As filed with the Securities and Exchange Commission on July 22, 2002
Registration No
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
CLEARONE COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Utah 3663 87-0398877
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation Classification Code Number) Identification No.)
or organization)
ClearOne Communications, Inc.
1825 Research Way
Salt Lake City, Utah 84119
(801) 975-7200
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive
offices)
-------------------
Frances M. Flood
ClearOne Communications, Inc.
President and Chief Executive Officer
1825 Research Way
Salt Lake City, Utah 84119
(801) 975-7200
(Name, address, including zip code, and telephone number,
including area code, of agent for service of each registrant)
-------------------
With a copy to:
Bruce Czachor
Shearman & Sterling
1080 Marsh Road
Menlo Park, CA 94025
(650) 838-3600
Approximate date of commencement of proposed sale to the public: From time
to time after this registration statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
======================================= =================== ================= ================ ============
Proposed
Proposed Maximum
Maximum Aggregate Amount of
Title of each Class of Amount to be Offering Price Offering Registration
Securities to be Registered Registered Per Security (1) Price (1) Fee
- --------------------------------------- ------------------- ----------------- ---------------- ------------
PRIMARY OFFERING
- ---------------------------------------
Debt Securities of ClearOne (3) (5)...
Common Stock of ClearOne (4) (5)...... (2) (2) (2)
Warrants of ClearOne (6)..............
- --------------------------------------- -------------------- ----------------- ---------------- ------------
Total................................. $100,000,000 100% $100,000,000 $9,200
- --------------------------------------- -------------------- ----------------- ---------------- ------------
SECONDARY OFFERING
- --------------------------------------- -------------------- ----------------- ---------------- ------------
Common Stock of ClearOne (7).......... 1,000,000 shares $12.67 (8) $12,670,000 (8) $1,166 (8)
- --------------------------------------- -------------------- ----------------- ---------------- ------------
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to Section 8(a), may determine.
================================================================================
(footnotes on next page)
(1) With respect to the primary offering, we will determine the proposed
maximum offering price per security from time to time in connection with
issuances of securities registered hereunder. In addition, with respect
to the primary offering, the proposed maximum aggregate offering price
has been estimated solely for the purpose of calculating the
registration fee pursuant to Rule 457(o) under the Securities Act.
(2) Not applicable pursuant to General Instruction II.D of Form S-3.
(3) Subject to note (9) below, there is being registered hereunder an
indeterminate principal amount of debt securities of ClearOne as may be
offered or sold from time to time by us. If any debt securities are
issued at an original issue discount, then the offering price shall be
in such greater principal amount as shall result in an aggregate initial
offering price not to exceed $100,000,000.
(4) Subject to note (9) below, there is being registered hereunder an
indeterminate number of shares of common stock of ClearOne as may be
sold from time to time by ClearOne.
(5) Subject to note (9) below, includes such indeterminate amount of debt
securities and common stock of ClearOne as may be issued upon conversion
or exchange for any other securities registered hereunder that provide
for conversion or exchange into debt securities or common stock of
ClearOne.
(6) Subject to note (9) below, there is being registered hereunder an
indeterminate amount and number of warrants of ClearOne representing
rights to purchase certain of the debt securities or common stock of
ClearOne registered hereunder.
(7) The selling stockholders may offer a maximum of 1,000,000 shares of
common stock of ClearOne.
(8) This is estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(c) under the Securities Act, based
on the average of the high and low price of the common stock of ClearOne
reported on The Nasdaq National Market on July 18, 2002.
(9) In no event will the aggregate offering price of all securities sold by
ClearOne from time to time pursuant to this registration statement
exceed $100,000,000.
EXPLANATORY NOTE
This registration statement consists of two separate prospectuses:
o the first prospectus relates to the offer and sale from time to
time by ClearOne of debt securities, warrants and common stock
issuable under conversion of debt securities and exercise of
warrants; and
o the second prospectus relates to the offer and sale from time to
time by ClearOne of common stock and the offer and sale of
common stock of ClearOne by certain selling stockholders.
The maximum aggregate amount of securities to be offered by ClearOne
under both prospectuses shall be $100 million. The maximum number of
shares of our common stock to be offered by certain selling stockholders
pursuant to the second prospectus shall be 1,000,000 shares.
SUBJECT TO COMPLETION, DATED JULY 22, 2002
PROSPECTUS
CLEARONE COMMUNICATIONS, INC.
[LOGO]
We may offer and sell, from time to time, in one or more offerings, up
to $100,000,000 of any combination of the following securities:
o senior debt securities o subordinated debt securities
o equity warrants o convertible debt securities
o debt warrants
We will provide the specific terms of these securities in supplements to
this prospectus. This prospectus may not be used to sell securities unless
accompanied by a prospectus supplement. We urge you to read carefully this
prospectus and the accompanying prospectus supplement, which will describe the
specific terms of the securities offered, before you make your investment
decision.
Our common stock trades on the Nasdaq National Market under the symbol
"CLRO."
Investing in our securities involves risks. You should carefully
consider the risk factors set forth in the applicable supplement to this
prospectus before investing in any securities that may be offered. See "Risk
Factors" beginning on page 3.
-----------------
Neither the Securities and Exchange Commission nor any other regulatory
body has approved or disapproved of these securities or passed upon the adequacy
or accuracy of this prospectus. Any representation to the contrary is a criminal
offense.
-----------------
The date of this prospectus is , 2002
Table of Contents
Page
----
About This Prospectus.........................................................1
Where You Can Find More Information...........................................1
Forward-Looking Statements....................................................2
ClearOne Communications, Inc..................................................3
Risk Factors..................................................................3
Ratio Of Earnings To Fixed Charges............................................3
Use Of Proceeds...............................................................3
Unaudited Pro Forma Condensed Combined Financial Information..................4
Securities We May Issue......................................................11
Description Of Debt Securities...............................................15
Description Of Warrants......................................................27
Description Of Common Stock..................................................30
Plan Of Distribution.........................................................33
Validty Of The Securities....................................................34
Experts......................................................................34
------------------
You should rely only on the information contained or incorporated by
reference in this prospectus and any prospectus supplement. We have not
authorized anyone else to provide you with different information. If anyone
provides you with different or inconsistent information, you should not rely on
it. We are offering to sell securities and soliciting offers to buy securities
only in jurisdictions where offers and sales are permitted. You should assume
that the information appearing in this prospectus and information incorporated
by reference into this prospectus, is accurate only as of the date of the
documents containing the information.
i
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with
the Securities and Exchange Commission, or the SEC, using the SEC's shelf
registration rules. Under the shelf registration rules, using this prospectus,
together with a prospectus supplement, we may sell from time to time, in one or
more offerings, up to $100,000,000 of any of the securities described in this
prospectus.
In this prospectus we use the terms "ClearOne," "we," "us," and "our" to
refer to ClearOne Communications, Inc., a Utah corporation.
This prospectus provides you with a general description of the
securities we may sell. Each time we sell securities under this prospectus, we
will provide a prospectus supplement that will contain specific information
about the terms of that offering. The prospectus supplement may also add, update
or change information contained in this prospectus. If so, the prospectus
supplement should be read as superseding this prospectus. You should read this
prospectus, the applicable prospectus supplement and the additional information
described below under "Where You Can Find More Information."
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any reports, statements or
other information we file with the SEC at its public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference room. Our filings are also available
to the public on the Internet, through a database maintained by the SEC at
http://www.sec.gov.
We filed a registration statement on Form S-3 to register with the SEC
the securities described in this prospectus. This prospectus is part of that
registration statement. As permitted by SEC rules, this prospectus does not
contain all the information contained in the registration statement or the
exhibits to the registration statement. You may refer to the registration
statement and accompanying exhibits for more information about us and our
securities.
The SEC allows us to incorporate by reference into this document the
information we or other persons have filed, or will file, with the SEC. This
means that we can disclose important business, financial and other information
to you by referring you to other documents separately filed with the SEC. All
information incorporated by reference is part of this document, unless and until
that information is updated and superseded by the information contained in this
document or any information incorporated later.
We incorporate by reference the documents listed below:
1. Our current reports on Form 8-K filed on October 18, 2001, as amended
on Form 8-K/A filed on November 23, 2001, Form 8-K filed on February
1, 2002, February 6, 2002, March 21, 2002, April 10, 2002, April 23,
2002, May 29, 2002 and June 5, 2002;
2. Our annual report on Form 10-K for the fiscal year ended June 30,
2001;
3. Our quarterly reports on Form 10-Q for the fiscal quarters ended
September 30, 2001, December 31, 2001 and March 31, 2002;
4. The description of our common stock contained in our registration
statement on Form 10 filed pursuant to Section 12 of the Securities
Exchange Act of 1934 on October 4, 1988 as amended on Form 8 on
January 5, 1989 and February 15, 1989;
1
5. The section entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the audited
financial statements of E.mergent contained in E.mergent's annual
report on E.mergent's Form 10-KSB for the fiscal year ended December
31, 2001; and
6. The section entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial
statements of E.mergent contained in E.mergent's quarterly report on
E.mergent's Form 10-QSB for the fiscal quarter ended March 31, 2002.
You may request a copy of these filings, at no cost, by writing or
telephoning our Investor Relations Department at the following address:
ClearOne Communications, Inc.
1825 Research Way
Salt Lake City, Utah 84119
Attention: Investor Relations
(801) 975-7200
We also incorporate by reference all future filings we make with the SEC
under Sections 13(a), 13(c), 14 or 15(d) of the Securities and Exchange Act of
1934 on or (1) after the date of the filing of the registration statement
containing this prospectus and prior to the effectiveness of such registration
statement and (2) after the date of this prospectus and prior to the termination
of the offering made hereby.
You should only rely on the information contained or incorporated by
reference in this prospectus and any prospectus supplement. We have not
authorized any other person to provide you with different information. If anyone
provides you with different or inconsistent information you should not rely on
it. We are not making an offer to sell these securities in any jurisdiction
where the offer and sale is not permitted. You should assume that the
information appearing in this prospectus and information incorporated by
reference into this prospectus is accurate only as of the date of the documents
containing the information. Our business, financial condition, results of
operation and prospects may have changed since that date.
FORWARD-LOOKING STATEMENTS
Some statements and disclosures in this prospectus, including the
documents incorporated by reference, are forward-looking statements.
Forward-looking statements include all statements that do not relate solely to
historical or current facts and can often be identified by the use of words such
as "may," "believe," "will," "expect," "project," "estimate," "anticipate,"
"plan" or "continue." These forward-looking statements are based on our current
plans and expectations and are subject to a number of risks and uncertainties
that could significantly cause our plans and expectations, including actual
results, to differ materially from the forward-looking statements. The Private
Securities Litigation Reform Act of 1995 provides a "safe harbor" for
forward-looking statements to encourage companies to provide prospective
information about their companies without fear of litigation.
We wish to take advantage of the "safe harbor" provisions of the
Litigation Reform Act in connection with the forward-looking statements included
in this prospectus, including the documents incorporated by reference. Investors
are cautioned not to unduly rely on such forward-looking statements when
evaluating the information presented in these documents. The factors that could
cause our actual financial results to differ materially from those projected,
forecasted or estimated by us in forward-looking statements are contained in the
Forms 8-K, 10-K and 10-Q that we filed and Forms 10-KSB and 10-QSB that
E.mergent filed. In addition, they will also be contained in the prospectus
supplement.
2
CLEARONE COMMUNICATIONS, INC.
We are a provider of multimedia conferencing products and service. Our
product offerings include audio and video conferencing systems, peripherals and
furniture and our services include a full suite of audio, video and data
conferencing services, and business services such as training, field support,
help desk and rent-a-tech.
Our audio and video conferencing products are installed in conference
rooms, courtrooms and distance learning facilities. Our sound reinforcement
products target larger venues such as hotels, theaters, convention centers and
houses of worship. Our products, together with our full suite of services,
provide a solution to our customers who want to bring geographically dispersed
people together.
Our principal office is located at 1825 Research Way, Salt lake City, UT
84119, our telephone number is (801) 975-7200. We have subsidiaries in
Minneapolis, Minnesota; Dublin, Ireland; and Nuremberg, Germany.
RISK FACTORS
The securities to be offered may involve a high degree of risk. These
risks will be set forth in a prospectus supplement relating to the securities to
be offered by that prospectus supplement. You should carefully consider the
important factors set forth under the heading "Risk Factors" in the applicable
supplement to this prospectus before investing in any securities that may be
offered.
RATIO OF EARNINGS TO FIXED CHARGES
Set forth below is information concerning our ratio of earnings to fixed
charges. This ratio is provided to assist investors in evaluating our ability to
meet the interest requirements of debt securities.
For this purpose, earnings consist of pre-tax income from continuing
operations plus fixed charges. Fixed charges consist of interest expense and the
portion of rental expense we deemed representative of an appropriate interest
factor.
Nine Months Year Ended June 30,
Ended March 31, 2002 2001 2000 1999 1998 1997
-------------------- ---- ---- ---- ---- ----
Ratio of earnings to fixed charges 31.4x 25.7x 26.4x 11.7x 4.1x *
- --------------------------------------------------------------------------------
o Earnings for the year ended June 30, 1997 were inadequate to cover fixed
charges by $201,000.
USE OF PROCEEDS
Unless indicated otherwise in the applicable prospectus supplement, we
expect to use the net proceeds from the sale of our securities for general
corporate purposes, including, but not limited to, acquisitions, repayment or
refinancing of borrowings, working capital or capital expenditures. Additional
information on the use of net proceeds from the sale of securities offered by
this prospectus may be set forth in the prospectus supplement relating to such
offering.
3
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial
information gives effect to the acquisitions of Ivron Systems, Ltd. and
E.mergent by ClearOne and the December 2001 private placement of ClearOne common
stock. Effective October 3, 2001, ClearOne, through a wholly owned subsidiary,
acquired the shares of Ivron Systems for a combination of cash and stock. An
amendment to the share purchase agreement dated October 3, 2001 was finalized
April 8, 2002. Because the terms of the amendment had been negotiated as of
March 31, 2002, the effects of such amendment were included in ClearOne's
financial statements as of March 31, 2002. Effective December 11, 2001, ClearOne
issued 1,500,000 shares of common stock under a private placement that was
subsequently registered on Form S-3 with the SEC. The only impact of this stock
offering on the pro forma statements of operations is the inclusion of 1,500,000
shares in the calculation of the weighted average shares outstanding. On January
21, 2002, ClearOne entered into a definitive agreement to acquire the stock of
E.mergent for a combination of cash and stock. The E.mergent acquisition was
completed on May 31, 2002. Both the Ivron Systems and E.mergent acquisitions
have been accounted for under the purchase method of accounting. The unaudited
pro forma condensed combined statements of operations for the year ended June
30, 2001 and the nine months ended March 31, 2002 have been prepared as if each
transaction occurred on July 1, 2000. The pro forma condensed combined balance
sheet as of March 31, 2002 has been prepared as if the E.mergent acquisition
occurred on March 31, 2002. Because the financial results of Ivron Systems and
the private placement are included in ClearOne's historical financial statements
as of March 31, 2002, no adjustments have been made to the pro forma balance
sheet related to these transactions. Please see the notes to these pro forma
combined condensed statements regarding certain assumptions utilized in the
preparation of these statements.
ClearOne's fiscal year ends on June 30 while the fiscal years of Ivron
Systems and E.mergent historically ended on December 31. Accordingly, ClearOne
has combined its historical results from continuing operations for the year
ended June 30, 2001 with the unaudited financial results of Ivron Systems and
E.mergent for the twelve months ended June 30, 2001, comprising the last six
months of operations of Ivron Systems and E.mergent for the year ended December
31, 2000 and the first six months of operations of Ivron Systems and E.mergent
for the year ended December 31, 2001. The unaudited pro forma condensed combined
statement of operations presented for the nine months ended March 31, 2002
includes the historical unaudited financial results from continuing operations
of ClearOne and E.mergent for the nine months ended March 31, 2002. The
historical unaudited financial results from continuing operations of Ivron
Systems are included from July 1, 2000 to October 2, 2001, with the results from
October 3, 2001 to March 31, 2002 already consolidated in ClearOne's operating
results.
Unaudited pro forma condensed combined financial information is
presented for illustrative purposes only and is not necessarily indicative of
the financial position or results of operations that would have actually been
reported had the transactions occurred on the dates indicated above, nor is it
necessarily indicative of future financial position or results of operations.
These unaudited pro forma condensed combined financial statements are based on
the respective historical financial statements of ClearOne, Ivron Systems and
E.mergent and do not incorporate, nor do they assume, any benefits from cost
savings or synergies of operations of the combined company. The unaudited pro
forma condensed combined financial information should be read together with
ClearOne's historical financial statements and those of Ivron Systems and
E.mergent, including the related notes, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" of ClearOne and
E.mergent, all of which are incorporated by reference into this registration
statement.
Pro forma results of operations include adjustments, which are based
upon management's preliminary estimates, to reflect the allocation of the
purchase consideration to the acquired assets and liabilities of E.mergent. The
final allocation of the purchase consideration will be determined upon
completion of a comprehensive final analysis of the fair value of E.mergent's
tangible assets, liabilities and identifiable intangible assets. Accordingly,
while ClearOne does not anticipate that the final valuation and related
intangible asset allocation will differ significantly from the preliminary
valuation, the final determination of tangible and intangible assets may result
in depreciation and amortization expense that is higher than the preliminary
estimates of these amounts.
4
Unaudited Pro Forma Financial Information
Pro Forma Condensed Combined Balance Sheets
As of March 31, 2002
(in 000's)
Pro Forma
Adjustments Pro Forma
for Combined for
ClearOne E.mergent E.mergent E.mergent
(Historical) (Historical) Acquisition Acquisition
-------------- ------------- -------------- ---- -----------------
ASSETS
Current assets
Cash and cash equivalents $ 23,168 $ 1,505 $ (9,382) D $ 15,291
Accounts receivable, net 14,025 3,144 17,169
Note receivable - current portion 167 167
Inventory 5,792 3,605 9,397
Deferred taxes 247 425 672
Other current assets 420 160 580
-------------- ------------- -------------- -----------------
Total current assets 43,819 8,839 (9,382) 43,276
Property and equipment, net 3,993 443 4,436
Goodwill, net 2,898 999 (999) A
18,024 E 20,922
Note receivable, long-term portion 1,549 33 1,582
Other intangible assets, net 5,517 669 (669) A 5,517
Deposits and other assets 73 225 (150) F 148
-------------- ------------- -------------- -----------------
Total assets $ 57,849 $ 11,208 $ 6,824 $ 75,881
============== ============= ============== =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 1,579 $ 1,548 $ 3,127
Accrued expenses 1,791 473 2,264
Current portion of unearned maintenance
contracts 688 688
Current portion of capital lease and
long-term debt obligations 61 238 299
-------------- ------------- -------------- -----------------
Total current liabilities 3,431 2,947 6,378
Unearned maintenance contracts 319 319
Long-term debt and capital lease obligations 16 340 356
Deferred tax liability 746 746
-------------- ------------- -------------- -----------------
Total liabilities 4,193 3,606 7,799
Shareholders' equity
Common stock 10 59 $ (59) H
9 J 19
Additional paid in capital 33,141 7,867 (7,867) H
14,370 J
47 G 47,558
Treasury stock (73) 73 I
Note receivable from shareholder (122) 122 L
Retained earnings (accumulated deficit) 20,505 (129) 129 H 20,505
-------------- ------------- -------------- -----------------
Total shareholders' equity 53,656 7,602 6,824 68,082
-------------- ------------- -------------- -----------------
Total liabilities and shareholders' equity $ 57,849 $ 11,208 $ 6,824 $ 75,881
============== ============= ============== =================
See accompanying notes to unaudited pro forma condensed
combined financial statements.
5
Unaudited Pro Forma Condensed Combined Statements of Operations
For the nine months ended March 31, 2002
(in 000's)
Pro Forma
Pro Forma Pro Forma Pro Forma Combined for
Adjustments Combined Adjustments Ivron
Ivron for Ivron for Ivron for Systems and
ClearOne Systems Systems Systems E.mergent E.mergent E.mergent
(Historical) (Historical) Acquisition Acquisition (Historical) Acquisition Acquisitions
-----------------------------------------------------------------------------------------------------
Net sales $37,974 $ 47 $ 38,021 $ 17,055 $ 55,076
Cost of goods sold 15,226 343 15,569 10,963 26,532
---------------------------------------- --------------------------------------- --------------
Gross profit (loss) 22,748 (296) 22,452 6,092 28,544
Operating expenses
Marketing and selling 7,996 304 8,300 2,376 10,676
General and administrative 4,102 695 $ (46) A 4,751 2,490 $ (112) A 7,129
Research and product
development 3,044 116 139 B 3,299 504 3,803
---------------------------------------- --------------------------------------- --------------
Total operating expenses 15,142 1,115 93 16,350 5,370 (112) 21,608
---------------------------------------- --------------------------------------- --------------
Operating income (loss) 7,606 (1,411) (93) 6,102 722 112 6,936
Other income (expense) 139 (126) 13 (21) (8)
---------------------------------------- --------------------------------------- --------------
Income (loss) from
continuing operations
before income taxes 7,745 (1,537) (93) 6,115 701 112 6,928
Provision (benefit) for
income taxes 2,771 (35) C 2,736 269 42 C 3,047
---------------------------------------- --------------------------------------- --------------
Income (loss) from
continuing operations $ 4,974 $(1,537) $ (58) $ 3,379 $ 432 $ 70 $ 3,881
======================================== ======================================= ==============
Basic earnings per common
share $ 0.54 $ 0.35
Diluted earnings per
common share $ 0.51 $ 0.34
Weighted average shares
outstanding:
Basic 9,247 11,005
Diluted 9,756 11,462
See accompanying notes to unaudited pro forma condensed
combined financial statements.
6
Unaudited Pro Forma Condensed Combined Statements of Operations
For the fiscal year ended June 30, 2001
(in `000s)
Pro Forma
Pro Forma Pro Forma Pro Forma Combined
Adjustments Combined Adjustments for Ivron
for Ivron for Ivron for Systems and
ClearOne Ivron Systems Systems E.mergent E.mergent E.mergent
(Historical) (Historical) Acquisition Acquisition (Historical) Acquisition Acquisitions
-----------------------------------------------------------------------------------------------------
Net sales $ 39,878 $ 608 $ 40,486 $ 22,503 $ (188) K $ 62,801
Cost of goods sold 16,503 798 17,301 14,270 (188) K 31,383
---------------------------------------- --------------------------------------- -------------
Gross profit (loss) 23,375 (190) 23,185 8,233 31,418
Operating expenses
Marketing and selling 7,753 1,588 9,341 3,449 12,790
General and administrative 4,649 555 $ (182) A 5,022 3,276 (224) A 8,074
Research and product
development 2,502 732 555 B 3,789 689 4,478
---------------------------------------- --------------------------------------- -------------
Total operating expenses 14,904 2,875 373 18,152 7,414 (224) 25,342
---------------------------------------- --------------------------------------- -------------
Operating income (loss) 8,471 (3,065) (373) 5,033 819 224 6,076
Other income (expense) 373 373 (151) 222
---------------------------------------- --------------------------------------- -------------
Income (loss) from
continuing operations
before income taxes 8,844 (3,065) (373) 5,406 668 224 6,298
Provision (benefit) for
income taxes 3,319 (139) C 3,180 (70) 83 C 3,193
---------------------------------------- --------------------------------------- -------------
Income (loss) from
continuing operations $ 5,525 $(3,065) $ (234) $ 2,226 $ 738 $ 141 $ 3,105
======================================== ======================================= =============
Basic earnings per common
share $ 0.64 $ 0.28
Diluted earnings per
common share $ 0.61 $ 0.27
Weighted average shares
outstanding:
Basic 8,594 10,960
Diluted 9,016 11,383
See accompanying notes to unaudited pro forma condensed
combined financial statements.
7
Unaudited Pro Forma Condensed Combined Financial Information
NOTE 1.
On October 3, 2001, ClearOne executed a share purchase agreement, for which an
amendment was finalized on April 8, 2002, with the shareholders of Ivron
Systems. ClearOne paid cash of $6,000,000 for all of the issued and outstanding
shares of Ivron Systems, cash of $650,000 for all outstanding options to
purchase common shares of Ivron Systems, and incurred acquisition costs of
$274,000 in the transaction. Additional consideration may be issued to Ivron
Systems' shareholders if certain contingencies related to future earnings
targets as defined in the share purchase agreement are met. The following is a
summary of the purchase price allocation using the October 3, 2001 balance sheet
of Ivron Systems (in 000's):
Cash $ 460
Accounts receivable 132
Inventory 608
Fixed assets 21
Goodwill and other intangible assets 6,144
Accounts payable (175)
Accrued expenses (266)
-------------
Total $6,924
=============
On January 21, 2002, ClearOne entered into a definitive agreement to acquire
E.mergent. This acquisition was completed on May 31, 2002. Under the terms of
the agreement, ClearOne acquired all of the issued and outstanding stock of
E.mergent; thereby acquiring title to all assets and assuming all liabilities of
E.mergent. As consideration in the transaction, ClearOne paid cash of $7,300,000
and issued 873,000 shares of its common stock, less the aggregate number of
shares of common stock allocated to E.mergent's outstanding stock options
assumed by ClearOne in the merger because, in accordance with the agreement and
plan of merger, the 873,000 shares of ClearOne common stock were allocated first
to E.mergent stock options being assumed by ClearOne. Outstanding E.mergent
stock options were converted to options to purchase 4,158 shares of ClearOne's
common stock at the ratio specified in the agreement and plan of merger. The
value of the stock consideration paid to E.mergent shareholders used in
determining the purchase price for accounting purposes was based on ClearOne's
average closing price two days prior to and two days subsequent to January 21,
2002 (the announcement date for the acquisition and merger) of $16.55.
Additionally, ClearOne estimates that its acquisition costs will total
approximately $1,156,000 in the transaction. This includes approximately
$464,000 for severance payments to terminating E.mergent executives and
anticipated severance payments to other terminating E.mergent employees of
approximately $90,000, as well as approximately $602,000 related to professional
advisory, legal and accounting fees. E.mergent estimates that its transaction
related costs will total approximately $926,000. These costs have been reflected
as a reduction of E.mergent's cash balance as of March 31, 2002. The following
is a summary of the preliminary purchase price allocation using the March 31,
2002 balance sheet of E.mergent (in 000's):
Cash $ 579
Accounts receivable 3,144
Inventory 3,605
Fixed assets 443
Other assets 693
Goodwill and other intangible assets 18,024
Accounts payable (1,548)
Accrued expenses and customer deposits (473)
Unearned maintenance contracts (1,007)
Capital leases and long-term debt (578)
-------------
Total $ 22,882
=============
The purchase price was determined as follows:
Cash paid to E.mergent shareholders $ 7,300
Value of ClearOne common stock issued to
E.mergent shareholders (868,842 shares
x $16.55) 14,379
Fair value of ClearOne options issued to
E.mergent option holders, determined using
the Black-Scholes model 47
Acquisition costs to be paid by ClearOne 1,156
-------------
Total purchase price $ 22,882
=============
8
NOTE 2.
The unaudited pro forma condensed combined balance sheet includes the
adjustments necessary to give effect to the E.mergent acquisition as if it had
occurred on March 31, 2002 as noted above. The unaudited pro forma condensed
combined statements of operations include the adjustments necessary to give
effect to the Ivron Systems and E.mergent acquisitions and the private placement
as if they had occurred on July 1, 2000. Adjustments included in the pro forma
condensed combined financial statements are summarized as follows:
(A) Elimination of E.mergent and Ivron historical goodwill and other
intangibles (and the related amortization) that were revalued as
part of the purchase price allocation.
(B) Values were assigned to intangible assets related to the Ivron
Systems acquisition as follows: developed technology -
$5,780,000; goodwill - $364,000. These allocations are based
upon a final report from LECG, LLC, an independent financial
consulting firm. The developed technology was determined to have
useful lives as follows, with the resulting impact on
amortization expense:
Amortization for the
Nine months ended Fiscal Year ended
Value of Technology Useful Life March 31, 2002 June 30, 2001
--------------------------------------------------------------------------------------
$ 135,000 3 $ 11,250 $ 45,000
1,002,000 5 50,100 200,400
4,643,000 15 77,383 309,533
----------------------- ----------------------- ----------------------
$ 5,780,000 $138,733(i) $ 554,933
======================= ======================= ======================
(i) Reflects the amortization expense from July 1, 2001 to
October 2, 2001, the period prior to the acquisition of
Ivron Systems by ClearOne.
(C) The tax impact of amortization, as calculated using ClearOne's
blended statutory rate of 37.2%.
(D) Cash consideration paid to former E.mergent shareholders
of $7,300,000 plus ClearOne and E.mergent transaction costs of
$2,082,000.
(E) Amount represents goodwill of $18,024,000 including capitalized
acquisition costs of approximately $1,156,000 (including
approximately $464,000 for severance payments to terminating
E.mergent executives and anticipated severance payments to other
terminating E.mergent employees of approximately $90,000). For
purposes of these pro forma financial statements and based upon
a preliminary analysis by LECG, LLC, ClearOne's independent
financial consulting firm, the excess of the purchase price over
the fair value of the tangible assets acquired has been
allocated to goodwill. Based on LECG, LLC'S preliminary
analysis, ClearOne does not believe that any material value
should be allocated to acquired intangible assets other than
goodwill. Accordingly, pursuant to FAS No. 142, Goodwill and
Other Intangible Assets, no related amortization has been
reflected in the accompanying pro forma statements of
operations.
(F) Represents the elimination of an investment that was deemed to
have no future value to ClearOne.
(G) Represents the fair value, as determined in accordance with FASB
Interpretation No. 44, Accounting for Certain Transactions
Involving Stock Compensation--An Interpretation of APB Opinion
25, of the vested options to purchase ClearOne common stock that
were issued in exchange for vested options to purchase E.mergent
common stock in conjunction with the agreement and plan of
merger. The weighted average fair value of the ClearOne options
is approximately $11.36, using the Black-Scholes method, as
determined using the following assumptions: volatility of 62%,
weighted average expected life of the options of approximately 2
years, dividend yield of 0%, and risk-free interest rate of
4.38%.
(H) Elimination of E.mergent's historical equity.
(I) In accordance with the agreement and plan of merger, the
treasury stock held by E.mergent, which consisted of 50,317
shares, was distributed to E.mergent employees immediately prior
to the consummation of the merger.
9
(J) Reflects the value of the shares of ClearOne common stock issued
to holders of E.mergent common stock as follows: (868,842 shares
x $16.55 per share). The per share price is based on ClearOne's
average closing price two days prior to and two days subsequent
to January 21, 2002 (the announcement date for the acquisition
and merger).
(K) Elimination of sales and related cost of sales between ClearOne
and E.mergent.
(L) Represents the elimination of a shareholder note from a former
E.mergent executive that was repaid upon consummation of the
merger.
