As filed with the Securities and Registration No. 333-82242
Exchange Commission on April 29, 2002
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
Amendment No. 2
to
Form S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
ClearOne Communications, Inc.
(formerly Gentner Communications Corporation)
(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 Number)
or Organization)
------------------------------
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.
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)
Copies to:
Robert Ribeiro, Esq. Robinson Alston, Esq.
Julius Davidson, Esq. Rakesh J. Govindji, Esq.
Fredrikson & Byron, P.A. Jones, Waldo, Holbrook & McDonough, P.C.
1100 International Centre 1500 Wells Fargo Plaza
900 Second Avenue South 170 South Main Street
Minneapolis, MN 55402 Salt Lake City, Utah 84101
(612) 347-7000 (801) 521-3200
------------------------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this registration statement becomes effective and
upon consummation of the merger described in the enclosed prospectus.
------------------------------
If any of the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. |_|
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(d)
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. |_|
------------------------------
CALCULATION OF REGISTRATION FEE
======================================== ======================= ===================== ====================== ======================
Proposed Proposed
Title of Maximum Maximum
Securities to Amount to Offering Price Aggregate Amount of
Be Registered be Registered (1) Per Share (2) Offering Price (2) Registration Fee
---------------------------------------- ----------------------- --------------------- ---------------------- ----------------------
Common Stock, par value $0.001 per share 873,000 $3.13 $13,161,686 $1,210.88
======================================== ======================= ===================== ====================== ======================
(1) Represents the maximum number of shares of common stock, $0.001 par value
per share, of the Registrant issuable in connection with the merger
contemplated by the merger agreement.
(2) Estimated solely for the purpose of determining the registration fee in
accordance with Rule 457(f) and (c) promulgated under the Securities Act.
The proposed maximum offering price per share is based on the sum of (A)
the product of (i) $3.13 (the average of the high and low prices of common
stock, $0.01 par value per share, of E.mergent, Inc. on January 31, 2002
as reported on the Nasdaq SmallCap Market) times (ii) the maximum number
of shares of E.mergent common stock to be received by the registrant or
canceled pursuant to the merger, minus (B) $7,300,000 (the maximum amount
of cash to be paid in exchange for the E.mergent common stock in addition
to the shares of Registrant common stock to be issued in the transaction).
The proposed maximum offering price per share is based on the proposed
maximum aggregate offering price divided by the number of shares to be
registered
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 Exchange Commission, acting pursuant to
said Section 8(a), may determine.
================================================================================
E.MERGENT, INC.
MERGER PROPOSAL - YOUR VOTE IS VERY IMPORTANT
Dear Stockholders:
The board of directors of E.mergent, Inc. has approved a merger in
which E.mergent will be purchased by ClearOne Communications, Inc. As a result
of the proposed merger, you will become a shareholder of ClearOne. The E.mergent
board believes that the complementary product lines and businesses of ClearOne
and E.mergent create an overall strategic fit. It also believes that the merger
will create synergies and efficiencies that will accelerate product development
and technological innovation.
I cordially invite you to attend our special meeting of shareholders to
vote on a proposal to approve the merger and the merger agreement. We cannot
complete the merger unless the holders of a majority of the outstanding shares
of E.mergent common stock approve it. The date, time, and place of the special
meeting are _________, 2002, 10:00 a.m., local time, Acoustic Communications
Systems Division, 13705 26th Avenue North, Suite 110, Minneapolis, MN 55441.
Your board of directors has carefully considered the terms and
conditions of the merger and has determined that the merger is advisable, in the
best interests of our stockholders and on terms that are fair to our
stockholders. Accordingly, except for one director who abstained due to a
conflict of interest, your board of directors has unanimously approved the
merger agreement and the merger and recommends that you vote for adoption and
approval of the merger agreement and approval of the merger.
If the merger is completed, ClearOne will issue, or reserve for
issuance upon the exercise of assumed E.mergent stock options, a total of
873,000 shares of ClearOne common stock and pay a total of $7,300,000 in cash in
exchange for all of E.mergent's outstanding common stock shares and stock
options. Assuming that E.mergent does not issue any additional shares prior to
the merger, for each share of E.mergent common stock you hold, you will receive
in the merger between approximately $1.17 to $1.23 in cash and up to
approximately 0.145 of a share of ClearOne common stock. The exact amount of
cash and stock that you will receive for each E.mergent share depends on the
number of E.mergent shares outstanding immediately prior to the completion of
the merger, the exercise of E.mergent stock options prior to the merger and
other factors. The common stock of ClearOne (which was formerly known as Gentner
Communications Corporation) is traded on the Nasdaq National Market System under
the symbol "CLRO." On April 25, 2002, the closing price of ClearOne common stock
was $16.45 per share.
Following this letter you will find a formal notice of the special
meeting and a proxy statement/prospectus providing you with detailed information
concerning the merger agreement, the merger, E.mergent and ClearOne. In
particular, you should carefully consider the discussion in the section entitled
"Risk Factors" beginning on page 20 of this document, including those risk
factors that are incorporated by reference into this document. It is also
accompanied by the most recent annual report on Form 10-KSB for E.mergent, the
most recent annual report on Form 10-K for ClearOne, certain other reports
previously filed by ClearOne with the Securities and Exchange Commission and
certain other relevant documents. You can also obtain information about ClearOne
and E.mergent from documents filed with the Securities and Exchange Commission.
Please read this entire document carefully.
We enthusiastically support the merger and urge you to vote "FOR" the
merger and the merger agreement. Thank you, and I look forward to seeing you at
the special meeting.
Sincerely,
/s/ James W. Hansen
James W. Hansen
Chief Executive Officer and President
--------------------------------------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE MERGER OR THE SHARES OF CLEARONE'S
COMMON STOCK TO BE ISSUED IN THE MERGER, OR DETERMINED IF THIS DOCUMENT IS
ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------------------------------------------------------------------
This document is dated __________, 2002 and was first mailed to E.mergent
stockholders on or about __________, 2002.
E.MERGENT, INC.
5960 Golden Hills Drive
Golden Valley, MN 55416
(763) 471-4257
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON _________, 2002
To the Stockholders of E.mergent, Inc.:
A special meeting of the shareholders of E.mergent, Inc., a Delaware
corporation, will be held at the Acoustic Communications Systems Division,
located at 13705 26th Avenue North, Suite 110, Minneapolis, MN 55441, on
_________, 2002, at 10:00 a.m., local time, for the following purposes:
1. To consider and vote upon a proposal to approve an Agreement and
Plan of Merger dated as of January 21, 2002, among ClearOne
Communications, Inc., a Utah corporation, Tundra Acquisition
Corporation, a Delaware corporation and wholly owned subsidiary of
ClearOne, and E.mergent, Inc., a Delaware corporation, and the
related merger, pursuant to which E.mergent will become a
wholly-owned subsidiary of ClearOne and holders of E.mergent
common stock will receive a combination of cash and shares of
ClearOne common stock based upon the conversion ratio described in
the accompanying proxy statement/prospectus.
2. To transact such other business as may properly come before the
special meeting or any adjournment or postponement, including a
proposal to adjourn or postpone the special meeting.
The record date for the special meeting is the close of business on
__________, 2002. Only E.mergent stockholders of record at that time are
entitled to notice of and to vote at the special meeting or any adjournment or
postponement of the meeting. To approve the merger, the holders of a majority of
all the outstanding shares of E.mergent common stock must vote in favor of the
merger.
Under Delaware law, holders of E.mergent common stock who submit a
written demand for appraisal of their shares and who comply with the applicable
statutory procedures under Delaware law will be entitled to appraisal rights and
to receive payment in cash for the fair value of their shares as determined by
the Delaware Chancery Court. A summary of the applicable requirements of
Delaware law is contained in the accompanying proxy statement/prospectus under
the caption "The Merger and Related Transactions--Dissenters Rights of
Appraisal." In addition, the text of the applicable provisions of the Delaware
General Corporate Law is attached as Annex D.
Your vote is important. Even if you expect to attend the meeting,
please complete, sign, and date the enclosed proxy and return it promptly in the
enclosed postage-paid envelope. If no instructions are indicated on your proxy,
your shares will be voted "FOR" the merger. Alternatively, you may vote your
proxy via phone or the Internet. You may vote your proxy by phone twenty-four
(24) hours a day, 7 days a week, until 11:00 a.m., Central Time, one business
day prior to the meeting by dialing 800-240-6326 and following the instructions.
You may vote your proxy via the Internet twenty-four (24) hours a day, 7 days a
week, until 11:00 a.m., Central Time, one business day prior to the meeting by
going to http://www.eproxy.com/emrt and following the instructions.
If you do not return your proxy, vote your proxy by phone or Internet,
or vote in person, the effect is a vote against the merger. You can revoke your
proxy at any time before it is exercised by voting again by phone or Internet,
giving written notice to the Secretary of E.mergent, filing another proxy, or
attending the special meeting and voting in person.
If the merger agreement is approved and the merger is consummated, you
will be sent a letter of transmittal with instructions for surrendering your
certificates representing shares of E.mergent common stock (or certificates
representing shares of VideoLabs, Inc. common stock issued prior to E.mergent's
name change from VideoLabs). Please do not send your share certificates until
you receive these materials.
The E.mergent board of directors recommends that you vote FOR the
merger.
BY ORDER OF THE BOARD OF DIRECTORS
Jill Larson, Secretary
____________, __, 2002
ADDITIONAL INFORMATION
The following documents, which contain important business and financial
information about ClearOne and E.mergent, are incorporated into this proxy
statement/prospectus and they are being delivered to you with this proxy
statement/prospectus, bound under a separate cover:
E.mergent Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2001;
ClearOne Annual Report on Form 10-K for the fiscal year ended June 30,
2001;
ClearOne Quarterly Report on Form 10-Q for the quarter ended September
30, 2001;
ClearOne Quarterly Report on Form 10-Q for the quarter ended December
31, 2001;
ClearOne Current Report on Form 8-K filed October 18, 2001;
ClearOne Current Report on Form 8-K/A filed November 23, 2001;
ClearOne Current Report on Form 8-K filed February 1, 2002;
ClearOne Current Report on Form 8-K filed on February 6, 2002;
ClearOne Current Report on Form 8-K filed on March 21, 2002;
ClearOne Current Report on Form 8-K filed on April 10, 2002; and
ClearOne Current Report on Form 8-K filed April 23, 2002.
Also, this document will incorporate by reference information about
ClearOne from other documents that may be filed with the Securities and Exchange
Commission after the date of this document and prior to E.mergent's special
shareholder meeting. See the section entitled "Where You Can Find More
Information" beginning on page 71 of this document for information about how to
obtain copies of such documents and additional information about ClearOne and
E.mergent.
TABLE OF CONTENTS
Page
----
QUESTIONS AND ANSWERS ABOUT THE MERGER......................................1
SUMMARY.....................................................................3
The Companies..........................................................3
ClearOne Communications, Inc.......................................3
E.mergent, Inc.....................................................3
ClearOne's and E.mergent's Reasons for the Merger......................3
Recommendations of the E.mergent Board of Directors....................3
Opinion of E.mergent's Financial Advisor...............................3
Shareholder Approval...................................................4
Structure and Effects of the Merger....................................4
Conflicts of Interest of Directors and Officers........................5
The Merger Agreement...................................................6
Conditions to Completion of the Merger.............................6
Termination of the Merger; Fees Payable............................6
E.mergent Prohibited from Soliciting Other Offers......................7
Share Ownership of Management..........................................7
Material United States Federal Income Tax Consequences of the
Merger................................................................7
Appraisal Rights.......................................................8
Restrictions on the Ability to Sell ClearOne Common Stock Received
in the Merger.........................................................8
Risks of the Merger....................................................8
No Governmental Approvals or Regulatory Requirements...................8
Completion of the Merger...............................................8
SELECTED HISTORICAL FINANCIAL DATA..........................................9
E.mergent..............................................................9
ClearOne..............................................................10
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION...............11
Pro Forma Condensed Combined Balance Sheets as of December 31, 2001...12
Unaudited Pro Forma Condensed Combined Statements of Operations
For the six months ended December 31, 2001........................13
Unaudited Pro Forma Condensed Combined Statements of Operations
For the fiscal year ended June 30, 2001...........................14
Notes to Unaudited Pro Forma Condensed Combined Financial
Information..........................................................15
HISTORICAL AND PRO FORMA COMPARATIVE PER SHARE DATA........................18
COMPARATIVE PER SHARE MARKET PRICE DATA....................................19
RISK FACTORS...............................................................20
Risks Relating to the Merger..........................................20
Risks Relating to ClearOne's Business.................................23
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS IN THIS
DOCUMENT..................................................................27
THE E.MERGENT SPECIAL MEETING..............................................28
General...............................................................28
Date, Place, and Time.................................................28
Purpose of Special Meeting............................................28
Record Date for the Special Meeting...................................28
Voting Rights; Quorum.................................................28
i
Required Vote; Abstentions and Broker Non-Votes.......................28
Recommendation of the Board of Directors of E.mergent.................29
Dissenters Rights of Appraisal........................................29
Proxies; Revocation...................................................30
Solicitation of Proxies...............................................30
THE MERGER AND RELATED TRANSACTIONS........................................31
Background of the Merger..............................................31
E.mergent's Reasons for the Merger....................................33
Opinion of E.mergent's Financial Advisor..............................34
Recommendation of E.mergent's Board of Directors......................38
Interests of E.mergent's Directors and Executive Officers in the
Merger...............................................................38
Options, Accelerated Vesting of Options and Bonus Shares..........38
Executive Employment Agreements...................................39
Indemnification and Directors and Officers Insurance..............39
Consideration of the Merger by ClearOne's Board of Directors and
Reasons for the Merger...............................................39
Other Prior Contacts Between ClearOne and E.mergent...................41
Restrictions on Resale of ClearOne Common Stock.......................41
Accounting Treatment of the Merger....................................41
Material U.S. Federal Income Tax Consequences.........................41
Governmental Approvals and Regulatory Requirements....................43
Dissenters' Rights of Appraisal.......................................43
Description of ClearOne Capital Stock.................................44
Listing with Nasdaq the ClearOne Common Stock to be Issued in
the Merger...........................................................44
Delisting and Deregistration of E.mergent Common Stock After
the Merger...........................................................45
Operations After the Merger...........................................45
Exchange of E.mergent Stock Certificates for ClearOne Stock
Certificates.........................................................45
AGREEMENT AND PLAN OF MERGER...............................................46
Structure of the Merger...............................................46
Completion and Effectiveness of the Merger............................46
Conversion of E.mergent Common Stock..................................46
Fractional Shares.....................................................48
Stock Options.........................................................48
Certificate Exchange Procedures.......................................48
E.mergent's Representations and Warranties............................48
ClearOne's Representations and Warranties.............................49
E.mergent's Conduct of Business Before Completion of the Merger.......50
ClearOne's Conduct of Business Before Completion of the Merger........51
Material Covenants....................................................51
Recommendation by E.mergent Board of Directors....................51
Solicitations by E.mergent; Withdrawal of Recommendation by
E.mergent Board of Directors.....................................52
Other Covenants.......................................................54
Conditions to Completion of the Merger................................55
Termination of the Merger Agreement...................................56
Payment of the Termination Fee........................................58
Effect of Termination.................................................59
Extension, Waiver and Amendment of the Merger Agreement...............59
Definition of Material Adverse Effect.................................59
Amendment of Merger Agreement.........................................59
ANCILLARY AGREEMENTS.......................................................60
Voting Agreement......................................................60
Affiliate Agreements..................................................61
INFORMATION ABOUT E.MERGENT................................................62
ii
INFORMATION ABOUT CLEARONE ................................................63
Amendment of Agreement Regarding Acquisition of Ivron Systems.........63
Management............................................................63
Marketing.............................................................64
Recent Financial Developments.........................................64
COMPARISON OF STOCKHOLDER RIGHTS...........................................66
Authorized Shares of Capital Stock....................................66
Directors.............................................................66
Number............................................................66
Special Meetings..................................................66
Removal...........................................................66
Election..........................................................67
Stockholder Action by Written Consent.................................67
Ability to Call Special Meetings of Stockholders......................67
Amendments To Charter.................................................67
Amendments To By-laws.................................................68
Limitation of Liability of Directors..................................68
Indemnification of Directors and Officers.............................68
Dissenters' Rights....................................................69
Anti-Takeover Statutes................................................69
WHERE YOU CAN FIND MORE INFORMATION........................................71
LEGAL AND TAX MATTERS......................................................73
EXPERTS....................................................................73
LIST OF ANNEXES............................................................74
ANNEX A Agreement and Plan of Merger...........................A-1
ANNEX A-1 Amendment No. 1 to Agreement and Plan of Merger........A-1-1
Annex B Form of Voting Agreement...............................B-1
ANNEX C Opinion of Goldsmith, Agio, Helms Securities, Inc......C-1
ANNEX D Section 262 of the Delaware General Corporate Law......D-1
iii
QUESTIONS AND ANSWERS ABOUT THE MERGER
The following are some questions that you, as a stockholder of E.mergent,
may have and answers to those questions. After this questions and answers
section is a summary of the other information included in the proxy
statement/prospectus. These questions and answers and the following summary
section may not address all of the information that may be important to you as a
stockholder of E.mergent. E.mergent and ClearOne urge you to read carefully the
remainder of this proxy statement/prospectus because the information in these
sections is not complete and additional important information is contained in
the remainder of this proxy statement/prospectus, the annexes to this proxy
statement/prospectus and the documents referred to or incorporated by reference
in this proxy statement/prospectus.
Q: Why am I receiving this document and proxy card?
A: You are receiving this document and proxy card because you own shares of
E.mergent common stock. E.mergent and ClearOne are proposing to combine the
two companies through a merger of E.mergent into a subsidiary of ClearOne.
This document describes a proposal that the E.mergent stockholders adopt
the merger agreement between the parties and approve the merger at a
special shareholders meeting. This document also gives you information
about E.mergent and ClearOne and other background information so that you
can make an informed investment decision, as ClearOne is offering its
shares of common stock as part of the merger consideration that you will
receive in the merger in exchange for your E.mergent common stock.
Q: When and where is the special shareholders meeting?
A: The E.mergent special shareholders' meeting to consider and vote upon the
merger will be held at the Acoustic Communications Systems Division, 13705
26th Avenue North, Suite 110, Minneapolis, MN on _________, 2002 at 10:00
a.m., local time.
Q: How do I vote on the merger? (see page 30)
A: You are entitled to receive this notice and vote at the meeting if you were
a shareholder of E.mergent on _____, 2002, the record date for the meeting.
To vote, first, please review the information contained or incorporated by
reference in this document, including the annexes. It contains important
information about E.mergent and ClearOne. It also contains important
information about what the boards of directors of E.mergent and ClearOne
considered in evaluating the merger. Next, complete and sign the enclosed
proxy card, indicating how you wish to vote. Then, mail the proxy card in
the enclosed return envelope as soon as possible so that your shares can be
voted at the special meeting of E.mergent stockholders at which the merger
agreement and the merger will be presented and voted upon. Alternatively,
you may vote your proxy via phone or the Internet. You may vote your proxy
by phone twenty-four (24) hours a day, 7 days a week, until 11:00 a.m.,
Central Time, one business day prior to the meeting by dialing 800-240-6326
and following the instructions. You may vote your proxy via the Internet
twenty-four (24) hours a day, 7 days a week, until 11:00 a.m., Central
Time, one business day prior to the meeting by going to
http://www.eproxy.com/emrt and following the instructions. You may also
attend the special meeting in person and vote at the special meeting
instead of submitting a proxy.
Q: If my shares are held in "street name" by a broker, will my broker vote my
shares for me?
A: No. Your broker will not be able to vote your shares without instructions
from you. If you hold your shares in street name, you should receive with
this proxy statement/prospectus a form for instructing you how to vote your
shares through your broker. If you do not provide your broker with voting
instructions, your shares may be considered present at the special meeting
for purposes of determining a quorum, but will not be considered to have
been voted in favor of adoption and approval of the merger agreement or
approval of the merger and, therefore, such action will have the effect of
a vote against the merger agreement and the merger. If you have instructed
a broker to vote your shares and wish to change your vote, you must follow
directions received from your broker to change those instructions. Please
note, however, that if the holder of record of your shares is your broker,
bank or other nominee and you wish to vote at the special meeting, you must
bring a letter from the broker, bank or other nominee confirming that you
are the beneficial owner of the shares.
Q: What if I do not indicate how to vote my proxy or indicate I abstain from
the vote? (see page 28)
A: If you properly sign and return your proxy but do not indicate how you want
to vote, your proxy will be counted as a vote in favor of the merger
agreement and the merger. If, however, you return your proxy and indicate
that you are abstaining from voting, your proxy will have the same effect
as a vote against the merger.
1
Q: What if I don't return my proxy vote? (see page 28)
A: If you fail to return your proxy, it will have the same effect as a vote
against the merger agreement and the merger.
Q: Can I change my vote after I have delivered my proxy or voted by phone or
Internet? (see page 30)
A: Yes. You can change your vote at any time before your proxy is voted at the
special meeting of E.mergent stockholders at which the merger agreement and
merger will be presented and voted upon. You can do this in one of four
ways:
o sending a written notice to the Secretary of E.mergent, if you
are an E.mergent stockholder, before the meeting stating that you
would like to revoke your proxy;
o signing a later-dated proxy card and returning it by mail in time
to be received before the meeting;
o vote again by phone or Internet prior to 11:00 a.m., Central
Time, on _________, 2002 ; or
o you can attend the special meeting and vote in person. Your
attendance at the special meeting alone will not revoke your
proxy. You must also vote at the special meeting in order to
revoke your previously submitted proxy.
Q: Should I send in my stock certificates now?
A: No. If the merger is completed, we will send to you written instructions
for exchanging your E.mergent stock certificates (or VideoLabs, Inc. stock
certificates issued before E.mergent's name change) for ClearOne stock
certificates. In the meantime, you should retain your stock certificates as
the E.mergent stock certificates are still valid. Please do not send in
your stock certificates with your proxy.
Q: Who can help answer my questions? (see page 71)
A: If you have any questions about the merger or how to submit your proxy, or
if you need additional copies of this document or the enclosed proxy card,
you should contact:
E.mergent, Inc.
5960 Golden Hills Drive
Golden Valley, MN 55416
Telephone (763) 417-4257
Attention: Jill Larson
Email: proxy@emergentincorporated.com
THIS PROXY STATEMENT/PROSPECTUS CONTAINS TRADEMARKS, TRADENAMES, SERVICE MARKS,
AND SERVICE NAMES OF CLEARONE, E.MERGENT AND OTHER COMPANIES.
2
SUMMARY
The Companies
ClearOne Communications, Inc. (see pages 63 and 71)
1825 Research Way
Salt Lake City, Utah 84119
Telephone (801) 975-7200
ClearOne (formerly known as Gentner Communications Corporation)
primarily develops, manufactures, markets and distributes products and services
for the conferencing equipment, conferencing services, and broadcast markets.
Until 1991, ClearOne's primary business was the sale of studio and
transmitter-related equipment to broadcast facilities. Since then, ClearOne has
applied its core digital audio technology to the development of products for
audio and video conferencing, sound reinforcement, and assistive listening
applications. In addition, ClearOne offers conferencing services, including
conference calling, Webconferencing, audio and video streaming, and customer
training and education.
E.mergent, Inc. (see pages 62 and 71)
5960 Golden Hills Drive
Golden Valley, MN 55416
Telephone (763) 417-4257
E.mergent sells its products and services through a global network of
resellers and Original Equipment Manufacturers ("OEM"). E.mergent classifies its
business into two segments: Products Division ("VideoLabs"), which designs,
manufactures and markets a complete line of peripherals that support core
technologies in the videoconferencing, audio visual, identification, education
and medical markets and its Services Division ("ACS"), which is a full-service
communications integration provider, specializing in the design, installation
and support of meeting room technologies. E.mergent is headquartered in Golden
Valley, Minnesota with locations in Plymouth, Minnesota; Maple Grove, Minnesota;
Chicago, Illinois; and Des Moines, Iowa.
ClearOne's and E.mergent's Reasons for the Merger (see pages 33 and 39)
ClearOne and E.mergent are proposing to merge because they believe, for
a variety of reasons, that each company will benefit from the combination of the
two companies and the merger will result in a combined company that is better
positioned to succeed in the audio and video conferencing markets than they
would be separately. A complete discussion of the companies' respective reasons
for proposing the merger is contained under the captions "E.mergent's Reasons
for the Merger" beginning on page 33 and "Consideration of the Merger by
ClearOne's Board of Directors and Reasons for the Merger" beginning on page 39.
Recommendations of the E.mergent Board of Directors (see page 29)
After careful consideration, E.mergent's board of directors determined
that the merger is advisable, in the best interests of E.mergent stockholders
and on terms that are fair to the stockholders of E.mergent. Accordingly, except
for one director who abstained, E.mergent's board of directors unanimously
approved the merger agreement and the merger and recommends that you vote "FOR"
adoption and approval of the merger agreement and approval of the merger. The
director who abstained chose to do so because he was previously employed by
E.mergent's financial advisor, who rendered an opinion on the fairness of the
merger as described below.
Opinion of E.mergent's Financial Advisor (see page 34)
In deciding to approve the merger, the E.mergent board of directors
considered an opinion from its financial advisor, Goldsmith, Agio, Helms. On
January 18, 2002, Goldsmith, Agio, Helms delivered its oral opinion,
subsequently confirmed in writing, to the board of directors of E.mergent that,
as of the date of such opinion, the consideration to be received by E.mergent
stockholders as set forth in the merger agreement was fair, from a financial
point of view, to the holders of E.mergent common stock.
The full text of the Goldsmith, Agio, Helms' written opinion is
attached to this document as Annex C. We encourage you to read the opinion
carefully. The opinion of Goldsmith, Agio, Helms does not constitute a
recommendation as to how any holder of E.mergent common stock should vote with
respect to the merger agreement and the merger.
3
Shareholder Approval (see page 28)
The affirmative vote of the holders of a majority of the outstanding shares of
E.mergent common stock is required to approve the merger agreement and merger.
Each share of E.mergent common stock will be entitled to one vote per share. As
a result, you will be entitled to cast one vote per share of E.mergent common
stock that you owned as of __________, 2002, the record date for the E.mergent
special meeting. As of April 25, 2002, there were 5,931,280 shares of E.mergent
common stock outstanding. Holders of approximately 40% of the outstanding shares
of E.mergent common stock have already agreed to vote in favor of approving the
merger agreement and the merger. ClearOne stockholders are not required to vote
on the merger agreement or the merger.
Structure and Effects of the Merger (see page 46)
At the effective time of the merger, E.mergent will be merged into a
wholly owned subsidiary of ClearOne, with the subsidiary continuing as the
surviving entity. As part of the process, the stockholders of E.mergent will
become stockholders of ClearOne, and their rights as stockholders will be
governed by the ClearOne articles of incorporation and bylaws, as currently in
effect, and the laws of the State of Utah. Following the merger, ClearOne
intends to maintain E.mergent's operations as a wholly-owned subsidiary of
ClearOne for some period of time. The membership of ClearOne's board of
directors will remain unchanged as a result of the merger. ClearOne and
E.mergent anticipate that following the merger Robin Sheeley, E.mergent's
current Chief Technical Officer will become the Chief Technology Officer of
ClearOne, while James Hansen will resign as E.mergent's Chairman, Chief
Executive Officer, President and Treasurer and Jill Larson will resign as
E.mergent's Vice President-Administration and Corporate Secretary.
As a result of the merger, each outstanding share of E.mergent common
stock will be converted into the right to receive cash and a fraction of a share
of ClearOne common stock. For each of your shares of E.mergent common stock you
will receive a payment of cash between approximately $1.17 and $1.23 and up to
approximately 0.145 of a share of ClearOne common stock. The exact amount to be
paid per E.mergent share depends on a number of factors, including the average
closing price of ClearOne common stock and the number of E.mergent stock options
outstanding, both of which are determined immediately prior to the merger. As a
result, we cannot tell you at this time the exact amount of cash and stock that
you will receive for your E.mergent common stock. The chart below, however,
gives examples of the approximate amount of cash and stock that you would
receive based on a range of closing prices for ClearOne common stock (including
the actual closing sales price of $16.45 on April, 25, 2002) and assumptions
about options outstanding at the time of merger.
4
E.mergent Stock Options Exercised (Cashless Exercise)
---------------------------------------------------------------------------------------------------------------
ClearOne None 50% 100%
Average ----------------------------------- ------------------------------------ ----------------------------------
Market ClearOne Combined ClearOne Combined ClearOne Combined
Price Cash Shares Value Cash Shares Value Cash Shares Value
------------- ----------------------------------- ------------------------------------ ----------------------------------
$12.00 $1.231 0.1240 $2.719 $1.198 0.1318 $2.780 $1.168 0.1396 $2.843
$13.00 $1.231 0.1248 $2.853 $1.198 0.1322 $2.916 $1.168 0.1396 $2.983
$14.00 $1.231 0.1254 $2.986 $1.198 0.1325 $3.053 $1.168 0.1396 $3.122
$15.00 $1.231 0.1259 $3.120 $1.198 0.1328 $3.189 $1.168 0.1396 $3.262
$16.00 $1.231 0.1264 $3.253 $1.198 0.1330 $3.326 $1.168 0.1396 $3.402
$16.45 $1.231 0.1266 $3.313 $1.198 0.1331 $3.387 $1.168 0.1369 $3.465
$17.00 $1.231 0.1268 $3.387 $1.198 0.1332 $3.462 $1.168 0.1396 $3.541
$18.00 $1.231 0.1272 $3.520 $1.198 0.1334 $3.599 $1.168 0.1396 $3.681
$19.00 $1.231 0.1275 $3.654 $1.198 0.1335 $3.735 $1.168 0.1396 $3.821
$20.00 $1.231 0.1278 $3.787 $1.198 0.1337 $3.872 $1.168 0.1396 $3.960
$21.00 $1.231 0.1281 $3.921 $1.198 0.1338 $4.008 $1.168 0.1396 $4.100
$22.00 $1.231 0.1284 $4.055 $1.198 0.1339 $4.145 $1.168 0.1396 $4.240
$23.00 $1.231 0.1286 $4.188 $1.198 0.1341 $4.282 $1.168 0.1396 $4.380
----------------------------------- ------------------------------------ ----------------------------------
See page 47 for a description of the assumptions underlying this table. Please
note that the above table contains examples based on such assumptions. The
actual amounts you will receive in the merger may differ from such examples. For
a discussion of the actual calculation of the amounts to be exchanged in the
merger, please see the discussion entitled "Conversion of E.mergent Common
Stock" beginning on page 46.
Additionally, ClearOne will not issue fractional shares. If the total
number of shares of ClearOne common stock that you are entitled to receive
includes a fraction of a share, you will instead receive cash, without interest,
rather than that fractional share.
Changes in the trading price of ClearOne common stock prior to the
merger will not change the total amount of cash or total number of shares being
paid by ClearOne in the merger. Of course, changes in the trading price of
ClearOne common stock will affect the actual value of the ClearOne common stock
that you will receive in the merger. However, either ClearOne or E.mergent may
terminate the merger agreement if the weighted average closing price of ClearOne
common stock as quoted on the Nasdaq National Market for the 15 trading days
ending one day prior to the date of the scheduled completion of the merger is
greater than $23 or less than $14.
Options to purchase shares of E.mergent common stock outstanding
immediately prior to completion of the merger will be converted into options to
purchase shares of ClearOne common stock after the merger. The number of
ClearOne shares issuable upon the exercise of these options, and their
applicable exercise prices, will be adjusted based on the value of the ClearOne
common stock and cash each share of E.mergent stock received in the merger. The
formula for determining the exchange ratio for assuming the E.mergent stock
options is described beginning on page 46 in this proxy statement/prospectus.
Each share of E.mergent common stock held by E.mergent, ClearOne, or
any direct or indirect wholly-owned subsidiary of ClearOne immediately prior to
the effective time of the merger will be canceled and extinguished. Fifty
thousand three hundred and seventeen (50,317) shares of E.mergent common stock
currently held by E.mergent as treasury shares will be issued to E.mergent
employees as part of an anticipated bonus prior to completion of the merger and
will be treated as issued and outstanding shares at the effective time of the
merger. The 50,317 shares will be allocated equally among all employees, for a
bonus of approximately 689 shares each.
Conflicts of Interest of Directors and Officers (see page 38)
Some of E.mergent's directors and executive officers have interests in
the merger that are different from, or in addition to, those of E.mergent
stockholders generally. These include interests of James Hansen, E.mergent's
Chief Executive Officer and Chairman, Robin Sheeley, the Chief Technical Officer
and a director, and Jill Larson, the Vice President-Administration and Corporate
Secretary. In the event that the employment of these executive officers is
5
terminated immediately after the merger (as is currently anticipated for Mr.
Hansen and Ms. Larson but not for Mr. Sheeley), it is estimated that the
severance payments payable under their employment agreements, plus the value of
the related benefits, would be approximately $189,000 to Mr. Hansen, $120,000 to
Ms. Larson, and $160,000 to Mr. Sheeley. Also, Mr. Hansen has an option to buy
10,000 E.mergent common shares at $3.37 per share and Ms. Larson has an option
to buy 3,333 E.mergent common shares at $1.47, which options will become vested
immediately prior to the closing of the merger. Ms. Larson and Messrs. Hanson
and Sheeley will also each receive approximately 689 shares of E.mergent common
stock when the treasury shares of E.mergent common stock are issued to employees
as a bonus prior to completion of the merger.
E.mergent's board of directors was aware of these interests and
considered them, among other matters, when it approved the merger agreement and
the merger. All disinterested directors voted in favor of the merger.
The Merger Agreement (see page 46)
We have attached the merger agreement as Annex A to this proxy
statement/prospectus. We urge you to read the merger agreement carefully. In
addition to the features summarized below, in the merger agreement each company
has made certain representations, warranties and agreements regarding the
merger.
Conditions to Completion of the Merger. ClearOne's and E.mergent's
obligations to complete the merger are subject to the satisfaction of conditions
specified in the merger agreement, including the following:
o adoption and approval of the merger agreement and approval of the
merger by the requisite holders of the outstanding E.mergent
common stock;
o the absence of any law, injunction or order preventing the
completion of the merger;
o with regard to ClearOne's registration statement on Form S-4 of
which this document forms a part, no stop order suspending its
effectiveness may be in effect and no proceedings for suspension
of its effectiveness may be pending before or threatened in
writing by the Securities and Exchange Commission; and
o the continuing accuracy of the representations and warranties of
ClearOne and E.mergent contained in the merger agreement, subject
to certain exceptions.
Except for the conditions that are required to be met by law, such as
the first three items above, the conditions to completion of the merger may be
waived by the company entitled to assert the condition. However, in the event
that either E.mergent or ClearOne elect to waive a condition to closing that
it's board of directors considers material, they intend to resolicit shareholder
approval of the merger following appropriate disclosure of such waiver.
Termination of the Merger; Fees Payable. ClearOne and E.mergent may
mutually agree to terminate the merger agreement without completing the merger.
In addition, either ClearOne or E.mergent may terminate the merger agreement
under certain circumstances, including any of the following:
o if ClearOne and E.mergent do not complete the merger by May 31,
2002;
o if the E.mergent stockholders do not adopt and approve the merger
agreement and approve the merger, provided such failure is not
the result of a breach by E.mergent; or
o in the event that the weighted average closing price of ClearOne
common stock as quoted on the Nasdaq National Market for the
fifteen (15) trading days ending one day prior to the date of the
scheduled completion of the merger is greater than $23 or less
than $14.
E.mergent may also terminate the merger agreement if it elects to enter
into certain types of extraordinary transactions with a third party, such as a
merger, business combination or sale of a material amount of assets or capital
stock; it pays ClearOne the termination fees described below; and, otherwise
complies with all of the restrictions in the merger agreement applicable to
E.mergent's involvement with such an alternative proposal.
6
ClearOne may also terminate the merger agreement if E.mergent
stockholders holding 15% or more of the issued and outstanding shares of
E.mergent elect to pursue dissenters' rights, whether such holders have
perfected such rights or not. Additionally, ClearOne may terminate the merger
under the following circumstances, in which case E.mergent must pay ClearOne the
termination fees described below:
o E.mergent's board of directors undertakes certain action, or
fails to take certain action, unfavorable to the proposed merger,
when addressing certain types of extraordinary transactions with
a third party, such as a merger, exchange offer, business
combination or sale of a material amount of assets or capital
stock; or
o E.mergent's board of directors withdraws, amends or modifies in a
manner adverse to ClearOne the unanimous recommendation of its
non-interested directors in favor of the adoption and approval of
the merger agreement or the approval of the merger.
If the merger is terminated under the circumstances described above as
requiring the payment of termination fees E.mergent must pay ClearOne a fee of
$1,000,000 in cash and reimburse ClearOne for up to $500,000 in actual legal,
accounting and advisory fees and costs incurred by ClearOne.
Alternatively, if ClearOne terminates the merger agreement for a
material breach of any agreement on the part of E.mergent, or if any of
E.mergent's representations or warranties are or become untrue in certain ways,
then E.mergent must pay up to $500,000 of ClearOne's actual legal, advisory and
accounting fees incurred in connection with the merger. Conversely, if E.mergent
terminates the merger agreement for a material breach of any agreement on the
part of ClearOne, or if any of ClearOne's representations or warranties are or
become untrue in certain ways, then ClearOne must pay up to $500,000 of
E.mergent's actual legal, advisory and accounting fees incurred in connection
with the merger.
E.mergent Prohibited from Soliciting Other Offers (see page 52)
E.mergent has agreed that, while the merger is pending, it will not
initiate or, subject to some exceptions, engage in discussions with third
parties regarding some types of extraordinary transactions, such as a merger,
business combination or sale of a material amount of assets or capital stock.
Share Ownership of Management
As of the close of business on the record date for the special meeting
of E.mergent stockholders at which the merger agreement and the merger will be
presented and voted upon, directors and executive officers of E.mergent (and
their respective affiliates) collectively owned approximately 41% of the
outstanding shares of E.mergent common stock. This does not include 342,000
shares of E.mergent common stock issuable upon the exercise of presently
exercisable options which these directors and officers beneficially own. If all
of these stock options had been exercised prior to the record date for the
special meeting, the directors and executive officers of E.mergent (and their
respective affiliates) would collectively own approximately 44% of the
outstanding shares of E.mergent common stock entitled to vote at the special
meeting.
Material United States Federal Income Tax Consequences of the Merger (see page
41)
Fredrikson & Byron, P.A., counsel to E.mergent, and Jones, Waldo,
Holbrook & McDonough, P.C., counsel to ClearOne, have provided tax opinions
regarding the material U. S. federal income tax consequences of the merger. In
summary, the opinions provide that, assuming that the merger will qualify as a
"reorganization" under section 368(a) of the Internal Revenue Code, E.mergent's
stockholders will only recognize gain, if any, for federal income tax purposes,
to the extent they receive cash in the merger. In addition, E.mergent
stockholders will recognize gain or loss, as the case may be, to the extent they
receive cash in lieu of the receipt of a fractional share of ClearOne's common
stock. If the merger is completed at a time when the ClearOne common stock that
you receive has a value less than the cash that you receive in the merger,
however, the merger may not so qualify as a reorganization. This would occur if
the value of the ClearOne stock declined below approximately $10.25 per share at
the time of the merger. In such event, E.mergent stockholders will recognize
gain, if any, for federal income tax purposes, based on both the cash and the
value of the ClearOne stock received in the merger.
Under the merger agreement, ClearOne and E.mergent may choose to
complete the merger even though the value of the ClearOne common stock declines
below $10.25 and the merger does not qualify as a reorganization under Section
368(a) of the Internal Revenue Code. However, in the event that prior to
closing, ClearOne and E.mergent determine, due a decline in the value of
ClearOne common stock, the gain based on both the cash and ClearOne stock would
be taxable because the merger did not qualify as a "reorganization," and neither
E.mergent nor ClearOne terminates the merger due to such a decline as allowed
under the merger agreement, ClearOne and E.mergent intend to advise E.mergent's
shareholders of such circumstances and resolicit their approval of the merger.
