a5729123.htm

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. ______)

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 Andrea Electronics Corporation
 (Name of Person(s) Filing Proxy Statement, If Other Than the Registrant)
                                

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Logo
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD FRIDAY, AUGUST 8, 2008
__________________________________________________

On Friday, August 8, 2008, Andrea Electronics Corporation will hold its annual meeting of shareholders at La Quinta Inn & Suites Islip/MacArthur Airport, 10 Aero Road, Bohemia, New York.  The meeting will begin at 2:00 p.m., local time.  At the meeting, shareholders will consider and act on the following:
 
 
1.
 The election of five directors to hold office until the next annual meeting of shareholders;
     
 
2.
 The ratification of the selection of Marcum & Kliegman LLP as the Company’s independent registered public accountants for the year ending December 31, 2008;
     
 
3.
 Such other business as may properly come before the meeting.
 

 
Note:  As of the date of this notice, the board of directors is not aware of any other business to come before the meeting.

Only shareholders of record as the close of business on July 8, 2008 are entitled to receive notice of the meeting and to vote at the meeting and any adjournment or postponement of the meeting.

Please complete and sign the enclosed form of proxy, which is solicited by the Board of Directors, and mail it promptly in the enclosed envelope.  The proxy will not be used if you attend the meeting and vote in person.

 
  BY ORDER OF THE BOARD OF DIRECTORS
   
   
  /s/ Douglas J. Andrea
   
   
  Douglas J. Andrea
  Chairman of the Board, President,
  Chief Executive Officer and
  Corporate Secretary
 


Bohemia, New York
July 16, 2008
 


IMPORTANT:  The prompt return of proxies will save the Company the expense of further requests for proxies in order to ensure a quorum.  A self-addressed envelope is enclosed for your convenience.  No postage is required if mailed in the United States.
 
ANDREA ELECTRONICS CORPORATION
___________________________________

PROXY STATEMENT
___________________________________

This proxy statement is furnished in connection with the solicitation of proxies by the Board of Directors of Andrea Electronics Corporation (“Andrea Electronics” or the “Company”) to be used at the 2008 annual meeting of shareholders of the Company.  The annual meeting will be held at the La Quinta Inn & Suites Islip/MacArthur Airport, 10 Aero Road, Bohemia, New York on Friday, August 8, 2008 at 2:00 p.m., local time.  This proxy statement and the enclosed proxy card are being first mailed on or about July 16, 2008 to shareholders of record.

General Information about Voting
 

Who Can Vote at the Meeting

You are entitled to vote your Company common stock only if the records of the Company show that you held your shares as of the close of business on July 8, 2008.  As of the close of business on July 8, 2008, a total of 59,861,193 shares of Andrea Electronics common stock were outstanding.  Each share of common stock has one vote.

Attending the Meeting

If you are a beneficial owner of Company common stock held by a broker, bank or other nominee (i.e., in “street name”), you will need proof of ownership to be admitted to the meeting.  A recent brokerage statement or letter from a bank or broker are examples of proof of ownership.  If you want to vote your shares of Company common stock held in street name in person at the meeting, you will have to get a written proxy in your name from the broker, bank or other nominee who holds your shares.

Vote Required

The annual meeting will be held only if there is a quorum present.  A quorum exists if a majority of the outstanding shares of common stock entitled to vote is represented at the meeting.  If you return valid proxy instructions or attend the meeting in person, your shares will be counted for purposes of determining whether there is a quorum, even if you abstain from voting.  Broker non-votes also will be counted for purposes of determining the existence of a quorum.  A broker non-vote occurs when a broker, bank or other nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power with respect to that item and has not received voting instructions from the beneficial owner.

Directors must be elected by a plurality of the votes cast by holders of common stock at the annual meeting.  This means that the nominees receiving the greatest number of votes will be elected.  Votes that are withheld and broker non-votes will have no effect on the election of directors.  The affirmative vote of a majority of the votes cast by holders of common stock is required to approve the appointment of Marcum & Kliegman LLP as independent registered public accountants.  Abstentions and broker non-votes will have no effect on these proposals.

Voting by Proxy

The board of directors of the Company is sending you this proxy statement for the purpose of requesting that you allow your shares of Company common stock to be represented at the annual meeting by the persons named in the enclosed proxy card.  All shares of Company common stock represented at the annual meeting by properly executed and dated proxies will be voted according to the instructions indicated on the proxy card.  If you sign, date and return a proxy card without giving voting instructions, your shares will be voted as recommended by the Company’s Board of Directors.  The Board of Directors recommends a vote “FOR” each of the nominees for director and “FOR” ratification of Marcum & Kliegman LLP as independent registered public accountants.
 
 
If any matters not described in this proxy statement are properly presented at the annual meeting, the persons named in the proxy card will use their own best judgment to determine how to vote your shares.  This includes a motion to adjourn or postpone the annual meeting in order to solicit additional proxies.  If the annual meeting is postponed or adjourned, your Company common stock may be voted by the persons named in the proxy card on the new annual meeting date as well, unless you have revoked your proxy.  The Company does not know of any other matters to be presented at the annual meeting.

You may revoke your proxy at any time before the vote is taken at the meeting.  To revoke your proxy you must either advise the Secretary of the Company in writing before your Company common stock has been voted at the annual meeting, deliver a later dated proxy, or attend the meeting and vote your shares in person.  Attendance at the annual meeting will not in itself constitute revocation of your proxy.

If your Company common stock is held in street name, you will receive instructions from your broker, bank or other nominee that you must follow in order to have your shares voted.  Your broker, bank or other nominee may allow you to deliver your voting instructions via the telephone or the Internet.  Please see the instruction form provided by your broker, bank or other nominee that accompanies this proxy statement.  If you wish to change your voting instructions after you have returned your voting instruction form to your broker or bank, you must contact your broker or bank.