10
SECURITIES WE MAY ISSUE
Overview
This prospectus describes the securities we may issue from time to
time. This section provides some information about the manner in which the
securities may be held, then describes the terms of the three basic categories
of securities:
o our debt securities, which may be senior or
subordinated;
o our warrants, which may be exercised for the purchase of
either our debt securities or our common stock; and
o our common stock.
Prospectus Supplements
This prospectus provides you with a general description of the
securities we may offer. Each time we sell securities, we will provide a
prospectus supplement that will contain specific information about the terms of
that offering. The prospectus supplement may also add to or change information
contained in this prospectus. If so, the prospectus supplement should be read as
superseding this prospectus. You should read both this prospectus and any
prospectus supplement together with additional information described under the
heading "Where You Can Find More Information."
The prospectus supplement to be attached to the front of this
prospectus will describe the terms of any securities that we offer and any
initial offering price to the public in that offering, the purchase price and
net proceeds that we will receive and the other specific terms related to our
offering of the securities. For more details on the terms of the securities, you
should read the exhibits filed with our registration statement, of which this
prospectus is a part.
Legal Ownership of Securities
Holders of Securities
Book-Entry Holders. We will issue debt securities in book-entry form
only, unless we specify otherwise in the applicable prospectus supplement. If
securities are issued in book-entry form, this means the securities will be
represented by one or more global securities registered in the name of a
financial institution that holds them as depositary on behalf of other financial
institutions that participate in the depositary's book-entry system. These
participating institutions, in turn, hold beneficial interests in the securities
on behalf of themselves or their customers.
We will only recognize the person in whose name a security is
registered as the holder of that security. Consequently, for securities issued
in global form, we will recognize only the depositary as the holder of the
securities and all payments on the securities will be made to the depositary.
The depositary passes along the payments it receives to its participants, which
in turn pass the payments along to their customers who are the beneficial
owners. The depositary and its participants do so under agreements they have
made with one another or with their customers; they are not obligated to do so
under the terms of the securities.
As a result, investors in securities issued in book-entry form will not
own securities directly. Instead, they will own beneficial interests in a global
security, through a bank, broker or other financial institution that
participates in the depositary's book-entry system or holds an interest through
a participant. As long as the securities are issued in global form, investors
will be indirect holders, and not holders, of the securities.
Street Name Holders. In the future, we may terminate a global security
or issue securities initially in non-global form. In these cases, investors may
choose to hold their securities in their own names or in "street name."
Securities held by an investor in street name would be registered in the name of
11
a bank, broker or other financial institution that the investor chooses, and the
investor would hold only a beneficial interest in those securities through an
account he or she maintains at that institution.
For securities held in street name, we will recognize only the
intermediary banks, brokers and other financial institutions in whose names the
securities are registered as the holders of those securities and all payments on
those securities will be made to them. These institutions pass along the
payments they receive to their customers who are the beneficial owners, but only
because they agree to do so in their customer agreements or because they are
legally required to do so. Investors who hold securities in street name will be
indirect holders, not holders, of those securities.
Legal Holders. We, and any third parties employed by us or acting on
your behalf, such as trustees, depositories and transfer agents, are obligated
only to the legal holders of the securities. We do not have obligations to
investors who hold beneficial interests in global securities, in street name or
by any other indirect means. This will be the case whether an investor chooses
to be an indirect holder of a security or has no choice because we are issuing
the securities only in global form.
For example, once we make a payment or give a notice to the legal
holder, we have no further responsibility for the payment or notice even if that
legal holder is required, under agreements with depositary participants or
customers or by law, to pass it along to the indirect holders but does not do
so. Similarly, if we want to obtain the approval of the holders for any purpose
(for example, to amend an indenture or to relieve ourselves of the consequences
of a default or of our obligation to comply with a particular provision of the
indenture), we would seek the approval only from the legal holders, and not the
indirect holders, of the securities. Whether and how the legal holders contact
the indirect holders is up to the legal holders.
When we refer to you, we mean those who invest in the securities being
offered by this prospectus, whether they are the legal holders or only indirect
holders of those securities. When we refer to your securities, we mean the
securities in which you hold a direct or indirect interest.
Special Considerations for Indirect Holders. If you hold securities
through a bank, broker or other financial institution, either in book-entry form
or in street name, you should check with your own institution to find out:
o how it handles securities payments and notices;
o whether it imposes fees or charges;
o how it would handle a request for the holders' consent, if ever
required;
o whether and how you can instruct it to send you securities
registered in your own name so you can be a legal holder, if
that is permitted in the future;
o how it would exercise rights under the securities if there were
a default or other event triggering the need for holders to act
to protect their interests; and
o if the securities are in book-entry form, how the depositary's
rules and procedures will affect these matters.
12
Global Securities
What is a Global Security? A global security represents one or any
other number of individual securities. Generally, all securities represented by
the same global securities will have the same terms. We may, however, issue a
global security that represents multiple securities that have different terms
and are issued at different times. We call this kind of global security a master
global security.
Each security issued in book-entry form will be represented by a global
security that we deposit with and register in the name of a financial
institution that we select or its nominee. The financial institution that is
selected for this purpose is called the depositary. Unless we specify otherwise
in the applicable prospectus supplement, The Depository Trust Company, New York,
New York, known as the DTC, will be the depositary for all securities issued in
book-entry form.
A global security may not be transferred to or registered in the name
of anyone other than the depositary or its nominee, unless special termination
situations arise or as otherwise described in the prospectus supplement. We
describe those situations below under "-- Special Situations When a Global
Security Will Be Terminated." As a result of these arrangements, the depositary,
or its nominee, will be the sole registered owner and holder of all securities
represented by a global security, and investors will be permitted to own only
beneficial interests in a global security. Beneficial interests must be held by
means of an account with a broker, bank or other financial institution that in
turn has an account with the depositary or with another institution that does.
Thus, an investor whose security is represented by a global security will not be
a holder of the security, but only an indirect holder of a beneficial interest
in the global security.
Special Considerations for Global Securities. As an indirect holder, an
investor's rights relating to a global security will be governed by the account
rules of the investor's financial institution and of the depositary, as well as
general laws relating to securities transfers. We do not recognize this type of
investor as a holder of securities and instead will deal only with the
depositary that holds the global security.
If securities are issued only in the form of a global security, an
investor should be aware of the following:
o An investor cannot cause the securities to be registered in his
or her name and cannot obtain physical certificates for his or
her interest in the securities, except in the special situations
we describe below.
o An investor will be an indirect holder and must look to his or
her own bank or broker for payments on the securities and
protection of his or her legal rights relating to the
securities, as we describe under "-- Holders of Securities"
above.
o An investor may not be able to sell interests in the securities
to some insurance companies and to other institutions that are
required by law to own their securities in non-book-entry form.
o An investor may not be able to pledge his or her interest in a
global security in circumstances where certificates representing
the securities must be delivered to the lender or other
beneficiary of the pledge in order for the pledge to be
effective.
o The depositary's policies, which may change from time to time,
will govern payments, transfers, exchanges and other matters
relating to an investor's interest in a global security. Neither
we nor any third parties employed by us or acting on your
behalf, such as trustees and transfer agents, have any
responsibility for any aspect of the depositary's actions or for
its records of ownership interests in a global security. We and
the trustee do not supervise the depositary in any way.
o The DTC requires that those who purchase and sell interests in a
global security within its book-entry system use immediately
available funds, and your broker or bank may require you to do
so as well.
13
o Financial institutions that participate in the depositary's
book-entry system, and through which an investor holds its
interest in a global security, may also have their own policies
affecting payments, notices and other matters relating to the
security. There may be more than one financial intermediary in
the chain of ownership for an investor. We do not monitor and
are not responsible for the actions of any of those
intermediaries.
Special Situations When a Global Security Will Be Terminated. In a few
special situations described below, a global security will be terminated and
interests in it will be exchanged for certificates in non-global form
representing the securities it represented. After that exchange, the choice of
whether to hold the securities directly or in street name will be up to the
investor. Investors must consult their own banks or brokers to find out how to
have their interests in a global security transferred on termination to their
own names, so that they will be holders. We have described the rights of holders
and street name investors above under "-- Legal Ownership of Securities --
Holders of Securities."
The special situations for termination of a global security are as
follows:
o if the depositary notifies us that it is unwilling, unable or no
longer qualified to continue as depositary for that global
security and we do not appoint another institution to act as
depositary within a specified time period;
o if we elect to terminate that global security; or
o if an event of default has occurred with regard to securities
represented by that global security and it has not been cured or
waived.
The prospectus supplement may also list additional situations for
terminating a global security that would apply to a particular series of
securities covered by the prospectus supplement. If a global security is
terminated, only the depositary is responsible for deciding the names of the
institutions in whose names the securities represented by the global security
will be registered and, therefore, who will be the holders of those securities.
14
DESCRIPTION OF DEBT SECURITIES
We may issue debt securities from time to time in one or more distinct
series. This section summarizes the material terms of our senior or subordinated
debt securities that are common to all series. Most of the financial and other
terms of any series of debt securities that we offer will be described in the
prospectus supplement to be attached to the front of this prospectus.
As required by U.S. federal law for all bonds and notes of companies
that are publicly offered, the debt securities will be governed by a document
called an "indenture." An indenture is a contract between us and a financial
institution, in this case, The Bank of New York, acting as trustee on your
behalf. The indenture will be subject to and governed by the Trust Indenture Act
of 1939, as amended. The trustee has two main roles:
o First, subject to some limitations, the trustee can enforce your
rights against us if we default.
o Second, the trustee performs certain administrative duties for
us, which include sending you interest payments and notices.
Because we may issue both senior debt securities and subordinated debt
securities, our references to the indenture are to each of the senior indenture
and the subordinated indenture, unless the context requires otherwise.
In this section, we refer to these indentures collectively as the "indentures."
Because this section is a summary of the material terms of the
indentures, it does not describe every aspect of the debt securities. We urge
you to read the indentures because they, and not this description, define your
rights as a holder of debt securities. Some of the definitions are repeated in
this prospectus, but for the rest you will need to read the indentures. We have
filed the forms of the indentures as exhibits to a registration statement that
we have filed with the SEC, of which this prospectus is a part. See "Where You
Can Find More Information," for information on how to obtain copies of the
indentures.
General
The debt securities will be unsecured obligations of ClearOne. The
senior debt securities will rank equally with all of our other senior unsecured
and unsubordinated indebtedness. The subordinated debt securities will be
subordinate and junior in right of payment to all our existing and future Senior
Indebtedness (as defined below).
You should read the prospectus supplement for the following terms of
the series of debt securities offered by the prospectus supplement:
o The title of the debt securities and whether the debt securities
will be senior debt securities or subordinated debt securities.
o The aggregate principal amount of the debt securities, the
percentage of their principal amount at which the debt
securities will be issued and the date or dates when the
principal of the debt securities will be payable or how those
dates will be determined.
o The interest rate or rates, which may be fixed or variable, that
the debt securities will bear, if any, and how the rate or rates
will be determined.
o The date or dates from which any interest will accrue or how the
date or dates will be determined, the date or dates on which any
interest will be payable, any regular record dates for these
payments or how these dates will be determined and the basis on
which any interest will be calculated, if other than on the
basis of a 360-day year of twelve 30-day months.
15
o The place or places, if any, other than or in addition to the
Borough of Manhattan, New York City, of payment, transfer,
conversion and exchange of the debt securities and where notices
or demands to or upon us in respect of the debt securities may
be served.
o Any optional redemption provisions.
o Any sinking fund or other provisions that would obligate us to
repurchase or redeem the debt securities.
o Whether the amount of payments of principal of, or premium, if
any, or interest on the debt securities will be determined with
reference to an index, formula or other method, which could be
based on one or more commodities, equity indices or other
indices, and how these amounts will be determined.
o Any changes or additions to the events of default under the
applicable indenture or our covenants, including additions of
any restrictive covenants, with respect to the debt securities.
o If not the principal amount of the debt securities, the portion
of the principal amount that will be payable upon acceleration
of the maturity of the debt securities or how that portion will
be determined.
o Any changes or additions to the provisions concerning defeasance
and covenant defeasance contained in the indenture that will be
applicable to the debt securities.
o Any provisions granting special rights to the holders of the
debt securities upon the occurrence of specified events.
o If other than the trustee, the name of any paying agent,
security registrar and transfer agent for the debt securities.
o If the debt securities are not to be issued in book-entry form
only and held by The Depository Trust Company, as depositary,
the form of such debt securities, including whether such debt
securities are to be issuable in permanent or temporary global
form, as registered securities, bearer securities or both, any
restrictions on the offer, sale or delivery of bearer securities
and the terms, if any, upon which bearer securities of the
series may be exchanged for registered securities of the series
and vice versa, if permitted by applicable law and regulations.
o If other than US dollars, the currency or currencies of such
debt securities.
o The person to whom any interest in a debt security will be
payable, if other than the registered holder at the close of
business on the regular record date.
o The denomination or denominations that the debt securities will
be issued, if other than denominations of $1,000 or any integral
multiples in the case of the registered securities and $5,000 or
any integral multiples in the case of the bearer securities.
o Whether such debt securities will be convertible into or
exchangeable for any other securities and, if so, the terms and
conditions upon which such debt securities will be so
convertible or exchangeable.
o A discussion of federal income tax, accounting and other special
considerations, procedures and limitations with respect to the
debt securities.
o Whether and under what circumstances we will pay additional
amounts to holders in respect of any tax assessment or
government charge, and, if so, whether we will have the option
to redeem the debt securities rather than pay such additional
amounts.
16
o Any other terms of the debt securities that are consistent with
the provisions of the indenture.
For purposes of this prospectus, any reference to the payment of
principal of, any premium on, or any interest on, debt securities will include
additional amounts if required by the terms of such debt securities.
The indentures do not limit the amount of debt securities that we are
authorized to issue from time to time. The indentures also provide that there
may be more than one trustee thereunder, each for one or more series of debt
securities. At a time when two or more trustees are acting under the indenture,
each with respect to only certain series, the term "debt securities" means the
series of debt securities for which each respective trustee is acting. If there
is more than one trustee under the indenture, the powers and trust obligations
of each trustee will apply only to the debt securities for which it is trustee.
If two or more trustees are acting under the indenture, then the debt securities
for which each trustee is acting would be treated as if issued under separate
indentures.
We may issue debt securities with terms different from those of debt
securities that may already have been issued. Without the consent of the holders
thereof, we may reopen a previous issue of a series of debt securities and issue
additional debt securities of that series unless the reopening was restricted
when that series was created.
There is no requirement that we issue debt securities in the future
under any indenture, and we may use other indentures or documentation,
containing different provisions in connection with future issues of other debt
securities.
We may issue the debt securities as original issue discount securities,
which are debt securities, including any zero-coupon debt securities, that are
issued and sold at a discount from their stated principal amount. Original issue
discount securities provide that, upon acceleration of their maturity, an amount
less than their principal amount will become due and payable. We will describe
the U.S. federal income tax consequences and other considerations applicable to
original issue discount securities in any prospectus supplement relating to
them.
Conversion and Exchange
If any debt securities are convertible into or exchangeable for other
securities, the prospectus supplement will explain the terms and conditions of
such conversion or exchange, including:
o the conversion price or exchange ratio, or the calculation
method for such price or ratio;
o the conversion or exchange period, or how such period will be
determined;
o if conversion or exchange will be mandatory or at the option of
the holder or ClearOne;
o any requirements with respect to the reservation of shares of
securities for purposes of conversion;
o provisions for adjustment of the conversion price or the
exchange ratio; and
o provisions affecting conversion or exchange in the event of the
redemption of the debt securities.
Such terms may also include provisions under which the number or amount
of other securities to be received by the holders of such debt securities upon
conversion or exchange would be calculated according to the market price of such
other securities as of a time stated in the prospectus supplement.
Additional Mechanics
Form, Exchange and Transfer
The debt securities will be issued:
o as registered securities; or
17
o if so provided in the prospectus supplement, as bearer
securities (unless otherwise stated in the prospectus
supplement, with interest coupons attached); or
o in global form, see "Securities We May Issue - Global
Securities;" or
o in denominations that are even multiples of $1,000, in the case
of registered securities, and in even multiples of $5,000, in
the case of bearer securities, unless otherwise specified in the
applicable prospectus supplement.
You may have your registered securities divided into registered
securities of smaller denominations or combined into registered securities of
larger denominations, as long as the aggregate principal amount is not changed.
This is called an "exchange."
You may exchange or transfer registered securities of a series at the
office of the trustee in New York City. That office is currently located at The
Bank of New York, 101 Barclay Street, Floor 21West, New York, New York 10286,
Attn: Corporate Trust Administration. The trustee maintains the list of
registered holders and acts as our securities registrar for registering debt
securities in the names of holders and transferring debt securities. However, we
may appoint another trustee to act as our securities registrar or we may act as
our own securities registrar. If we designate additional securities registrars,
they will be named in the prospectus supplement. We may cancel the designation
of any particular securities registrar. We may also approve a change in the
office through which any securities registrar acts. If provided in the
prospectus supplement, you may exchange your bearer securities for registered
securities of the same series so long as the total principal amount is not
changed. Unless otherwise specified in the prospectus supplement, bearer
securities will not be issued in exchange for registered securities.
You will not be required to pay a service charge to transfer or
exchange debt securities, but you may in certain circumstances be required to
pay for any tax or other governmental charge associated with the exchange or
transfer. The transfer or exchange will only be made if the transfer agent is
satisfied with your proof of ownership and/or transfer documentation.
If the debt securities are redeemable and we redeem less than all of
the debt securities of a particular series, we may block the transfer or
exchange of debt securities for 15 days before the day we mail the notice of
redemption or publish such notice (in the case of bearer securities) and ending
on the day of that mailing or publication in order to freeze the list of holders
to prepare the mailing. At our option, we may mail or publish such notice of
redemption through an electronic medium. We may also refuse to register
transfers or exchanges of debt securities selected for redemption, except that
we will continue to permit transfers and exchanges of the unredeemed portion of
any debt security being partially redeemed.
Paying and Paying Agents
If you are a holder of registered securities, we will pay interest to
you if you are a direct holder in the list of registered holders at the close of
business on a particular day in advance of each due date for interest, even if
you no longer own the security on the interest due date. That particular time
and day, usually about two weeks in advance of the interest due date, is called
the "Regular Record Date" and is stated in the prospectus supplement. Holders
buying and selling debt securities must work out between them how to compensate
for the fact that we will pay all the interest for an interest period to the one
who is the registered holder on the Regular Record Date. The most common manner
is to adjust the sales price of the debt securities to prorate interest fairly
between buyer and seller. This prorated interest amount is called "accrued
interest."
With respect to registered securities, we will pay interest, principal
and any other money due on the debt securities at the corporate trust office of
the trustee in New York City. That office is currently located at The Bank of
New York, 101 Barclay Street, Floor 21 West, New York, New York 10286, Attn:
Corporate Trust Administration. You must make arrangements to have your payments
picked up at or wired from that office. We may also choose to pay interest by
mailing checks or making wire transfers.
18
"Street name" and other indirect holders should consult their banks or
brokers for information on how they will receive payments.
If bearer securities are issued, unless otherwise provided in the
prospectus supplement, we will maintain an office or agency outside the United
States for the payment of all amounts due on the bearer securities. If debt
securities are listed on the Luxembourg Stock Exchange or any other stock
exchange located outside the United States, we will maintain an office or agency
for such debt securities in any city located outside the United States required
by such stock exchange. The initial locations of such offices and agencies will
be specified in the prospectus supplement. Unless otherwise provided in the
prospectus supplement, payment of interest on any bearer securities on or before
maturity will be made only against surrender of coupons for such interest
installments as they mature. Unless otherwise provided in the prospectus
supplement, no payment with respect to any bearer security will be made at any
office or agency of ClearOne in the United States or by check mailed to any
address in the United States or by transfer to an account maintained with a bank
located in the United States. Notwithstanding the foregoing, payments of
principal, premium and interest, if any, on bearer securities payable in US
dollars may be made, at the office of our paying agent in The City of New York
if (but only if) payment of the full amount in US dollars at all offices or
agencies outside the United States is illegal or effectively precluded by
exchange controls or other similar restrictions.
Regardless of who acts as the paying agent, all money paid by us to a
paying agent that remains unclaimed at the end of two years after the amount is
due to registered holders will be repaid to us. After that two-year period, you
may look only to us for payment and not to the trustee, any other paying agent
or anyone else.
We may also arrange for additional payment offices, and may cancel or
change these offices, including our use of the trustee's corporate trust office.
We may also choose to act as our own paying agent. We must notify you of changes
in identities of the paying agents for any particular series of debt securities.
Notices
With respect to registered securities, we and the trustee will send
notices regarding the debt securities only to registered holders, using their
addresses as listed in the list of registered holders. With respect to bearer
securities, we and the trustee will give notice by publication in a newspaper of
general circulation in the City of New York or in such other cities that may be
specified in a prospectus supplement. At our option, we may send or publish
notices through an electronic medium as specified in the applicable prospectus
supplement.
Events of Default
You will have special rights if an event of default occurs in respect
of the debt securities of your series and is not cured, as described later in
this subsection.
What is an Event of Default? The term "event of default" in respect of
the debt securities of your series means any of the following:
o We do not pay the principal of or any premium on a debt security
of such series on its due date.
o We do not pay interest on a debt security of such series within
30 days of its due date whether at maturity, upon redemption or
upon acceleration.
o We do not deposit any sinking fund payment in respect of debt
securities of such series on its due date.
o We remain in breach of a covenant in respect of debt securities
of such series for 60 days after we receive a written notice of
default stating we are in breach and requiring that we remedy
the breach. The notice must be sent by either the trustee or
holders of 25% of the principal amount of debt securities of
such series.
o We file for bankruptcy or certain other events in bankruptcy,
insolvency or reorganization occur.
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o Any other event of default in respect of debt securities of such
series described in the prospectus supplement occurs.
The events of default described above may be added to or modified as
described in the applicable prospectus supplement. An event of default for a
particular series of debt securities does not necessarily constitute an event of
default for any other series of debt securities issued under an indenture. The
trustee may withhold notice to the holders of debt securities of any default
(except in the payment of principal or interest) if it considers such
withholding of notice to be in the best interests of the holders.
Remedies if an Event of Default Occurs. If an event of default has
occurred and has not been cured with respect to one or more series of debt
securities, the trustee or the holders of 25% in principal amount of the debt
securities of the affected series may declare the entire principal amount of all
the debt securities of that series to be due and immediately payable. Only a
portion of the principal is payable if the securities were issued at a discount.
This is called a declaration of acceleration of maturity. If an event of default
occurs because of certain events in bankruptcy, insolvency or reorganization,
the principal amount of all the debt securities of that series will be
automatically accelerated, without any action by the trustee or any holder.
There are special notice and timing rules which apply to the acceleration of
subordinated debt securities which are designed to protect the interests of
holders of senior debt. A declaration of acceleration of maturity may be
cancelled by the holders of at least a majority in principal amount of the debt
securities of the affected series if (1) we have paid or deposited with the
trustee a sum sufficient in cash to pay all principal, interest and additional
amounts, if any, which have become due other than by the declaration of
acceleration of maturity, (2) all existing events of default, other than the
nonpayment of principal of or premium or interest, if any, on the debt
securities of such series which have become due solely because of the
acceleration, have been cured or waived and (3) the rescission would not
conflict with any judgment or decree of a court of competent jurisdiction.
Except in cases of default, where the trustee has some special duties,
the trustee is not required to take any action under the indenture at the
request of the holders unless the holders offer the trustee reasonable
protection from expenses and liability, called an "indemnity". If reasonable
indemnity is provided, the holders of a majority in principal amount of the
outstanding debt securities of the relevant series may direct the time, method
and place of conducting any lawsuit or other formal legal action seeking any
remedy available to the trustee. The trustee may refuse to follow those
directions in certain circumstances. No delay or omission in exercising any
right or remedy accruing upon any event of default will be treated as a waiver
of such right, remedy or event of default.
Before you are allowed to bypass the trustee and bring your own lawsuit
or other formal legal action or take other steps to enforce your rights or
protect your interests relating to the debt securities, the following must
occur:
o You must give the trustee written notice that an event of
default has occurred and remains uncured.
o The holders of not less than 25% in principal amount of all
outstanding debt securities of the relevant series must make a
written request that the trustee take action because of the
default and must offer reasonable indemnity to the trustee
against the cost and other liabilities of taking that action.
o The trustee must not have taken action for 60 days after receipt
of the above notice and offer of indemnity.
o The holders of a majority in principal amount of the debt
securities must not have given the trustee a direction
inconsistent with the above notice during the 60-day period.
However, notwithstanding the conditions described above, you are
entitled at any time to bring a lawsuit for the payment of money due on your
debt securities on or after the due date.
Holders of a majority in principal amount of the debt securities of the
affected series may waive any past defaults other than (1) the payment of
principal, any premium or interest or (2) in respect of a covenant or other
provision that cannot be modified or amended without the consent of each holder.
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"Street name" and other indirect holders should consult their banks or
brokers for information on how to give notice or direction or to make a request
of the trustee and to make or cancel a declaration of acceleration.
Each year, we will furnish to the trustee a written statement of
certain of our officers certifying that to their knowledge we are in compliance
with the indentures and the debt securities, or else specifying any default.
Merger or Consolidation
Under the terms of the indentures, we are generally permitted to
consolidate or merge with another entity. We are also permitted to sell all or
substantially all of our assets to another entity. However, we may not take any
of these actions unless all the following conditions are met:
o either we will be the surviving corporation or, if we merge out
of existence or sell assets, the entity into which we merge or
to which we sell assets must agree to be legally responsible for
the debt securities;
o immediately after the merger or transfer of assets, no default
on the debt securities can exist. A default for this purpose
includes any event that would be an event of default if the
requirements for giving a default notice or of having the
default exist for a specific period of time were disregarded;
o we must deliver certain certificates and documents to the
trustee; and
o we must satisfy any other requirements specified in the
prospectus supplement.
Modification or Waiver
There are three types of changes we can make to the indentures and the
debt securities.
Changes Requiring Approval of Each Holder. First, there are changes
that cannot be made to your debt securities without the approval of each holder.
Following is a list of those types of changes:
o changing the stated maturity of the principal of or interest on
a debt security;
o reducing any amounts due on a debt security or payable upon
acceleration of the maturity of a security following a default;
o adversely affecting any right of repayment at the holder's
option;
o changing the place (except as otherwise described in this
prospectus) or currency of payment on a debt security;
o impairing your right to sue for payment or to convert or
exchange a security;
o in the case of subordinated debt securities, modifying the
subordination provisions in a manner that is adverse to holders
of the subordinated debt securities;
o in the case of senior debt securities, modifying the securities
to subordinate the securities to other indebtedness;
o reducing the percentage of holders of debt securities whose
consent is needed to modify or amend the indenture;
o reducing the percentage of holders of debt securities whose
consent is needed to waive compliance with certain provisions of
the indenture or to waive certain defaults;
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o reducing the requirements for quorum or voting with respect to
the debt securities;
o modifying any other aspect of the provisions of the indenture
dealing with modification and waiver except to increase the
voting requirements;
o change in any of our obligations to pay additional amounts which
are required to be paid to holders with respect to taxes imposed
on such holders in certain circumstances; and
o other provisions specified in the prospectus supplement.
Changes Requiring a Majority Vote. The second type of change to the
indenture and the outstanding debt securities is the kind that requires a vote
in favor by holders of outstanding debt securities owning a majority of the
principal amount of the particular series affected. Separate votes will be
needed for each series even if they are affected in the same way. Most changes
fall into this category, except for clarifying changes and certain other changes
that would not adversely affect holders of the outstanding debt securities in
any material respect. The same vote would be required for us to obtain a waiver
of all or part of certain covenants in the applicable indenture, or a waiver of
a past default. However, we cannot obtain a waiver of a payment default or any
other aspect of the indentures or the outstanding debt securities listed in the
first category described previously under "- Changes Requiring Approval of Each
Holder" unless we obtain your individual consent to the waiver.
Changes Not Requiring Approval. The third type of change does not
require any vote by holders of outstanding debt securities. This type is limited
to clarifications; curing ambiguities, defects or inconsistencies and certain
other changes that would not adversely affect holders of the outstanding debt
securities in any material respect. Qualifying or maintaining the qualification
of the indentures under the Trust Indenture Act does not require any vote by
holders of debt securities.
Further Details Concerning Voting. When taking a vote, we will use the
following rules to decide how much principal amount to attribute to a debt
security:
o for original issue discount securities, we will use the
principal amount that would be due and payable on the voting
date if the maturity of the debt securities were accelerated to
that date because of a default; and
o for debt securities whose principal amount is not known (for
example, because it is based on an index), we will use a special
rule for that debt security described in the prospectus
supplement.
Debt securities will not be considered outstanding, and therefore not
eligible to vote, if we have deposited or set aside in trust for you money for
their payment or redemption. Debt securities will also not be eligible to vote
if they have been fully defeased as described later under "Defeasance - Full
Defeasance."
We will generally be entitled to set any day as a record date for the
purpose of determining the holders of outstanding indenture securities that are
entitled to vote or take other action under the indentures.
We are not required to set a record date. If we set a record date for a
vote or other action to be taken by holders of a particular series, that vote or
action may be taken only by persons who are holders of outstanding securities of
that series on the record date and must be taken within 180 days following the
record date or another period that we may specify. We may shorten or lengthen
this period from time to time.
"Street name" and other indirect holders should consult their banks or
brokers for information on how approval may be granted or denied if we seek to
change the indenture or the debt securities or request a waiver.
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Satisfaction and Discharge
The indentures will cease to be of further effect, and we will be
deemed to have satisfied and discharged the indentures with respect to a
particular series of debt securities, when (1) all debt securities of that
series have been delivered to the trustee for cancellation or (2) the following
conditions have been satisfied:
o all debt securities of that series not previously delivered to
the trustee for cancellation have become due and payable or will
become due and payable at their stated maturity or on a
redemption date within one year;
o we deposit with the trustee, in trust, funds sufficient to pay
the entire indebtedness on the debt securities of that series
that had not been previously delivered for cancellation, for the
principal and interest to the date of the deposit (for debt
securities that have become due and payable) or to the stated
maturity or the redemption date, as the case may be (for debt
securities that have not become due and payable);
o we have paid or caused to be paid all other sums payable under
the indentures in respect of that series; and
o we have delivered to the trustee an officer's certificate and
opinion of counsel, each stating that all these conditions have
been complied with.
We will remain obligated to provide for registration of transfer and
exchange and to provide notices of redemption.
Defeasance
The following discussion of full defeasance and covenant defeasance
will be applicable to your series of debt securities only if we choose to have
them apply to that series. If we choose to do so, we will state that in the
applicable prospectus supplement and describe any changes to these provisions.
