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.
19
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.
20
"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;
21
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.
22
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."
23
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
24
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
25
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.
26
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.
27
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;
28
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.
29
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.