Corporate Governance
 

General

Andrea Electronics periodically reviews its corporate governance policies and procedures to ensure that Andrea Electronics meets the highest standards of ethical conduct, reports results with accuracy and transparency and maintains full compliance with the laws, rules and regulations that govern Andrea Electronics’ operations.  As part of this periodic corporate governance review, the Board of Directors reviews and adopts best corporate governance policies and practices for Andrea Electronics.

Meetings of the Board of Directors

The Company conducts business through meetings and activities of its Board of Directors and their committees.  During the year ended December 31, 2007, the Board of Directors of the Company held 2 regular meetings.  No incumbent director attended fewer than 75% of the total meetings of the Board of Directors and the committees on which he served during the year ended December 31, 2007.

Committees of the Board of Directors

The following table identifies our standing committees and their members.  All members of each committee are independent in accordance with the listing standards of the Nasdaq Stock Market, Inc.  Each committee, other than the Compensation Committee, operates under a written charter that is available in the Corporate Governance section of the Company’s website (www.andreaelectronics.com).
 

Director
      
Audit
Committee
  
Compensation
Committee
  
Nomination and Governance Committee
             
Douglas J. Andrea
            
Gary A. Jones
  
X
  
X
  
 X*
Louis Libin
  
X
  
X
  
X
Joseph J. Migliozzi
  
 X*
  
X
  
X
Jonathan D. Spaet
  
X
  
 X*
  
X
   
 
       
Number of Meetings in fiscal 2007
  
4
  
1
  
1
__________________________
*      Denotes Chairperson
 
 
Audit Committee.  The Board of Directors has a separately-designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended.  The Audit Committee meets with management and Company financial personnel, as well as with the Company’s independent accountants, to consider the adequacy of the internal controls of the Company and the objectivity of the Company’s financial reporting.  The Board of Directors has determined that Joseph J. Migliozzi is an audit committee financial expert under the rules of the Securities and Exchange Commission.  The report of the audit committee required by the rules of the Securities and Exchange Commission is included in this proxy statement.  See “Proposal 2–Ratification of Independent Registered Public Accountants–Report of the Audit Committee.”
 
 
Compensation Committee.  The Compensation Committee is responsible for making recommendations to the full Board of Directors on all matters regarding compensation and benefit programs.  The Compensation Committee reviews all compensation components for the Company’s Chief Executive Officer and other highly compensated executive officers’ compensation including base salary, annual incentive, long-term incentives/equity, benefits and other perquisites.  In general, the Compensation Committee considers the Company’s financial performance when making decisions regarding such officers’ compensation.  The Compensation Committee also reviews the recommendations of the Chief Executive Officer in determining the compensation of other executive officers.  Decisions by the Compensation Committee with respect to the compensation of executive officers are approved by the full Board of Directors.  The Compensation committee has established the following non-employee director compensation plans: retainer; per meeting fees; and long-term incentive compensation.  The non-employee director compensation plans are designed to attract, retain and motivate talented directors while balancing the interests of the stockholders

Nomination and Governance Committee.  The Nomination and Governance Committee takes a leadership role in shaping Andrea Electronics’ governance policies and practices, including recommending to the Board of Directors the corporate governance policies and guidelines applicable to Andrea Electronics and monitoring compliance with these policies and guidelines.  In addition, the Nomination and Governance Committee is responsible for identifying individuals qualified to become Board members and recommending to the Board the director nominees for election at the next annual meeting of stockholders. This committee also leads the Board in its annual review of the Board’s performance and recommends to the Board director candidates for each committee for appointment by the Board.  The procedures of the Nomination and Governance Committee required to be disclosed by the rules of the Securities and Exchange Commission are included in this proxy statement.  See “Nomination and Governance Committee Procedures.”

Attendance at the Annual Meeting.  The Board of Directors encourages directors to attend the annual meeting of stockholders.  One board member attended the 2007 annual meeting of stockholders.

Stock Ownership
 
The following table sets forth certain information as of July 8, 2008, with respect to the common stock ownership of (i) each director or nominee for director of the Company, (ii) each executive officer named in the Summary Compensation Table and (iii) all directors and executive officers of the Company as a group.

 
 
 
 
Name of Beneficial Owner
    
 
 
 
                 Number of
Shares Owned
(excluding options)
 
 
 
Number of
Shares that May Be
 Acquired Within
60 days by
Exercising Options
  
 
 
 
Percent of
Common Stock
Outstanding(1)
             
Douglas J. Andrea   (2)
  
261,014
(3)
  
3,457,000
  
5.9%
Corisa L. Guiffre
  
2,750
    
463,200
  
*
Gary A. Jones
  
244,159
    
157,722
  
*
Louis Libin
  
187,122
    
150,000
  
*
Joseph J. Migliozzi
  
226,534
    
231,804
  
*
Jonathan D. Spaet
  
226,534
    
132,722
  
*
Current directors and executive officers as
   group (6 persons)
  
 
1,148,113
    
 
4,592,448
  
 
8.9%
____________________________________
*Less than 1%
 
 
(1)  
  
Percentages with respect to each person or group of persons have been calculated on the basis of 59,861,193 shares of Company common stock, plus the number of shares of Company common stock which such person or group of persons has the right to acquire within 60 days from July 8, 2008, by the exercise of options.  The information concerning the shareholders is based upon information furnished to the Company by such shareholders. Except as otherwise indicated, all of the shares next to each identified person or group are owned of record and beneficially by such person or each person within such group and such persons have sole voting and investment power with respect thereto.
 