Full Defeasance. If there is a change in federal tax law, as described
below, we can legally release ourselves from any payment or other obligations on
the debt securities, called "full defeasance", if we put in place the following
other arrangements for you to be repaid:
o We must deposit in trust for your benefit and the benefit of all
other registered holders of the debt securities a combination of
money and U.S. government or U.S. government agency notes or
bonds that will generate enough cash to make interest, principal
and any other payments on the debt securities on their various
due dates including, possibly, their earliest redemption date.
o Under current federal tax law, the deposit and our legal release
from the debt securities would likely be treated as though you
surrendered your debt securities in exchange for your share of
the cash and notes or bonds deposited in trust. In that event,
you could recognize income, gain or loss on the debt securities
you surrendered. In order for us to effect a full defeasance we
must deliver to the trustee a legal opinion confirming that you
will not recognize income, gain or loss for federal income tax
purposes as a result of the defeasance and that you will not be
taxed on the debt securities any differently than if we did not
make the deposit and just repaid the debt securities ourselves.
o We must comply with any additional provisions set forth in the
prospectus supplement.
If we accomplish a full defeasance as described above, you would have
to rely solely on the trust deposit for repayment on the debt securities. You
could not look to us for repayment in the unlikely event of any shortfall.
Conversely, the trust deposit would most likely be protected from claims of our
lenders and other creditors if we ever become bankrupt or insolvent. You would
also be released from any applicable subordination provisions on the
subordinated debt securities described below under "- Subordination."
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Covenant Defeasance. Under current federal tax law, we can make the
same type of deposit described above and be released from the restrictive
covenants in the debt securities, if any. This is called "covenant defeasance."
In that event, you would lose the protection of those restrictive covenants but
would gain the protection of having money and securities set aside in trust to
repay the debt securities, and you would be released from any applicable
subordination provisions on the subordinated debt securities described later
under " - Subordination." In order to achieve covenant defeasance, we must do
the following:
o We must deposit in trust for your benefit and the benefit of all
other registered holders of the debt securities a combination of
money and U.S. government or U.S. government agency notes or
bonds that will generate enough cash to make interest, principal
and any other payments on the debt securities on their various
due dates.
o We must deliver to the trustee a legal opinion confirming that
under current federal income tax law we may make the above
deposit without causing you to be taxed on the debt securities
any differently than if we did not make the deposit and just
repaid the debt securities ourselves.
o We must comply with any additional provisions set forth in the
prospectus supplement.
If we accomplish covenant defeasance, the following provisions of the
indenture and the debt securities would no longer apply unless otherwise
specified:
o our promises regarding conduct of our business and other matters
and any other covenants applicable to the series of debt
securities that will be described in the prospectus supplement;
and
o the definition of an event of default as a breach of such
covenants that may be specified in the prospectus supplement.
If we accomplish covenant defeasance, you can still look to us for
repayment of the debt securities if there were a shortfall in the trust deposit.
In fact, if one of the remaining events of default occurs (such as our
bankruptcy) and the debt securities become immediately due and payable, there
may be such a shortfall. Depending on the event causing the default, of course,
you may not be able to obtain payment of the shortfall.
In order to exercise either full defeasance or covenant defeasance, we
must comply with certain conditions, and no event or condition can exist that
would prevent us from making payments of principal, premium, and interest, if
any, on the senior debt securities or subordinated debt securities of such
series on the date the irrevocable deposit is made or at any time during the
period ending on the 91st day after the deposit date.
Ranking
Unless provided otherwise in the applicable prospectus supplement, the
debt securities are not secured by any of our property or assets. Accordingly,
your ownership of debt securities means you are one of our unsecured creditors.
The senior debt securities are not subordinated to any of our other debt
obligations and therefore they rank equally with all our other unsecured and
unsubordinated indebtedness. The subordinated debt securities are subordinated
to some of our existing and future debt and other liabilities. See "-
Subordination" for additional information on how subordination limits your
ability to receive payment or pursue other rights if we default or have certain
other financial difficulties.
Subordination
Unless the prospectus supplement provides otherwise, the following
provisions will apply to the subordinated debt securities:
The payment of principal, any premium and interest on the subordinated
debt securities is subordinated in right of payment to the prior payment in full
of all of our Senior Indebtedness (as such term is defined in the subordinated
indenture). This means that in certain circumstances where we may not be making
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payments on all of our debt obligations as they become due, the holders of all
of our Senior Indebtedness will be entitled to receive payment in full of all
amounts that are due or will become due on the Senior Indebtedness before you
and the other holders of subordinated debt securities will be entitled to
receive any payment or distribution (other than in the form of subordinated
securities) on the subordinated debt securities. These circumstances may include
the following:
o We make a payment or distribute assets to creditors upon any
liquidation, dissolution, winding up or reorganization of
ClearOne, or as part of an assignment or marshalling of our
assets for the benefit of our creditors.
o We file for bankruptcy or certain other events in bankruptcy,
insolvency or similar proceedings occur.
o The maturity of the subordinated debt securities is accelerated.
For example, the entire principal amount of a series of
subordinated debt securities may be declared to be due and
payable and immediately payable or may be automatically
accelerated due to an event of default as described under " -
Events of Default."
In addition, in general, we will not be permitted to make payments of
principal, any premium or interest on the subordinated debt securities if we
default in our obligation to make payments on our Senior Indebtedness and do not
cure such default. We are also prohibited from making payments on subordinated
debt securities if an event of default (other than a payment default) that
permits the holders of Senior Indebtedness to accelerate the maturity of the
Senior Indebtedness occurs and we and the trustee have received a notice of such
event of default. However, unless the Senior Indebtedness has been accelerated
because of that event of default, this payment blockage notice cannot last more
than 179 days.
These subordination provisions mean that if we are insolvent, a holder
of Senior Indebtedness is likely to ultimately receive out of our assets more
than a holder of the same amount of our subordinated debt securities, and a
creditor of ClearOne that is owed a specific amount but who owns neither our
Senior Indebtedness nor our subordinated debt securities may ultimately receive
less than a holder of the same amount of Senior Indebtedness and more than a
holder of subordinated debt securities.
The subordinated indenture does not limit the amount of Senior
Indebtedness we are permitted to have and we may in the future incur additional
Senior Indebtedness.
If this prospectus is being delivered in connection with a series of
subordinated securities, the accompanying prospectus supplement or the
information incorporated by reference will set forth the approximate amount of
Senior Indebtedness outstanding as of a recent date.
The Trustee
The initial trustee under each indenture will be The Bank of New York.
The Bank of New York will also be the initial paying agent and registrar for the
debt securities.
Each indenture provides that, except during the continuance of an event
of default under the indenture, the trustee under the indenture will perform
only such duties as are specifically set forth in the indenture. Under the
indenture, the holders of a majority in outstanding principal amount of the debt
securities will have the right to direct the time, method and place of
conducting any proceeding or exercising any remedy available to the trustee
under the indenture, subject to certain exceptions. If an event of default has
occurred and is continuing, the trustee under the indenture will exercise such
rights and powers vested in it under the indenture and use the same degree of
care and skill in its exercise as a prudent person would exercise under the
circumstances in the conduct of such person's own affairs.
Each indenture and provisions of the Trust Indenture Act incorporated
by reference in the indenture contain limitations on the rights of the trustee
under such indenture, should it become a creditor of ClearOne, to obtain payment
of claims in certain cases or to realize on certain property received by it in
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respect of any such claims, as security or otherwise. The trustee under the
indenture is permitted to engage in other transactions. However, if the trustee
under the indenture acquires any prohibited conflicting interest, it must
eliminate the conflict or resign.
Each trustee may resign or be removed with respect to one or more
series of securities and a successor trustee may be appointed to act with
respect to such series. In the event that two or more persons are acting as
trustee with respect to different series of securities under one of the
indentures, each such trustee shall be a trustee of a trust separate and apart
from the trust administered by any other such trustee and any action described
herein to be taken by the "trustee" may then be taken by each such trustee with
respect to, and only with respect to, the one or more series of securities for
which it is trustee.
In the event that an entity is the trustee under both the senior
indenture and the subordinated indenture, and a conflict of interest arises as a
result, the trustee must resign as trustee under (1) either of the indentures
or, if this does not eliminate the conflict of interest, (2) both the
indentures.
Governing Law
The indentures and the debt securities will be governed by, and
construed in accordance with, the laws of the State of New York.
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DESCRIPTION OF WARRANTS
We may issue warrants for the purchase of (1) debt securities or (2)
common stock. Warrants may be issued independently or together with any debt
securities or common stock offered by any prospectus supplement and may be
attached to or separate from the debt securities or common stock. The warrants
are to be issued under warrant agreements to be entered into between ClearOne
and a bank or trust company named in the prospectus supplement as warrant agent
relating to the particular issue of warrants. The warrant agent will act solely
as an agent of ClearOne in connection with the warrants and will not assume any
obligation or relationship of agency or trust for or with any holders of
warrants or beneficial owners of warrants. This section is a summary of the
material terms of the warrant agreement; it does not describe every aspect of
the warrants. We urge you to read the warrant agreement because it, and not this
description, defines your rights as a warrant holder.
General
If warrants are offered, the prospectus supplement will describe the
terms of the warrants, including the following:
o the offering price;
o the designation, aggregate principal amount and terms of the
debt securities purchasable upon exercise of the debt warrants
and the price at which such debt securities may be purchased
upon such exercise;
o the designation, number of shares and terms of the common stock
purchasable upon exercise of the common stock warrants and the
price at which such shares of common stock may be purchased upon
such exercise;
o if applicable, the designation and terms of the debt securities
or common stock with which the warrants are issued and the
number of warrants issued with each such debt security or common
stock;
o if applicable, the date on and after which the warrants and the
related debt securities or common stock will be separately
transferable;
o the date on which the right to exercise the warrants shall
commence and the date on which such right shall expire;
o whether the warrants will be sold with any other offered
securities and, if so, the amount and terms of these other
securities;
o a discussion of certain federal income tax, accounting and other
special considerations, procedures and limitations relating to
the warrants; and
o any other terms of the warrants.
Warrants may be exchanged for new warrants of different denominations.
If in registered form, warrants may be presented for registration of transfer,
and may be exercised at the corporate trust office of the warrant agent or any
other office indicated in the prospectus supplement. Before the exercise of
their warrants, holders of warrants will not have any of the rights of holders
of the securities purchasable upon such exercise, including the right to receive
payments of principal of, any premium on, or any interest on, the debt
securities purchasable upon such exercise or to enforce the covenants in the
indentures or to receive payments of dividends, if any, on the common stock
purchasable upon such exercise or to exercise any applicable right to vote. If
ClearOne maintains the ability to reduce the exercise price of any stock warrant
and such right is triggered, ClearOne will comply with the federal securities
laws, including Rule 14e-4 under the Exchange Act, to the extent applicable.
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Exercise of Warrants
Each warrant will entitle the holder to purchase such principal amount
of debt securities or such number of shares of common stock at such exercise
price as shall in each case be set forth in, or can be calculated according to
information contained in, the prospectus supplement relating to the warrant.
Warrants may be exercised at such times as are set forth in the prospectus
supplement relating to such warrants. After the close of business on the
expiration date of the warrants, or such later date to which such expiration
date may be extended by ClearOne, unexercised warrants will become void.
Subject to any restrictions and additional requirements that may be set
forth in the prospectus supplement, warrants may be exercised by delivery to the
warrant agent of the certificate evidencing such warrants properly completed and
duly executed and of payment as provided in the prospectus supplement of the
amount required to purchase the debt securities or common stock purchasable upon
such exercise. The exercise price will be the price applicable on the date of
payment in full, as set forth in the prospectus supplement relating to the
warrants. Upon receipt of such payment and the certificate representing the
warrants to be exercised, properly completed and duly executed at the corporate
trust office of the warrant agent or any other office indicated in the
prospectus supplement, ClearOne will, as soon as practicable, issue and deliver
the debt securities or common stock purchasable upon such exercise. If fewer
than all of the warrants represented by such certificate are exercised, a new
certificate will be issued for the remaining amount of warrants.
Additional Provisions
The exercise price payable and the number of shares of common stock
purchasable upon the exercise of each stock warrant will be subject to
adjustment in certain events, as described in the prospectus supplement,
including the issuance of the stock dividend to holders of common stock,
respectively, or a combination, subdivision or reclassification of common stock.
In lieu of adjusting the number of shares of common stock purchasable upon
exercise of each stock warrant, we may elect to adjust the number of stock
warrants. No adjustment in the number of shares purchasable upon exercise of the
stock warrants will be required until cumulative adjustments require an
adjustment of at least 1% thereof. We may, at our option, reduce the exercise
price at any time. No fractional shares will be issued upon exercise of stock
warrants, but we will pay the cash value of any fractional shares otherwise
issuable. Notwithstanding the foregoing, in case of any consolidation, merger,
or sale or conveyance of the property of ClearOne as an entirety or
substantially as an entirety, the holder of each outstanding stock warrant shall
have the right upon the exercise thereof to the kind and amount of shares of
stock and other securities and property, including cash, receivable by a holder
of the number of shares of common stock into which such stock warrants were
exercisable immediately prior thereto.
No Rights as Holders of Securities
Holders of stock warrants will not be entitled, by virtue of being such
holders, to vote, to consent, to receive dividends, to receive notice as
stockholders with respect to any meeting of stockholders for the election of
directors of ClearOne or any other matter, or to exercise any rights whatsoever
as stockholders of ClearOne.
Holders of debt warrants will not be entitled, by virtue of being such
holders, to vote, to consent, to receive payment of principal, interest, or
premium if any, on the underlying securities or to exercise any rights
whatsoever as holders of the underlying securities.
Modifications to Warrants
There are three types of changes we can make to a warrant agreement and
the warrants issued thereunder.
Changes Requiring Approval of Each Holder. First, with respect to a
specific title of warrants, there are changes that cannot be made to the
warrants without the approval of each holder of the warrants of such title.
Those types of changes include modifications and amendments that:
o accelerate the expiration date;
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o reduce the percentage of holders of outstanding debt warrants
whose consent is required for a modification or amendment; or
o otherwise materially and adversely affect other terms that may
be set forth in the prospectus supplement.
Changes Not Requiring Approval. The second type of change does not
require any vote by holders of the warrants. This type of change is limited to
clarifications and other changes that would not materially adversely affect the
interests of holders of the warrants.
Changes Requiring a Majority Vote. Any other change to a warrant
agreement and the warrants requires a vote in favor by holders of not fewer than
a majority in number of the then outstanding unexercised warrants affected
thereby. Most changes fall into this category.
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DESCRIPTION OF COMMON STOCK
General
We are authorized to issue 50,000,000 shares of common stock, par value
of $0.001 per share. As of June 30, 2002, there were 11,178,392 shares of common
stock outstanding held by approximately 376 stockholders of record. The
following discussion describes provisions of ClearOne's articles of
incorporation and bylaws and the Utah Revised Business Corporation Act (the
"URBCA").
Voting Rights of Common Stock
Holders of the common stock are entitled to one vote per share on all
matters submitted to a vote of stockholders generally. The rights of holders of
common stock may be modified otherwise than by a vote of the majority or more of
the shares of common stock outstanding. The rights of holders may be modified at
a meeting of common stockholders if a quorum exists and the votes cast for such
modification exceed the votes cast against such modification. A majority of the
votes entitled to be cast upon a matter constitutes a quorum.
Dividends on Common Stock
The holders of the common stock are entitled to receive, pro rata,
dividends as may be declared by our Board of Directors out of funds legally
available for the payment of dividends. However, we are prohibited by the terms
of our revolving credit loan from paying a dividend on our common stock. As of
the date of this prospectus we have not, nor do we intend to, make dividend
payments of common stock.
Other Provisions and Information Applicable to the Common Stock
There are no preemptive rights to subscribe for any additional
securities that we may issue. There are no redemption provisions or sinking fund
provisions applicable to the common stock, nor is the common stock subject to
calls or assessments by ClearOne.
In the event of any liquidation, dissolution or winding-up of the
affairs of ClearOne, holders of common stock will be entitled to share ratably
in the assets of ClearOne remaining after payment or provision for payment of
all of ClearOne's debts and obligations.
Under the URBCA, in connection with a merger, share exchange or sale,
lease, exchange or other disposition of all or substantially all of the assets
of a corporation (other than in the ordinary course of the corporation's
business), a dissenting stockholder, after complying with certain procedures, is
entitled to payment from the corporation of the fair value of the stockholder's
shares. The fair value is estimated by the corporation. However, if the
stockholder is unwilling to accept the corporation's estimate, the stockholder
may provide the corporation with an estimate of the fair value and demand
payment of that amount. If the corporation is unwilling to pay that amount, the
corporation shall apply for a judicial determination of the fair value. Unless
the articles of incorporation, bylaws or a resolution of the board of directors
provide otherwise, stockholders are not entitled to dissenters' rights when the
shares are listed on a national securities exchange or the National Market
System of NASDAQ, or are held of record by more than 2,000 holders. However,
this exception does not apply if, pursuant to the corporate action, the
stockholder will receive anything other than: (i) shares of the surviving
corporation; (ii) shares of a corporation that is or will be listed on a
national securities exchange, the National Market System of NASDAQ, or held of
record by more than 2,000 holders; (iii) cash in lieu of fractional shares; or
(iv) any combination of the foregoing.
Certain Anti-Takeover Provisions
The provisions of ClearOne's articles of incorporation and bylaws do
not contain anti-takeover provisions. ClearOne's articles of incorporation
provide that the number of directors shall not exceed nine and shall be fixed
from time to time by resolution by the board of directors. ClearOne's bylaws
30
provide that directors may be removed with or without cause. Removal of a
director requires that the votes cast by the stockholders to remove the director
exceed the number of votes cast not to remove the director.
The Utah Control Share Acquisition Act (the "Share Acquisition Act"),
set forth in Sections 61-6-1 through 61-6-12 of the Utah Code Annotated,
generally provides that, when any person obtains shares (or the power to direct
the voting of shares) of "an issuing public corporation" such that the person's
voting power equals or exceeds any of three levels (20%, 331/3% or 50%), the
ability to vote (or to direct the voting of) the "control shares" is conditioned
on the approval by a majority of the corporation's shares (voting in voting
groups, if applicable), excluding the "interested shares." Stockholder approval
may occur at the next annual or special meeting of the stockholders, or, if the
acquiring person requests and agrees to pay the associated costs of the
corporation, at a special meeting of the stockholders to be held within 50 days
of the corporation's receipt of the request by an acquiring person. If
authorized by the articles of incorporation or the bylaws, the corporation may
redeem "control shares" at the fair market value if the acquiring person fails
to file an "acquiring person statement" or if the stockholders do not grant
voting rights to control shares. The ClearOne articles of incorporation and
bylaws make no reference to the Share Acquisition Act. If the stockholders grant
voting rights to the control shares, and if the acquiring person obtained a
majority of the voting power, stockholders may be entitled to dissenters' rights
under the URBCA. An acquisition of shares does not constitute a control share
acquisition within the meaning of the Share Acquisition Act if (1) the
corporation's article of incorporation of bylaws provide that the Share
Acquisition Act does not apply; (2) the acquisition is consummated pursuant to a
merger in accordance with the URBCA; or (3) under certain other specified
circumstances.
Limitation of Liability of Directors
The URBCA provides that a director or officer of a Utah corporation is
not liable to the corporation or its stockholders for any action taken, or any
failure to take any action, as an officer or director, unless (1) the director
or officer has breached or failed to perform the duties of the office (which
requires that the director or officer acted (A) in good faith, (B) with the care
an ordinary prudent person in like position would exercise under similar
circumstances and (C) in a manner that the director or officer reasonably
believes to be in the best interest of the corporation), and (2) the breach or
failure to perform constitutes gross negligence, willful misconduct or
intentional infliction of harm on the corporation or the stockholders. The URBCA
permits a corporation to eliminate or limit the liability of a director to the
corporation or its stockholders for monetary damages for any action taken or
failure to take any action, as a director, except liability for (1) the amount
of a financial benefit received by a director to which he is not entitled; (2)
an intentional infliction of harm on the corporation or its stockholders; (3)
voting for or assenting to an unlawful distribution of assets as defined under
the URBCA, or (4) an intentional violation of criminal law. ClearOne has not
limited such liability for its directors.
Indemnification of Directors and Officers
The ClearOne bylaws provide that it shall indemnify an individual made
a party to a proceeding because he is or was a director, against any liability
incurred in the proceeding if (1) the individual's conduct was in good faith;
(2) the individual reasonably believed that his conduct was in, or not opposed
to, the corporation's best interests; and (3) in the case of a criminal
proceeding he had no reasonable cause to believe his conduct was unlawful;
provided, however, that (x) in the case of an action by or in the right of the
corporation, indemnification is limited to reasonable expenses incurred in
connection with the proceeding and (y) the corporation may not, unless
authorized by a court of competent jurisdiction, indemnify an individual (A) in
connection with a proceeding by or in the right of the corporation in which the
individual was adjudged liable to the corporation or (B) in connection with any
other proceeding in which the individual is adjudged liable on the basis that he
derived an improper personal benefit. In a judicial proceeding under the
foregoing clause (y), in order to authorize indemnification, the court must
determine that the individual is fairly and reasonably entitled to
indemnification in view of all the relevant circumstances. A director is
entitled to mandatory indemnification if he was successful, on the merits or
otherwise, in the defense of any proceeding, or in the defense of any claim,
issue or matter in the proceeding to which he was a party because he is or was a
director of ClearOne, against the reasonable expenses incurred by him in
connection with the proceeding or claim with respect to which he was successful.
ClearOne must also advance a director expenses under certain circumstances.
ClearOne may also indemnify and advance expenses to an officer, employee or
agent to any extent consistent with public policy.
31
The ClearOne articles of incorporation provide that ClearOne will
indemnify a director against any liability that may arise as a result of such
director contracting with ClearOne for the benefit of himself or any firm,
association or corporation in which such director may be interested in any way,
provided such director acts in good faith.
Transfer Agent and Registrar
American Stock Transfer & Trust Company is the transfer agent and
registrar for ClearOne's common stock.
32
PLAN OF DISTRIBUTION
We may sell the securities to one or more underwriters for public
offering or to investors directly or through agents. The name of any such
underwriter or agent involved in the offer and sale of the securities, the
amounts underwritten and the nature of its obligation to take the securities
will be named in the applicable prospectus supplement. We have reserved the
right to sell the securities directly to investors on our own behalf in those
jurisdictions where we are authorized to do so. The sale of the securities may
be effected in transactions (a) on any national or international securities
exchange or quotation service on which the securities may be listed or quoted at
the time of sale, (b) in the over-the-counter market, (c) in transactions
otherwise than on such exchanges or in the over-the-counter market or (d)
through the writing of options.
Underwriters may offer and sell the securities at a fixed price or
prices that may be changed, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices or at negotiated prices. They
may offer the securities on an exchange, which will be disclosed in the
applicable prospectus supplement. We may, from time to time, authorize dealers,
acting as our agents, to offer and sell the securities, upon such terms and
conditions as set forth in the applicable prospectus supplement. In connection
with the sale of the securities, underwriters may receive compensation from us
in the form of underwriting discounts or commissions and also may receive
commissions from purchasers of the securities for whom they may act as agent.
Underwriters may sell the securities to or through dealers, and such dealers may
receive compensation in the form of discounts, concessions or commissions from
the underwriters or commissions (which may be changed from time to time) from
the purchasers for whom they may act as agents.
Any underwriting compensation paid by ClearOne to underwriters or
agents in connection with the offering of the securities, and any discounts,
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in the applicable prospectus supplement. Dealers and agents
participating in the distribution of the securities may be deemed to be
underwriters, and any discounts and commissions received by them and any profit
realized by them on resale of the securities may be deemed to be underwriting
discounts and commissions under the Securities Act. Underwriters, dealers and
agents may be entitled, under agreements entered into with ClearOne, to
indemnification against and contribution towards certain civil liabilities,
including any liabilities under the Securities Act.
Until the distribution of the securities is completed, rules of the SEC
may limit the ability of the underwriters to bid for and purchase the
securities. As an exception to these rules, the underwriters are permitted to
engage in certain transactions that stabilize the price of the securities. Such
transactions consist of bids or purchases for the purpose of pegging, fixing or
maintaining the price of the securities. If the underwriters create a short
position in the securities in connection with the offering, i.e., if they sell
more securities than are set forth on the cover page of the applicable
prospectus supplement, the underwriters may reduce that short position by
purchasing securities in the open market. The underwriters also may impose a
penalty bid on certain underwriters. This means that if the underwriters
purchase the securities in the open market to reduce the underwriters' short
position or to stabilize the price of the securities, they may reclaim the
amount of the selling concession from the underwriters who sold those securities
as part of the offering. In general, purchases of a security for the purpose of
stabilization or to reduce a short position could cause the price of the
security to be higher than it might be in the absence of such purchases. The
imposition of a penalty bid might also have an effect on the price of a security
to the extent that it were to discourage resales of the security.
Other than the common stock, the securities issued hereunder may be new
issues of securities with no established trading market. Any underwriters or
agents to or through whom such securities are sold for public offering and sale
may make a market in such securities, but such underwriters or agents will not
be obligated to do so and may discontinue any market making at any time without
notice. No assurance can be given as to the liquidity of the trading market for
any such securities. The amount of expenses expected to be incurred by us in
connection with any issuance of securities will be set forth in the prospectus
supplement. Certain of the underwriters, dealers or agents and their associates
may engage in transactions with, and perform services for, ClearOne and certain
of our affiliates and in the ordinary course.
33
VALIDITY OF THE SECURITIES
The validity of our common stock issued hereunder will be passed upon
for ClearOne by Clyde Snow Sessions & Swenson, PC. The validity of other
securities issued hereunder will be passed upon for ClearOne by Shearman &
Sterling, Menlo Park, California.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements included in our Annual Report on Form 10-K for the year
ended June 30, 2001, as set forth in their report, which is incorporated by
reference in this prospectus. Our consolidated financial statements are
incorporated by reference in reliance on Ernst & Young LLP's report, given on
their authority as experts in accounting and auditing.
KPMG, Chartered Accountants, Dublin, Ireland, have audited the
financial statements of Ivron Systems, Ltd. for the three years to December 31,
2000 included in ClearOne's Form 8-K/A filed with the SEC on November 23, 2001,
which are incorporated by reference in this prospectus. Ivron Systems, Ltd.'s
financial statements are incorporated by reference in reliance on KPMG,
Chartered Accountants' report, given on their authority as experts in accounting
and auditing.
The financial statements incorporated in this prospectus by reference
from the Annual Report on Form 10-KSB of E.mergent, Inc. for the year ended
December 31, 2001, have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report, which is incorporated herein by reference,
and has been so incorporated in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
34
SUBJECT TO COMPLETON, DATED JULY 22, 2002
PROSPECTUS
CLEARONE COMMUNICATIONS, INC.
[LOGO]
We may offer and sell, from time to time, in one or more offerings, the
common stock described in this prospectus, for an aggregate offering price of up
to $100,000,000. Certain selling stockholders may also offer and sell up to
1,000,000 shares of our common stock from time to time, in one or more
offerings, pursuant to this prospectus. We will not receive any proceeds from
the sale of our common stock by the selling stockholders.
This prospectus may not be used to sell our common stock unless
accompanied by a prospectus supplement. We urge you to read carefully this
prospectus and the accompanying prospectus supplement before you make your
investment decision.
Our common stock trades on the Nasdaq National Market under the symbol
"CLRO".
Investing in our common stock involves risks. You should carefully
consider the risk factors set forth in the applicable supplement to this
prospectus before investing in any securities that may be offered. See "Risk
Factors" beginning on page 3.
-----------------
Neither the Securities and Exchange Commission nor any other regulatory
body has approved or disapproved of these securities or passed upon the adequacy
or accuracy of this prospectus. Any representation to the contrary is a criminal
offense.
-----------------
The date of this prospectus is July 22, 2002
35
TABLE OF CONTENTS
Page
----
About This Prospectus.......................................................1
Where You Can Find More Information.........................................1
Forward-Looking Statements..................................................2
ClearOne Communications, Inc................................................3
Risk Factors................................................................3
Use Of Proceeds.............................................................3
Unaudited Pro Forma Condensed Combined Financial Information................4
Description Of Our Common Stock.............................................11
Selling Stockholders........................................................14
Plan Of Distribution........................................................15
Validity Of The Securities..................................................16
Experts.....................................................................16
------------------
You should rely only on the information contained or incorporated by
reference in this prospectus and any prospectus supplement. We have not
authorized anyone else to provide you with different information. If anyone
provides you with different or inconsistent information, you should not rely on
it. We are offering to sell securities and soliciting offers to buy securities
only in jurisdictions where offers and sales are permitted. You should assume
that the information appearing in this prospectus and information incorporated
by reference into this prospectus, is accurate only as of the date of the
documents containing the information.
i
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with
the Securities and Exchange Commission, or the SEC, using the SEC's shelf
registration rules. Under the shelf registration rules, using this prospectus,
together with a prospectus supplement, we may sell from time to time, in one or
more offerings, up to $100,000,000 of our common stock. The selling stockholders
may sell up to 1,000,000 shares of our common stock.
In this Prospectus we use the terms "ClearOne", "we", "us", and "our"
to refer to ClearOne Communications, Inc., a Utah Corporation.
This prospectus provides you with a general description of the common
stock that we and the selling stockholders may sell. Each time we sell common
stock under this prospectus, we will provide a prospectus supplement that will
contain specific information about the terms of that offering. The prospectus
supplement may also add, update or change information contained in this
prospectus. If so, the prospectus supplement should be read as superseding this
prospectus. You should read this prospectus, the applicable prospectus
supplement and the additional information described below under "Where You Can
Find More Information."
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any reports, statements or
other information we file with the SEC at its public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference room. Our filings are also available
to the public on the Internet, through a database maintained by the SEC at
http://www.sec.gov.
We filed a registration statement on Form S-3 to register with the SEC
the securities described in this prospectus. This prospectus is part of that
registration statement. As permitted by SEC rules, this prospectus does not
contain all the information contained in the registration statement or the
exhibits to the registration statement. You may refer to the registration
statement and accompanying exhibits for more information about us and our
securities.
The SEC allows us to incorporate by reference into this document the
information we or other persons have filed, or will file, with the SEC. This
means that we can disclose important business, financial and other information
to you by referring you to other documents separately filed with the SEC. All
information incorporated by reference is part of this document, unless and until
that information is updated and superseded by the information contained in this
document or any information incorporated later.
We incorporate by reference the documents listed below:
1. Our current reports on Form 8-K filed on October 18, 2001, as
amended on Forms 8-K/A filed on November 23, 2001, Form 8-K
filed on February 1, 2002, February 6, 2002, March 21, 2002,
April 10, 2002, April 23, 2002, May 29, 2002 and June 5, 2002;
2. Our annual report on Form 10-K for the fiscal year ended June
30, 2001;
3. Our quarterly reports on Form 10-Q for the fiscal quarters ended
September 30, 2001, December 31, 2001 and March 31, 2002;
4. The description of our common stock contained in our
registration statement on Form 10 filed pursuant to Section 12
of the Securities Exchange Act of 1934 on October 4, 1988 as
amended on Form 8 on January 5, 1989 and February 15, 1989;
1
5. The section entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the audited
financial statements of E.mergent contained in E.mergent's
annual report on E.mergent's Form 10-KSB for the fiscal year
ended December 31, 2001; and
6. The section entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial
statements of E.mergent contained in E.mergent's quarterly
report on E.mergent's Form 10-QSB for the fiscal quarter ended
March 31, 2002.