7
Tax matters are complicated, and the tax consequences of the merger to
you will depend on the facts of your own situation. We urge you to contact your
own tax advisor to understand fully how the merger will affect you, including
how any state, local, or foreign tax laws may apply to you.
Appraisal Rights (see page 43)
You are entitled to appraisal rights in connection with the merger
under Section 262 of the Delaware General Corporate Law. If appraisal rights are
available, the merger is completed, and you (1) file written notice with
E.mergent of an intention to exercise appraisal rights prior to the time the
vote is taken at the special meeting, (2) do not vote in favor of the merger
agreement or merger and (3) follow the other procedures set forth in Section
262, you generally will be entitled to be paid the fair value of the shares of
E.mergent common stock in cash for which appraisal rights have been perfected.
You should carefully read the disclosure beginning on page 43 and
included in Annex D. The exercise of appraisal rights is a complicated legal act
and you should not rely solely on the disclosure in this document to inform you
how to perfect your rights. Your failure to comply with the procedures described
in Annex D will result in the loss of your appraisal rights.
Restrictions on the Ability to Sell ClearOne Common Stock Received in the Merger
(see page 61)
Generally, the shares of ClearOne common stock that you receive in
connection with the merger will be freely transferable unless you are deemed to
be an affiliate of E.mergent or ClearOne prior to the completion of the merger
under the Securities Act of 1933. Shares of ClearOne common stock received by
E.mergent's or ClearOne's affiliates in the merger may only be sold in
compliance with Rule 145 under the Securities Act of 1933. The ClearOne common
stock is listed on the Nasdaq National Market under the symbol "CLRO."
Risks of the Merger (see page 20)
By voting to approve the merger, you will be choosing to invest in
ClearOne common stock. An investment in ClearOne common stock involves a high
degree of risk. In deciding whether to vote for the merger, you should carefully
consider the risks that are discussed in detail in this proxy
statement/prospectus under the caption "Risk Factors."
No Governmental Approvals or Regulatory Requirements
We are not aware of any material federal or state regulatory
requirements or approvals required for completion of the merger, other than
filing a certificate of merger in Delaware at or before the effective time of
the merger.
Completion of the Merger
We will complete the merger when all of the conditions to completion of
the merger contained in the merger agreement have been satisfied or waived. We
currently expect that to occur promptly after the meeting of the E.mergent
stockholders to vote on the merger. However, because the merger is subject to
such conditions, some of which are beyond our control, we cannot predict the
exact timing.
8
Selected Historical Financial Data
E.mergent
The following selected historical financial data for the most recent
five fiscal years ended December 31, 2001 are derived from the audited financial
statements of E.mergent. The historical data is only a summary and should be
read in conjunction with the historical financial statements, related notes, and
other financial information incorporated by reference herein.
Years Ended December 31,
---------------------------------------------------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Operating Results
-----------------
Net sales.................... $22,417,149 $21,830,372 $12,538,462 $6,162,986 $6,949,652
Cost of goods sold ........... 14,322,420 13,767,699 7,188,236 3,624,603 4,024,841
----------- --------- ------- -------- -------
Gross profit ................. 8,094,729 8,062,673 5,350,226 2,538,383 2,924,811
Marketing and selling ... 3,446,311 3,023,696 1,373,275 1,058,180 765,737
General and
administrative ......... 3,104,752 3,128,010 2,267,163 1,147,245 1,230,980
Research and development. 662,719 781,616 852,400 643,643 325,881
----------- --------- ------- -------- -------
Operating income (loss)...... 880,947 1,129,351 857,388 (310,685) 602,213
Other income (expense).. (81,203) (151,092) (4,376) 89,587 51,211
----------- --------- ------- -------- -------
Income (loss) from continuing
operations before income
taxes........................ 799,744 978,259 853,012 (221,098) 653,424
Income tax benefit
(expense)............... (313,000) 56,000 25,000 25,000 100,000
----------- --------- ------- -------- -------
Income (loss) from
continuing operations........ $ 486,744 1,034,259 878,012 (196,098) 753,424
=========== ========= ======= ======== =======
Earnings (loss) per common share:
Basic earnings (loss)
from continuing
operations.............. $ 0.08 $ 0.18 $ 0.18 $ (0.05) $ 0.24
Diluted earnings (loss)
from continuing
operations.............. $ 0.08 $ 0.17 $ 0.17 $ (0.05) $ 0.18
Weighted average shares
outstanding:
Basic.................... 5,844,860 5,741,330 4,969,244 3,912,319 3,168,480
Diluted.................. 6,021,554 6,136,968 5,126,053 4,008,682 4,086,558
Balance sheet data:
Current assets................ $ 8,404,046 $10,028,843 $ 7,285,825 $4,135,868 $3,959,183
Property, plant and
equipment, net............... 473,482 624,890 833,681 469,303 320,407
Total assets ................. 10,835,383 12,810,402 10,256,755 4,784,511 4,279,590
Current liabilities .......... 2,483,507 4,655,584 4,099,368 795,935 940,127
Long-term debt and capital
leases, net of current
maturities................... 403,245 654,136 98,418 24,300 36,134
Total stockholders' equity ... 7,648,213 7,190,194 5,950,729 3,964,276 3,303,329
9
ClearOne
The following selected historical financial data for the most recent
five fiscal years ended June 30, 2001 are derived from the audited consolidated
financial statements of ClearOne. The financial data for the six-month periods
ended December 31, 2001 and 2000 are derived from unaudited financial
statements. The unaudited financial statements include all adjustments,
consisting of normal recurring adjustments, which ClearOne considers necessary
for a fair presentation of the financial position and the results of operations
for these periods. Operating results for the six months ended December 31, 2001
are not necessarily indicative of the results that may be expected for the
entire year ending June 30, 2002. The historical data is only a summary and
should be read in conjunction with the historical consolidated financial
statements, related notes, and other financial information incorporated by
reference herein.
Six Months Ended December 31,
------------------------------
2001 2000
---- ----
Continuing operating results:
Net sales............................... $23,802,681 $19,013,379
Costs of goods sold ..................... 9,639,094 7,736,711
----------- -----------
Gross profit ............................ 14,163,587 11,276,668
Marketing and selling ................... 5,232,153 3,823,572
General and administrative .............. 2,558,786 2,497,052
Product development ..................... 1,921,523 1,040,495
----------- -----------
Operating income (loss) ................. 4,451,125 3,915,549
Other income (expense) ................ 210,558 182,806
----------- -----------
Income (loss) from continuing
operations before income taxes ......... 4,661,683 4,098,355
Provision for income taxes .............. 1,758,096 1,551,990
----------- -----------
Income (loss) from continuing
operations ............................. $ 2,903,587 $ 2,546,365
=========== ===========
Earnings per common share:
Basic earnings (loss) from
continuing operations ................ $ 0.33 $ 0.30
Diluted earnings (loss) from
continuing operations ................ $ 0.31 $ 0.28
Weighted average shares outstanding:
Basic ................................. 8,800,239 8,567,730
Diluted ............................... 9,368,505 9,029,617
Balance sheet data:
Current assets.......................... $41,355,746 $17,295,639
Property, plant and equipment, net ...... 3,855,540 3,339,184
Total assets ............................ 57,540,874 23,654,073
Current liabilities ..................... 3,104,380 3,335,282
Long-term debt, net of current maturities -- --
Capital leases, net of current maturities 17,110 96,451
Total stockholders' equity .............. 51,543,736 20,017,340
Years Ended June 30,
--------------------------------------------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Continuing operating results:
Net sales............................... $39,878,405 $28,118,413 $20,268,102 $15,159,842 $11,825,570
Costs of goods sold ..................... 16,503,062 11,008,323 8,907,754 7,434,240 6,161,013
----------- ----------- ----------- ----------- -----------
Gross profit ............................ 23,375,343 17,110,090 11,360,348 7,725,602 5,664,557
Marketing and selling ................... 7,753,292 6,165,917 4,313,639 3,189,014 3,131,723
General and administrative .............. 4,648,999 3,132,125 2,544,665 2,470,949 2,006,999
Product development ..................... 2,502,169 1,270,819 1,194,686 864,278 790,082
----------- ----------- ----------- ----------- -----------
Operating income (loss) ................. 8,470,883 6,541,229 3,307,358 1,201,361 (264,247)
Other income (expense) ................ 373,147 179,336 (78,112) (213,707) (206,622)
----------- ----------- ----------- ----------- -----------
Income (loss) from continuing
operations before income taxes ......... 8,844,030 6,720,565 3,229,246 987,654 (470,869)
Provision for income taxes .............. 3,318,845 2,418,823 1,208,900 26,694 22,091
----------- ----------- ----------- ----------- -----------
Income (loss) from continuing
operations ............................. $ 5,525,185 $ 4,301,742 $ 2,020,346 $ 960,960 $ (492,960)
=========== =========== =========== =========== ===========
Earnings per common share:
Basic earnings (loss) from
continuing operations ................ $ 0.64 $ 0.52 $ 0.25 $ 0.13 $ (0.06)
Diluted earnings (loss) from
continuing operations ................ $ 0.61 $ 0.49 $ 0.24 $ 0.12 $ (0.06)
Weighted average shares outstanding:
Basic ................................. 8,593,510 8,269,941 8,080,536 7,679,985 7,662,494
Diluted ............................... 9,015,644 8,740,209 8,468,884 7,960,252 7,662,494
Balance sheet data:
Current assets.......................... $19,295,720 $14,816,321 $ 9,281,753 $ 5,828,365 $ 4,551,184
Property, plant and equipment, net ...... 3,696,615 3,050,349 2,125,959 2,320,336 2,493,287
Total assets ............................ 27,597,623 17,920,531 11,519,414 8,311,740 7,335,854
Current liabilities ..................... 2,301,886 2,756,780 2,494,666 1,919,422 2,062,630
Long-term debt, net of current maturities -- -- -- 402,584 687,274
Capital leases, net of current maturities 48,227 205,530 455,389 752,728 784,354
Total stockholders' equity .............. 24,501,510 14,753,221 8,352,359 5,237,006 3,801,596
10
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. Effective October 3, 2001, ClearOne, through a wholly
owned subsidiary, acquired the shares of Ivron Systems for a combination of cash
and stock. The share purchase agreement dated October 3, 2001 was amended April
8, 2002. On January 21, 2002, ClearOne entered into a definitive agreement to
acquire the stock of E.mergent for a combination of cash and stock. Both of
these acquisitions either have been or will be 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 six months ended December
31, 2001 have been prepared as if each transaction occurred on July 1, 2000,
whereas the pro forma condensed combined balance sheet as of December 31, 2001
has been prepared as if each transaction occurred on December 31, 2001. Please
see the notes to these pro forma combined condensed statements regarding certain
assumptions utilized in the preparation of the 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 fiscal year 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 six months ended December 31, 2001
includes the historical unaudited financial results from continuing operations
of ClearOne and E.mergent for the six months ended December 31, 2001. The
historical unaudited financial results from continuing operations of Ivron
Systems are included from July 1, 2001 to October 2, 2001, with the results from
October 3, 2001 to December 31, 2001 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 proforma 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," all of which are
incorporated by reference.
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 after
completion of the merger and will be based on appraisals and a comprehensive
final evaluation of the fair value of E.mergent's tangible assets, liabilities
and identifiable intangible assets after completion of the merger. 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.
11
Unaudited Pro Forma Financial Information
Pro Forma Condensed Combined Balance Sheets
As of December 31, 2001
(in 000's)
Pro Forma Pro Forma
Pro Forma Adjustments Combined for
Adjustments for Ivron Systems
ClearOne for Ivron E.mergent E.mergent and E.mergent
(Historical) Acquisition (Historical) Acquisition Acquisitions
---------------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $ 26,801 $ 807 $ (9,040) E $ 18,568
Accounts receivable, net 8,349 3,300 11,649
Note receivable - current portion 258 258
Inventory 4,895 3,736 8,631
Deferred taxes 247 425 672
Other current assets 806 136 942
--------------------------- ---------------------------- -----------------
Total current assets 41,356 8,404 (9,040) 40,720
Property and equipment, net 3,856 473 4,329
Goodwill, net 2,810 $ 90 B 999 (999) B
16,775 F 19,675
Note receivable, long-term portion 1,606 42 1,648
Other intangible assets, net 7,841 (2,220) A 692 (692) B 5,621
Deposits and other assets 72 225 (150) G 147
--------------------------- ---------------------------- -----------------
Total assets $57,541 $ (2,130) $ 10,835 $ 5,894 $ 72,140
=========================== ============================ =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 1,585 $ 862 $ 2,447
Accrued expenses 1,418 619 2,037
Current portion of unearned maintenance 764 764
contracts
Current portion of capital lease and
long-term debt obligations 101 238 339
--------------------------- ---------------------------- -----------------
Total current liabilities 3,104 2,483 5,587
Unearned maintenance contracts 300 300
Long-term debt and capital lease obligations 17 403 420
Deferred consideration - Ivron 2,130 $ (2,130) A --
Deferred tax liability 746 746
--------------------------- ---------------------------- -----------------
Total liabilities 5,997 (2,130) 3,186 7,053
Shareholders' equity
Common stock 10 59 $ (59) I
8 K 18
Additional paid in capital 33,100 7,864 (7,864) I
12,424 K
1,233 H 46,757
Treasury stock (73) 73 J
Note receivable from shareholder (122) (122)
Retained earnings (accumulated deficit) 18,434 (79) 79 I 18,434
--------------------------- ---------------------------- -----------------
Total shareholders' equity 51,544 7,649 5,894 65,087
--------------------------- ---------------------------- -----------------
Total liabilities and shareholders' equity $ 57,541 $ (2,130) $ 10,835 $ 5,894 $ 72,140
=========================== ============================ =================
See accompanying notes to unaudited pro forma condensed
combined financial statements.
12
Unaudited Pro Forma Condensed Combined Statements of Operations
For the six months ended December 31, 2001
(in 000's)
Pro Forma
Adjustments
Ivron for Ivron
ClearOne Systems Systems
(Historical) (Historical) Acquisition
-----------------------------------------------
Net sales $23,803 $ 47
Cost of goods sold 9,639 343
-------------------------------------------
Gross profit (loss) 14,164 (296)
Operating expenses
Marketing and selling 5,232 304
General and administrative 2,559 695 $ (46) B
Research and product development 1,922 116 139 C
-------------------------------------------
Total operating expenses 9,713 1,115 93
-------------------------------------------
Operating income (loss) 4,451 (1,411) (93)
Other income (expense) 211 (126)
-------------------------------------------
Income (loss) from continuing operations 4,662 (1,537) (93)
before income taxes
Provision (benefit) for income taxes 1,758 (35) D
-------------------------------------------
Income (loss) from continuing operations $ 2,904 $(1,537) $ (58)
===========================================
Basic earnings per common share $ 0.33
Diluted earnings per common share $ 0.31
Weighted average shares outstanding:
Basic 8,800
Diluted 9,369
Pro Forma
Pro Forma Combined for
Combined Pro Forma Ivron
for Ivron Adjustments Systems and
Systems E.mergent for E.mergent E.mergent
Acquisition (Historical) Acquisition Acquisitions
--------------------------------------------------------------
Net sales $23,850 $11,846 $35,696
Cost of goods sold 9,982 7,587 17,569
------------------------------------------- --------------
Gross profit (loss) 13,868 4,259 18,127
Operating expenses
Marketing and selling 5,536 1,623 7,159
General and administrative 3,208 1,487 $ (112) B 4,583
Research and product development 2,177 341 2,518
------------------------------------------- --------------
Total operating expenses 10,921 3,451 (112) 14,260
------------------------------------------- --------------
Operating income (loss) 2,947 808 112 3,867
Other income (expense) 85 (18) 67
------------------------------------------- --------------
Income (loss) from continuing operations 3,032 790 112 3,934
before income taxes
Provision (benefit) for income taxes 1,723 309 42 D 2,074
------------------------------------------- --------------
Income (loss) from continuing operations $ 1,309 $ 481 $ 70 $ 1,860
=========================================== ==============
Basic earnings per common share $ 0.17
Diluted earnings per common share $ 0.16
Weighted average shares outstanding:
Basic 10,877
Diluted 11,486
See accompanying notes to unaudited pro forma condensed
combined financial statements
13
Unaudited Pro Forma Condensed Combined Statements of Operations
For the fiscal year ended June 30, 2001
(in `000s)
Pro Forma
Adjustments
for Ivron
ClearOne Ivron Systems
(Historical) (Historical) Acquisition
---------------------------------------------
Net sales $39,878 $ 608
Cost of goods sold 16,503 798
------------------------------------------
Gross profit (loss) 23,375 (190)
Operating expenses
Marketing and selling 7,753 1,588
General and administrative 4,649 555 $ (182) B
Research and product development 2,502 732 555 C
------------------------------------------
Total operating expenses 14,904 2,875 373
------------------------------------------
Operating income (loss) 8,471 (3,065) (373)
Other income (expense) 373
------------------------------------------
Income (loss) from continuing operations 8,844 (3,065) (373)
before income taxes
Provision (benefit) for income taxes 3,319 (139) D
------------------------------------------
Income (loss) from continuing operations $ 5,525 $(3,065) $ (234)
==========================================
Basic earnings per common share $ 0.64
Diluted earnings per common share $ 0.61
Weighted average shares outstanding:
Basic 8,594
Diluted 9,016
Pro Forma Pro Forma
Combined Pro Forma Combined for
for Ivron Adjustments Ivron Systems
Systems E.mergent for E.mergent and E.mergent
Acquisition (Historical) Acquisition Acquisitions
---------------------------------------------------------------
Net sales $40,486 $22,503 $(188) L $62,801
Cost of goods sold 17,301 14,270 (188) L 31,383
------------------------------------------- ---------------
Gross profit (loss) 23,185 8,233 31,418
Operating expenses
Marketing and selling 9,341 3,449 12,790
General and administrative 5,022 3,276 (224) B 8,074
Research and product development 3,789 689 4,478
------------------------------------------- ---------------
Total operating expenses 18,152 7,414 (224) 25,342
------------------------------------------- ---------------
Operating income (loss) 5,033 819 224 6,076
Other income (expense) 373 (151) 222
------------------------------------------- ---------------
Income (loss) from continuing operations 5,406 668 224 6,298
before income taxes
Provision (benefit) for income taxes 3,180 (70) 83 D 3,193
------------------------------------------- ---------------
Income (loss) from continuing operations $ 2,226 $ 738 $ 141 $ 3,105
=========================================== ===============
Basic earnings per common share $ 0.29
Diluted earnings per common share $ 0.27
Weighted average shares outstanding:
Basic 10,843
Diluted 11,295
See accompanying notes to unaudited pro forma condensed
combined financial statements
14
Notes to Unaudited Pro Forma Condensed Combined Financial Information
NOTE 1.
On October 3, 2001, ClearOne executed a share purchase agreement, which was
amended on April 8, 2002, with the shareholders of Ivron Systems. ClearOne paid
cash of $6,000,000 for all 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. Under the terms of the agreement, ClearOne will acquire 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 will pay cash of $7,300,000 and issue 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 are allocated first to E.mergent stock options being
assumed by ClearOne. Outstanding E.mergent stock options will be converted to
options to purchase ClearOne's common stock at the ratio specified in the
agreement and plan of merger. The value of such stock consideration 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) of
$16.55. Additionally, ClearOne expects to incur acquisition costs of $890,000 in
the transaction (including approximately $312,000 for anticipated severance
payments to terminating E.mergent executives). E.mergent expects to incur
transaction related costs of approximately $850,000. Such costs will be paid
immediately prior to the merger. The following is a summary of the preliminary
purchase price allocation using the December 31, 2001 balance sheet of E.mergent
(in 000's):
Cash $ (43)
Accounts receivable 3,300
Inventory 3,736
Fixed assets 473
Other assets 678
Shareholder receivable 122
Goodwill and other intangible assets 16,775
Accounts payable (862)
Accrued expenses and customer deposits (619)
Unearned maintenance contracts (1,064)
Capital leases and long-term debt (641)
-------------
Total $ 21,855
=============
The purchase price was determined as follows:
Cash to be paid to E.mergent shareholders $ 7,300
Value of ClearOne common stock issued to
E.mergent shareholders (751,181 shares 12,432
x $16.55)
Fair value of ClearOne options issued to
E.mergent option holders, determined
using the Black-Scholes model 1,233
Acquisition costs to be paid by ClearOne 890
-------------
Total purchase price $ 21,855
=============
NOTE 2.
The unaudited pro forma condensed combined balance sheet includes the
adjustments necessary to give effect to the Ivron Systems and E.mergent
acquisitions as if they had occurred on December 31, 2001 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 as if they had occurred on July 1, 2000. Adjustments included in
the pro forma condensed combined financial statements are summarized as follows:
15
(A) On April 8, 2002, ClearOne completed its negotiations of an amendment to
the Ivron Systems share purchase agreement whereby the future contingent
consideration to be received by the Ivron shareholders was reduced. Such
amendment resulted from the determination that certain of the intended
benefits of the Ivron acquisition have not been achieved and are likely
not to be achieved. Based on these negotiations and the resulting
amendment to the Ivron share purchase agreement, the purchase price
allocation has been adjusted to reflect the overall decrease in the
purchase price of Ivron. The revised purchase price allocation was based
on an analysis performed by an independent financial consulting firm,
LECG, LLC. The revised final calculation has the effect of decreasing
the fair value of the intangible assets previously recorded. Therefore,
the deferred consideration originally recorded was also reduced. The
initial deferred consideration reflected the difference between the fair
value of the assets acquired and the cash consideration paid, pursuant
to the provisions of FASB Statement No. 141 (FAS No. 141), Business
Combinations. Deferred consideration still may be paid out if certain
contingencies related to future earnings targets, as defined in the
amended share purchase agreement between ClearOne and the Ivron Systems
shareholders, are met. However, any such additional consideration will
be allocated to goodwill.
(B) Elimination of E.mergent and Ivron historical goodwill and other
intangibles (and the related amortization) that were or will be revalued
as part of the purchase price allocation.
(C) Values were assigned to intangibles 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
Six months ended Fiscal Year ended
Value of Technology Useful Life December 31, 2001 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.
(D) The tax impact of amortization, as calculated using ClearOne's blended
statutory rate of 37.2%.
(E) Cash consideration to be paid to former E.mergent shareholders of
$7,300,000 plus ClearOne and E.mergent transaction costs of $1,740,000.
(F) Amount represents goodwill of $16,775,000 including capitalized
acquisition costs of approximately $890,000 (including approximately
$312,000 for anticipated severance payments to terminating E.mergent
executives). For purposes of these pro forma financial statements and
based upon a preliminary valuation 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.
(G) Represents the elimination of an investment that was deemed to have no
future value to ClearOne.
(H) 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 $10.12, 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%.
(I) Elimination of E.mergent's historical equity.
(J) In accordance with the agreement and plan of merger, the treasury stock
held by E.mergent, which consisted of 50,317 shares, will be distributed
to E.mergent employees immediately prior to the consummation of the
merger.
(K) Reflects the value of the shares of ClearOne common stock issued to
holders of E.mergent common stock as follows: (751,181 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) and assumes that no
16
E.mergent stock options outstanding on the date of the merger agreement
have been exercised.
(L) Elimination of sales and related cost of sales between ClearOne and
E.mergent.
17
HISTORICAL AND PRO FORMA COMPARATIVE PER SHARE DATA
The following table compares historical and unaudited pro forma
earnings (loss) per share and book value per share information for ClearOne and
E.mergent. You should read the table together with the financial information for
ClearOne and E.mergent incorporated by reference in this proxy
statement/prospectus. You should not rely on the pro forma financial information
as an indication of the results that ClearOne would have achieved if the merger
had taken place earlier or of the results of ClearOne after the merger.
The unaudited equivalent pro forma per share data are calculated based on the
unaudited pro forma combined per share data (which gives effect to the Ivron
acquisition and the private placement transaction as well as the E.mergent
acquisition) multiplied by an exchange ratio of 0.20102 of a share of ClearOne
common stock for each share of E.mergent common stock outstanding. This exchange
ratio (i) reflects the average closing price of the ClearOne common stock two
days prior to and two days subsequent to January 21, 2002 of $16.55, and (ii)
assumes that no E.mergent stock options outstanding on the date of the merger
agreement have been exercised. The actual exchange ratio will not be determined
until shortly before the completion of the merger and will impact the pro forma
per share amounts shown on this page. Neither ClearOne nor E.mergent has ever
declared or paid dividends.
Fiscal Year Ended Six Months Ended
June 30, 2001 December 31, 2001
----------------- -----------------
CLEARONE HISTORICAL:
Basic earnings per share from continuing operations $ 0.64 $ 0.33
Diluted earnings per share from continuing 0.61 0.31
operations
Book value per share 2.84 5.08
E.MERGENT:
Basic earnings per share (unaudited) 0.13 0.08
Diluted earnings per share (unaudited) 0.12 0.08
Book value per share (unaudited) 1.25 1.29
UNAUDITED PRO FORMA COMBINED:
Basic earnings per share 0.29 0.17
Diluted earnings per share 0.27 0.16
Book value per share -- 5.97
UNAUDITED EQUIVALENT PRO FORMA COMBINED:
Basic earnings per share 0.06 0.03
Diluted earnings per share 0.05 0.03
Book value per share -- 1.20
18
COMPARATIVE PER SHARE MARKET PRICE DATA
E.mergent common stock is traded on the Nasdaq SmallCap Market under
the symbol "EMRT." ClearOne common stock is traded on the Nasdaq National Market
under the symbol "CLRO."
The following table shows the closing prices per share of E.mergent
common stock and ClearOne common stock as reported on the Nasdaq SmallCap Market
and the Nasdaq National Market, respectively, on (1) January 18, 2002, the
business day preceding the public announcement that ClearOne and E.mergent had
entered into the merger agreement and (2) April 25, 2002.
The following table also includes the equivalent price per share of
E.mergent common stock on those dates. This equivalent per share price reflects
the combined value of the ClearOne common stock and cash that you would receive
for each share of your E.mergent common stock if the merger had been completed
on any of these dates.
E.mergent ClearOne Equivalent
Common Stock Common Stock Price Per Share
------------ ------------ ---------------
January 18, 2002 $2.95 $17.16 $3.41 (1)
April 25, 2002 $3.35 $16.45 $3.31(2)
(1) Represents the combined value of cash ($1.23) and stock ($2.18).
(2) Represents the combined value of cash ($1.23) and stock ($2.08). Assumes
that no E.mergent stock options were exercised after January 18, 2002.
Because the market price of E.mergent common stock and ClearOne common stock may
increase or decrease before the completion of the merger, you are urged to
obtain current market quotations.
19
RISK FACTORS
By voting in favor of the approval of the merger agreement and merger,
E.mergent stockholders will be choosing to invest in ClearOne common stock. An
investment in ClearOne common stock involves a high degree of risk. In addition
to the other information contained in this proxy statement/prospectus, E.mergent
stockholders should carefully consider the following risk factors in deciding
whether to vote for the merger. Any of the following risks could seriously harm
ClearOne's or E.mergent's business and financial results and cause the value of
ClearOne's or E.mergent's securities to decline which, in turn, could cause you
to lose all or part of your investment.
Risks Relating to the Merger
The ClearOne common stock to be received by E.mergent stockholders in the merger
and E.mergent's common stock will fluctuate in value.
Upon completion of the merger, each share of common stock of E.mergent
will be exchanged for a specific amount of cash and a fraction of a share of
ClearOne common stock. The cash portion and the share portion that you receive
as merger consideration will depend on a number of factors including the
weighted-average closing price of ClearOne stock during the ten (10) trading
days ending one day prior to the completion of the merger and the number of
E.mergent stock options exercised prior to the merger. (See page 46 of this
document for a description of the merger consideration). The specific dollar
value of ClearOne common stock that you will receive upon completion of the
merger will depend on the market value of ClearOne common stock on the date of
completion of the merger, and could vary significantly from its current value.
The specific dollar value of the E.mergent common stock that you will exchange
in the merger could also vary from its current value. The value of both
companies' stock has been volatile and you should expect them to continue to
fluctuate. These values may substantially decrease from the date you submit your
proxy. We urge you to obtain recent market quotations for ClearOne common stock
and E.mergent common stock. Neither ClearOne nor E.mergent can predict or give
any assurance as to the respective market prices of its common stock at any time
before or after completion of the merger.
ClearOne may experience problems integrating the businesses of ClearOne and
E.mergent. Difficulties in integrating the businesses, operations, product lines
and personnel of ClearOne and E.mergent could cause ClearOne to not realize the
expected benefits of the merger and incur unanticipated costs.
If ClearOne fails to successfully integrate E.mergent's business into
ClearOne's business, ClearOne will incur substantial costs, which will increase
its expenses and potentially decrease profitability. ClearOne's ability to
achieve the benefits of the merger will depend in part on the integration of
technology, operations, products and personnel of ClearOne and E.mergent. The
integration process will be a complex, time-consuming and expensive process. The
challenges involved in this integration include the following:
o retaining the combined company's customers and suppliers by
maintaining client service standards, business focus and product
quality during the period of integration;
o retaining certain key employees that are important to the
profitable growth of ClearOne's and E.mergent's combined
business;
o developing and implementing uniform standards, controls,
procedures and policies;
o implementing potential cost savings measures by eliminating
redundant operations and expenses without causing customer
service and employee morale to suffer; and
o effectively integrating different administrative and information
systems at multiple, geographically dispersed locations in an
efficient and timely manner.
If ClearOne is unsuccessful in integrating E.mergent's business into its own,
the combined revenues could fall or grow at a slower rate than anticipated,
ClearOne could incur substantial unexpected expenses, and ClearOne could fail to
realize the anticipated benefits of the merger.
In addition, any integration problems ClearOne experiences could divert
ClearOne management's attention from other business opportunities, which could
result in slower revenue growth than anticipated or in declines in revenue.
20
ClearOne may not realize the expected benefits of the merger due to difficulties
with maximizing the anticipated advantages of combining the businesses.
ClearOne's ability to achieve the benefits of the merger will also
depend in part on its ability to take advantage of the combined company's
product and customer base. There is no assurance that ClearOne will be able to
efficiently and effectively utilize the company's combined customer base to take
advantage of cross-selling opportunities that will result in the sale of more
products than if the companies were separate. ClearOne will need to successfully
integrate and adapt each company's product line to create new product offerings
that are attractive to customers. The challenges faced by ClearOne and E.mergent
in maximizing the anticipated advantages of combining the businesses include:
o combining sales efforts and procedures so that customers can
easily do business with the combined company, and sales agents
can effectively access the customers of the other company; and
o combining product offerings and product lines effectively and
quickly, including technical integration by each company's
respective engineering teams.
Customer uncertainty or concerns about the merger could have an adverse effect
on revenues and profitability in near-term quarters for either or both
companies.
ClearOne's and E.mergent's customers may, in response to the
announcement or consummation of the merger, delay or defer purchasing decisions.
This could occur because they may be reluctant to purchase either company's
product if they are uncertain about the direction of the combined company's
product offerings and its willingness to support and service existing products.
Specifically, certain customers of E.mergent are competitive with ClearOne in
certain product markets and such customers could be reluctant to continue its
historical purchasing patterns with the involvement of ClearOne. Similarly,
certain customers of ClearOne have been competitive with E.mergent and there
could be concerns that the combined company would result in additional
competition for them. Since announcement of the merger, ClearOne and E.mergent
have received questions from current and prospective customers about the status
of the merger and anticipated product integration plans, which have not yet been
determined. If one large customer, or a significant group of small customers,
were to delay their purchase decisions pending resolution of the merger or seek
products from other vendors, the quarterly revenues of either ClearOne or
E.mergent could be below expectations.
The merger could impair existing company relationships with employees, thereby
increasing employee related expenses.
E.mergent's and ClearOne's employees may experience uncertainty about
their future role with the combined company. ClearOne has yet to announce its
strategies with regard to employee changes resulting from the merger. This may
adversely affect the combined company's ability to retain or attract key
management, marketing and technical personnel. Such employee uncertainty could
also cause employee productivity to suffer.
Officers and directors of E.mergent have potential conflicts of interest.
E.mergent stockholders should be aware of potential conflicts of
interest and the benefits available to E.mergent directors when considering
E.mergent's board of directors' recommendation to approve the transaction.
E.mergent officers and directors have stock options, indemnification rights
and/or employment agreements that provide them with interests in the transaction
that are different from, or in addition to, interests of E.mergent stockholders.
These interests include the following:
o the accelerated vesting of stock options upon completion of the
merger;
o the receipt of severance benefits under employment agreements
upon termination of employment following the merger; and
o the indemnification and insurance coverage with respect to acts
taken and omissions to take action in their capacities as
directors and officers of E.mergent.
The E.mergent board of directors was aware of these interests when it approved
the merger agreement and merger. For a more detailed description of these
interests, see "Interests of E.mergent Officers and Directors in the
Transaction" on page 38.
21
Due to the preliminary nature of the purchase price allocation, the impact of
additional amortization of intangibles other than goodwill and subsequent
impairment analyses of goodwill relating to the merger could adversely affect
ClearOne's future operating results.
In accordance with United States generally accepted accounting
principles that apply to ClearOne, ClearOne will account for the merger using
the purchase method of accounting. Under purchase accounting, ClearOne will
record the following as the cost of acquiring the business of E.mergent:
o the cash paid to E.mergent stockholders in the merger;
o the market value of ClearOne common stock issued in connection
with the merger;
o the fair value, using the Black-Scholes model, of the options to
acquire ClearOne common stock that are issued to holders of
options to purchase E.mergent common stock in connection with
the merger; and
o the amount of direct transaction costs paid by ClearOne.
ClearOne will allocate the cost of the items described above to the
individual assets acquired and liabilities assumed, including intangible assets
such as acquired technology based on their respective fair values. Any excess of
the consideration paid over the fair values of tangible and identifiable
intangible assets will be recorded as goodwill. Intangible assets other than
goodwill, if any, will be amortized over their respective useful lives. In
accordance with the provisions of FASB Statement No. 142, "Goodwill and Other
Intangible Assets," ClearOne will not amortize any goodwill recorded. Instead,
such goodwill will be evaluated for potential impairment on at least an annual
basis. Any impairment will be recorded in the period in which it is determined
to exist. The amount of purchase cost allocated to goodwill and other
intangibles is estimated to be approximately $16.8 million, computed using the
estimated purchase price of $21.9 million which is based on the average closing
price ($16.55) of ClearOne's common stock two days prior to and two days
subsequent to January 21, 2002.
Although ClearOne does not anticipate that a material change will occur,
the estimated goodwill reflected in the unaudited condensed combined balance
sheet as of December 31, 2001 could change upon completion of the merger and the
receipt of a final independent valuation of intangible assets based on the final
purchase price, which will subsequently be requested by ClearOne. In the event
the final purchase price valuation results in an allocation of a portion of the
purchase price to other intangible assets, which are subject to amortization,
pro forma amortization expense could be higher than the amount currently
reflected in the pro forma statements of operations.
ClearOne and E.mergent expect to incur significant costs associated with the
merger.
ClearOne estimates that it will incur direct transaction costs of
approximately $890,000 associated with the merger (including approximately
$312,000 for anticipated severance payments to terminating E.mergent
executives), which will be included as a part of the total purchase price for
accounting purposes. In addition, E.mergent estimates that it will incur direct
transaction costs of approximately $850,000, including the fees and expenses
payable to Goldsmith, Agio, Helms in connection with the merger (which fees will
be in large part determined by the value of the ClearOne common stock and cash
paid by ClearOne, calculated at the time of the merger). See "The Merger and
Related Transaction - Opinion of E.mergent's Financial Advisor beginning on page
34 of this document. ClearOne believes the combined company may incur charges to
operations, which currently cannot be reasonably estimated, in the quarter in
which the merger is completed or the following quarters, to reflect costs
associated with integrating the businesses and operations of ClearOne and
E.mergent. There can be no assurance that the combined company will not incur
additional material charges in subsequent quarters to reflect additional costs
associated with the merger.
The merger may be terminated by either ClearOne or E.mergent in the event the
closing price of ClearOne common stock does not fall within a certain range.
Under the terms of the merger agreement, if the weighted-average
closing price of ClearOne common stock as quoted on the Nasdaq National Market
for the fifteen (15) trading days ending one day prior to the date of the
scheduled completion of the merger is greater than $23 or less than $14, either
ClearOne or E.mergent may terminate the merger agreement. As a result, the
merger may not be completed if either company concludes it is not in its best
interest to complete the merger because of a substantial increase or decrease in
the closing price of the ClearOne common stock.
22
Failure to complete the merger could have a negative impact on ClearOne's and
E.mergent's stock price and future business.
If the merger is not completed, ClearOne and E.mergent may be subject
to the following material risks, among others:
o ClearOne may be required to pay E.mergent up to $500,000 of
E.mergent's expenses incurred in connection with the merger;
o E.mergent may be required to pay ClearOne a termination fee of
$1,000,000 plus an additional amount of up to $500,000 of
ClearOne's expenses incurred in connection with the merger;
o the price of ClearOne and E.mergent common stock may decline to
the extent that the current market price of their respective
common stock reflects a market assumption that the merger will
be completed;
o costs related to the merger, such as legal and accounting fees
and some of the fees of E.mergent's financial advisor, must be
paid even if the merger is not completed; and
o the diversion of management attention from the day-to-day
businesses of ClearOne and E.mergent and the unavoidable
disruption to their employees and their relationships with
customers and suppliers during the period before consummation of
the merger may make it difficult for ClearOne or E.mergent to
regain their respective financial market positions if the merger
does not occur.
o Further, if the merger agreement is terminated and the E.mergent
board of directors determines to seek another merger or business
combination, E.mergent may not be able to find a partner willing
to pay an equivalent or more attractive price than that which
would be paid in the merger.
The termination fee and restrictions on solicitation contained in the merger
agreement may discourage other companies from trying to acquire E.mergent.
Until completion of the merger, with some exceptions, E.mergent is
prohibited from initiating or engaging in discussions with a third party
regarding some types of extraordinary transactions, such as a merger, business,
combination or sale of a material amount of assets or capital stock. In
addition, E.mergent agreed to pay a termination fee to ClearOne in specified
circumstances. These provisions could discourage other companies from trying to
acquire E.mergent even though those other companies might be willing to offer
greater value to E.mergent stockholders than ClearOne has offered in the merger.
The payment of the termination fee could also have a material adverse effect on
E.mergent's financial condition and results of operations.
Risks Relating to ClearOne's Business
ClearOne faces intense competition in the audio and videoconferencing
industries, and its operating results will be harmed if ClearOne cannot compete
effectively against other companies.
The markets for ClearOne products and services are highly competitive.
These markets include ClearOne's traditional dealer channel, the market for its
conferencing services, and its retail channel. ClearOne competes with businesses
having substantially greater financial, research and development, manufacturing,
marketing, and other resources. ClearOne expects its competitors to continue to
improve the performance of their current products or services, to reduce their
current products or service sales prices and to introduce new products or
services that may offer greater performance and improved pricing. To remain
competitive, ClearOne is required to devote substantial resources to maintaining
product and services offerings that include current technology and advance
features, but it is possible these efforts will not be sufficient to keep pace
with competitors' efforts to improve their technology and product features. If
ClearOne is not able to continually design, manufacture, and successfully
introduce new or enhanced products or services that are comparable or superior
to those provided by other companies, ClearOne could experience pricing
pressures and reduced sales, margin, profits, and market share, each of which
could materially harm its business.
Difficulties in estimating customer demand in its product segment could harm
ClearOne's profit margins.
Orders from ClearOne's resellers are based on demand from end-users.