(2)  
  
Mr. Andrea’s business address is: 65 Orville Drive, Bohemia, New York 11716.
 
(3)  
  
Includes 12,438 and 3,876 shares owned by Mr. Andrea’s spouse and Mr. Andrea’s daughter, respectively.

The following table sets forth certain information as of July 8, 2008, with respect to the stock ownership of beneficial owners, other than directors and executive officers of the Company, of more than 5% of the Company’s outstanding common:

 
 
 
Name and Address
  
 
 
Shares of Common Stock Owned
  
 
 
Common Stock Equivalents (1)
  
 
 
Percent of Common Stock and Common Stock Equivalents Outstanding (2)
                 
Alpha Capital Anstalt
Pradafant 7,
Furstentums 9490
Vaduz, Liechtenstein
 
  
-        (3)
    
5,722,159 (3)
    
9.6%
Nickolas W. Edwards
937 Pine Ave, Long Beach, CA 90813
 
  
5,390,000 (4)
    
-          
    
9.0%
____________________________________
 
(1)  
  
The issuance of shares of common stock upon conversion of the Series C Preferred Stock is limited to that amount which, after giving effect to the conversion, would cause the holder not to beneficially own in excess of 4.99% or, together with other shares beneficially owned during the 60 day period prior to such conversion, not to beneficially own in excess of 9.99% of the outstanding shares of common stock.  The issuance of common stock upon conversion of the Series D Preferred Stock and the related warrants also are limited to that amount which, after given effect to the conversion, would cause the holder not to beneficially own an excess of 4.99% of then outstanding shares of our common stock, except that each holder has a right to terminate such limitation upon 61 days notice to us.
 
(2)  
  
Percentages with respect to each person or group of persons have been calculated on the basis of 59,861,193 shares of Company common stock, plus the number of shares of Company common stock which such person or groups of persons has the right to acquire within 60 days of the conversion of Series C Preferred Stock and Series D Preferred Stock.
 
(3)  
  
Based on information filed with the Securities and Exchange Commission in a Schedule 13G (Amendment No. 1) on February 15, 2007.  Common stock ownership of Alpha Capital Anstalt (“Alpha Capital’) is not known as of July 8, 2008.  Based on Company records as of July 8, 2008, Alpha Capital has 4,854,638 common stock equivalents from Series C Preferred Stock, Series D Preferred Stock and related warrants.  See footnote (1) above, for limitations on the conversion of such common stock equivalents.
 
(4)  
  
Based on information filed with the Securities and Exchange Commission in a Schedule 13G (Amendment No. 1) on October 20, 2006 by Nickolas W. Edwards.
 
 
 
Proposal 1 - Election of Directors
 
The By-laws of the Company provide that the Board of Directors shall consist of not less than three and not more than ten directors as determined by the Board.  The Board of Directors currently consists of five directors, and the Board has determined that the number of directors to be elected at the annual meeting shall be five.  Each of the directors of the Company are considered independent under the current listing standards of the Nasdaq Stock Market, Inc., except Douglas J. Andrea, Chief Executive Officer and President of the Company.

The persons listed below have been nominated by the Board for election as directors to serve until the next annual meeting of shareholders or until his respective successors have been elected and qualified.

The Board of Directors recommends that you vote “FOR” the election of these nominees.

In case any of these nominees become unavailable for election to the Board of Directors, an event which is not anticipated, the persons named as proxies, or their substitutes, shall have full discretion and authority to vote or refrain from voting for any other nominee in accordance with their judgment.

Board Nominees for Election as Directors

Information on director nominees of the Company follows (ages are as of December 31, 2007):

Douglas J. Andrea, age 45, has been President and Chief Executive Officer since January 2005, Chairman of the Board of Directors since November 2001, a Director of the Company since 1991 and Corporate Secretary since 2003.  He was Co-Chairman and Co-Chief Executive Officer of the Company from November 1998 until August 2001.  He served as Co-President of the Company from November 1992 to November 1998, as Vice President - Engineering of the Company from December 1991 to November 1992, and as Secretary of the Company from 1989 to January 1993.

Gary A. Jones, age 62, has been a Director of the Company since April 1996. He has served as President of Digital Technologies, Inc. since 1994 and was Chief Engineer at Allied Signal Ocean Systems from 1987 to 1994.  From March 1998 to December 2000, Mr. Jones was the Managing Director of Andrea Digital Technologies, Inc, a wholly owned subsidiary of Andrea Electronics Corporation.

Louis Libin, age 49, has been a Director of the Company since February 2002. He is President of Broad Comm, Inc., a consulting group specializing in advanced television broadcast, interactive TV, Internet Protocol and wireless communications. Prior to his tenure at Broad Comm, Mr. Libin was Chief Technology Officer for NBC, and was responsible for all business and technical matters for satellite, wireless and communication issues for General Electric and NBC. Since 1989, Mr. Libin has represented the United States on satellite and transmission issues at the International Telecommunications Union (the ITU) in Geneva, Switzerland. Mr. Libin is a Senior Member of the Institute of Electrical and Electronic Engineers (IEEE), and is a member of the National Society of Professional Engineers.

Joseph J. Migliozzi, age 58, has been a Director of the Company since September 2003. He has operated his own management consulting firm since 2001.  From 1997 to 2001 Mr. Migliozzi was the Chief Operating and Financial Officer of Voyetra Turtle Beach.  Prior to that, he served in various executive management positions in the electronics manufacturing industries, with both financial and operational responsibilities.  Mr. Migliozzi is a Certified Public Accountant.