You may request a copy of these filings, at no cost, by writing or
telephoning our Investor Relations Department at the following address:
ClearOne Communications, Inc.
1825 Research Way
Salt Lake City, Utah 84119
Attention: Investor Relations
(801) 975-7200
We also incorporate by reference all future filings we make with the
SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities and Exchange Act
of 1934 on or (1) after the date of the filing of the registration statement
containing this prospectus and prior to the effectiveness of such registration
statement and (2) after the date of this prospectus and prior to the termination
of the offering made hereby.
You should only rely on the information contained or incorporated by
reference in this prospectus and any prospectus supplement. We have not
authorized any other person to provide you with different information. If anyone
provides you with different or inconsistent information you should not rely on
it. We are not making an offer to sell these securities in any jurisdiction
where the offer and sale is not permitted. You should assume that the
information appearing in this prospectus and information incorporated by
reference into this prospectus is accurate only as of the date of the documents
containing the information. Our business, financial condition, results of
operation and prospects may have changed since that date.
FORWARD-LOOKING STATEMENTS
Some statements and disclosures in this prospectus, including the
documents incorporated by reference, are forward-looking statements.
Forward-looking statements include all statements that do not relate solely to
historical or current facts and can often be identified by the use of words such
as "may," "believe," "will," "expect," "project," "estimate," "anticipate,"
"plan" or "continue." These forward-looking statements are based on our current
plans and expectations and are subject to a number of risks and uncertainties
that could significantly cause our plans and expectations, including actual
results, to differ materially from the forward-looking statements. The Private
Securities Litigation Reform Act of 1995 provides a "safe harbor" for
forward-looking statements to encourage companies to provide prospective
information about their companies without fear of litigation.
We wish to take advantage of the "safe harbor" provisions of the
Litigation Reform Act in connection with the forward-looking statements included
in this prospectus, including the documents incorporated by reference. Investors
are cautioned not to unduly rely on such forward-looking statements when
evaluating the information presented in these documents. The factors that could
cause our actual financial results to differ materially from those projected,
forecasted or estimated by us in forward-looking statements are contained in the
Forms 8-K, 10-K and 10-Q that we filed and Forms 10-KSB and 10-QSB that
E.mergent filed. In addition, they will also be contained in the prospectus
supplement.
2
CLEARONE COMMUNICATIONS, INC.
We are a provider of multimedia conferencing products and service. Our
product offerings include audio and video conferencing systems, peripherals and
furniture and our services include a full suite of audio, video and data
conferencing services, and business services such as training, field support,
help desk and rent-a-tech.
Our audio and video conferencing products are installed in conference
rooms, courtrooms and distance learning facilities. Our sound reinforcement
products target larger venues such as hotels, theaters, convention centers and
houses of worship. Our products, together with our full suite of services,
provide a solution to our customers who want to bring geographically dispersed
people together.
Our principal office is located at 1825 Research Way, Salt lake City,
UT 84119, our telephone number is (801) 975-7200. We have subsidiaries in
Minneapolis, Minnesota; Dublin, Ireland; and Nuremberg, Germany.
RISK FACTORS
The securities to be offered may involve a high degree of risk. These
risks will be set forth in a prospectus supplement relating to the securities to
be offered by that prospectus supplement. You should carefully consider the
important factors set forth under the heading "Risk Factors" in the applicable
supplement to this prospectus before investing in any securities that may be
offered.
USE OF PROCEEDS
Unless indicated otherwise in the applicable prospectus supplement, we
expect to use the net proceeds from the sale of our common stock for general
corporate purposes, including, but not limited to, acquisitions, repayment or
refinancing of borrowings, working capital or capital expenditures. Additional
information on the use of net proceeds from the sale of common stock offered by
this prospectus may be set forth in the prospectus supplement relating to such
offering. We will not receive any proceeds from the sale of our common stock by
the selling stockholders.
3
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial
information gives effect to the acquisitions of Ivron Systems, Ltd. and
E.mergent by ClearOne and the December 2001 private placement of ClearOne common
stock. Effective October 3, 2001, ClearOne, through a wholly owned subsidiary,
acquired the shares of Ivron Systems for a combination of cash and stock. An
amendment to the share purchase agreement dated October 3, 2001 was finalized
April 8, 2002. Because the terms of the amendment had been negotiated as of
March 31, 2002, the effects of such amendment were included in ClearOne's
financial statements as of March 31, 2002. Effective December 11, 2001, ClearOne
issued 1,500,000 shares of common stock under a private placement that was
subsequently registered on Form S-3 with the SEC. The only impact of this stock
offering on the pro forma statements of operations is the inclusion of 1,500,000
shares in the calculation of the weighted average shares outstanding. On January
21, 2002, ClearOne entered into a definitive agreement to acquire the stock of
E.mergent for a combination of cash and stock. The E.mergent acquisition was
completed on May 31, 2002. Both the E.mergent and Ivron Systems acquisitions
have been accounted for under the purchase method of accounting. The unaudited
pro forma condensed combined statements of operations for the year ended June
30, 2001 and the nine months ended March 31, 2002 have been prepared as if each
transaction occurred on July 1, 2000. The pro forma condensed combined balance
sheet as of March 31, 2002 has been prepared as if the E.mergent acquisition
occurred on March 31, 2002. Because the financial results of Ivron Systems and
the private placement are included in ClearOne's historical financial statements
as of March 31, 2002, no adjustments have been made to the pro forma balance
sheet related to these transactions. Please see the notes to these pro forma
combined condensed statements regarding certain assumptions utilized in the
preparation of these statements.
ClearOne's fiscal year ends on June 30 while the fiscal years of Ivron
Systems and E.mergent historically ended on December 31. Accordingly, ClearOne
has combined its historical results from continuing operations for the year
ended June 30, 2001 with the unaudited financial results of Ivron Systems and
E.mergent for the twelve months ended June 30, 2001, comprising the last six
months of operations of Ivron Systems and E.mergent for the year ended December
31, 2000 and the first six months of operations of Ivron Systems and E.mergent
for the year ended December 31, 2001. The unaudited pro forma condensed combined
statement of operations presented for the nine months ended March 31, 2002
includes the historical unaudited financial results from continuing operations
of ClearOne and E.mergent for the nine months ended March 31, 2002. The
historical unaudited financial results from continuing operations of Ivron
Systems are included from July 1, 2000 to October 2, 2001, with the results from
October 3, 2001 to March 31, 2002 already consolidated in ClearOne's operating
results.
Unaudited pro forma condensed combined financial information is
presented for illustrative purposes only and is not necessarily indicative of
the financial position or results of operations that would have actually been
reported had the transactions occurred on the dates indicated above, nor is it
necessarily indicative of future financial position or results of operations.
These unaudited pro forma condensed combined financial statements are based on
the respective historical financial statements of ClearOne, Ivron Systems and
E.mergent and do not incorporate, nor do they assume, any benefits from cost
savings or synergies of operations of the combined company. The unaudited pro
forma condensed combined financial information should be read together with
ClearOne's historical financial statements and those of Ivron Systems and
E.mergent, including the related notes, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" of ClearOne and
E.merent, all of which are incorporated by reference into this registration
statement.
Pro forma results of operations include adjustments, which are based
upon management's preliminary estimates, to reflect the allocation of the
purchase consideration to the acquired assets and liabilities of E.mergent. The
final allocation of the purchase consideration will be determined upon
completion of a comprehensive final analysis of the fair value of E.mergent's
tangible assets, liabilities and identifiable intangible assets. Accordingly,
while ClearOne does not anticipate that the final valuation and related
intangible asset allocation will differ significantly from the preliminary
valuation, the final determination of tangible and intangible assets may result
in depreciation and amortization expense that is higher than the preliminary
estimates of these amounts.
4
Unaudited Pro Forma Financial Information
Pro Forma Condensed Combined Balance Sheets
As of March 31, 2002
(in 000's)
Pro Forma Pro Forma
Adjustments Combined for
ClearOne E.mergent for E.mergent E.mergent
(Historical) (Historical) Acquisition Acquisition
------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $ 23,168 $ 1,505 $ (9,382) D $ 15,291
Accounts receivable, net 14,025 3,144 17,169
Note receivable - current portion 167 167
Inventory 5,792 3,605 9,397
Deferred taxes 247 425 672
Other current assets 420 160 580
------------------------------------------- -----------------
Total current assets 43,819 8,839 (9,382) 43,276
Property and equipment, net 3,993 443 4,436
Goodwill, net 2,898 999 (999) A
18,024 E 20,922
Note receivable, long-term portion 1,549 33 1,582
Other intangible assets, net 5,517 669 (669) A 5,517
Deposits and other assets 73 225 (150) F 148
------------------------------------------- -----------------
Total assets $57,849 $ 11,208 $ 6,824 $ 75,881
=========================================== =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 1,579 $ 1,548 $ 3,127
Accrued expenses 1,791 473 2,264
Current portion of unearned maintenance
contracts 688 688
Current portion of capital lease and
long-term debt obligations 61 238 299
------------------------------------------- -----------------
Total current liabilities 3,431 2,947 6,378
Unearned maintenance contracts 319 319
Long-term debt and capital lease obligations 16 340 356
Deferred tax liability 746 746
------------------------------------------- -----------------
Total liabilities 4,193 3,606 7,799
Shareholders' equity
Common stock 10 59 $ (59) H
9 J 19
Additional paid in capital 33,141 7,867 (7,867) H
14,370 J
47 G 47,558
Treasury stock (73) 73 I
Note receivable from shareholder (122) 122 L
Retained earnings (accumulated deficit) 20,505 (129) 129 H 20,505
------------------------------------------- -----------------
Total shareholders' equity 53,656 7,602 6,824 68,082
------------------------------------------- -----------------
Total liabilities and shareholders' equity $ 57,849 $ 11,208 $ 6,824 $ 75,881
=========================================== =================
See accompanying notes to unaudited pro forma condensed
combined financial statements.
5
Unaudited Pro Forma Condensed Combined Statements of Operations
For the nine months ended March 31, 2002
(in 000's)
Pro Forma
Combined
Pro Forma Pro Forma Pro Forma for Ivron
Adjustments Combined for Adjustments Systems
Ivron for Ivron Ivron for and
ClearOne Systems Systems Systems E.mergent E.mergent E.mergent
(Historical) (Historical) Acquisition Acquisition (Historical) Acquisition Acquisitions
-----------------------------------------------------------------------------------------------------
Net sales $37,974 $ 47 $38,021 $17,055 $55,076
Cost of goods sold 15,226 343 15,569 10,963 26,532
---------------------------------------- ----------------------------------------- ------------
Gross profit (loss) 22,748 (296) 22,452 6,092 28,544
Operating expenses
Marketing and selling 7,996 304 8,300 2,376 10,676
General and administrative 4,102 695 $ (46) A 4,751 2,490 $ (112) A 7,129
Research and product
development 3,044 116 139 B 3,299 504 3,803
---------------------------------------- ----------------------------------------- ------------
Total operating expenses 15,142 1,115 93 16,350 5,370 (112) 21,608
---------------------------------------- ----------------------------------------- ------------
Operating income (loss) 7,606 (1,411) (93) 6,102 722 112 6,936
Other income (expense) 139 (126) 13 (21) (8)
---------------------------------------- ----------------------------------------- ------------
Income (loss) from
continuing operations
before income taxes 7,745 (1,537) (93) 6,115 701 112 6,928
Provision (benefit) for
income taxes 2,771 (35) C 2,736 269 42 C 3,047
---------------------------------------- ----------------------------------------- ------------
Income (loss) from
continuing operations $ 4,974 $(1,537) $ (58) $ 3,379 $ 432 $ 70 $ 3,881
======================================== ========================================= ============
Basic earnings per common
share $ 0.54 $ 0.35
Diluted earnings per common
share $ 0.51 $ 0.34
Weighted average shares
outstanding:
Basic 9,247 11,005
Diluted 9,756 11,462
See accompanying notes to unaudited pro forma condensed
combined financial statements.
6
Unaudited Pro Forma Condensed Combined Statements of Operations
For the fiscal year ended June 30, 2001
(in `000s)
Pro Forma
Pro Forma Pro Forma Pro Forma Combined
Adjustments Combined Adjustments for Ivron
for Ivron for Ivron for Systems and
ClearOne Ivron Systems Systems E.mergent E.mergent E.mergent
(Historical) (Historical) Acquisition Acquisition (Historical) Acquisition Acquisitions
-----------------------------------------------------------------------------------------------------
Net sales $ 39,878 $ 608 $ 40,486 $ 22,503 $ (188) K $ 62,801
Cost of goods sold 16,503 798 17,301 14,270 (188) K 31,383
----------------------------------------- -------------------------------------- -------------
Gross profit (loss) 23,375 (190) 23,185 8,233 31,418
Operating expenses
Marketing and selling 7,753 1,588 9,341 3,449 12,790
General and administrative 4,649 555 $ (182) A 5,022 3,276 (224) A 8,074
Research and product
development 2,502 732 555 B 3,789 689 4,478
----------------------------------------- -------------------------------------- -------------
Total operating expenses 14,904 2,875 373 18,152 7,414 (224) 25,342
----------------------------------------- -------------------------------------- -------------
Operating income (loss) 8,471 (3,065) (373) 5,033 819 224 6,076
Other income (expense) 373 373 (151) 222
----------------------------------------- -------------------------------------- -------------
Income (loss) from
continuing operations
before income taxes 8,844 (3,065) (373) 5,406 668 224 6,298
Provision (benefit) for
income taxes 3,319 (139) C 3,180 (70) 83 C 3,193
----------------------------------------- -------------------------------------- -------------
Income (loss) from
continuing operations $ 5,525 $(3,065) $ (234) $ 2,226 $ 738 $ 141 $ 3,105
========================================= ====================================== =============
Basic earnings per common
share $ 0.64 $ 0.28
Diluted earnings per common
share $ 0.61 $ 0.27
Weighted average shares
outstanding:
Basic 8,594 10,960
Diluted 9,016 11,383
See accompanying notes to unaudited pro forma condensed
combined financial statements.
7
Notes to Unaudited Pro Forma Condensed Combined Financial Information
NOTE 1.
On October 3, 2001, ClearOne executed a share purchase agreement, for which an
amendment was finalized on April 8, 2002, with the shareholders of Ivron
Systems. ClearOne paid cash of $6,000,000 for all of the issued and outstanding
shares of Ivron Systems, cash of $650,000 for all outstanding options to
purchase common shares of Ivron Systems, and incurred acquisition costs of
$274,000 in the transaction. Additional consideration may be issued to Ivron
Systems' shareholders if certain contingencies related to future earnings
targets as defined in the share purchase agreement are met. The following is a
summary of the purchase price allocation using the October 3, 2001 balance sheet
of Ivron Systems (in 000's):
Cash $ 460
Accounts receivable 132
Inventory 608
Fixed assets 21
Goodwill and other intangible assets 6,144
Accounts payable (175)
Accrued expenses (266)
-------------
Total $6,924
=============
On January 21, 2002, ClearOne entered into a definitive agreement to acquire
E.mergent. This acquisition was completed on May 31, 2002. Under the terms of
the agreement, ClearOne acquired all of the issued and outstanding stock of
E.mergent; thereby acquiring title to all assets and assuming all liabilities of
E.mergent. As consideration in the transaction, ClearOne paid cash of $7,300,000
and issued 873,000 shares of its common stock, less the aggregate number of
shares of common stock allocated to E.mergent's outstanding stock options
assumed by ClearOne in the merger because, in accordance with the agreement and
plan of merger, the 873,000 shares of ClearOne common stock were allocated first
to E.mergent stock options being assumed by ClearOne. Outstanding E.mergent
stock options were converted to options to purchase 4,158 shares of ClearOne's
common stock at the ratio specified in the agreement and plan of merger. The
value of the stock consideration paid to E.mergent shareholders used in
determining the purchase price for accounting purposes was based on ClearOne's
average closing price two days prior to and two days subsequent to January 21,
2002 (the announcement date for the acquisition and merger) of $16.55.
Additionally, ClearOne estimates that its acquisition costs will total
approximately $1,156,000 in the transaction. This includes approximately
$464,000 for severance payments to terminating E.mergent executives and
anticipated severance payments to other terminating E.mergent employees of
approximately $90,000, as well as approximately $602,000 related to professional
advisory, legal and accounting fees. E.mergent estimates that its transaction
related costs will total approximately $926,000. These costs have been reflected
as a reduction of E.mergent's cash balance as of March 31, 2002. The following
is a summary of the preliminary purchase price allocation using the March 31,
2002 balance sheet of E.mergent (in 000's):
Cash $ 579
Accounts receivable 3,144
Inventory 3,605
Fixed assets 443
Other assets 693
Goodwill and other intangible assets 18,024
Accounts payable (1,548)
Accrued expenses and customer deposits (473)
Unearned maintenance contracts (1,007)
Capital leases and long-term debt (578)
-------------
Total $ 22,882
=============
The purchase price was determined as follows:
Cash paid to E.mergent shareholders $ 7,300
Value of ClearOne common stock issued to
E.mergent shareholders (868,842 shares
x $16.55) 14,379
Fair value of ClearOne options issued to
E.mergent option holders, determined using
the Black-Scholes model 47
Acquisition costs to be paid by ClearOne 1,156
-------------
Total purchase price $ 22,882
=============
8
NOTE 2.
The unaudited pro forma condensed combined balance sheet includes the
adjustments necessary to give effect to the E.mergent acquisition as if it had
occurred on March 31, 2002 as noted above. The unaudited pro forma condensed
combined statements of operations include the adjustments necessary to give
effect to the Ivron Systems and E.mergent acquisitions and the private placement
as if they had occurred on July 1, 2000. Adjustments included in the pro forma
condensed combined financial statements are summarized as follows:
(A) Elimination of E.mergent and Ivron historical goodwill and other
intangibles (and the related amortization) that were revalued as
part of the purchase price allocation.
(B) Values were assigned to intangible assets related to the Ivron
Systems acquisition as follows: developed technology -
$5,780,000; goodwill - $364,000. These allocations are based
upon a final report from LECG, LLC, an independent financial
consulting firm. The developed technology was determined to have
useful lives as follows, with the resulting impact on
amortization expense:
Amortization for the
Nine months ended Fiscal Year ended
Value of Technology Useful Life March 31, 2002 June 30, 2001
--------------------------------------------------------------------------------------
$ 135,000 3 $ 11,250 $ 45,000
1,002,000 5 50,100 200,400
4,643,000 15 77,383 309,533
----------------------- ----------------------------------------------
$ 5,780,000 $138,733(i) $ 554,933
======================= ==============================================
(i) Reflects the amortization expense from July 1, 2001 to
October 2, 2001, the period prior to the acquisition of
Ivron Systems by ClearOne.
(C) The tax impact of amortization, as calculated using ClearOne's
blended statutory rate of 37.2%.
(D) Cash consideration paid to former E.mergent shareholders
of $7,300,000 plus ClearOne and E.mergent transaction costs of
$2,082,000.
(E) Amount represents goodwill of $18,024,000 including capitalized
acquisition costs of approximately $1,156,000 (including
approximately $464,000 for severance payments to terminating
E.mergent executives and anticipated severance payments to other
terminating E.mergent employees of approximately $90,000). For
purposes of these pro forma financial statements and based upon
a preliminary analysis by LECG, LLC, ClearOne's independent
financial consulting firm, the excess of the purchase price over
the fair value of the tangible assets acquired has been
allocated to goodwill. Based on LECG, LLC'S preliminary
analysis, ClearOne does not believe that any material value
should be allocated to acquired intangible assets other than
goodwill. Accordingly, pursuant to FAS No. 142, Goodwill and
Other Intangible Assets, no related amortization has been
reflected in the accompanying pro forma statements of
operations.
(F) Represents the elimination of an investment that was deemed to
have no future value to ClearOne.
(G) Represents the fair value, as determined in accordance with FASB
Interpretation No. 44, Accounting for Certain Transactions
Involving Stock Compensation--An Interpretation of APB Opinion
25, of the vested options to purchase ClearOne common stock that
were issued in exchange for vested options to purchase E.mergent
common stock in conjunction with the agreement and plan of
merger. The weighted average fair value of the ClearOne options
is approximately $11.36, using the Black-Scholes method, as
determined using the following assumptions: volatility of 62%,
weighted average expected life of the options of approximately 2
years, dividend yield of 0%, and risk-free interest rate of
4.38%.
(H) Elimination of E.mergent's historical equity.
(I) In accordance with the agreement and plan of merger, the
treasury stock held by E.mergent, which consisted of 50,317
shares, was distributed to E.mergent employees immediately prior
to the consummation of the merger.
9
(J) Reflects the value of the shares of ClearOne common stock issued
to holders of E.mergent common stock as follows: (868,842 shares
x $16.55 per share). The per share price is based on ClearOne's
average closing price two days prior to and two days subsequent
to January 21, 2002 (the announcement date for the acquisition
and merger).
(K) Elimination of sales and related cost of sales between ClearOne
and E.mergent.
(L) Represents the elimination of a shareholder note from a former
E.mergent executive that was repaid upon consummation of the
merger.
10
DESCRIPTION OF OUR COMMON STOCK
General
We are authorized to issue 50,000,000 shares of common stock, par value
of $0.001 per share. As of June 30, 2002, there were 11,178,392 shares of common
stock outstanding held by approximately 376 stockholders of record. The
following discussion describes provisions of ClearOne's articles of
incorporation and bylaws and the Utah Revised Business Corporation Act (the
"URBCA").
Voting Rights of Common Stock
Holders of the common stock are entitled to one vote per share on all
matters submitted to a vote of stockholders generally. The rights of holders of
common stock may be modified otherwise than by a vote of the majority or more of
the shares of common stock outstanding. The rights of holders may be modified at
a meeting of common stockholders if a quorum exists and the votes cast for such
modification exceed the votes cast against such modification. A majority of the
votes entitled to be cast upon a matter constitutes a quorum.
Dividends on Common Stock
The holders of the common stock are entitled to receive, pro rata,
dividends as may be declared by our Board of Directors out of funds legally
available for the payment of dividends. However, we are prohibited by the terms
of our revolving credit loan from paying a dividend on our common stock. As of
the date of this prospectus we have not, nor do we intend to, make dividend
payments of common stock.
Other Provisions and Information Applicable to the Common Stock
There are no preemptive rights to subscribe for any additional
securities that we may issue. There are no redemption provisions or sinking fund
provisions applicable to the common stock, nor is the common stock subject to
calls or assessments by ClearOne.
In the event of any liquidation, dissolution or winding-up of the
affairs of ClearOne, holders of common stock will be entitled to share ratably
in the assets of ClearOne remaining after payment or provision for payment of
all of ClearOne's debts and obligations.
Under the URBCA, in connection with a merger, share exchange or sale,
lease, exchange or other disposition of all or substantially all of the assets
of a corporation (other than in the ordinary course of the corporation's
business), a dissenting stockholder, after complying with certain procedures, is
entitled to payment from the corporation of the fair value of the stockholder's
shares. The fair value is estimated by the corporation. However, if the
stockholder is unwilling to accept the corporation's estimate, the stockholder
may provide the corporation with an estimate of the fair value and demand
payment of that amount. If the corporation is unwilling to pay that amount, the
corporation shall apply for a judicial determination of the fair value. Unless
the articles of incorporation, bylaws or a resolution of the board of directors
provide otherwise, stockholders are not entitled to dissenters' rights when the
shares are listed on a national securities exchange or the National Market
System of NASDAQ, or are held of record by more than 2,000 holders. However,
this exception does not apply if, pursuant to the corporate action, the
stockholder will receive anything other than: (i) shares of the surviving
corporation; (ii) shares of a corporation that is or will be listed on a
national securities exchange, the National Market System of NASDAQ, or held of
record by more than 2,000 holders; (iii) cash in lieu of fractional shares; or
(iv) any combination of the foregoing.
Certain Anti-Takeover Provisions
The provisions of ClearOne's articles of incorporation and bylaws do
not contain anti-takeover provisions. ClearOne's articles of incorporation
provide that the number of directors shall not exceed nine and shall be fixed
from time to time by resolution by the board of directors. ClearOne's bylaws
11
provide that directors may be removed with or without cause. Removal of a
director requires that the votes cast by the stockholders to remove the director
exceed the number of votes cast not to remove the director.
The Utah Control Share Acquisition Act (the "Share Acquisition Act"),
set forth in Sections 61-6-1 through 61-6-12 of the Utah Code Annotated,
generally provides that, when any person obtains shares (or the power to direct
the voting of shares) of "an issuing public corporation" such that the person's
voting power equals or exceeds any of three levels (20%, 331/3% or 50%), the
ability to vote (or to direct the voting of) the "control shares" is conditioned
on the approval by a majority of the corporation's shares (voting in voting
groups, if applicable), excluding the "interested shares." Stockholder approval
may occur at the next annual or special meeting of the stockholders, or, if the
acquiring person requests and agrees to pay the associated costs of the
corporation, at a special meeting of the stockholders to be held within 50 days
of the corporation's receipt of the request by an acquiring person. If
authorized by the articles of incorporation or the bylaws, the corporation may
redeem "control shares" at the fair market value if the acquiring person fails
to file an "acquiring person statement" or if the stockholders do not grant
voting rights to control shares. The ClearOne articles of incorporation and
bylaws make no reference to the Share Acquisition Act. If the stockholders grant
voting rights to the control shares, and if the acquiring person obtained a
majority of the voting power, stockholders may be entitled to dissenters' rights
under the URBCA. An acquisition of shares does not constitute a control share
acquisition within the meaning of the Share Acquisition Act if (1) the
corporation's article of incorporation of bylaws provide that the Share
Acquisition Act does not apply; (2) the acquisition is consummated pursuant to a
merger in accordance with the URBCA; or (3) under certain other specified
circumstances.
Limitation of Liability of Directors
The URBCA provides that a director or officer of a Utah corporation is
not liable to the corporation or its stockholders for any action taken, or any
failure to take any action, as an officer or director, unless (1) the director
or officer has breached or failed to perform the duties of the office (which
requires that the director or officer acted (A) in good faith, (B) with the care
an ordinary prudent person in like position would exercise under similar
circumstances and (C) in a manner that the director or officer reasonably
believes to be in the best interest of the corporation), and (2) the breach or
failure to perform constitutes gross negligence, willful misconduct or
intentional infliction of harm on the corporation or the stockholders. The URBCA
permits a corporation to eliminate or limit the liability of a director to the
corporation or its stockholders for monetary damages for any action taken or
failure to take any action, as a director, except liability for (1) the amount
of a financial benefit received by a director to which he is not entitled; (2)
an intentional infliction of harm on the corporation or its stockholders; (3)
voting for or assenting to an unlawful distribution of assets as defined under
the URBCA, or (4) an intentional violation of criminal law. ClearOne has not
limited such liability for its directors.
Indemnification of Directors and Officers
The ClearOne bylaws provide that it shall indemnify an individual made
a party to a proceeding because he is or was a director, against any liability
incurred in the proceeding if (1) the individual's conduct was in good faith;
(2) the individual reasonably believed that his conduct was in, or not opposed
to, the corporation's best interests; and (3) in the case of a criminal
proceeding he had no reasonable cause to believe his conduct was unlawful;
provided, however, that (x) in the case of an action by or in the right of the
corporation, indemnification is limited to reasonable expenses incurred in
connection with the proceeding and (y) the corporation may not, unless
authorized by a court of competent jurisdiction, indemnify an individual (A) in
connection with a proceeding by or in the right of the corporation in which the
individual was adjudged liable to the corporation or (B) in connection with any
other proceeding in which the individual is adjudged liable on the basis that he
derived an improper personal benefit. In a judicial proceeding under the
foregoing clause (y), in order to authorize indemnification, the court must
determine that the individual is fairly and reasonably entitled to
indemnification in view of all the relevant circumstances. A director is
entitled to mandatory indemnification if he was successful, on the merits or
otherwise, in the defense of any proceeding, or in the defense of any claim,
issue or matter in the proceeding to which he was a party because he is or was a
director of ClearOne, against the reasonable expenses incurred by him in
connection with the proceeding or claim with respect to which he was successful.
ClearOne must also advance a director expenses under certain circumstances.
ClearOne may also indemnify and advance expenses to an officer, employee, or
agent to any extent consistent with public policy.
12
The ClearOne articles of incorporation provide that ClearOne will
indemnify a director against any liability may arise as a result of such
director contracting with ClearOne for the benefit of himself or any firm,
association or corporation in which such director may be interested in any way,
provided such director acts in good faith.
Transfer Agent and Registrar
American Stock Transfer & Trust Company is the transfer agent and
registrar for ClearOne's common stock.
13
SELLING STOCKHOLDERS
Some of the shares of common stock being offered pursuant to this
prospectus may be offered by certain selling stockholders, including Frances M.
Flood, Chairman of the Board of Directors, President and Chief Executive Officer
of ClearOne; Susie Strohm, Vice President of Finance and Controller of ClearOne;
Edward Dallin Bagley, a director and a significant stockholder of ClearOne; and
Brad R. Baldwin, a director of ClearOne. Identification of any such selling
stockholder will be made in the applicable prospectus supplement.
14
PLAN OF DISTRIBUTION
ClearOne and the selling stockholders may sell the common stock
described in this prospectus to one or more underwriters for public offering, or
to investors directly or through agents. The selling stockholders will act
independently of us in making decisions regarding the timing, manner and size of
each sale. The name of any such underwriter or agent involved in the offer and
sale of the securities, the amounts underwritten and the nature of its
obligation to take the securities will be named in the applicable prospectus
supplement. ClearOne and the selling stockholders have reserved the right to
sell the common stock directly to investors on their own behalf in those
jurisdictions where they are authorized to do so. The sale of the common stock
may be effected in transactions (a) on any national or international securities
exchange or quotation service on which the securities may be listed or quoted at
the time of sale, (b) in the over-the-counter market, (c) in transactions
otherwise than on such exchanges or in the over-the-counter market or (d)
through the writing of options.
Underwriters may offer and sell the common stock at a fixed price or
prices that may be changed, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices or at negotiated prices. They
may offer the securities on an exchange, which will be disclosed in the
applicable prospectus supplement. ClearOne and the selling stockholders also
may, from time to time, authorize dealers, acting as their agents, to offer and
sell the common stock upon such terms and conditions as set forth in the
applicable prospectus supplement. In connection with the sale of the common
stock, underwriters may receive compensation from ClearOne and the selling
stockholders in the form of underwriting discounts or commissions and may also
receive commissions from purchasers of the securities for whom they may act as
agent. Underwriters may sell the securities to or through dealers, and such
dealers may receive compensation in the form of discounts, concessions or
commissions from the underwriters or commissions (which may be changed from time
to time) from the purchasers for whom they may act as agents.