Prospective end-user demand is difficult to measure. This means that any period
could be adversely impacted by low ClearOne end-user demand, which could in turn
negatively affect orders ClearOne receives from resellers. ClearOne's
23
expectations for both short- and long-term future net revenues are based on its
own estimates of future demand as well as backlog based on its blanket purchase
order program in which certain dealers commit to purchase specified quantities
of products over a twelve month period. ClearOne also bases expense levels on
those revenue estimates. If ClearOne's estimates of sales are not accurate and
it experiences unforeseen variability in its revenues and operating results, it
will hamper ClearOne's ability to manage expense levels accordingly, thereby
adversely affecting profit margins.
ClearOne's profitability may be adversely affected by its continuing dependence
on its distribution channels.
ClearOne markets its products primarily through a network of dealers
and master distributors. All of its agreements regarding such dealers and
distributors are non-exclusive and terminable at will by either party. It cannot
be assured that any or all such dealers or distributors will continue to offer
ClearOne products.
Price discounts to ClearOne's distribution channels are based on
performance. However, there are no obligations on the part of such dealers and
distributors to provide any specified level of support to ClearOne's products or
to devote any specified time, resources or efforts to the marketing of
ClearOne's products. There are no prohibitions on dealers or distributors
offering products that are competitive with ClearOne's products. Most dealers do
offer competitive products. ClearOne reserves the right to maintain house
accounts, which are for products sold directly to customers. The loss of dealers
or distributors could have a material adverse effect on ClearOne's business.
ClearOne's reseller customer contracts are typically short-term and early
terminations of its contracts may cause its revenues to decline and harm its
profit margins.
ClearOne does not typically enter into long-term contracts with its
reseller customers, and ClearOne cannot be certain as to future order levels
from its reseller customers. When ClearOne does enter into a long-term contract,
the contract is generally terminable at the convenience of the customer. In the
event of an early or unanticipated termination by one or more of ClearOne's
larger reseller customers, it is unlikely that ClearOne will be able to rapidly
replace that revenue source or rapidly reduce its expense levels to compensate
for such loss of revenues, both of which would harm its net revenues and profit
margins.
Service interruptions could negatively affect revenues from ClearOne's
conference calling service business.
ClearOne relies heavily on its network equipment, telecommunications
providers, data, and software to support all of its functions. ClearOne's
conference calling services, which produced 29.3% of ClearOne's revenues during
its last fiscal year, relies 100 percent on its network equipment for its
revenues. ClearOne cannot guarantee that its back-up systems and procedures will
operate satisfactorily in an emergency. Should ClearOne experience such a
material failure of its equipment or the services of its telecommunications
providers, it would substantially affect revenues and could seriously jeopardize
ClearOne's ability to continue operations. In particular, should ClearOne's
conference calling service experience even a short-term interruption of its
network or telecommunication providers, ClearOne's ongoing customers may choose
a different provider, and its reputation may be damaged, reducing its ability to
retain current customers and attract new customers.
ClearOne depends on a limited number of suppliers for components and the
inability to obtain sufficient components could adversely affect its product
sales.
Certain electronic components used in connection with ClearOne's
products can only be obtained from single manufacturers and ClearOne is
dependent upon the ability of these manufacturers to deliver such components to
its suppliers so that they can meet ClearOne's delivery schedules. ClearOne does
not have a written commitment from such suppliers to fulfill ClearOne's future
requirements. ClearOne's suppliers maintain an inventory of such components, but
ClearOne has no assurance that such components will always be readily available,
available at reasonable prices, available in sufficient quantities, or
deliverable in a timely fashion. If such key components become unavailable, it
is likely that ClearOne will experience delays, which could be significant, in
production and delivery of its products unless and until ClearOne can otherwise
procure the required component or components at competitive prices, if at all.
The lack of availability of these components could have a materially adverse
effect on ClearOne ability to sell products.
ClearOne has experienced long component lead times in the past, but it
is experiencing improved lead times on many products. Even though ClearOne has
purchased more of these "longer-lead-time" parts to ensure continued delivery of
products, reduction in these inventories has tracked with the reduction of lead
times. Suppliers of some of these components are currently or may become
competitors of ClearOne, which might also affect the availability of key
components to ClearOne. It is possible that other components required in the
24
future may necessitate custom fabrication in accordance with specifications
developed or to be developed by ClearOne. Also, in the event ClearOne, or any of
the manufacturers whose products ClearOne expects to utilize in the manufacture
of its products, are unable to develop or acquire components in a timely
fashion, ClearOne's ability to achieve production yields, revenues and net
income may be adversely affected.
Product development delays could harm ClearOne's competitive position and reduce
its revenues.
ClearOne may experience technical difficulties and delays with the
development and introduction of new products. The products developed by ClearOne
involve sophisticated and complicated components and manufacturing techniques
involving new technologies. Potential difficulties in the development process
that could be experienced by ClearOne include difficulty in meeting required
specifications, hiring a sufficient number of developers, discovery of software
bugs, and achieving necessary manufacturing efficiencies. ClearOne has
experienced product development delays associated with its video conferencing
products. If ClearOne is not able to manage and minimize such potential
difficulties, its sales could be negatively affected.
Delays in the distribution process could have an adverse effect on ClearOne's
sales.
ClearOne's sales results are dependent in part on its ability to
provide prompt, accurate, and complete services to customers on a timely and
competitive basis. Delays in distribution in ClearOne's day-to-day operations or
material increases in costs of procuring and delivering products could have an
adverse effect on ClearOne's ability to generate revenues from product sales.
Any failure of ClearOne's computer operating systems, the Internet or its
telephone system could adversely affect its ability to receive and process
customers' orders and ship products on a timely basis. Strikes, termination of
air travel, or other service interruptions affecting Federal Express
Corporation, United Parcel Service of America, Inc., or other common carriers
used by ClearOne to receive necessary components or other materials or to ship
its products also could impair its ability to deliver products on a timely and
cost-effective basis. Such failures would likely negatively affect ClearOne's
sales and net revenues.
If ClearOne is unable to protect its intellectual property rights, its
competitive position could be harmed or ClearOne could be required to incur
expenses to enforce its rights.
ClearOne currently relies primarily on a combination of trade secrets,
copyrights, trademarks, and nondisclosure agreements to establish and protect
its proprietary rights in its products. ClearOne cannot assure that others will
not independently develop similar technologies, or duplicate or design around
aspects of its technology. ClearOne believes that its products and other
proprietary rights do not infringe upon any proprietary rights of third parties.
ClearOne cannot assure you, however, that third parties will not assert
infringement claims in the future. Such claims could divert ClearOne's
management's attention and be expensive, regardless of their merit. In the event
of a claim, ClearOne might be required to license third party technology or
redesign its products, which may not be possible or economically feasible.
Existing directors and officers can exert considerable control over ClearOne.
The officers and directors of ClearOne together had beneficial
ownership of approximately 21.5% of its common stock (including options that are
currently exercisable or exercisable within sixty (60) days) as of March 1,
2002. Assuming the ClearOne officers' and directors' actual beneficial ownership
remained unchanged until completion of the merger, together they would have
beneficial ownership of approximately 19.8% of ClearOne's common stock after the
merger. This significant holding in the aggregate places the officers and
directors in a position, when acting together, to have substantial control over
ClearOne and could delay or prevent a change in control.
International sales are accounting for an increasing portion of ClearOne's net
revenue, and risks inherent in international sales could harm its profitability.
International sales represent a significant portion of ClearOne's total
revenue from continuing operations. For example, international sales represented
13% of its total sales from continuing operations for fiscal 2001 and 12% for
fiscal 2000. ClearOne's international business is subject to the financial and
operating risks of conducting business internationally, including: unexpected
changes in, or imposition of, legislative or regulatory requirements;
fluctuating exchange rates, tariffs and other barriers; difficulties in staffing
and managing foreign subsidiary operations; export restrictions; greater
difficulties in accounts receivable collection and longer payment cycles;
potentially adverse tax consequences; and, potential hostilities and changes in
diplomatic and trade relationships.
25
ClearOne's sales in the international market are denominated in U.S.
Dollars and ClearOne EuMEA transacts business in U.S. Dollars, however, its
financial statements are prepared in the Euro, according to German accounting
principles. Although conversion to the Euro has eliminated currency exchange
rate risk for transactions between the member countries, consolidation of
ClearOne EuMEA's financial statements with those of ClearOne, under United
States generally accepted accounting principles, requires remeasurement to U.S.
Dollars which is subject to exchange rate risks. ClearOne currently does not
undertake any hedging activities that might protect against such risks.
The continued integration of ClearOne's subsidiaries and the integration of any
additional acquired businesses involve uncertainty and risk.
Following the acquisition of Ivron Systems in October 2001, ClearOne
has dedicated substantial management resources in order to achieve the
anticipated operating efficiencies from integrating Ivron Systems with ClearOne.
The merger with E.mergent will result in additional demands on management
resources that could prolong or adversely affect the successful integration of
Ivron Systems. In addition, ClearOne intends to pursue acquisition opportunities
in the future. The integration of such acquired businesses could require
substantial management resources. There can be no assurance that any such
integration will be accomplished without having a short or potentially long-term
adverse impact on the business, results of operations or financial condition of
ClearOne or that the benefits expected from any such integration will be fully
realized.
26
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS IN THIS DOCUMENT
This document and the documents incorporated by reference into this document
contain forward-looking statements about ClearOne and E.mergent as described in
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, and are subject to the Safe Harbor provisions created by
those statutes. Statements about ClearOne and E.mergent containing words such as
"anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates,"
"will," "may," "should," "would," "projects," "predicts," "continues" and
similar expressions, or the negative of these terms, identify these
forward-looking statements. This document also includes forward-looking
statements about the consummation and anticipated timing of the merger, the
actual exchange ratio for E.mergent common stock in the merger and the
anticipated partially tax-free nature of the merger. Such statements are based
on current expectations and are subject to risk, uncertainties and changes in
condition, significance, value and effect, including those discussed in the
section entitled "Risk Factors" beginning on the page 20 of this document, and
reports filed with the Securities and Exchange Commission, specifically Forms
8-K, 10-K and 10-Q for ClearOne and Forms 10-KSB and 10-QSB for E.mergent. Such
risks, uncertainties and changes in condition, significance, value and effect
could cause each company's actual results to differ materially from those
anticipated events. In evaluating the merger agreement and the merger, you
should carefully consider the discussion of risks and uncertainties discussed in
the Risk Factor section.
27
THE E.MERGENT SPECIAL MEETING
General
E.mergent is furnishing this document to all stockholders of record of
E.mergent common stock in connection with the solicitation of proxies by the
E.mergent board of directors for use at the special meeting of E.mergent
stockholders to be held on _________, 2002, and at any adjournment or
postponement of the special meeting. This document also is being furnished by
ClearOne to E.mergent stockholders as a prospectus for ClearOne common stock to
be issued in connection with the merger.
Date, Place, and Time
The special meeting will be held at 10:00 a.m., local time, on
_________, 2002, at the Acoustic Communications Systems Division, located at
13705 26th Avenue North, Suite 110, Minneapolis, MN 55441.
Purpose of Special Meeting
At the special meeting, and any adjournment or postponement thereof,
E.mergent stockholders will be asked:
1. to consider and vote upon a proposal to adopt and approve the
merger agreement and approve the merger; and
2. to transact other business that may properly come before the
special meeting and any adjournment or postponement of the
special meeting.
A copy of the merger agreement is attached to this document as Annex A.
E.mergent stockholders are encouraged to read the merger agreement in its
entirety and the other information contained in this document carefully before
deciding how to vote.
Under Delaware law, stockholders can consider at the special meeting
only the matters contained in the notice for the special meeting.
Record Date for the Special Meeting
The E.mergent board of directors has fixed the close of business on
__________, 2002, as the record date for determination of E.mergent stockholders
entitled to notice of and to vote at the special meeting or at any adjournment
or postponement of the special meeting.
Voting Rights; Quorum
E.mergent has one class of common stock outstanding, which has a par
value of $.01 per share. Each holder of E.mergent common stock outstanding on
the record date is entitled to one vote for each share held. The holders of a
majority of the outstanding shares of E.mergent capital stock entitled to vote
must be present at the special meeting, in person or by proxy, to constitute a
quorum to transact business. If a quorum is not obtained, or fewer voting shares
of E.mergent are voted for the adoption and approval of the merger agreement and
the approval of the merger than a majority of the voting shares eligible to vote
at the special meeting in person or by proxy, the special meeting may be
postponed or adjourned for the purpose of allowing additional time for obtaining
additional proxies or votes. The proxies obtained in this solicitation, however,
will not be voted by the proxy holders on the matter of such adjounment. At any
subsequent reconvening of the special meeting, all proxies will be voted in the
same manner (i.e. mail, via phone, the Internet or in person) as the proxies
would have been voted at the original convening of the special meeting, except
for any proxies that have been effectively revoked or withdrawn prior to the
subsequent special meeting.
Required Vote; Abstentions and Broker Non-Votes
As a condition to completion of the merger, the Delaware General
Corporation Law and the merger agreement require that the holders of a majority
of all the outstanding shares of E.mergent common stock as of the record date
must vote in favor of the merger and merger agreement in order to approve the
merger. On the record date, ___________ shares of E.mergent common stock were
outstanding, held by approximately_______ holders of record.
28
As of the close of business on the record date for the special meeting
of E.mergent stockholders at which the merger agreement and the merger will be
presented and voted upon, directors and executive officers of E.mergent (and
their respective affiliates) collectively owned approximately 41% of the
outstanding shares of E.mergent common stock entitled to vote at the special
meeting on the merger agreement and the merger. This does not include 342,000
shares of E.mergent common stock issuable upon the exercise of presently
exercisable options which these directors and officers beneficially own.
Four of E.mergent's directors and one officer, holding 2,393,800 shares
(approximately 40% of the outstanding shares of E.mergent common stock) have
entered into voting agreements and delivered irrevocable proxies, pursuant to
which they have agreed to vote their E.mergent shares in favor of adoption and
approval of the merger agreement and approval of the merger, in favor of any
matter that could reasonably be expected to facilitate the merger, and against
any matter which could reasonably be expected to result in a breach by E.mergent
of the merger agreement or which could reasonably be expected to result in
E.mergent's obligations under the merger agreement to fail to be satisfied.
Abstentions will be treated as shares present in determining whether
E.mergent has a quorum for the special meeting, but will not be voted.
Accordingly, abstentions will have the same effect as a vote against approval of
the merger. In addition, the failure of an E.mergent stockholder to return a
proxy will have the effect of a vote against the proposal to adopt and approve
the merger agreement and to approve the merger.
Under the rules that govern brokers who have record ownership of shares
that are held in "street name" for their clients, who are the beneficial owners
of the shares, brokers have discretion to vote these shares on routine matters
but not on non-routine matters. The adoption and approval of the merger
agreement and the approval of the merger at the special meeting are not
considered routine matters. Accordingly, brokers will not have discretionary
voting authority to vote your shares at the special meeting. A "broker non-vote"
occurs when brokers do not have discretionary voting authority and have not
received instructions from the beneficial owners of the shares. At the special
meeting, broker non-votes will be counted for the purpose of determining the
presence of a quorum but will not be counted for the purpose of determining the
number of votes cast on the merger agreement and the merger. Accordingly, at the
special meeting, broker non-votes will have the same effect as a vote against
the proposal to adopt and approve the merger agreement and to approve the
merger. Consequently, E.mergent stockholders are urged to return the enclosed
proxy card marked to indicate their vote.
The board of directors of ClearOne has approved the merger and the
issuance of shares of ClearOne common stock in the merger. See "The Merger and
Related Transactions - Background of the Merger." Utah law does not require that
ClearOne's stockholders approve the merger.
Recommendation of the Board of Directors of E.mergent
The E.mergent board of directors has determined that the merger is
advisable, in the best interests of E.mergent stockholders and on terms that are
fair to the stockholders of E.mergent. Accordingly, except for one director who
abstained due to a conflict of interest, the E.mergent board of directors has
unanimously approved the merger agreement and the merger and recommends that
stockholders vote "FOR" adoption and approval of the merger agreement and
approval of the merger. The director who abstained chose to do so because he was
previously employed by E.mergent's financial advisor, who rendered an opinion on
the fairness of the merger as described below. See "The Merger and Related
Transactions- Interests of E.mergent's Directors and Officers in the Merger" for
a discussion of conflicts of interest that certain directors and members of
management may have in connection with the merger.
Dissenters Rights of Appraisal
Under Delaware law, holders of E.mergent common stock that comply with
the applicable statutory procedures under Delaware law will be entitled to
appraisal rights and to receive payment in cash for the fair value of their
shares as determined by the Delaware Chancery Court. A summary of the applicable
requirements of Delaware law is contained in this proxy statement/prospectus
under the caption "The Merger and Related Transactions - Dissenters Rights of
Appraisal ." In addition, the text of the applicable provisions of the Delaware
General Corporate Law is attached as Annex D. The exercise of appraisal rights
is a complicated legal act and you should not rely solely on the disclosure in
this document to inform you how to perfect your rights.
29
Proxies; Revocation
A proxy card is enclosed for use by E.mergent stockholders. The board
of directors of E.mergent requests that stockholders sign and return the proxy
card in the accompanying envelope or vote your proxy by phone or the Internet.
No postage is required if mailed within the United States. You may vote your
proxy by phone twenty-four (24) hours a day, 7 days a week, until 11:00 a.m.,
Central Time, on _________, 2002 by dialing 800-240-6326 and following the
instructions. You may vote your proxy via the Internet twenty-four (24) hours a
day, 7 days a week, until 11:00 a.m., Central Time, on _________, 2002 by going
to http://www.eproxy.com/emrt and following the instructions. If you have
questions or requests for assistance in voting your proxy, please contact Jill
Larson, Secretary of E.mergent, by telephone at 763-417-4257 or by email at
proxy@emergentincorporated.com.
All properly executed proxies that E.mergent receives prior to the vote
at the special meeting, and which are not revoked, will be voted at the special
meeting as instructed on those proxies. Proxies containing no instructions will
be voted for adoption and approval of the merger agreement and approval of the
merger. A stockholder who executes and returns a proxy or votes a proxy by phone
or the Internet, may revoke it at any time before it is voted, but only revoting
by phone or the Internet, by executing and returning to E.mergent a proxy
bearing a later date, by giving written notice of revocation to an officer of
E.mergent, or by attending the special meeting and voting in person. Attendance
at the special meeting does not in itself constitute the revocation of a
previously submitted proxy. You may deliver written notice of a revocation of a
proxy or a changed proxy to:
E.mergent, Inc.
5960 Golden Hills Drive
Golden Valley, MN 55416
Telephone (763) 417-4257
Facsimile: (763) 542-0069
Attention: Jill Larson, Secretary
Brokers holding voting shares in "street name" may vote the shares only
if the stockholder provides instructions on how to vote. Brokers will provide
directions to stockholders on how to instruct the broker to vote the shares.
Please note, however, that if the holder of record of your shares is your
broker, bank or other nominee and you wish to vote at the special meeting, you
must bring a letter from the broker, bank or other nominee confirming that you
are the beneficial owner of the shares.
SHAREHOLDERS SHOULD NOT SEND THEIR STOCK CERTIFICATES WITH THEIR PROXY CARDS.
---
Solicitation of Proxies
In addition to soliciting proxies by mail, E.mergent's directors,
officers, and employees may, if they do not receive extra compensation for doing
so, solicit proxies personally or by telephone, email or fax.
30
THE MERGER AND RELATED TRANSACTIONS
This section of the proxy statement/prospectus and the following two
sections entitled "Agreement and Plan of Merger" and "Ancillary Agreements"
contain descriptions of the material aspects of the merger and related
transactions, including the merger agreement and certain other agreements
entered into in connection therewith. While we believe that the following
description covers the material terms of the merger, the merger agreement and
the related transactions and agreements, the description may not contain all of
the information that is important to you. You should read carefully this entire
document and the other documents that we refer to for a more complete
understanding of the merger and the related transactions.
Background of the Merger
The terms of the merger agreement are the result of arm's-length
negotiations between representatives of ClearOne and E.mergent. The following is
a brief discussion of the background of these negotiations, the merger and
related transactions:
During 2001, E.mergent's board of directors and senior management
explored methods of enhancing shareholder value through internal growth in the
videoconferencing channel, raising new capital, development of the audiovisual
channel, the acquisition of technology or acquiring other conferencing services
companies.
In July 2001, the CEO of E.mergent, Jim Hansen, and one of its
directors approached a substantial industry partner concerning expanding its
existing supplier relationship, forming a joint venture or having the partner
acquire E.mergent due to the growing importance of the relationship. The
companies conducted a video call on August 30, 2001, further discussing
potential synergies, and senior technical officers of both companies met to
explore their respective plans. This party continued its discussions with
E.mergent, signing a confidentiality agreement in October 2001 as described
below.
In late August 2001, the CEO of E.mergent was approached by a director
of a public company, not in the audio-visual industry, about the interest or
willingness of E.mergent to consider being acquired. That discussion was very
preliminary in nature and no further discussions with this company occurred.
During the first week of September 2001, the CEO of E.mergent discussed
with E.mergent's board of directors the possibility of engaging in more serious
business combination discussions with both companies. The discussions held with
these companies regarding possible acquisitions of E.mergent suggested to the
CEO and E.mergent's board that such interest in acquiring E.mergent increased
the likelihood of maximizing shareholder value through an acquisition rather
than internal growth. Following the events of September 11, 2001, management and
the board of directors of E.mergent determined that it was in the best interests
of shareholders to explore strategic alternatives, including the possible sale
of E.mergent. The Board concluded this because it believed that the events of
September 11, 2001 would further slow the economy and reduce the availability of
investment capital, making it more difficult to maximize shareholder value
through internal growth.
Thereafter, E.mergent interviewed several investment banking firms and
on September 28, 2001, E.mergent engaged Goldsmith, Agio, Helms on an exclusive
basis to explore various strategic alternatives for E.mergent, including the
sale of E.mergent to a third-party. E.mergent selected Goldsmith, Agio, Helms
because of their extensive experience representing selling companies of a size
similar to E.mergent and the presence of their principal office in Minneapolis.
In addition, one of E.mergent's directors was a managing director of Goldsmith,
Agio, Helms at that time, and the E.mergent board was familiar with many of its
principals. In connection with its engagement, Goldsmith, Agio, Helms prepared a
Confidential Executive Summary and worked with E.mergent's senior management
team to prepare a list of potential buyers.
In early to mid October 2001, Goldsmith, Agio, Helms contacted a select
group of potential buyers regarding their interest in acquiring E.mergent. The
parties that were approached were believed to have both strategic interest and
the financial ability to consummate a transaction. As part of this effort, Robin
Sheeley, the Chief Technical Officer of E.mergent, telephoned the CEO of
ClearOne, Frances Flood, on October 10 and they discussed very briefly whether
ClearOne had an interest in acquiring E.mergent. After that conversation,
ClearOne asked Wedbush Morgan Securities, Inc. to initiate a preliminary review
of E.mergent and to handle preliminary discussions about a potential acquisition
with Goldsmith, Agio, Helms.
Six of the potential buyers Goldsmith, Agio, Helms contacted, including
ClearOne, subsequently signed Confidentiality Agreements to permit the exchange
of confidential information for the purpose of evaluating the merits of a
potential acquisition of E.mergent. ClearOne entered into its Confidentiality
31
Agreement with E.mergent on October 10, 2001. Shortly after signing the
Confidentiality Agreements, Goldsmith, Agio, Helms distributed the Confidential
Executive Summary to the six potential buyers, including ClearOne. After further
review of the opportunity, one of the other potential buyers declined to further
participate in any discussions regarding an acquisition of E.mergent. After
receiving the Confidential Executive Summary on or about October 12, ClearOne
began its review of the summary and other publicly available information on
E.mergent.
On October 23, 2001, five of the potential buyers who executed
Confidentiality Agreements, including ClearOne, met with E.mergent's senior
management team at the Telcom Conference in Anaheim, California. Two of these
buyers expressed interest in buying one of E.mergent's divisions rather than the
entire company. E.mergent, with the advice of Goldsmith, Agio, Helms, decided to
terminate further discussions with these two buyers as the sale of a division
could adversely impact the future of the remaining parts of E.mergent's business
and could also result in significant tax expenses to E.mergent.
The October 23, 2001 meeting between E.mergent and ClearOne was
attended by: Frances Flood, Randy Wichinski, CFO of ClearOne, and Gene Kuntz,
COO of ClearOne; Michael Gardner and Robert Cherry from Wedbush Morgan
Securities; Jim Hansen, Robin Sheeley, and Jill Larson, the Vice President of
Administration, from E.mergent; and Jerry Caruso and Roger Redmond from
Goldsmith, Agio, Helms. The participants discussed some of the key
characteristics of both companies and opportunities within the industry in
general. A follow-up meeting for the first week of November was discussed and
subsequently, over the next several days, scheduled for November 6.
Following the meetings in Anaheim, California in late October and early
November 2001, E.mergent's senior management team and Goldsmith, Agio, Helms
held additional meetings with three of the remaining potential buyers, including
ClearOne on November 6. On that date, Frances Flood, Randy Wichinski, and Robert
Cherry met with Jim Hansen, Robin Sheeley and Jill Larson at the E.mergent
corporate offices and continued discussions regarding the potential benefits of
the proposed acquisition, including a presentation by E.mergent covering the
product and marketing opportunities possible from the proposed combination of
the two companies.
In late November and early December, E.mergent and Goldsmith, Agio,
Helms held subsequent meetings and video conference calls with the three
remaining potential buyers, including ClearOne. Meetings and calls with ClearOne
involved further discussions regarding E.mergent's business, recent financial
results, and financial prospects, as well as aspects of the possible
transaction, including possible transaction structures and price. Also during
this period, E.mergent and ClearOne continued to exchange additional information
about their respective companies. ClearOne continued its investigation of
E.mergent. On December 4, 2001, at the request of ClearOne management, Wedbush
Morgan Securities provided ClearOne with certain financial analyses regarding
the potential acquisition of E.mergent.
On December 7, 2001, Wedbush Morgan Securities delivered to E.mergent,
for discussion purposes only, a tentative proposal on behalf of ClearOne for the
acquisition of E.mergent. On December 10, 2001, one other potential buyer made a
proposal to purchase E.mergent. That proposal was verbal and not at a specific
price but rather a range of multiples of E.mergent's earnings. There was no
definition of what the potential buyer meant by "earnings." The proposal also
did not contain a cash component. Because E.mergent had received specific
proposals and was considering them, and to avoid concerns regarding premature
disclosure of the proposed acquisition, on December 12, 2001, E.mergent issued a
press release stating that it had engaged Goldsmith, Agio, Helms to explore
strategic options.
Between December 12, 2001 and December 18, 2001, E.mergent focused its
negotiations with ClearOne, as ClearOne appeared to represent the best potential
transaction to E.mergent's shareholders. The negotiations with ClearOne involved
further discussion of the structure of the transaction and the consideration
offered by ClearOne. ClearOne's proposal was determined to be superior due to
its strategic fit with E.mergent, ClearOne's desire to rapidly consummate a
transaction, and because ClearOne's proposal was superior both in value and
structure, due to the potentially tax-free exchange of stock component to its
proposal. Strategically, ClearOne and E.mergent would be able to sell each
other's products in their respective distribution channels. ClearOne sold more
equipment in the audio visual channel than the other potential buyer and that
offered more opportunity for cross selling products. This was viewed as a
considerable advantage. Also, E.mergent's board, with the advice of its
financial advisor, concluded that the price range proposed by the other
prospective buyer was likely to result in a price that was less than the
specific price proposed by ClearOne. The board concluded that considerable
negotiation of both the specific multiple and the definition of E.mergent's
"earnings" was likely. ClearOne's proposal did not depend on a definition of
"earnings" to which a multiple would be applied.
32
During this period of time, E.mergent also received an unsolicited
inquiry by an institutional investor interested in potentially investing $10
million for newly issued E.mergent stock with the proceeds to be used for
internal growth. This proposal was verbal and nonspecific with regard to terms
and conditions. None of the investment proceeds were to go to existing
stockholders. E.mergent had undertaken no due diligence with respect to this
potential investor and was on the verge of signing an exclusivity agreement with
ClearOne. For these reasons, E.mergent decided not to proceed with further
discussions with this institutional investor until it determined whether or not
a satisfactory transaction could be negotiated with ClearOne.
On December 18, 2001, E.mergent entered into an exclusivity agreement
with ClearOne. Pursuant to this agreement, E.mergent agreed to cease all
acquisition negotiations with all other parties and to negotiate exclusively
with ClearOne for 30 days. Shortly thereafter, ClearOne and E.mergent began
negotiation of the specific terms of a transaction and the definitive merger
agreement and exchanged drafts of the proposed definitive agreement.
On December 27, 2001, Randy Wichinski met with Jim Hansen and Jill
Larson at E.mergent corporate headquarters in Minneapolis to initiate a formal
due diligence process. On December 28, 2001, the ClearOne board of directors met
in person and by telephone with members of ClearOne management and
representatives of Jones Waldo Holbrook & McDonough, P.C., ClearOne's legal
counsel, to discuss the status of the proposed transaction with E.mergent and
ClearOne management's due diligence findings to date.
On January 3 and 4, 2002, members of ClearOne's management and
representatives of ClearOne's independent auditors, Ernst & Young LLP, a
representative of Jones Waldo, Holbrook & McDonough, P.C. and a representative
from Wedbush Morgan Securities visited E.mergent's offices and also met with
E.mergent's independent auditors, Deloitte & Touche LLP, to conduct business,
financial, accounting tax, and legal due diligence and participate in
discussions with E.mergent management, E.mergent's legal counsel and its
independent auditors on various issues.
Between January 4 and January 18, ClearOne continued its investigation
and analysis of E.mergent, requesting additional information from E.mergent.
Also during this period, ClearOne and E.mergent continued negotiation of the
definitive merger agreement.
On January 17, 2002, E.mergent and ClearOne essentially completed their
negotiations with respect to the merger agreement. On that date, the ClearOne
board of directors met telephonically, together with representatives of Jones
Waldo Holbrook & McDonough P.C. and Robert Cherry of Wedbush Morgan Securities,
to informally discuss in detail the terms and negotiations of the definitive
merger agreement and the final results of ClearOne management's due diligence
investigation.
On January 18, 2002, E.mergent's board of directors conducted a meeting
at which, among other things, Goldsmith, Agio, Helms delivered its opinion as to
the fairness, from a financial point of view, of the proposed merger
consideration. The board of directors approved the merger agreement with
ClearOne. On January 21, 2002, ClearOne's board of directors held a meeting
attended by ClearOne management and legal counsel from Jones Waldo Holbrook &
McDonough. After reviewing in further detail the proposed acquisition and the
terms and conditions of the merger agreement, the ClearOne board of directors
approved the merger agreement with E.mergent. On January 21, 2002, ClearOne and
E.mergent executed the Merger Agreement and certain E.mergent shareholders
executed the related Voting Agreement, Irrevocable Proxies and Affiliate
Agreements. ClearOne and E.mergent issued separate press releases early in the
morning on January 22, 2002 announcing execution of the merger agreement.
E.mergent's Reasons for the Merger
The board of directors of E.mergent has determined that the terms of
the merger and the merger agreement are fair to, and in the best interests of,
E.mergent and its stockholders. In reaching its decision, E.mergent `s board of
directors consulted with senior management and E.mergent `s financial and legal
advisors and considered the material factors set forth below in reaching its
decision to approve the merger agreement and the transactions contemplated by
the merger agreement, and to recommend that E.mergent `s stockholders vote FOR
adoption and approval of the merger agreement and approval of the merger:
o the merger was viewed as a quicker and more certain method to
enhance shareholder value than E.mergent's strategic
alternatives, each of which involved a considerable degree of
uncertainty of success, including raising additional capital,
acquisition of E.mergent by another party, a merger of equals or
a joint venture with another party;
33
o the difficulties, due to E.mergent's relatively small size and
limited resources, in independently responding successfully to
pervading competitive factors in the audio and videoconferencing
industry, including the cost of developing sales channels,
pricing competition and the need to develop complete product
lines in order to compete;
o the overall strategic fit between E.mergent and ClearOne in view
of their respective product lines, markets, and distribution
channels and the potential synergies, efficiencies, and cost
savings that could be realized through a combination of
E.mergent and ClearOne;
o the opportunity for E.mergent shareholders to continue equity
participation in a larger, more diversified audio and
videoconferencing company at a premium over market prices for
E.mergent common stock prior to announcement of the merger;
o the financial advice provided to E.mergent by Goldsmith, Agio,
Helms and its opinion that the consideration to be received by
E.mergent shareholders in the merger is fair from a financial
point of view;
o the advice of its accounting and legal advisors that the merger
is expected to be a partially tax-free and partially taxable
transaction for federal income tax purposes to E.mergent
shareholders receiving ClearOne common stock--in this regard,
E.mergent `s board of directors considered the possibility that
all the merger consideration could be taxable to E.mergent's
shareholders under certain circumstances; and
o the terms and conditions of the merger agreement, which were
viewed to be fair to E.mergent and its shareholders.
E.mergent's board of directors also identified and considered a number of
uncertainties and risks in its deliberations concerning the merger, including
the following:
o the risk that the potential benefits sought in the merger may
not be fully realized, if at all;
o the risk of management and employee disruption as a result of
the merger, including the risk that key personnel may choose not
to remain employed with the combined company; and
o other applicable risks associated with the businesses of
E.mergent and ClearOne described in this proxy
statement/prospectus.
The foregoing discussion of the information and factors considered by
E.mergent `s board of directors includes all material factors considered by the
E.mergent board of directors. In view of the variety of factors considered in
connection with its evaluation of the merger, E.mergent `s board of directors
did not find it practicable to, and did not, quantify or otherwise assign
relative or specific weight or values to any of these factors, and individual
directors may have given different weights to different factors.
Opinion of E.mergent's Financial Advisor
Goldsmith, Agio, Helms has acted as E.mergent's exclusive financial
advisor in connection with the proposed merger. E.mergent selected Goldsmith,
Agio, Helms based on Goldsmith, Agio, Helms' experience, expertise, and
reputation. Goldsmith, Agio, Helms is a nationally recognized investment banking
firm which, as a customary part of its business, is engaged in the valuation of
businesses and securities in connection with mergers and acquisitions, private
placements, and valuations for corporate and other purposes.
In connection with Goldsmith, Agio, Helms' engagement, E.mergent
requested that Goldsmith, Agio, Helms evaluate the fairness, from a financial
point of view, to the holders of E.mergent common stock of the merger
consideration. On January 18, 2002, at a meeting of the E.mergent board of
directors held to evaluate the merger, Goldsmith, Agio, Helms delivered to the
E.mergent board of directors an oral opinion, which was confirmed thereafter by
delivery of a written opinion dated January 18, 2002, to the effect that, as of
such date, and based upon and subject to the assumptions, procedures, and
limitations set forth therein, the proposed merger consideration was fair, from
a financial point of view, to the holders of E.mergent common stock.
The full text of Goldsmith, Agio, Helms' written opinion, dated January
18, 2002, to the E.mergent board of directors, which sets forth the procedures
followed, assumptions made, matters considered, and limitations on the review
34
undertaken, is attached to this document as Annex C and is incorporated into
this document by reference. You are urged to read the Goldsmith, Agio, Helms
opinion in its entirety. The description of the Goldsmith, Agio, Helms opinion
set forth in this proxy statement/prospectus is qualified in its entirety by
reference to the full text of such opinion. Goldsmith, Agio, Helms' opinion is
rendered for the benefit and use of the board of directors of E.mergent in
connection with the board of directors' consideration of the merger, relates
only to the fairness of the merger consideration from a financial point of view,
does not address any other aspect of the merger or any related transaction and
does not constitute a recommendation to any holder of E.mergent common stock
with respect to any matters, including the shareholder vote, relating to the
proposed merger.
In arriving at its opinion, Goldsmith, Agio, Helms undertook such
reviews, analyses, and inquiries as it deemed necessary and appropriate under
the circumstances. Among other things, Goldsmith, Agio, Helms:
o reviewed the latest draft of the merger agreement made available
to Goldsmith, Agio, Helms, dated January 17, 2002, and assumed
that the final form of the merger agreement would not vary in
any material respect from the January 17th draft, and that the
terms of the consideration to be paid to the holders of
E.mergent common stock will be identical to those set forth in
the January 17th draft;
o reviewed certain financial and other information that is
publicly available relating to E.mergent;
o reviewed certain financial and other information that is
publicly available relating to ClearOne;
o reviewed certain internal financial and operating data of
E.mergent that was made available to Goldsmith, Agio, Helms by
E.mergent;
o discussed with senior management of E.mergent the financial
condition, operating results, business outlook and prospects of
E.mergent;
o discussed with senior management of ClearOne the present
financial condition, operating results, and near term business
outlook of ClearOne;
o reviewed E.mergent's and ClearOne's historical common stock
price trends;
o analyzed the stock price premiums paid in recent mergers and
acquisitions of publicly traded companies with transaction
values ranging from $10 to $50 million, and compared those
premiums to the premium implied by the consideration in the
proposed merger;
o performed a discounted cash flow analysis of E.mergent's
projected financial performance as a stand-alone entity, based
on financial projections that E.mergent management provided to
Goldsmith, Agio, Helms;
o reviewed the valuations of publicly traded companies that
Goldsmith, Agio, Helms deemed generally comparable (for such
purposes) to E.mergent; and
o reviewed the financial terms of certain transactions Goldsmith,
Agio, Helms deemed comparable to the merger that recently have
been effected.
In arriving at its opinion, Goldsmith, Agio, Helms relied upon and
assumed, without independent verification, the accuracy and completeness of the
financial statements and other information furnished by, or publicly available
relating to, E.mergent or ClearOne, or otherwise made available to Goldsmith,
Agio, Helms. Goldsmith, Agio, Helms also relied upon the representations and
warranties of E.mergent and ClearOne contained in the merger agreement and have
assumed, without independent verification, that they are true and correct.
Goldsmith, Agio, Helms was not engaged to, and did not attempt to, or assume
responsibility to, verify independently such information. Goldsmith, Agio, Helms
further relied upon assurances by E.mergent that the information provided to
Goldsmith, Agio, Helms had a reasonable basis, and with respect to projections
and other business outlook information, reflected the best then-currently
available estimates and judgments of future financial performance of E.mergent,
and that E.mergent was not aware of any information or fact that would make the
information provided to Goldsmith, Agio, Helms incomplete or misleading.
Goldsmith, Agio, Helms also assumed that E.mergent and ClearOne each would
perform all of the covenants and agreements to be performed by it under the
merger agreement, that the conditions to the merger set forth in the merger
agreement would be satisfied and that the merger would be consummated on a
timely basis in the manner contemplated by the merger agreement. Goldsmith,
35
Agio, Helms also assumed that, once consummated, the merger would qualify as a
partially tax-free reorganization for federal income tax purposes.
In arriving at its opinion, Goldsmith, Agio, Helms did not perform any
appraisals or valuations of specific assets or liabilities of E.mergent, nor was
Goldsmith, Agio, Helms furnished with any such appraisals. The Goldsmith, Agio,
Helms opinion is necessarily based upon the information available to Goldsmith,
Agio, Helms and the facts and circumstances as they existed and are subject to
evaluation on the date of the opinion, including the financial, economic, market
and other conditions as in effect on the date of the opinion; events and
conditions occurring or existing after the date of the opinion could materially
affect the assumptions used in preparing the opinion.
Goldsmith, Agio, Helms did not analyze the tax consequences of the
merger, including tax consequences to any holder of E.mergent common stock.
Goldsmith, Agio, Helms was not asked to, nor did it, express any opinion as to
the relative merits of the merger as compared to any alternative business
strategies that might exist for E.mergent, the effect of any other transaction
in which E.mergent might engage, or the form of the merger agreement or the
terms contained therein. Furthermore, Goldsmith, Agio, Helms expressed no
opinion as to the prices at which either E.mergent or ClearOne stock may trade
following the date of its opinion. Goldsmith, Agio, Helms' opinion was rendered
as of the date thereof, and Goldsmith, Agio, Helms did not express any opinion
as to whether, on or about the effective time of the merger, the merger
consideration would be fair, from a financial point of view, to E.mergent's
shareholders.