Jonathan D. Spaet, age 51, has been a Director of the Company since 2003. He has served as Vice-President of Advertising Sales for Time Warner Cable Nation Advertising Sales since September 2004, overseeing advertising sales for Time Warner Cable markets around the country.  Previously, he was Vice-President of Sales for Westwood One Radio Networks, managing ad sales for one of the largest radio groups in the country.  From 2002 to 2003, he was the Chief Operating Officer of MEP Media, a company that was starting a digital cable channel devoted to the music enthusiast.  Prior to MEP, he was President of Advertising Sales for USA Networks, supervising ad sales, marketing, research and operations for both USA and Sci-fi, two top-tier cable channels.  Previously, he was President of Ad Sales for About.com.  This followed 15 years at NBC, where Mr. Spaet’s career included a six-year position in NBC Cable and nine years in the NBC Television Stations Group.
 
 
                 Information about Executive Officers Who Are Not Directors

The following information is provided for the Company’s executive officer who is not also a director:

Corisa L. Guiffre, age 35, has been the Company's Vice President and Chief Financial Officer of the Company since June 2003 and Assistant Corporate Secretary since October 2003.  Ms. Guiffre joined the Company in November 1999 and served as Vice President and Controller until June 2003.  Prior to joining the Company she was part of the Audit, Tax and Business Advisory divisions at Arthur Andersen LLP.  She is a Certified Public Accountant, a member of the American Institute of Certified Public Accountants and a member of the New York State Society of Certified Public Accountants.

Proposal 2 - Ratification of Appointment of Independent Registered Public Accountants
 
The Audit Committee of the Board of Directors has appointed Marcum & Kliegman LLP to be the Company’s independent registered public accountants for the fiscal year ending December 31, 2008, subject to the ratification by stockholders.  A representative of Marcum & Kliegman LLP is expected to be present at the annual meeting to respond to appropriate questions from stockholders and will have the opportunity to make a statement should he or she desire to do so.

The Board of Directors recommends that you vote “FOR” the ratification of the appointment of Marcum & Kliegman LLP as the independent registered public accountants of the Company.

Audit Fees

The following table sets forth the fees billed to the Company for the fiscal years ending December 31, 2007 and 2006 by Marcum & Kliegman LLP:

Marcum & Kliegman LLP
  
2007
    
2006
  
Audit Fees
   $ 131,000     $ 125,500  
Audit-related fees
   $ -     $ -  
Tax fees
   $ -     $ -  
All other fees
   $ -     $ -  

Pre-Approval of Services by the Independent Registered Public Accountants

The Audit Committee has adopted a policy for pre-approval of audit and permitted non-audit services by the Company’s independent registered public accountants.  The Audit Committee will consider annually and, if appropriate, approve the provision of audit services by its external auditor and consider and, if appropriate, pre-approve the provision of certain defined audit and non-audit services.  The Audit Committee also will consider on a case-by-case basis and, if appropriate, approve specific engagements that are not otherwise pre-approved.

Any proposed engagement that does not fit within the definition of a pre-approved service may be presented to the Audit Committee for consideration at its next regular meeting or, if earlier consideration is required, to the Audit Committee or one or more of its members.  The member or members to whom such authority is delegated shall report any specific approval of services at its next regular meeting.  The Audit Committee will regularly review summary reports detailing all services being provided to the Company by its external auditor.

During the years ended December 31, 2007 and 2006, all services were approved, in advance, by the Audit Committee in compliance with these procedures.

Report of the Audit Committee

The Company’s management is responsible for the Company’s internal control over financial reporting.  The independent registered public accountants are responsible for performing an independent audit of the Company’s consolidated financial statements and issuing an opinion on the conformity of those financial statements with generally accepted accounting principals.  The Audit Committee oversees the Company’s internal control over financial reporting on behalf of the Board of Directors.
 

In this context, the Audit Committee has met and held discussions with management and the independent registered public accountants.  Management represented to the Audit Committee that the Company’s consolidated financial statements were prepared in accordance with generally accepted accounting principles, and the Audit Committee has reviewed and discussed the consolidated financial statements with management and the independent registered public accountants.  The Audit Committee discussed with the independent registered public accountants matters required to be discussed by Statement on Auditing Standards No. 61 (Communication With Audit Committees), as amended (AICPA, Professional Standards, Vol. 1 AV Section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T, including the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of the disclosures in the financial statements.

In addition, the Audit Committee has received the written disclosures and the letter from the independent registered public accountants required by the Independence Standards Board Standard No. 1 (Independence Discussions With Audit Committees), as adopted by the Public Company Accounting Oversight Board in Rule 3600T, and has discussed with the independent registered public accountants the registered public accountants’ independence from the Company and its management.  In concluding that the registered public accountants are independent, the Audit Committee considered, among other factors, whether the non-audit services provided by the registered public accountants were compatible with its independence.

The Audit Committee discussed with the Company’s independent registered public accountants the overall scope and plans for their audit.  The Audit Committee meets with the independent registered public accountants, with and without management present, to discuss the results of their examination, their evaluation of the Company’s internal control over financial reporting, and the overall quality of the Company’s financial reporting process.

In performing all of these functions, the Audit Committee acts only in an oversight capacity.  In its oversight role, the Audit Committee relies on the work and assurances of the Company’s management, which has the primary responsibility for financial statements and reports, and of the independent accountants who, in their report, express an opinion on the conformity of the Company’s financial statements to generally accepted accounting principles.  The Audit Committee’s oversight does not provide it with an independent basis to determine that management has maintained appropriate accounting and financial reporting principles or policies, or appropriate internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. Furthermore, the Audit Committee’s considerations and discussions with management and the independent accountants do not assure that the Company’s financial statements are presented in accordance with generally accepted accounting principles, that the audit of the Company’s consolidated financial statements has been carried out in accordance with the standards of the Public Company Accounting Oversight Board (United States) or that the Company’s independent accountants are in fact “independent.”