Any underwriting compensation paid by ClearOne or the selling
stockholders to underwriters or agents in connection with the offering of the
common stock, and any discounts, concessions or commissions allowed by
underwriters to participating dealers, will be set forth in the applicable
prospectus supplement. The selling stockholders, dealers and agents
participating in the distribution of the securities may be deemed to be
underwriters, and any discounts and commissions received by them and any profit
realized by them on resale of the common stock may be deemed to be underwriting
discounts and commissions under the Securities Act. Underwriters, dealers and
agents may be entitled, under agreements entered into with ClearOne and the
selling stockholders, to indemnification against and contribution towards
certain civil liabilities, including any liabilities under the Securities Act.
Until the distribution of the common stock is completed, rules of the
SEC may limit the ability of the underwriters to bid for and purchase the
securities. As an exception to these rules, the underwriters are permitted to
engage in certain transactions that stabilize the price of the common stock.
Such transactions consist of bids or purchases for the purpose of pegging,
fixing or maintaining the price of the common stock. If the underwriters create
a short position in the securities in connection with the offering, that is, if
they sell more common stock than are set forth on the cover page of the
applicable prospectus supplement, the underwriters may reduce that short
position by purchasing common stock in the open market. The underwriters may
also impose a penalty bid on certain underwriters. This means that if the
underwriters purchase the common stock in the open market to reduce the
underwriters' short position or to stabilize the price of the common stock, they
may reclaim the amount of the selling concession from the underwriters who sold
those shares of common stock as part of the offering. In general, purchases of a
common stock for the purpose of stabilization or to reduce a short position
could cause the price of the common stock to be higher than it might be in the
absence of such purchases. The imposition of a penalty bid might also have an
effect on the price of a common stock to the extent that it were to discourage
resales of the common stock.
The amount of expenses expected to be incurred by us in connection with
any issuance of common stock will be set forth in the prospectus supplement.
Certain of the underwriters, dealers or agents and their associates may engage
in transactions with, and perform services for, ClearOne, the selling
stockholders and certain of their affiliates in the ordinary course.
15
VALIDITY OF THE SECURITIES
The validity of our common stock issued hereunder will be passed upon
for ClearOne by Clyde Snow Sessions & Swenson, PC. Certain other legal matters
will be passed upon for ClearOne by Shearman & Sterling, Menlo Park, California.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements included in our Annual Report on Form 10-K for the year
ended June 30, 2001, as set forth in their report, which is incorporated by
reference in this prospectus. Our consolidated financial statements are
incorporated by reference in reliance on Ernst & Young LLP's report, given on
their authority as experts in accounting and auditing.
KPMG, Chartered Accountants, Dublin, Ireland, have audited the
financial statements of Ivron Systems, Ltd. for the three years to December 31,
2000 included in ClearOne's Form 8-K/A filed with the SEC on November 23, 2001,
which are incorporated by reference in this prospectus. Ivron Systems, Ltd.'s
financial statements are incorporated by reference in reliance on KPMG,
Chartered Accountants' report, given on their authority as experts in accounting
and auditing.
The financial statements incorporated in this prospectus by reference
from the Annual Report on Form 10-KSB of E.mergent, Inc. for the year ended
December 31, 2001, have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report, which is incorporated herein by reference,
and has been so incorporated in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
16
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth all fees and expenses payable by the
registrant in connection with the issuance and distribution of the securities
being registered hereby (other than underwriting discounts and commissions). All
of such expenses, except the SEC registration fee, are estimated.
Securities and Exchange Commission registration fee.... $ 10,366
Nasdaq listing fee..................................... $ 50,000
Legal fees and expenses................................ $ 200,000
Transfer Agent's fees and expenses..................... $ 10,000
Trustee's fees and expenses............................ $ 20,000
Rating agency fees..................................... $ 420,000
Accounting fees and expenses........................... $ 200,000
Blue Sky fees and expenses (including counsel fees).... $ 10,000
Printing expenses...................................... $ 400,000
Miscellaneous.......................................... $ 25,000
-----------
Total.......................................... $ 1,345,366
===========
Item 15. Indemnification of Directors and Officers.
Limitation of Liability and Indemnification of Liability of Directors
Section 16-10a-840 of the URBCA provides that the liability of our
directors and officers is limited such that a director or officer is not liable
to us or our sharehoders for any action taken or any failure to take action, as
an officer or director, as the case may be, unless: (i) the director or officer
has breached or failed to perform the duties of the office in compliance with
section 16-10a-840 of the URBCA; and (ii) the breach or failure to perform
constitutes gross negligence, willful misconduct, or intentional infliction of
harm on ClearOne or our shareholders. Each of our directors is personally liable
if such director votes for or assents to an unlawful distribution under the
URBCA or under our articles of incorporation.
We will, pursuant to Section 16-10a-902 of the URBCA, indemnify an
individual made party to a proceeding because he was a director, against
liability incurred in the proceeding if: (i) the director's conduct was in good
faith; (ii) the director reasonably believed that his conduct was in, or not
opposed to, our best interests; and (iii) in the case of any criminal
proceeding, he had no reasonable cause to believe his conduct was unlawful;
provided that, we may not indemnify the same director if (a) indemnification is
sought in connection with a proceeding by or in the right of ClearOne in which
the director was adjudged liable to us or (b) indemnification is sought in
connection with any other proceeding charging that the director derived an
impersonal personal benefit, whether or not including action in his official
capacity, in which proceeding he was adjudged liable on the basis that he
derived an improper personal benefit. Indemnification under this Section in
connection with a proceeding by or in the right of ClearOne is limited to
reasonable expenses incurred in connection with the proceeding.
In accordance with Section 16-10a-903 of the URBCA we will indemnify a
director or an officer, who is successful on the merits or otherwise, in defense
of any proceeding, or in the defense of any claim, issue or matter in the
proceeding, to which he was a party because he is or was a director or an
officer of ClearOne, as the case may be, against reasonable expenses incurred by
him in connection with the proceeding or claim with respect to which he has been
successful.
In accordance with Section 16-10a-904 of the URBCA, we will pay or
reimburse the reasonable expenses incurred by a party to a proceeding in advance
of the final disposition of the proceeding, provided that (i) the director
furnishes the corporation a written affirmation of his good faith belief that he
has met the applicable standard of conduct described in Section 16-10a-902 of
the URBCA; (ii) the director furnishes to us a written undertaking, executed
personally or on his behalf, to repay the advance of it is ultimately determined
that he did not meet such standard of conduct; and (iii) a determination is made
that the facts then known to those making the determination would not preclude
indemnification thereunder.
17
Section 16-10a-905 permits a director or officer who is or was a party
to a proceeding to apply for indemnification to the court conducting the
proceeding or another court of competent jurisdiction.
We will indemnify and advance expenses to an officer, employee or agent
of ClearOne to any extent consistent with public policy.
We maintain a directors' and officers' liability insurance policy
which, subject to the limitations and exclusions stated therein, covers the
officers and directors of ClearOne for certain actions or inactions that they
may take or omit to take in their capacities as officers and directors of
ClearOne.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to officers and directors under any of
the foregoing provisions, we have been informed that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act of 1933, as amended, and is therefore
unenforceable.
Item 16. Exhibits and Financial Statements Schedules.
The exhibits to this registration statement are listed in the Exhibit
Index to this registration statement, which Exhibit Index is hereby incorporated
by reference.
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(a)(1) To file, during any period in which offers or sales
are being made of the securities registered hereby, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events
arising after the effective date of this
registration statement (or the most recent
post-effective amendment thereof) which,
individually or in the aggregate, represent a
fundamental change in the information set forth
in the registration statement; provided,
however, that notwithstanding the foregoing, any
increase or decrease in volume of securities
offered (if the total dollar value of securities
offered would not exceed that which was
registered) and any deviation from the low or
high end of the estimated maximum offering range
may be reflected in the form of prospectus filed
with the Securities and Exchange Commission
pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no
more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of
Registration Fee" table in the effective
registration statement; and
(iii) to include any material information with respect
to the plan of distribution not previously
disclosed in the registration statement or any
material change to such information in the
registration statement;
provided, however, that the undertakings set forth in
clauses (i) and (ii) above do not apply if the
information required to be included in a post-effective
amendment by those clauses is contained in periodic
reports filed by the registrant pursuant to Section 13
or 15 (d) of the Securities and Exchange Act of 1934
that are incorporated by reference in this registration
statement;
18
(2) that, for the purpose of determining any
liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to
be a new registration statement relating to the
securities offered therein, and the offering of
such securities at that time shall be deemed to
be the initial bona fide offering thereof;
(3) to remove from registration by means of a
post-effective amendment any of the securities
being registered which remain unsold at the
termination of the offering;
(b) That, for the purposes of determining any liability
under the Securities Act of 1933, each filing of our
annual report pursuant to Section 13(a) or 15(d) of the
Securities and Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15 (a) of the
Securities Exchange Act of 1934) that is incorporated by
reference in this registration statement shall be deemed
to be a new registration statement relating to the
securities offered herein, and the offering of such
securities at that time shall be deemed to be the
initial bona fide offering thereof; and
(c) The undersigned registrant hereby undertakes to file an
application for the purpose of determining the
eligibility of the trustee to act under subsection (a)
of Section 310 of the Trust Indenture Act in accordance
with the rules and regulations prescribed by the
Commission under Section 305(b)(2) of the Trust
Indenture Act.
19
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
we certify that we have reasonable grounds to believe that we meet all of the
requirements for filing on Form S-3 and have duly caused this registration
statement to be signed on our behalf by the undersigned, thereunto duly
authorized, in Salt Lake City, Utah, on July 22, 2002.
CLEARONE COMMUNICATIONS, INC.
By: /s/ Frances M. Flood
------------------------------------------------
Frances M. Flood, Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities indicated on July 22, 2002.
Each individual whose signature appears below constitutes and appoints
Frances M. Flood, Randall J. Wichinski and Susie Strohm, and each of them
singly, his or her true and lawful attorneys-in-fact and agents with full power
of substitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign this registration statement and any and all
amendments to this registration statement, including post-effective amendments,
and to file the same, with all exhibits thereto, any related registration filed
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and confirming all the said
attorneys-in-fact and agents or any of them or their or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Signature Title
--------- -----
/s/ Frances M. Flood Chairman of the Board, Chief Executive Officer
- -------------------------------- (principal executive officer)
Frances M. Flood
/s/ Randall J. Wichinski Chief Financial Officer
- -------------------------------- (principal accounting and financial officer)
Randall J. Wichinski
/s/ Brad R. Baldwin Director
- --------------------------------
Brad R. Baldwin
Director
- --------------------------------
Michael A. Peirce
/s/ Harry Spielberg Director
- --------------------------------
Harry Spielberg
/s/ Edward Dallin Bagley Director
- --------------------------------
Edward Dallin Bagley
/s/ David Wiener Director
- --------------------------------
David Wiener
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------ ----------------------
*1.1 Form of Underwriting Agreement for Common Stock.
*1.2 Form of Underwriting Agreement for Other Securities.
2.1 Share Purchase Agreement dated October 3, 2001 by and among the
shareholders of Ivron Systems Ltd.
and Gentner Ventures, Inc. and Clearone (incorporated by reference
from ClearOne's current report on Form 8-K dated October 18, 2001).
2.2 First Amendment to the Share Purchase Agreement among ClearOne
and the former shareholders of Ivron Systems Ltd. dated as of
April 8, 2002 (incorporated by reference from ClearOne's
current report on Form 8-K dated April 10, 2002).
2.3 Agreement and Plan of Merger, by and among ClearOne, E.mergent, Inc.
and Tundra Acquisition Inc. (incorporated by reference from
ClearOne's registration statement on Form S-4 dated February 6,
2002).
2.4 Amendment No. 1 to Agreement and Plan of Merger dated as of
March 29, 2002, by and among ClearOne, E.mergent, Inc. and Tundra
Acquisition Inc. (incorporated by reference from ClearOne's
registration statement on Form S-4/A dated April 15, 2002).
3.1 Articles of Incorporation and all amendments thereto through
March 1, 1988 (incorporated by reference from ClearOne's annual
report on Form 10-K for the fiscal year ended June 30, 1989).
3.2 Amendment to Articles of Incorporation, dated July 1, 1991
(incorporated by reference from ClearOne's annual report on
Form 10-K for the fiscal year ended June 30, 1991).
3.3 Bylaws, as amended on August 24, 1993 (incorporated by
reference from ClearOne's annual report on Form 10-KSB for the
fiscal year ended June 30, 1993).
*4.1 Form of Senior Debt Indenture.
*4.2 Form of Subordinated Debt Indenture.
4.3 Form of Stock Warrant Agreement.
4.4 Form of Debt Warrant Agreement.
5.1 Opinion of Clyde, Snow Sessions & Swenson, PC.
5.2 Opinion of Shearman & Sterling.
12.1 Computation of Ratio of Earnings to Fixed Charges.
23.1 Consent of Clyde, Snow Sessions & Swenson, PC (included in
Exhibit 5.1).
23.2 Consent of Shearman & Sterling (included in Exhibit 5.2).
23.3 Consent of Ernst & Young LLP, as independent accountants for
ClearOne Communications, Inc.
23.4 Consent of Deloitte & Touche LLP, as independent auditors for
E.mergent, Inc.
23.5 Consent of KPMG, Chartered Accountants, Dublin, Ireland, as
independent accountants for Ivron Systems Limited.
23.6 Consent of LECG, LLC, as financial Consultants to ClearOne.
24.1 Powers of Attorney (included on signature page).
25.1 Form T-1 Statement of Eligibility of the Senior Indenture Trustee
and Subordinated Indenture Trustee.
- ---------------
* Will be filed by amendment.
Exhibit 4.3
================================================================================
COMMON STOCK WARRANT AGREEMENT*
dated as of ______, 20__
FOR
between
CLEARONe COMMUNICATIONS, INC.
and
[NAME OF COMMON STOCK WARRANT AGENT], as
Common Stock Warrant Agent
================================================================================
* DETAILS YET TO BE DETERMINED, REPRESENTED BY BRACKETED OR BLANK SECTIONS
HEREIN, SHALL BE DETERMINED IN CONFORMITY WITH THE APPLICABLE PROSPECTUS
SUPPLEMENT OR SUPPLEMENTS.
TABLE OF CONTENTS
PAGE
----
ARTICLE I
ISSUANCE OF COMMON STOCK WARRANTS AND EXECUTION
AND DELIVERY OF COMMON STOCK WARRANT CERTIFICATES
SECTION 1.01. Issuance of Common Stock Warrants..............................1
SECTION 1.02. Form and Execution of Common Stock Warrant Certificates........2
SECTION 1.03. Issuance and Delivery of Common Stock Warrant Certificates.....3
SECTION 1.04. Temporary Common Stock Warrant Certificates....................3
SECTION 1.05. Payment of Taxes...............................................4
SECTION 1.06. "Holder".......................................................4
ARTICLE II
DURATION AND EXERCISE OF COMMON STOCK WARRANTS
SECTION 2.01. Duration of Common Stock Warrants..............................4
SECTION 2.02. Exercise of Common Stock Warrants..............................5
SECTION 2.03. Common Stock Warrant Adjustments...............................6
SECTION 2.04. Fractional Common Stock........................................6
ARTICLE III
OTHER PROVISIONS RELATING TO RIGHTS
OF HOLDERS OF COMMON STOCK WARRANTS
SECTION 3.01. No Rights as Holder of Common Stock............................7
SECTION 3.02. Lost, Stolen, Destroyed or Mutilated Certificates..............7
SECTION 3.03. Holders of Common Stock Warrants May Enforce Rights............8
SECTION 3.04. Merger, Consolidation, Sale, Transfer or Conveyance............8
SECTION 3.05. Treatment of Holders of Common Stock Warrant Certificates......9
ARTICLE IV
EXCHANGE AND TRANSFER OF COMMON STOCK WARRANTS
SECTION 4.01. Common Stock Warrant Register; Exchange and Transfer
of Common Stock Warrants.....................................9
SECTION 4.02. Treatment of Holders of Common Stock Warrants.................10
SECTION 4.03. Cancellation of Common Stock Warrant Certificates.............10
ARTICLE V
CONCERNING THE COMMON STOCK WARRANT AGENT
SECTION 5.01. Common Stock Warrant Agent....................................11
SECTION 5.02. Conditions of Common Stock Warrant Agent's Obligations........11
SECTION 5.03. Compliance with Applicable Laws...............................13
SECTION 5.04. Resignation and Removal; Appointment of Successor.............13
ARTICLE VI
MISCELLANEOUS
SECTION 6.01. Supplements and Amendments....................................15
SECTION 6.02. Notices and Demands...........................................16
SECTION 6.03. Addresses for Notices.........................................16
SECTION 6.04. Governing Law.................................................16
SECTION 6.05. Governmental Approvals........................................16
SECTION 6.06. Persons Having Rights Under Common Stock Warrant Agreement....16
SECTION 6.07. Delivery of Prospectus........................................17
SECTION 6.08. Headings......................................................17
SECTION 6.09. Counterparts..................................................17
SECTION 6.10. Judgment Currency.............................................17
SECTION 6.11. Inspection of Agreement.......................................17
This COMMON STOCK WARRANT AGREEMENT, dated as of______, 20__
between ClearOne Communications, Inc., a Utah corporation (the "Company"), and
_____________, a [corporation] organized and existing under the laws of
________, as warrant agent (the "Common Stock Warrant Agent").
WHEREAS, the Company proposes to sell [title of common stock or
other securities being offered (the "Offered Securities") with] certificates
evidencing one or more warrants (the "Common Stock Warrants" or, individually, a
"Common Stock Warrant") representing the right to purchase shares of the common
stock, par value $0.001 per share, of the Company (the "Common Stock"), such
warrant certificates and other warrant certificates issued pursuant to this
Agreement being herein called the "Common Stock Warrant Certificates"; and
WHEREAS, the Company has duly authorized the execution and
delivery of this Common Stock Warrant Agreement to provide for the issuance of
Common Stock Warrants to be exercisable at such times and for such prices, and
to have such other provisions, as shall be fixed as hereinafter provided;
NOW, THEREFORE, in consideration of the premises and of the
mutual agreements herein contained, the parties hereto agree as follows:
ARTICLE I
ISSUANCE OF COMMON STOCK WARRANTS AND EXECUTION
AND DELIVERY OF COMMON STOCK WARRANT CERTIFICATES
SECTION 1.01. Issuance of Common Stock Warrants.
----------------------------------
Common Stock Warrants may be issued from time to time, together
with or separately from Offered Securities. Prior to the issuance of any Common
Stock Warrants, there shall be established by or pursuant to a resolution or
resolutions duly adopted by the Company's Board of Directors or by any committee
thereof duly authorized to act with respect thereto (a "Board Resolution"):
(a) The title and aggregate number of such Common Stock Warrants;
(b) The offering price of such Common Stock Warrant;
(c) The number of shares of Common Stock that may be purchased
upon exercise of each such Common Stock Warrant; the price, or the manner of
determining the price (the "Common Stock Warrant Price"), at which such shares
of Common Stock may be purchased upon exercise of such Common Stock Warrants; if
other than cash, the property and manner in which the Common Stock Warrant Price
may be paid; and any minimum number of such Common Stock Warrants that are
exercisable at any one time;
(d) The time or times at which, or period or periods during
which, such Common Stock Warrants may be exercised and the final date on which
such Common Stock Warrants may be exercised (the "Expiration Date");
(e) The terms of any right to redeem such Common Stock Warrants;
(f) The terms of any right of the Company to accelerate the
Common Stock Warrants upon the occurrence of certain events;
(g) Where the registered warrant certificates evidencing such
Common Stock Warrants (the "Common Stock Warrant Certificates") may be
transferred and exchanged;
(h) Whether such Common Stock Warrants are to be issued with any
Offered Securities and, if so, the number and terms of any such Offered
Securities;
(i) The date, if any, on and after which the Common Stock
Warrants and the Offered Securities will be separately transferable (the
"Detachable Date"); and
(j) Any other terms of such Common Stock Warrants not
inconsistent with the provisions of this Agreement.
SECTION 1.02. Form and Execution of Common Stock Warrant Certificates.
-------------------------------------------------------
(a) The Common Stock Warrants shall be evidenced by the Common
Stock Warrant Certificates, which shall be in registered form and substantially
in such form or forms as shall be established by or pursuant to a Board
Resolution. Each Common Stock Warrant Certificate, whenever issued, shall be
dated the date it is countersigned by the Common Stock Warrant Agent and may
have such letters, numbers or other marks of identification and such legends or
endorsements printed, lithographed or engraved thereon as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
law, rule or regulation or with any rule or regulation of any securities
exchange on which the Common Stock or Common Stock Warrants may be listed, or to
conform to usage, as the officer of the Company executing the same may approve
(his execution thereof to be conclusive evidence of such approval). Each Common
Stock Warrant Certificate shall evidence one or more Common Stock Warrants.
(b) The Common Stock Warrant Certificates shall be signed in the
name and on behalf of the Company by its Chairman, President, Chief Executive
Officer or Chief Financial Officer under its corporate seal, and attested by its
Secretary, an Assistant Secretary or any Vice President (any reference to a
"Vice President" of the Company herein shall be deemed to include any Vice
President of the Company whether or not designated by a number or a word or
words added before or after the title Vice President). Such signatures may be
manual or facsimile signatures of the present or any future holder of any such
office and may be imprinted or otherwise reproduced on the Common Stock Warrant
Certificates. The seal of the Company may be in the form of a facsimile thereof
and may be impressed, affixed, imprinted or otherwise reproduced on the Common
Stock Warrant Certificates.
(c) No Common Stock Warrant Certificate shall be valid for any
purpose, and no Common Stock Warrant evidenced thereby shall be deemed issued or
exercisable, until such Common Stock Warrant Certificate has been countersigned
by the manual or facsimile signature of the Common Stock Warrant Agent. Such
signature by the Common Stock Warrant Agent upon any Common Stock Warrant
Certificate executed by the Company shall be conclusive evidence that the Common
Stock Warrant Certificate so countersigned has been duly issued hereunder.
2
(d) In the event any officer of the Company who has signed any
Common Stock Warrant Certificate either manually or by facsimile signature
ceases to be such officer before the Common Stock Warrant Certificate so signed
has been countersigned and delivered by the Common Stock Warrant Agent, such
Common Stock Warrant Certificate nevertheless may be countersigned and delivered
as though the person who signed such Common Stock Warrant Certificate had not
ceased to be such officer of the Company; and any Common Stock Warrant
Certificate may be signed on behalf of the Company by such person as, at the
actual date of the execution of such Common Stock Warrant Certificate, shall be
the proper officer of the Company, although at the date of the execution of this
Agreement such person was not such an officer.
SECTION 1.03. Issuance and Delivery of Common Stock Warrant Certificates.
----------------------------------------------------------
At any time and from time to time after the execution and
delivery of this Agreement, the Company may deliver Common Stock Warrant
Certificates executed by the Company to the Common Stock Warrant Agent for
countersignature. Except as provided in the following sentence, the Common Stock
Warrant Agent shall thereupon countersign and deliver such Common Stock Warrant
Certificates to or upon the written request of the Company. Subsequent to the
original issuance of a Common Stock Warrant Certificate evidencing Common Stock
Warrants, the Common Stock Warrant Agent shall countersign a new Common Stock
Warrant Certificate evidencing such Common Stock Warrants only if such Common
Stock Warrant Certificate is issued in exchange or substitution for one or more
previously countersigned Common Stock Warrant Certificates evidencing such
Common Stock Warrants or in connection with their transfer, as hereinafter
provided.
SECTION 1.04. Temporary Common Stock Warrant Certificates.
-------------------------------------------
(a) Pending the preparation of definitive Common Stock Warrant
Certificates, the Company may execute, and upon the order of the Company the
Common Stock Warrant Agent shall countersign and deliver, temporary Common Stock
Warrant Certificates that are printed, lithographed, typewritten, mimeographed
or otherwise produced, substantially of the tenor of the definitive Common Stock
Warrant Certificates in lieu of which they are issued and with such appropriate
insertions, omissions, substitutions and other variations as the officer
executing such Common Stock Warrant Certificates may determine, as evidenced by
his execution of such Common Stock Warrant Certificates.
(b) If temporary Common Stock Warrant Certificates are issued,
the Company will cause definitive Common Stock Warrant Certificates to be
prepared without unreasonable delay. After the preparation of definitive Common
Stock Warrant Certificates, the temporary Common Stock Warrant Certificates
shall be exchangeable for definitive Common Stock Warrant Certificates upon
surrender of the temporary Common Stock Warrant Certificates at the corporate
trust office of the Common Stock Warrant Agent [or ________________], without
charge to the Holder (as defined in Section 1.06 hereof). Upon surrender for
cancellation of any one or more temporary Common Stock Warrant Certificates, the
Company shall execute and the Common Stock Warrant Agent shall countersign and
deliver in exchange therefor definitive Common Stock Warrant Certificates
representing the same aggregate number of Common Stock Warrants. Until so
exchanged, the temporary Common Stock Warrant Certificates shall in all respects
3
be entitled to the same benefits under this Agreement as definitive Common Stock
Warrant Certificates.
SECTION 1.05. Payment of Taxes.
-----------------
The Company will pay all stamp and other similar duties, if any,
to which this Agreement or the original issuance of the Common Stock Warrants or
the issuance of Common Stock upon exercise of the Common Stock Warrants may be
subject under the laws of the United States of America or any state or locality,
provided, however, the Company is not responsible for the payment of any tax or
taxes which may be payable in respect of any transfer involved in the issue of
Common Stock Warrant Certificates or any issue or transfer of Common Stock to a
person other than the Holder.
SECTION 1.06. "Holder".
------
The term "Holder" or "Holders" as used herein with reference to a
Common Stock Warrant Certificate shall mean the person or persons in whose name
such Common Stock Warrant Certificate shall then be registered as set forth in
the Common Stock Warrant Register (as defined in Section 4.01 hereof) to be
maintained by the Common Stock Warrant Agent pursuant to Section 4.01 for that
purpose or, in the case of Common Stock Warrants that are issued with Offered
Securities and cannot then be transferred separately therefrom, the person or
persons in whose name the related Offered Securities shall be registered as set
forth in the security register for such Offered Securities, prior to the
Detachable Date. In the case of Common Stock Warrants that are issued with
Offered Securities and cannot then be transferred separately therefrom, the
Company will, or will cause the security registrar of any such Offered
Securities to, make available to the Common Stock Warrant Agent at all times
(including on and after the Detachable Date, in the case of Common Stock
Warrants originally issued with Offered Securities and not subsequently
transferred separately therefrom) such information as to Holders of Offered
Securities with Common Stock Warrants attached thereto as may be necessary to
keep the Common Stock Warrant Register up to date.
ARTICLE II
DURATION AND EXERCISE OF COMMON STOCK WARRANTS
SECTION 2.01. Duration of Common Stock Warrants.
---------------------------------
Each Common Stock Warrant may be exercised at the time or times,
or during the period or periods, provided by or pursuant to the Board Resolution
relating thereto and specified in the Common Stock Warrant Certificate
evidencing such Common Stock Warrant. Each Common Stock Warrant not exercised at
or before 5:00 P.M., New York City time, on its Expiration Date shall become
void, and all rights of the Holder of such Common Stock Warrant thereunder and
under this Agreement shall cease; provided, however that the Company reserves
the right to, and may, in its sole discretion, at any time and from time to
time, at such time or times as the Company so determines, extend the Expiration
Date of the Common Stock Warrants for such periods of time as it chooses;
provided further that in no case may the Expiration Date of the Common Stock
Warrants be extended beyond [ ] years from the original Expiration Date. To
extend the Expiration Date, the Company shall, at least 20 days prior to the
4
Expiration Date, cause to be mailed to the Common Stock Warrant Agent and the
Holders in accordance with the provisions of Section 5.04(e) hereof a notice
stating that the Expiration Date has been extended and setting forth the new
Expiration Date.
SECTION 2.02. Exercise of Common Stock Warrants.
---------------------------------
(a) The Holder shall have the right, at its option, to exercise
such Common Stock Warrant and, subject to Subsection (f) of this Section 2.02,
purchase the number of shares of Common Stock provided for therein at the time
or times or during the period or periods referred to in Section 2.01 and
specified in the Common Stock Warrant Certificate evidencing such Common Stock
Warrant. No fewer than the minimum number of Common Stock Warrants as set forth
in the Common Stock Warrant Certificate may be exercised by or on behalf of any
one Holder at any one time. Except as may be provided in a Common Stock Warrant
Certificate, a Common Stock Warrant may be exercised by completing the form of
election to purchase set forth on the reverse side of the Common Stock Warrant
Certificate, by duly executing the same, and by delivering the same, together
with payment in full of the Common Stock Warrant Price, in lawful money of the
United States of America, in cash or by certified or official bank check or by
bank wire transfer, or in property, in the manner provided by or pursuant to the
Board Resolution relative thereto and specified in the Common Stock Warrant
Certificate evidencing such Common Stock Warrant, to the Common Stock Warrant
Agent. Except as may be provided in a Common Stock Warrant Certificate, the date
on which such Common Stock Warrant Certificate and payment are received by the
Common Stock Warrant Agent as aforesaid shall be deemed to be the date on which
the Common Stock Warrant is exercised and the relevant shares of Common Stock
are issued.
(b) Upon the exercise of a Common Stock Warrant, the Company
shall issue, to or upon the order of the Holder of such Common Stock Warrant,
the shares of Common Stock to which such Holder is entitled, registered, in the
case of shares of Common Stock in registered form, in such name or names as may
be directed by such Holder.
(c) If fewer than all of the Common Stock Warrants evidenced by a
Common Stock Warrant Certificate are exercised, the Company shall execute, and
the Common Stock Warrant Agent shall countersign and deliver, a new Common Stock
Warrant Certificate evidencing the number of Common Stock Warrants remaining
unexercised.
(d) The Common Stock Warrant Agent shall deposit all funds
received by it in payment of the Common Stock Warrant Price for Common Stock
Warrants in the account of the Company maintained with it for such purpose and
shall advise the Company by telephone by 5:00 P.M., New York City time, of each
day on which a payment of the Common Stock Warrant Price for Common Stock
Warrants is received of the amount so deposited in its account. The Common Stock
Warrant Agent shall promptly confirm such telephone advice in writing to the
Company.
(e) The Common Stock Warrant Agent shall, from time to time, as
promptly as practicable, advise the Company of (1) the number of Common Stock
Warrants of each title exercised as provided herein, (2) the instructions of
each Holder with respect to delivery of the Common Stock issued upon exercise of
such Common Stock Warrants to which such Holder is entitled upon such exercise,
5
and (3) such other information as the Company or such Trustee shall reasonably
require. Such notice may be given by telephone to be promptly confirmed in
writing.
