
of Section 3 of this Agreement, other than an insubstantial and
inadvertent failure which is remedied by the Company promptly after
receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any
office or location more than 50 miles from the location of the
Company's headquarters set forth in Section 1, except for travel
reasonably required in the performance of the Executive's
responsibilities;
(iv) any purported termination by the Company of the Executive's
employment other than as permitted by this Agreement, it being
understood that any such purported termination shall not be
effective for any purpose of this Agreement; or
(v) any failure by the Company to comply with and satisfy Section
15(a) of this Agreement; or
(vi) failure of the Executive to be nominated for election to the
Board at each meeting of the shareholders of the Company during the
term of this Agreement called for the purpose of, in addition to any
other matters, electing the members of the Board, unless either the
Company or the Executive in accordance with Section 2 notifies the
other in writing at least twelve months prior to such expiration
that the Employment Period and this Agreement shall not be extended.
(d) Effect of Termination:
Termination shall not affect any rights that the Executive may have
under any other program or arrangement.
5. OBLIGATIONS OF THE COMPANY UPON TERMINATION
(a) Death
If the Executive's employment is terminated by reason of the
Executive's death, this Agreement shall terminate without further obligations
to the Executive's legal representatives under this Agreement other than those
obligations accrued hereunder at the date of the Executive's death. Anything
in this Agreement to the contrary notwithstanding, the Executive's family
shall be entitled to receive benefits at least equal to those provided by the
Company to surviving families of executives of the Company under such plans,
programs and policies relating to family death benefits, if any, as in effect
at any time during the 90-day period immediately preceding the date of the
Executive's death, or if more favorable to the Executive and/or the
Executive's family, as in effect at any time thereafter with respect to other
key executives and their families. The unvested portion of such stock options
shall immediately become vested upon the Executive's death.
(b) Disability
If this Agreement is terminated by reason of the Executive's
Disability, the Executive shall be entitled after the Disability Effective
Date to receive disability and other benefits at least equal to those provided
by the Company to disabled employees and/or their families in accordance with
such plans, programs and policies relating to disability, if any, as in effect
during the 90-day period immediately preceding the Disability Effective Date
or, if more favorable to the Executive and/or the Executive's family, as in
effect at any time thereafter with respect to other key executives and their
families. The unvested portion of such stock options shall immediately become
vested upon the Executive's disability.
(c) Cause
If the Executive's employment shall be terminated for Cause pursuant
to Section 4(b), the Company shall pay the Executive his full Base Salary
through the Date of Termination (as defined below) at the rate in effect at
the time Notice of Termination (as defined below) is given and provide to the
Executive all then vested benefits, deferred compensation and the like due to
the Executive under this Agreement, and the Company shall have no further
obligations to the Executive under this Agreement. In addition, the Executive
shall be afforded the opportunity to convert any term policies insuring the
Executive's health or life that are owned by the Company to individual
policies, where permitted by the terms of such policies.
(d) Good Reason; Other Than for Cause
If, during the Employment Period, the Company shall terminate the
Executive's employment other than for Cause, or the employment of the
Executive shall be terminated by the Executive for Good Reason, the Company
shall pay to the Executive a sum equal to (i) the amount of the remaining
salary payments that the Executive would have earned if he continued his
employment with the Company during the remaining unexpired term of this
Agreement at the Executive's Base Salary at the Date of Termination; (ii) an
amount equal to the product of the highest annual amount of bonus and any
other compensation paid to the Executive during the term of this Agreement
multiplied by the remaining number of years of this Agreement and any fraction
thereof; and (iii) an amount equal to the product of the highest annual amount
of contributions that were made on the Executive's behalf to any employee
benefit plans of the Company during the term of this Agreement times the
remaining number of years of this Agreement and any fraction thereof. At the
election of the Executive, which election is to be made within thirty (30)
days of the Date of Termination, such payments shall be paid monthly during
the remaining term of this Agreement following the Executive's termination.
Such payments shall not be reduced in the event the Executive obtains other
employment following termination of employment.
The Company will continue life, medical, dental and disability
coverage substantially identical to the coverage maintained by the Company for
the Executive prior to his termination, except to the extent such coverage may
be changed in its application to all Company employees on a nondiscriminatory
basis. Such coverage shall cease upon the expiration of the remaining term of
this Agreement.
The Executive will be entitled to receive benefits due him under or
contributed by the Company on his behalf pursuant to any retirement,
incentive, profit sharing, bonus, performance, disability or other employee
benefit plan maintained by the Company on the Executive's behalf to the extent
such benefits are not otherwise paid to the Executive under a separate
provision of this Agreement.
6. CHANGE IN CONTROL
(a) For purposes hereof, a "change in control" shall be defined as:
(i) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) (a "Person") of
beneficial ownership (within the meaning of Rule 13D-3 promulgated
under the Exchange Act) of 20% or more of either (A) the then
outstanding shares of common stock of the Company (the "Outstanding
Company Common Stock") or (B) the combined voting power of the then
outstanding voting securities of the Company entitled to vote
generally in the election of Directors (the "Outstanding Company
Voting Securities"); provided, however, that for purposes of this
subsection (i), the following acquisitions shall not constitute a
Change of Control: (1) any acquisition directly from the Company,
(2) any acquisition by the Company, (3) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by
the Company or any corporation controlled by the Company or (4) any
acquisition by any corporation pursuant to a transaction which
complies with clauses (A), (B) and (C) of subsection (iii) below; or
(ii) Individuals who, as of the date hereof, constitute the Board of
Directors of the Company (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Incumbent Board,
provided, however, that any individual becoming a director
subsequent to the date hereof whose election or nomination for
election by the Company's shareholders was approved by a vote of at
least a majority of the directors then comprising the Incumbent
Board, shall be considered as though such individual were a member
of the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of
an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person
other than the Incumbent Board; or
(iii) Consummation of a reorganization, merger, consolidation or
sale or other disposition of all or substantially all of the assets
of the Company (a "Business Combination"), in each case, unless,
following such Business Combination, (A) all or substantially all of
the individuals and entities who were the beneficial owners of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities, respectively, immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 60%
of the then outstanding shares of common stock and the combined
voting power, respectively, of the then outstanding voting
securities entitled to vote generally in the election of directors,
as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a
result of such transaction owns the Company or all or substantially
all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be, (B) no Person (excluding any
employee benefit plan (or related trust) of the Company or such
corporation resulting from such Business Combination) beneficially
owns, directly or indirectly, 20% or more of, respectively, the then
outstanding shares of common stock of the corporation resulting from
such Business Combination or the combined voting power of the then
outstanding voting securities of such corporation except to the
extent that such ownership existed prior to the Business
Combination, and (C) at least a majority of the members of the board
of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the
Incumbent Board, providing for such Business Combination; or
(iv) approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
(b) Upon the occurrence of a Change in Control, the Company shall pay the
Executive, or in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, a sum equal to the greater
of (i) the payments and benefits due for the remaining term of this Agreement
and (ii) five (5) times the Executive's average annual compensation from the
Company for the five (5) preceding taxable years, or if the Executive's
employment by the Company is then less than five (5) years, the Executive's
average annual compensation from the Company during the Executive's employment
by the Company, provided, that if such period of employment includes a short
taxable year or less than all of a taxable year, compensation for such short
or incomplete taxable year must be annualized before determining the average
annual compensation for the period of employment. In annualizing compensation,
the frequency with which payments are expected to be made over an annual
period must be taken into account, such that any amount of compensation for
such a short or incomplete taxable year that represents a payment that will
not be made more often that once per year is not annualized. Such annual
compensation shall include any commissions, bonuses, pension and profit
sharing plan benefits, severance payments, retirement benefits, director or
committee fees and fringe benefits paid or to be paid to the Executive during
such years. At the election of the Executive, which election is to be made
within thirty (30) days of the Change in Control, such payment may be made in
a lump sum or paid in equal monthly installments during the thirty-six (36)
months following the Executive's termination. In the event that no election is
made, payment to the Executive will be made on a monthly basis during the
thirty-six (36) months following the Executive's termination.
(c) All restrictions on the restricted stock then held by the Executive
will lapse immediately, all stock options and stock appreciation rights then
held by the Executive will become immediately exercisable, and any performance
shares or units then held by the Executive will vest immediately, in full, in
the event of a Change in Control.
(d) Upon the occurrence of a Change in Control, the Executive will be
entitled to receive benefits due him under or contributed by the Company on
his behalf pursuant to any retirement, incentive, profit sharing, bonus,
performance, disability or other employee benefit plan maintained by the
Company on the Executive's behalf to the extent such benefits are not
otherwise paid to the Executive under a separate provision of this Agreement.