In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors, and the board has approved, that the audited consolidated financial statements be included in the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2007 for filing with the Securities and Exchange Commission.  The Audit Committee has appointed, subject to shareholder ratification, the selection of the Company’s independent registered public accountants for the fiscal year ended December 31, 2008.
 
 
   The Audit Committee of the Board
   of Directors of Andrea Electronics Corporation
   
  Joseph J. Migliozzi (chairman)
  Gary A. Jones
  Jonathan D. Spaet
  Louis Libin
 
 
 
Executive Compensation
 
Summary Compensation Table

The following table sets forth information for the last two fiscal years relating to compensation earned by each person who served as chief executive officer and the other most highly compensated executive officers whose total compensation was over $100,000 during the year ended December 31, 2007 and 2006.
 
 
Name and Principal Position
  
Year
    
Salary
    
Bonus
    
Stock Options (1)
    
Total
  
                               
Douglas J. Andrea, Chairman of the
Board, Chief Executive Officer,
and Corporate Secretary
    
2007
 
2006
     $
300,000
 
255,000
     $
-
 
35,516
     $
100,264
 
    61,082
     $
400,264
 
351,598
  
                                         
Corisa L. Guiffre, Vice President,
Chief Financial Officer and
Assistant Corporate Secretary
    
2007
 
2006
     $
119,712
 
    96,923
     $
-
 
  -
     $
5,612
 
  4,886
     $
125,324
 
101,809
  
____________________________________
 
(1)  
  
Reflects the dollar amount recognized for financial statement reporting purposes in accordance with FAS 123(R) for 1,000,000 and 350,000 options in 2007 for Mr. Andrea and Ms. Guiffre, respectively, based upon a fair value of each option of $0.09 using the Black-Scholes option pricing model.  The weighted average assumptions used in the valuation of the options were as follows: dividend yield, 0%; expected volatility, 101%; risk-free rate, 4.17%; and expected life in years of 6 years and 2,000,000 and 400,000 options in 2006 for Mr. Andrea and Ms. Guiffre, respectively, based upon a fair value of each option of $0.12 using the Black-Scholes option pricing model.  The weighted average assumptions used in the valuation of the options were as follows: dividend yield, 0%; expected volatility, 102%; risk-free rate, 5.07%; and expected life in years of 7 years.

Outstanding Equity Awards at Fiscal Year-End

The following table provides information concerning unexercised options for each named executive officer outstanding as of December 31, 2007.  None of the named executive officers had stock awards that have not vested or unearned equity incentive plan awards at December 31, 2007.

   
Option Awards
  
 
Name
  
Number of securities
 underlying
 unexercised options
(#) exercisable
    
Number of
securities
underlying
unexercised options
(#) unexercisable
    
Option exercise
price ($/share)
    
Option
expiration date
  
                         
Douglas J. Andrea
     50,000       -     $ 14.625       3-03-2008  
    100,000       -     $ 14.125       6-08-2008  
      100,000       -     $ 6.250       3-23-2009  
      50,000       -     $ 5.375       8-17-2009  
      75,000       -     $ 6.875       4-14-2010  
      50,000       -     $ 6.000       8-01-2010  
      250,000       -     $ 0.690       1-31-2012  
      400,000       -     $ 0.130       6-14-2014  
      250,000       -     $ 0.100       8-04-2014  
      250,000       -     $ 0.040       8-04-2015  
      600,000       -     $ 0.050       8-10-2015  
      333,000       667,000 (1)   $ 0.120       11-02-2016  
      333,000       667,000 (1)   $ 0.120       11-16-2016  
      -       1,000,000 (3)   $ 0.110       9-12-2017  
 
 
 
Option Awards
  
 
 
Name
  
Number of securities
underlying
unexercised options
 (#) exercisable
    
Number of
securities
underlying
unexercised options
(#) unexercisable
    
Option exercise
price ($/share)
    
Option
expiration date
  
                         
Corisa L. Guiffre
     25,000       -     $
7.125
       11-22-2009  
    10,000       -     $
6.875
 
     4-14-2010  
      10,000       -     $
6.000
 
     8-01-2010  
      10,000       -     $
1.780
       3-19-2011  
      25,000       -     $
0.690
       1-31-2012  
      250,000       -     $
0.050
       8-10-2015  
      133,200       266,800 (2)   $
0.120
       11-16-2016  
      -       400,000 (3)   $
0.110
       9-12-2017  
____________________________________
 
(1)  
  
The stock options vest 33.3% from and after August 1, 2007, 33.3% from and after August 1, 2008 and 33.4% from and after August 1, 2009.
 
(2)  
  
The stock options vest 33.3% from and after the first anniversary of the Date of Grant, 33.3% from and after the second anniversary of the Date of Grant and 33.4% from and after the third anniversary of the Date of Grant, which was November 16, 2006.
 
(3)  
  
The stock options vest 33.3% from and after the first anniversary of the Date of Grant, 33.3% from and after the second anniversary of the Date of Grant and 33.4% from and after the third anniversary of the Date of Grant, which was September 12, 2007.

