Item 5.02

Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

On July 26, 2012, Andrea Electronics Corporation entered into an employment agreement with Douglas J. Andrea, Chairman of the Board, President and Chief Executive Officer of the Company.  The effective date of the employment agreement is August 1, 2012, and expires July 31, 2013, 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 $350,000 (which is identical to Mr. Andrea’s salary for the period from August 1, 2011 through July 31, 2012) for the period of August 1, 2012 through July 31, 2013.  

The employment agreement provides for quarterly and annual performance bonuses as follows:

·

quarterly bonus equal to 25% of the Company’s pre-bonus adjusted net after tax quarterly earnings in excess of $25,000 for a total quarterly bonus amount not to exceed $12,500; and

·

annual bonus equal to 10% of the Company’s annual pre-bonus adjusted 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.

In the event of a change in control of the Company and subsequent termination of Mr. Andrea’s employment within the later of the term of the employment agreement or six months after the change in control, Mr. Andrea will be entitled to:

·

all earned but not paid salary and bonuses;

·

a sum equal to two years of Mr. Andrea’s most recent base salary plus a pro rated portion of his most recent annual and four quarterly bonuses paid immediately preceding the change of control;

·

a continuation for two years of health and medical benefits coverage substantially equivalent to the coverage maintained by the Company for Mr. Andrea prior to his termination; and

·

the immediate vesting of all stock options, whether then vested or unvested.

In addition, in the event of a termination of employment by the Company without cause (as defined in the agreement) or resignation with the Company’s consent, Mr. Andrea will be entitled to:

·

all earned buy not paid salary and bonuses;

·

a severance payment equal to six months of Mr. Andrea’s most recent base salary plus a prorated portion of his most recent annual and four quarterly bonuses;

·

a continuation for 12 months of health insurance coverage for Mr. Andrea, his spouse and dependents; and

·

the immediate vesting of all stock option, whether then vested or unvested.

Item 9.01  

Financial Statements and Exhibits.

(d)

Exhibits

Number

Description

10.1

Employment Agreement, dated July 26, 2012, by and between Andrea Electronics Corporation and Douglas J. Andrea

2