The Goldsmith, Agio, Helms analyses set forth below are a complete
description of the analyses performed by Goldsmith, Agio, Helms in arriving at
its opinion. In arriving at its opinion, Goldsmith, Agio, Helms did not
attribute any particular weight to any analysis or factor considered by it, but
rather considered the results of its analyses as a whole. Accordingly,
Goldsmith, Agio, Helms believes that its analyses and the summary set forth
below must be considered as a whole and that selecting portions of its analyses,
or of the summary, without considering all factors and analyses, could create an
incomplete view of the processes underlying its analyses.
The analyses performed by Goldsmith, Agio, Helms (and summarized below)
are not necessarily indicative of actual values or actual future results, which
may be significantly more or less favorable than suggested by such analyses.
Additionally, analyses relating to the values of businesses do not purport to be
appraisals or to reflect the prices at which businesses or securities actually
may be sold. Accordingly, Goldsmith, Agio, Helms' analyses and estimates are
inherently subject to substantial uncertainty.
The type and amount of merger consideration payable pursuant to the
merger was determined through negotiation between E.mergent and ClearOne.
Although Goldsmith, Agio, Helms provided financial advice to E.mergent during
the course of the negotiations, Goldsmith, Agio, Helms did not recommend the
amount of the merger consideration or the payment or other terms thereof, and
the decision to enter into the merger agreement was solely that of E.mergent's
board of directors. Goldsmith, Agio, Helms' opinion as to the fairness of the
merger consideration from a financial point of view was only one of many factors
considered by the board of directors in making their determination to recommend
adoption of the merger agreement, and should be not be viewed as determinative
of the views of the E.mergent board of directors or management with respect to
the proposed merger or the merger consideration payable in the merger.
The following is a summary of the material financial analyses
underlying Goldsmith, Agio, Helms' opinion dated January 18, 2002, delivered to
the E.mergent board of directors in connection with the proposed merger. On that
date, the closing prices of ClearOne and E.mergent common stock were $17.15 and
$2.96, respectively.
Discounted Cash Flow Analysis. Goldsmith, Agio, Helms performed a
discounted cash flow analysis based on the projected five-year financial
performance of E.mergent provided to Goldsmith, Agio, Helms by E.mergent
management. E.mergent's weighted average cost of capital for purposes of this
analysis was calculated to be approximately 19.2 %. Terminal values were
calculated by applying alternative perpetual growth rates of 3.0 % to 4.5 % to
the projected free cash flow in fiscal year 2006. Based on this analysis,
E.mergent's implied per share equity values ranged from approximately $2.02 to
$2.98. Discounted cash flow analysis is a widely-used valuation methodology, but
it relies on numerous assumptions, including assets and earnings growth rates,
terminal values, and discount rates.
Analysis of Publicly Traded Comparable Companies. Goldsmith, Agio,
Helms analyzed selected historical financial, operating, and stock market data
of E.mergent, ClearOne, and other publicly traded companies that Goldsmith,
Agio, Helms deemed to be comparable to E.mergent for this analysis. The five
36
companies (collectively, the "Comparable Companies") deemed by Goldsmith, Agio,
Helms to be reasonably comparable to E.mergent in terms of products and services
offered, markets served, and business prospects were:
o InFocus Corporation;
o Inter-Tel Inc.;
o MCSi, Inc.;
o Forgent Corporation (formerly VTEL Corporation); and
o Wire One Technologies, Inc.
Although E.mergent was included in the analysis for reference purposes,
E.mergent was not included in any calculation of implied multiples for purposes
of Goldsmith, Agio, Helms' analysis.
No company utilized in the Comparable Company Analysis is identical to
E.mergent. Accordingly, an analysis of the results of the foregoing necessarily
involves complex considerations and judgments concerning the differences in
financial and operating characteristics of E.mergent and other factors that
could affect the public trading value of the comparable companies to which they
are being compared.
Goldsmith, Agio, Helms examined certain publicly available financial
data of the Comparable Companies, including the ratio of enterprise value
(equity value plus total debt, including preferred stock, less cash and cash
equivalents) to latest-12-month ("LTM") revenue, earnings before interest,
taxes, depreciation and amortization ("EBITDA"), and earnings before interest
and taxes ("EBIT").
This analysis showed that the Comparable Companies had a multiple
represented by the ratio of enterprise value to LTM revenue ranging from 0.7x to
2.4x, with a mean of 1.4x and a median of 1.1x; a multiple represented by the
ratio of enterprise value to LTM EBIT ranging from 14.0x to 19.3x, with a mean
of 15.9x and a median of 14.5x; and a multiple represented by the ratio of
enterprise value to LTM EBITDA ranging from 11.0x to 12.7x, with a mean of 11.7x
and a median of 11.5x.
By applying the median ratios derived from the Comparable Company
Analysis to E.mergent's estimated operating results for its LTM results ending
September 30, 2001, E.mergent's implied range of equity value per share was
calculated to be approximately $2.45 to $3.96.
Analysis of Selected Merger and Acquisition Transactions. Goldsmith,
Agio, Helms compared the proposed merger with selected comparable merger and
acquisition transactions (the "Comparable Transaction Analysis"). No transaction
analyzed in the Comparable Transaction Analysis is identical to the merger.
Accordingly, an analysis of the results of the foregoing necessarily involves
complex considerations and judgments concerning differences in financial and
operating characteristics of E.mergent and other factors that could affect the
acquisition value of the companies to which E.mergent is being compared.
Goldsmith, Agio, Helms performed an analysis of 28 merger and
acquisition transactions involving companies operating in the audio and video
conferencing services and equipment and other related markets that occurred
between November 1995 and January 2002. From the 28, Goldsmith, Agio, Helms
selected eight that were deemed to be closely relevant.
For the eight merger and acquisition transactions analyzed, the
multiple represented by the ratio of enterprise value to LTM revenue ranged from
0.5x to 3.0x, with a mean of 1.5x and a median of 0.8x. The multiple represented
by the ratio of enterprise value to LTM EBITDA was 8.7x. By applying the median
ratios derived from the Comparable Transaction Analysis to E.mergent's estimated
operating results for the LTM results ending September 30, 2001, E.mergent's
range of implied equity value per share was calculated to be approximately $2.27
to $2.86.
Acquisition Premiums Analysis. Goldsmith, Agio, Helms analyzed the
premiums paid for approximately 150 publicly disclosed mergers and acquisitions
of companies with enterprise values ranging from $10 to $50 million executed
between January 2000 and December 2001. The mean and the median premium paid
over the targets' stock prices 30 business days before the announcement date,
five business days before the announcement date, and one business day before the
announcement date were 50.4% and 46.5%, 44.9% and 39.3%, and 39.5% and 33.1%,
respectively. The range on these transactions vary from negative premiums to
premiums in excess of 130%.
37
The per share price to be paid to E.mergent shareholders by ClearOne of
approximately $3.47 (calculated based on ClearOne's share price as of the close
of trading on January 16, 2002) represents a premium of 10.2% over E.mergent's
share price as of the close of trading on January 16, 2002, and a premium of
21.3% over E.mergent's share price as of the close of trading on December 11,
2001 (the date immediately prior to the date of the press release announcing the
engagement of Goldsmith, Agio, Helms by E.mergent).
Common Stock Trading History. Goldsmith, Agio, Helms' analysis of
E.mergent's and ClearOne's common stock trading history consisted of historical
analyses of the closing prices and volumes of E.mergent and ClearOne and the
relative performance of E.mergent, ClearOne, the Dow Jones Industrial Average,
and the S&P 500 Index. Goldsmith, Agio, Helms' analysis considered the high and
low closing prices for E.mergent and ClearOne over the twelve-month period ended
January 16, 2002. On December 14, 2001, E.mergent's common stock reached a
twelve-month high closing price per share of $3.29 and on September 27, 2001,
reached a twelve-month low closing price per share of $1.10. On October 10,
2001, ClearOne's common stock reached a twelve-month high closing price per
share of $21.75 and on April 3, 2001, experienced a twelve-month low closing
price per share of $9.63.
Goldsmith, Agio, Helms also analyzed the volume of shares traded at
various prices. For E.mergent's common stock, the volume-weighted average price
per share for the twelve months ending on January 16, 2002 was $2.15. For
ClearOne, the volume-weighted average price per share for the twelve months
ending January 16, 2002 was $17.25.
Miscellaneous. E.mergent has agreed to pay Goldsmith, Agio, Helms a fee
for its financial advisory services in connection with the proposed merger based
upon a percentage of the transaction value of the merger calculated upon the
closing of the merger. Assuming the closing sales price of the ClearOne common
stock is $16.45 on the day of the merger (which was the closing sales price on
April 25, 2002), the fee payable to Goldsmith, Agio, Helms upon consummation of
the merger would be approximately $743,043. Goldsmith, Agio, Helms received a
non-contingent fee of $100,000 upon delivery to the E.mergent board of directors
of its fairness opinion, which amount will be credited against the total fee to
be paid by E.mergent to Goldsmith, Agio, Helms upon the closing of the merger.
Goldsmith, Agio, Helms also received a one-time retainer of $50,000 following
its engagement by E.mergent. E.mergent has agreed to reimburse Goldsmith, Agio,
Helms for reasonable out-of-pocket expenses (up to a maximum of $10,000),
including, but not limited to, fees and expenses of counsel, and to indemnify
Goldsmith, Agio, Helms against liabilities and expenses arising out of its
engagement. Roger Redmond, a current director or E.mergent, was employed by
Goldsmith, Agio, Helms from June 1999 to December 2001, most recently as a
Managing Director.
Recommendation of E.mergent's Board of Directors
The E.mergent board of directors believes that the merger is advisable
and in the best interests of E.mergent and its stockholders. The E.mergent
board, therefore, recommends that its stockholders vote FOR approval of the
merger.
See "The Merger and Related Transactions - Background of the Merger,"
"E.mergent's Reasons for the Merger," "Opinion of E.mergent's Financial
Advisor," and "Material U.S. Federal Income Tax Consequences."
Interests of E.mergent's Directors and Executive Officers in the Merger
When you are considering the recommendation of E.mergent's board of
directors with respect to approving the merger and the merger agreement, you
should be aware that some of the directors and executive officers of E.mergent
have interests in the merger and participate in arrangements that are different
from, or are in addition to, those of E.mergent stockholders generally. The
E.mergent board of directors was aware of these interests and considered them,
among other matters, when it approved the merger and the merger agreement. These
interests include the following:
Options, Accelerated Vesting of Options and Bonus Shares
The following directors and executive officers of E.mergent hold the
total number of stock options indicated: James Hansen, Chairman and CEO,
130,000; Richard Craven, Director, 28,000; Robin Sheeley, Chief Technical
Officer and Director, 35,000; Peter McDonnell, Director, 22,000; Roger Redmond,
Director, 22,000; and Jill Larson, Vice President-Administration, 105,000. The
vesting restrictions on all outstanding options held by directors and executive
officers to purchase E.mergent stock will accelerate, thereby causing such stock
options to become fully vested and exercisable immediately prior to the closing
of the merger. The aggregate number of shares of E.mergent common stock issuable
38
upon the exercise of options held by directors and executive officers, that
would become vested upon the merger is 13,333 shares held as follows: 10,000
shares held by Mr. Hansen at an exercise price of $3.37 per share, and 3,333
shares held by Ms. Larson at an exercise price of $1.47 per share. Pursuant to
the terms of the merger agreement, all options to purchase E.mergent common
stock will be assumed by ClearOne in the merger and converted into options to
purchase ClearOne common stock. For further discussion about the treatment of
E.mergent options in the merger, see the section entitled "Agreement and Plan of
Merger - Stock Options" on page 48 of this document. Ms. Larson and Messrs.
Hanson and Sheeley will also each receive approximately 689 shares of E.mergent
common stock when the treasury shares of E.mergent common stock are issued to
employees as a bonus prior to completion of the merger.
Executive Employment Agreements
ClearOne and E.mergent expect that upon the completion of the merger,
Robin Sheeley, a director and the Chief Technical Officer of E.mergent, will
become ClearOne's Chief Technology Officer. Based on discussions between Mr.
Sheeley and ClearOne, they anticipate his employment with ClearOne will be on
terms substantially similar to those of his current employment with E.mergent.
The current executive employment agreement with E.mergent continues through
August 2, 2002, and provides that it is to be automatically extended each year
for additional one-year periods, unless E.mergent gives prior notice of
non-renewal. His executive employment agreement provides that if, within six
months following a merger, Mr. Sheeley's employment is terminated for any
reason, other than for cause, or he voluntarily terminates his employment, then
Mr. Sheeley is entitled to a severance payment that will be equal to the sum of
his current annual base salary for twelve months, plus the last annual bonus
from E.mergent. The severance payment generally would be made in equal
installments over twelve months.
As of January 1, 2000, E.mergent entered into an executive employment
agreement with James Hansen, E.mergent's Chairman, Chief Executive Officer,
President and Treasurer. The executive employment agreement continues through
January 1, 2003, and provides that it is to be automatically extended each year
for additional one-year periods, unless E.mergent gives prior notice of
non-renewal. His executive employment agreement provides that if, within six
months following a merger, Mr. Hansen's employment is terminated for any reason,
other than for cause, or if his job responsibilities or authority are
substantially reduced, then Mr. Hansen is entitled to a severance payment that
will be equal to the sum of his current annual base salary for twelve months,
plus the last annual bonus paid by E.mergent. The severance payment generally
would be made in equal installments over twelve months.
On January 1, 1998, E.mergent entered into an employment agreement with
Jill Larson, E.mergent's Vice President-Administration and Corporate Secretary.
The executive employment agreement continued through January 1, 2002, and
provides that it is to be automatically extended each year for additional
one-year periods, unless E.mergent gives prior notice of non-renewal. Such
notice was not given by E.mergent during 2001, and Ms. Larson's employment
agreement has been extended to January 1, 2003. Her executive employment
agreement provides that if, within six months following a merger, Ms. Larson's
employment is terminated for any reason, other than for cause, or she
voluntarily terminates her employment, then Ms. Larson is entitled to a
severance payment that will be equal to the sum of her current annual base
salary for twelve months, plus the last annual bonus from E.mergent. The
severance payment generally would be made in equal installments over twelve
months.
In the event that the employment of the executive officers is
terminated immediately after the merger (as is currently anticipated for Mr.
Hansen and Ms. Larson but not for Mr. Sheeley), it is estimated that, based on
specific assumptions, the severance payments payable under these agreements,
plus the value of the related benefits, would be approximately $189,000 to Mr.
Hansen, $120,000 to Ms. Larson, and $160,000 to Mr. Sheeley.
Indemnification and Directors and Officers Insurance
E.mergent officers and directors are entitled to continuing
indemnification against some liabilities by virtue of provisions contained in
E.mergent's certificate of incorporation, and bylaws. In addition, the executive
officers have continuing coverage by E.mergent's directors and officers
liability insurance for acts arising during their tenure with E.mergent
Consideration of the Merger by ClearOne's Board of Directors and Reasons for the
Merger
The ClearOne board of directors approved the merger agreement and the
merger with E.mergent because it believes that the combined company has the
potential to become a stronger conferencing products and services company in a
growing and competitive market. In particular, the ClearOne board of directors
believes that the acquisition will help position ClearOne to achieve its
long-term operating and financial objectives, and reinforce its strategy of
providing a comprehensive suite of conferencing products and services. In
39
addition, the ClearOne board of directors believes that the merger will allow
the combined company the opportunity to realize the following anticipated
benefits of the merger:
o The ability to expand and enhance certain product lines of the
combined company. For example, ClearOne's Gentner division
plans to enhance its V-There(TM) videoconferencing products
with a full line of other patented video equipment, from
E.mergent's VideoLabs division.
o The ability to utilize the other company's existing sales
channels. For example, ClearOne will have the opportunity to
sell ClearOne's line of video and audio products into
E.mergent's established videoconferencing sales channel. In
turn, ClearOne intends to use its existing sales channels to
sell VideoLabs' products.
o The ability to expand ClearOne's best-in-class technical team,
which assists its dealer channel with service, support, and
training, with E.mergent's Acoustic Communications Systems(TM)
division, and which is anticipated to function as installation
support to the existing dealer network of ClearOne's Gentner
division.
o The ability to bring ClearOne products and services, as well
as new products and services that the combined company has the
opportunity to produce, to E.mergent's customer base that
currently uses other vendors for conferencing products and
services.
o The ability to expand ClearOne's management team through the
addition of E.mergent's Chief Technical Officer Robin Sheeley,
who will join ClearOne as Chief Technology Officer with
responsibility for all research and product development.
o The ability to have an expanded geographic representation with
additional locations in Chicago, Illinois; Minneapolis,
Minnesota; and Des Moines, Iowa.
o The ability to broaden ClearOne's international distribution
and expertise by gaining E.mergent's experience and
distribution in international markets.
o The ability to realize benefits from combining each company's
proprietary intellectual property.
The ClearOne board of directors also reviewed with its financial and
legal advisors the specific terms and conditions of the merger agreement,
including the representations, warranties and covenants and the conditions to
each party's obligations to complete the merger. The ClearOne board of directors
also received reports from its management and financial and legal advisors as to
the results of the due diligence investigation of E.mergent, which was performed
with the assistance of its financial and legal advisors, and determined that
these reports did not disclose information that would preclude its approval of
the merger. The ClearOne board of directors also considered the following risks
and additional factors relating to the merger:
o the risk that the benefits sought in the merger would not be
fully achieved;
o the risk that the merger would not be consummated;
o possible post-merger resignations of E.mergent's management; o
the risk that the stockholders of E.mergent would not approve
of the merger; and
o the other applicable risks described in this proxy
statement/prospectus under "Risk Factors."
The foregoing discussion of the factors considered by ClearOne's board of
directors, while not exhaustive, includes the material factors considered by its
board of directors. In view of the variety of factors considered in connection
with its evaluation of the merger, ClearOne's board of directors did not find it
practicable to, and did not, quantify or otherwise assign relative or specific
weight or values to any of these factors, and individual directors may have
given different weights to different factors. After taking into account these
and other factors, the ClearOne board of directors unanimously determined that
the merger agreement and the merger were in the best interests of ClearOne and
its stockholders and that ClearOne should enter into the merger agreement and
complete the merger.
40
Other Prior Contacts Between ClearOne and E.mergent
Prior to the negotiations leading to the merger agreement described in
this proxy statement/prospectus, E.mergent served as a dealer for some of
ClearOne's products pursuant to an August 1998 room systems product dealer
agreement between ClearOne and Acoustic Communications System. The agreement is
a standard dealer agreement used by ClearOne for its other dealers, containing
usual and customary responsibilities and conditions. During calendar year 2001,
E.mergent purchased approximately $173,974 of products from ClearOne pursuant to
the dealer agreement.
Restrictions on Resale of ClearOne Common Stock
The shares of ClearOne common stock to be issued in connection with the
merger have been registered under the Securities Act and will be freely
transferable under the Securities Act, except for shares of ClearOne common
stock issued to any person who is deemed to be an "affiliate" of either ClearOne
or E.mergent immediately prior to the consummation of the merger. Persons who
may be deemed to be affiliates include individuals or entities that control, are
controlled by, or are under common control of either of ClearOne or E.mergent
and may include some of E.mergent's officers and directors, as well as
E.mergent's principal stockholders. Affiliates may not sell their shares of
ClearOne common stock acquired in connection with the merger except pursuant to:
o an effective registration statement under the Securities Act
covering the resale of those shares;
o an exemption under paragraph (d) of Rule 145 under the
Securities Act; or
o any other applicable exemption under the Securities Act.
ClearOne's registration statement on Form S-4, of which this document
forms a part, does not cover the resale of shares of ClearOne common stock to be
received by any person in the merger. This proxy statement/prospectus does not
cover any resale of ClearOne common stock that you receive in the merger, and no
person is authorized to make any use of this proxy statement/prospectus in
connection with any such resale.
Accounting Treatment of the Merger
ClearOne intends to account for the merger using the "purchase" method.
After the merger, the results of operations of E.mergent will be included in the
consolidated financial statements of ClearOne.
Material U.S. Federal Income Tax Consequences
In the opinion of Fredrikson & Byron, P.A., counsel to E.mergent, and
Jones, Waldo, Holbrook & McDonough, P.C., counsel to ClearOne, the following are
the material U.S. federal income tax consequences of the merger, assuming that
the merger is effected as described in the merger agreement and this proxy
statement/prospectus. Additionally, at the request of E.mergent, Fredrikson &
Byron, P.A., has rendered an opinion that, subject to certain assumptions,
limitations and qualifications as described below, the merger will qualify as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code.
Provided that the merger qualifies as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code, and subject to the
assumptions, limitations, and qualifications described herein:
o To the extent that you receive ClearOne common stock in
exchange for E.mergent common stock, you will not recognize
capital gain or loss, but you may recognize dividend income or
capital gains with respect to the cash payment that you
receive in exchange for each share of E.mergent common stock.
The amount of your taxable gain will be calculated as follows:
You will need to determine the total value of ClearOne stock
and cash that you receive. This amount must be compared to
your adjusted basis in your E.mergent stock. The excess of the
total value of ClearOne stock and cash received over your
adjusted basis in your E.mergent stock is your "realized
gain." If the amount of cash you receive is less than your
"realized gain," your taxable gain will be limited to the
amount of cash received. If the cash received exceeds your
"realized gain," then the amount of the "realized gain" will
be your taxable gain. If the total value of ClearOne stock and
cash received is less than your adjusted basis in E.mergent
stock, you are not allowed to recognize a loss for tax
reporting purposes.
o To the extent that you receive cash in exchange for E.mergent
common stock, the gain you recognize will be capital gain
unless the exchange "has the effect of the distribution of a
dividend" in which case you would generally have ordinary
41
income. In order to determine whether the exchange has the
effect of the distribution of a dividend, your receipt of cash
should be analyzed as if, first, you received solely ClearOne
common stock in exchange for your E.mergent common stock and
then the cash paid reduces your ClearOne common stock, in a
taxable redemption, to the number of shares of ClearOne stock
that you actually received. The deemed redemption will be
treated as a sale or exchange of the shares and not the
distribution of a dividend only if the deemed redemption of
your ClearOne shares satisfies one or more of the provisions
of Section 302(b) of the Internal Revenue Code. This
determination is made separately for each shareholder of
E.mergent. Assuming that the redemption satisfies the
requirements of one or more of the provisions of Section
302(b) of the Internal Revenue Code and you have held your
E.mergent shares for more than 12 months at the time of the
merger, any gain on such redemption will be a long-term
capital gain.
o If the deemed redemption does not satisfy one or more of the
provisions of Section 302(b) of the Internal Revenue Code, it
will be treated as a distribution that is subject to Section
301 of the Internal Revenue Code. In such case, the cash
proceeds will be treated first as a dividend (taxed as
ordinary income) to the extent of E.mergent's accumulated
earnings and profits at the time of the merger (on a pro rata
basis taking into account other Section 301 distributions made
by E.mergent during the year, including other deemed
redemptions resulting from the merger that are treated as
Section 301 distributions). To the extent the cash received
exceeds your ratable share of accumulated earnings and
profits, the excess will be treated as a capital gain.
o The aggregate tax basis of the ClearOne common stock received
by you in the merger (including any fractional shares of
ClearOne common stock deemed received and exchanged for cash),
will be equal to the aggregate adjusted tax basis of the
E.mergent stock exchanged in the merger, reduced by any amount
of cash that you receive in the merger for the E.mergent
common stock surrendered, and increased by the amount of cash
treated as a dividend and the amount recognized as a capital
gain.
o The holding period of the ClearOne common stock received by
you in the merger will include the holding period of the
E.mergent common stock surrendered in exchange for ClearOne
common stock.
o ClearOne and E.mergent will not recognize gain or loss solely
as a result of the merger.
If, however, the merger is completed at a time when the aggregate value
of the ClearOne common stock that is received by the E.mergent shareholders is
less than the aggregate value of the cash received by E.mergent shareholders in
the merger, the merger may not qualify as a reorganization under Section 368(a)
of the Internal Revenue Code. This would occur if the value of the ClearOne
stock declined to a price below $10.25 per share at the time of the merger.
Additionally, the Internal Revenue Service could challenge the reorganization
status of the merger. If the merger does not qualify as a reorganization under
Section 368(a), for U.S. federal income tax purposes, gain or loss would
generally be recognized equal to the difference between the value of the cash
and stock received and the tax basis for the E.mergent shares that were
exchanged. Any gain or loss will be a capital gain or loss (assuming shares are
held as a capital asset). Any such capital gain or loss will be long-term if, as
of the date of exchange, shares were held for more than one year, or will be
short-term if, as of such date, shares were held for one year or less. An
E.mergent shareholder's aggregate basis in the ClearOne common stock so received
would equal its fair market value as of the closing of the merger and the
holding period for such stock would begin the day after the closing of the
merger.
Under the merger agreement, ClearOne and E.mergent may choose to
complete the merger even though the value of the ClearOne common stock declines
below $10.25 and the merger does not qualify as a reorganization under Section
368(a) of the Internal Revenue Code. However, in the event that prior to the
closing, ClearOne and E.mergent determine that due to such a decline in the
value the merger would not qualify as a reorganization, and neither E.mergent
nor ClearOne terminates the merger due to such a decline as allowed under the
merger agreement, ClearOne and E.mergent intend to advise E.mergent's
shareholders of such circumstances and resolicit their approval of the merger.
Limitations on Opinions and Discussion. As noted earlier, the tax
opinions described herein are subject to certain assumptions, relating to, among
other things, the truth and accuracy of certain factual representations made by
E.mergent and ClearOne, the consummation of the merger in accordance with the
terms of the merger agreement and applicable state law and completion of the
merger at a time when the aggregate value of the ClearOne common stock that is
received by the E.mergent shareholders is greater than the aggregate value of
the cash received by E.mergent shareholders. Further neither E.mergent nor
ClearOne will request a ruling from the Internal Revenue Service with regard to
any of the U.S. federal income tax consequences of the merger. Furthermore, the
42
tax opinions will not bind the Internal Revenue Service and, therefore, the
Internal Revenue Service is not precluded from asserting a contrary position.
The tax opinions and this discussion are based on currently existing provisions
of the Internal Revenue Code, existing and proposed Treasury regulations, and
current administrative rulings and court decisions. There can be no assurance
that future legislative, judicial, or administrative changes or interpretations
will not adversely affect the accuracy of the tax opinions or of the statements
and conclusions set forth herein. Any such changes or interpretations could be
applied retroactively and could affect the tax consequences of the merger.
This discussion does not address all U.S. federal income tax
considerations that may be relevant to certain E.mergent shareholders in light
of their particular circumstances, or to shareholders subject to special rules
under U.S. federal income tax law, including dealers in securities, banks,
insurance companies, shareholders who do not hold their E.mergent common stock
as capital assets, foreign persons, tax-exempt entities, or persons who are
subject to the alternative minimum tax provisions of the Internal Revenue Code
Furthermore, it does not address E.mergent shareholders who acquired their
shares in connection with stock options or stock purchase plans or in other
compensatory transactions. It also does not address the tax consequences of the
merger under foreign, state, or local tax laws or the tax consequences of
transactions effectuated prior or subsequent to or concurrently with the merger,
whether or not such transactions are in connection with the merger, including,
without limitation, transactions in which E.mergent common stock is acquired or
ClearOne common stock is disposed of.
Accordingly, E.mergent shareholders are urged to consult their own tax
advisors as to the consequences of the merger, including the applicable federal,
state, local, and foreign tax consequences to them in their particular
circumstances.
Governmental Approvals and Regulatory Requirements
Under the merger agreement, we have agreed to use commercially
reasonable efforts to obtain all required governmental approvals and fulfill all
applicable regulatory requirements. We are not aware, however, of any material
federal or state regulatory requirements or approvals required for completion of
the merger, other than filing a certificate of merger in Delaware at or before
the effective time of the merger.
Dissenters' Rights of Appraisal
E.mergent stockholders will be entitled to appraisal rights as a result
of the merger under Section 262 of the Delaware General Corporate Law. Attached
is the full text of Section 262 of the Delaware General Corporate Law as Annex D
to this proxy statement/prospectus. The following summary of the provisions of
Section 262 of the Delaware General Corporation Law is not intended to be a
complete statement of its provisions and is qualified in its entirety by
reference to the full text of that law, which is incorporated by reference.
If the merger is completed, and a holder of E.mergent common stock (1)
delivers to E.mergent, prior to the special meeting vote on the merger, written
notice of an intention to exercise rights to appraisal of shares, (2) does not
vote in favor of the merger and (3) follows the procedures set forth in Section
262, the holder will be entitled to be paid the fair value of the shares of
E.mergent common stock as to which appraisal rights have been perfected. The
fair value of shares of E.mergent common stock will be determined by the
Delaware Court of Chancery, exclusive of any element of value arising from the
merger. The shares of E.mergent common stock with respect to which holders have
perfected their appraisal rights in accordance with Section 262 and have not
effectively withdrawn or lost their appraisal rights are referred to in this
section as the "dissenting shares."
Appraisal rights are available only to the record holder of shares. If
an E.mergent stockholder wishes to exercise appraisal rights but has a
beneficial interest in shares which are held of record by or in the name of
another person, such as a broker or nominee, the stockholder should act promptly
to cause the record holder to follow the procedures set forth in Section 262 to
perfect the stockholder's appraisal rights.
A demand for appraisal should be signed by or on behalf of the
stockholder exactly as the stockholder's name appears on the stockholder's stock
certificates. If the shares are owned of record in a fiduciary capacity such as
by a trustee, guardian or custodian, the demand should be executed in that
capacity, and if the shares are owned of record by more than one person, as in a
joint tenancy or tenancy in common, the demand should be executed by or on
behalf of all joint owners. An authorized agent, including one or more joint
owners, may execute a demand for appraisal on behalf of a record holder;
however, in the demand the agent must identify the record owner or owners and
expressly disclose that the agent is executing the demand as an agent of the
record owner or owners. A record holder such as a broker who holds shares as
nominee for several beneficial owners may exercise appraisal rights of the
shares held for one or more beneficial owners and not exercise rights of the
43
shares held for other beneficial owners. In this case, the written demand should
state the number of shares for which appraisal rights are being demanded. When
no number of shares is stated, the demand will be presented to cover all shares
of record by the broker or nominee.
If an E.mergent stockholder demands appraisal of the stockholder's
shares under Section 262 and fails to perfect, or effectively withdraws or
loses, the stockholder's right to appraisal, the stockholder's shares will be
converted into a right to receive cash and a number of shares of ClearOne common
stock in accordance with the terms of the merger agreement. Dissenting shares
lose their status as dissenting shares if:
o the merger is abandoned;
o the dissenting stockholder fails to make a timely written
demand for appraisal;
o the dissenting shares are voted in favor of adoption of the
merger or the merger agreement;
o no petition for appraisal is filed with the Court of Chancery
within 120 days after the effective date of the merger;
o the dissenting stockholder fails to hold the dissenting shares
on the date of the demand through the effective date of the
merger; or
o the dissenting stockholder delivers to ClearOne within 60 days
of the effective date of the merger, or thereafter with
ClearOne's approval, a written withdrawal of the stockholder's
demand for appraisal of the dissenting shares, although no
appraisal proceeding in the Delaware Court of Chancery may be
dismissed as to any stockholder without the approval of the
court.
Failure to follow the steps required by Section 262 of the Delaware
General Corporation Law for perfecting appraisal rights may result in the loss
of the stockholder's appraisal rights, in which event a stockholder will be
entitled to receive the consideration with respect to the stockholder's
dissenting shares in accordance with the merger agreement. In view of the
complexity of the provisions of Section 262 of the Delaware General Corporation
Law, if a stockholder is considering objecting to the merger should that option
become available, the stockholder should consult the stockholder's own legal
advisor.
Within ten days after the effective date of the merger, ClearOne must
mail a notice to all stockholders who have complied with (1) and (2) above
notifying such stockholders of the effective date of the merger. Within 120 days
after the effective date, holders of E.mergent common stock may file a petition
in the Delaware Court of Chancery for the appraisal of their shares, although
they may, within 60 days of the effective date, withdraw their demand for
appraisal. Within 120 days of the effective date, the holders of dissenting
shares may also, upon written request, receive from ClearOne a statement setting
forth the aggregate number of shares with respect to which demands for
appraisals have been received.
Description of ClearOne Capital Stock
The authorized capital stock of ClearOne consists of 50,000,000 shares
of common stock, $0.001 par value. As of the close of business on March 12,
2002, 10,156,337 shares of ClearOne common stock were issued and outstanding.
Holders of common stock are entitled to one vote per share on all matters voted
upon by stockholders. All shares rank equally as to voting and all other
matters. The shares of ClearOne common stock have no preemptive or conversion
rights, no redemption or sinking fund provisions, are not liable for further
call or assessment, and are not entitled to cumulative voting rights. All of the
issued and outstanding shares of ClearOne common stock are fully paid and
nonassessable. In the event of a liquidation or dissolution of ClearOne, whether
voluntary or involuntary, the holders of ClearOne common stock will be entitled
to receive, pro rata, the assets of ClearOne remaining for distribution to its
stockholders. The holders of ClearOne common stock will be entitled to receive,
pro rata, dividends out of legally available funds, but only when, as and if
declared by the ClearOne board of directors. See also "Comparison of Stockholder
Rights."
Listing with Nasdaq the ClearOne Common Stock to be Issued in the Merger
ClearOne has agreed to cause the shares of ClearOne common stock to be
issued in the merger to be approved for listing on the Nasdaq National Market
before the completion of the merger, subject to official notice of issuance.
44
Delisting and Deregistration of E.mergent Common Stock After the Merger
When the merger is completed, E.mergent common stock will be delisted
from the Nasdaq SmallCap Market and will be deregistered under the Securities
Exchange Act.
Operations After the Merger
Following the merger, E.mergent will continue its operations as a
wholly-owned subsidiary of ClearOne for some period of time. The stockholders of
E.mergent will become stockholders of ClearOne, and their rights as stockholders
will be governed by the ClearOne articles of incorporation, as currently in
effect, the ClearOne bylaws and the laws of the State of Utah. See the section
entitled "Comparison of Stockholder Rights" beginning on page 66 of this
document. The membership of ClearOne's board of directors will remain unchanged
as a result of the merger. Further, it is anticipated that upon the closing of
the merger, Robin Sheeley, E.mergent's current Chief Technical Officer will
become ClearOne's new Chief Technology Officer, Jim Hansen will resign as
E.mergent's Chairman, Chief Executive Officer, President and Treasurer and Jill
Larson will resign as E.mergent's Vice President-Administration and Corporate
Secretary.
Exchange of E.mergent Stock Certificates for ClearOne Stock Certificates
Promptly after the effective time of the merger, if you are the holder
of an E.mergent stock certificate, the exchange agent for the merger, American
Stock Transfer, will mail to you a letter of transmittal and instructions for
surrendering your E.mergent stock certificates in exchange for the cash payment
and ClearOne stock certificates being issued in the merger, and any dividends or
other distributions, if any, to which you are or may be entitled. When you
deliver your E.mergent stock certificates to the exchange agent, along with any
required documents, your E.mergent stock certificates will be canceled and, if
you are a holder of E.mergent common stock, you will receive ClearOne stock
certificates representing the number of full shares of ClearOne common stock to
which you are entitled under the merger agreement and you will receive a check
payable in the amount of the aggregate cash consideration, without interest,
payable to you in connection with the merger. You will also receive payment in
cash, without interest, in lieu of any fractional share of ClearOne common stock
that would have been otherwise issuable to you as a result of the merger.
YOU SHOULD NOT SUBMIT YOUR E.MERGENT STOCK CERTIFICATES FOR EXCHANGE UNTIL YOU
RECEIVE INSTRUCTIONS FROM THE EXCHANGE AGENT FOR THE MERGER.
You are not entitled to receive any dividends or other distributions on
ClearOne common stock with a record date after the merger is completed until you
have surrendered your E.mergent stock certificates. Promptly after your ClearOne
stock certificates are issued, you will receive payment for any dividend or
other distribution on ClearOne common stock with a record date after the merger
and a payment date prior to the date you surrender your E.mergent stock
certificates.
ClearOne will only make the cash payment and issue a ClearOne stock
certificate in a name other than the name in which a surrendered E.mergent stock
certificate is registered if you present the exchange agent with all documents
required to show and effect the unrecorded transfer of ownership of the shares
of E.mergent common stock formerly represented by such E.mergent stock
certificate, and show that you paid any applicable stock transfer taxes.
If your E.mergent stock certificate has been lost, stolen or destroyed,
you may be required to deliver an affidavit and a lost certificate bond as a
condition to receiving your cash payment and ClearOne stock certificate.
The cash and stock issuable to you in the merger is subject to
withholding taxes to the extent required under U.S. federal or state, local or
foreign law.
45
AGREEMENT AND PLAN OF MERGER
The following summary of the merger agreement is qualified in its
entirety by reference to the complete text of the merger agreement, which is
attached as Annex A to this proxy statement/prospectus. We urge you to read the
full text of the merger agreement.
Structure of the Merger
Under the terms of the merger agreement, E.mergent will be merged with
and into Tundra, and Tundra will survive the merger as a wholly-owned subsidiary
of ClearOne. After the merger, the subsidiary will use the name E.mergent, Inc.
or such other name as determined by ClearOne.
Completion and Effectiveness of the Merger
Assuming that all of the conditions to completion of the merger
contained in the merger agreement have been satisfied or waived, we expect to
complete the merger shortly after approval of the merger by the E.mergent
stockholders. As part of completing the merger, ClearOne and E.mergent will file
a certificate of merger with the State of Delaware, and the merger will become
effective at the time specified in the certificate of merger. Because the merger
is subject to certain conditions as described below, however, we are not able to
predict the precise timing of the completion of the merger.
Conversion of E.mergent Common Stock
At the effective time of the merger, by virtue of the merger and
without any action on the part of ClearOne, E.mergent or any of their respective
security holders, each outstanding share of E.mergent common stock issued and
outstanding immediately prior to the effective time will be canceled and
extinguished and automatically converted into the right to receive a fixed
number of shares of ClearOne common stock and a fixed amount of cash. The number
of shares of ClearOne common stock and the amount of cash is based on exchange
ratios calculated at the completion of the merger as follows:
o each issued and outstanding share of E.mergent common stock
will receive an amount of cash determined by dividing (A)
$7,300,000 by (B) the total number of shares of E.mergent
common stock issued and outstanding immediately prior to the
effective time of the merger; and
o each issued and outstanding share of E.mergent common stock
will receive a fraction of a share of ClearOne common stock
determined by the following formula:
(A - B) / C
where
A = 873,000
B = the aggregate number of shares of ClearOne common
stock allocated to the E.mergent shares subject to
the E.mergent stock options being assumed by ClearOne
in the merger
C = the number of issued and outstanding shares of
E.mergent common stock issued and outstanding
immediately prior to the effective time of the merger
The number of ClearOne common stock shares allocated to the E.mergent
stock options being assumed by ClearOne is determined by multiplying the number
of E.mergent stock options outstanding immediately prior to completion of the
merger by an option exchange ratio. The option exchange ratio is calculated at
completion of the merger as follows:
Option exchange ratio = (TV / TS) / AP
where
TV = the sum of $7,300,000 plus the product of (i)
873,000 times (ii) the weighted average closing price
of the ClearOne common stock for the 10 trading days
ending one trading day prior to the date of
completion of the merger, as quoted on the Nasdaq
National Market
46
TS = the aggregate number of shares of E.mergent common
stock and E.mergent stock options outstanding
immediately prior to the effective time of the merger
AP = the weighted average closing price of the ClearOne
common stock for the 10 trading days ending one
trading day prior to the date of completion of the
merger, as quoted on the Nasdaq National Market
E.mergent common stock held in the E.mergent Employee Stock Purchase
Plan immediately prior to the effective time will be converted at the completion
of the merger in the manner applicable to other outstanding E.mergent common
stock. Any outstanding employee deposits in the Employee Stock Purchase Plan not
applied to the purchase of shares of E.mergent common stock at that time will be
refunded to the depositing employee.