(e) Upon the occurrence of a Change in Control followed by the
Executive's termination of employment, the Company will cause to be continued
life, medical, dental and disability coverage substantially identical to the
coverage maintained by the Company for the Executive prior to his severance,
except to the extent that such coverage may be changed in its application for
all Company employees on a nondiscriminatory basis. Such coverage and payments
shall cease upon the expiration of thirty-six (36) full calendar months
following the Date of Termination.
(f) In the event that the Executive is receiving monthly payments
pursuant to Section 6(b) hereof, on an annual basis, thereafter, between the
dates of January 1 and January 31 of each year, the Executive shall elect
whether the balance of the amount payable under the Agreement at that time
shall be paid in a lump sum or on a pro rata basis pursuant to such section.
Such election shall be irrevocable for the year for which such election is
made.
(g) Any and all payments to be made to the Executive under this Agreement
or otherwise as a result of a Change in Control whether in the nature of
severance payments, liquidated damage payments, compensation or other payments
(all of the foregoing being hereinafter referred to as "Change in Control
Payments"), shall be made free and clear of, and without deduction or
withholding for or on account of, any tax which may be payable under Section
4999 of the Internal Revenue Code of 1986 (the "Code"), now or hereafter
imposed, levied, withheld or assessed (such amounts being hereinafter referred
to as the "Excise Taxes"). If, notwithstanding the foregoing provision, any
Excise Taxes are withheld from any Change in Control Payments made or to be
made to the Executive, the amounts so payable to the Executive shall be
increased to the extent necessary to yield to the Executive (after payment of
any tax which may be payable under Section 4999 of the Code) the full amount
which he is entitled to receive pursuant to the terms of this Agreement or
otherwise without regard to liability for any Excise Taxes and any other
Federal income taxes, State income taxes, FICA/Medicare and unemployment taxes
thereon. In the event any Excise Taxes are now or hereafter imposed, levied,
assessed, paid or collected with respect to the Change of Control Payments
made or to be made to the Executive, Excise Taxes and any other Federal,
State, FICA/Medicare and unemployment taxes thereon shall be paid by the
Company or, if paid by the Executive, shall be reimbursed to the Executive by
the Company upon its receipt of satisfactory evidence of such payment having
been made.
7. NOTICE
(a) Any purported termination by the Company or by the Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes
of this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied
upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be
the date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Company will continue to
pay the Executive his full compensation in effect when the notice giving rise
to the dispute was given (including, but not limited to, Base Salary) and
continue him as a participant in all compensation, benefit and insurance plans
in which he was participating when the notice of dispute was given, until the
dispute is finally resolved in accordance with this Agreement. Amounts paid
under this Section are in addition to all other amounts due under this
Agreement and shall not be offset against or reduce any other amounts due
under this Agreement.
8. POST-TERMINATION OBLIGATIONS
(a) All payments and benefits to the Executive under this Agreement shall
be subject to the Executive's compliance with Section 8(b), hereof during the
term of this Agreement and for one (1) full year after the expiration or
termination hereof.
(b) Following the expiration or termination of this Agreement, the
Executive shall, upon reasonable notice, furnish such information and
assistance to the Company as may reasonably be required by the Company in
connection with any litigation in which it or any of its subsidiaries or
affiliates is, or may become, a party; provided, that, if the Executive's
assistance is so required by the Company subsequent to the expiration or
termination of this Agreement, then the Company shall pay to the Executive for
such assistance a fee of $300 per hour plus reasonable and necessary travel
costs related to the provision of such assistance; and provided, however, that
Executive would not be required to furnish such information and assistance to
the Company in connection with any litigation between the Executive and the
Company or any of its subsidiaries or affiliates.
9. NON-COMPETITION
(a) Upon any termination of the Executive's employment hereunder pursuant
to Section 6 hereof, the Executive agrees not to compete with the Company for
a period of one (1) year following such termination in any city, town or
county in which the Company has an office or has filed an application for
regulatory approval to establish an office, determined as of the effective
date of such termination, except as agreed to pursuant to a resolution duly
adopted by the Board. The Executive agrees that during such period and within
said cities, towns and counties, the Executive shall not work for or advise,
consult or otherwise serve with, directly or indirectly, any entity whose
business materially competes with the business activities of the Company. The
parties hereto, recognizing that irreparable injury will result to the
Company, its business and property in the event of the Executive's breach of
this Section 9(a) agree that in the event of any such breach, as judicially
determined, by the Executive, the Company will be entitled, in addition to any
other remedies and damages available, to an injunction to restrain the
violation hereof by the Executive, the Executive's partners, agents, servants,
employers, employees and all persons acting for or with the Executive. The
Executive represents and admits that in the event of the termination of his
employment pursuant to Section 6 hereof, the Executive's experience and
capabilities are such that the Executive can obtain employment in a business
engaged in other lines and/or of a different nature than the Company, and that
the enforcement of a remedy by way of injunction will not prevent the
Executive from earning a livelihood. Nothing herein will be construed as
prohibiting the Company from pursuing any other remedies available to the
Company for such breach or threatened breach, including the recovery of
damages from the Executive.
(b) The Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Company is a
valuable, special and unique asset of the business of the Company. The
Executive will not, during or after the term of his employment, disclose any
knowledge of the past, present, planned or considered business activities of
the Company or affiliates thereof to any person, firm, corporation, or other
entity for any reason or purpose whatsoever. Notwithstanding the foregoing,
the Executive may disclose any concepts or ideas that are not solely and
exclusively derived from the business plans and activities of the Company. In
the event of a breach or threatened breach by the Executive of the provisions
of this Section 9(b), the Company will be entitled to an injunction
restraining the Executive from disclosing, in whole or in part, the knowledge
of the past, present, planned or considered business activities of the
Company, or from rendering any services to any person, firm, corporation or
other entity to whom such knowledge, in whole or in part, has been disclosed
or is threatened to be disclosed. Nothing herein will be construed as
prohibiting the Company from pursuing any other remedies available to the
Company for such breach or threatened breach, including the recovery of
damages from the Executive.
10. NO ATTACHMENT
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
the Executive and the Company and their respective successors and assigns.
11. MODIFICATION AND WAIVER
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party charged
with such waiver or estoppel. No such written waiver shall be deemed a
continuing waiver unless specifically stated therein, and each such waiver
shall operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future as to any act
other than that specifically waived.
12. SEVERABILITY
If, for any reason, any provision of this Agreement or any part of any
provision, is held invalid, such invalidity shall not affect any other
provision of this Agreement or any part of such provision not so held invalid,
and each such other provision and part thereof shall, to the full extent
consistent with law, continue in full force and effect.
13. HEADINGS FOR REFERENCE ONLY
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation
of any of the provisions of this Agreement.
14. ARBITRATION
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a
panel of three arbitrators sitting in a location selected by the Executive
within fifty (50) miles from the location of the Company's headquarters set
forth in Section 1, in accordance with the rules of the American Arbitration
Association then in effect. One arbitrator shall be selected by the Company;
one arbitrator shall be selected by the Executive; and one arbitrator shall be
selected by the to arbitrators respectively selected by the Company and the
Executive. Judgment may be entered on the arbitrators' award in any court
having jurisdiction, provided, however, that the Executive shall be entitled
to seek specific performance of his right to be paid and receive benefits
until the Date of Termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement.
In the event any dispute or controversy arising under or in connection
with the Executive's termination is resolved in favor of the Executive,
whether by judgment, arbitration or settlement, the Executive shall be
entitled to the payment of all back-pay, including salary, bonuses and any
other cash compensation, fringe benefits and any compensation and benefits due
the Executive under this Agreement.
15. PAYMENT OF LEGAL FEES; DIRECTORS' AND OFFICERS' LIABILITY INSURANCE
(a) All reasonable legal fees and other expenses paid or incurred by the
Executive pursuant to any dispute or question of interpretation relating to
this Agreement shall be paid or reimbursed by the Company if the Executive is
successful pursuant to a legal judgment, arbitration or settlement.
(b) The Company shall maintain a directors' and officers' liability
insurance policy containing such provisions and amounts of coverage that are
usual and customary for companies of size similar to the Company and subject
to risks similar to those to which the Company is subject, provided that such
coverage can be obtained at commercially reasonable rates.
16. SUCCESSOR TO THE COMPANY
The Company shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Company, expressly and
unconditionally, to assume and agree to perform the Company's obligations
under this Agreement, in the same manner and to the same extent that the
Company would be required to perform if no such succession or assignment had
taken place.
17. UNFUNDED AGREEMENT SUBJECT TO CLAIMS OF COMPANY CREDITORS
The Company's obligation under this Agreement will be unfunded and the
Executive will not have any claims or rights superior to those of any general
creditor of the Company.