(f) The Holder, and not the Company, shall be required to pay any
stamp or other tax or other governmental charge that may be imposed in
connection with any issue of the Common Stock to a person other than the Holder,
and in the event that any such issue is involved, the Company shall not be
required to issue any Common Stock (and such person's purchase of the shares of
Common Stock issued upon the exercise of such Holder's Common Stock Warrant
shall not be deemed to have been consummated) until such tax or other charge
shall have been paid or it has been established to the Company's satisfaction
that no such tax or other charge is due.
SECTION 2.03. Common Stock Warrant Adjustments.
--------------------------------
[(a) The terms and conditions, if any, on which the exercise
price of and/or the number of shares of Common Stock covered by a Common Stock
Warrant are subject to adjustments will be set forth in this Section 2.03.]
(b) Except as provided in [any exceptions that may be set forth
in the prospectus supplement], no adjustment in the number of shares of Common
Stock purchasable hereunder shall be required unless such adjustment would
require an increase or decrease of at least one percent (1%) in the number of
shares of Common Stock purchasable upon the exercise of each Common Stock
Warrant; provided, however, that any adjustments which by reason of this
paragraph (b) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations shall be made to the
nearest cent and to the nearest one-hundredth of a share of Common Stock, as the
case may be.
(c) Upon any adjustment of the number of shares of Common Stock
purchasable upon exercise of each Common Stock Warrant, the Common Stock Warrant
Price or the number of Common Stock Warrants outstanding, the Company shall,
within 20 calendar days thereafter, (1) cause to be filed with the Common Stock
Warrant Agent a certificate of a firm of independent public accountants of
recognized standing selected by the Company (who may be the regular auditors of
the Company) setting forth the Common Stock Warrant Price and either the number
of shares of Common Stock purchasable upon exercise of each Common Stock Warrant
or the additional number of Common Stock Warrants to be issued for each
previously outstanding Common Stock Warrant, as the case may be, after such
adjustment, and setting forth in reasonable detail the method of calculation and
the facts upon which such adjustment was made, which certificate shall be
conclusive evidence of the correctness of the matters set forth therein, and (2)
cause to be given to each Holder at such Holder's address appearing on the
Common Stock Warrant Register written notice of such adjustments by first class
mail, postage prepaid.
SECTION 2.04. Fractional Common Stock.
-----------------------
(a) Notwithstanding any adjustment pursuant to Section 2.03 in
the number of shares of Common Stock purchasable upon the exercise of a Common
Stock Warrant, the Company shall not be required to issue fractions of Common
Stock upon exercise of the Common Stock Warrants or to distribute certificates
6
which evidence fractional shares of Common Stock. In lieu of fractional shares
of Common Stock, there shall be paid to the Holders at the time the Holders'
Common Stock Warrants are exercised as herein provided an amount in cash equal
to the fraction of the current market value of a share of Common Stock. For
purposes of this Section 2.04, the current market value of a share of Common
Stock shall be the closing price of a share of Common Stock (as determined
pursuant to Subsection (b) below) for the trading day immediately prior to the
date of such exercise.
(b) The closing price for each day shall be the last sale price,
regular way, or, if no such sale takes place on such day, the average of the
closing bid and asked prices, regular way, for such day, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Common Stock is not listed or admitted to trading on the New York Stock
Exchange, as reported on the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which the Common Stock is listed or admitted to trading, or if the Common
Stock is not listed or admitted to trading on any national securities exchange,
as reported on the Nasdaq National Market.
ARTICLE III
OTHER PROVISIONS RELATING TO RIGHTS
OF HOLDERS OF COMMON STOCK WARRANTS
SECTION 3.01. No Rights as Holder of Common Stock.
------------------------------------
A Holder of a Common Stock Warrant or Common Stock Warrant
Certificate shall not have any of the rights of a holder of Common Stock.
SECTION 3.02. Lost, Stolen, Destroyed or Mutilated Certificates.
-------------------------------------------------
Upon receipt by the Company and the Common Stock Warrant Agent of
evidence reasonably satisfactory to them of the ownership of and the loss,
theft, destruction or mutilation of any Common Stock Warrant Certificate and of
indemnity (other than in connection with any mutilated Common Stock Warrant
Certificates surrendered to the Common Stock Warrant Agent for cancellation)
reasonably satisfactory to them, the Company shall execute, and the Common Stock
Warrant Agent shall countersign and deliver, in exchange for or in lieu of each
lost, stolen, destroyed or mutilated Common Stock Warrant Certificate, a new
Common Stock Warrant Certificate evidencing a like number of Common Stock
Warrants of the same title. Upon the issuance of a new Common Stock Warrant
Certificate under this Section 3.02, the Company may require the payment of a
sum sufficient to cover any stamp or other similar tax or other governmental
charge that may be imposed in connection therewith and any other expenses
(including the fees and expenses of the Common Stock Warrant Agent) in
connection therewith. Every substitute Common Stock Warrant Certificate executed
and delivered pursuant to this Section in lieu of any lost, stolen or destroyed
Common Stock Warrant Certificate shall be at any time enforceable by the Holder
thereof, and shall be entitled to the benefits of this Agreement equally and
proportionately with any and all other Common Stock Warrant Certificates, duly
executed and delivered hereunder. The provisions of this Section are exclusive
7
and shall preclude (to the extent lawful) all other rights and remedies with
respect to the replacement of lost, stolen, destroyed or mutilated Common Stock
Warrant Certificates.
SECTION 3.03. Holders of Common Stock Warrants May Enforce Rights.
----------------------------------------------------
Notwithstanding any of the provisions of this Agreement, any
Holder may, without the consent of the Common Stock Warrant Agent, enforce and
may institute and maintain any suit, action or proceeding against the Company
suitable to enforce, or otherwise in respect of, his right to exercise his
Common Stock Warrants as provided in the Common Stock Warrants and in this
Agreement.
SECTION 3.04. Merger, Consolidation, Sale, Transfer or Conveyance.
---------------------------------------------------
(a) In case any of the following shall occur while any Common
Stock Warrants are outstanding: (1) any reclassification or change of the
outstanding shares of Common Stock; or (2) any consolidation or merger to which
the Company is party (other than a consolidation or a merger in which the
Company is the continuing corporation and which does not result in any
reclassification of, or change in, the outstanding shares of Common Stock
issuable upon exercise of the Common Stock Warrants); or (3) any sale,
conveyance or lease to another corporation of the property of the Company as an
entirety or substantially as an entirety; then the Company, or such successor or
purchasing corporation, as the case may be, shall make appropriate provision by
amendment of this Agreement or otherwise so that the Holders of the Common Stock
Warrants then outstanding shall have the right at any time thereafter, upon
exercise of such Common Stock Warrants, to purchase the kind and amount of
shares of stock and other securities and property receivable upon such a
reclassification, change, consolidation, merger, sale, conveyance or lease as
would be received by a holder of the number of shares of Common Stock issuable
upon exercise of such Common Stock Warrant immediately prior to such
reclassification, change, consolidation, merger, sale, conveyance or lease, and,
in the case of a consolidation, merger, sale, conveyance or lease as
contemplated in this Section 3.04(a), the Company shall thereupon be relieved of
any further obligation hereunder or under the Common Stock Warrants, and the
Company as the predecessor corporation may thereupon or at any time thereafter
be dissolved, wound up or liquidated. Such successor or assuming corporation
thereupon may cause to be signed, and may issue either in its own name or in the
name of the Company, any or all of the Common Stock Warrant Certificates
issuable hereunder which theretofore have not been signed by the Company, and
may execute and deliver common stock in its own name, in fulfillment of its
obligations to deliver Common Stock upon exercise of the Common Stock Warrants.
All the Common Stock Warrants so issued shall in all respects have the same
legal rank and benefit under this Agreement as the Common Stock Warrants
theretofore or thereafter issued in accordance with the terms of this Agreement
as though all of such Common Stock Warrants had been issued at the date of the
execution hereof. In case of any such reclassification, change, consolidation,
merger, conveyance, transfer or lease, such changes in phraseology and form (but
not in substance) may be made in the Common Stock Warrants thereafter to be
issued as may be appropriate.
8
(b) The Common Stock Warrant Agent may receive a written opinion
of legal counsel as conclusive evidence that any such merger, consolidation,
sale, transfer, conveyance or other disposition of substantially all of the
assets of the Company complies with the provisions of this Section 3.04.
SECTION 3.05. Treatment of Holders of Common Stock Warrant Certificates.
---------------------------------------------------------
(a) In the event that the Common Stock Warrants are offered
together with, and, prior to the Detachable Date, are not detachable from,
Offered Securities, the Company, the Common Stock Warrant Agent and all other
persons may, prior to such Detachable Date, treat the holder of the Offered
Security as the Holder of the Common Stock Warrant Certificates initially
attached thereto for any purpose and as the person entitled to exercise the
rights represented by the Common Stock Warrants evidenced by such Common Stock
Warrant Certificates, any notice to the contrary notwithstanding. After the
Detachable Date and prior to due presentment of a Common Stock Warrant
Certificate for registration of transfer, the Company and the Common Stock
Warrant Agent may treat the Holder of a Common Stock Warrant Certificate as the
absolute Holder thereof for any purpose and as the person entitled to exercise
the rights represented by the Common Stock Warrants evidenced thereby, any
notice to the contrary notwithstanding.
(b) In all other cases, the Company and the Common Stock Warrant
Agent may treat the Holder of a Common Stock Warrant Certificate as the absolute
Holder thereof for any purpose and as the person entitled to exercise the rights
represented by the Common Stock Warrants evidenced thereby, any notice to the
contrary notwithstanding.
ARTICLE IV
EXCHANGE AND TRANSFER OF COMMON STOCK WARRANTS
SECTION 4.01. Common Stock Warrant Register; Exchange and Transfer of
-------------------------------------------------------
Common Stock Warrants.
----------------------
(a) The Common Stock Warrant Agent shall maintain, at its
corporate trust office [or at _______], a register (the "Common Stock Warrant
Register") in which, upon the issuance of Common Stock Warrants, or on and after
the Detachable Date in the case of Common Stock Warrants not separately
transferable prior thereto, and, subject to such reasonable regulations as the
Common Stock Warrant Agent may prescribe, it shall register Common Stock Warrant
Certificates and exchanges and transfers thereof. The Common Stock Warrant
Register shall be in written form or in any other form capable of being
converted into written form within a reasonable time.
(b) Except as provided in the following sentence, upon surrender
at the corporate trust office of the Common Stock Warrant Agent [or at _______],
Common Stock Warrant Certificates may be exchanged for one or more other Common
Stock Warrant Certificates evidencing the same aggregate number of Common Stock
Warrants of the same title, or may be transferred in whole or in part. A Common
Stock Warrant Certificate evidencing Common Stock Warrants that are not then
transferable separately from the Offered Security with which they were issued
may be exchanged or transferred prior to its Detachable Date only together with
9
such Offered Security and only for the purpose of effecting, or in conjunction
with, an exchange or transfer of such Offered Security; and on or prior to the
Detachable Date, each exchange or transfer of such Offered Security on the
Security Register of the Offered Securities shall operate also to exchange or
transfer the related Common Stock Warrants. A transfer shall be registered upon
surrender of a Common Stock Warrant Certificate to the Common Stock Warrant
Agent at its corporate trust office [or at ______________________] for transfer,
properly endorsed or accompanied by appropriate instruments of transfer and
written instructions for transfer, all in form satisfactory to the Company and
the Common Stock Warrant Agent. Whenever a Common Stock Warrant Certificate is
surrendered for exchange or transfer, the Common Stock Warrant Agent shall
countersign and deliver to the person or persons entitled thereto one or more
Common Stock Warrant Certificates duly executed by the Company, as so requested.
The Common Stock Warrant Agent shall not be required to effect any exchange or
transfer which will result in the issuance of a Common Stock Warrant Certificate
evidencing a fraction of a Common Stock Warrant. All Common Stock Warrant
Certificates issued upon any exchange or transfer of a Common Stock Warrant
Certificate shall be the valid obligations of the Company, evidencing the same
obligations, and entitled to the same benefits under this Agreement, as the
Common Stock Warrant Certificate surrendered for such exchange or transfer.
(c) No service charge shall be made for any exchange or transfer
of Common Stock Warrants, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any such exchange or transfer, in accordance with Section
2.02(f) hereof.
SECTION 4.02. Treatment of Holders of Common Stock Warrants.
---------------------------------------------
Every Holder, by accepting the Common Stock Warrant Certificate
evidencing the same, consents and agrees with the Company, the Common Stock
Warrant Agent and with every other Holder of Common Stock Warrants of the same
title that the Company and the Common Stock Warrant Agent may treat the Holder
(or, if the Common Stock Warrant Certificate is not then detachable, the Holder
of the related Offered Security) as the absolute owner of such Common Stock
Warrant for all purposes and as the person entitled to exercise the rights
represented by such Common Stock Warrant, any notice to the contrary
notwithstanding.
SECTION 4.03. Cancellation of Common Stock Warrant Certificates.
-------------------------------------------------
In the event that the Company shall purchase, redeem or otherwise
acquire any Common Stock Warrants after the issuance thereof, the Common Stock
Warrant Certificate or Certificates evidencing such Common Stock Warrants shall
thereupon be delivered to the Common Stock Warrant Agent and be cancelled by it.
The Common Stock Warrant Agent shall also cancel any Common Stock Warrant
Certificate (including any mutilated Common Stock Warrant Certificate) delivered
to it for exercise, in whole or in part, or for exchange or transfer. Common
Stock Warrant Certificates so cancelled shall be delivered by the Common Stock
Warrant Agent to the Company from time to time, or disposed of in accordance
with the instructions of the Company.
10
ARTICLE V
CONCERNING THE COMMON STOCK WARRANT AGENT
SECTION 5.01. Common Stock Warrant Agent.
--------------------------
The Company hereby appoints ___________ as Common Stock Warrant
Agent of the Company in respect of the Common Stock Warrants upon the terms and
subject to the conditions set forth herein and __________________ hereby accepts
such appointment. The Common Stock Warrant Agent shall have the powers and
authority granted to and conferred upon it in the Common Stock Warrant
Certificates and hereby and such further powers and authority acceptable to it
to act on behalf of the Company as the Company may hereafter grant to or confer
upon it. All of the terms and provisions with respect to such powers and
authority contained in the Common Stock Warrant Certificates are subject to and
governed by the terms and provisions hereof.
SECTION 5.02. Conditions of Common Stock Warrant Agent's Obligations.
-------------------------------------------------------
The Common Stock Warrant Agent accepts its obligations set forth
herein upon the terms and conditions hereof, including the following, to all of
which the Company agrees and to all of which the rights hereunder of the Holders
shall be subject:
(a) Compensation And Indemnification. The Company agrees to
promptly pay the Common Stock Warrant Agent the compensation set forth in
Exhibit A hereto and to reimburse the Common Stock Warrant Agent for reasonable
out-of-pocket expenses (including counsel fees) incurred by the Common Stock
Warrant Agent in connection with the services rendered hereunder by the Common
Stock Warrant Agent. The Company also agrees to indemnify the Common Stock
Warrant Agent for, and to hold it harmless against, any loss, liability or
expense (including the reasonable costs and expenses of defending against any
claim of liability) incurred without negligence or bad faith on the part of the
Common Stock Warrant Agent arising out of or in connection with its appointment
as Common Stock Warrant Agent hereunder.
(b) Agent For The Company. In acting under this Agreement and in
connection with any Common Stock Warrant Certificate, the Common Stock Warrant
Agent is acting solely as agent of the Company and does not assume any
obligation or relationship of agency or trust for or with any Holder.
(c) Counsel. The Common Stock Warrant Agent may consult with
counsel satisfactory to it, and the advice of such counsel shall be full and
complete authorization and protection in respect of any action taken, suffered
or omitted by it hereunder in good faith and in accordance with the advice of
such counsel.
(d) Documents. The Common Stock Warrant Agent shall be protected
and shall incur no liability for or in respect of any action taken, suffered or
omitted by it in reliance upon any notice, direction, consent, certificate,
affidavit, statement or other paper or document reasonably believed by it to be
genuine and to have been presented or signed by the proper parties.
11
(e) Officer's Certificate. Whenever in the performance of its
duties hereunder the Common Stock Warrant Agent shall reasonably deem it
necessary that any fact or matter be proved or established by the Company prior
to taking, suffering or omitting any action hereunder, the Common Stock Warrant
Agent may (unless other evidence in respect thereof be herein specifically
prescribed), in the absence of bad faith on its part, rely upon a certificate
signed by the Chairman, the President, the Chief Executive Officer, Chief
Financial Officer, any Vice President, the Controller or the Secretary of the
Company delivered by the Company to the Common Stock Warrant Agent.
(f) Actions Through Agents. The Common Stock Warrant Agent may
execute and exercise any of the rights or powers hereby vested in it or perform
any duty hereunder either itself or by or through its attorneys or agents, and
the Common Stock Warrant Agent shall not be answerable or accountable for any
act, default, neglect or misconduct of any such attorney or agent or for any
loss to the Company resulting from such neglect or misconduct; provided,
however, that reasonable care shall have been exercised in the selection and
continued employment of such attorneys and agents.
(g) Certain Transactions. The Common Stock Warrant Agent, and any
officer, director or employee thereof, may become the owner of, or acquire any
interest in, any Common Stock Warrant, with the same rights that he, she or it
would have if it were not the Common Stock Warrant Agent, and, to the extent
permitted by applicable law, he, she or it may engage or be interested in any
financial or other transaction with the Company and may serve on, or as
depositary, trustee or agent for, any committee or body of holders of Common
Stock or other obligations of the Company as if it were not the Common Stock
Warrant Agent.
(h) No Liability For Interest. The Common Stock Warrant Agent
shall not be liable for interest on any monies at any time received by it
pursuant to any of the provisions of this Agreement or of the Common Stock
Warrant Certificates, except as otherwise agreed with the Company.
(i) No Liability For Invalidity. The Common Stock Warrant Agent
shall incur no liability with respect to the validity of this Agreement (except
as to the due execution hereof by the Common Stock Warrant Agent) or any Common
Stock Warrant Certificate (except as to the countersignature thereof by the
Common Stock Warrant Agent).
(j) No Responsibility For Company Representations. The Common
Stock Warrant Agent shall not be responsible for any of the recitals or
representations contained herein (except as to such statements or recitals as
describe the Common Stock Warrant Agent or action taken or to be taken by it) or
in any Common Stock Warrant Certificate (except as to the Common Stock Warrant
Agent's countersignature on such Common Stock Warrant Certificate), all of which
recitals and representations are made solely by the Company.
(k) No Implied Obligations. The Common Stock Warrant Agent shall
be obligated to perform only such duties as are specifically set forth herein,
and no other duties or obligations shall be implied. The Common Stock Warrant
Agent shall not be under any obligation to take any action hereunder that may
subject it to any expense or liability, the payment of which within a reasonable
time is not, in its reasonable opinion, assured to it. The Common Stock Warrant
12
Agent shall not be accountable or under any duty or responsibility for the use
by the Company of any Common Stock Warrant Certificate countersigned by the
Common Stock Warrant Agent and delivered by it to the Company pursuant to this
Agreement or for the application by the Company of the proceeds of the issuance
or exercise of Common Stock Warrants. The Common Stock Warrant Agent shall have
no duty or responsibility in case of any default by the Company in the
performance of its covenants or agreements contained herein or in any Common
Stock Warrant Certificate or in case of the receipt of any written demand from a
Holder with respect to such default, including, without limiting the generality
of the foregoing, any duty or responsibility to initiate or attempt to initiate
any proceedings at law or otherwise or, except as provided in Section 6.02
hereof, to make any demand upon the Company.
SECTION 5.03. Compliance with Applicable Laws.
-------------------------------
The Common Stock Warrant Agent agrees to comply with all
applicable federal and state laws imposing obligations on it in respect of the
services rendered by it under this Common Stock Warrant Agreement and in
connection with the Common Stock Warrants, including (but not limited to) the
provisions of United States federal income tax laws regarding information
reporting and backup withholding. The Common Stock Warrant Agent expressly
assumes all liability for its failure to comply with any such laws imposing
obligations on it, including (but not limited to) any liability for failure to
comply with any applicable provisions of United States federal income tax laws
regarding information reporting and backup withholding.
SECTION 5.04. Resignation and Removal; Appointment of Successor.
--------------------------------------------------
(a) The Company agrees, for the benefit of the Holders of the
Common Stock Warrants, that there shall at all times be a Common Stock Warrant
Agent hereunder until all the Common Stock Warrants are no longer exercisable.
(b) The Common Stock Warrant Agent may at any time resign as such
agent by giving written notice to the Company of such intention on its part,
specifying the date on which its desired resignation shall become effective,
subject to the appointment of a successor Common Stock Warrant Agent and
acceptance of such appointment by such successor Common Stock Warrant Agent, as
hereinafter provided. The Common Stock Warrant Agent hereunder may be removed at
any time by the filing with it of an instrument in writing signed by or on
behalf of the Company and specifying such removal and the date when it shall
become effective. Notwithstanding the two preceding sentences, such resignation
or removal shall take effect upon the appointment by the Company, as hereinafter
provided, of a successor Common Stock Warrant Agent (which shall be a banking
institution organized under the laws of the United States of America, or one of
the states thereof and having an office or an agent's office in the City of New
York) and the acceptance of such appointment by such successor Common Stock
Warrant Agent. In the event a successor Common Stock Warrant Agent has not been
appointed and has not accepted its duties within 90 days of the Common Stock
Warrant Agent's notice of resignation, the Common Stock Warrant Agent may apply
to any court of competent jurisdiction for the designation of a successor Common
Stock Warrant Agent. The obligation of the Company under Section 5.02(a) shall
continue to the extent set forth therein notwithstanding the resignation or
removal of the Common Stock Warrant Agent.
13
(c) In case at any time the Common Stock Warrant Agent shall:
(1) resign, or shall be removed, or shall become incapable
of acting, or
(2) be adjudged bankrupt or insolvent, or
(3) file a petition seeking relief under Title 11 of the
United States Code, as now constituted or hereafter amended,
or under any other applicable federal or state bankruptcy or
similar law, or
(4) make an assignment for the benefit of its creditors, or
shall consent to the appointment of a receiver or custodian
of all or any substantial part of its property, or
(5) admit in writing its inability to pay or meet its debts
as they mature, or
(6) have a receiver or custodian appointed for it or for all
or any substantial part of its property, or
(7) have an order of any court entered for relief against it
under the provisions of Title 11 of the United States Code,
as now constituted or hereafter amended, or under any other
applicable federal or state bankruptcy or similar law, or
(8) have any public officer take charge or control of the
Common Stock Warrant Agent or of its property or affairs,
for the purpose of rehabilitation, conservation or
liquidation,
a successor Common Stock Warrant Agent, qualified as aforesaid, shall be
appointed by the Company by an instrument in writing, filed with the successor
Common Stock Warrant Agent. Upon the appointment as aforesaid of a successor
Common Stock Warrant Agent and acceptance by the latter of such appointment, the
Common Stock Warrant Agent so superseded shall cease to be Common Stock Warrant
Agent hereunder.
(d) Any successor Common Stock Warrant Agent appointed hereunder
shall execute, acknowledge and deliver to its predecessor and to the Company an
instrument accepting such appointment hereunder, and thereupon such successor
Common Stock Warrant Agent, without any further act, deed or conveyance, shall
become vested with all the authority, rights, powers, trusts, immunities, duties
and obligations of such predecessor with like effect as if originally named as
Common Stock Warrant Agent hereunder, and such predecessor, upon payment of its
charges and disbursements then unpaid, shall thereupon become obligated to
transfer, deliver and pay over, and such successor Common Stock Warrant Agent
shall be entitled to receive all moneys, securities and other property on
deposit with or held by such predecessor, as Common Stock Warrant Agent
hereunder.
(e) The Company shall cause notice of the appointment of any
successor Common Stock Warrant Agent to be mailed by first class mail, postage
prepaid, to each Holder at its address appearing on the Common Stock Warrant
Register. Such notice shall set forth the name and address of the successor
14
Common Stock Warrant Agent. Failure to give any notice provided for in this
Section 5.04(e), or any defect therein, shall not, however, affect the legality
or validity of the appointment of the successor Common Stock Warrant Agent.
(f) Any corporation into which the Common Stock Warrant Agent
hereunder may be merged or converted or any corporation with which the Common
Stock Warrant Agent may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which the Common Stock Warrant Agent
shall be a party, or any corporation to which the Common Stock Warrant Agent
shall sell or otherwise transfer all or substantially all of the assets and
business of the Common Stock Warrant Agent, provided that it shall be qualified
as provided in Section 5.04(b), shall be the successor Common Stock Warrant
Agent under this Agreement without the execution or filing of any paper or any
further act on the part of any of the parties hereto.
ARTICLE VI
MISCELLANEOUS
SECTION 6.01. Supplements and Amendments.
--------------------------
(a) This Agreement and the Common Stock Warrants may be
supplemented or amended by the Company and the Common Stock Warrant Agent,
without the consent of the Holders, for the purpose of curing any ambiguity, or
of curing, correcting or supplementing any defective or inconsistent provision
contained herein or therein or in any other manner which the Company may deem to
be necessary or desirable and which will not materially adversely affect the
interests of the Holders of the Common Stock Warrants. Every Holder of Common
Stock Warrants, whether issued before or after any such supplement or amendment,
shall be bound thereby. Promptly after the effectiveness of any supplement or
amendment that affects the interests of the Holders, the Company shall give
notice thereof, as provided in Section 5.04(e) hereof, to the Holders affected
thereby, setting forth in general terms the substance of such supplement or
amendment.
(b) The Company and the Common Stock Warrant Agent may modify or
amend this Agreement and the Common Stock Warrant Certificates with the consent
of the Holders of not fewer than a majority in number of the then outstanding
unexercised Common Stock Warrants affected by such modification or amendment,
for any purpose; provided, however, that no such modification or amendment that
shortens the period of time during which the Common Stock Warrants may be
exercised, [affects other material terms of the Common Stock Warrants that may
be set forth in a prospectus supplement] or reduces the percentage of Holders of
outstanding Common Stock Warrants the consent of which is required for
modification or amendment of this Agreement or the Common Stock Warrants, may be
made without the consent of each Holder affected thereby.
15
SECTION 6.02. Notices and Demands.
--------------------
If the Common Stock Warrant Agent shall receive any notice or
demand addressed to the Company by any Holder pursuant to the provisions of the
Common Stock Warrant Certificates, the Common Stock Warrant Agent shall promptly
forward such notice or demand to the Company.
SECTION 6.03. Addresses for Notices.
----------------------
Any communications from the Company to the Common Stock Warrant
Agent with respect to this Agreement shall be addressed to [name of Common Stock
Warrant Agent], [__________________, New York, New York __________], Attention:
[Corporate Trust Department]; any communications from the Common Stock Warrant
Agent to the Company with respect to this Agreement shall be addressed to
ClearOne Communications, Inc., 1825 Research Way, Salt Lake City, Utah, 84119,
Attention: Chief Executive Officer (with a copy to Bruce Czachor, Shearman &
Sterling, 1080 Marsh Road, Menlo Park, CA 94025-1022); or such other addresses
as shall be specified in writing by the Common Stock Warrant Agent or by the
Company.
SECTION 6.04. Governing Law.
-------------
This Agreement and the Common Stock Warrants shall be governed by
and construed in accordance with the laws of the State of New York.
SECTION 6.05. Governmental Approvals.
----------------------
The Company will from time to time use all reasonable efforts to
obtain and keep effective any and all permits, consents and approvals of
governmental agencies and authorities and the national securities exchange on
which the Common Stock Warrants may be listed or authorized for trading and to
make all filings under the United States federal and state laws, which may be or
become requisite in connection with the issuance, sale, trading, transfer or
delivery of the Common Stock Warrants, and the exercise of the Common Stock
Warrants.
SECTION 6.06. Persons Having Rights Under Common Stock Warrant Agreement.
----------------------------------------------------------
Nothing in this Agreement expressed or implied and nothing that
may be inferred from any of the provisions hereof is intended, or shall be
construed, to confer upon, or give to, any person or corporation other than the
Company, the Common Stock Warrant Agent and the Holders any right, remedy or
claim under or by reason of this Agreement or of any covenant, condition,
stipulation, promise or agreement hereof; and all covenants, conditions,
stipulations, promises and agreements in this Agreement contained shall be for
the sole and exclusive benefit of the Company and the Common Stock Warrant Agent
and their successors and of the Holders.
16
SECTION 6.07. Delivery of Prospectus.
----------------------
The Company will furnish to the Common Stock Warrant Agent
sufficient copies of a prospectus or prospectuses relating to the Common Stock
deliverable upon exercise of any outstanding Common Stock Warrants (each a
"Prospectus"), and the Common Stock Warrant, prior to or concurrently with the
delivery of the Common Stock issued upon the exercise thereof, a copy of the
Prospectus relating to such Common Stock.
SECTION 6.08. Headings.
--------
The descriptive headings of the several Articles and Sections and
the Table of Contents of this Agreement are for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
SECTION 6.09. Counterparts.
------------
This Agreement may be executed by the parties hereto in any
number of counterparts, each of which when so executed and delivered shall be
deemed to be an original; but all such counterparts shall together constitute
but one and the same instrument.
SECTION 6.10. Judgment Currency.
------------------
The Company agrees to indemnify each Holder against any loss
incurred by such party as a result of any judgment or order being given or made
for any amount due under this Agreement and such judgment or order being
expressed and paid in a currency (the "Judgment Currency") other than United
States dollars and as a result of any variation as between (a) the rate of
exchange at which the United States dollar amount is converted into the Judgment
Currency for the purpose of such judgment or order and (b) the spot rate of
exchange in the City of New York at which such party on the date of payment of
such judgment or order is able to purchase United States dollars with the amount
of the Judgment Currency actually received by such party. The foregoing
indemnity shall continue in full force and effect notwithstanding any such
judgment or order as aforesaid. The term "spot rate of exchange" shall include
any premiums and costs of exchange payable in connection with the purchase of,
or conversion into, United States dollars.
SECTION 6.11. Inspection of Agreement.
-----------------------
A copy of this Agreement shall be available during normal
business hours at the principal corporate trust office of the Common Stock
Warrant Agent, for inspection by any Holder of Common Stock Warrants. The Common
Stock Warrant Agent may require such Holder to submit its Common Stock Warrant
Certificate for inspection prior to making such copy available.
SIGNATURE PAGE FOLLOWS
17
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
CLEARONE COMMUNICATIONS, INC.
By:
---------------------------------
Name and Title
Attest:
By:
----------------------------
Name and Title
[COMMON STOCK WARRANT AGENT]
By:
---------------------------------
Name and Title
Attest:
By:
----------------------------
Name and Title
18
Exhibit A
to
Common Stock Warrant Agreement
dated as of _______, 20__
[Compensation of Common Stock Warrant Agent]
Exhibit 4.4
================================================================================
DEBT WARRANT AGREEMENT*
Dated as of _______, 200_
between
CLEARONE COMMUNICATIONS, INC.
and
[NAME OF DEBT WARRANT AGENT], as
Debt Warrant Agent
================================================================================
* DETAILS YET TO BE DETERMINED, REPRESENTED BY BRACKETED OR BLANK SECTIONS
HEREIN, SHALL BE DETERMINED IN CONFORMITY WITH THE APPLICABLE PROSPECTUS
SUPPLEMENT OR SUPPLEMENTS.