As described above, the amount of cash and shares of ClearOne common
stock that will be exchanged in the merger for each share of E.mergent common
stock will depend on a number of factors determined immediately prior to the
merger: (1) the number of issued and outstanding shares of E.mergent common
stock; (2) the weighted average closing price of ClearOne common stock, (3) the
number of E.mergent stock options remaining outstanding after any option
exercises completed prior to the merger, (4) whether the exercise of stock
options prior to the merger is done with cash or in a cashless manner, and (5)
if options are exercised in a cashless manner, the closing price of a share of
E.mergent common stock on the date of exercise.
The table below shows how the approximate amount of cash and ClearOne common
stock shares that would be exchanged for each issued and outstanding share of
E.mergent common stock in the merger may vary with changes in the weighted
average closing price of the ClearOne common stock and the number of E.mergent
stock options that are exercised prior to the merger:
E.mergent Stock Options Exercised (Cashless Exercise)
----------------------------------------------------------------------------------------------------------------
ClearOne None 50% 100%
Average ------------------------------------ ----------------------------------- ----------------------------------
Market ClearOne Combined ClearOne Combined ClearOne Combined
Price Cash Shares Value Cash Shares Value Cash Shares Value
-------------- ------------------------------------ ----------------------------------- ----------------------------------
$12.00 $1.231 0.1240 $2.719 $1.198 0.1318 $2.780 $1.168 0.1396 $2.843
$13.00 $1.231 0.1248 $2.853 $1.198 0.1322 $2.916 $1.168 0.1396 $2.983
$14.00 $1.231 0.1254 $2.986 $1.198 0.1325 $3.053 $1.168 0.1396 $3.122
$15.00 $1.231 0.1259 $3.120 $1.198 0.1328 $3.189 $1.168 0.1396 $3.262
$16.00 $1.231 0.1264 $3.253 $1.198 0.1330 $3.326 $1.168 0.1396 $3.402
$16.45* $1.231 0.1266 $3.313 $1.198 0.1331 $3.387 $1.168 0.1369 $3.465
$17.00 $1.231 0.1268 $3.387 $1.198 0.1332 $3.462 $1.168 0.1396 $3.541
$18.00 $1.231 0.1272 $3.520 $1.198 0.1334 $3.599 $1.168 0.1396 $3.681
$19.00 $1.231 0.1275 $3.654 $1.198 0.1335 $3.735 $1.168 0.1396 $3.821
$20.00 $1.231 0.1278 $3.787 $1.198 0.1337 $3.872 $1.168 0.1396 $3.960
$21.00 $1.231 0.1281 $3.921 $1.198 0.1338 $4.008 $1.168 0.1396 $4.100
$22.00 $1.231 0.1284 $4.055 $1.198 0.1339 $4.145 $1.168 0.1396 $4.240
$23.00 $1.231 0.1286 $4.188 $1.198 0.1341 $4.282 $1.168 0.1396 $4.380
------------------------------------ ----------------------------------- ----------------------------------
*The actual closing sales price of ClearOne common stock on April, 25, 2002.
The table is based on the following assumptions: (1) E.mergent has 5,931,280
shares issued and outstanding (which was the number actually issued and
outstanding on April 25, 2002, including 50,317 treasury shares E.mergent
intends to issue as employee bonuses prior to the merger), (2) E.mergent does
not issue additional shares of common stock prior to the merger except pursuant
to the exercise of outstanding stock options; and (3) any exercise of the
606,000 outstanding E.mergent stock options is done in a cashless manner using a
price of $3.35 per E.mergent share (which was the closing share price of
E.mergent common stock on April 25, 2002) to determine the value of the options
extinguished in the exercise.
While the table above shows the approximate exchange amounts resulting
from a weighted average price of ClearOne common stock that is between $23 and
$12, such weighted average price could be above or below that range. In such
47
case, the approximate exchange amounts would change based on such price.
However, both E.mergent and ClearOne have the right to terminate the merger if
the weighted average closing price of ClearOne common stock for the 15 trading
days ending one day prior to the date of the scheduled completion of the merger
is greater than $23 or less than $14.
The examples given above are estimates based upon assumptions that may
or may not be accurate at the effective time of the merger. The actual exchange
ratios in the merger may differ from these examples. For example, the exercise
of E.mergent stock options with cash instead of through cashless exercises, will
have the effect of increasing the number of issued and outstanding E.mergent
common stock shares at the time of the merger, thereby reducing the amount of
cash and shares of ClearOne common stock that would be exchanged for each
E.mergent share.
Each share of E.mergent common stock held by E.mergent, ClearOne, or
any direct or indirect wholly-owned subsidiary of ClearOne immediately prior to
the effective time of the merger will be canceled and extinguished. Fifty
thousand three hundred and seventeen (50,317) shares of E.mergent common stock
currently held by E.mergent as treasury shares will be issued to E.mergent
employees as part of an anticipated bonus prior to completion of the merger and
will be treated as issued and outstanding shares at the effective time of the
merger.
The exchange ratios used in the merger will also be adjusted to reflect
the effect of any forward stock split, reverse stock split, stock dividend
(including any dividend or distribution of securities convertible into ClearOne
common stock or E.mergent common stock), extraordinary cash dividend,
reorganization, recapitalization, reclassification, combination, exchange of
shares or other like changes with respect to ClearOne common stock or E.mergent
common stock occurring prior to the effective time of the merger.
Fractional Shares
No fractional shares of ClearOne common stock will be issued in
connection with the merger. In lieu of a fraction of a share of ClearOne common
stock each holder of E.mergent common stock who would otherwise be entitled to
receive a fraction of a share of ClearOne common stock will receive an amount of
cash, without interest, and rounded to the nearest cent, determined by
multiplying such fraction by the average closing price of a share of ClearOne
common stock for the ten (10) trading days ending one trading day prior to the
date of completion of the merger, as reported on the Nasdaq National Market.
Stock Options
Upon completion of the merger, each outstanding option to purchase
E.mergent common stock, whether vested or unvested, will be assumed by ClearOne
and become an option to purchase that number of shares of ClearOne common stock
equal to the number of shares of E.mergent common stock issuable upon the
exercise of such E.mergent stock option, multiplied by the option exchange ratio
for the merger, rounded down to the nearest whole number of shares. The per
share exercise price of each such E.mergent stock option will be adjusted to an
exercise price equal to the per share exercise price of such E.mergent stock
option divided by the option exchange ratio for the merger, rounded up to the
nearest whole cent. All other terms of each E.mergent stock option will be
unchanged by the merger. As of April 25, 2002, options to purchase approximately
606,000 shares of E.mergent common stock were outstanding in the aggregate.
ClearOne will file a registration statement on Form S-8 to register the shares
of ClearOne common stock issuable upon the exercise of E.mergent stock options
assumed by ClearOne within 15 business days after the effective time of the
merger.
Certificate Exchange Procedures
The merger agreement establishes the procedures for the E.mergent
stockholders to exchange their stock certificates in the merger, which
procedures are described on page 45 of this proxy statement/prospectus.
E.mergent's Representations and Warranties
E.mergent made a number of customary representations and warranties to
ClearOne in the merger agreement regarding aspects of its business, financial
condition, structure and other facts pertinent to the merger. These
representations and warranties include representations as to:
o the corporate organization and qualification to do the
business of E.mergent;
o the certificates of incorporation and bylaws of E.mergent;
48
o E.mergent's capitalization;
o authorization of the merger agreement by E.mergent;
o regulatory and third party approvals required to complete the
merger and operate the business;
o the obligations of E.mergent under applicable laws and
contracts in connection with the merger;
o compliance with applicable laws by E.mergent and certain
environmental matters pertaining to E.mergent;
o permits required to conduct E.mergent's business and
compliance with those permits;
o E.mergent's filings and reports with the Securities and
Exchange Commission;
o E.mergent's financial statements;
o E.mergent's liabilities;
o changes in E.mergent's business since September 30, 2001 and
actions taken by E.mergent since September 30, 2001;
o litigation involving E.mergent;
o E.mergent's employee benefit plans;
o E.mergent's labor relations;
o the absence of restrictions on the conduct of business by
E.mergent;
o title to the properties E.mergent owns and leases;
o E.mergent's taxes;
o payments required to be made by E.mergent to brokers and
agents in connection with the merger;
o intellectual property matters pertaining to E.mergent;
o E.mergent's material contracts;
o the opinion of Goldsmith, Agio, Helms;
o E.mergent's insurance coverage;
o the vote of E.mergent stockholders required to adopt and
approve the merger agreement and approve the merger;
o approvals by the E.mergent board of directors in connection
with the merger; and
o information supplied by E.mergent in this document and the
related registration statement filed by ClearOne.
The representations and warranties of E.mergent contained in the merger
agreement expire at the completion of the merger.
ClearOne's Representations and Warranties
ClearOne and Tundra have made a number of customary representations and
warranties to E.mergent in the merger agreement regarding aspects of ClearOne's
business, financial condition, structure and other facts pertinent to the
merger. These representations and warranties include representations as to:
o the corporate organization and qualification to do business of
ClearOne;
49
o the certificate of incorporation and bylaws of ClearOne and
its subsidiaries;
o ClearOne's capitalization;
o authorization of the merger agreement by ClearOne and Tundra;
o regulatory and third party approvals and filings required to
complete the merger;
o the obligations of ClearOne under applicable laws in
connection with the merger;
o ClearOne's filings and reports with the Securities and
Exchange Commission;
o ClearOne's financial statements;
o the absence of material adverse changes in ClearOne's business
since September 30, 2001;
o litigation involving ClearOne;
o certain aspects of Tundra;
o information supplied by ClearOne in this document and the
related registration statement filed by ClearOne; and
o the liabilities of ClearOne.
The representations and warranties of ClearOne and Tundra contained in
the merger agreement expire at the completion of the merger.
The representations and warranties contained in the merger agreement
are complicated and not easily summarized. You are urged to carefully read
Articles II and III of the merger agreement entitled "Representations and
Warranties of Company" and "Representations and Warranties of Parent and Merger
Sub," respectively.
E.mergent's Conduct of Business Before Completion of the Merger
Under the terms of the merger agreement, E.mergent agreed that, until
the earlier of the completion of the merger or termination of the merger
agreement, or unless ClearOne consents in writing, E.mergent will:
o carry on its business in the usual, regular and ordinary
course, in substantially the same manner as it was conducted
prior to the date of the merger agreement and in compliance
with all applicable laws;
o pay its debts and taxes when due; and
o pay or perform other material obligations when due; and use
its commercially reasonable efforts consistent with past
practices and policies to:
o preserve intact its present business organization;
o keep available the services of its present officers and
employees; and
o preserve its relationships with customers, suppliers,
distributors, licensors, licensees and others with which it
has significant business dealings.
Under the terms of the merger agreement, E.mergent also agreed that,
until the earlier of the completion of the merger or termination of the merger
agreement, or unless ClearOne consents in writing or specific notification
procedures are followed by E.mergent, E.mergent will comply with certain
specific restrictions relating to the operation of its business, including
restrictions relating to the following:
o changes with respect to E.mergent restricted stock and stock
options;
o the granting or amendment of severance and termination
payments;
o the transfer or license of intellectual property;
50
o the declaration or payment of dividends or other distributions
on E.mergent capital stock;
o the repurchase, redemption or acquisition of E.mergent capital
stock;
o the issuance, pledge or encumbrance of capital stock;
o the modification of the certificate of incorporation or bylaws
of E.mergent or its subsidiaries;
o the acquisition of other business entities;
o the entering into of joint ventures, strategic partnerships or
alliances;
o the sale, lease, license and disposition of assets;
o the modification or termination of material contracts
affecting E.mergent properties, or creation of material
liabilities with regard to such properties;
o the incurrence of indebtedness;
o the adoption or amendment of employee benefit plans;
o the entering into of employment or collective bargaining
agreements, payment of bonuses or increasing compensation
rates;
o payment or settlement of liabilities;
o waivers or modifications to existing confidentiality
agreements;
o modification or termination of material contracts or waivers
of material rights under material contracts;
o the revaluation of any assets or change accounting methods,
principals or practices;
o the making of any tax elections; and
o the making of any agreement or commitment expenditures outside
the ordinary course of business in excess of $500,000.
The agreements related to the conduct of E.mergent's business in the
merger agreement are complicated and not easily summarized. You are urged to
carefully read Article IV of the merger agreement entitled "Interim Conduct."
ClearOne's Conduct of Business Before Completion of the Merger
Under the terms of the merger agreement, ClearOne agreed that, until
the earlier of the completion of the merger or termination of the merger
agreement, or unless E.mergent consents in writing, ClearOne will not declare,
set aside or pay any dividends or other distributions unless the consideration
given in the merger is appropriately adjusted.
Material Covenants
Recommendation by E.mergent Board of Directors
Under the terms of the merger agreement, E.mergent has agreed that,
subject to the merger agreement's provisions regarding withdrawal of the
E.mergent board of directors' recommendation regarding the merger:
o its board of directors will recommend by unanimous vote of its
non-interested directors that its stockholders vote in favor
of and adopt and approve the merger agreement and the merger
at the E.mergent special stockholders' meeting;
o this document will include a statement to the effect that the
E.mergent board of directors so unanimously recommends such
stockholder approval; and
51
o neither E.mergent nor its board of directors will withdraw,
amend or modify, or propose or resolve to withdraw, amend or
modify in a manner adverse to ClearOne such unanimous
recommendation.
For purposes of the merger agreement, the recommendation of the
E.mergent board of directors is deemed to have been modified in a manner adverse
to ClearOne if it is no longer a unanimous recommendation of its non-interested
directors.
Solicitations by E.mergent; Withdrawal of Recommendation by E.mergent
Board of Directors
Under the terms of the merger agreement, E.mergent agreed to cease, as
of the date of the merger agreement, any and all existing activities,
discussions or negotiations with any parties other than ClearOne conducted prior
to the date of the merger agreement with respect to any Acquisition Proposal.
Under the terms of the merger agreement, an Acquisition Proposal is any
offer or proposal relating to an Acquisition Transaction (other than an offer or
proposal from ClearOne), and an Acquisition Transaction is any transaction or
series of related transactions (other than the merger) involving any of the
following:
o the acquisition or purchase from E.mergent by any person or
group of more than a 15% interest in the total outstanding
voting securities of E.mergent or any of its subsidiaries;
o any tender offer or exchange offer that if consummated would
result in any person or group beneficially owning 15% or more
of the total outstanding voting securities of E.mergent or any
of its subsidiaries;
o any merger, consolidation, business combination or similar
transaction involving E.mergent in which the stockholders of
E.mergent immediately preceding such transaction hold less
than 85% of the equity interests in the surviving or resulting
entity of such transaction;
o any sale, lease, exchange, transfer, license, acquisition or
disposition of more than 15% of the assets of E.mergent; or
o any liquidation or dissolution of E.mergent.
Until the merger is completed or the merger agreement is terminated,
under the terms of the merger agreement E.mergent further agreed that neither it
nor any of its subsidiaries will, directly or indirectly (nor will they
authorize or permit any of their respective officers, directors, affiliates or
employees or any of their investment bankers, attorneys or other advisors or
representatives to):
o solicit, initiate, encourage or induce the making, submission
or announcement of any Acquisition Proposal;
o subject to certain limited exceptions applicable upon receipt
of a Superior Offer, as described below, participate in any
discussions or negotiations regarding, or furnish non-public
information with respect to, any Acquisition Proposal;
o take any other action to facilitate any inquiries or the
making of any proposal that is or may reasonably be expected
to lead to any Acquisition Proposal;
o subject to certain limited exceptions applicable upon receipt
of a Superior Offer, as described below, engage in discussions
with any person with respect to any Acquisition Proposal;
o subject to certain limited exceptions in the event of a
Superior Offer, as described below, approve, endorse or
recommend any Acquisition Proposal; or
o enter into any letter of intent or similar document or any
contract, agreement or commitment contemplating or otherwise
relating to any Acquisition Transaction.
Any violation of any of the restrictions described in the preceding
paragraph by any officer or director of E.mergent, or any investment banker,
attorney or other advisor or representative of E.mergent is deemed to be a
breach of the relevant restriction by E.mergent.
52
Under the terms of the merger agreement, E.mergent has also agreed to
inform ClearOne, as promptly as practicable, of any request received by
E.mergent for non-public information that E.mergent reasonably believes would
lead to an Acquisition Proposal, or of any Acquisition Proposal, or any inquiry
received by E.mergent with respect to or which E.mergent reasonably should
believe would lead to any Acquisition Proposal, the material terms and
conditions of such request, Acquisition Proposal or inquiry, and the identity of
the person or group making any such request, Acquisition Proposal or inquiry.
E.mergent further agreed to use reasonable efforts to keep ClearOne informed in
all material respects of the status and details, including material amendments
or proposed amendments, of any such request, Acquisition Proposal or inquiry.
E.mergent is expressly permitted, however, to furnish non-public
information regarding E.mergent and its subsidiaries to, and to enter into a
confidentiality agreement with or discussions with, any person or group in
response to a Superior Offer submitted by the person or group, and not
withdrawn, if all of the following conditions are met:
o neither E.mergent nor any of its representatives, or
subsidiaries has breached the non-solicitation provisions
contained in the merger agreement described above;
o the board of directors of E.mergent concludes in good faith,
after consultation with its outside legal counsel, that such
action is required in order for the E.mergent board of
directors to comply with its fiduciary duties to E.mergent's
stockholders under applicable law;
o at least three business days prior to furnishing any such
information to, or entering into discussions or negotiations
with, the person or group, E.mergent gives ClearOne written
notice of the identity of such person or group and of
E.mergent's intention to furnish information to, or enter into
discussion or negotiations with, such person or group, and
E.mergent receives from such person or group an executed
confidentiality agreement containing customary limitations on
the use and disclosure of all non-public written and oral
information furnished to such person or group by or on behalf
of E.mergent; and
o contemporaneously with furnishing any non-public information
to the person or group, E.mergent furnishes the same
non-public information to ClearOne, to the extent such
non-public information has not been previously furnished by
E.mergent to ClearOne.
Under the terms of the merger agreement, a Superior Offer is an
unsolicited, bona fide, written offer from a third party to consummate any of
the following transactions on terms that the board of directors of E.mergent
determines, in its reasonable judgment, based on the advice of a financial
advisor of nationally recognized reputation, to be more favorable to the
E.mergent stockholders from a financial point of view than the terms of the
merger:
o a merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar
transaction involving E.mergent pursuant to which the
stockholders of E.mergent immediately preceding such
transaction hold less than a majority of the equity interests
in the surviving or resulting entity of such transaction;
o the acquisition by any person or group, including by way of a
tender or exchange offer or issuance by E.mergent, directly or
indirectly, of beneficial ownership or a right to acquire
beneficial ownership of shares representing a majority of the
voting power of the outstanding shares of E.mergent's capital
stock; or
o a sale or other disposition by E.mergent of substantially all
of its assets.
Under the terms of the merger agreement, the E.mergent board of
directors is permitted to withdraw, amend or modify the unanimous recommendation
of its non-interested directors in favor of the merger only if:
o a Superior Offer is made and not withdrawn;
o neither E.mergent nor any of its representatives has breached
the non-solicitation provisions of the merger agreement
described above; and
o the board of directors of E.mergent concludes in good faith,
after consultation with its outside counsel that, in light of
the Superior Offer, the withdrawal, amendment or modification
of its recommendation is required in order for the E.mergent
53
board of directors to comply with its fiduciary duties to
E.mergent's stockholders under applicable law.
E.mergent must give ClearOne at least 72 hours notice of the
commencement of the change to the unanimous recommendation of its non-interested
directors, and provide ClearOne with the opportunity to meet with E.mergent and
its counsel. In addition, under the terms of the merger agreement, E.mergent has
agreed to provide ClearOne with at least 48 hours prior notice (or such lesser
prior notice as provided to the E.mergent board of directors, but in no event
less than eight hours) of any meeting of the E.mergent board of directors at
which the E.mergent board of directors is reasonably expected to consider a
Superior Offer. Furthermore, E.mergent has agreed to provide ClearOne with at
least three business days prior written notice of a meeting of the E.mergent
board of directors at which the E.mergent board of directors is reasonably
expected to recommend a Superior Offer to E.mergent's stockholders (together
with a copy of the all documentation relating to such Superior Offer).
Regardless of whether there has been a Superior Offer, and regardless
of whether the E.mergent board of directors withdraws, amends or modifies the
unanimous recommendation of its non-interested directors in favor of the merger,
E.mergent is obligated, under the terms of the merger agreement, to hold and
convene the special meeting of E.mergent stockholders at which the merger
agreement and the merger will be considered and voted upon.
Other Covenants
Under the terms of the merger agreement, each of ClearOne and E.mergent
have also agreed to the following additional items:
o E.mergent has agreed to take the necessary action to hold the
special shareholders meeting for the purposes of obtaining
stockholder approval of the merger agreement and the merger,
all in compliance with applicable law and Nasdaq requirements.
o E.mergent has agreed to use its commercially reasonable
efforts to solicit from its stockholders proxies in favor of
the adoption and approval of the merger agreement and the
approval of the merger and shall take all other action
necessary or advisable to secure the vote or consent of its
stockholders required by the rules of Nasdaq and applicable
law.
o Both ClearOne and E.mergent will take the necessary action to
prepare this proxy statement/prospectus and related
registration statement, and cooperate with each other to take
such other action and file other documents as are necessary to
comply with applicable securities laws.
o E.mergent will allow ClearOne and its agents access to
E.mergent's properties, books, records and personnel for the
purpose of obtaining information about E.mergent and its
properties.
o ClearOne will provide E.mergent employees who remain after the
merger with employment benefits that are substantially
comparable in the aggregate to benefits available to similarly
situated employees of ClearOne and its subsidiaries, provided
such benefits are available on reasonably acceptable terms.
Unless requested otherwise by ClearOne, E.mergent's 401k plan
will be terminated. ClearOne will take steps, to the extent
practicable and permitted by ClearOne's plan, to enable
continuing employees to roll over distributions to a
tax-qualified defined contribution plan maintained by ClearOne
or an affiliate of ClearOne.
o Each of ClearOne and E.mergent will use its commercially
reasonable efforts to take, or cause to be taken, all
reasonable actions and to do, or cause to be done, all things
necessary, proper or advisable to consummate and make
effective in the most expeditious manner practicable the
merger and transactions contemplated by the merger agreement
and to assist and cooperate with each other in doing such
things, including:
o causing the conditions to the completion of the merger to be
satisfied;
o obtaining any necessary actions, waivers, consents, approvals,
orders and authorizations by or from any governmental entity,
making all necessary registrations, declarations and filings,
avoiding any suit, claim, action, investigation or proceeding
by any governmental entity;
54
o defending all lawsuits or other legal proceedings challenging
the merger agreement or the consummation of the merger; and
o executing or delivering any additional instruments reasonably
necessary to consummate the transactions contemplated by the
merger agreement.
o Each of ClearOne and E.mergent will use its commercially
reasonable efforts to obtain any consents, waivers and
approvals under any of its or its subsidiaries' respective
agreements, contracts, licenses or leases required to be
obtained from third parties in connection with the
consummation of the transactions contemplated by the merger
agreement.
o Each of ClearOne and E.mergent will promptly notify the other
upon becoming aware of any breach in any material respect of
any representation or warranty contained in, or failure to
comply in any material respect with any covenant, condition or
agreement to be complied with or satisfied by it under, the
merger agreement.
o ClearOne will take such action as is necessary to ensure that
the shares of ClearOne common stock issuable in connection
with the merger will be listed on the Nasdaq National Market.
o ClearOne and E.mergent will consult with each other, and
agree, before issuing any press release, and will consult with
each other and to the extent practicable, agree, before
otherwise making any public statement with respect to the
merger agreement, the other party, or an Acquisition Proposal.
o ClearOne will file a registration statement on Form S-8 to
register the shares of ClearOne common stock issuable upon the
exercise of E.mergent stock options assumed by ClearOne within
15 business days after the effective time of the merger.
The agreements related to the conduct of E.mergent and ClearOne prior
to the closing of the merger are complicated and not easily summarized. You are
urged to carefully read Article V of the merger agreement entitled "Additional
Agreements."
Conditions to Completion of the Merger
The obligations of ClearOne and E.mergent to complete the merger and
the other transactions contemplated by the merger agreement are subject to the
satisfaction or waiver, where permitted, of each of the following conditions:
o the merger agreement must have been adopted and approved, and
the merger must have been approved, by the requisite
stockholders of E.mergent;
o no court or other governmental entity have enacted or issued
any statute, rule, regulation, judgment, decree, injunction or
other order which prohibits consummation of the merger;
o ClearOne's registration statement on Form S-4 of which this
document forms a part must have been declared effective, no
stop order suspending its effectiveness may be in effect and
no proceedings for suspension of its effectiveness may be
pending before or threatened in writing by the Securities and
Exchange Commission; and
o the shares of ClearOne common stock to be issued in the merger
must have been authorized for listing on the Nasdaq National
Market.
E.mergent's obligations to complete the merger and the other
transactions contemplated by the merger agreement are subject to the
satisfaction or waiver of each of the following additional conditions:
o each of ClearOne's and Tundra's representations and warranties
must have been true and correct as of the date of the merger
agreement, and must continue to be true and correct on and as
of the date the merger is to be completed as if made on such
date, except:
o to the extent ClearOne's and Tundra's representations and
warranties address matters only as of a particular date, they
must be true correct only as of that date;
55
o to the extent that any inaccuracies of such representations
and breaches of such warranties do not in any case, or in the
aggregate, have a material adverse effect on ClearOne and
Tundra; or
o for changes contemplated by the merger agreement; and
o ClearOne and Tundra must have performed or complied in all
material respects with all of their agreements and covenants
required by the merger agreement to be performed or complied
with by ClearOne and Tundra.
ClearOne's obligations to complete the merger and the other
transactions contemplated by the merger agreement are subject to the
satisfaction or waiver of each of the following additional conditions:
o each of E.mergent's representations and warranties must have
been true and correct as of the date of the merger agreement,
and must continue to be true and correct on and as of the date
the merger is to be completed as if made on such date, except:
o to the extent E.mergent's representations and warranties
address matters only as of a particular date, they must be
true and correct only as of that date;
o to the extent that any inaccuracies of such representations
and breaches of such warranties do not in any case, or in the
aggregate, have a material adverse effect on E.mergent (except
with regard to capitalization); or
o for changes contemplated by the merger agreement; and
o E.mergent must have performed or complied in all material
respects with all of its agreements and covenants required by
the merger agreement to be performed or complied with by
E.mergent;
o E.mergent shall have obtained all consents, waivers and
approvals required by specific contracts identified in the
merger agreement;
o each of the affiliate agreements contemplated by the merger
agreement, as described below, must have been delivered and
must be in full force and effect; and
o the audited financial statements of E.mergent for the year
ended December 31, 2001, shall provide (i) balance sheet net
equity of not less than $7,267,500, (ii) year end revenues of
not less than $21,280,000 and (iii) net income of not less
than $498,750 (excluding transaction related expenses
estimated to be $85,000, and any excess tax liability over
forty percent (40%) that has been applied to the calculation
of net income by E.mergent for the year ending December 31,
2001). This last condition has been met by E.mergent.
In the event that either E.mergent or ClearOne elect to waive a
condition to closing that it's board of directors considers material, they
intend to resolicit shareholder approval of the merger following appropriate
disclosure of such waiver.
Termination of the Merger Agreement
The merger agreement may be terminated in accordance with its terms at
any time prior to completion of the merger, whether before or after the adoption
and approval of the merger agreement and approval of the merger by E.mergent's
stockholders:
o by mutual written consent duly authorized by the boards of
directors of ClearOne and E.mergent;
o by ClearOne or E.mergent, if the merger is not completed
before May 31, 2002, except that either party's right to
terminate the merger agreement under this provision will not
be available to any party whose action or failure to act has
been a principal cause of or resulted in the failure of the
merger to occur on or before such dates, and such action or
failure to act constitutes a breach of the merger agreement;
o by ClearOne or E.mergent, if E.mergent's stockholders fail to
adopt and approve the merger agreement and approve the merger
at the E.mergent special meeting or at any adjournment or
56
postponement of that meeting, except that E.mergent's right to
terminate the merger agreement under this provision is not
available to E.mergent where the failure to obtain stockholder
approval was caused by E.mergent's action or failure to act
which constitutes a breach by E.mergent of the merger
agreement;
o by ClearOne or E.mergent, if any governmental authority has
issued an order, or taken any other action, having the effect
of making the merger illegal or permanently restraining,
enjoining or otherwise prohibiting the merger and which is
final and nonappealable;
o by E.mergent, upon a material breach of any covenant or
agreement on the part of ClearOne in the merger agreement, or
if any of ClearOne's representations or warranties are or
become untrue such that the condition to E.mergent's
obligation to complete the merger relating to the continued
accuracy of ClearOne's representations and warranties would
not be satisfied. However, if the breach or inaccuracy is
curable by ClearOne through the exercise of its commercially
reasonable efforts, and ClearOne continues to exercise such
commercially reasonable efforts, E.mergent may not terminate
the merger agreement for 30 days after delivery of written
notice to ClearOne of the breach. If the breach or inaccuracy
is cured during those 30 days, E.mergent may not terminate the
merger agreement under this provision;
o by ClearOne, upon a material breach of any covenant or
agreement on the part of E.mergent set forth in the merger
agreement, or if any of E.mergent's representations or
warranties are or become untrue such that the condition to
ClearOne's obligation to complete the merger relating to the
continued accuracy of E.mergent's representations and
warranties would not be satisfied. However, if the breach or
inaccuracy is curable by E.mergent through the exercise of its
commercially reasonable efforts, and E.mergent continues to
exercise such commercially reasonable efforts, ClearOne may
not terminate the merger agreement for 30 days after delivery
of written notice to E.mergent of the breach. If the breach or
inaccuracy is cured during those 30 days, ClearOne may not
terminate the merger agreement under this provision;
o by ClearOne, if an event has occurred or a circumstance has
arisen that would reasonably be expected to have a material
adverse effect on E.mergent that is not curable by E.mergent
through the exercise of its commercially reasonable efforts
within sixty (60) days of the date of such occurrence or
circumstance;
o by E.mergent, if an event has occurred or a circumstance has
arisen that would reasonably be expected to have a material
adverse effect on ClearOne that is not curable by ClearOne
through the exercise of its commercially reasonable efforts
within sixty (60) days of the date of such occurrence or
circumstance;
o by ClearOne, if a Triggering Event shall have occurred;
o by ClearOne, in the event that E.mergent stockholders holding
15% or more of the issued and outstanding shares of the
E.mergent elect to pursue dissenters rights, whether such
holders have perfected such rights or not; or
o by ClearOne or E.mergent in the event that the weighted
average closing price of ClearOne common stock as quoted on
the Nasdaq National Market for the fifteen (15) trading days
ending one day prior to the date of the scheduled completion
of the merger is greater than $23 or less than $14.
Under the terms of the merger agreement, a Triggering Event is deemed to have
occurred if:
o E.mergent's board of directors withdraws, amends or modifies
in a manner adverse to ClearOne, the unanimous recommendation
of its non-interested directors in favor of the adoption and
approval of the merger agreement or the approval of the
merger;
o E.mergent fails to include in this document such unanimous
recommendation of E.mergent's board of directors in favor of
the adoption and approval of the merger agreement and the
approval of the merger;
o E.mergent's board of directors approves or recommends any
Acquisition Proposal;
57
o E.mergent enters into any letter of intent or similar
agreement, contract or commitment accepting any Acquisition
Proposal; or
o a tender or exchange offer relating to the securities of
E.mergent is commenced by a person unaffiliated with ClearOne,
and E.mergent does not send to its stockholders within 10
business days after such tender or exchange offer is first
published, sent or given, a statement disclosing that
E.mergent recommends rejection of such tender or exchange
offer.
E.mergent may also terminate the merger agreement if it intends to
enter into a definitive agreement with respect to an Acquisition Proposal,
provided that:
o E.mergent is not in breach of its obligations under the merger
agreement with respect to such Acquisition Proposals; and
continues to comply with all such obligations in all respects;
o E.mergent's board of directors has authorized, subject to
complying with the terms of the merger agreement, E.mergent to
enter into a definitive written agreement for a transaction
that constitutes a Superior Proposal;
o E.mergent notified ClearOne in writing that E.mergent has
received a Superior Proposal and intends to enter into a
definitive agreement with respect to such Superior Proposal,
attaching the most current version of such agreement to such
notice;
o ClearOne does not make, within three business days after
receipt of E.mergent's written notice of its intention to
enter into a definitive agreement for a Superior Proposal, an
offer that E.mergent's board of directors in good faith
reasonably determines, after consultation with a financial
advisor of nationally recognized standing and its outside
legal counsel, is at least as favorable to E.mergent's
stockholders as such Superior Proposal;
o during such period, E.mergent has informed ClearOne of the
terms and conditions of such Superior Proposal, and the
identity of the person making such Superior Proposal, with the
intent of enabling both parties to agree to a modification of
the terms and conditions of the merger agreement so that the
transactions contemplated under the merger agreement may be
effected; and
o prior to E.mergent's termination under the above provisions,
E.mergent pays to ClearOne the Termination Fee described
below.
Payment of the Termination Fee
Under the terms of the merger agreement, E.mergent must pay ClearOne a
termination fee of $1,000,000 plus up to $500,000 of ClearOne's actual legal,
advisory and accounting fees incurred in connection with the merger, within one
business day after termination, if the merger agreement is terminated:
o by ClearOne upon the occurrence of a Triggering Event; or
o by E.mergent if it determined to enter into a definitive
agreement with respect to an Acquisition Proposal in
accordance with the termination provisions described above.
Alternatively, if ClearOne terminates the merger agreement for a
material breach of any covenant or agreement on the part of E.mergent, or if any
of E.mergent's representations or warranties are or become untrue such that the
condition to ClearOne's obligation to complete the merger relating to the
continued accuracy of E.mergent's representations and warranties would not be
satisfied (subject to the applicable cure period), then E.mergent must pay up to
$500,000 of ClearOne's actual legal, advisory and accounting fees incurred in
connection with the merger.
In addition, if E.mergent terminates the merger agreement for a
material breach of any covenant or agreement on the part of ClearOne, or if any
of ClearOne's representations or warranties are or become untrue such that the
condition to E.mergent's obligation to complete the merger relating to the
continued accuracy of ClearOne's representations and warranties would not be
satisfied (subject to the applicable cure period), then ClearOne must pay up to
$500,000 of E.mergent's actual legal, advisory and accounting fees incurred in
connection with the merger.
58
Effect of Termination
Upon termination of the merger agreement, it will be of no further
force or effect without liability of any party to the other parties, except for:
o payment of the termination fee as described above;
o liability for any intentional or willful breach of or fraud in
connection with the merger agreement; and
o the miscellaneous provisions of the merger agreement.
Except for the termination fee described above and cost associated with
the collection of such fee, each party will pay all fees and expenses it incurs
in the merger.
Extension, Waiver and Amendment of the Merger Agreement
ClearOne and E.mergent may amend the merger agreement before completion
of the merger by mutual written consent. Either ClearOne or E.mergent may extend
the other party's time for the performance of any of the obligations or other
acts under the merger agreement, waive any inaccuracies in the other's
representations and warranties and waive compliance by the other party with any
of the agreements or conditions contained in the merger agreement.
Definition of Material Adverse Effect
Under the terms of the merger agreement, a "material adverse effect" on
either ClearOne or E.mergent is defined to mean any change or effect in the
business of such company that, individually or when taken together with all
other such changes or effects that have occurred prior to the date of
determination, is or is reasonably likely to be materially adverse to the
business, assets, financial condition or results of operations of such entity
and its subsidiaries, taken as a whole. However, none of the following, alone or
in combination, will be deemed to constitute, or taken into account in
determining whether there has been or will be, a material adverse effect on any
entity:
o any change or effect that results or arises from changes
affecting any of the industries in which such entity operates
generally or the United States economy generally (which
changes or effects in each case do not materially
disproportionately affect such entity); or
o any change or effect that results or arises from changes
affecting general worldwide economic or capital market
conditions (which changes in each case do not materially
disproportionately affect such entity).
Amendment of Merger Agreement
On March 29, 2002, ClearOne and E.mergent amended the merger agreement
to extend, from May 7, 2002 to May 31, 2002, the date after which the merger
agreement could terminated by either party if merger had yet to be completed
(see Annex A-1).
59
ANCILLARY AGREEMENTS
Voting Agreement
In connection with the execution of the merger agreement, three
directors and one officer of E.mergent who together hold approximately 40% of
the voting power of E.mergent's voting shares, each executed voting agreements
with ClearOne dated as of the date of the merger agreement. The directors and
officer are James Hansen, Robin Sheeley, Richard Craven and Jill Larson. In the
voting agreements, these E.mergent stockholders agreed to:
o vote the stockholder's shares and exercise all consent and
similar rights in favor of the approval and adoption of the
merger, the merger agreement, each other transaction
contemplated by the merger agreement and in favor of any
action required in furtherance of the consummation of the
merger;
o vote against any proposal made in opposition to, or in
competition with, consummation of the merger and the
transactions contemplated by the merger agreement;
o grant, and did grant, to ClearOne irrevocable proxies to vote
their shares as required by the voting agreement; and
o upon request of ClearOne, execute and deliver any additional
documents and take such further actions as may reasonably be
deemed by ClearOne to be necessary or desirable to carry out
the provisions of the voting agreement and to vest in ClearOne
the power to vote stockholder's shares as contemplated by the
voting agreement.
Furthermore, each of these stockholders agreed not to:
o sell, transfer, pledge, encumber, grant an option with respect
to or otherwise dispose any interest in the stockholders
shares of voting securities of E.mergent, including E.mergent
stock options, unless the transferee of the voting securities
agrees to be bound by the terms of the voting agreement and
delivers a proxy to ClearOne;
o enter into any agreement or commitment, with respect to the
sale, transfer, pledge, encumbrance, grant of an option with
respect to or other disposition of any of the voting
securities of E.mergent unless the transferee of the voting
securities agrees to be bound by the terms of the voting
agreement and delivers a proxy to ClearOne;
o deposit its shares of voting securities of E.mergent into a
voting trust or grant any proxy or enter into a voting
agreement or other arrangement with respect to such shares in
contravention of the voting agreement; or
o exercise dissenter's rights.
Further, under the voting agreement, no stockholder subject to the
agreement will, nor will any stockholder authorize or permit any of such
stockholder's affiliates or any investment banker, attorney or other advisor or
representative retained by any of them to, directly or indirectly:
o solicit, initiate, encourage or induce the making, submission
or announcement of any Acquisition Proposal;
o participate in any discussions or negotiations regarding, or
furnish to any person any information with respect to, or take
any other action to facilitate any inquiries or the making of
any proposal that constitutes or may reasonably be expected to
lead to, any Acquisition Proposal;
o engage in discussions with any person with respect to any
Acquisition Proposal;
o approve, endorse or recommend any Acquisition Proposal; or
o enter into any letter of intent or similar document or any
contract, agreement or commitment contemplating or otherwise
relating to any Acquisition Transaction.
60
However, nothing in the voting agreement prohibits such a stockholder
from taking action in the stockholder's capacity as a director or officer of
E.mergent to the extent otherwise permitted by the merger agreement.
The voting agreement terminates upon the earliest to occur of:
o the closing of the transactions contemplated by the merger
agreement; and
o the date the merger agreement is terminated in accordance with
its terms.
The form of voting agreement is attached to this document as Annex B,
and you are urged to read it in its entirety.
Affiliate Agreements
As a condition to ClearOne's entering into the merger agreement, each
member of the E.mergent board of directors of E.mergent are required to enter
into affiliate agreements with ClearOne. Under the terms of the affiliate
agreements, ClearOne will be entitled to place appropriate legends on the
certificates evidencing any ClearOne common stock to be received by these
persons and to issue stop transfer instructions to the transfer agent for the
ClearOne common stock. Additionally, these persons have acknowledged the resale
restrictions imposed by Rule 145 under the Securities Act on shares of ClearOne
common stock to be received by them in the merger.