18. GOVERNING LAW: JURISDICTION
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York without giving effect to any choice of law or
conflict of law provision or rule whether of the State of New York or any
other jurisdictionh that would cause the application hereto of the laws of any
jurisdiction other than the State of New York. Each party agrees to that any
action arising under this Agreement may be brought in the federal or state
courts in the County of New York, State of New York, and each party agrees to
submit to the personal jurisdiction of such courts.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
by its duly authorized officer, and the Executive has signed this
Agreement, on the day first above written.
ANDREA ELECTRONICS CORPORATION
By: /s/ Christopher P. Sauvigne
----------------------------------
Name: Christopher P. Sauvigne
Title: President and Chief Operating Officer
By: /s/ Douglas J. Andrea
----------------------------------
Name: Douglas J. Andrea
Title: Co-Chairman & Co-Chief Executive Officer
By: /s/ John N. Andrea
----------------------------------
Name: John N. Andrea
ANDREA ELECTRONICS CORPORATION
EMPLOYMENT AGREEMENT
This AGREEMENT is made effective as of April 12, 2000 (the "Effective
Date") by and between Andrea Electronics Corporation (the "Company"), a New
York corporation and Douglas J. Andrea (the "Executive").
WHEREAS, the Company wishes to assure itself of the services of the
Executive for the period provided in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of the
Company on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and upon the other terms and conditions hereinafter provided, the
parties hereby agree as follows:
1. DUTIES AND RESPONSIBILITIES
The Executive shall serve as Co-Chairman and Co-Chief Executive
Officer of the Company. Subject to the supervision and direction of the Board
of Directors of the Company (the "Board") and unless otherwise determined by
the Board, the Executive in such capacity shall: be responsible for managing
the affairs of the Corporation; have the powers and duties usually and
customarily associated with the office of the Co-Chairman and Co-Chief
Executive Officer; and have such commensurate responsibilities, duties and
authority as may from time to time be assigned to the Executive by the Board.
The Executive shall devote substantially all his time, energy and skill during
reasonable business hours to the service of the Company. The Executive's
office shall be located at the Company's headquarters, which shall be located
at 45 Melville Park Rd., Melville, New York, 11747.
2. TERM OF AGREEMENT
The Company shall employ the Executive and the Executive shall serve
as a full-time employee of the Company for a term of three (3) years from the
date hereof (such period and any additional periods thereafter in respect of
which this Agreement is extended in accordance herewith being each an
"Employment Period"). Each Employment Period and this Agreement shall be
automatically extended for an additional one (1) year term following the
expiration of such Employment Period, unless either the Company or the
Employee notifies the other in writing at least twelve months prior to such
expiration that the Employment Period and this Agreement shall not be so
extended. Further, if employment is terminated for any reason other than
death, such termination will not result in the expiration of the term of this
Agreement.
3. COMPENSATION DURING TERM OF AGREEMENT
(a) Base Salary
The Company shall pay the Executive a salary (the "Base
Salary") of not less than (i) $200,000 per annum. Base Salary shall include
any amounts of compensation deferred by the Executive under any employee
benefit plan maintained by the Company. Such Base Salary shall be payable
weekly. The Executive's Base Salary shall be reviewed annually. Such review
shall be conducted by a Compensation Committee designated by the Board, and
the Board shall increase the Executive's Base Salary by a Cost of Living
Allowance ("COLA") percentage and a 7% merit increase based on performance as
determined by the Board. The increased Base Salary shall become the "Base
Salary" for purposes of this Agreement. In addition to the Base Salary
provided in this Section 3(a), the Company shall also provide the Executive,
at no cost to the Executive, with all such other benefits as are provided
uniformly to permanent full-time employees of the Company.
(b) Short-Term Incentive Compensation Program
The Executive shall participate in the Company's Short-Term
Incentive Compensation Program. Annual cash awards ("Short-Term Awards") under
this program will be based on the achievement of performance goals, both
corporate (80%) and individual (20%), expressed as a percentage of the
Executive's Base Salary or dollar amount adopted on or after the date of this
Agreement. Performance measures will include sales from new sources and
operating income. Performance goals, measures and annual awards will be
determined by the Compensation Committee and approved by the Board. The
Company will pay the Short-Term Award to the Executive within 60 days
following the last day of the Company's fiscal year. Notwithstanding whether
any such performance goals are achieved, the Short-Term Awards payable to the
Executive shall be not less than $150,000 per annum in respect of each year or
fraction thereof of employment under this Agreement.
(c) Long-Term Incentive Compensation Program
In addition to the Base Salary and Short-Term Award, the
Executive shall be entitled to participate, during the Employment Period, in
the Company's Long-Term Incentive Compensation Program. Long-term cash or
equity-based awards ("Long-Term Awards") may include (i) stock options, (ii)
stock appreciation rights, (iii) restricted stock, (iv) deferred stock, (v)
stock reload options and/or (vi) other stock-based awards. Each equity-based,
Long-Term Award granted to the Executive shall vest as follows: 25% shall vest
on the first anniversary of such award; an additional 25% shall vest on the
second anniversary of such award; and the remaining 50% shall vest on the
third anniversary of such award.
(d) The Company will provide the Executive with employee benefit
plans, arrangements and perquisites substantially equivalent to those in which
the Executive was participating or otherwise deriving benefit from immediately
prior to the beginning of the term of this Agreement, and the Company will
not, without the Executive's prior written consent, make any changes in such
plans, arrangements or perquisites which would adversely affect the
Executive's rights or benefits thereunder. Without limiting the generality of
the foregoing provision of this Section 3(d), the Executive will be entitled
to (i) participate in or receive benefits under any employee benefit plans
including, but not limited to, retirement plans, supplemental retirement
plans, pension plans, profit-sharing plans, health-and-accident plans, medical
coverage or any other employee benefit plan or arrangement made available by
the Company in the future to its senior executives and key management
employees, subject to and on a basis consistent with the terms, conditions and
overall administration of such plans and arrangements, (ii) a car to be leased
and appropriately maintained and insured by the Company, (iii) annual fixed
costs (including dues, capital assessments and the like) not to exceed $6,500
per annum related to membership in a club of the Executive's choice, and (iv)
four weeks of vacation per year, with the right to carry vacation time not
used in any year (excluding vacation time so carried over) to the immediately
subsequent year.
(e) In addition to the Base Salary provided for by Section 3(a) and
other compensation provided for by Sections 3(b), (c) and (d) hereof, the
Company shall pay or reimburse the Executive for all reasonable travel and
other reasonable expenses incurred by the Executive performing his obligations
under this Agreement and may provide such additional compensation in such form
and such amounts as the Board may from time to time determine.
4. TERMINATION OF EMPLOYMENT
(a) Death or Disability:
This Agreement shall terminate automatically upon the
Executive's death. The Company may terminate this Agreement, after having
established the Executive's Disability (pursuant to the definition of
"Disability" set forth below), by giving to the Executive written notice of
its intention to terminate the Executive's employment. In such a case, this
Agreement (but not the Executive's employment with the Company) shall
terminate effective on the 90th day after receipt of such notice (the
"Disability Effective Date"), provided that, within 90 days after such
receipt, the Executive shall fail to return to full-time performance of the
Executive's duties. For purposes of this Agreement, "Disability" means
disability which, after the expiration of more than 52 weeks after its
commencement, is determined to be total and permanent by a physician selected
by the Company or its insurers and acceptable to the Executive or the
Executive's legal representative (such agreement upon acceptability not to be
withheld unreasonably).
(b) Cause:
The Company may terminate the Executive's employment for
Cause (as defined below). For purposes of this Agreement, "Cause" means:
(i) an act or acts of dishonesty (other than insubstantial
or inadvertent acts that do not materially affect the
business, results of operations or financial condition of
the Company) taken by the Executive at the expense of the
Company;
(ii) repeated material violations by the Executive of the
Executive's obligations under Section 1 of this Agreement; or
(iii) the conviction of the Executive of a felony.
(c) Good Reason:
The Executive's employment may be terminated by the
Executive for Good Reason (as defined below). For purposes of this Agreement,
"Good Reason" means:
(i) (A) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position
(including status, offices, titles, and reporting
requirements), authority, duties or responsibilities as
contemplated by Section 1 of this Agreement or (B) any other
action by the Company which results in a diminishment in
such position, authority, duties or responsibilities, other
than an insubstantial and inadvertent action which is
remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 3 of this Agreement, other than an
insubstantial and inadvertent failure which is remedied by
the Company promptly after receipt of notice thereof given
by the Executive;
(iii) the Company's requiring the Executive to be based at
any office or location more than 50 miles from the location
of the Company's headquarters set forth in Section 1, except
for travel reasonably required in the performance of the
Executive's responsibilities;
(iv) any purported termination by the Company of the
Executive's employment other than as permitted by this
Agreement, it being understood that any such purported
termination shall not be effective for any purpose of this
Agreement; or
(v) any failure by the Company to comply with and satisfy
Section 15(a) of this Agreement; or
(vi) failure of the Executive to be nominated for election
to the Board at each meeting of the shareholders of the
Company during the term of this Agreement called for the
purpose of, in addition to any other matters, electing the
members of the Board, unless either the Company or the
Executive in accordance with Section 2 notifies the other in
writing at least twelve months prior to such expiration that
the Employment Period and this Agreement shall not be
extended.