Employment Agreements

In November 2006, the Company entered into a new employment agreement with the Chairman of the Board, Douglas J. Andrea.  The employment agreement expires July 31, 2008 and is subject to renewal as approved by the Compensation Committee of the Board of Directors.  Pursuant to his employment agreement, Mr. Andrea will receive an annual base salary of $300,000 per annum.  In addition, upon execution of the employment agreement, Mr. Andrea was entitled to a salary adjustment from August 1, 2006 through the date of the employment agreement.   The employment agreement provides for quarterly bonuses equal to 25% of the Company’s pre-bonus net after tax quarterly earnings in excess of $25,000 for a total quarterly bonus amount not to exceed $12,500; and annual bonuses equal to 10% of the Company’s annual pre-bonus net after tax earnings in excess of $300,000.  All bonuses shall be payable as soon as the Company's cash flow permits.  All bonus determinations or any additional bonus in excess of the above will be made in the sole discretion of the Compensation Committee.  On November 2, 2006, in accordance with his employment agreement, Mr. Andrea was granted 1,000,000 stock options. This grant provides for a three year vesting period, an exercise price of $0.12 per share, which was fair market value at the date of grant, and a term of 10 years.  These stock options have a fair value of $100,000 and are being expensed over the vesting period of three years.  The stock based compensation expenses included in general, administrative and selling expenses.  On November 16, 2006, in accordance with his employment agreement, Mr. Andrea was granted an additional 1,000,000 stock options. This grant provides for a three year vesting period, an exercise price of $0.12 per share, which was fair market value at the date of grant, and a term of 10 years.  These stock options have a fair value of $100,000 and are being expensed over the vesting period of three years.  The stock based compensation expenses included in general, administrative and selling expenses.  At December 31, 2007, the future minimum cash commitments under this agreement aggregate $175,000.

Other Potential Post-Termination Benefits

Payments Made Upon Termination Without Cause or Resignation with the Company’s Consent.  If Mr. Andrea’s employment is terminated by the Company without cause or he resigns with the Company’s consent, the Company must pay Mr. Andrea a severance payment equal to six months of Mr. Andrea’s most recent base salary, as defined in the employment agreement, plus the six months prorated portion of Mr. Andrea’s most recent annual and quarterly bonuses, and in addition, the Company must arrange and pay for continuation of health insurance coverage for Mr. Andrea, and his spouse and dependents for a period of 12 months from the date of termination and must, for a period of 18 months from the expiration of such six month period, provide COBRA continuation coverage to Mr. Andrea.
 
 

Payments Made Upon a Change in Control.  If the Company materially changes Mr. Andrea’s position or terminates Mr. Andrea’s employment within the term of the employment agreement or 12 months after the term of the employment agreement and following a change in control, as defined in the employment agreement, then the Company must provide Mr. Andrea a sum equal to two years of Mr. Andrea’s most recent base salary plus a pro rated portion of Mr. Andrea’s most recent annual and four quarterly bonuses paid immediately preceding the change of control, continuation for two years of health and medical benefits coverage and, for a period of 18 months from the expiration of such two year period, provide COBRA continuation coverage, if available, to Mr. Andrea.  All stock options, whether then vested or unvested, shall vest and/or become exercisable.

The Company has entered into a change in control agreement with Ms. Guiffre. The change in control agreement provides Ms. Guiffre with a severance benefit upon termination in connection with a change in control (as defined in the agreement).  If Ms. Guiffre is terminated following a change in control, the Company will pay Ms. Guiffre a sum equal to three times Ms. Guiffre’s average annual compensation for the five preceding taxable years.  All restrictions on any restricted stock will lapse immediately and incentive stock options and stock appreciation rights, if any, will become immediately exercisable in the event of a change in control. Upon the occurrence of a change in control followed by Ms. Guiffre’s termination of employment, the Company will cause to be continued life, medical, dental and disability coverage. Such coverage and payments shall cease upon the expiration of 36 full calendar months following the date of termination.

Director Compensation

The following table provides the compensation received by individuals who served as non-employee directors of the Company during the 2007 fiscal year.

 
Director
  
Fees Earned of Paid in
Cash
    
Stock Awards (1)
    
Stock Option Awards (2)
    
 
Total
  
                         
Gary A Jones
   $ 1,750     $ 5,625     $ 1,960     $ 9,335  
Louis Libin
     1,750       5,625       241       7,616  
Joseph J. Migliozzi
     1,750       5,625       4,539       11,914  
Jonathan D. Spaet
     1,500       5,625       1,960       9,085  
                                 
____________________________________
 
(1)  
  
Reflects the dollar amount recognized for financial statement reporting purposes in accordance with FAS 123(R) for 181,820 shares of Common Stock with a fair market value of $0.11, 166,668 shares of Common Stock with a fair market value of $0.12 and 400,000 shares of Common Stock with a fair market value of $0.05 of stock granted during the years ended December 31, 2007, 2006 and 2005, respectively.
(2)  
  
Reflects the dollar amount recognized for financial statement reporting purposes in accordance with FAS 123(R) for 16,667, 16,667 and 41,667 options in 2006 for Messrs. Jones, Migliozzi and Spaet, respectively, based upon a fair value of each option of $0.10 using the Black-Scholes option pricing model and 33,182, 15,000, 33,182 and 60,455 options in 2007 for Messrs. Jones, Libin, Migliozzi and Spaet, respectively, based upon a fair value of each option of $0.09 using the Black-Scholes option pricing model.  The assumptions used in the valuation of the 2006 options were as follows:  dividend yield, 0%; expected volatility, 102%; risk-free rate, 5.07%; and expected life in years of 7 years.  The assumptions used in the valuation of the 2007 options were as follows:  dividend yield, 0%; expected volatility, 101%; risk-free rate, 4.17%; and expected life in years of 6 years.  At December 31, 2007, Messrs. Jones, Libin, Migliozzi and Spaet held 194,849, 165,000, 277,122 and 159,849 options to purchase shares of common stock.
 