61
INFORMATION ABOUT E.MERGENT
For information about E.mergent, see "Where You Can Find More
Information" on page 71 of this proxy statement/prospectus.
62
INFORMATION ABOUT CLEARONE
For information about ClearOne, see "Where You Can Find More
Information" on page 71 of this proxy statement/prospectus. In addition, certain
recent ClearOne events and changes in ClearOne's operations are described below.
Amendment of Agreement Regarding Acquisition of Ivron Systems
On April 8, 2002, ClearOne entered into an amendment to the original
Share Purchase Agreement between ClearOne and the shareholders of Ivron Systems,
Ltd. Under the original agreement, on October 3, 2001, ClearOne, through its
wholly owned subsidiary, Gentner Ventures, Inc., purchased all of the issued and
outstanding shares of Ivron Systems. Under the original Share Purchase
Agreement, the shareholders of Ivron received approximately US$6,000,000 at
closing of the purchase. Further, under that agreement, after June 30, 2002,
each former Ivron shareholder would be entitled to receive approximately .08
shares of ClearOne's common shares for each Ivron share previously held by such
shareholder, provided that certain video product development contingencies were
achieved. That represented approximately 429,000 shares of ClearOne's common
stock. Thereafter, for ClearOne's completed fiscal years 2003 and 2004, the
former Ivron shareholders would be entitled to share in up to approximately
US$17,000,000 of additional cash and stock consideration provided that certain
agreed upon earnings per share targets for ClearOne were achieved. As part of
the purchase, all outstanding options to purchase Ivron shares were cancelled in
consideration for an aggregate cash payment of US$650,000, allocated among the
optionees on the basis of the number of options originally held by each such
optionee. In addition, former optionees of Ivron who remain with Ivron are
eligible to participate in a cash bonus program paid by Ivron, but based on the
combined performance of ClearOne and Ivron in fiscal years 2003 and 2004. The
maximum amount payable under this bonus program is up to approximately
US$1,000,000.
On March 26, 2002, ClearOne entered into negotiations with the former
shareholders of Ivron Systems to modify the terms of the original purchase
agreement because, upon further analysis, certain aspects of the technology
acquired from Ivron may not meet the intended product objectives established by
ClearOne in its original purchase negotiations. Originally, ClearOne expected to
develop a full line of videoconferencing products, including an installed video
codec product, based on the Ivron Systems V-There technology platform. Given the
results of its analysis, ClearOne has now identified an opportunity to
collaborate in the development of a video codec, based on other
readily-available technology, specifically designed for the high-end, installed
videoconferencing market, that combines faster frames-per-second, built-in
multipoint conferencing, and ClearOne's high-quality audio. The negotiations
were based on the results of an analysis by ClearOne that although the Ivron
platform is well-suited for the lower- to mid-priced videoconferencing products,
it is not as well-suited for an installed video codec product. These
negotiations resulted in an amendment to the original October 3, 2001 purchase
agreement.
The amendment eliminates the earn-out that the Ivron shareholders would
have been entitled to receive after June 30, 2002 for approximately 429,000
shares and the $17 million earn-out in subsequent years. Instead, upon meeting
certain gross profit targets for ClearOne's "V-There", "Vu-Link" set top
videoconferencing products, technologies, and variants and sub-elements thereof
(including licensed products), the former Ivron Shareholders may share in an
earn-out of up to 109,000 shares of common stock of ClearOne, issuable in four
installments, on a quarterly basis, through July 15, 2003. Therefore, with the
amendment, the total purchase price will now include the original $6.7 million
in cash paid in October of 2001, the revised earn-out of up to 109,000 shares,
and the original bonus to be paid in 2003 and 2004 of up to $1 million for the
former option holders of Ivron, the last two of which are dependent upon the
achievement of certain targets.
ClearOne currently anticipates that the Dublin, Ireland operations
acquired in the Ivron transaction will continue, although it is expected that
existing research and development efforts and personnel there will be reduced to
focus primarily on the development and enhancement of the V-There products and
not on the installed video codec element.
Management
Following the closing of the purchase of Ivron Systems, Michael Peirce,
the former chairman of Ivron, was appointed to ClearOne's board of directors.
Since September 30, 2001, the following new ClearOne officers have been
appointed: DeLonnie Call - Vice President - Human Resources; Angelina Beitia -
Vice President - Marketing; Kevin Davis - Vice President - Conferencing
Services; Gene Kuntz - Chief Operating Officer; and Andrew S. Fellows, Vice
President of Services.
63
In August 2001, ClearOne granted its CEO, Frances Flood, options to
purchase 100,000 shares of common stock. The options have an exercise price of
$11.39, expire on August 6, 2010, and are subject to vesting as provided under
the ClearOne 1998 Stock Option Plan.
Marketing
On October 23, 2001, ClearOne announced the implementation a new and
major marketing and advertising campaign. This campaign focuses on ClearOne
being a provider of an integrated suite of audio and videoconferencing products
and services. ClearOne intends to build product demand through its current
distribution channel and increase end-user awareness of the Gentner(R) brand.
ClearOne anticipates that these marketing efforts will include a new advertising
campaign, website, traditional and electronic direct marketing efforts, dealer
road shows and training programs, and collateral materials that support channel
partner efforts.
Recent Financial Developments
On April 23, 2002, ClearOne issued a press release reporting its
financial results for the three and nine months ended March 31, 2002. Set forth
below is certain financial information reported by ClearOne in the press release
and filed on Form 8-K on April 23, 2002, which is incorporated by reference.
ClearOne Communications Inc.
Condensed Statement of Continuing Operations
(unaudited)
Three Months Ended Nine Months Ended
3/31/02 3/31/01 3/31/02 3/31/01
----------------------------------------------------------------------------------------------------------------
Sales $ 14,171,156 $ 10,212,333 $ 37,973,838 $ 29,225,712
Cost of goods sold 5,586,839 4,327,987 15,225,933 12,064,698
----------------------------------------------------------------------
Gross profit 8,584,317 5,884,346 22,747,905 17,161,014
Sales & marketing expenses 2,763,581 1,932,327 7,995,734 5,755,898
General & administrative expenses 1,542,983 1,133,525 4,101,769 3,630,578
Research & development expenses 1,122,973 720,426 3,044,497 1,760,921
----------------------------------------------------------------------
Total expenses 5,429,537 3,786,278 15,142,000 11,147,397
Operating Income 3,154,780 2,098,068 7,605,905 6,013,617
Other items (71,370) 69,277 139,188 252,083
Income tax expense (1,012,464) (808,313) (2,770,560) (2,360,303)
----------------------------------------------------------------------
Net income $ 2,070,946 $ 1,359,032 $ 4,974,533 $ 3,905,397
======================================================================
Basic earnings per share $ 0.20 $ 0.16 $ 0.54 $ 0.46
Fully diluted earnings per share $ 0.20 $ 0.15 $ 0.51 $ 0.43
Basic shares outstanding 10,158,894 8,610,375 9,246,512 8,581,738
Fully diluted shares outstanding 10,614,839 9,047,289 9,755,909 9,026,182
64
ClearOne Communications Inc.
Balance Sheet
3/31/02 6/30/01
------------------------------------------------------------
(unaudited) (audited)
ASSETS
Current assets:
Cash and cash equivalents ....... $23,168,321 $ 6,852,243
Accounts receivable ............. 14,192,043 7,284,393
Inventory ....................... 5,792,134 4,132,034
Deferred taxes .................. 246,000 247,402
Other current assets ............ 420,868 779,648
----------- -----------
Total current assets ....... 43,819,366 19,295,720
Property and equipment, net ......... 3,992,612 3,696,615
Other assets, net ................... 10,037,281 4,605,288
----------- -----------
Total assets ............... $57,849,259 $27,597,623
=========== ===========
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ .............. 1,578,877 $ 568,782
Accrued expenses ................ 1,320,052 1,129,528
Accrued income taxes ............ 472,192 421,749
Current portion of capital leases 60,614 181,827
----------- -----------
Total current liabilities .. 3,431,735 2,301,886
Capital lease obligations ........... 15,772 48,227
Deferred tax liability .............. 746,000 746,000
----------- -----------
Total liabilities .......... 4,193,507 3,096,113
Shareholders' equity:
Common stock .................... 10,179 8,618
Additional paid-in capital ...... 33,140,847 8,962,699
Retained earnings ............... 20,504,726 15,530,193
----------- -----------
Total shareholders' equity . 53,655,752 24,501,510
----------- -----------
Total liabilities and equity $57,849,259 $27,597,623
=========== ===========
The above financial information includes all adjustments, consisting of
normal, recurring adjustments, which ClearOne considers necessary for a fair
presentation of its financial position and the results of operations for the
periods presented.
65
COMPARISON OF STOCKHOLDER RIGHTS
ClearOne is incorporated in the state of Utah under the Utah Revised
Business Corporation Act ("URBCA"), and E.mergent is incorporated in the state
of Delaware under the Delaware General Corporation Law ("DGCL"). E.mergent's
stockholders will, upon consummation of the merger, become stockholders of
ClearOne and their rights will be governed by the ClearOne Articles of
Incorporation, as amended (the "ClearOne Articles"), the ClearOne By-laws and
the URBCA.
Certain material differences between the rights of stockholders of
ClearOne and stockholders of E.mergent are set forth below. This summary is not
intended to be relied upon as an exhaustive list or detailed description of the
provisions discussed and is qualified entirely by the URBCA, the DGCL, the
ClearOne Articles, the ClearOne By-laws, the E.mergent Certificate of
Incorporation ("E.mergent Certificate") and the E.mergent bylaws.
Authorized Shares of Capital Stock
The authorized capital stock of ClearOne consists of 50,000,000 shares
of common stock, $0.001 par value. As of March 12, 2002, 10,156,225 shares of
common stock of ClearOne were issued and outstanding.
The E.mergent Certificate authorizes the issuance of (i) 20,000,000
shares of common stock, par value $.01 per share, and (ii) 5,000,000 shares of
preferred stock, $.01 par value per share, none of which have been issued. As of
March 12, 2002, there were outstanding (a) 5,931,280 shares of E.mergent common
stock, and (b) employee options to purchase an aggregate of 606,000 shares of
common stock.
The E.mergent Certificate provides that the board of directors is
authorized to provide for the issuance of shares of undesignated preferred stock
in one or more series, and to fix the designations, power, preferences and
rights of the shares of each series and any related qualifications, limitations
or restrictions.
Directors
Number
The ClearOne bylaws provide that the number of directors shall consist
of not less than three nor more than nine directors, with the number of
directors currently being fixed at seven. Under the ClearOne bylaws the number
of directors is required to be fixed by resolution by either the board of
directors of ClearOne or the stockholders.
The E.mergent bylaws provide that the board of directors of E.mergent
will consist of at least one director, with the number of directors currently
being fixed at five. In the absence of a resolution of the E.mergent
stockholders or the board of directors of E.mergent, the number shall be the
number last fixed by the E.mergent's stockholders or the board of directors of
E.mergent, provided however, that the board of directors of E.mergent may not
decrease the number of directors below the number last designated by the
stockholders.
Special Meetings
Under the ClearOne bylaws, special meetings of ClearOne's board of
directors may be called by the chairman of the board or the president on at
least two days' notice to each director either by mail, telephone, electronic
transmission or facsimile.
Under the E.mergent bylaws, special meetings of E.mergent's board of
directors may be called by the chairman of the board, the president or by the
secretary on three business days' notice to each director if by mail or
twenty-four (24) hours notice to each director if delivered personally or by
telephone, telegram or facsimile.
Removal
Any ClearOne director, or the entire board of directors, may be removed
from office for cause or without cause by a vote of the ClearOne stockholders
provided that the number of the votes cast by the stockholders to remove the
director exceeds the number of votes cast not to remove the director.
66
Any E.mergent director, or the entire board of directors, may be
removed from office for cause or without cause by the vote of a majority of the
shares of E.mergent common stock entitled to vote at the election of the
director or board of directors.
Election
The ClearOne bylaws provide that directors shall be elected at each
annual meeting of stockholders by a plurality of the votes present in person or
represented by proxy at the meeting and entitled to vote for the election of
directors.
The E.mergent bylaws provide that directors are elected by a majority
of the stockholders voting at a duly held meeting in person or by proxy.
Stockholder Action by Written Consent
Under the ClearOne bylaws and the URBCA, stockholders may take action
without a meeting if a written consent is signed by the holders of outstanding
shares of capital stock having the requisite number of votes that would be
necessary to authorize or take such action at a meeting of stockholders, and
notice of such action is given to all non-consenting stockholders at least 10
days prior to the effectiveness of such action. However, directors may be
elected by written consent only if signed by the holders of all outstanding
shares of capital stock.
Under the E.mergent bylaws and the DGCL, stockholders may take action
without a meeting, including election of directors and without prior notice, if
a written consent is signed by the holders of outstanding shares of capital
stock having the requisite number of votes that would be necessary to authorize
or take such action at a meeting of stockholders. Notice of such action must be
given promptly to all non-consenting stockholders.
Ability to Call Special Meetings of Stockholders
Under the ClearOne bylaws and the URBCA, special meetings of the
stockholders may be called by either the president or the chairman of the board
of directors and must be called by the president at the request of the holders
of not less than one-tenth of all the outstanding shares entitled to vote at the
meeting.
Under the E.mergent bylaws and the DGCL, special meetings of the
stockholders may be called by either the president or the board of directors.
Stockholders generally do not have the right to call meetings of stockholders
unless such right is granted in the certificate of incorporation or bylaws.
However, if a corporation fails to hold its annual meeting within a period of 30
days after the date designated therefore, or if no date has been designated for
a period of 13 months after its last annual meeting, the Delaware Court of
Chancery may order a meeting to be held upon the application of a stockholder.
Amendments To Charter
Under the ClearOne bylaws and the URBCA, the board of directors may
propose amendments to the for submission to the stockholders. For an amendment
to be adopted, (i) the board of directors must recommend the amendment to the
stockholders (unless the board determines that because of a conflict of interest
or other special circumstances it should not make a recommendation and
communicates the basis for its determination to the stockholders) and (ii)
unless the ClearOne Articles, the ClearOne bylaws (if authorized by the ClearOne
Articles), or a resolution of the board of directors require a greater number,
the amendment must be approved by (a) a majority of the votes entitled to be
cast on the amendment by any voting group as to which the amendment would create
dissenters' rights, (b) a majority of the votes entitled to be cast on the
amendment by any voting group as to which the amendment would materially and
adversely affect the voting group's rights in shares (including preferential
rights, rights in redemption, preemptive rights, voting rights or rights in
certain reverse splits) and (c) a majority of the votes cast for all other
voting groups (voting separately, as applicable).
The E.mergent Certificate reserves E.mergent's right to amend, alter,
change or repeal any provision contained in the certificate, in the manner
prescribed by Delaware law. Under Delaware law, a certificate of incorporation
of a Delaware corporation may be amended by approval of the board of directors
of the corporation and the affirmative vote of the holders of a majority of the
outstanding shares entitled to vote for the amendment, unless a higher vote is
required by the corporation's certificate of incorporation.
67
Amendments To By-laws
Under the ClearOne bylaws and the URBCA, the board of directors may
amend the ClearOne bylaws at any time, except to the extent that the URBCA
reserves such power exclusively to a corporation's stockholders. The URBCA
provides that stockholders may amend a corporation's bylaws at any time, even
though the bylaws may also be amended at any time by the board of directors.
Under Delaware law, stockholders entitled to vote have the power to
adopt, amend or repeal bylaws. In addition, a corporation may, in its
certificate of incorporation, confer such power upon the board of directors. The
stockholders have the power to adopt, amend or repeal bylaws, even though the
board may also be delegated such power. E.mergent has, in the E.mergent
Certificate, conferred the power to adopt, amend or repeal the E.mergent bylaws
upon its directors. The fact that this power has been conferred upon the
directors does not divest the stockholders of the power, or limit their power to
adopt, amend or repeal the bylaws.
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 (i) 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 ordinarily prudent person in like position would exercise under similar
circumstances and (C) in a manner the director or officer reasonably believes to
be in the best interests of the corporation) and (ii) 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 (i) the amount of a financial
benefit received by a director to which he is not entitled, (ii) an intentional
infliction of harm on the corporation or its stockholders, (iii) voting for or
assenting to an unlawful distribution of assets as defined under the URBCA or
(iv) an intentional violation of criminal law. The ClearOne Articles provide
that to the fullest extent permitted by the URBCA as now, or as it may in the
future be, in effect, no director shall be liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
Delaware law permits a corporation to include a provision in its
certificate of incorporation eliminating or limiting the personal liability of a
director or officer to the corporation or its stockholders for damages for a
breach of the director's fiduciary duty. However, no such provision can
eliminate or limit director liability for:
o any breach of the director's duty of loyalty to the
corporation or it stockholders;
o acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law;
o willful or negligent violation of the laws governing the
payment of dividends or the purchase or redemption of stock;
and
o any transaction from which the director derived an improper
personal benefit.
E.mergent's Certificate includes such a provision to limit directors'
personal liability to the corporation to the maximum extent permitted by law.
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 (i) the individual's conduct was in good faith,
(ii) the individual reasonably believed that his conduct was in, or not opposed
to, the corporation's best interests and (iii) 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
68
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, 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, fiduciary or agent to a greater extent if not inconsistent with public
policy.
Delaware law permits a corporation to indemnify officers and directors
for actions taken in good faith and in a manner they reasonably believed to be
in, or not opposed to, the best interests of the corporation, and with respect
to any criminal action, which they had no reasonable cause to believe was
unlawful.
Under E.mergent's bylaws, E.mergent commits itself to indemnify each of
its directors and officers to the maximum extent and in the manner permitted by
Delaware law against expenses (including attorneys' fees), judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with any proceeding, arising by reason of the fact that such person is or was an
agent of E.mergent. Furthermore, E.mergent's bylaws authorize it to provide
insurance for its directors, officers and/or agents, against any expense,
liability or loss, whether or not E.mergent would have the power to indemnify
such person against such expense, liability or loss under Delaware law.
Dissenters' Rights
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 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 Nasdaq National
Market, 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 except: (i) shares of the surviving corporation; (ii)
shares of a corporation that is or will be listed on a national securities
exchange, the Nasdaq National Market, or held of record by more than 2,000
holders; (iii) cash in lieu of fractional shares; or (iv) any combination of the
foregoing.
Under the DGCL, stockholders are entitled to demand appraisal of their
shares in the case of mergers or consolidations, except where: (i) they are
stockholders of the surviving corporation and the merger did not require their
approval under the DGCL; (ii) the corporation's shares are either listed on a
national securities exchange or designated as a national market system security
on an inter-dealer quotation system by The National Association of Securities
Dealers, Inc.; or (iii) the corporation's shares are held of record by more than
2,000 stockholders. Appraisal rights are not available in either (i), (ii) or
(iii) above, however, if the stockholders are required by the terms of the
merger or consolidation to accept any consideration other than (a) stock of the
corporation surviving or resulting from the merger or consolidation, (b) shares
of stock of another corporation which are either listed on a national securities
exchange or designated as a national market system security on an interdealer
quotation system by The National Association of Securities Dealers, Inc. or held
of record by more than 2,000 stockholders, (c) cash in lieu of fractional
shares, or (d) any combination of the foregoing. Appraisal rights are not
available in the case of a sale, lease, exchange or other disposition by a
corporation of all or substantially all of its property and assets.
Anti-Takeover Statutes
The Utah Control Share Acquisitions 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%, 33 1/3% 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 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 and ClearOne bylaws make no reference to the 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'
69
rights under the URBCA. An acquisition of shares does not constitute a control
share acquisition if (i) the corporation's articles of incorporation of bylaws
provide that this Act does not apply (ii) the acquisition is consummated
pursuant to a merger in accordance with the URBCA or (iii) under certain other
specified circumstances.
Delaware has adopted an anti-takeover statute governing takeovers of
Delaware corporations. Effective December 31, 1987, a Delaware corporation may
not engage in a business combination with any person acquiring 15% or more of
the voting stock of such Delaware corporation (an "interested stockholder") for
a period of three years following the date of such acquisition, unless: (i)
prior to the date the stockholder became an interested stockholder, the board of
directors of the corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder; (ii) the interested stockholder acquired 85% or more of the
corporation's voting stock in the transaction in which he became an interested
stockholder; or (iii) on or subsequent to the date the stockholder became an
interested stockholder, the board of directors and stockholders owning
two-thirds of the outstanding voting stock, other than the interested
stockholder's stock, approve the business combination. The corporation may opt
out of the effect of this statute by: (i) including a provision to such effect
in the corporation's original certificate of incorporation; (ii) amendment to
the corporation's bylaws made by the board of directors; or (iii) amendment of
the corporation's certificate of incorporation or bylaws approved by holders of
a majority of the shares entitled to vote; provided that such amendment shall
not take effect until 12 months after its adoption and shall not effect any
business combinations with interested stockholders which are effected during
such 12 months. E.mergent has not elected to opt out of the effects of the
statute.
70
WHERE YOU CAN FIND MORE INFORMATION
The following documents, which have been filed by ClearOne with the
Securities and Exchange Commission, accompany this proxy statement/prospectus
under a separate bound cover and are incorporated by reference into this
document:
o ClearOne Annual Report on Form 10-K for the fiscal year ended
June 30, 2001;
o ClearOne Quarterly Report on Form 10-Q for the quarter ended
September 30, 2001;
o ClearOne Quarterly Report on Form 10-Q for the quarter ended
December 31, 2001;
o ClearOne Current Report on Form 8-K filed October 18, 2001;
o ClearOne Current Report on Form 8-K/A filed November 23, 2001;
o ClearOne Current Report on Form 8-K filed February 1, 2002;
o ClearOne Current Report on Form 8-K filed on February 6, 2002;
o ClearOne Current Report on Form 8-K filed on March 21, 2002;
o ClearOne Current Report on Form 8-K filed on April 10, 2002;
and
o ClearOne Current Report on Form 8-K filed April 23, 2002.
Additionally, all reports, proxy and information statements and other
information filed by ClearOne pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, as amended, after the date of this document
and before the date of the special meeting described herein are incorporated by
reference into this document from the date of filing of those reports, proxy and
information statements and other information.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR
TO WHICH CLEARONE HAS REFERRED YOU HEREIN. CLEARONE HAS NOT AUTHORIZED ANYONE TO
PROVIDE YOU WITH DIFFERENT INFORMATION.
The reports incorporated by reference into this document but not
accompanying it, and the exhibits not included in the reports that do accompany
this document, are available from ClearOne upon request. ClearOne will provide a
copy of any and all of the information that is incorporated by reference in this
document (including exhibits) to any person, without charge, upon written or
oral request to the following address and telephone number. ANY REQUEST FOR
DOCUMENTS SHOULD BE MADE BY _______________, 2002 TO ENSURE TIMELY DELIVERY
PRIOR TO THE SPECIAL MEETING OF E.MERGENT STOCKHOLDERS AT WHICH THE MERGER
AGREEMENT AND THE MERGER WILL BE CONSIDERED AND VOTED UPON.
ClearOne Communications, Inc.
1825 Research Way
Salt Lake City, UT 84119
Telephone (801) 975-7200
Attention: Bryce Benson
A copy of E.mergent's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 2001, which has been filed with the Securities and Exchange
Commission, accompanies this proxy statement/prospectus under a separate bound
cover and is incorporated by reference into this document.
Any statement contained herein or in a document incorporated or deemed
to be incorporated by reference into this document will be deemed to be modified
or superseded for purposes of this document to the extent that a statement
contained in this document or any other subsequently filed document that is
deemed to be incorporated by reference into this document modifies or supersedes
the statement. Any statement so modified or superseded will not be deemed,
except as so modified or superseded, to constitute a part of this document.
71
ClearOne and E.mergent file reports, proxy statements and other
information with the Securities and Exchange Commission. Copies of such reports,
proxy statements and other information may be inspected and copied at the public
reference facilities maintained by the Securities and Exchange Commission at the
following locations:
Public Reference Room Chicago Regional Office
Judiciary Plaza Citicorp Center
Room 1024 500 West Madison Street
450 Fifth Street, N.W. Suite 1400
Washington, D.C. 20549 Chicago, Illinois 60661
Information about the operation of the Public Reference Room can be
obtained by calling the Securities and Exchange Commission at 1-800-SEC-0330. In
addition, the Securities and Exchange Commission maintains an Internet "website"
that contains reports, proxy and information statements and other information
regarding ClearOne and E.mergent. The address of the Securities and Exchange
Commission website is http://www.sec.gov.
Reports, proxy and information statements and other information
concerning ClearOne and E.mergent also can be inspected at the offices of The
National Association of Securities Dealers, Inc.:
The National Association of Securities Dealers, Inc.
1735 K Street, N.W.
Washington, D.C. 20006
ClearOne has filed a registration statement on Form S-4 under the
Securities Act with the Securities and Exchange Commission with respect to
ClearOne's common stock to be issued to E.mergent stockholders in the merger.
This document constitutes the prospectus of ClearOne filed as part of the
registration statement. This document does not contain all of the information
set forth in the registration statement because certain parts of the
registration statement are omitted in accordance with the rules and regulations
of the Securities and Exchange Commission. Statements made in this document as
to the content of any contract, agreement or other document referred to are not
necessarily complete. With respect to each of those contracts, agreements or
other documents to be filed or incorporated by reference as an exhibit to the
registration statement, you should refer to the corresponding exhibit, when it
is filed, for a more complete description of the matter involved and read all
statements in this document in light of that exhibit. The registration statement
and its exhibits are available for inspection and copying as set forth above.
THIS DOCUMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO PURCHASE, THE SECURITIES OFFERED BY THIS DOCUMENT, OR THE SOLICITATION
OF A PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM OR FROM WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER, SOLICITATION OF AN OFFER OR PROXY SOLICITATION IN
SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS DOCUMENT NOR ANY DISTRIBUTION OF
SECURITIES PURSUANT TO THIS DOCUMENT SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH OR
INCORPORATED INTO THIS DOCUMENT BY REFERENCE OR IN THE AFFAIRS OF CLEARONE OR
E.MERGENT SINCE THE DATE OF THIS DOCUMENT. THE INFORMATION CONTAINED IN THIS
DOCUMENT WITH RESPECT TO CLEARONE AND ITS SUBSIDIARIES WAS PROVIDED BY CLEARONE
AND THE INFORMATION CONTAINED IN THIS DOCUMENT WITH RESPECT TO E.MERGENT WAS
PROVIDED BY E.MERGENT.
72
LEGAL AND TAX MATTERS
The validity of the shares of ClearOne common stock offered by this
document will be passed upon for ClearOne by Jones, Waldo, Holbrook & McDonough,
Professional Corporation. E.mergent is represented in connection with the merger
by Fredrikson & Byron, P.A. At the request of E.mergent and ClearOne, Jones,
Waldo, Holbrook & McDonough, P.C. and Fredrikson & Byron, P.A. have each
provided tax opinions regarding material U.S. federal income tax consequences of
the merger. See the section entitled "The Merger and Related Transactions -
Material U.S. Federal Income Tax Consequences" beginning on page 41 of this
document
James A. Valeo, an attorney with Jones, Waldo, Holbrook & McDonough,
served as Vice President and General Counsel of ClearOne from October 2000 to
December 2001.
EXPERTS
Ernst & Young LLP, independent auditors, have audited ClearOne's
consolidated financial statements included in ClearOne's Annual Report on Form
10-K for the year ended June 30, 2001, as set forth in Ernst & Young LLP's
report, which is incorporated by reference in this prospectus and elsewhere in
the registration statement. ClearOne's 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 Securities and Exchange
Commission 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 Accountant's 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.
73
LIST OF ANNEXES
ANNEX A Agreement and Plan of Merger
ANNEX A-1 Amendment No. 1 to Agreement and Plan of Merger
Annex B Form of Voting Agreement
ANNEX C Opinion of Goldsmith, Agio, Helms Securities, Inc.
ANNEX D Section 262 of the Delaware General Corporate Law
74
ANNEX A
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER is made and entered into as of January
21, 2002, by and among CLEARONE COMMUNICATIONS, INC. (formerly, Gentner
Communications Corporation), a Utah corporation ("Parent"), TUNDRA ACQUISITION
CORPORATION, a Delaware corporation and a wholly-owned subsidiary of Parent
("Merger Sub"), and E.MERGENT, INC., a Delaware corporation (the "Company").
RECITALS
A. The Boards of Directors of the Company, Parent and Merger Sub have each
(i) determined that the Merger (as defined in Section 1.1) is advisable and fair
to and in the best interests of their respective stockholders, (ii) approved the
Merger upon the terms and subject to the conditions set forth in this Agreement,
and (iii) determined, subject to the terms of this Agreement, to recommend that
the stockholders of the Company adopt and approve this Agreement and the Merger;
B. In furtherance thereof, it is proposed that Company merge with and into
the Merger Sub (the "Merger") and the stock of the Company will thereupon be
converted into the right to receive both cash and a fraction of a share of the
common stock, par value $0.001, of the Parent (the "Parent Common Stock") in the
amounts set forth in Section 1.7(a) hereof;
C. Concurrently with the execution of this Agreement, as a condition and
inducement to Parent's willingness to enter into this Agreement, certain
executive officers and directors of Company, in their capacity as stockholders,
are entering into a Voting Agreement in substantially the form attached hereto
as Exhibit A (the "Voting Agreement");
D. As a condition and inducement to Parent's willingness to enter into this
Agreement, certain affiliates of the Company are entering into Company Affiliate
Agreements in substantially the form attached hereto as Exhibit B (the "Company
Affiliate Agreements"), at or prior to the consummation of the Merger; and
E. The parties hereto intend, by executing this Agreement, to adopt a plan
of "reorganization" within the meaning of section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties, covenants and agreements herein contained, and
intending to be legally bound hereby, the Company, Parent and Merger Sub hereby
agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and subject to
and upon the terms and conditions of this Agreement and the applicable
provisions of Delaware Law, the Company shall be merged with and into the Merger
Sub, the separate corporate existence of Company shall cease and Merger Sub
shall continue as the surviving corporation. Merger Sub as the surviving
corporation after the Merger is hereinafter sometimes referred to as the
"Surviving Corporation."
1.2 Effective Time; Closing. Subject to the provisions of this Agreement, the
parties hereto shall cause the Merger to be consummated by filing the
Certificate of Merger with the Secretary of State of the State of Delaware in
accordance with the relevant provisions of Delaware Law (the "Merger
Certificate") (the time of such filing, or such later time as may be agreed in
writing by Company and Parent and specified in the Merger Certificate, being the
"Effective Time") as soon as practicable on or after the Closing Date (as herein
defined). Unless the context otherwise requires, the term "Agreement" as used
herein refers collectively to this Agreement and Plan of Merger and the Merger
Certificate. The closing of the Merger (the "Closing") shall take place at the
offices of Jones, Waldo, Holbrook & McDonough, 170 South Main Street, Salt Lake
City, UT 84101, or at such other location as the parties may agree, and at a
time and date to be specified by the parties, which shall be no later than the
A-1
second business day after the satisfaction or waiver of the conditions set forth
in Article VI, or at such other time, date and location as the parties hereto
agree in writing (the "Closing Date").
1.3 Registration Statement. As soon as practicable after the date of this
Agreement, Parent shall prepare and file with the SEC a registration statement
on Form S-4 to register the offer and sale of Parent Common Stock pursuant to
the Merger (the "Registration Statement"). The Company agrees that the
information provided by the Company in writing specifically for inclusion or
incorporation by reference in the Registration Statement shall not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. Each of
Parent, Merger Sub and the Company agrees promptly to correct any information
provided by it for use in the Registration Statement if and to the extent that
such information shall have become false or misleading in any material respect.
The Company and its counsel shall be given reasonable opportunity to review and
comment on the Registration Statement prior to the filing thereof with the SEC.
Parent agrees to provide in writing to the Company and its counsel any comments
Parent or its counsel may receive from the SEC or its staff with respect to the
Registration Statement promptly after receipt of such comments and shall provide
Company and its counsel with a reasonable opportunity to participate in the
response of Parent to such comments.
1.4 Effect of the Merger. At the Effective Time, the effect of the Merger shall
be as provided in this Agreement and the applicable provisions of Delaware Law.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time all the property, rights, privileges, powers and franchises of
Company and Merger Sub shall vest in the Surviving Corporation, and all debts,
liabilities and duties of Company and Merger Sub shall become the debts,
liabilities and duties of the Surviving Corporation.
1.5 Certificate of Incorporation; Bylaws.
(a) At the Effective Time, the Certificate of Incorporation of Merger Sub
shall be the Certificate of Incorporation of the Surviving Corporation
except that it shall be amended to provide that the name of the Surviving
Corporation shall be the Company name, or such other name as may be
determined by Parent and/or Merger Sub, until thereafter amended in
accordance with Delaware Law and such Certificate of Incorporation.
(b) The Bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be, at the Effective Time, the Bylaws of the
Surviving Corporation until thereafter amended.
1.6 Directors and Officers. The initial director of the Surviving Corporation
shall be the director of Merger Sub immediately prior to the Effective Time, to
hold office in accordance with the Certificate of Incorporation and Bylaws of
the Surviving Corporation until his successors are duly elected or appointed and
qualified. The initial officers of the Surviving Corporation shall be the
officers of Merger Sub immediately prior to the Effective Time, each to hold
office in accordance with the Certificate of Incorporation and Bylaws of the
Surviving Corporation until their respective successors are duly appointed.
1.7 Effect on Capital Stock. Subject to the terms and conditions of this
Agreement, at the Effective Time, by virtue of the Merger and without any action
on the part of Merger Sub, Company, or the holders of any of the following
securities, the following shall occur:
(a) Conversion of Company Common Stock. Each share of Common Stock, $0.01
par value per share, of Company (the "Company Common Stock") issued and
outstanding immediately prior to the Effective Time will be canceled and
extinguished and automatically converted into the right to receive (x) a
cash payment per Share, without any interest thereon (the "Cash Portion"),
and (y) a fraction of a share of Parent Common Stock (the "Stock Portion")
(the Cash Portion and the Stock Portion, and cash in lieu of fractional
shares as specified below, are collectively referred to as the "Merger
Consideration") upon surrender of the certificate representing such share
of Company Common Stock (each a "Share Certificate"), in the manner
provided in Section 1.10 (or in the case of a lost, stolen or destroyed
upon delivery of an affidavit (and bond, if required) in the manner
provided in Section 1.9). The parties agree that the aggregate Cash Portion
shall be $7,300,000 and the aggregate Stock Portion shall be 873,000 shares
of Parent Common Stock less the aggregate number of shares of Parent Common
Stock allocated to the Company Stock Options (defined below) as provided in
A-2
Sections 1.7(c) and 5.8 (the "Parent Option Shares"). Accordingly, the Cash
Portion shall be the quotient obtained by dividing (A) $7,300,000 by (B)
the total number of shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time. The Stock Portion shall be a
quotient obtained by dividing (X) the sum of (a) 873,000 minus (b) the
Parent Option Shares divided by (Y) the total number of shares of Company
Common Stock issued and outstanding immediately prior to the Effective
Time.
(b) Cancellation of Company-Owned Stock. Each share of Company Common Stock
held by Company immediately prior to the Effective Time shall be cancelled
and extinguished without any conversion thereof, other than fifty thousand
three hundred seventeen (50,317) shares currently held in treasury which
will be distributed to Company employees effective immediately prior to the
Closing and treated pursuant to Section 1.7(a).
(c) Stock Options. At the Effective Time all options to purchase Company
Common Stock ("Company Stock Options") then outstanding under the E.mergent
Employee Stock Option Plan (the "Company Option Plans") shall be treated in
accordance with Section 5.8 hereof.
(d) Employee Stock Purchase Plan. All shares outstanding under Company's
Employee Stock Purchase Plan (the "ESPP") will be converted as of the
Effective Time pursuant to Section 1.7(a), above. Any outstanding employee
deposits not applied to the purchase of shares of Company Common Stock will
be refunded to the depositing employee.
(e) Adjustments to the Stock Portion and the Cash Portion. The Stock
Portion and the Cash Portion shall be adjusted appropriately to reflect the
effect of any permitted stock split, reverse stock split, stock dividend
(including any dividend or distribution of securities convertible into
Company Common Stock or Parent Common Stock), extraordinary cash dividends,
reorganization, recapitalization, reclassification, combination, exchange
of shares or other like change with respect to the Company Common Stock or
the Parent Common Stock occurring on or after the date hereof and prior to
the Effective Time.
(f) Fractional Shares. No fraction of a share of Parent Common Stock will
be issued in connection with the payment of the Stock Portion of the Merger
Consideration, but in lieu thereof each holder of a Share Certificate who
would otherwise be entitled to receive a fraction of a share of Parent
Common Stock (after aggregating all fractional shares of Parent Common
Stock that otherwise would be received by such holder) in the Merger shall
receive from Parent an amount of cash (rounded to the nearest whole cent),
without interest, equal to the product obtained by multiplying such
fraction by the Average Price.
1.8 Exchange of Certificates.
(a) Exchange Agent. Parent shall select an entity reasonably acceptable to
Company to act as the exchange agent (the "Exchange Agent") in the Merger.
(b) Parent to Provide Cash and Stock. Promptly after the Effective Time,
Parent shall make available to the Exchange Agent, for payment in
accordance with this Article I, (i) an amount in cash equal to the product
of the Cash Portion and the number of shares that are issued and
outstanding at the Effective Time and (ii) a number of shares of Parent
Common Stock representing the number of shares of Parent Common Stock equal
to the product of the Stock Portion and the number of shares issued and
outstanding at the Effective Time, and (iii) the cash amount payable in
lieu of fractional shares in accordance with Section 1.7(f). Any portion of
such cash and stock which remains undistributed to the holders of the Share
Certificates for six (6) months after the Effective Time shall be delivered
to Parent, upon demand, and any holders of shares of Company Common Stock
prior to the Merger who have not theretofore complied with this Article I
shall thereafter look for payment, as general creditors thereof, only to
Parent for their claim for the Merger Consideration to which such holders
may be entitled.
(c) Payment Procedures. Promptly after the Effective Time, Parent shall
cause the Exchange Agent to mail to each holder of record (as of the
Effective Time) of a Share Certificate, which immediately prior to the
Effective Time represented outstanding shares of Company Common Stock (i) a
letter of transmittal in customary form (which shall specify that delivery
A-3
shall be effected, and risk of loss and title to the Share Certificates
shall pass, only upon delivery of the Share Certificates to the Exchange
Agent, and (ii) instructions for use in effecting the surrender of the
Share Certificates in exchange for the Merger Consideration. Upon surrender
of Share Certificates for cancellation to the Exchange Agent or to such
other agent or agents as may be appointed by Parent, together with such
letter of transmittal, duly completed and validly executed in accordance
with the instructions thereto, and such other documents as may be required
pursuant to such instructions, the holder of such Share Certificate shall
be entitled to receive in payment therefor an amount equal to the product
of the Merger Consideration and the number of shares represented by such
Share Certificate, and the Share Certificate so surrendered shall be
forthwith cancelled. In the event of a transfer of ownership of shares that
is not registered in the stock transfer books of Company, the proper amount
of cash and Parent Common Stock may be paid in exchange therefor to a
person other than the person in whose name the Share Certificate so
surrendered is registered if such Share Certificate shall be properly
endorsed or otherwise be in proper form for transfer and the person
requesting such payment shall pay any transfer or other taxes required by
reason of the payment to a person other than the registered holder of such
Share Certificate the Merger Consideration or establish to the satisfaction
of Parent that such tax has been paid or is not applicable. The Exchange
Agent shall accept such Share Certificates upon compliance with such
reasonable terms and conditions as the Exchange Agent may impose to effect
an orderly exchange thereof in accordance with normal exchange practices.
No interest shall be paid or accrued for the benefit of holders of the
Share Certificates on the cash payable upon the surrender of the Share
Certificates. Until so surrendered, outstanding Share Certificates will be
deemed from and after the Effective Time, to evidence only the right to
receive the Merger Consideration.