(d) Effect of Termination:
Termination shall not affect any rights that the Executive
may have under any other program or arrangement.
5. OBLIGATIONS OF THE COMPANY UPON TERMINATION
(a) Death
If the Executive's employment is terminated by reason of the
Executive's death, this Agreement shall terminate without further obligations
to the Executive's legal representatives under this Agreement other than those
obligations accrued hereunder at the date of the Executive's death. Anything
in this Agreement to the contrary notwithstanding, the Executive's family
shall be entitled to receive benefits at least equal to those provided by the
Company to surviving families of executives of the Company under such plans,
programs and policies relating to family death benefits, if any, as in effect
at any time during the 90-day period immediately preceding the date of the
Executive's death, or if more favorable to the Executive and/or the
Executive's family, as in effect at any time thereafter with respect to other
key executives and their families. The unvested portion of such stock options
shall immediately become vested upon the Executive's death.
(b) Disability
If this Agreement is terminated by reason of the Executive's
Disability, the Executive shall be entitled after the Disability Effective
Date to receive disability and other benefits at least equal to those provided
by the Company to disabled employees and/or their families in accordance with
such plans, programs and policies relating to disability, if any, as in effect
during the 90-day period immediately preceding the Disability Effective Date
or, if more favorable to the Executive and/or the Executive's family, as in
effect at any time thereafter with respect to other key executives and their
families. The unvested portion of such stock options shall immediately become
vested upon the Executive's disability.
(c) Cause
If the Executive's employment shall be terminated for Cause
pursuant to Section 4(b), the Company shall pay the Executive his full Base
Salary through the Date of Termination (as defined below) at the rate in
effect at the time Notice of Termination (as defined below) is given and
provide to the Executive all then vested benefits, deferred compensation and
the like due to the Executive under this Agreement, and the Company shall have
no further obligations to the Executive under this Agreement. In addition, the
Executive shall be afforded the opportunity to convert any term policies
insuring the Executive's health or life that are owned by the Company to
individual policies, where permitted by the terms of such policies.
(d) Good Reason; Other Than for Cause
If, during the Employment Period, the Company shall
terminate the Executive's employment other than for Cause, or the employment
of the Executive shall be terminated by the Executive for Good Reason, the
Company shall pay to the Executive a sum equal to (i) the amount of the
remaining salary payments that the Executive would have earned if he continued
his employment with the Company during the remaining unexpired term of this
Agreement at the Executive's Base Salary at the Date of Termination; (ii) an
amount equal to the product of the highest annual amount of bonus and any
other compensation paid to the Executive during the term of this Agreement
multiplied by the remaining number of years of this Agreement and any fraction
thereof; and (iii) an amount equal to the product of the highest annual amount
of contributions that were made on the Executive's behalf to any employee
benefit plans of the Company during the term of this Agreement times the
remaining number of years of this Agreement and any fraction thereof. At the
election of the Executive, which election is to be made within thirty (30)
days of the Date of Termination, such payments shall be paid monthly during
the remaining term of this Agreement following the Executive's termination.
Such payments shall not be reduced in the event the Executive obtains other
employment following termination of employment.
The Company will continue life, medical, dental and
disability coverage substantially identical to the coverage maintained by the
Company for the Executive prior to his termination, except to the extent such
coverage may be changed in its application to all Company employees on a
nondiscriminatory basis. Such coverage shall cease upon the expiration of the
remaining term of this Agreement.
The Executive will be entitled to receive benefits due him
under or contributed by the Company on his behalf pursuant to any retirement,
incentive, profit sharing, bonus, performance, disability or other employee
benefit plan maintained by the Company on the Executive's behalf to the extent
such benefits are not otherwise paid to the Executive under a separate
provision of this Agreement.
6. CHANGE IN CONTROL
(a) For purposes hereof, a "change in control" shall be defined
as:
(i) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange
Act")) (a "Person") of beneficial ownership (within the
meaning of Rule 13D-3 promulgated under the Exchange Act) of
20% or more of either (A) the then outstanding shares of
common stock of the Company (the "Outstanding Company Common
Stock") or (B) the combined voting power of the then
outstanding voting securities of the Company entitled to
vote generally in the election of Directors (the
"Outstanding Company Voting Securities"); provided, however,
that for purposes of this subsection (i), the following
acquisitions shall not constitute a Change of Control: (1)
any acquisition directly from the Company, (2) any
acquisition by the Company, (3) any acquisition by any
employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by
the Company or (4) any acquisition by any corporation
pursuant to a transaction which complies with clauses (A),
(B) and (C) of subsection (iii) below; or
(ii) Individuals who, as of the date hereof, constitute the
Board of Directors of the Company (the "Incumbent Board")
cease for any reason to constitute at least a majority of
the Incumbent Board, provided, however, that any individual
becoming a director subsequent to the date hereof whose
election or nomination for election by the Company's
shareholders was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board, shall
be considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with
respect to the election or removal of directors or other
actual or threatened solicitation of proxies or consents by
or on behalf of a Person other than the Incumbent Board; or
(iii) Consummation of a reorganization, merger,
consolidation or sale or other disposition of all or
substantially all of the assets of the Company (a "Business
Combination"), in each case, unless, following such Business
Combination, (A) all or substantially all of the individuals
and entities who were the beneficial owners of the
Outstanding Company Common Stock and Outstanding Company
Voting Securities, respectively, immediately prior to such
Business Combination beneficially own, directly or
indirectly, more than 60% of the then outstanding shares of
common stock and the combined voting power, respectively, of
the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be,
of the corporation resulting from such Business Combination
(including, without limitation, a corporation which as a
result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or
through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such
Business Combination of the Outstanding Company Common Stock
and Outstanding Company Voting Securities, as the case may
be, (B) no Person (excluding any employee benefit plan (or
related trust) of the Company or such corporation resulting
from such Business Combination) beneficially owns, directly
or indirectly, 20% or more of, respectively, the then
outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined
voting power of the then outstanding voting securities of
such corporation except to the extent that such ownership
existed prior to the Business Combination, and (C) at least
a majority of the members of the board of directors of the
corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution
of the initial agreement, or of the action of the Incumbent
Board, providing for such Business Combination; or
(iv) approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company.
(b) Upon the occurrence of a Change in Control, the Company shall pay
the Executive, or in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, a sum equal to the greater
of (i) the payments and benefits due for the remaining term of this Agreement
and (ii) five (5) times the Executive's average annual compensation from the
Company for the five (5) preceding taxable years, or if the Executive's
employment by the Company is then less than five (5) years, the Executive's
average annual compensation from the Company during the Executive's employment
by the Company, provided, that if such period of employment includes a short
taxable year or less than all of a taxable year, compensation for such short
or incomplete taxable year must be annualized before determining the average
annual compensation for the period of employment. In annualizing compensation,
the frequency with which payments are expected to be made over an annual
period must be taken into account, such that any amount of compensation for
such a short or incomplete taxable year that represents a payment that will
not be made more often that once per year is not annualized. Such annual
compensation shall include any commissions, bonuses, pension and profit
sharing plan benefits, severance payments, retirement benefits, director or
committee fees and fringe benefits paid or to be paid to the Executive during
such years. At the election of the Executive, which election is to be made
within thirty (30) days of the Change in Control, such payment may be made in
a lump sum or paid in equal monthly installments during the thirty-six (36)
months following the Executive's termination. In the event that no election is
made, payment to the Executive will be made on a monthly basis during the
thirty-six (36) months following the Executive's termination.
(c) All restrictions on the restricted stock then held by the
Executive will lapse immediately, all stock options and stock appreciation
rights then held by the Executive will become immediately exercisable, and any
performance shares or units then held by the Executive will vest immediately,
in full, in the event of a Change in Control.
(d) Upon the occurrence of a Change in Control, the Executive will be
entitled to receive benefits due him under or contributed by the Company on
his behalf pursuant to any retirement, incentive, profit sharing, bonus,
performance, disability or other employee benefit plan maintained by the
Company on the Executive's behalf to the extent such benefits are not
otherwise paid to the Executive under a separate provision of this Agreement.
(e) Upon the occurrence of a Change in Control followed by the
Executive's termination of employment, the Company will cause to be continued
life, medical, dental and disability coverage substantially identical to the
coverage maintained by the Company for the Executive prior to his severance,
except to the extent that such coverage may be changed in its application for
all Company employees on a nondiscriminatory basis. Such coverage and payments
shall cease upon the expiration of thirty-six (36) full calendar months
following the Date of Termination.