TABLE OF CONTENTS
PAGE
----
ARTICLE I
ISSUANCE OF DEBT WARRANTS AND EXECUTION
AND DELIVERY OF DEBT WARRANT CERTIFICATES
SECTION 1.01. Issuance of Debt Warrants.....................................1
SECTION 1.02. Form and Execution of Debt Warrant Certificates...............2
SECTION 1.03. Issuance and Delivery of Debt Warrant Certificates............3
SECTION 1.04. Temporary Debt Warrant Certificates...........................3
SECTION 1.05. Payment of Taxes..............................................4
SECTION 1.06. "Holder"......................................................4
ARTICLE II
DURATION AND EXERCISE OF DEBT WARRANTS
SECTION 2.01. Duration of Debt Warrants.....................................4
SECTION 2.02. Exercise of Debt Warrants.....................................4
SECTION 2.03. Expiration Date...............................................6
ARTICLE III
OTHER PROVISIONS RELATING TO RIGHTS OF
HOLDERS OF DEBT WARRANTS
SECTION 3.01. No Rights as Holder of Underlying Debt Security...............6
SECTION 3.02. Lost, Stolen, Destroyed or Mutilated Debt Warrant
Certificates................................................6
SECTION 3.03. Holder of Debt Warrants May Enforce Rights....................6
SECTION 3.04. Merger, Consolidation, Sale, Transfer or Conveyance...........7
ARTICLE IV
EXCHANGE AND TRANSFER OF DEBT WARRANTS
SECTION 4.01. [Debt Warrant Register;] Exchange and Transfer of Debt
Warrants....................................................7
SECTION 4.02. Treatment of Holders of Debt Warrant Certificates.............8
SECTION 4.03. Cancellation of Debt Warrant Certificates.....................8
ARTICLE V
CONCERNING THE DEBT WARRANT AGENT
SECTION 5.01. Debt Warrant Agent............................................9
SECTION 5.02. Conditions of Debt Warrant Agent's Obligations................9
SECTION 5.03. Compliance with Applicable Laws..............................11
SECTION 5.04. Resignation and Removal; Appointment of Successor............11
SECTION 5.05. Office.......................................................13
i
ARTICLE VI
MISCELLANEOUS
SECTION 6.01. Supplements and Amendments...................................13
SECTION 6.02. Notices and Demands..........................................13
SECTION 6.03. Addresses....................................................14
SECTION 6.04. Governing Law................................................14
SECTION 6.05. Governmental Approvals.......................................14
SECTION 6.06. Persons Having Rights Under Debt Warrant Agreement...........14
SECTION 6.07. Delivery of Prospectus.......................................14
SECTION 6.08. Headings.....................................................14
SECTION 6.09. Counterparts.................................................14
SECTION 6.10. Judgment Currency............................................14
SECTION 6.11. Inspection Of Agreement......................................15
ii
THIS DEBT WARRANT AGREEMENT, dated as of ____________, between
CLEARONE COMMUNICATIONS, INC., a Utah corporation (the "Company"), and ______, a
_______ organized and existing under the laws of ________, as warrant agent (the
"Debt Warrant Agent").
WHEREAS, the Company has entered into two indentures dated as of
________, 20__, each with The Bank of New York as trustee (the "Trustee"),
providing for the issuance by the Company from time to time, in one or more
series, of debt securities evidencing its unsecured, senior indebtedness (the
"Senior Indenture") and unsecured subordinated indebtedness (the "Subordinated
Indenture") (such debt securities together being referred to as the "Debt
Securities" and the Senior Indenture and the Subordinated Indenture together
being referred to as the "Indentures"); and
WHEREAS, the Company proposes to issue warrants (the "Debt
Warrants") representing the right to purchase Debt Securities of one or more
series (the "Underlying Debt Securities"); and
WHEREAS, the Company has duly authorized the execution and
delivery of this Debt Warrant Agreement to provide for the issuance of Debt
Warrants to be exercisable at such times and for such prices, and to have such
other provisions, as shall be fixed as hereinafter provided;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the parties hereto agree as follows:
ARTICLE I
ISSUANCE OF DEBT WARRANTS AND EXECUTION
AND DELIVERY OF DEBT WARRANT CERTIFICATES
SECTION 1.01. Issuance of Debt Warrants.. Debt Warrants may be issued from
time to time, together with or separately from any other securities of the
Company (the "Offered Securities"). Prior to the issuance of any Debt Warrants,
there shall be established by or pursuant to a resolution or resolutions duly
adopted by the Company's Board of Directors or by any committee thereof duly
authorized to act with respect thereto (a "Board Resolution"):
(a) The title and aggregate number of such Debt Warrants;
(b) The offering price of such Debt Warrants;
(c) The title, aggregate principal amount, ranking and terms
[(including the subordination and conversion provisions)] of the Underlying Debt
Securities that may be purchased upon exercise of such Debt Warrants;
(d) The principal amount of Underlying Debt Securities that may
be purchased upon exercise of each Debt Warrant and the price, or the manner of
determining the price (the "Debt Warrant Price"), at which such principal amount
may be purchased upon such exercise;
(e) The time or times at which, or period or periods during
which, such Debt Warrants may be exercised, the final date on which such Debt
Warrants may be exercised (the "Expiration Date") and whether such Expiration
Date may be postponed by notice sent by the Company to all Holders (as defined
in Section 1.06 hereof) of [the same title of] Debt Warrants in accordance with
the procedures set forth in Section 5.04(e);
(f) The terms of any right to redeem or accelerate such Debt
Warrants;
(g) Whether the warrant certificates evidencing such Debt
Warrants (the "Debt Warrant Certificates") will be issued in registered or
bearer form, and, if registered, where such Debt Warrants may be transferred or
exchanged;
(h) Whether such Debt Warrants are to be issued with any (a) Debt
Securities and, if so, the title, aggregate principal amount and terms of any
such Debt Securities and the number of such Debt Warrants to be issued with each
$1,000 principal amount of such Debt Securities (or such other principal amount
of such Debt Securities as is provided for in the Board Resolution), or (b)
other securities and, if so, the number and terms thereof;
(i) The date, if any, on and after which such Debt Warrants and
such Debt Securities or other securities will be separately transferable (the
"Detachable Date"); and
(j) Any other terms of such Debt Warrants not inconsistent with
the provisions of this Agreement.
SECTION 1.02. Form and Execution of Debt Warrant Certificates..
(a) The Debt Warrants shall be evidenced by the Debt Warrant
Certificates, which shall be substantially in such form or forms as shall be
established by or pursuant to a Board Resolution. Each Debt Warrant Certificate,
whenever issued, shall be dated the date it is countersigned by the Debt Warrant
Agent and may have such letters, numbers or other identifying marks and such
legends or endorsements printed, lithographed or engraved thereon as are not
inconsistent with the provisions of this Agreement, or as may be required to
comply with any law, rule or regulation or with any rule or regulation of any
securities exchange on which the Underlying Debt Securities or Debt Warrants may
be listed, or to conform to usage, as the officer of the Company executing the
same may approve (such officer's execution thereof to be conclusive evidence of
such approval). Each Debt Warrant Certificate shall evidence one or more Debt
Warrants.
(b) The Debt Warrant Certificates shall be signed in the name and
on behalf of the Company by its Chairman, President, Chief Executive Officer or
Chief Financial Officer under its corporate seal, and attested by its Secretary
or an Assistant Secretary or any Vice President (any reference to a "Vice
President" of the Company herein shall be deemed to include any Vice President
of the Company whether or not designated by a number or a word or words added
before or after the title Vice President). Such signatures may be manual or
facsimile signatures of the present or any future holder of any such office and
may be imprinted or otherwise reproduced on the Debt Warrant Certificates. The
seal of the Company may be in the form of a facsimile thereof and may be
impressed, affixed, imprinted or otherwise reproduced on the Debt Warrant
Certificates.
2
(c) No Debt Warrant Certificate shall be valid for any purpose,
and no Debt Warrant evidenced thereby shall be deemed issued or exercisable,
until such Debt Warrant Certificate has been countersigned by the manual or
facsimile signature of the Debt Warrant Agent. Such signature by the Debt
Warrant Agent upon any Debt Warrant Certificate executed by the Company shall be
conclusive evidence that the Debt Warrant Certificate so countersigned has been
duly issued hereunder.
(d) In the event any officer of the Company who has signed any
Debt Warrant Certificate either manually or by facsimile signature has ceased to
be such officer before the Debt Warrant Certificate so signed has been
countersigned and delivered by the Debt Warrant Agent, such Debt Warrant
Certificate nevertheless may be countersigned and delivered by the Debt Warrant
Agent as though the person who signed such Debt Warrant Certificate had not
ceased to be such officer of the Company; and any Debt Warrant Certificate may
be signed on behalf of the Company by such person as, at the actual date of the
execution of such Debt Warrant Certificate, shall be the proper officer of the
Company, although at the date of the execution of this Agreement such person was
not such an officer.
SECTION 1.03. Issuance and Delivery of Debt Warrant Certificates. At any
time and from time to time after the execution and delivery of this Agreement,
the Company may deliver Debt Warrant Certificates executed by the Company to the
Debt Warrant Agent for countersignature. Except as provided in the following
sentence, the Debt Warrant Agent shall thereupon countersign and deliver such
Debt Warrant Certificates to or upon the written request of the Company.
Subsequent to the original issuance of a Debt Warrant Certificate evidencing
Debt Warrants, the Debt Warrant Agent shall countersign a new Debt Warrant
Certificate evidencing such Debt Warrants only if such Debt Warrant Certificate
is issued in exchange or substitution for one or more previously countersigned
Debt Warrant Certificates evidencing such Debt Warrants or in connection with
their transfer, as hereinafter provided.
SECTION 1.04. Temporary Debt Warrant Certificates.
(a) Pending the preparation of definitive Debt Warrant
Certificates, the Company may execute, and upon the order of the Company the
Debt Warrant Agent shall countersign and deliver, temporary Debt Warrant
Certificates that are printed, lithographed, typewritten, mimeographed or
otherwise produced, substantially of the tenor of the definitive Debt Warrant
Certificates in lieu of which they are issued and with such appropriate
insertions, omissions, substitutions and other variations as the officer
executing such Debt Warrant Certificates may determine, as evidenced by such
officer's execution of such Debt Warrant Certificates.
(b) If temporary Debt Warrant Certificates are issued, the
Company will cause definitive Debt Warrant Certificates to be prepared without
unreasonable delay. After the preparation of definitive Debt Warrant
Certificates, the temporary Debt Warrant Certificates shall be exchangeable for
definitive Debt Warrant Certificates upon surrender of the temporary Debt
Warrant Certificates at the corporate trust office of the Debt Warrant Agent [or
_______], without charge to the Holder (as defined in Section 1.06 hereof). Upon
surrender for cancellation of any one or more temporary Debt Warrant
Certificates, the Company shall execute and the Debt Warrant Agent shall
countersign and deliver in exchange therefor definitive Debt Warrant
Certificates representing the same aggregate number of Debt Warrants. Until so
3
exchanged, the temporary Debt Warrant Certificates shall in all respects be
entitled to the same benefits under this Agreement as definitive Debt Warrant
Certificates.
SECTION 1.05. Payment of Taxes. The Company will pay all stamp and other
similar duties, if any, to which this Agreement or the original issuance of the
Debt Warrants or the Underlying Debt Securities may be subject under the laws of
the United States of America or any state or locality. The Company is not
responsible for the payment of any tax or taxes which may be payable in respect
of the transfer of Debt Warrants or the issue or transfer of Underlying Debt
Securities to a person other than the Holder.
SECTION 1.06. "Holder". The term "Holder" or "Holders", as used herein with
reference to a Debt Warrant Certificate, shall mean [IF REGISTERED DEBT WARRANTS
- -- the person or persons in whose name such Debt Warrant Certificate shall then
be registered as set forth in the Debt Warrant Register to be maintained by the
Debt Warrant Agent pursuant to Section 4.01 for that purpose] [IF BEARER DEBT
WARRANTS -- the bearer of such Debt Warrant Certificate] or, in the case of Debt
Warrants that are issued with Debt Securities and cannot then be transferred
separately therefrom, [IF REGISTERED OFFERED SECURITIES AND DEBT WARRANTS THAT
ARE NOT THEN DETACHABLE -- the person or persons in whose name the related
Offered Securities shall be registered as set forth in the security register to
be maintained by the security registrar for such Offered Securities] [IF BEARER
OFFERED SECURITIES AND DEBT WARRANTS THAT ARE NOT THEN DETACHABLE -- of the
related Offered Security], prior to the Detachable Date. [IF REGISTERED OFFERED
SECURITIES AND DEBT WARRANTS THAT ARE NOT THEN DETACHABLE -- The Company will,
or will cause the security registrar of any such Offered Securities to, make
available to the Debt Warrant Agent at all times (including on and after the
Detachable Date, in the case of Debt Warrants originally issued with Offered
Securities and not subsequently transferred separately therefrom) such
information as to holders of Offered Securities with Debt Warrants as may be
necessary to keep the Debt Warrant Register up to date.]
ARTICLE II
DURATION AND EXERCISE OF DEBT WARRANTS
SECTION 2.01. Duration of Debt Warrants. Each Debt Warrant may be exercised
at the time or times, or during the period or periods, provided by or pursuant
to the Board Resolution relating thereto and specified in the Debt Warrant
Certificate evidencing such Debt Warrant. Each Debt Warrant not exercised at or
before 5:00 P.M., New York City time, on its Expiration Date shall become void,
unless such Expiration Date has been postponed by notice sent to all Holders of
Debt Warrants as provided in Section 2.03, and all rights of the Holder of such
Debt Warrant thereunder and under this Agreement shall cease.
SECTION 2.02. Exercise of Debt Warrants.
(a) The Holder of a Debt Warrant shall have the right, at its
option, to exercise such Debt Warrant and, subject to subsection (f) of this
Section 2.02, purchase the principal amount of Underlying Debt Securities
provided for therein at the time or times or during the period or periods
referred to in Section 2.01 and specified in the Debt Warrant Certificate
evidencing such Debt Warrant. Except as may be provided in a Debt Warrant
4
Certificate, a Debt Warrant may be exercised by completing the form of election
to purchase set forth on the reverse side of the Debt Warrant Certificate, by
duly executing and delivering the same, together with payment in full of the
Debt Warrant Price in lawful money of the United States of America, in cash or
by certified or official bank check or by bank wire transfer, or in property, in
the manner provided by or pursuant to the Board Resolution relating thereto and
specified in the Debt Warrant Certificate evidencing such Debt Warrant, to the
Debt Warrant Agent. Except as may be provided in a Debt Warrant Certificate, the
date on which such Debt Warrant Certificate and payment are received by the Debt
Warrant Agent as aforesaid shall be deemed to be the date on which the Debt
Warrant is exercised and the Underlying Debt Securities issued.
(b) Upon the exercise of a Debt Warrant, the Company shall issue,
pursuant to the Senior Indenture or Subordinated Indenture, as applicable, in
authorized denominations to or upon the order of the Holder of such Debt
Warrant, the Underlying Debt Securities to which such Holder is entitled, in the
form required under such Indenture, registered, in the case of Underlying Debt
Securities in registered form, in such name or names as may be directed by such
Holder.
(c) If fewer than all of the Debt Warrants evidenced by a Debt
Warrant Certificate are exercised, the Company shall execute, and the Debt
Warrant Agent shall countersign and deliver, a new Debt Warrant Certificate
evidencing the number of Debt Warrants remaining unexercised.
(d) The Debt Warrant Agent shall deposit all funds received by it
in payment of the Debt Warrant Price in the account of the Company maintained
with it for such purpose and shall advise the Company by telephone by 5:00 P.M.,
New York City time, of each day on which a payment of the Debt Warrant Price for
Debt Warrants is received of the amount so deposited in its account. The Debt
Warrant Agent shall promptly confirm such telephone advice in writing to the
Company.
(e) The Debt Warrant Agent shall, from time to time, as promptly
as practicable, advise the Company and the Trustee of (1) the number of Debt
Warrants of each title exercised as provided herein, (2) the instructions of
each Holder with respect to delivery of the Underlying Debt Securities to which
such Holder is entitled upon such exercise, (3) the delivery of Debt Warrant
Certificates evidencing the balance, if any, of the Debt Warrants remaining
unexercised after such exercise, and (4) such other information as the Company
or the Trustee shall reasonably require. Such notice may be given by telephone
to be promptly confirmed in writing.
(f) The Holder, and not the Company, shall be required to pay any
stamp or other tax or other governmental charge that may be imposed in
connection with any issuance or transfer of the Underlying Debt Securities to a
name other than the Holder's; and in the event that any such transfer is
involved, the Company shall not be required to issue any Underlying Debt
Securities (and the Holder's purchase of the Underlying Debt Securities upon the
exercise of such Holder's Debt Warrant shall not be deemed to have been
consummated) until such tax or other charge shall have been paid or it has been
established to the Company's satisfaction that no such tax or other charge is
due.
5
SECTION 2.03. Expiration Date. If authorized by the relevant Board
Resolution, the Company may postpone the Expiration Date by notice in accordance
with the procedure set forth in Section 5.04(e) sent to all Holders of the same
title of Debt Warrants at least 30 days before the scheduled Expiration Date.
Upon mailing of each notice, the Expiration Date shall be the date specified in
such notice.
ARTICLE III
OTHER PROVISIONS RELATING TO RIGHTS OF
HOLDERS OF DEBT WARRANTS
SECTION 3.01. No Rights as Holder of Underlying Debt Security. No Debt
Warrant or Debt Warrant Certificate shall entitle the Holder to any of the
rights of a holder of Underlying Debt Securities, including, without limitation,
the right to receive the payment of principal of (or premium, if any) or
interest, if any, on Underlying Debt Securities or to enforce any of the
covenants in the Indentures.
SECTION 3.02. Lost, Stolen, Destroyed or Mutilated Debt Warrant
Certificates. Upon receipt by the Company and the Debt Warrant Agent of evidence
reasonably satisfactory to them of the ownership of and the loss, theft,
destruction or mutilation of any Debt Warrant Certificate and of indemnity
(other than in connection with any mutilated Debt Warrant Certificates
surrendered to the Debt Warrant Agent for cancellation) reasonably satisfactory
to them, the Company shall execute, and the Debt Warrant Agent shall countersign
and deliver, in exchange for or in lieu of each lost, stolen, destroyed or
mutilated Debt Warrant Certificate, a new Debt Warrant Certificate evidencing a
like number of Debt Warrants of the same title. Upon the issuance of a new Debt
Warrant Certificate under this Section, the Company may require the payment of a
sum sufficient to cover any stamp or other similar tax or other governmental
charge that may be imposed in connection therewith and any other expenses
(including the fees and expenses of the Debt Warrant Agent) in connection
therewith. Every substitute Debt Warrant Certificate executed and delivered
pursuant to this Section in lieu of any lost, stolen or destroyed Debt Warrant
Certificate shall represent an enforceable contractual obligation of the
Company, whether or not such lost, stolen or destroyed Debt Warrant Certificate
shall be at any time enforceable by anyone, and shall be entitled to the
benefits of this Agreement equally and proportionately with any and all other
Debt Warrant Certificates, duly executed and delivered hereunder, evidencing
Debt Warrants of the same title. The provisions of this Section are exclusive
and shall preclude (to the extent lawful) all other rights and remedies with
respect to the replacement of lost, stolen, destroyed or mutilated Debt Warrant
Certificates.
SECTION 3.03. Holder of Debt Warrants May Enforce Rights. Notwithstanding
any of the provisions of this Agreement, a Holder, without the consent of the
Debt Warrant Agent, the Trustee, the holder of any Underlying Debt Securities or
the Holder of any other Debt Warrant, may, on its own behalf and for its own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Company to enforce, or otherwise in respect of, its right to
exercise its Debt Warrant or Debt Warrants in the manner provided in this
Agreement and its Debt Warrant Certificate.
6
SECTION 3.04. Merger, Consolidation, Sale, Transfer or Conveyance
(a) The Company shall not consolidate with or merge into any
other individual, corporation, partnership, limited liability company, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof (each, a "Person") or
convey or transfer its properties and assets substantially as an entirety to any
Person other than in accordance with the applicable Indenture governing the
Underlying Debt Securities. In case of any merger, consolidation or a sale,
transfer or conveyance of the Company, of all or substantially all of its
properties and assets in accordance with the terms of the Indentures, and upon
any assumption of the duties and obligations of the Company by a successor
corporation, such successor corporation shall succeed to all the rights and
obligations of the Company in this Agreement and be substituted for the Company
in this Agreement, with the same effect as if it had been named herein, and the
Company shall be relieved of any further obligation under this Agreement and the
Debt Warrants. Such successor corporation thereupon may cause to be signed, and
may issue either in its own name or in the name of the Company, any or all of
the Underlying Debt Securities issuable pursuant to the terms hereof. All the
Underlying Debt Securities so issued shall in all respects have the same legal
rank and benefit under the Senior Indenture or the Subordinated Indenture, as
applicable, as the Underlying Debt Securities theretofore or thereafter issued
in accordance with the terms of this Agreement and the Indentures. In case of
any such merger, consolidation, sale, transfer or conveyance in compliance with
the terms of the applicable Indenture governing the Underlying Debt Securities,
such changes in phraseology and form (but not in substance) may be made in the
Underlying Debt Securities thereafter to be issued as may be appropriate.
(b) The Debt Warrant Agent may receive a written opinion of legal
counsel as conclusive evidence that any such merger, consolidation, sale,
transfer or conveyance complies with the provisions of this Section 3.04.
(c) In case of any merger, consolidation, sale, transfer or
conveyance in compliance with the terms of the applicable Indenture governing
the Underlying Debt Securities, the Company and the Debt Warrant Agent may treat
the registered Holder of a Debt Warrant Certificate as the absolute Holder
thereof for any purpose and as the person entitled to exercise the rights
represented by the Debt Warrants evidenced thereby, any notice to the contrary
notwithstanding.
ARTICLE IV
EXCHANGE AND TRANSFER OF DEBT WARRANTS
SECTION 4.01. [Debt Warrant Register;] Exchange and Transfer of Debt
Warrants.
(a) [IF REGISTERED DEBT WARRANTS -- The Debt Warrant Agent shall
maintain, at its corporate trust office [or at ________], a register (the "Debt
Warrant Register") in which, upon the issuance of Debt Warrants, or on and after
the Detachable Date in the case of Debt Warrants not separately transferable
prior thereto, and, subject to such reasonable regulations as the Debt Warrant
Agent may prescribe, it shall register Debt Warrant Certificates and exchanges
and transfers thereof. The Debt Warrant Register shall be in written form or in
any other form capable of being converted into written form within a reasonable
time.]
7
(b) Except as provided in the following sentence, upon surrender
at the corporate trust office of the Debt Warrant Agent [or at _______], Debt
Warrant Certificates may be exchanged for one or more other Debt Warrant
Certificates evidencing the same aggregate number of Debt Warrants of the same
title, or may be transferred in whole or in part. A Debt Warrant Certificate
evidencing Debt Warrants that are not then transferable separately from the
Offered Security with which they were issued may be exchanged or transferred
prior to its Detachable Date only together with such Offered Security and only
for the purpose of effecting, or in conjunction with, an exchange or transfer of
such Offered Security; and on or prior to the Detachable Date, [IF REGISTERED
OFFERED SECURITIES AND DEBT WARRANTS -- each exchange or transfer of such
Offered Security on the security register of the Offered Securities shall
operate also to exchange or transfer the related Debt Warrants] [IF BEARER
OFFERED SECURITIES AND DEBT WARRANTS -- an exchange or transfer of possession of
the related Offered Security shall operate also to exchange or transfer the
related Debt Warrants]. [IF REGISTERED DEBT WARRANTS -- A transfer shall be
registered upon surrender of a Debt Warrant Certificate to the Debt Warrant
Agent at its corporate trust office [or at ________] for transfer, properly
endorsed or accompanied by appropriate instruments of transfer and written
instructions for transfer, all in form satisfactory to the Company and the Debt
Warrant Agent.] Whenever a Debt Warrant Certificate is surrendered for exchange
or transfer, the Debt Warrant Agent shall countersign and deliver to the person
or persons entitled thereto one or more Debt Warrant Certificates duly executed
by the Company, as so requested. The Debt Warrant Agent shall not be required to
effect any exchange or transfer which will result in the issuance of a Debt
Warrant Certificate evidencing a fraction of a Debt Warrant. All Debt Warrant
Certificates issued upon any exchange or transfer of a Debt Warrant Certificate
shall be the valid obligations of the Company, evidencing the same obligations,
and entitled to the same benefits under this Agreement, as the Debt Warrant
Certificate surrendered for such exchange or transfer.
(c) No service charge shall be made for any exchange or transfer
of Debt Warrants, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
with any such exchange or transfer, in accordance with Section 2.02(f) hereof.
SECTION 4.02. Treatment of Holders of Debt Warrant Certificates. Every
Holder of a Debt Warrant, by accepting the Debt Warrant Certificate evidencing
the same, consents and agrees with the Company, the Debt Warrant Agent and with
every other Holder of Debt Warrants of the same title that the Company and the
Debt Warrant Agent may treat the registered Holder of a Debt Warrant Certificate
(or, if the Debt Warrant Certificate is not then detachable, the Holder of the
related Offered Debt Security) as the absolute owner of such Debt Warrant for
all purposes and as the person entitled to exercise the rights represented by
such Debt Warrant, any notice to the contrary notwithstanding.
SECTION 4.03. Cancellation of Debt Warrant Certificates. In the event that
the Company shall purchase, redeem or otherwise acquire any Debt Warrants after
the issuance thereof, the Debt Warrant Certificate or Certificates evidencing
such Debt Warrants shall thereupon be delivered to the Debt Warrant Agent and be
cancelled by it. The Debt Warrant Agent shall also cancel any Debt Warrant
Certificate (including any mutilated Debt Warrant Certificate) delivered to it
for exercise, in whole or in part, or for exchange [or transfer] [IF DEBT
WARRANT CERTIFICATES ARE ISSUED IN BEARER FORM -- , except that Debt Warrant
8
Certificates delivered to the Debt Warrant Agent in exchange for Debt Warrant
Certificates of other denominations may be retained by the Debt Warrant Agent
for reissue]. Debt Warrant Certificates so cancelled shall be delivered by the
Debt Warrant Agent to the Company from time to time, or disposed of in
accordance with the instructions of the Company.
ARTICLE V
CONCERNING THE DEBT WARRANT AGENT
SECTION 5.01. Debt Warrant Agent. The Company hereby appoints _____________
as Debt Warrant Agent of the Company in respect of the Debt Warrants and the
Debt Warrant Certificates upon the terms and subject to the conditions set forth
herein and ____________________ hereby accepts such appointment. The Debt
Warrant Agent shall have the powers and authority granted to and conferred upon
it hereby and such further powers and authority to act on behalf of the Company
as the Company may hereafter grant to or confer upon it. All of the terms and
provisions with respect to such powers and authority contained in any Debt
Warrant Certificate are subject to and governed by the terms and provisions
hereof.
SECTION 5.02. Conditions of Debt Warrant Agent's Obligations. The Debt
Warrant Agent accepts its obligations set forth herein upon the terms and
conditions hereof, including the following, to all of which the Company agrees
and to all of which the rights hereunder of the Holders shall be subject:
(a) Compensation and Indemnification. The Company agrees to
promptly pay the Debt Warrant Agent the compensation set forth in Exhibit A
hereto and to reimburse the Debt Warrant Agent for reasonable out-of-pocket
expenses (including counsel fees) incurred by the Debt Warrant Agent in
connection with the services rendered hereunder by the Debt Warrant Agent. The
Company also agrees to indemnify the Debt Warrant Agent for, and to hold it
harmless against, any loss, liability or expense (including the reasonable costs
and expenses of defending against any claim of liability) incurred without
negligence or bad faith on the part of the Debt Warrant Agent arising out of or
in connection with its appointment as Debt Warrant Agent hereunder.
(b) Agent For The Company. In acting under this Agreement and in
connection with any Debt Warrant Certificate, the Debt Warrant Agent is acting
solely as agent of the Company and does not assume any obligation or
relationship of agency or trust for or with any Holder.
(c) Counsel. The Debt Warrant Agent may consult with counsel
satisfactory to it, and the advice of such counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or omitted
by it hereunder in good faith and in accordance with the advice of such counsel.
(d) Documents. The Debt Warrant Agent shall be protected and
shall incur no liability for or in respect of any action taken, suffered or
omitted by it in reliance upon any notice, direction, consent, certificate,
affidavit, statement or other paper or document reasonably believed by it to be
genuine and to have been presented or signed by the proper parties.
9
(e) Officer's Certificate. Whenever in the performance of its
duties hereunder the Debt Warrant Agent shall reasonably deem it necessary that
any fact or matter be proved or established by the Company prior to taking,
suffering or omitting any action hereunder, the Debt Warrant Agent may (unless
other evidence in respect thereof be herein specifically prescribed), in the
absence of bad faith on its part, rely upon a certificate signed by the
Chairman, the President, the Chief Executive Officer, the Chief Financial
Officer, any Vice President, the Controller or the Secretary of the Company (an
"Officer's Certificate") delivered by the Company to the Debt Warrant Agent.
(f) Actions through Agents. The Debt Warrant Agent may execute
and exercise any of the rights or powers hereby vested in it or perform any duty
hereunder either itself or by or through its attorneys or agents, and the Debt
Warrant Agent shall not be answerable or accountable for any act, default,
neglect or misconduct of any such attorney or agent or for any loss to the
Company resulting from such neglect or misconduct; provided, however, that
reasonable care shall have been exercised in the selection and continued
employment of such attorneys and agents.
(g) Certain Transactions. The Debt Warrant Agent, and any
officer, director or employee thereof, may become the owner of, or acquire any
interest in, any Debt Warrant, with the same rights that he, she or it would
have if it were not the Debt Warrant Agent, and, to the extent permitted by
applicable law, he, she or it may engage or be interested in any financial or
other transaction with the Company and may serve on, or as depositary, trustee
or agent for, any committee or body of holders of Underlying Debt Securities or
other obligations of the Company as if it were not the Debt Warrant Agent.
Nothing in this Agreement shall be deemed to prevent the Debt Warrant Agent from
acting as Trustee under the Indentures.
(h) No Liability For Interest. The Debt Warrant Agent shall not
be liable for interest on any monies at any time received by it pursuant to any
of the provisions of this Agreement or of the Debt Warrant Certificates, except
as otherwise agreed with the Company.
(i) No Liability For Invalidity. The Debt Warrant Agent shall
incur no liability with respect to the validity of this Agreement (except as to
the due execution hereof by the Debt Warrant Agent) or any Debt Warrant
Certificate (except as to the countersignature thereof by the Debt Warrant
Agent).