 
Annual Retainer and Meeting Fees for Non-Employee Directors

The following tables set forth the applicable retainers and fees that will be paid to non-employee directors for their service on the Board of Directors of the Company during 2007 and 2008.  Employee directors do not receive any retainers or fees for their services on the Boards of Directors.

Annual Retainer ………………………………………………....
  
$5,000 (paid in the form of common stock) (1)
  
Fee per Board Meeting (Regular or Special) ……………………
  
$500
  
Fee per Committee Meeting ……………….…………………….
  
$250
  
Additional Annual Retainer for the Chairperson of the Compensation and Nomination and Governance Committees……………………………………..
  
$2,500 (paid in the form of stock options) (2)
  
Additional Annual Retainer for the Chairperson of the Audit Committee…….…………………………………..
  
$5,000 (paid in the form of stock options) (2)
  
____________________________________
 
(1)  
  
This stock grant will be granted upon the nomination of each director at the Annual Meeting of Stockholders.
(2)  
  
Stock option grants will be granted based on the directors past year of service, and will have an exercise price equal to the fair market value of the Company’s common stock on the date of grant, an eighteen-month vesting period and a term of 10 years.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's directors and officers and persons who beneficially own more than ten percent of the Company's common stock to file with the Securities and Exchange Commission ("SEC") initial reports of ownership and reports of changes in ownership of common stock in the Company. Officers, directors and greater-than-ten percent shareholders are also required to furnish the Company with copies of all Section 16(a) reports they file.  Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to the Company under Section 16(a) of the Securities Exchange Act of 1934, as amended, during the year ended December 31, 2007 and Forms 5 and amendments thereto furnished to the Company with respect to the year ended December 31, 2007, and written representations provided to the Company from the individuals required to filed reports, the Company believes that each of the individuals required to file reports complied with applicable reporting requirements for transactions in the Company’s common stock during the year ended December 31, 2007, except Mr. Libin filed late one Form 4 for one transaction and Mr. Migliozzi filed late one Form 4 for two transactions.

Nomination and Governance Committee Procedures

The Nomination and Governance Committee is responsible for the annual selection of the nominees for election as directors and developing and implementing policies and practices relating to corporate governance.

Minimum Qualifications

The Nomination and Governance Committee has adopted a set of criteria that it considers when it selects individuals to be nominated for election to the Board of Directors.  First a candidate must meet any eligibility requirements set forth in the Company’s bylaws.  A candidate also must meet any qualification requirements set forth in any Board or committee governing documents.

The Nomination and Governance Committee will consider the following criteria in selecting nominees: business experience; integrity, honesty and reputation; dedication to the Company and its stockholders; independence; and any other factors the Nomination and Governance Committee deems relevant, including age, diversity, size of the Board of Directors and regulatory disclosure obligations.

In addition, prior to nominating an existing director for re-election to the Board of Directors, the Nomination and Governance Committee will consider and review an existing director’s Board and committee attendance and performance; length of Board service; experience, skills and contributions that the existing director brings to the Board; and the director’s independence.
 

Process for Identifying and Evaluating Nominees

The process that the Nomination and Governance Committee follows when it identifies and evaluates individuals to be nominated for election to the Board of Directors is as follows:

Identification.  For purposes of identifying nominees for the Board of Directors, the Nomination and Governance Committee relies on personal contacts of the committee members and other members of the Board of Directors.  The Nomination and Governance Committee also will consider director candidates recommended by stockholders in accordance with the policy and procedures set forth above.  The Nomination and Governance Committee has not previously used an independent search firm to identify nominees.

Evaluation.  In evaluating potential nominees, the Nomination and Governance Committee determines whether the candidate is eligible and qualified for service on the Board of Directors by evaluating the candidate under the selection criteria set forth above.  In addition, the Nomination and Governance Committee will conduct a check of the individual’s background and interview the candidate.

Consideration of Recommendation by Stockholders

It is the policy of the Nomination and Governance Committee of the Board of Directors of the Company to consider director candidates recommended by stockholders who appear to be qualified to serve on the Company’s Board of Directors.  The Nomination and Governance Committee may choose not to consider an unsolicited recommendation if no vacancy exists on the Board of Directors and the Nomination and Governance Committee does not perceive a need to increase the size of the Board of Directors.  In order to avoid the unnecessary use of the Nomination and Governance Committee’s resources, the Nomination and Governance Committee will consider only those director candidates recommended in accordance with the procedures set forth below.

Procedures to be Followed by Stockholders

To submit a recommendation of a director candidate to the Nomination and Governance Committee, a stockholder should submit the following information in writing, addressed to the Chairman of the Nomination and Governance Committee, care of the Corporate Secretary, at the main office of the Company:

1.
  
The name of the person recommended as a director candidate;

2.
  
All information relating to such person that is required to be disclosed in solicitations of proxies for election of directors pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended;

3.
  
The written consent of the person being recommended as a director candidate to being named in the proxy statement as a nominee and to serving as a director if elected;

4.
  
As to the stockholder making the recommendation, the name and address, as they appear on the Company’s books, of such stockholder; provided, however, that if the stockholder is not a registered holder of the Company’s common stock, the stockholder should submit his or her name and address along with a current written statement from the record holder of the shares that reflects ownership of the Company’s common stock; and

5.
  
A statement disclosing whether such stockholder is acting with or on behalf of any other person and, if applicable, the identity of such person.

In order for a director candidate to be considered for nomination at the Company’s annual meeting of stockholders, the recommendation must be received by the Nomination and Governance Committee at least 120 calendar days prior to the date the Company’s proxy statement was released to stockholders in connection with the previous year’s annual meeting, advanced by one year.
 