(f) In the event that the Executive is receiving monthly payments
pursuant to Section 6(b) hereof, on an annual basis, thereafter, between the
dates of January 1 and January 31 of each year, the Executive shall elect
whether the balance of the amount payable under the Agreement at that time
shall be paid in a lump sum or on a pro rata basis pursuant to such section.
Such election shall be irrevocable for the year for which such election is
made.
(g) Any and all payments to be made to the Executive under this
Agreement or otherwise as a result of a Change in Control whether in the
nature of severance payments, liquidated damage payments, compensation or
other payments (all of the foregoing being hereinafter referred to as "Change
in Control Payments"), shall be made free and clear of, and without deduction
or withholding for or on account of, any tax which may be payable under
Section 4999 of the Internal Revenue Code of 1986 (the "Code"), now or
hereafter imposed, levied, withheld or assessed (such amounts being
hereinafter referred to as the "Excise Taxes"). If, notwithstanding the
foregoing provision, any Excise Taxes are withheld from any Change in Control
Payments made or to be made to the Executive, the amounts so payable to the
Executive shall be increased to the extent necessary to yield to the Executive
(after payment of any tax which may be payable under Section 4999 of the Code)
the full amount which he is entitled to receive pursuant to the terms of this
Agreement or otherwise without regard to liability for any Excise Taxes and
any other Federal income taxes, State income taxes, FICA/Medicare and
unemployment taxes thereon. In the event any Excise Taxes are now or hereafter
imposed, levied, assessed, paid or collected with respect to the Change of
Control Payments made or to be made to the Executive, Excise Taxes and any
other Federal, State, FICA/Medicare and unemployment taxes thereon shall be
paid by the Company or, if paid by the Executive, shall be reimbursed to the
Executive by the Company upon its receipt of satisfactory evidence of such
payment having been made.
7. NOTICE
(a) Any purported termination by the Company or by the Executive
shall be communicated by Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice
of Termination (which, in the case of a termination for Cause, shall not be
less than thirty (30) days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other party
that a dispute exists concerning the termination, the Date of Termination
shall be the date on which the dispute is finally determined, either by mutual
written agreement of the parties, by a binding arbitration award or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Company will continue to
pay the Executive his full compensation in effect when the notice giving rise
to the dispute was given (including, but not limited to, Base Salary) and
continue him as a participant in all compensation, benefit and insurance plans
in which he was participating when the notice of dispute was given, until the
dispute is finally resolved in accordance with this Agreement. Amounts paid
under this Section are in addition to all other amounts due under this
Agreement and shall not be offset against or reduce any other amounts due
under this Agreement.
8. POST-TERMINATION OBLIGATIONS
(a) All payments and benefits to the Executive under this Agreement
shall be subject to the Executive's compliance with Section 8(b), hereof
during the term of this Agreement and for one (1) full year after the
expiration or termination hereof.
(b) Following the expiration or termination of this Agreement, the
Executive shall, upon reasonable notice, furnish such information and
assistance to the Company as may reasonably be required by the Company in
connection with any litigation in which it or any of its subsidiaries or
affiliates is, or may become, a party; provided, that, if the Executive's
assistance is so required by the Company subsequent to the expiration or
termination of this Agreement, then the Company shall pay to the Executive for
such assistance a fee of $300 per hour plus reasonable and necessary travel
costs related to the provision of such assistance; and provided, however, that
Executive would not be required to furnish such information and assistance to
the Company in connection with any litigation between the Executive and the
Company or any of its subsidiaries or affiliates.
9. NON-COMPETITION
(a) Upon any termination of the Executive's employment hereunder
pursuant to Section 6 hereof, the Executive agrees not to compete with the
Company for a period of one (1) year following such termination in any city,
town or county in which the Company has an office or has filed an application
for regulatory approval to establish an office, determined as of the effective
date of such termination, except as agreed to pursuant to a resolution duly
adopted by the Board. The Executive agrees that during such period and within
said cities, towns and counties, the Executive shall not work for or advise,
consult or otherwise serve with, directly or indirectly, any entity whose
business materially competes with the business activities of the Company. The
parties hereto, recognizing that irreparable injury will result to the
Company, its business and property in the event of the Executive's breach of
this Section 9(a) agree that in the event of any such breach, as judicially
determined, by the Executive, the Company will be entitled, in addition to any
other remedies and damages available, to an injunction to restrain the
violation hereof by the Executive, the Executive's partners, agents, servants,
employers, employees and all persons acting for or with the Executive. The
Executive represents and admits that in the event of the termination of his
employment pursuant to Section 6 hereof, the Executive's experience and
capabilities are such that the Executive can obtain employment in a business
engaged in other lines and/or of a different nature than the Company, and that
the enforcement of a remedy by way of injunction will not prevent the
Executive from earning a livelihood. Nothing herein will be construed as
prohibiting the Company from pursuing any other remedies available to the
Company for such breach or threatened breach, including the recovery of
damages from the Executive.
(b) The Executive recognizes and acknowledges that the knowledge of
the business activities and plans for business activities of the Company is a
valuable, special and unique asset of the business of the Company. The
Executive will not, during or after the term of his employment, disclose any
knowledge of the past, present, planned or considered business activities of
the Company or affiliates thereof to any person, firm, corporation, or other
entity for any reason or purpose whatsoever. Notwithstanding the foregoing,
the Executive may disclose any concepts or ideas that are not solely and
exclusively derived from the business plans and activities of the Company. In
the event of a breach or threatened breach by the Executive of the provisions
of this Section 9(b), the Company will be entitled to an injunction
restraining the Executive from disclosing, in whole or in part, the knowledge
of the past, present, planned or considered business activities of the
Company, or from rendering any services to any person, firm, corporation or
other entity to whom such knowledge, in whole or in part, has been disclosed
or is threatened to be disclosed. Nothing herein will be construed as
prohibiting the Company from pursuing any other remedies available to the
Company for such breach or threatened breach, including the recovery of
damages from the Executive.
10. NO ATTACHMENT
(a) Except as required by law, no right to receive payments under
this Agreement shall be subject to anticipation, commutation, alienation,
sale, assignment, encumbrance, charge, pledge, or hypothecation, or to
execution, attachment, levy or similar process or assignment by operation of
law, and any attempt, voluntary or involuntary, to affect any such action
shall be null, void and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit
of, the Executive and the Company and their respective successors and assigns.
11. MODIFICATION AND WAIVER
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have
been waived, nor shall there be any estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party charged
with such waiver or estoppel. No such written waiver shall be deemed a
continuing waiver unless specifically stated therein, and each such waiver
shall operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future as to any act
other than that specifically waived.
12. SEVERABILITY
If, for any reason, any provision of this Agreement or any part of
any provision, is held invalid, such invalidity shall not affect any other
provision of this Agreement or any part of such provision not so held invalid,
and each such other provision and part thereof shall, to the full extent
consistent with law, continue in full force and effect.
13. HEADINGS FOR REFERENCE ONLY
The headings of sections and paragraphs herein are included solely
for convenience of reference and shall not control the meaning or
interpretation of any of the provisions of this Agreement.
14. ARBITRATION
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a
panel of three arbitrators sitting in a location selected by the Executive
within fifty (50) miles from the location of the Company's headquarters set
forth in Section 1, in accordance with the rules of the American Arbitration
Association then in effect. One arbitrator shall be selected by the Company;
one arbitrator shall be selected by the Executive; and one arbitrator shall be
selected by the to arbitrators respectively selected by the Company and the
Executive. Judgment may be entered on the arbitrators' award in any court
having jurisdiction, provided, however, that the Executive shall be entitled
to seek specific performance of his right to be paid and receive benefits
until the Date of Termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement.
In the event any dispute or controversy arising under or in
connection with the Executive's termination is resolved in favor of the
Executive, whether by judgment, arbitration or settlement, the Executive shall
be entitled to the payment of all back-pay, including salary, bonuses and any
other cash compensation, fringe benefits and any compensation and benefits due
the Executive under this Agreement.
15. PAYMENT OF LEGAL FEES; DIRECTORS' AND OFFICERS' LIABILITY INSURANCE
(a) All reasonable legal fees and other expenses paid or incurred
by the Executive pursuant to any dispute or question of interpretation
relating to this Agreement shall be paid or reimbursed by the Company if the
Executive is successful pursuant to a legal judgment, arbitration or
settlement.
(b) The Company shall maintain a directors' and officers' liability
insurance policy containing such provisions and amounts of coverage that are
usual and customary for companies of size similar to the Company and subject
to risks similar to those to which the Company is subject, provided that such
coverage can be obtained at commercially reasonable rates.
16. SUCCESSOR TO THE COMPANY
The Company shall require any successor or assignee, whether direct
or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Company, expressly and
unconditionally, to assume and agree to perform the Company's obligations
under this Agreement, in the same manner and to the same extent that the
Company would be required to perform if no such succession or assignment had
taken place.