(d) Required Withholding. Each of the Exchange Agent, Parent and the
Surviving Corporation shall be entitled to deduct and withhold from any
consideration payable or otherwise deliverable pursuant to this Agreement
to any holder or former holder of Company Common Stock such amounts as may
be required to be deducted or withheld therefrom under U.S. federal or
state, local or foreign law. To the extent such amounts are so deducted or
withheld, such amounts shall be treated for all purposes under this
Agreement as having been paid to the person to whom such amounts would
otherwise have been paid.
(e) No Liability. Notwithstanding anything to the contrary in this Section
1.8, neither the Exchange Agent, Parent, the Surviving Corporation nor any
party hereto shall be liable to a holder of shares of Parent Common Stock
or Company Common Stock for any amount properly paid to a public official
pursuant to any applicable abandoned property, escheat or similar law.
1.9 No Further Ownership Rights in Company Common Stock. From and after the
Effective Time, all shares of Company Common Stock shall no longer be
outstanding and shall automatically be cancelled, retired and cease to exist and
each holder of a Share Certificate representing any such shares shall cease to
have any rights with respect thereto, except the right to receive the Merger
Consideration therefor upon the surrender thereof in accordance with Section 1.8
hereof. The Merger Consideration issued in accordance with the terms hereof
shall be deemed to have been issued in full satisfaction of all rights
pertaining to such shares of Company Common Stock. There shall be no further
registration of transfers on the records of the Surviving Corporation of shares
of Company Common Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Share Certificates are presented
to the Surviving Corporation for any reason, they shall be canceled and
exchanged as provided in this Article I.
1.10 Lost, Stolen or Destroyed Share Certificates. In the event that any Share
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Share Certificates, upon
the making of an affidavit of that fact by the holder thereof, the Merger
Consideration pursuant to Section 1.7; provided, however, that Parent may, in
its discretion and as a condition precedent to the issuance of such Merger
Consideration and other distributions, require the owner of such lost, stolen or
destroyed Share Certificates to deliver a bond in such sum as it may reasonably
direct as indemnity against any claim that may be made against Parent, the
Surviving Corporation or the Exchange Agent with respect to the Share
Certificates alleged to have been lost, stolen or destroyed.
A-4
1.11 Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the contrary, shares
that are outstanding immediately prior to the Effective Time and that are
held by stockholders who shall have neither voted in favor of the Merger
nor consented thereto in writing and who shall have demanded properly in
writing appraisal for such shares in accordance with Section 262 of
Delaware Law (collectively, the "Dissenting Shares") shall not be converted
into, or represent the right to receive, the Merger Consideration. Such
stockholders shall be entitled to receive payment of the appraised value of
such shares held by them in accordance with the provisions of such Section
262, except that all Dissenting Shares held by stockholders who shall have
failed to perfect or who effectively shall have withdrawn or lost their
rights to appraisal of such shares under such Section 262 shall thereupon
be deemed to have been converted into, and to have become exchangeable for,
as of the Effective Time, the right to receive the Merger Consideration,
without any interest thereon, upon surrender, in the manner provided in
Section 1.7, of the certificate or certificates that formerly evidenced
such shares.
(b) The Company shall give Parent (i) prompt notice of any demands for
appraisal received by the Company, withdrawals of such demands, and any
other instruments served pursuant to Delaware Law and received by the
Company and (ii) the opportunity to direct all negotiations and proceedings
with respect to demands for appraisal under Delaware Law. The Company shall
not, except with the prior written consent of Parent, make any payment with
respect to any demands for appraisal or offer to settle or settle any such
demands.
1.12 Tax and Accounting Consequences.
(a) Tax. It is intended by the parties hereto that the Merger will
constitute a reorganization within the meaning of Section 368 of the Code.
The parties hereto adopt this Agreement as a "plan of reorganization"
within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the United
States Income Tax Regulations.
(b) Accounting. It is intended by the parties hereto that the Merger shall
qualify as a purchase for accounting purposes.
1.13 Taking of Necessary Action; Further Action. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of Company and Merger Sub, the officers and directors of Company
and Merger Sub will take all such lawful and necessary action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY
Company represents and warrants to Parent and Merger Sub, subject to such
exceptions as are disclosed in writing in the disclosure letter supplied by
Company to Parent dated as of the date hereof (the "Company Schedule"), which
disclosure shall provide an exception to or otherwise qualify the
representations and warranties of Company contained in the section of this
Agreement corresponding by number to such disclosure, as follows:
2.1 Organization and Qualification; Subsidiaries.
(a) Each of Company and its subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of
its incorporation and has the requisite corporate power and authority to
own, lease and operate its assets and properties and to carry on its
business as it is now being conducted, except where the failure to do so
would not, individually, or in the aggregate, have a Material Adverse
Effect (as defined in Section 8.3 below) on Company. Each of Company and
its subsidiaries is in possession of all franchises, grants,
authorizations, licenses, permits, easements, consents, certificates,
approvals and orders ("Approvals") necessary to own, lease and operate the
properties it purports to own, operate or lease and to carry on its
business as it is now being conducted, except where the failure to have
such Approvals would not, individually or in the aggregate, have a Material
Adverse Effect on Company. Company and its subsidiaries are and have been
A-5
in compliance with the terms of the Approvals, except where the failure to
be or have been in such compliance would not, individually or in the
aggregate, result in a Material Adverse Effect on Company.
(b) Section 2.1 (b) of the Company Schedule lists each of Company's
subsidiaries, the jurisdiction of incorporation of each such subsidiary,
and Company's equity interest therein. Neither Company nor any of its
subsidiaries has agreed nor is obligated to make nor is bound by any
written or oral agreement, contract, subcontract, lease, binding
understanding, instrument, note, option, warranty, purchase order, license,
sublicense, insurance policy, benefit plan, commitment or undertaking of
any nature, as of the date hereof or as may hereafter be in effect (a
"Contract") under which it may become obligated to make, any future
investment in or capital contribution to any other entity. Other than
Company's interests in its subsidiaries or except as set forth in Section
2.1(b) of the Company Schedule, neither Company nor any of its subsidiaries
directly or indirectly owns any equity or similar interest in or any
interest convertible, exchangeable or exercisable for, any equity or
similar interest in, any corporation, partnership, joint venture or other
business, association or entity.
(c) Company and each of its subsidiaries is qualified to do business as a
foreign corporation, and is in good standing, under the laws of all
jurisdictions where the nature of their business requires such
qualification, except where the failure to be so qualified or in good
standing would not, individually or in the aggregate, have a Material
Adverse Effect on Company.
2.2 Certificate of Incorporation and Bylaws. Company has previously furnished to
Parent a complete and correct copy of its Certificate of Incorporation and
Bylaws as amended to date (together, the "Company Charter Documents"). Such
Company Charter Documents and equivalent organizational documents of each of its
subsidiaries are in full force and effect, Company is not in violation of any of
the provisions of the Company Charter Documents, and no subsidiary of Company is
in violation of its equivalent organizational documents except where the failure
to be in full force or effect or the violation of any such equivalent
organizational documents of a subsidiary of Company would not, individually or
in the aggregate, have a Material Adverse Effect on Company.
2.3 Capitalization.
(a) The authorized capital stock of Company consists of 20,000,000 shares
of Company Common Stock, $0.01 par value per share and 5,000,000 shares of
Preferred Stock, $0.01 par value per share. As of the close of business on
January 17, 2002: (i) 5,929,280 shares of Company Common Stock were issued
and outstanding, all of which were validly issued, fully paid and
nonassessable, which number includes 50,317 shares of Company Common Stock
held in the Company's treasury; (ii) no shares of Company Common Stock were
held by subsidiaries of the Company; (iii) vested Company Stock Options for
588,000 shares of Company Common Stock were outstanding, with at least an
equivalent number of shares of Company Common Stock reserved for issuance
upon the exercise of such options under the Company Option Plans; and (iv)
unvested Company Stock Options for 20,000 shares of Company Common Stock
are outstanding with at least an equivalent number of shares of Company
Common Stock reserved for issuance upon the exercise of such options under
the Company Option Plans. Section 2.3(a) of the Company Schedule sets forth
the following information with respect to each Company Stock Option (as
defined in Section 5.8) outstanding as of the date of this Agreement: (i)
the name and address of the optionee; (ii) the number of shares of Company
Common Stock subject to such Company Stock Option; (iii) the exercise price
of such Company Stock Option; (iv) the date on which such Company Stock
Option was granted and (v) the date on which such Company Stock Option
expires. Company has made available to Parent accurate and complete copies
of all stock option plans pursuant to which Company has granted such
Company Stock Options that are currently outstanding and the form of all
stock option agreements evidencing such Company Stock Options. All shares
of Company Common Stock subject to issuance as aforesaid, upon issuance on
the terms and conditions specified in the instrument pursuant to which they
are issuable, would be duly authorized, validly issued, fully paid and
nonassessable. Except as set forth in Section 2.3(a) of the Company
Schedule, there are no commitments or agreements of any character to which
Company is bound obligating Company to accelerate the vesting of any
Company Stock Option as a result of the Merger. All outstanding shares of
Company Common Stock, all outstanding Company Stock Options, and all
outstanding shares of capital stock of each subsidiary of Company have been
issued and granted in compliance with (i) all applicable securities laws
and other applicable Legal Requirements (as defined below) and (ii) all
requirements set forth in applicable Contracts in all material respects.
For the purposes of this Agreement, "Legal Requirements" means any federal,
state, local, municipal, foreign or other law, statute, constitution,
A-6
principle of common law, resolution, ordinance, code, edict, decree, rule,
regulation, ruling or requirement issues, enacted, adopted, promulgated,
implemented or otherwise put into effect by or under the authority of any
Governmental Entity (as defined below).
(b) Except for securities set forth in Schedule 2.3(b) of the Company
Schedule, Company owns free and clear of all liens, pledges,
hypothecations, charges, mortgages, security interests, encumbrances,
claims, infringements, interferences, options, right of first refusals,
preemptive rights, community property interests or restrictions of any
nature (including any restriction on the voting of any security, any
restriction on the transfer of any security or other asset, any restriction
on the possession, exercise or transfer of any other attribute of ownership
of any asset but other than restrictions imposed by federal or state
securities laws) directly or indirectly through one or more subsidiaries,
and there are no equity securities, partnership interests or similar
ownership interests of any class of equity security of any subsidiary of
Company, or any security exchangeable or convertible into or exercisable
for such equity securities, partnership interests or similar ownership
interests, issued, reserved for issuance or outstanding. Except as set
forth in Section 2.3(b) of Company Schedule or as set forth in Section
2.3(a) hereof, there are no subscriptions, options, warrants, equity
securities, partnership interests or similar ownership interests, calls,
rights (including preemptive rights), commitments or agreements of any
character to which Company or any of its subsidiaries is a party or by
which it is bound obligating Company or any of its subsidiaries to issue,
deliver or sell, or cause to be issued, delivered or sold, or repurchase,
redeem or otherwise acquire, or cause the repurchase, redemption or
acquisition of, any shares of capital stock, partnership interests or
similar ownership interests of Company or any of its subsidiaries or
obligating Company or any of its subsidiaries to grant, extend, accelerate
the vesting of or enter into any such subscription, option, warrant, equity
security, call, right, commitment or agreement. There are no registration
rights and there is, except for the Voting Agreement, no voting trust,
proxy, rights plan, antitakeover plan or other agreement or understanding
to which Company or any of its subsidiaries is a party or by which they are
bound with respect to any equity security of any class of Company or with
respect to any equity security, partnership interest or similar ownership
interest of any class of any of its subsidiaries.
2.4 Authority Relative to this Agreement. Company has all necessary corporate
power and authority to execute and deliver this Agreement, and to perform its
obligations hereunder and thereunder and, subject to obtaining the approval of
the stockholders of Company of this Agreement and the Merger, to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement and the consummation by Company of the transactions contemplated
hereby and thereby have been duly and validly authorized by all necessary
corporate action on the part of Company and no other corporate proceedings on
the part of Company are necessary to authorize this Agreement, or to consummate
the transactions contemplated hereby (other than the approval and adoption of
this Agreement and the Merger by holders of a majority of the outstanding shares
of Company Common Stock in accordance with Delaware Law and the Company Charter
Documents, if required). This Agreement has been duly and validly executed and
delivered by Company and, assuming the due authorization, execution and delivery
by Parent and/or Merger Sub, constitute legal and binding obligations of
Company, enforceable against Company in accordance with their respective terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditor rights and for general equitable principles.
2.5 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by Company does not, and
the performance of this Agreement by Company shall not, (i) violate the
Company Charter Documents or the equivalent organizational documents of any
of Company's subsidiaries, (ii) subject to obtaining the approval of
Company's stockholders of this Agreement and the Merger (if required) and
the consents, approvals, authorizations and permits, and making the filings
and notifications, set forth in Section 2.5(b) below, conflict with or
violate any law, rule, regulation, order, judgment or decree applicable to
Company or any of its subsidiaries or by which its or any of their
respective properties is bound or affected, or (iii) result in any breach
of or constitute a default (or an event that with notice or lapse of time
or both would become a default) under, or materially impair Company's or
any of its subsidiaries' rights or alter the rights or obligations of any
third party under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or
encumbrance on any of the properties or assets of Company or any of its
subsidiaries pursuant to, any material note, bond, mortgage, indenture,
A-7
contract, agreement, lease, license, permit, franchise or other instrument
or obligation to which Company or any of its subsidiaries is a party or by
which Company or any of its subsidiaries or its or any of their respective
properties are bound or affected, and including, without limitation, any
contract, agreement or license described in Section 2.17, below.
(b) The execution, delivery and performance of this Agreement, together
with the documents contemplated hereby, shall not, require any consent,
approval, authorization or permit of, or filing with or notification to,
any court, administrative agency, commission, governmental or regulatory
authority, domestic or foreign (a "Governmental Entity"), except (i) for
applicable requirements, if any, of the Securities Act of 1933, as amended
(the "Securities Act"), the Exchange Act of 1934, as amended (the "Exchange
Act"), state securities laws ("Blue Sky Laws"), the rules and regulations
of the NASDAQ, and the filing and recordation of the Agreement of Merger as
required by Delaware Law and (ii) where the failure to obtain such
consents, approvals, authorizations or permits, or to make such filings or
notifications (A) would not prevent consummation of the Merger or otherwise
prevent the parties hereto from performing their respective obligations
under this Agreement, or (B) would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on Company.
2.6 Compliance; Permits
(a) Definitions.
(i) "Hazardous Material" is any material or substance that is
prohibited or regulated by any Environmental Law or that has been
designated by any governmental authority to be radioactive, toxic,
hazardous or otherwise a danger to health, reproduction or the
environment.
(ii) "Environmental Laws" are all applicable laws, rules, regulations,
orders, treaties, statutes, and codes promulgated by any governmental
authority which prohibit, regulate or control any Hazardous Material
or any Hazardous Material activity, including, without limitation, the
Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, the Resource Recovery and Conservation Act of 1976, the
Federal Water Pollution Control Act, the Clean Air Act, the Hazardous
Materials Transportation Act, the Clean Water Act, comparable laws,
rules, regulations, ordinances, orders, treaties, statutes, and codes
of other governmental authorities, the regulations promulgated
pursuant to any of the foregoing, and all amendments and modifications
of any of the foregoing, all as amended to date.
(b) Neither Company nor any of its subsidiaries is in conflict with, or in
default or violation of, (i) any law, rule (including Environmental Laws),
regulation, order, judgment or decree applicable to Company or any of its
subsidiaries or by which its or any of their respective properties is
bound, or (ii) any material note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or
obligation to which Company or any of its subsidiaries is a party or by
which Company or any of its subsidiaries or its or any of their respective
properties is bound, except for any conflicts, defaults or violations that
(individually or in the aggregate) would not reasonably be expected to have
a Material Adverse Effect on the Company. No investigation or review by any
governmental or regulatory body or authority is, to the knowledge of
Company, pending or threatened against Company or its subsidiaries, nor has
any governmental or regulatory body or authority indicated to Company or
any of its subsidiaries an intention to conduct the same, other than, in
each such case, those the outcome of which could not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect on
the Company.
(c) Neither Company nor any of its subsidiaries has (and no Hazardous
Materials generated, stored or used by Company or any of its subsidiaries
have been) disposed of, released, discharged or emitted any Hazardous
Materials into the soil or groundwater at any properties owned or leased at
any time by Company or any of its subsidiaries, or at any other property,
or exposed any employee or other individual to any Hazardous Materials or
any workplace or environmental condition in such a manner as would result
in any liability or clean-up obligation of any kind or nature to Company or
any of its subsidiaries. To the knowledge of Company, no Hazardous
Materials are present in, on, or under any properties owned, leased or used
at any time by Company or any of its subsidiaries, and no reasonable
likelihood exists that any Hazardous Materials will come to be present in,
on, or under any properties owned, leased or used at any time by Company or
A-8
any of its subsidiaries, so as to give rise to any liability or clean-up
obligation under any Environmental Laws.
(d) Company and its subsidiaries hold all permits, licenses, variances,
exemptions, orders, approvals and other authorizations from governmental
authorities which are material to the operation of the business of Company
and its subsidiaries taken as a whole (collectively, the "Company
Permits"). Company and its subsidiaries have been and are in compliance in
all material respects with the terms of the Company Permits and any
conditions placed thereon.
2.7 SEC Filings; Financial Statements.
(a) Company has delivered or made available to Parent a correct and
complete copy of each report, schedule, registration statement and
definitive proxy statement filed by Company with the Securities and
Exchange Commission ("SEC") since December 31, 1998 (the "Company SEC
Reports"), which are all the forms, reports and documents required to be
filed by Company with the SEC since such time. The Company SEC Reports (i)
were prepared in accordance with the requirements of the Securities Act or
the Exchange Act, as the case may be, and the rules and regulations of the
SEC promulgated thereunder, and (ii) did not at the time they were filed
(or, if such Company SEC Report was amended or superseded by another
filing, then on the date of filing of such amendment or superceding filing)
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading. None of Company's subsidiaries is required to file
any reports or other documents with the SEC.
(b) As of their respective dates, each set of consolidated financial
statements (including, in each case, any related notes thereto) contained
in the Company SEC Reports, (i) complied as to form in all material
respects with the published rules and regulations of the SEC with respect
thereto, (ii) was prepared in accordance with generally accepted accounting
principles ("GAAP") applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto or, in the case
of unaudited statements, do not contain footnotes as permitted by Form 10-Q
of the Exchange Act) and each fairly presents the consolidated financial
position of Company and its subsidiaries at the respective dates thereof
and the consolidated results of its operations and cash flows for the
periods indicated, except that the unaudited interim financial statements
were or are subject to the absence of footnotes and normal adjustments
which (in addition to those noted therein) were not or are not expected to
be material in amount.
(c) Company has previously furnished to Parent a complete and correct copy
of any amendments or modifications, which have not yet been filed as of the
date hereof with the SEC but which are required to be filed, to agreements,
documents or other instruments which previously had been filed by Company
with the SEC pursuant to the Securities Act or the Exchange Act or any
material agreements potentially required to be filed that have not been so
filed.
2.8 No Undisclosed Liabilities. Neither Company nor any of its subsidiaries has
any liabilities (absolute, accrued, contingent or otherwise) of a nature
required to be disclosed on a balance sheet or in the related notes to the
consolidated financial statements prepared in accordance with GAAP which are,
individually or in the aggregate, material to the business, results of
operations, assets or financial condition of Company and its subsidiaries taken
as a whole, except (i) liabilities provided for in Company's balance sheet as of
September 30, 2001 set forth in the Company SEC Reports (ii) liabilities
incurred since September 30, 2001 in the ordinary course of business, none of
which is material to the business, results of operations or financial condition
of Company and its subsidiaries, taken as a whole, or (iii) except as disclosed
in Schedule 2.8.
2.9 Absence of Certain Changes or Events. Except as set forth in this Agreement,
since September 30, 2001, there has not been: (i) any event or circumstance that
results in a Material Adverse Effect on Company, (ii) any declaration, setting
aside or payment of any dividend on, or other distribution (whether in cash,
stock or property) in respect of, any of Company's or any of its subsidiaries'
capital stock, or any purchase, redemption or other acquisition by Company of
any of Company's capital stock or any other securities of Company or its
A-9
subsidiaries or any options, warrants, calls or rights to acquire any such
shares or other securities except for repurchases from employees following their
termination pursuant to the terms of their pre-existing stock option or purchase
agreements, (iii) any split, combination or reclassification of any of Company's
or any of its subsidiaries' capital stock, (iv) any granting by Company or any
of its subsidiaries of any increase in compensation or fringe benefits, except
for normal increases of cash or non-cash benefits compensation in the ordinary
course of business consistent with past practice, or any payment by Company or
any of its subsidiaries of any bonus, except for bonuses made in the ordinary
course of business consistent with past practice, or any granting by Company or
any of its subsidiaries of any increase in severance or termination pay or any
entry by Company or any of its subsidiaries into any currently effective
employment, severance, termination or indemnification agreement or any agreement
the benefits of which are contingent or the terms of which are materially
altered upon the occurrence of a transaction involving Company of the nature
contemplated hereby, (v) entry by Company or any of its subsidiaries into any
material licensing or other agreement with regard to the acquisition or
disposition of any Intellectual Property (as defined in Section 2.16) other than
licenses in the ordinary course of business consistent with past practice or any
amendment or consent with respect to any licensing agreement filed or required
to be filed by Company with the SEC, (vi) any material change by Company in its
accounting methods, principles or practices, except as required by concurrent
changes in GAAP, or (vii) any material revaluation by Company of any of its
assets, including, without limitation, writing down the value of capitalized
inventory or writing off notes or accounts receivable or any sale of assets of
Company other than in the ordinary course of business consistent with past
practice.
2.10 Absence of Litigation. Except as specifically disclosed on Section 2.10 of
the Company Schedule, or in the Company SEC Reports as of the date hereof, there
are no material claims, actions, suits or proceedings pending or, to the
knowledge of Company, threatened (or, to the knowledge of Company, any
governmental or regulatory investigation pending or threatened) against Company
or any of its subsidiaries or any properties or rights of Company or any of its
subsidiaries, before any court, arbitrator or administrative, governmental or
regulatory authority or body, domestic or foreign.
2.11 Employee Matters and Benefit Plans.
(a) Definitions. With the exception of the definition of "Affiliate" set
forth in Section 3.11(a)(i) below (which definition shall apply only to
this Section 2.11), for purposes of this Agreement, the following terms
shall have the meanings set forth below:
(i) "Affiliate" shall mean any other person or entity under common
control with Company within the meaning of Section 414(b), (c), (m) or
(o) of the Code and the regulations issued thereunder;
(ii) "COBRA" shall mean the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended;
(iii) "Code" shall mean the Internal Revenue Code of 1986, as amended;
(iv) "Company Employee Plan" shall mean any plan, program, policy,
practice, contract, agreement or other arrangement providing for
compensation, severance, termination pay, deferred compensation,
performance awards, stock or stock-related awards, fringe benefits or
other employee benefits or remuneration of any kind, whether written
or unwritten or otherwise, funded or unfunded, including without
limitation, each "employee benefit plan," within the meaning of
Section 3(3) of ERISA which is or has been maintained, contributed to,
or required to be contributed to, by Company or any Affiliate for the
benefit of any Employee, or with respect to which Company or any
Affiliate has or may have any liability or obligation;
(v) "DOL" shall mean the Department of Labor;
(vi) "Employee" shall mean any current or former or retired employee,
consultant or director of Company or any Affiliate;
A-10
(vii) "Employment Agreement" shall mean each employment, severance,
consulting, relocation, repatriation, expatriation, visas, work permit
or other agreement or contract relating to provisions of services
between the Company or any Affiliate and any Employee;
(viii) "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended; (ix) "FMLA" shall mean the Family Medical Leave
Act of 1993, as amended;
(x) "IRS" shall mean the Internal Revenue Service;
(xi) "Multiemployer Plan" shall mean any "Pension Plan" (as defined
below) which is a "multiemployer plan," as defined in Section 3(37) of
ERISA; and
(xii) "Pension Plan" shall mean each Company Employee Plan which is an
"employee pension benefit plan," within the meaning of Section 3(2) of
ERISA.
(b) Schedule. Section 2.11(b) of the Company Schedule contains an accurate
and complete list in all material respects of each Company Employee Plan,
and each Employment Agreement. Company does not have any plan or commitment
to establish any new Company Employee Plan or Employment Agreement, to
modify any Company Employee Plan or Employment Agreement (except to the
extent required by law or to conform any such Company Employee Plan or
Employment Agreement to the requirements of any applicable law, in each
case as previously disclosed to Parent in writing, or as required by this
Agreement), or to adopt or enter into any Company Employee Plan, or
Employment Agreement. Section 2.11(b) of the Company Schedule contains a
representation of the percentage of the Company's employee base which falls
within each of the following categories: non-exempt employees, exempt
employees and key employees; average employee salary in each such category;
and average tenure in each such category. The Company represents and
warrants that the foregoing information, as more fully reflected in Section
2.11(b) of the Company Schedule, is accurate and complete.
(c) Documents. Company has provided to Parent correct and complete copies
of: (i) all documents embodying each Company Employee Plan and each
Employment Agreement including (without limitation) all amendments thereto
and all related trust documents, administrative service agreements, group
annuity contracts, group insurance contracts, and policies pertaining to
fiduciary liability insurance covering the fiduciaries for each Plan; (ii)
the most recent annual actuarial valuations, if any, prepared for each
Company Employee Plan; (iii) the three (3) most recent annual reports (Form
Series 5500 and all schedules and financial statements attached thereto),
if any, required under ERISA or the Code in connection with each Company
Employee Plan; (iv) if Company Employee Plan is funded, the most recent
annual and periodic accounting of Company Employee Plan assets; (v) the
most recent summary plan description together with the summary(ies) of
material modifications thereto, if any, required under ERISA with respect
to each Company Employee Plan; (vi) the most recent IRS determination
letter, and all applications and correspondence to or from the IRS or the
DOL with respect to any such application or letter; (vii) all written
communications material to any Employee or Employees relating to any
Company Employee Plan and any proposed Company Employee Plans, in each
case, relating to any amendments, terminations, establishments, increases
or decreases in benefits, acceleration of payments or vesting schedules or
other events which would result in any material liability to Company;
(viii) all material correspondence to or from any governmental agency
relating to any Company Employee Plan; (ix) all current model COBRA forms
and related notices (or such forms and notices as required under comparable
law); (x) the three (3) most recent plan years discrimination tests for
each Company Employee Plan; and (xi) all registration statements, annual
reports (Form 11-K and all attachments thereto) and prospectuses prepared
in connection with each Company Employee Plan.
(d) Employee Plan Compliance. (i) Company has performed in all material
respects all obligations required to be performed by it under, is not in
material default or violation of, and has no knowledge of any material
default or violation by any other party to each Company Employee Plan, and
each Company Employee Plan has been established and maintained in all
material respects in accordance with its terms and in compliance with all
applicable laws, statutes, orders, rules and regulations, including but not
limited to ERISA or the Code; (ii) each Company Employee Plan intended to
qualify under Section 401(a) of the Code and each related trust intended to
A-11
qualify under Section 501(a) of the Code has either received a favorable
determination, opinion, notification or advisory letter from the IRS with
respect to each such Company Employee Plan as to its qualified status under
the Code, including all amendments to the Code effected by the Tax Reform
Act of 1986 and subsequent legislation, or has remaining a period of time
under applicable Treasury regulations or IRS pronouncements in which to
apply for such a letter and make any amendments necessary to obtain a
favorable determination as to the qualified status of each such Company
Employee Plan; (iii) no "prohibited transaction," within the meaning of
Section 4975 of the Code or Sections 406 and 407 of ERISA, and not
otherwise exempt under Section 4975 of the Code or Section 408 of ERISA (or
any administrative class exemption issued thereunder), has occurred with
respect to any Company Employee Plan; (iv) there are no actions, suits or,
to the knowledge of the Company, claims pending or threatened (other than
routine claims for benefits) against any Company Employee Plan or against
the assets of any Company Employee Plan; (v) each Company Employee Plan
(other than any stock option plan) can be amended, terminated or otherwise
discontinued after the Effective Time, without material liability to
Parent, Company or any of its Affiliates (other than benefits accrued to
date and ordinary administration expenses); (vi) there are no audits,
inquiries or proceedings pending or, to the knowledge of Company,
threatened by the IRS or DOL with respect to any Company Employee Plan; and
(vii) neither Company nor any Affiliate is subject to any penalty or tax
with respect to any Company Employee Plan under Section 502(i) of ERISA or
Sections 4975 through 4980 of the Code.
(e) Pension Plan. Neither Company nor any Affiliate has ever maintained,
established, sponsored, participated in, or contributed to, any Pension
Plan which is subject to Title IV of ERISA or Section 412 of the Code.
(f) Collectively Bargained, Multiemployer and Multiple Employer Plans. At
no time within the six (6) year period ending on the date hereof, has the
Company or any Affiliate contributed to or been obligated to contribute to
any Multiemployer Plan or ever maintained, established, sponsored,
participated in, or contributed to any multiple employer plan, or to any
plan described in Section 413 of the Code.
(g) No Post-Employment Obligations. Except as set forth in Section 2.11(g)
of the Company Schedule, no Company Employee Plan provides, or reflects or
represents any liability to provide retiree health insurance coverage to
any person for any reason, except as may be required by COBRA or other
applicable statute.
(h) Health Care Compliance. Neither Company nor any Affiliate has, prior to
the Effective Time and in any material respect, violated any of the health
care continuation requirements of COBRA, the requirements of FMLA, the
requirements of the Health Insurance Portability and Accountability Act of
1996, the requirements of the Women's Health and Cancer Rights Act of 1998,
the requirements of the Newborns' and Mothers' Health Protection Act of
1996, or any amendment to each such act, or any similar provisions of state
law applicable to its Employees.
(i) Effect of Transaction.
(i) Except as set forth on Schedule 2.11(i), the execution of this
Agreement and the consummation of the transactions contemplated hereby
will not (either alone or upon the occurrence of any additional or
subsequent events) constitute an event under any Company Employee
Plan, Employment Agreement, trust or loan that will or may result in
any payment (whether of severance pay or otherwise), acceleration,
forgiveness of indebtedness, vesting, distribution, increase in
benefits or obligation to fund benefits with respect to any Employee.
(ii) No payment or benefit which will or may be made by Company or its
Affiliates with respect to any Employee will be characterized as a
"parachute payment," within the meaning of Section 280G(b)(2) of the
Code.
(j) Employment Matters. To the best of its knowledge and belief, Company:
(i) is in material compliance in all respects with all applicable foreign,
federal, state and local laws, rules and regulations respecting employment,
employment practices, terms and conditions of employment and wages and
hours, in each case, with respect to Employees; (ii) has withheld and
reported all amounts required by law or by agreement to be withheld and
reported with respect to wages, salaries and other payments to Employees;
(iii) is not liable for any arrears of wages or any taxes or any penalty
A-12
for failure to comply with any of the foregoing; and (iv) is not liable for
any payment to any trust or other fund governed by or maintained by or on
behalf of any governmental authority, with respect to unemployment
compensation benefits, social security or other benefits or obligations for
Employees (other than routine payments to be made in the normal course of
business and consistent with past practice). To the Company's knowledge,
there are no pending, threatened or reasonably anticipated claims or
actions against Company under any worker's compensation policy or long-term
disability policy (other than routine claims for benefits).
(k) Labor. No work stoppage or labor strike against Company is pending or,
to the knowledge of Company, threatened. Company does not know of any
activities or proceedings of any labor union to organize any Employees.
There are no actions, suits, claims, labor disputes or grievances pending,
or, to the knowledge of Company, threatened or reasonably anticipated
relating to any labor, safety or discrimination matters involving any
Employee, including, without limitation, charges of unfair labor practices
or discrimination complaints, which, if adversely determined, would,
individually or in the aggregate, result in any material liability to
Company. Neither Company nor any of its subsidiaries has engaged in any
unfair labor practices within the meaning of the National Labor Relations
Act. Except as set forth in Section 2.11(k) of the Company Schedule,
Company is not presently, nor has it been in the past, a party to, or bound
by, any collective bargaining agreement or union contract with respect to
Employees and no collective bargaining agreement is being negotiated by
Company.
2.12 Restrictions on Business Activities. There is no agreement, commitment,
judgment, injunction, order or decree binding upon Company or its subsidiaries
or to which Company or any of its subsidiaries is a party which has or could
reasonably be expected to have the effect of prohibiting or materially impairing
any material business practice of Company or any of its subsidiaries, any
material acquisition of property by Company or any of its subsidiaries or the
conduct of business by Company or any of its subsidiaries as currently
conducted.
2.13 Title to Property.
(a) Neither Company nor any of its subsidiaries owns any material real
property. Company and each of its subsidiaries have good and marketable
title to all of their material owned properties and assets, free and clear
of all liens, charges and encumbrances except liens for taxes not yet due
and payable and such liens or other imperfections of title, if any, as do
not materially interfere with the present use of the property affected
thereby.
(b) All leases (the "Leases") pursuant to which Company or any of its
subsidiaries lease from others material real or personal property are valid
and effective in accordance with their respective terms, and there is not,
under any of such leases, any existing material default or event of default
of Company or any of its subsidiaries or, to Company's knowledge, any other
party (or any event which with notice or lapse of time, or both, would
constitute a material default and in respect of which Company or subsidiary
has not taken adequate steps to prevent such default from occurring).
(c) Section 2.13 of the Company Schedule sets forth a list of all real
property currently leased by Company, the landlord contact, the expiration
date of the Lease and each amendment thereto, and, with respect to each
Lease, the square footage of the premises leased thereunder and the
aggregate monthly rental payable thereunder. Company has provided Parent
with true, complete and correct copies of each Lease; no term or condition
of any such Lease has been modified, amended or waived except as shown in
such copies; each such Lease constitutes the entire agreement of the
landlord and the tenant thereunder; and there are no other agreements or
arrangements whatsoever relating to Company's use or occupancy of any of
the premises described in such Leases. Company has not transferred or
assigned any interest in any Lease, nor has Company subleased or otherwise
granted rights of use or occupancy of any of the premises described therein
to any other person or entity.
(d) As of the date of this Agreement, to the knowledge of Company, the
landlord under each Lease has complied with all of the requirements,
conditions, representations, warranties and covenants of the landlord
thereunder, including, without limitation, the timely completion of
construction of the leased premises in a good and workmanlike manner and
otherwise in accordance with the Leases.
A-13
(e) Company has not received any notice from any insurance company of any
defects or inadequacies in any leased property or any part thereof which
could materially and adversely affect the insurability of such leased
property or the premiums for the insurance thereof. No notice has been
given by any insurance company which has issued a policy with respect to
any portion of any leased property or by any board of fire underwriters (or
other body exercising similar functions) requesting the performance of any
repairs, alterations or other work with which compliance has not been made.
To Company's knowledge, there exist no structural, soil or other conditions
with respect to any leased property that could increase the probability of
material damage to any leased property as a result of earthquake or other
seismic activity.
(f) To the Company's knowledge, no law, ordinance, regulation or
restriction is, or as of the Closing Date will be, violated by the
continued occupancy, maintenance, operation or use of the leased properties
in their present manner. To Company's knowledge, there are no Legal
Requirements now in existence or under active consideration by any
Governmental Entity which could require the tenant of any leased property
to make any expenditure in excess of $25,000 to modify or improve such
leased property to bring it into compliance therewith.
(g) There is no pending or, to Company's knowledge, threatened condemnation
or similar proceeding affecting any leased property or any portion thereof,
and Company has no knowledge that any such action is currently
contemplated. There are no material legal actions, suits or other legal or
administrative proceedings pending or threatened against Company, or, to
Company's knowledge, against third parties affecting any leased property,
and Company is not aware of any facts which might result in any such
action, suit or proceeding. All material plants, structures and equipment
of Company and its subsidiaries are in good operating condition and repair
in all material respects.
For purposes of this Section 2.13, the Company's knowledge shall be deemed to
include the knowledge of the Company's management personnel responsible for the
Company's facilities and property.
2.14 Taxes.
(a) Definition of Taxes. For purposes of this Agreement, (i) "Tax" or,
collectively, "Taxes", means (i) any and all federal, state, local and
foreign taxes, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, excise
and property taxes, together with all interest, penalties and additions
imposed with respect to such amounts; (ii) any liability for the payment of
any amounts of the type described in clause (i) as a result of being or
ceasing to be a member of an affiliated, consolidated, combined or unitary
group for any period (including, without limitation, any liability under
Treas. Reg. Section 1.1502-6 or any comparable provision of foreign, state
or local law); and (iii) any liability for the payment of any amounts of
the type described in clause (i) or (ii) as a result of any express or
implied obligation to indemnify any other Person or as a result of any
obligations under any agreements or arrangements with any other Person with
respect to such amounts and including any liability for taxes of a
predecessor entity.
(b) Tax Returns and Audits.
(i) The Company and each of its subsidiaries have timely filed all
federal, state, local and foreign returns, estimates, information
statements and reports ("Returns") relating to Taxes required to be
filed by the Company and each of its subsidiaries with any Tax
authority, except such Returns which are not material to the Company.
All such Returns were correct and complete in all material respects.
The Company and each of its subsidiaries have paid or reserved for
payment all Taxes shown to be due on such Returns.
(ii) The Company and each of its subsidiaries has withheld with
respect to its employees, independent contractors, creditors,
stockholders, and all other third parties all federal and state income
taxes, Taxes pursuant to the Federal Insurance Contribution Act, Taxes
pursuant to the Federal Unemployment Tax Act and other Taxes required
to be withheld and have timely paid over to the proper governmental
A-14
authorities all amounts required to be withheld and paid over under
all applicable laws.
(iii) Neither the Company nor any of its subsidiaries has executed any
unexpired waiver of any statute of limitations on or extending the
period for the assessment or collection of any Tax.
(iv) To the knowledge of the Company, no audit or other examination of
any Return of the Company or any of its subsidiaries by any Tax
authority is presently in progress, nor has the Company or any of its
subsidiaries been notified in writing of any request for such an audit
or other examination.
(v) No material adjustment relating to any Returns filed by the
Company or any of its subsidiaries (and no claim by a Tax authority in
a jurisdiction in which the Company or any of its subsidiaries does
not file Returns that the Company or any of its subsidiaries may be
subject to taxation by such jurisdiction) has been proposed in writing
formally or informally by any Tax authority to the Company or any of
its subsidiaries.
(vi) Neither the Company nor any of its subsidiaries has any liability
for any unpaid Taxes which has not been accrued for or reserved on the
Company Balance Sheet in accordance with GAAP, whether asserted or
unasserted, contingent or otherwise, other than any liability for
unpaid Taxes that may have accrued since September 30, 2001 in
connection with the operation of the business of the Company and its
subsidiaries in the ordinary course.
(vii) There is no contract, agreement, plan or arrangement to which
the Company or any of its subsidiaries is a party as of the date of
this Agreement covering any employee or former employee of the Company
or any of its subsidiaries that, individually or collectively, would
reasonably be expected to give rise to the payment of any amount that
would not be deductible pursuant to Sections 404 or 162(m) of the
Code. There is no contract, agreement, plan or arrangement to which
the Company is a party or by which it is bound to compensate any
individual for excise taxes paid pursuant to Section 4999 of the Code.
(viii) Neither the Company nor any of its subsidiaries has filed any
consent agreement under Section 341(f) of the Code or agreed to have
Section 341(f)(2) of the Code apply to any disposition of a subsection
(f) asset (as defined in Section 341(f)(4) of the Code) owned by the
Company or any of its subsidiaries.
(ix) Neither the Company nor any of its subsidiaries (i) has ever been
a member of an affiliated group filing a consolidated federal income
Tax Return (other than a consolidated group the common parent of which
is the Company), (ii) is a party to any Tax sharing or Tax allocation
agreement, arrangement or understanding, (iii) is liable for the Taxes
of any other person (other than any of the Company and its
subsidiaries) under Treasury Regulation Section 1.1502-6 (or any
similar provision of state, local or foreign law), as a transferee or
successor, by contract or otherwise, or (iv) is a party to any joint
venture, partnership or, to the knowledge of the Company, any other
arrangement that could be treated as a partnership for income Tax
purposes.