(j) No Responsibility For Company Representations. The Debt
Warrant Agent shall not be responsible for any of the recitals or
representations contained herein (except as to such statements or recitals as
describe the Debt Warrant Agent or action taken or to be taken by it) or in any
Debt Warrant Certificate (except as to the Debt Warrant Agent's countersignature
on such Debt Warrant Certificate), all of which recitals and representations are
made solely by the Company.
(k) No Implied Obligations. The Debt Warrant Agent shall be
obligated to perform only such duties as are specifically set forth herein, and
no other duties or obligations shall be implied. The Debt Warrant Agent shall
not be under any obligation to take any action hereunder that may subject it to
any expense or liability, the payment of which within a reasonable time is not,
in its reasonable opinion, assured to it. The Debt Warrant Agent shall not be
10
accountable or under any duty or responsibility for the use by the Company of
any Debt Warrant Certificate countersigned by the Debt Warrant Agent and
delivered by it to the Company pursuant to this Agreement or for the application
by the Company of the proceeds of the issuance or exercise of Debt Warrants. The
Debt Warrant Agent shall have no duty or responsibility in case of any default
by the Company in the performance of its covenants or agreements contained
herein or in any Debt Warrant Certificate or in case of the receipt of any
written demand from a Holder with respect to such default, including, without
limiting the generality of the foregoing, any duty or responsibility to initiate
or attempt to initiate any proceedings at law or otherwise or, except as
provided in Section 6.02 hereof, to make any demand upon the Company.
SECTION 5.03. Compliance with Applicable Laws. The Debt Warrant Agent
agrees to comply with all applicable federal and state laws imposing obligations
on it in respect of the services rendered by it under this Debt Warrant
Agreement and in connection with the Debt Warrants, including (but not limited
to) the provisions of United States federal income tax laws regarding
information reporting and backup withholding. The Debt Warrant Agent expressly
assumes all liability for its failure to comply with such laws imposing
obligations on it, including (but not limited to) any liability for failure to
comply with any applicable provisions of United States federal income tax laws
regarding information reporting and backup withholding.
SECTION 5.04. Resignation and Removal; Appointment of Successor.
(a) The Company agrees, for the benefit of the Holders of Debt
Warrants, that there shall at all times be a Debt Warrant Agent hereunder until
all the Debt Warrants are no longer exercisable.
(b) The Debt Warrant Agent may at any time resign as such by
giving written notice to the Company, specifying the date on which such
resignation shall become effective; provided that such date shall not be less
than 90 days after the date on which such notice is given, unless the Company
agrees to accept a shorter notice. The Debt Warrant Agent may be removed at any
time by the filing with it of an instrument in writing signed by or on behalf of
the Company and specifying such removal and the date when it shall become
effective. Notwithstanding the two preceding sentences, such resignation or
removal shall take effect only upon the appointment by the Company, as
hereinafter provided, of a successor Debt Warrant Agent (which shall be a bank
or trust company organized and doing business under the laws of the United
States of America, any State thereof or the District of Columbia, authorized
under the laws of such jurisdiction to exercise corporate trust powers and
having at the time of its appointment as Debt Warrant Agent a combined capital
and surplus (as set forth in its most recent published report of condition) of
at least $50,000,000) and the acceptance of such appointment by such successor
Debt Warrant Agent.
(c) In case at any time the Debt Warrant Agent shall:
(1) resign, or shall be removed, or shall become incapable of
acting, or
(2) be adjudged a bankrupt or insolvent, or
11
(3) file a petition seeking relief under Title 11 of the
United States Code, as now constituted or hereafter amended, or
under any other applicable federal or state bankruptcy or similar
law, or
(4) make an assignment for the benefit of its creditors, or
consent to the appointment of a receiver or custodian for all or
any substantial part of its property, or
(5) admit in writing its inability to pay or meet its debts
as they mature, or
(6) have a receiver or custodian appointed for it or for all
or any substantial part of its property, or
(7) have an order of any court entered for relief against it
under the provisions of Title 11 of the United States Code, as
now constituted or hereafter amended, or under any other
applicable federal or state bankruptcy or similar law, or
(8) have any public officer take charge or control of the
Debt Warrant Agent or of its property or affairs for the purpose
of rehabilitation, conservation or liquidation,
a successor Debt Warrant Agent, qualified as aforesaid, shall be appointed by
the Company by an instrument in writing, filed with the successor Debt Warrant
Agent. Upon the appointment as aforesaid of a successor Debt Warrant Agent and
acceptance by the successor Debt Warrant Agent of such appointment, the Debt
Warrant Agent so superseded shall cease to be Debt Warrant Agent hereunder.
(d) Any successor Debt Warrant Agent appointed hereunder shall
execute, acknowledge and deliver to its predecessor and to the Company an
instrument accepting such appointment hereunder, and thereupon such successor
Debt Warrant Agent, without any further act, deed or conveyance, shall become
vested with all the authority, rights, powers, trusts, immunities, duties and
obligations of such predecessor with like effect as if originally named as Debt
Warrant Agent hereunder, and such predecessor, upon payment of its charges and
disbursements then unpaid, shall thereupon become obligated to transfer, deliver
and pay over, and such successor Debt Warrant Agent shall be entitled to
receive, [the Debt Warrant Register and] all monies, securities and other
property on deposit with or held by such predecessor (together with any books
and records relating thereto), as Debt Warrant Agent hereunder.
(e) The Company shall cause notice of the appointment of any
successor Debt Warrant Agent to be [IF REGISTERED DEBT WARRANTS -- mailed by
first-class mail, postage prepaid, to each Holder at its address appearing on
the Debt Warrant Register or, in the case of Debt Warrants that are issued with
Offered Securities and cannot then be transferred separately therefrom, on the
security register for the Offered Securities] [IF BEARER DEBT WARRANTS --
published in an Authorized Newspaper (as defined in Section 101 of the
Indentures) in The City of New York [and in such other city or cities as may be
specified by the Company] at least twice within any seven-day period]. Such
notice shall set forth the name and address of the successor Debt Warrant Agent.
12
Failure to give any notice provided for in this Section 5.04(e), or any defect
therein, shall not, however, affect the legality or validity of the appointment
of the successor Debt Warrant Agent.
(f) Any corporation into which the Debt Warrant Agent may be
merged or converted, or any corporation with which the Debt Warrant Agent may be
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Debt Warrant Agent shall be a party, or any
corporation to which the Debt Warrant Agent shall sell or otherwise transfer all
or substantially all of its assets and business, shall be the successor Debt
Warrant Agent under this Agreement without the execution or filing of any paper,
the giving of any notice to Holders or any further act on the part of the
parties hereto, provided that such corporation be qualified as provided in
Section 5.04(b) hereof.
SECTION 5.05. Office. The Company will maintain an office or agency where
Debt Warrant Certificates may be presented for exchange [, transfer] or
exercise. The office initially designated for this purpose shall be the
corporate trust office of the Debt Warrant Agent at _______.
ARTICLE VI
MISCELLANEOUS
SECTION 6.01. Supplements and Amendments.
(a) The Company and the Debt Warrant Agent may from time to time
supplement or amend this Agreement without the approval of any Holder in order
to cure any ambiguity, to correct or supplement any provision contained herein
that may be defective or inconsistent with any other provision herein, or to
make any other provision in regard to matters or questions arising hereunder
that the Company and the Debt Warrant Agent may deem necessary or desirable and
that shall not materially adversely affect the interests of the Holders. Every
Holder of Debt Warrants, whether issued before or after any such supplement or
amendment, shall be bound thereby. Promptly after the effectiveness of any
supplement or amendment that affects the interests of the Holders, the Company
shall give notice thereof, as provided in Section 5.04(e) hereof, to the Holders
affected thereby, setting forth in general terms the substance of such
supplement or amendment.
(b) The Company and the Debt Warrant Agent may modify or amend
this Agreement and the Debt Warrant Certificates with the consent of the Holders
of not fewer than a majority in number of the then outstanding unexercised Debt
Warrants affected by such modification or amendment, for any purpose; provided,
however, that no such modification or amendment that shortens the period of time
during which the Debt Warrants may be exercised, or [affects other material
terms of the Debt Warrants that may be set forth in a prospective supplement] or
reduces the percentage of Holders of outstanding Debt Warrants the consent of
which is required for modification or amendment of this Agreement or the Debt
Warrants, may be made without the consent of each Holder affected thereby.
SECTION 6.02. Notices and Demands. If the Debt Warrant Agent shall receive
any notice or demand addressed to the Company by a Holder pursuant to the
provisions of this Agreement or a Debt Warrant Certificate (other than notices
13
relating to the exchange [, transfer] or exercise of Debt Warrants), the Debt
Warrant Agent shall promptly forward such notice or demand to the Company.
SECTION 6.03. Addresses. Any communications from the Company to the Debt
Warrant Agent with respect to this Agreement shall be directed to ____,
Attention:_____________, and any communications from the Debt Warrant Agent to
the Company with respect to this Agreement shall be directed to ClearOne
Communications, Inc., 1825 Research Way, Salt Lake City, Utah 84119, Attention:
Chief Executive Officer, with a copy to Bruce Czachor, Shearman & Sterling, 1080
Marsh Road, Menlo Park, CA 94025 (or such other address as shall be specified in
writing by the Debt Warrant Agent or by the Company).
SECTION 6.04. Governing Law. This Agreement and the Debt Warrants shall be
governed by and construed in accordance with the laws of the State of New York.
SECTION 6.05. Governmental Approvals. The Company will from time to time
use all reasonable efforts to obtain and keep effective any and all permits,
consents and approvals of governmental agencies and authorities and the national
securities exchange on which the Debt Warrants may be listed or authorized for
trading and to make all filing under the United States federal and state laws,
which may be or become requisite in connection with the issuance, sale, trading,
transfer or delivery of the Debt Warrants, and the exercise of the Debt
Warrants.
SECTION 6.06. Persons Having Rights Under Debt Warrant Agreement. Nothing
in this Agreement, expressed or implied, and nothing that may be inferred from
any of the provisions hereof is intended or shall be construed to confer upon or
give to any person or corporation other than the Company, the Debt Warrant Agent
and the Holders any right, remedy or claim under or by reason of this Agreement
or any covenant, condition, stipulation, promise or agreement herein; and all
covenants, conditions, stipulations, promises and agreements herein shall be for
the sole and exclusive benefit of the Company, the Debt Warrant Agent and their
respective successors and the Holders.
SECTION 6.07. Delivery of Prospectus. The Company will furnish to the Debt
Warrant Agent sufficient copies of a prospectus or prospectuses relating to the
Underlying Debt Securities deliverable upon exercise of any outstanding Debt
Warrants (each a "Prospectus"), and the Debt Warrant Agent agrees to deliver to
the Holder of a Debt Warrant, prior to or concurrently with the delivery of the
Underlying Debt Securities issued upon the exercise thereof, a copy of the
Prospectus relating to such Underlying Debt Securities.
SECTION 6.08. Headings. The descriptive headings of the several Articles
and Sections of this greement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
SECTION 6.09. Counterparts. This Agreement may be executed in one or more
counterparts and, when a counterpart has been executed by each party hereto, all
such counterparts taken together shall constitute one and the same agreement.
SECTION 6.10. Judgment Currency. The Company agrees to indemnify each
Holder against any loss incurred by such party as a result of any judgment or
14
order being given or made for any amount due under this Agreement and such
judgment or order being expressed and paid in a currency (the "Judgment
Currency") other than United States dollars and as a result of any variation as
between (a) the rate of exchange at which the United States dollar amount is
converted into the Judgment Currency for the purpose of such judgment or order
and (b) the spot rate of exchange in the City of New York at which such party on
the date of payment of such judgment or order is able to purchase United States
dollars with the amount of the Judgment Currency actually received by such
party. The foregoing indemnity shall continue in full force and effect
notwithstanding any such judgment or order as aforesaid. The term "spot rate of
exchange" shall include any premiums and costs of exchange payable in connection
with the purchase of, or conversion into, United States dollars.
SECTION 6.11. Inspection Of Agreement. A copy of this Agreement shall be
available during normal business hours at the office of the Debt Warrant Agent
for inspection by any Holder. The Debt Warrant Agent may require such Holder to
submit its Debt Warrant Certificate for inspection prior to making such copy
available.
15
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and their respective corporate seals to be hereunto affixed
and attested, all as of the day and year first above written.
CLEARONE COMMUNICATIONS, INC.
By:
--------------------------------
Name and Title
Attest:
By:
-------------------------------
Name and Title
[DEBT WARRANT AGENT]
By:
--------------------------------
Name and Title
Attest:
By:
-------------------------------
Name and Title
16
EXHIBIT A
to
Debt Warrant Agreement
dated as of _______, 20__
[Compensation of Debt Warrant Agent]
Exhibit 5.1
July 22, 2002
The Board of Directors
ClearOne Communications, Inc.
1825 Research Way
Salt Lake City, Utah 84119
ClearOne Communications, Inc.
-----------------------------
Ladies and Gentlemen:
We act as local counsel for ClearOne Communications, Inc. (the
"Company"). We are advised that the Company has prepared a registration
statement on Form S-3 (the "Registration Statement") filed with the Securities
and Exchange Commission (the "Commission") relating to the offering from time to
time, pursuant to Rule 415 of the General Rules and Regulations of the
Commission promulgated under the Securities Act of 1933, as amended (the
"Securities Act"), by the Company of common stock issued by the Company from its
authorized but unissued capital (the "Common Stock") as well as other debt
securities and warrants (together, the "Securities") and of shares by certain
selling shareholders. The offering of such securities will be as set forth in
each of the two prospectuses contained in the Registration Statement (each, a
"Prospectus"), as supplemented by one or more supplements to the Prospectuses.
In our capacity as local counsel to the Company we have examined (i) the
Registration Statement dated and filed on today's date, (ii) the Common Stock
Warrant Agreement, Debt Warrant Agreement, Indenture providing for the issuance
of Subordinated Debt Securities and Indenture providing for the issuance of
Senior Debt Securities which are, or will be, filed with the Registration
Statement as Exhibits (the "Securities Agreements") and (iii) the originals, or
copies identified to our satisfaction, of such corporate records of the Company,
certificates of public officials, officers of the Company and other persons, and
such other documents, agreements and instruments as we have deemed necessary as
a basis for the opinions hereinafter expressed. In our examination, we have
assumed the authenticity of all documents submitted to us as originals, the
ClearOne Communications, Inc.
July 18, 2002
Page 2
- --------------------------------
genuineness of all signatures, the legal capacity of all natural persons and the
conformity with the originals of all documents submitted to us as copies. We
have not examined any certificates representing shares of Common Stock or other
securities and express no opinion thereon. We have not received or reviewed any
Prospectus supplement or any form of subscription agreement. This opinion is
limited by general principles of equity as listed in Section 13 of the
Third-Party Legal Opinion Report of the Section of Business Law, American Bar
Association, 1991 ("Section 13") excluding commentary, which Section 13 is
incorporated by this reference, (whether considered in a proceeding at law or in
equity). With the exception of the section entitled "Description of Common
Stock" in each Prospectus and Item 15 of Part II of the Registration statement,
both of which sections we have reviewed and commented upon, we have not
participated in the drafting of the Registration Statement or any Prospectus, we
have relied upon the correctness and completeness of the Registration Statement
and Prospectuses and we disclaim any opinion regarding the Registration
Statement and any Prospectus and take no responsibility regarding the accuracy,
completeness or fairness of the statements contained in the Registration
Statement or any Prospectus. Further, to the extent securities are to be
purchased pursuant to any form of subscription agreement or other contract, we
have not received or reviewed such agreements or contracts and we expressly
disclaim any opinion based thereon and we further disclaim any opinion on the
effect of such agreements or contracts on the nonassessability portion of this
opinion.
Our opinions set forth below are limited to the laws of the State
of Utah and we do not express any opinion herein concerning any other laws. Our
opinion pertains to Common Stock (as defined above) and no other securities.
Based on the foregoing, we are of the opinion that
(1) the Company has authority pursuant to its Articles
of Incorporation to issue up to 50,000,000 shares
of Common Stock. When (i) all corporate action
necessary for the issuance of the Common Stock has
been taken and (ii) such shares of Common Stock
have been duly issued and delivered to and paid
for by the purchasers thereof, then the Common
Stock (including any Common Stock issued on the
exercise of any warrants) will be validly issued,
fully paid and non-assessable.
(2) The Company is incorporated and validly existing
in the State of Utah and has all requisite
corporate power and authority to execute, deliver
and perform the obligation under the Securities
Agreements.
ClearOne Communications, Inc.
July 18, 2002
Page 3
- --------------------------------
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the use of our name under the heading "Validity of
the Securities" in the Prospectus. This Opinion is solely for the benefit of the
Company and may not be relied upon by any other person of for any other purpose
without our prior written consent.
Very truly yours,
/s/ Clyde Snow Sessions &
Swenson, PC
Exhibit 5.2
[On the letterhead of Shearman & Sterling]
July 22, 2002
The Board of Directors
ClearOne Communications, Inc.
1825 Research Way
Salt Lake City, Utah 84119
ClearOne Communications, Inc.
Ladies and Gentlemen:
We have acted as counsel for ClearOne Communications, Inc. (the
"Company") in connection with the preparation of a registration statement on
Form S-3 (the "Registration Statement") filed with the Securities and Exchange
Commission (the "Commission") relating to the offering from time to time,
pursuant to Rule 415 of the General Rules and Regulations of the Commission
promulgated under the Securities Act of 1933, as amended (the "Securities Act"),
(a) by the Company of the following securities of the Company with an aggregate
offering price of up to $100,000,000 or the equivalent thereof in one or more
foreign currencies: (i) senior debt securities (the "Senior Debt Securities")
and subordinated debt securities (the "Subordinated Debt Securities", and
together with the Senior Debt Securities, the "Debt Securities"); (ii) common
stock (the "Common Stock"), including common stock that may be issued upon
conversion of the Debt Securities or the Warrants (as defined below); (iii)
warrants to purchase Debt Securities (the "Debt Warrants"), (iv) warrants to
purchase Common Stock (the "Stock Warrants", and together with the Debt
Warrants, the "Warrants"); and (b) by certain selling stockholders of the
Company identified in the Prospectus (as defined below) of up to 1,000,000
shares of Common Stock held by them. The Debt Securities, the Common Stock and
the Warrants are collectively referred to as the "Securities". The offering of
the Securities will be as set forth in the prospectus contained in the
Registration Statement (the "Prospectus"), as supplemented by one or more
supplements to the Prospectus.
The Senior Debt Securities will be issued in one or more series
pursuant to an indenture (together with any supplemental indentures, the "Senior
Indenture") to be entered into among the Company and The Bank of New York, as
trustee (the "Senior Trustee"). The Subordinated Debt Securities will be issued
in one or more series pursuant to a subordinated indenture (together with any
supplemental indentures, the "Subordinated Indenture" and, together with the
Senior Indenture, the "Indentures") to be entered into among the Company and The
Bank of New York, as trustee (the "Subordinated Trustee"). The Debt Warrants
will be issued pursuant to one or more debt warrant agreements (each, a "Debt
Warrant Agreement") to be entered into among the Company and a financial
institution identified therein as warrant agent (the "Debt Warrant Agent"). The
Stock Warrants will be issued pursuant to one or more stock warrant agreements
(each, a "Stock Warrant Agreement") to be entered into among the Company and a
financial institution identified therein as warrant agent (the "Stock Warrant
Agent").
In our capacity as counsel to the Company we have examined (i)
the Registration Statement, (ii) the form of Senior Indenture to be filed as an
exhibit to the Registration Statement, (iii) the form of Subordinated Indenture
to be filed as an exhibit to the Registration Statement, (iv) the form of Debt
Warrant Agreement filed as an exhibit to the Registration Statement; (v) the
form of Stock Warrant Agreement filed as an exhibit to the Registration
Statement and (vi) the originals, or copies identified to our satisfaction, of
such corporate records of the Company and the Subsidiary Guarantors,
certificates of public officials, officers of the Company and other persons, and
such other documents, agreements and instruments as we have deemed necessary as
a basis for the opinions hereinafter expressed. In our examination, we have
assumed the authenticity of all documents submitted to us as originals, the
conformity with the originals of all documents submitted to us as copies.
In rendering our opinion, we assume that the Company is duly
incorporated and validly existing in the State of Utah and has all requisite
corporate power and authority to execute, deliver and perform its obligations
under the Senior Indenture, the Subordinated Indenture, the Debt Warrant
Agreement and the Stock Warrant Agreement. We understand that such matters are
covered in the opinion of Clyde Snow Sessions & Swenson, PC dated the date
hereof and delivered to you.
The opinions stated herein are limited to the laws of the State
of New York and we do not express any opinion herein concerning any other laws.
Based on and subject to the foregoing, we are of the opinion
that:
1. When the Senior Indenture has been duly authorized, executed
and delivered by the Company and assuming due authorization, execution and
delivery by the Senior Trustee, the Senior Indenture will constitute a valid and
legally binding obligation of the Company, enforceable against the Company in
accordance with its terms.
2. When (i) the Senior Debt Securities have been duly authorized;
(ii) the final terms of the Senior Debt Securities have been duly established
and approved, and (iii) the Senior Debt Securities have been duly executed by
the Company and authenticated by the Senior Trustee in accordance with the
Senior Indenture and delivered to and paid for by the purchasers thereof, the
Senior Debt Securities (including any Senior Debt Securities issued upon the
exercise of any Debt Warrants) will constitute valid and legally binding
obligations of the Company, enforceable against the Company in accordance with
the terms thereof and will be entitled to the benefits of the Senior Indenture.
3. When the Subordinated Indenture has been duly authorized,
executed and delivered by the Company and assuming due authorization, execution
and delivery by the Subordinated Trustee, the Subordinated Indenture will
constitute a valid and legally binding obligation of the Company, enforceable
against the Company in accordance with its terms.
4. When (i) the Subordinated Debt Securities have been duly
authorized; (ii) the final terms of the Subordinated Debt Securities have been
2
duly established and approved, and (iii) the Subordinated Debt Securities have
been duly executed by the Company and authenticated by the Subordinated Trustee
in accordance with the Subordinated Indenture and delivered to and paid for by
the purchasers thereof, the Subordinated Debt Securities (including any
Subordinated Debt Securities issued upon the exercise of any Debt Warrants) will
constitute valid and legally binding obligations of the Company, enforceable
against the Company in accordance with the terms thereof and will be entitled to
the benefits of the Subordinated Indenture.
5. When the Debt Warrant Agreement has been duly authorized,
executed and delivered by the Company and assuming due authorization, execution
and delivery by the Debt Warrant Agent, the Debt Warrant Agreement will
constitute a valid and legally binding obligation of the Company, enforceable
against the Company in accordance with its terms.
6. When (i) the Debt Warrants have been duly authorized, (ii) the
terms of the Debt Warrants have been duly established and approved, and (iii)
the Debt Warrants have been duly executed by the Company and countersigned in
accordance with the Debt Warrant Agreement and delivered to and paid for by the
purchasers thereof, the Debt Warrants will constitute valid and legally binding
obligations of the Company, enforceable against the Company in accordance with
the terms thereof.
7. When the Stock Warrant Agreement has been duly authorized,
executed and delivered by the Company and assuming due authorization, execution
and delivery by the Warrant Agent, the Stock Warrant Agreement will constitute a
valid and legally binding obligation of the Company, enforceable against the
Company in accordance with its terms.
8. When (i) the Stock Warrants have been duly authorized, (ii)
the terms of the Stock Warrants have been duly established and approved, and
(iii) the Stock Warrants have been duly executed by the Company and
countersigned in accordance with the Stock Warrant Agreement and delivered to
and paid for by the purchasers thereof, the Stock Warrants will constitute valid
and legally binding obligations of the Company, enforceable against the Company
in accordance with the terms thereof.
The opinions set forth in paragraphs (1) through (8) above are
subject, as to enforcement, to (i) bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally (including, without limitation, all laws relating to fraudulent
transfers), (ii) general principles of equity (regardless of whether enforcement
is considered in a proceeding in equity or at law) and (iii) provisions of law
that require that a judgment for money damages rendered by a court in the United
States be expressed only in United States dollars.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the use of our name under the heading "Validity of
the Securities" in the Prospectus.
Very truly yours,
/s/ Shearman & Sterling
3
Exhibit 12.1
ClearOne Communications, Inc.
Statement re: Computation of Ratio of Earnings to Fixed Charges
(In thousands, except ratios)
Nine months ended Year ended June 30
March 31, 2002 2001 2000 1999 1998 1997
------------------- --------------------------------------------
Fixed Charges:
Interest on debt $ 18 $ 42 $ 66 $ 148 $ 240 $ 196
Interest portion of
rental expense 237 316 199 154 80 74
------------------- --------------------------------------------
Total fixed charges $ 255 $ 358 $ 265 $ 302 $ 320 $ 270
=================== ============================================
Earnings:
Consolidated pre-tax
income (loss) from $7,745 $8,844 $6,720 $3,229 $ 988 $(471)
continuing operations
Add back: fixed charges 255 358 265 302 320 270
------------------- --------------------------------------------
Total earnings $8,000 $9,202 $6,985 $3,531 $1,308 $(201)
=================== ============================================
Ratio of earnings to fixed
charges 31.4 25.7 26.4 11.7 4.1 -
Fixed charges in excess of
earnings - - - - - $(201)
Exhibit 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement on Form S-3 and related Prospectuses of ClearOne
Communications, Inc. filed with the Securities and Exchange Commission on July
22, 2002 and to the incorporation by reference therein of our report dated July
27, 2001, with respect to the consolidated financial statements of ClearOne
Communications, Inc. (formerly Gentner Communications Corporation) included in
its Annual Report (Form 10-K) for the year ended June 30, 2001, filed with the
Securities and Exchange Commission.
/s/ Ernst & Young LLP
July 19, 2002
Exhibit 23.4 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in this Registration Statement of ClearOne Communications, Inc. on Form S-3 of our report dated March 1, 2002, appearing in the Annual Report on Form 10-K of E.mergent, Inc. for the year ended December 31, 2001, and to the reference to us under the heading "Experts" in the Prospectuses, which are part of this Registration Statement. /s/ DELOITTE & TOUCHE LLP Minneapolis, Minnesota July 22, 2002
Exhibit 23.5
Consent of Independent Auditors
The Directors
ClearOne Communications, Inc
We consent to the use of our report dated July 27, 2001, with respect to the
financial statements of Ivron Systems Ltd. for the years ending December 3l,
1998, 1999, and 2000, included in ClearOne Communications, Inc Current Report
filed on Form 8-K/A on November 23, 2001, filed with the Securities and Exchange
Commission, and which Form 8K/A is incorporated by reference into the
Registration Statement and to the reference to our firm under the heading
"Experts" in each of the prospectuses contained in the Registration Statement.
/s/ KPMG
KPMG
Chartered Accountants
Dublin, Ireland
July 22, 2002
Exhibit 23.6
CONSENT OF LECG, LLC
The Directors
ClearOne Communications, Inc.
We consent to the use of our name in the Registration Statement on Form S-3 and
related prospectuses of ClearOne Communications, Inc.
/s/ LECG, LLC
LECG, LLC
July 22, 2002
Exhibit 25.1
= = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = =
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
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THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
One Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
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ClearOne Communications, Inc.
(Exact name of obligor as specified in its charter)
Utah 87-0398877
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
1825 Research Way
Salt Lake City, Utah 84119
(Address of principal executive offices) (Zip code)
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Debt Securities
(Title of the indenture securities)
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1. General information. Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
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Name Address
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Superintendent of Banks of the State 2 Rector Street, New York, N.Y.
of New York 10006, and Albany, N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York, N.Y.
10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
2. Affiliations with Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
16. List of Exhibits.
Exhibits identified in parentheses below, on file with the Commission, are
incorporated herein by reference as an exhibit hereto, pursuant to Rule
7a-29 under the Trust Indenture Act of 1939 (the "Act") and 17 C.F.R.
229.10(d).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains the
authority to commence business and a grant of powers to exercise
corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1
filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to
Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1
to Form T-1 filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No.
33-44051.)
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7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or examining
authority.
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SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New York,
a corporation organized and existing under the laws of the State of New York,
has duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in The City of New York, and State
of New York, on the 12th day of July, 2002.
THE BANK OF NEW YORK
By: /S/ MING SHIANG
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Name: Ming Shiang
Title: Vice President
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EXHIBIT 7
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Consolidated Report of Condition of
THE BANK OF NEW YORK
of One Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business March 31, 2002,
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act.
Dollar Amounts
In Thousands
ASSETS
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin....... $3,765,462
Interest-bearing balances................................ 3,835,061
Securities:
Held-to-maturity securities.............................. 1,232,736
Available-for-sale securities............................ 10,522,833
Federal funds sold and Securities purchased under
agreements to resell........................................ 1,456,635
Loans and lease financing receivables:
Loans and leases held for sale........................... 801,505
Loans and leases, net of unearned income................. 46,206,726
LESS: Allowance for loan and lease losses................ 607,115
Loans and leases, net of unearned income and allowance... 35,249,695
Trading Assets................................................ 8,132,696
Premises and fixed assets (including capitalized leases)...... 898,980
Other real estate owned....................................... 911
Investments in unconsolidated subsidiaries and associated
companies................................................... 220,609
Customers' liability to this bank on acceptances outstanding.. 574,020
Intangible assets:
Goodwill................................................. 1,714,761
Other intangible assets.................................. 49,213
Other assets.................................................. 5,001,308
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Total assets.................................................. $73,954,859
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LIABILITIES
Deposits:
In domestic offices...................................... $29,175,631
Noninterest-bearing...................................... 11,070,277
Interest-bearing......................................... 18,105,354
In foreign offices, Edge and Agreement subsidiaries,
and IBFs............................................... 24,596,600
Noninterest-bearing...................................... 321,299
Interest-bearing......................................... 24,275,301
Federal funds purchased and securities sold under agreements
to repurchase............................................... 1,922,197
Trading liabilities........................................... 1,970,040
Other borrowed money:
(includes mortgage indebtedness and obligations under
capitalized leases).................................... 1,577,518
Bank's liability on acceptances executed and outstanding...... 575,362
Subordinated notes and debentures............................. 1,940,000
Other liabilities............................................. 5,317,831
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Total liabilities............................................. $67,075,179
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EQUITY CAPITAL
Common stock.................................................. 1,135,284
Surplus....................................................... 1,055,508
Retained earnings............................................. 4,227,287
Accumulated other comprehensive income........................ (38,602)
Other equity capital components............................... 0
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Total equity capital.......................................... 6,379,477
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Total liabilities and equity capital.......................... $73,954,859
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I, Thomas J. Mastro, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true to the best of my knowledge and
belief.
Thomas J. Mastro,
Senior Vice President and Comptroller
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
_
Thomas A. Renyi |
Gerald L. Hassell | Directors
Alan R. Griffith _|
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