17. UNFUNDED AGREEMENT SUBJECT TO CLAIMS OF COMPANY CREDITORS
The Company's obligation under this Agreement will be unfunded and
the Executive will not have any claims or rights superior to those of any
general creditor of the Company.
18. GOVERNING LAW: JURISDICTION
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York without giving effect to any choice of law
or conflict of law provision or rule whether of the State of New York or any
other jurisdictionh that would cause the application hereto of the laws of any
jurisdiction other than the State of New York. Each party agrees to that any
action arising under this Agreement may be brought in the federal or state
courts in the County of New York, State of New York, and each party agrees to
submit to the personal jurisdiction of such courts.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer, and the Executive has signed
this Agreement, on the day first above written.
ANDREA ELECTRONICS CORPORATION
By:/s/ Christopher P. Sauvigne
----------------------------------------------
Name: Christopher P. Sauvigne
Title: President and Chief Operating Officer
By:/s/ John N. Andrea
--------------------------------------------
Name: John N. Andrea
Title: Co-Chairman & Co-Chief Executive Officer
By:/s/ Douglas J. Andrea
--------------------------------------------
Name: Douglas J. Andrea
ANDREA ELECTRONICS CORPORATION
EMPLOYMENT AGREEMENT
This AGREEMENT is made effective as of March 26, 2000 (the "Effective
Date") by and between Andrea Electronics Corporation (the "Company"), a New
York corporation and Richard A. Maue (the "Executive").
WHEREAS, the Company wishes to assure itself of the services of the
Executive for the period provided in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of the Company
on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and upon the other terms and conditions hereinafter provided, the
parties hereby agree as follows:
1. DUTIES AND RESPONSIBILITIES
The Executive shall serve as Senior Vice President, Chief Financial
Officer and Corporate Secretary of the Company. Subject to the supervision and
direction of President and Chief Operating Officer and the Chief Executive
Officer or Co-Chief Executive Officers, as the case may be, of the Company,
the Executive in such capacity shall be responsible for the Company's
worldwide finance, accounting and treasury activities, risk management, and
contracts administration. The Executive shall devote substantially all his
time, energy and skill during reasonable business hours to the service of the
Company. The Executive's office shall be located at the Company's
headquarters, which shall be located at 45 Melville Park Rd., Melville, New
York, 11747.
2. TERM OF AGREEMENT
The Company shall employ the Executive and the Executive shall serve as a
full-time employee of the Company for a term beginning on the effective date
of this Agreement and ending on March 26, 2002 (such period, as may be
extended in accordance herewith, being the "Employment Period"). The
Employment Period and this Agreement shall be automatically extended for
successive one (1) year terms following the expiration date of the Employment
Period in effect immediately prior to each such extension, unless either the
Company or the Employee notifies the other in writing at least thirty (30)
days prior to such expiration that the Employment Period and this Agreement
shall not be so extended. Further, if employment is terminated for any reason
other than death, such termination will not result in the expiration of the
term of this Agreement.
3. COMPENSATION DURING TERM OF AGREEMENT
(a) Base Salary
The Company shall pay the Executive a salary (the "Base Salary") of
not less than $150,000 per annum. Base Salary shall include any amounts of
compensation deferred by the Executive under any employee benefit plan
maintained by the Company. Such Base Salary shall be payable weekly. The
Executive's Base Salary shall be reviewed annually. Such review shall be
conducted by the President and Chief Operating Officer and/or the Chief
Executive Officer or Co-Chief Executive Officers, as the case may be, of the
Company. Any increased Base Salary shall become the "Base Salary" for purposes
of this Agreement. In addition to the Base Salary provided in this Section
3(a), the Company shall also provide the Executive, at no cost to the
Executive, with all such other benefits as are provided uniformly to permanent
full-time employees of the Company.
(b) Short-Term Incentive Compensation Program
The Executive shall participate in the Company's Short-Term
Incentive Compensation Program. Annual cash awards ("Short-Term Awards") under
this program will be based on the achievement of performance goals, both
corporate (70%) and individual (30%), expressed as a percentage of the
Executive's Base Salary or dollar amount adopted on or after the date of this
Agreement. Performance measures will include sales from new sources, operating
efficiencies and operating income. Performance goals, measures and annual
awards will be determined by the President and Chief Operating Officer and/or
the Chief Executive Officer or Co-Chief Executive Officers, as the case may
be, of the Company. The Company will pay the Short-Term Award to the Executive
within 60 days following the last day of the Company's fiscal year.
Notwithstanding whether any such performance goals are achieved, the
Short-Term Awards payable to the Executive shall be not less than $25,000 per
annum in respect of each year or fraction thereof of employment under this
Agreement.
(c) Long-Term Incentive Compensation Program
In addition to the Base Salary and Short-Term Award, the Executive
shall be entitled to participate, during the Employment Period, in the
Company's Long-Term Incentive Compensation Program. Long-term cash or
equity-based awards ("Long-Term Awards") may include (i) stock options, (ii)
stock appreciation rights, (iii) restricted stock, (iv) deferred stock, (v)
stock reload options and/or (vi) other stock-based awards. Each equity-based,
Long-Term Award granted to the Executive shall vest as follows: 25% shall vest
on the first anniversary of such award; an additional 25% shall vest on the
second anniversary of such award; and the remaining 50% shall vest on the
third anniversary of such award.
(d) The Company will provide the Executive with employee benefit plans,
arrangements and perquisites substantially equivalent to those in which one or
more other senior vice presidents participating or otherwise deriving benefit
from immediately prior to the beginning of the term of this Agreement, and the
Company will not, without the Executive's prior written consent, make any
changes in such plans, arrangements or perquisites which would adversely
affect the Executive's rights or benefits thereunder. Without limiting the
generality of the foregoing provision of this Section 3(d), the Executive will
be entitled to (i) participate in or receive benefits under any employee
benefit plans including, but not limited to, retirement plans, supplemental
retirement plans, pension plans, profit-sharing plans, health-and-accident
plans, medical coverage or any other employee benefit plan or arrangement made
available by the Company in the future to its senior executives and key
management employees, subject to and on a basis consistent with the terms,
conditions and overall administration of such plans and arrangements, (ii) a
car to be leased appropriately insured by the Company, or a car allowance, and
(iii) four weeks of vacation per year, with the right to carry vacation time
not used in any year (excluding vacation time so carried over) to the
immediately subsequent year.
(e) In addition to the Base Salary provided for by Section 3(a) and
other compensation provided for by Sections 3(b), (c) and (d) hereof, the
Company shall pay or reimburse the Executive for all reasonable travel and
other reasonable expenses incurred by the Executive performing his obligations
under this Agreement and may provide such additional compensation in such form
and such amounts as the President and Chief Operating Officer and/or the Chief
Executive Officer or Co-Chief Executive Officers, as the case may be, of the
Company may from time to time determine.
4. TERMINATION OF EMPLOYMENT
(a) Death or Disability:
This Agreement shall terminate automatically upon the Executive's
death. The Company may terminate this Agreement, after having established the
Executive's Disability (pursuant to the definition of "Disability" set forth
below), by giving to the Executive written notice of its intention to
terminate the Executive's employment. In such a case, this Agreement (but not
the Executive's employment with the Company) shall terminate effective on the
90th day after receipt of such notice (the "Disability Effective Date"),
provided that, within 90 days after such receipt, the Executive shall fail to
return to full-time performance of the Executive's duties. For purposes of
this Agreement, "Disability" means disability which, after the expiration of
more than 52 weeks after its commencement, is determined to be total and
permanent by a physician selected by the Company or its insurers and
acceptable to the Executive or the Executive's legal representative (such
agreement upon acceptability not to be withheld unreasonably).
(b) Cause:
The Company may terminate the Executive's employment for Cause (as
defined below). For purposes of this Agreement, "Cause" means:
(i) an act or acts of dishonesty (other than insubstantial or
inadvertent acts that do not materially affect the business, results
of operations or financial condition of the Company) taken by the
Executive at the expense of the Company;
(ii) repeated material violations by the Executive of the
Executive's obligations under Section 1 of this Agreement; or
(iii) the conviction of the Executive of a felony.