Submission of Business Proposals and Shareholder Nominations

The Company must receive proposals that stockholders seek to include in the proxy statement for the Company’s next annual meeting no later than March 16, 2009.  If next years annual meeting is held on a date more than 30 calendar days from August 8, 2009, a stockholder proposal must be received by a reasonable time before the Company begins to print and mail its proxy solicitation for such annual meeting.  Any stockholder proposals will be subject to the requirements of the proxy rules adopted by the Securities and Exchange Commission.

The Company’s By-laws provide that in order for a shareholder to make nominations for the election of directors or proposals for business to be brought before the annual meeting, a shareholder must give written notice of such nominations and/or proposals to the Secretary not less than 90 days prior to the date of the annual meeting.  A copy of the By-laws may be obtained from the Company.

Stockholder Communications

The Company encourages stockholder communications to the Board of Directors and/or individual directors. Stockholders who wish to communicate with the Board of Directors or an individual director should send their communications to the care of Corisa L. Guiffre; Chief Financial Officer, Andrea Electronics Corporation at 65 Orville Drive, Bohemia, NY 11716.  Communications regarding financial or accounting policies should be sent to the attention of the Chairman of the Audit Committee.  All other communications should be sent to the attention of the Chairman of the Nomination and Governance Committee.

Miscellaneous

The solicitation of proxies in the enclosed form is made on behalf of the Board of Directors and the cost of this solicitation is being paid by the Company.  In addition to the use of the mails, proxies may be solicited personally or by telephone or telegraph using the services of directors, officers and regular employees of the Company at nominal cost.  Banks, brokerage firms and other custodians, nominees and fiduciaries will be reimbursed by the Company for expenses incurred in sending proxy material to beneficial owners of the Company’s stock.

A copy of the Company’s Form 10-KSB for the fiscal year ended December 31, 2007, as filed with the Securities and Exchange Commission has been mailed to persons who were shareholders as of the close of business on July 8, 2008.  Any shareholder who has not received a copy of the Annual Report may obtain a copy by writing to the Corporate Secretary of the Company.  The Annual Report is not to be treated as part of the proxy solicitation material or as having been incorporated in this proxy statement by reference.

If you and others who share your address own your shares in “street name,” your broker or other holder of record may be sending only one annual report and proxy statement to your address.  This practice, known as “householding,” is designed to reduce our printing and postage costs.  However, if a shareholder residing at such an address wishes to receive a separate annual report or proxy statement in the future, he or she should contact the broker or other holder of record.  If you own your shares in “street name” and are receiving multiple copies of our annual report and proxy statement, you can request householding by contacting your broker or other holder of record.


Bohemia, New York
July 16, 2008

You are cordially invited to attend the Annual Meeting in person.  Whether or not you plan to attend the annual meeting, you are requested to sign, date and promptly return the accompanying proxy card in the enclosed postage-paid envelope.

 

Logo
 
           ANNUAL MEETING OF STOCKHOLDERS
 
          OF
 
         ANDREA ELECTRONICS CORPORATION
 
2:00 P.M.
 
AUGUST 8, 2008
 
LA QUINTA INN & SUITES ISLIP/MACARTHUR AIRPORT
10 AERO ROAD
BOHEMIA, NEW YORK 11716

 



▼ FOLD AND DETACH HERE AND READ THE REVERSE SIDE ▼
-------------------------------------------------------------------------------------------------------------------------------------------


PROXY
 
 
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
 
ANDREA ELECTRONICS CORPORATION


The undersigned hereby acknowledges receipt of the Notice of Annual Meeting and Proxy Statement and hereby appoints Douglas J. Andrea and Corisa L. Guiffre, or either of them, with full power of substitution and to act without the other, as the agents, attorneys and proxies of the undersigned, to represent and vote as directed on the reverse hereof, all of the common stock of Andrea Electronics Corporation held of record by the undersigned at the close of business on July 8, 2008 at the Annual Meeting of Stockholders of ANDREA ELECTRONICS CORPORATION on August 8, 2008 at 2:00 p.m., and any adjournments or postponements thereof.


(Continued, and to be marked, dated and signed as instructed on the other side)





























 
▼ FOLD AND DETACH HERE AND READ THE REVERSE SIDE ▼
-------------------------------------------------------------------------------------------------------------------------------------------
PROXY – (continued from reverse side) 
Please mark your votes like this
 x
THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO DIRECTION IS INDICATED AND THE PROXY IS SIGNED AND DATED, WILL BE VOTED “FOR” ALL OF THE FOLLOWING PROPOSALS.  THE PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF ANDREA ELECTRONICS CORPORATION
      
 
1. To elect the following Directors:
 
Douglas J. Andrea
Gary A. Jones
Louis Libin
Joseph J. Migliozzi
Jonathan D. Spaet
 
FOR
o
WITHHOLD
AUTHORITY
o
 2. To ratify the selection of Marcum & Kliegman LLP as the Company’s independent accountants for the year ending December 31, 2008.
 
FOR
o
 
AGAINST
o
 
ABSTAIN
o
 
 
          

             
(INSTRUCTION: To withhold authority to vote for any individual nominee, strike a line through that nominee’s name above)   
In their discretion the proxies are authorized to vote upon such other business as may properly come before the meeting or any postponements or adjournments thereof.   
     
         
COMPANY ID:
  
             
         
PROXY NUMBER:
  
           
         
ACCOUNT NUMBER:
  
         
 
  
             
             
             
 
 Signature
  
 Signature
  
 Date
  
NOTE:  Please sign exactly as name appears heron.  When shares are hold by joint owner, both should sign.  When signing as attorney, executor, administrator, trustee or guardian, please give title as such.  If a corporation, please sign in full corporate name by President or other authorized officer.  If a partnership, please sign in partnership name by authorized person.