(c) Good Reason:
The Executive's employment may be terminated by the Executive for
Good Reason (as defined below). For purposes of this Agreement, "Good Reason"
means:
(i) (A) the assignment to the Executive of any duties inconsistent
in any respect with the Executive's position (including status,
offices, titles, and reporting requirements), authority, duties or
responsibilities as contemplated by Section 1 of this Agreement or
(B) any other action by the Company which results in a diminishment
in such position, authority, duties or responsibilities, other than
an insubstantial and inadvertent action which is remedied by the
Company promptly after receipt of notice thereof given by the
Executive;
(ii) any failure by the Company to comply with any of the provisions
of Section 3 of this Agreement, other than an insubstantial and
inadvertent failure which is remedied by the Company promptly after
receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any
office or location more than 50 miles from the location of the
Company's headquarters set forth in Section 1, except for travel
reasonably required in the performance of the Executive's
responsibilities;
(iv) any purported termination by the Company of the Executive's
employment other than as permitted by this Agreement, it being
understood that any such purported termination shall not be
effective for any purpose of this Agreement; or
(v) any failure by the Company to comply with and satisfy Section
15(a) of this Agreement.
(d) Effect of Termination:
Termination shall not affect any rights that the Executive may have
under any other program or arrangement.
5. OBLIGATIONS OF THE COMPANY UPON TERMINATION
(a) Death
If the Executive's employment is terminated by reason of the
Executive's death, this Agreement shall terminate without further obligations
to the Executive's legal representatives under this Agreement other than those
obligations accrued hereunder at the date of the Executive's death. Anything
in this Agreement to the contrary notwithstanding, the Executive's family
shall be entitled to receive benefits at least equal to those provided by the
Company to surviving families of executives of the Company under such plans,
programs and policies relating to family death benefits, if any, as in effect
at any time during the 90-day period immediately preceding the date of the
Executive's death, or if more favorable to the Executive and/or the
Executive's family, as in effect at any time thereafter with respect to other
key executives and their families. The unvested portion of such stock options
shall immediately become vested upon the Executive's death.
(b) Disability
If this Agreement is terminated by reason of the Executive's
Disability, the Executive shall be entitled after the Disability Effective
Date to receive disability and other benefits at least equal to those provided
by the Company to disabled employees and/or their families in accordance with
such plans, programs and policies relating to disability, if any, as in effect
during the 90-day period immediately preceding the Disability Effective Date
or, if more favorable to the Executive and/or the Executive's family, as in
effect at any time thereafter with respect to other key executives and their
families. The unvested portion of such stock options shall immediately become
vested upon the Executive's Disability.
(c) Cause
If the Executive's employment shall be terminated for Cause pursuant
to Section 4(b), the Company shall pay the Executive his full Base Salary
through the Date of Termination (as defined below) at the rate in effect at
the time Notice of Termination (as defined below) is given and provide to the
Executive all then vested benefits, deferred compensation and the like due to
the Executive under this Agreement, and the Company shall have no further
obligations to the Executive under this Agreement. In addition, the Executive
shall be afforded the opportunity to convert any term policies insuring the
Executive's health or life that are owned by the Company to individual
policies, where permitted by the terms of such policies.
(d) Good Reason; Other Than for Cause
If, during the Employment Period, the Company shall terminate the
Executive's employment other than for Cause, or the employment of the
Executive shall be terminated by the Executive for Good Reason, the Company
shall pay to the Executive a sum equal to (i) the amount of the remaining
salary payments that the Executive would have earned if he continued his
employment with the Company during the remaining unexpired term of this
Agreement at the Executive's Base Salary at the Date of Termination; (ii) an
amount equal to the product of the highest annual amount of bonus and any
other compensation paid to the Executive during the term of this Agreement
multiplied by the remaining number of years of this Agreement and any fraction
thereof; and (iii) an amount equal to the product of the highest annual amount
of contributions that were made on the Executive's behalf to any employee
benefit plans of the Company during the term of this Agreement times the
remaining number of years of this Agreement and any fraction thereof. At the
election of the Executive, which election is to be made within thirty (30)
days of the Date of Termination, such payments shall be paid monthly during
the remaining term of this Agreement following the Executive's termination.
Such payments shall not be reduced in the event the Executive obtains other
employment following termination of employment.
The Company will continue life, medical, dental and disability
coverage substantially identical to the coverage maintained by the Company for
the Executive prior to his termination, except to the extent such coverage may
be changed in its application to all Company employees on a nondiscriminatory
basis. Such coverage shall cease upon the expiration of the remaining term of
this Agreement.
The Executive will be entitled to receive benefits due him under or
contributed by the Company on his behalf pursuant to any retirement,
incentive, profit sharing, bonus, performance, disability or other employee
benefit plan maintained by the Company on the Executive's behalf to the extent
such benefits are not otherwise paid to the Executive under a separate
provision of this Agreement.
6. CHANGE IN CONTROL
(a) For purposes hereof, a "change in control" shall be defined as:
(i) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) (a "Person") of
beneficial ownership (within the meaning of Rule 13D-3 promulgated
under the Exchange Act) of 20% or more of either (A) the then
outstanding shares of common stock of the Company (the "Outstanding
Company Common Stock") or (B) the combined voting power of the then
outstanding voting securities of the Company entitled to vote
generally in the election of Directors (the "Outstanding Company
Voting Securities"); provided, however, that for purposes of this
subsection (i), the following acquisitions shall not constitute a
Change of Control: (1) any acquisition directly from the Company,
(2) any acquisition by the Company, (3) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by
the Company or any corporation controlled by the Company or (4) any
acquisition by any corporation pursuant to a transaction which
complies with clauses (A), (B) and (C) of subsection (iii) below; or
(ii) Individuals who, as of the date hereof, constitute the Board of
Directors of the Company (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Incumbent Board,
provided, however, that any individual becoming a director
subsequent to the date hereof whose election or nomination for
election by the Company's shareholders was approved by a vote of at
least a majority of the directors then comprising the Incumbent
Board, shall be considered as though such individual were a member
of the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of
an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person
other than the Incumbent Board; or
(iii) Consummation of a reorganization, merger, consolidation or
sale or other disposition of all or substantially all of the assets
of the Company (a "Business Combination"), in each case, unless,
following such Business Combination, (A) all or substantially all of
the individuals and entities who were the beneficial owners of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities, respectively, immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 60%
of the then outstanding shares of common stock and the combined
voting power, respectively, of the then outstanding voting
securities entitled to vote generally in the election of directors,
as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a
result of such transaction owns the Company or all or substantially
all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be, (B) no Person (excluding any
employee benefit plan (or related trust) of the Company or such
corporation resulting from such Business Combination) beneficially
owns, directly or indirectly, 20% or more of, respectively, the then
outstanding shares of common stock of the corporation resulting from
such Business Combination or the combined voting power of the then
outstanding voting securities of such corporation except to the
extent that such ownership existed prior to the Business
Combination, and (C) at least a majority of the members of the board
of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the
Incumbent Board, providing for such Business Combination; or
(iv) approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
(b) Upon the occurrence of a Change in Control, the Company shall pay the
Executive, or in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, a sum equal to the greater
of (i) the payments and benefits due for the remaining term of this Agreement
and (ii) three (3) times the Executive's average annual compensation from the
Company for the three (3) preceding taxable years. In annualizing
compensation, the frequency with which payments are expected to be made over
an annual period must be taken into account, such that any amount of
compensation for such a short or incomplete taxable year that represents a
payment that will not be made more often than once per year is not annualized.
Such annual compensation shall include any commissions, bonuses, pension and
profit sharing plan benefits, severance payments, retirement benefits,
director or committee fees and fringe benefits paid or to be paid to the
Executive during such years. At the election of the Executive, which election
is to be made within thirty (30) days of the Change in Control, such payment
may be made in a lump sum or paid in equal monthly installments during the
thirty-six (36) months following the Executive's termination. In the event
that no election is made, payment to the Executive will be made on a monthly
basis during the thirty-six (36) months following the Executive's termination.
(c) All restrictions on the restricted stock then held by the Executive
will lapse immediately, all stock options and stock appreciation rights then
held by the Executive will become immediately exercisable, and any performance
shares or units then held by the Executive will vest immediately, in full, in
the event of a Change in Control.
(d) Upon the occurrence of a Change in Control, the Executive will be
entitled to receive benefits due him under or contributed by the Company on
his behalf pursuant to any retirement, incentive, profit sharing, bonus,
performance, disability or other employee benefit plan maintained by the
Company on the Executive's behalf to the extent such benefits are not
otherwise paid to the Executive under a separate provision of this Agreement.
(e) Upon the occurrence of a Change in Control followed by the
Executive's termination of employment, the Company will cause to be continued
life, medical, dental and disability coverage substantially identical to the
coverage maintained by the Company for the Executive prior to his severance,
except to the extent that such coverage may be changed in its application for
all Company employees on a nondiscriminatory basis. Such coverage and payments
shall cease upon the expiration of thirty-six (36) full calendar months
following the Date of Termination.
(f) In the event that the Executive is receiving monthly payments
pursuant to Section 6(b) hereof, on an annual basis, thereafter, between the
dates of January 1 and January 31 of each year, the Executive shall elect
whether the balance of the amount payable under the Agreement at that time
shall be paid in a lump sum or on a pro rata basis pursuant to such section.
Such election shall be irrevocable for the year for which such election is
made.
(g) Any and all payments to be made to the Executive under this Agreement
or otherwise as a result of a Change in Control whether in the nature of
severance payments, liquidated damage payments, compensation or other payments
(all of the foregoing being hereinafter referred to as "Change in Control
Payments"), shall be made free and clear of, and without deduction or
withholding for or on account of, any tax which may be payable under Section
4999 of the Internal Revenue Code of 1986 (the "Code"), now or hereafter
imposed, levied, withheld or assessed (such amounts being hereinafter referred
to as the "Excise Taxes"). If, notwithstanding the foregoing provision, any
Excise Taxes are withheld from any Change in Control Payments made or to be
made to the Executive, the amounts so payable to the Executive shall be
increased to the extent necessary to yield to the Executive (after payment of
any tax which may be payable under Section 4999 of the Code) the full amount
which he is entitled to receive pursuant to the terms of this Agreement or
otherwise without regard to liability for any Excise Taxes and any other
Federal income taxes, State income taxes, FICA/Medicare and unemployment taxes
thereon. In the event any Excise Taxes are now or hereafter imposed, levied,
assessed, paid or collected with respect to the Change of Control Payments
made or to be made to the Executive, Excise Taxes and any other Federal,
State, FICA/Medicare and unemployment taxes thereon shall be paid by the
Company or, if paid by the Executive, shall be reimbursed to the Executive by
the Company upon its receipt of satisfactory evidence of such payment having
been made.
7. NOTICE
(a) Any purported termination by the Company or by the Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes
of this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied
upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be
the date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Company will continue to
pay the Executive his full compensation in effect when the notice giving rise
to the dispute was given (including, but not limited to, Base Salary) and
continue him as a participant in all compensation, benefit and insurance plans
in which he was participating when the notice of dispute was given, until the
dispute is finally resolved in accordance with this Agreement. Amounts paid
under this Section are in addition to all other amounts due under this
Agreement and shall not be offset against or reduce any other amounts due
under this Agreement.
8. POST-TERMINATION OBLIGATIONS
(a) All payments and benefits to the Executive under this Agreement shall
be subject to the Executive's compliance with Section 8(b), hereof during the
term of this Agreement and for one (1) full year after the expiration or
termination hereof.
(b) Following the expiration or termination of this Agreement, the
Executive shall, upon reasonable notice, furnish such information and
assistance to the Company as may reasonably be required by the Company in
connection with any litigation in which it or any of its subsidiaries or
affiliates is, or may become, a party; provided, that, if the Executive's
assistance is so required by the Company subsequent to the expiration or
termination of this Agreement, then the Company shall pay to the Executive for
such assistance a fee of $300 per hour plus reasonable and necessary travel
costs related to the provision of such assistance; and provided, however, that
Executive would not be required to furnish such information and assistance to
the Company in connection with any litigation between the Executive and the
Company or any of its subsidiaries or affiliates.
9. NON-COMPETITION
(a) Upon any termination of the Executive's employment hereunder pursuant
to Section 6 hereof, the Executive agrees not to compete with the Company for
a period of one (1) year following such termination in any city, town or
county in which the Company has an office or has filed an application for
regulatory approval to establish an office, determined as of the effective
date of such termination, except as agreed to pursuant to a resolution duly
adopted by the Board. The Executive agrees that during such period and within
said cities, towns and counties, the Executive shall not work for or advise,
consult or otherwise serve with, directly or indirectly, any entity whose
business materially competes with the business activities of the Company. The
parties hereto, recognizing that irreparable injury will result to the
Company, its business and property in the event of the Executive's breach of
this Section 9(a) agree that in the event of any such breach, as judicially
determined, by the Executive, the Company will be entitled, in addition to any
other remedies and damages available, to an injunction to restrain the
violation hereof by the Executive, the Executive's partners, agents, servants,
employers, employees and all persons acting for or with the Executive. The
Executive represents and admits that in the event of the termination of his
employment pursuant to Section 6 hereof, the Executive's experience and
capabilities are such that the Executive can obtain employment in a business
engaged in other lines and/or of a different nature than the Company, and that
the enforcement of a remedy by way of injunction will not prevent the
Executive from earning a livelihood. Nothing herein will be construed as
prohibiting the Company from pursuing any other remedies available to the
Company for such breach or threatened breach, including the recovery of
damages from the Executive.
(b) The Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Company is a
valuable, special and unique asset of the business of the Company. The
Executive will not, during or after the term of his employment, disclose any
knowledge of the past, present, planned or considered business activities of
the Company or affiliates thereof to any person, firm, corporation, or other
entity for any reason or purpose whatsoever. Notwithstanding the foregoing,
the Executive may disclose any concepts or ideas that are not solely and
exclusively derived from the business plans and activities of the Company. In
the event of a breach or threatened breach by the Executive of the provisions
of this Section 9(b), the Company will be entitled to an injunction
restraining the Executive from disclosing, in whole or in part, the knowledge
of the past, present, planned or considered business activities of the
Company, or from rendering any services to any person, firm, corporation or
other entity to whom such knowledge, in whole or in part, has been disclosed
or is threatened to be disclosed. Nothing herein will be construed as
prohibiting the Company from pursuing any other remedies available to the
Company for such breach or threatened breach, including the recovery of
damages from the Executive.
10. NO ATTACHMENT
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
the Executive and the Company and their respective successors and assigns.
11. MODIFICATION AND WAIVER
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party charged
with such waiver or estoppel. No such written waiver shall be deemed a
continuing waiver unless specifically stated therein, and each such waiver
shall operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future as to any act
other than that specifically waived.
12. SEVERABILITY
If, for any reason, any provision of this Agreement or any part of any
provision, is held invalid, such invalidity shall not affect any other
provision of this Agreement or any part of such provision not so held invalid,
and each such other provision and part thereof shall, to the full extent
consistent with law, continue in full force and effect.
13. HEADINGS FOR REFERENCE ONLY
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation
of any of the provisions of this Agreement.
14. ARBITRATION
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a
panel of three arbitrators sitting in a location selected by the Executive
within fifty (50) miles from the location of the Company's headquarters set
forth in Section 1, in accordance with the rules of the American Arbitration
Association then in effect. One arbitrator shall be selected by the Company;
one arbitrator shall be selected by the Executive; and one arbitrator shall be
selected by the two arbitrators respectively selected by the Company and the
Executive. Judgment may be entered on the arbitrators' award in any court
having jurisdiction, provided, however, that the Executive shall be entitled
to seek specific performance of his right to be paid and receive benefits
until the Date of Termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement.
In the event any dispute or controversy arising under or in connection
with the Executive's termination is resolved in favor of the Executive,
whether by judgment, arbitration or settlement, the Executive shall be
entitled to the payment of all back-pay, including salary, bonuses and any
other cash compensation, fringe benefits and any compensation and benefits due
the Executive under this Agreement.
15. PAYMENT OF LEGAL FEES
All reasonable legal fees and other expenses paid or incurred by the
Executive pursuant to any dispute or question of interpretation relating to
this Agreement shall be paid or reimbursed by the Company if the Executive is
successful pursuant to a legal judgment, arbitration or settlement.
16. SUCCESSOR TO THE COMPANY
The Company shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Company, expressly and
unconditionally, to assume and agree to perform the Company's obligations
under this Agreement, in the same manner and to the same extent that the
Company would be required to perform if no such succession or assignment had
taken place.
17. UNFUNDED AGREEMENT SUBJECT TO CLAIMS OF COMPANY CREDITORS
The Company's obligation under this Agreement will be unfunded and the
Executive will not have any claims or rights superior to those of any general
creditor of the Company.
18. GOVERNING LAW; JURISDICTION
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York without giving effect to any choice of law or
conflict of law provision or rule whether of the State of New York or any
other jurisdiction that would cause the application hereto of the laws of any
jurisdiction other than the State of New York. Each party agrees to that any
action arising under this Agreement may be brought in the federal or state
courts in the County of New York, State of New York, and each party agrees to
submit to the personal jurisdiction of such courts.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
by its duly authorized officer, and the Executive has signed this Agreement,
on the day first above written.
ANDREA ELECTRONICS CORPORATION
By: /s/ Christopher P. Sauvigne
------------------------------------------------
Name: Christopher P. Sauvigne
Title: President and Chief Operating Officer
By: /s/ John N. Andrea
------------------------------------------------
Name: John N. Andrea
Title: Co-Chairman and Co-Chief Executive Officer
By: /s/ Richard A. Maue
------------------------------------------------
Name: Richard A. Maue
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
ARTICLE: 5
This schedule contains summary financial information extracted from the
registrant's consolidated balance sheet as of March 31, 2000 and consolidated
statement of operations for the three months ended March 31, 2000, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
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<NAME> Andrea Electronics Corporation
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