(x) Neither the Company nor any of its subsidiaries has constituted
either a "distributing corporation" or a "controlled corporation" in a
distribution of stock qualifying for tax-free treatment under Section
355 of the Code (i) in the two years prior to the date of this
Agreement or (ii) in a distribution which could otherwise constitute
part of a "plan" or "series of related transactions" (within the
meaning of Section 355(e) of the Code) in conjunction with the Merger.
2.15 Brokers. Except for fees payable to Goldsmith, Agio, Helms, Securities,
Inc. ("GAHS") Company has not incurred, nor will it incur, directly or
indirectly, any liability for brokerage or finders fees or agent's commissions
or any similar charges in connection with this Agreement or any transaction
contemplated hereby.
2.16 Intellectual Property. For the purposes of this Agreement, the following
terms have the following definitions:
A-15
"Intellectual Property" shall mean any or all of the following and all
worldwide common law and statutory rights in, arising out of, or associated
therewith: (i) U.S. and foreign patents and applications therefor and all
reissues, divisions, renewals, extensions, provisionals, continuations and
continuations-in-part thereof ("Patents"); (ii) inventions (whether
patentable or not), invention disclosures, improvements, trade secrets,
proprietary information, know how, technology, technical data and customer
lists, and all documentation relating to any of the foregoing; (iii)
copyrights, copyrights registrations and applications therefor, and all
other rights corresponding thereto throughout the world; (iv) domain names,
uniform resource locators ("URLs"), other names and locators associated
with the Internet, and applications or registrations therefor ("Domain
Names"); (v) industrial designs and any registrations and applications
therefor; (vi) trade names, logos, common law trademarks and service marks,
trademark and service mark registrations, related goodwill and applications
therefor throughout the world; (vii) all databases and data collections and
all rights therein; (viii) all moral and economic rights of authors and
inventors, however denominated, (ix) any works of authorship, including,
without limitation, computer programs, source code, executable code,
whether embodied in software, firmware or otherwise, documentation,
designs, files, records, data and mask works; and (x) any similar or
equivalent rights to any of the foregoing (as applicable).
"Company Intellectual Property" shall mean any Intellectual Property that
is owned by, or exclusively licensed to, Company and it subsidiaries.
"Registered Intellectual Property" means all Intellectual Property that is
the subject of an application, certificate, filing, registration or other
document issued, filed with, or recorded by any private, state, government
or other legal authority.
"Company Registered Intellectual Property" means all of the Registered
Intellectual Property owned by, or filed in the name of, Company or any of
its subsidiaries.
(a) Section 2.16(a) of the Company Schedule is a complete and accurate list
of all Company Registered Intellectual Property and specifies, where
applicable, the jurisdictions in which each such item of Company Registered
Intellectual Property has been issued or registered, the filing date, and
the current status of each such item of Company Registered Intellectual
Property.
(b) No Company Intellectual Property or product or service offering of
Company or any of its subsidiaries (a "Company Product") is subject to any
proceeding or outstanding decree, order, judgment, or stipulation
restricting in any manner, or any contract, license, or agreement,
restricting in any material manner the use, transfer, or licensing thereof
by Company or any of its subsidiaries, or which may affect the validity,
use or enforceability of such Company Intellectual Property or Company
Product, except as identified in the Company Schedule.
(c) Each item of Company Registered Intellectual Property is valid and
subsisting, all necessary registration, maintenance and renewal fees
currently due in connection with such Company Registered Intellectual
Property have been made and all necessary documents, recordations and
certificates in connection with such Company Registered Intellectual
Property have been filed with the relevant patent, copyright, trademark or
other authorities in the United States or foreign jurisdictions, as the
case may be, for the purposes of maintaining such Company Registered
Intellectual Property, except where such Company Registered Intellectual
Property has been intentionally abandoned by the Company, as reflected in
section 2.16(a) of the Company Schedule.
(d) Company owns and has good and exclusive title to, each item of Company
Intellectual Property owned by it free and clear of any lien or encumbrance
(excluding non-exclusive licenses and related restrictions granted in the
ordinary course). Without limiting the foregoing: (i) Company is the
exclusive owner of all trademarks and trade names used in connection with
the operation or conduct of the business of Company and its subsidiaries,
including the sale, distribution or provision of any Company Products by
Company or its subsidiaries; (ii) Company owns exclusively, and has good
title to, all copyrighted works that are Company Products or services or
which Company or any of its subsidiaries otherwise purports to own; and
(iii) to the extent that any Patents would be infringed by any Company
A-16
Products, Company is the exclusive owner of such Patents, or has secured
appropriate rights through license or other agreement.
(e) Any agreements between Company and third parties for the development or
manufacture of a Company product shall permit Company to continue the
development or manufacture of any such product notwithstanding any
termination or expiration of such agreement(s), without the payment of any
additional royalty, fee or other payment to any such third party.
(f) Company knows of no information, materials, facts, or circumstances,
including any information or fact that would constitute prior art, that
would render any of the Company Registered Intellectual Property invalid or
unenforceable, or would adversely affect any pending application for any
Company Registered Intellectual Property and the Company has not
misrepresented, or knowingly failed to disclose, any facts or circumstances
in any application for any Company Registered Intellectual Property that
would constitute fraud or a misrepresentation with respect to such
application or that would otherwise affect the validity or enforceability
of any Company Registered Intellectual Property.
(g) To the extent that any technology, software or Intellectual Property
has been developed or created independently or jointly by a third party or
employee for Company or any of its subsidiaries or is incorporated into any
of the Company Products, Company has a written agreement with such third
party or employee with respect thereto and Company thereby either (i) has
obtained ownership of, and is the exclusive owner of, or (ii) has obtained
a perpetual, non-terminable license (sufficient for the conduct of its
business as currently conducted and as proposed to be conducted) to all
such third party's Intellectual Property in such work, material or
invention by operation of law or by valid assignment.
(h) Neither Company nor any of its subsidiaries has transferred ownership
of any Intellectual Property that is Company Intellectual Property, to any
third party or subsidiary (other than a wholly-owned subsidiary), or
knowingly permitted Company's rights in such Company Intellectual Property
to lapse or enter the public domain, except as noted in the Company
Schedule.
(i) Section 2.16(i) of the Company Schedule lists all material contracts,
licenses and agreements to which Company or any of its subsidiaries is a
party: (i) with respect to Company Intellectual Property licensed or
transferred to any third party (other than end-user licenses in the
ordinary course); or (ii) pursuant to which a third party has licensed or
transferred any material Intellectual Property to Company.
(j) All material contracts, licenses and agreements relating to either (i)
Company Intellectual Property or (ii) Intellectual Property of a third
party licensed to Company or any of its subsidiaries, including, without
limitation, third party licenses to Company relating to or in any way
permitting Company Products, services or Company Intellectual Property to
interoperate with other products, systems or standards, are in full force
and effect. The consummation of the transactions contemplated by this
Agreement will neither violate nor result in the breach, modification,
cancellation, termination or suspension of such contracts, licenses and
agreements. Each of Company and its subsidiaries is in material compliance
with, and has not materially breached any term of any such contracts,
licenses and agreements and, to the knowledge of Company, all other parties
to such contracts, licenses and agreements are in compliance with, and have
not materially breached any term of, such contracts, licenses and
agreements. Following the Closing Date, the Surviving Corporation will be
permitted to exercise all of Company's rights under such contracts,
licenses and agreements to the same extent Company and its subsidiaries
would have been able to had the transactions contemplated by this Agreement
not occurred and without the payment of any additional amounts or
consideration other than ongoing fees, royalties or payments which Company
would otherwise be required to pay. Neither this Agreement nor the
transactions contemplated by this Agreement, including the assignment to
Parent or Merger Sub by operation of law or otherwise of any contracts or
agreements to which Company is a party, will result in (i) either Parent's
or the Merger Sub's granting to any third party any right to or with
respect to any material Intellectual Property right owned by, or licensed
to, either of them, (ii) either Parent's or the Merger Sub's being bound
by, or subject to, any non-compete or other material restriction on the
operation or scope of their respective businesses, or (iii) either Parent's
or the Merger Sub's being obligated to pay any royalties or other material
amounts to any third party in excess of those payable by Parent or Merger
Sub, respectively prior to the Closing.
A-17
(k) The operation of the business of Company and its subsidiaries as such
business currently is conducted or is currently contemplated to be
conducted, including (i) Company's and its subsidiaries' design,
development, manufacture, distribution, import, reproduction, marketing or
sale of the products or services of Company and its subsidiaries (including
Company Products and products, technology or service offerings under
development) and (ii) Company's use of any product, device or process, has
not, does not and, to its knowledge, will not infringe or misappropriate
the Intellectual Property of any third party or constitute unfair
competition or trade practices under the laws of any jurisdiction.
(l) Neither Company nor any of its subsidiaries has received written notice
from any third party alleging that the operation of the business of Company
or any of its subsidiaries or any act, product or service (including
Products, technology or service offerings currently under development) of
Company or any of its subsidiaries, infringes or misappropriates the
Intellectual Property of any third party or constitutes unfair competition
or trade practices under the laws of any jurisdiction, except as otherwise
noted herein and resolved through appropriate license or other agreement.
(m) To the knowledge of Company, no person has or is infringing or
misappropriating any Company Intellectual Property.
(n) Company and each of its subsidiaries has taken reasonable steps to
protect Company's and its subsidiaries' rights in Company's confidential
information and trade secrets that it wishes to protect or any trade
secrets or confidential information of third parties provided to Company or
any of its subsidiaries, and, without limiting the foregoing, each of
Company and its subsidiaries has required each employee and contractor to
execute a proprietary information/confidentiality agreement and all current
and former employees and contractors of Company and any of its subsidiaries
have executed such an agreement, except where the failure to do so is not
reasonably expected to be material to Company.
(o) To the knowledge of Company and each of its subsidiaries, no (i)
product, technology, service or publication of the Company, (ii) material
or collateral published or distributed by the Company, or (iii) conduct or
statement of the Company constitutes obscene material, a defamatory
statement or material, disparagement of any third party, or false
advertising.
(p) None of the Company Intellectual Property was developed by or on behalf
of, or using grants or any other subsidies of, any governmental entity or
any university.
(q) Schedule 2.16(q) contains a list of all materials actions that are
required to be taken by the Company within ninety (90) days of the date
hereof with respect to any of the foregoing Company Registered Intellectual
Property.
2.17 Agreements, Contracts and Commitments.
(a) Except as set forth on Schedule 2.17(a), neither Company nor any of its
subsidiaries is a party to or is bound by:
(i) any written employment or consulting agreement, contract or
commitment with any officer, director, Company employee or member of
the Company's Board of Directors (sometimes, the "Company Board"), or
any service, operating or management agreement or arrangement with
respect to any of its properties (whether leased or owned), other than
those that are terminable by Company or any of its subsidiaries on no
more than thirty (30) days' notice without liability or financial
obligation to Company;
(ii) any agreement or plan, including, without limitation, any stock
option plan, stock appreciation right plan or stock purchase plan, any
of the benefits of which will be increased, or the vesting of benefits
of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the
A-18
benefits of which will be calculated on the basis of any of the
transactions contemplated by this Agreement;
(iii) any agreement of indemnification or any guaranty, other than
maintenance agreements and product warranties, or agreements of
indemnification entered into in connection with the sale of products
in the ordinary course of business in excess of $50,000;
(iv) any material agreement, contract or commitment containing any
covenant limiting in any respect the right of Company or any of its
subsidiaries to engage in any line of business or to compete with any
person or entity or granting any exclusive distribution rights;
(v) any agreement, contract or commitment currently in force relating
to the disposition or acquisition by Company or any of its
subsidiaries after the date of this Agreement of an amount of assets
in excess of $100,000 not in the ordinary course of business or
pursuant to which Company or any of its subsidiaries has any material
ownership interest in any corporation, partnership, joint venture or
other business enterprise other than Company's subsidiaries;
(vi) any dealer, distributor, joint marketing or development agreement
currently in force under which Company or any of its subsidiaries have
continuing material obligations to jointly market any product,
technology or service and which may not be canceled without penalty
upon notice of ninety (90) days or less, or any material agreement
pursuant to which Company or any of its subsidiaries have continuing
material obligations to jointly develop any intellectual property that
will not be owned, in whole or in part, by Company or any of its
subsidiaries and which may not be canceled without penalty upon notice
of ninety (90) days or less;
(vii) any agreement, contract or commitment currently in force to
license to or from any third party to manufacture or reproduce any
Company product, service or technology or any agreement, contract or
commitment currently in force to sell or distribute any Company
products, service or technology except agreements with distributors or
sales representative in the normal course of business cancelable
without penalty upon notice of ninety (90) days or less and
substantially in the form previously provided to Parent;
(viii) any agreement, contract or commitment currently in force to
provide source code to any third party for any product or technology
that is material to Company and its subsidiaries taken as a whole;
(ix) any mortgages, indentures, guarantees, loans or credit
agreements, security agreements or other agreements or instruments
relating to the borrowing of money or extension of credit;
(x) any material settlement agreement under which Company has ongoing
obligations; or
(xi) any agreement with a customer of the Company involving in excess
of $100,000 in any 12 month period.
(b) Neither Company nor any of its subsidiaries, nor to Company's knowledge
any other party to a Company Contract (as defined below), is in breach,
violation or default under, and neither Company nor any of its subsidiaries
has received written notice that it has breached, violated or defaulted
under, any of the material terms or conditions of any of the agreements,
contracts or commitments to which Company or any of its subsidiaries is a
party or by which it is bound that are required to be disclosed in the
Company Schedule (any such agreement, contract or commitment, a "Company
Contract") in such a manner as would permit any other party to cancel or
terminate any such Company Contract, or would permit any other party to
seek material damages or other remedies (for any or all of such breaches,
violations or defaults, in the aggregate). Company has made available to
Parent true and correct copies of any contracts Company may have with its
top ten customers.
A-19
2.18 Opinion of Financial Advisor. The Board of Directors of the Company has
been advised by its financial advisor, GAHS, that in its opinion, as of the date
of this Agreement, the Merger Consideration is fair to the holders of shares of
Company Common Stock from a financial point of view, and Company will provide a
copy of the written confirmation of such opinion to Parent for informational
purposes as soon as reasonably practicable.
2.19 Insurance. Company maintains insurance policies or fidelity bonds covering
the assets, business, equipment, properties, operations, employees, officers and
directors of Company and its subsidiaries (collectively, the "Insurance
Policies") which the Company believes are of the type and in amounts customarily
carried by persons conducting businesses similar to those of Company and its
subsidiaries. There is no material claim by Company or any of its subsidiaries
pending under any of the material Insurance Policies as to which coverage has
been questioned, denied or disputed by the underwriters of such policies or
bonds.
2.20 Vote Required. The affirmative vote of a majority of the votes that holders
of the outstanding shares of Company Common Stock are entitled to vote with
respect to the Merger is the only vote of the holders of any class or series of
the Company's capital stock necessary to approve this Agreement and the
transactions contemplated thereby.
2.21 Board Approval. The Company Board, at a meeting duly called and held on
January 18, 2002 with the unanimous approval of all non-interested directors,
has (i) determined that this Agreement and the transactions contemplated hereby,
including the Merger, taken together, are at a price and on terms that are
advisable and fair to and in the best interests of the Company and its
stockholders; (ii) approved this Agreement and the transactions contemplated
hereby, including the Merger, in all respects; and (iii) as of the date hereof,
resolved to recommend that the stockholders of the Company approve and adopt
this Agreement and the Merger.
2.22 Registration Statement; Proxy Statement. None of the information supplied
or to be supplied by the Company for inclusion or incorporation by reference in
(i) the Registration Statement will, at the time the Registration Statement
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading; and (ii) the proxy
statement/prospectus to be filed with the SEC by the Company pursuant to Section
5.1 hereof (the "Proxy Statement/Prospectus") will, at the dates mailed to the
stockholders of the Company, at the times of the stockholders meeting of the
Company (the "Company Stockholders' Meeting") in connection with the
transactions contemplated hereby and as of the Effective Time, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. The Proxy
Statement/Prospectus will comply as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations promulgated by the
SEC thereunder. Notwithstanding the foregoing, the Company makes no
representation or warranty with respect to any information supplied by Parent or
Merger Sub which is contained in any of the foregoing documents.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub jointly and severally represent and warrant to Company,
subject to such exceptions as are disclosed in writing in the disclosure letter
supplied by Parent to Company dated as of the date hereof (the "Parent
Schedule"), which disclosure shall provide an exception to or otherwise qualify
the representations and warranties of Parent and Merger Sub contained in the
section of this Agreement corresponding by number to such disclosure, as
follows:
3.1 Organization and Qualification; Subsidiaries. Each of Parent and its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has the
requisite corporate power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being conducted, except
where the failure to do so would not, individually or in the aggregate, have a
Material Adverse Effect on Parent. Each of Parent and its subsidiaries is in
A-20
possession of all Approvals necessary to own, lease and operate the properties
it purports to own, operate or lease and to carry on its business as it is now
being conducted, except where the failure to have such Approvals would not,
individually or in the aggregate, have a Material Adverse Effect on Parent. Each
of Parent and its subsidiaries is duly qualified or licensed as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of the properties owned, leased or operated by it or the nature of
its activities makes such qualification or licensing necessary, except for such
failures to be so duly qualified or licensed and in good standing that would
not, either individually or in the aggregate, have a Material Adverse Effect on
Parent.
3.2 Certificate of Incorporation and Bylaws. Parent has previously furnished to
Company complete and correct copies of its Certificate of Incorporation and
Bylaws as amended to date (together, the "Parent Charter Documents"). Such
Parent Charter Documents and equivalent organizational documents of each of its
subsidiaries are in full force and effect, Parent is not in violation of any of
the provisions of the Parent Charter Documents, and no subsidiary of Company is
in violation of any of its equivalent organizational documents except where the
failure to be in full force or effect or the violation of any such equivalent
organizational documents of a subsidiary of Company would not, individually or
in the aggregate, have a Material Adverse Effect on Parent.
3.3 Capitalization. The authorized capital stock of Parent consists of
50,000,000 shares of Parent Common Stock, $0.001 par value. As of the close of
business on January 16, 2001, (i) 9,447,704 shares of Parent Common Stock were
issued and outstanding on a fully diluted basis, using the treasury stock method
(ii) Parent had reserved an aggregate of 2,500,000 shares of Parent Common Stock
for issuance pursuant to Parent's stock option plans, and (iii) parent had
warrants outstanding for 150,000 shares of Parent Common Stock. Except as set
forth in the immediately preceding sentence, no shares of capital stock or other
equity securities of Parent are issued, reserved for issuance or outstanding
except as set forth in the Parent SEC Reports. The shares of Parent Common Stock
to be issued pursuant to the Merger will be, duly authorized, validly issued,
fully paid and nonassessable. All of the outstanding shares of capital stock of
each of Parent's subsidiaries is duly authorized, validly issued, fully paid and
nonassessable and all such shares are owned by Parent or another subsidiary free
and clear of all security interests, liens, claims, pledges, agreements,
limitations in Parent's voting rights, charges or other encumbrances of any
nature whatsoever.
3.4 Authority Relative to this Agreement. Each of Parent and/or Merger Sub has
all necessary corporate power and authority to execute and deliver this
Agreement, and to perform its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby. The execution and
delivery of this Agreement and the consummation by Parent and/or Merger Sub of
the transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action on the part of Parent and/or Merger
Sub, and no other corporate proceedings on the part of Parent or Merger Sub are
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby and thereby. This Agreement has been duly and validly
executed and delivered by Parent and/or Merger Sub and, assuming the due
authorization, execution and delivery by Company, constitute legal and binding
obligations of Parent and/or Merger Sub, enforceable against Parent and/or
Merger Sub in accordance with their respective terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditor rights and for general
equitable principles.
3.5 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement, by Parent and Merger Sub,
and the performance of this Agreement, by Parent and Merger Sub, and the
Voting Agreement by Parent shall not, (i) conflict with or violate the
Parent Charter Documents or equivalent organizational documents or any of
Parent's subsidiaries, (ii) subject to obtaining the consents, approvals,
authorization and permits, and making the filings and notifications, set
forth in Section 3.5(b) below, conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to Parent or any of its
subsidiaries or by which it or their respective properties are bound or
affected, or (iii) result in any breach of or constitute a default (or an
event that with notice or lapse of time or both would become a default)
under, or impair Parent's or any such subsidiary's rights or alter the
rights or obligations of any third party under, or give to others any
rights of termination, amendment, acceleration or cancellation of, or
result in the creation of a lien or encumbrance on any of the properties or
assets of Parent or any of its subsidiaries pursuant to, any material note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
A-21
franchise or other instrument or obligation to which Parent or any of its
subsidiaries is a party or by which Parent or any of its subsidiaries or
its or any of their respective properties are bound or affected, except to
the extent such conflict, violation, breach, default, impairment or other
effect could not in the case of clauses (ii) or (iii), individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect on
Parent.
(b) The execution and delivery of this Agreement by Parent and Merger Sub
do not, and the performance of this Agreement, by Parent and Merger Sub
shall not, require any consent, approval, authorization or permit of, or
filing with or notification to, any Governmental Entity except (i) for
applicable requirements, if any, of the Securities Act, the Exchange Act,
Blue Sky Laws, the rules and regulations of the NASDAQ, and the filing and
recordation of the Merger Certificate as required by Delaware Law and (ii)
where the failure to obtain such consents, approvals, authorizations or
permits, or to make such filings or notifications, (A) would not prevent
consummation of the Merger or otherwise prevent Parent or Merger Sub from
performing their respective obligations under this Agreement or (B) could
not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on Parent.
3.6 SEC Filings; Financial Statements.
(a) Parent has made available to Company a correct and complete copy of
each report, schedule, registration statement and definitive proxy
statement filed by Parent with the SEC on or after June 30, 1999 and prior
to the date of this Agreement (the "Parent SEC Reports"), which are all the
forms, reports and documents required to be filed by Parent with the SEC
since such date. The Parent SEC Reports (i) were prepared in accordance
with the requirements of the Securities Act or the Exchange Act, as the
case may be, and (ii) did not at the time they were filed (and if any
Parent SEC Report filed prior to the date of this Agreement was amended or
superseded by a filing prior to the date of this Agreement, then on the
date of such amendment or superceded filing) contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. None of
Parent's subsidiaries is required to file any reports or other documents
with the SEC.
(b) At their respective dates, each set of consolidated financial
statements (including, in each case, any related notes thereto) contained
in the Parent SEC Reports, as amended, was prepared in accordance with GAAP
applied on a consistent basis throughout the periods involved (except as
may be indicated in the notes thereto or, in the case of unaudited
statements, as permitted by Form 10-Q of the Exchange Act) and each fairly
presents the consolidated financial position of Parent and its subsidiaries
at the respective dates thereof and the consolidated results of its
operations and cash flows for the periods indicated, except that the
unaudited interim financial statements were or are subject to the absence
of footnotes and normal adjustments which (in addition to those noted
therein) were not or are not expected to be material in amount.
3.7 No Material Adverse Effect. Since Parent's September 30, 2001 balance sheet,
and until the date hereof, there has not occurred any Material Adverse Effect on
Parent.
3.8 Absence of Litigation. There are no material claims, actions, suits or
proceedings that have a reasonable likelihood of success on the merits pending
or, to the knowledge of Parent, threatened (or to the knowledge of Parent, any
governmental or regulatory investigation pending or threatened) against Parent
or any property or rights of Parent or any of its subsidiaries, before any
court, arbitrator or administrative, governmental or regulatory authority or
body, domestic or foreign, except for those claims, actions, suits or
proceedings which would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on Parent.
3.9 Merger Sub. Merger Sub was formed solely for the purpose of engaging in the
Merger and has not engaged in any business activities or conducted any
operations other than in connection with the transactions contemplated by this
Agreement, including the Merger. As of the Effective Time, all of the
outstanding capital stock of Merger Sub will be owned by Parent.
3.10 Registration Statement; Proxy Statement. None of the information supplied
or to be supplied by the Parent for inclusion or incorporation by reference in
(i) the Registration Statement will, at the time the Registration Statement
A-22
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading; and (ii) the Proxy
Statement/Prospectus will, at the dates mailed to the stockholders of the
Company, at the times of the Company Stockholders' Meeting and as of the
Effective Time, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are made,
not misleading. The Registration Statement will comply as to form in all
material respects with the provisions of the Exchange Act and the rules and
regulations promulgated by the SEC thereunder. Notwithstanding the foregoing,
the Parent makes no representation or warranty with respect to any information
supplied by Company which is contained in any of the foregoing documents.
3.11 No Undisclosed Liabilities. Neither Parent nor any of its subsidiaries has
any liabilities (absolute, accrued, contingent or otherwise) of a nature
required to be disclosed on a balance sheet or in the related notes to the
consolidated financial statements prepared in accordance with GAAP which are,
individually or in the aggregate, material to the business, results of
operations, assets or financial condition of Company and its subsidiaries taken
as a whole, except (i) liabilities provided for in Parent's balance sheet as of
September 30, 2001 set forth in the Parent SEC Reports, (ii) liabilities
incurred since September 30, 2001 in the ordinary course of business, none of
which is material to the business, results of operations or financial condition
of Parent and its subsidiaries, taken as a whole, or (iii) except as disclosed
in Schedule 3.11.
ARTICLE IV
INTERIM CONDUCT
4.1 Conduct of Business by Company.
(a) Except as contemplated by this Agreement, disclosed in Section 4.1 of
the Company Schedule, or consented to by Parent in writing, during the
period from the date of this Agreement until the Closing Date, Company and
each of its subsidiaries shall carry on its business in the usual, regular
and ordinary course in substantially the same manner as heretofore
conducted and in material compliance with all applicable laws and
regulations, pay its debts and taxes when due subject to good faith
disputes over such debts or taxes, pay or perform other material
obligations when due, and use its commercially reasonable efforts
consistent with past practices and policies to (i) preserve intact its
present business organization, (ii) keep available the services of its
present officers and employees and (iii) preserve its relationships with
customers, suppliers, distributors, licensors, licensees and others with
which it has significant business dealings.
(b) In addition, except as permitted by the terms of this Agreement and
except as provided in Section 4.1 of the Company Schedule, without the
prior written consent of Parent (which consent, or refusal thereof, shall
not be unreasonably delayed, and shall be deemed given if not refused
within five (5) business days of the date Parent receives written notice of
such request); provided that Parent shall not refuse to consent if such
failure would result in a violation of the antitrust laws), during the
period from the date of this Agreement and continuing until the earlier of
the termination of this Agreement pursuant to its terms or the Effective
Time, the Company shall not do any of the following and shall not permit
its subsidiaries to do any of the following:
(i) Accelerate, amend or change the period of exercisability of
options or restricted stock (except as required by the terms of the
Company Option Plans as in effect on the date hereof) or reprice
options granted under any employee, consultant, director or other
stock plans or authorize cash payments in exchange for any options
granted under any of such plans;
(ii) Grant any severance or termination pay or benefits, or payments
or benefits triggered by a change of control or merger (including the
Merger), to any officer or employee except to persons who are officers
or employees of the Company as of the date hereof pursuant to written
agreements outstanding, or written policies existing, on the date
hereof and as previously disclosed in writing or made available to
Parent (provided, however, that the Company shall not grant, or offer
to grant, any such severance or termination payments or benefits, or
payments or benefits triggered upon a change of control or merger
A-23
(including the Merger), to any person who is hired or offered
employment with the Company on or after the date hereof, and the
Company shall revise all employee handbooks and similar materials
provided to each such person after the date hereof to reflect the
foregoing), or adopt any new severance plan, or amend or modify or
alter in any manner any severance plan, agreement or arrangement
existing on the date hereof, or take any other action that would
trigger the payment of any severance payments or other benefits other
than four (4) preexisting employment agreements between the Company
and certain officers thereof;
(iii) Transfer or license to any person or entity or otherwise extend,
amend or modify any rights to the Company Intellectual Property, or
enter into grants to transfer or license to any person future patent
rights, other than non-exclusive licenses granted to resellers and
end-users in the ordinary course of business consistent with past
practices;
(iv) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property)
in respect of any capital stock or split, combine or reclassify any
capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for any
capital stock;
(v) Purchase, redeem or otherwise acquire, directly or indirectly, any
shares of capital stock of Company or its subsidiaries;
(vi) Issue, deliver, sell, authorize, pledge or otherwise encumber or
propose any of the foregoing with respect to any shares of capital
stock or any securities convertible into shares of capital stock, or
subscriptions, rights, warrants or options to acquire any shares of
capital stock or any securities convertible into shares of capital
stock, or enter into other agreements or commitments of any character
obligating it to issue any such shares or convertible securities,
other than (x) the issuance delivery and/or sale of (i) shares of
Company Common Stock pursuant to the exercise of stock options,
outstanding as of the date of this Agreement, and (ii) shares of
Company Common Stock issuable to participants in the ESPP consistent
with the terms thereof .
(vii) Cause, permit or propose any amendments to the Company's
Certificate of Incorporation or Bylaws (or similar governing
instruments of any of its subsidiaries);
(viii) Acquire or agree to acquire by merging or consolidating with,
or by purchasing any equity interest in or a material portion of the
assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division
thereof, or otherwise acquire or agree to enter into any joint
ventures, strategic partnerships or alliances;
(ix) Sell, lease, license, encumber or otherwise dispose of any
properties or assets except sales of inventory in the ordinary course
of business consistent with past practice, and except for the sale,
lease or disposition (other than through licensing permitted by clause
(c)) of property or assets which are not material, individually or in
the aggregate, to the business of Company and its subsidiaries, taken
as a whole;
(x) Modify, amend or terminate any existing lease, license or contract
affecting the use, possession or operation of any such material
properties or assets; grant or otherwise create or consent to the
creation of any easement, covenant, restriction, assessment or charge
affecting any material owned property or leased property or any part
thereof; convey, assign, sublease, license or otherwise transfer all
or any portion of any material real property or any interest or rights
therein; commit any waste or nuisance on any such property; or make
any material changes in the construction or condition of any such
property;
(xi) Incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or
options, warrants, calls or other rights to acquire any debt
securities of Company, enter into any "keep well" or other agreement
A-24
to maintain any financial statement condition or enter into any
arrangement having the economic effect of any of the foregoing other
than in connection with the financing of working capital consistent
with past practice;
(xii) Adopt or amend any employee benefit plan, policy or arrangement;
any employee stock purchase or employee stock option plan; or enter
into any employment contract or collective bargaining agreement; pay
any special bonus or special remuneration to any director or employee,
other than as disclosed in Section 4.1(b) of the Company Schedule; or
increase the salaries or wage rates or fringe benefits (including
rights to severance or indemnification) of its directors, officers,
employees or consultants except, in each case, as may be required by
law;
(xiii) (i) pay, discharge, settle or satisfy any material litigation
(whether or not commenced prior to the date of this Agreement) or any
material claims, liabilities or obligations (absolute, accrued,
asserted or unasserted, contingent or otherwise), other than the
payment, discharge, settlement or satisfaction, in the ordinary course
of business consistent with past practice or in accordance with their
terms, or liabilities recognized or disclosed in the most recent
consolidated financial statements (or the notes thereto) of Company
included in the Company SEC Reports or incurred since the date of such
financial statements, or (ii) waive the benefits of, agree to modify
in any manner, terminate, release any person from or knowingly fail to
enforce any confidentiality or similar agreement to which Company or
any of its subsidiaries is a party or of which Company or any of its
subsidiaries is a beneficiary;
(xiv) Except in the ordinary course of business consistent with past
practice, modify, amend or terminate any material contract or
agreement to which Company or any subsidiary thereof is a party or
waive, delay the exercise of, release or assign any material rights or
claims thereunder;
(xv) Revalue any of its assets or make any change in accounting
methods, principles or practices;
(xvi) Incur or enter into any agreement, contract or commitment
outside of the ordinary course of business and requiring Company or
any of its subsidiaries to pay in excess of $350,000;
(xvii) Make any Tax election or accounting method change inconsistent
with past practice that, individually or in the aggregate, would be
reasonably likely to adversely affect in any material respect the Tax
liability or Tax attributes of Company or any of its subsidiaries,
taken as a whole, settle or compromise any Tax liability, or consent
to any extension or waiver of any limitation period with respect to
Taxes; or
(xviii) Agree in writing or otherwise to take any of the actions
described in this Section 4.1(b).
4.2 Conduct of Business by Parent. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
pursuant to its terms or the Effective Time, except as permitted by the terms of
this Agreement, without the prior written consent of Company, Parent shall not
declare, set aside or pay any dividends on or make any other distributions
(whether in cash, stock, equity securities or property) in respect of any
capital stock or split, combine or reclassify any capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or in
substitution for any capital stock, unless the Merger Consideration shall be
appropriately adjusted. In addition, parent shall cause Merger Sub to take all
such steps as are necessary to give effect to Parent's obligations under this
Agreement.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Stockholder Approval; Preparation of Registration Statement and Proxy
Statement/prospectus. As soon as practicable following the execution of this
Agreement, and as described in Section 1.3, above, Parent and Company shall
prepare the Proxy Statement/Prospectus, and Parent shall prepare and file with
the SEC the Registration Statement in which the Proxy Statement/Prospectus will
be included as a prospectus. Each of Parent and the Company shall provide
promptly to the other such information concerning its business and financial
statements and affairs as, in the reasonable judgment of the providing party or
its counsel, may be required or appropriate for inclusion in the Proxy
A-25
Statement/Prospectus and the Registration Statement, or in any amendments or
supplements thereto, and to cause its counsel and auditors to cooperate with the
other's counsel and auditors in the preparation of the Proxy
Statement/Prospectus and the Registration Statement. Each of the Company and
Parent shall respond to any comments of the SEC, and shall use its respective
commercially reasonable efforts to have the Registration Statement declared
effective under the Securities Act as promptly as practicable after such filing,
and the Company shall cause the Proxy Statement/Prospectus to be mailed to its
stockholders at the earliest practicable time after the Registration Statement
is declared effective by the SEC. As promptly as practicable after the date of
this Agreement, each of the Company and Parent shall prepare and file any other
filings required to be filed by it under the Exchange Act, the Securities Act or
any other Federal, foreign or Blue Sky or related laws relating to the Merger
and the transactions contemplated by this Agreement (the "Other Filings"). Each
of the Company and Parent shall notify the other promptly upon the receipt of
any comments from the SEC or its staff or any other government officials and of
any request by the SEC or its staff or any other government officials for
amendments or supplements to the Registration Statement, the Proxy
Statement/Prospectus or any Other Filing or for additional information and shall
supply the other with copies of all correspondence between such party or any of
its representatives, on the one hand, and the SEC or its staff or any other
government officials, on the other hand, with respect to the Registration
Statement, the Proxy Statement/Prospectus, the Merger or any Other Filing. No
filing of, or amendment or supplement to, or correspondence to the SEC or its
staff with respect to, the Registration Statement will be made by Parent, or
with respect to the Proxy Statement/Prospectus will be made by Company, without
providing the other party a reasonable opportunity to review and comment
thereon. Each of the Company and Parent shall cause all documents that it is
responsible for filing with the SEC or other regulatory authorities under this
Section 5.1 to comply in all material respects with all applicable requirements
of law and the rules and regulations promulgated thereunder. If at any time
prior to the Effective Time any information relating to Company or Parent, or
any of their respective affiliates, officers or directors, should be discovered
by Company or Parent which should be set forth in an amendment or supplement to
either of the Registration Statement, the Proxy Statement or Other Filings, so
that any of such documents would not include any misstatement of a material fact
or omit to state any material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, the party
which discovers such information shall promptly notify the other parties hereto
and an appropriate amendment or supplement describing such information shall be
promptly filed with the SEC and, to the extent required by law, disseminated to
the stockholders of Company.
5.2 Stockholder Meeting.
(a) Promptly after the date hereof, the Company shall take all action
necessary in accordance with Delaware Law and the Company Charter Documents
to convene a meeting of the Company's stockholders (the "Company
Stockholders' Meeting") to be held as promptly as practicable, for the
purpose of voting upon this Agreement and the Merger. Subject to the terms
of Section 5.2(c) hereof, the Company shall use its commercially reasonable
efforts to solicit from its stockholders proxies in favor of the adoption
and approval of this Agreement and the approval of the Merger and shall
take all other action necessary or advisable to secure the vote or consent
of its stockholders required by the rules of NASDAQ or Delaware Law to
obtain such approvals. Notwithstanding anything to the contrary contained
in this Agreement, the Company may adjourn or postpone the Company
Stockholders' Meeting to the extent necessary to ensure that any necessary
supplement or amendment to the Prospectus/Proxy Statement is provided to
the Company's stockholders in advance of a vote on the Merger and this
Agreement or, if as of the time for which the Company Stockholders' Meeting
is originally scheduled (as set forth in the Prospectus/Proxy Statement)
there are insufficient shares of Company Common Stock represented (either
in person or by proxy) to constitute a quorum necessary to conduct the
business of the Company Stockholders' Meeting. The Company shall ensure
that the Company Stockholders' Meeting is called, noticed, convened, held
and conducted, and that all proxies solicited by the Company in connection
with the Company Stockholders' Meeting are solicited, in compliance with
Delaware Law, the Company Charter Documents, the rules of NASDAQ and all
other applicable legal requirements. The Company's obligation to call, give
notice of, convene and hold the Company Stockholders' Meeting in accordance
with this Section 5.2(a) shall not be limited to or otherwise affected by
the commencement, disclosure, announcement or submission to the Company of
any Acquisition Proposal (as defined in section 5.4(c), below.)
A-26
(b) Subject to the terms of Section 5.2(c) hereof: (i) the Board of
Directors of the Company shall, by unanimous recommendation of the
non-interested directors of the Company Board, recommend that the Company's
stockholders vote in favor of and adopt and approve this Agreement and the
Merger at the Company Stockholders' Meeting; (ii) the Prospectus/Proxy
Statement shall include a statement to the effect that the Board of
Directors of the Company has, by a unanimous vote of the non-interested
directors, recommended that the Company's stockholders vote in favor of and
adopt and approve this Agreement and the Merger at the Company
Stockholders' Meeting; and (iii) neither the Board of Directors of the
Company nor any committee thereof shall withdraw, amend or modify, or
propose or resolve to withdraw, amend or modify in a manner adverse to
Parent, the unanimous recommendation of the non-interested members of the
Board of Directors of the Company that the Company's stockholders vote in
favor of and adopt and approve this Agreement and the Merger. For purposes
of this Agreement, said recommendation of the Board of Directors shall be
deemed to have been modified in a manner adverse to Parent if said
recommendation shall no longer be unanimous.
(c) Nothing in this Agreement shall prevent the Board of Directors of the
Company from withholding, withdrawing, amending or modifying the unanimous
recommendation of the non-interested directors in favor of the Merger if
(i) a Superior Offer (as defined in Section 5.4 hereof) is made to the
Company and is not withdrawn, (ii) neither the Company nor any of its
representatives shall have violated any of the restrictions set forth in
Section 5.4 hereof, and (iii) the Board of Directors of the Company
concludes in good faith, after consultation with its outside counsel, that,
in light of such Superior Offer, the withholding, withdrawal, amendment or
modification of such recommendation is required in order for the Board of
Directors of the Company to comply with its fiduciary duties to the
Company's stockholders under applicable law; provided, however, that prior
to any commencement thereof the Company shall have given Parent at least
seventy two (72) hours notice thereof and the opportunity to meet with the
Company and its counsel. Nothing contained in this Section 5.2 shall limit
the Company's obligation to hold and convene the Company Stockholders'
Meeting (regardless of whether the unanimous recommendation of the
non-interested members of the Board of Directors of the Company shall have
been withdrawn, amended or modified).
5.3 Confidentiality; Access to Information. The parties acknowledge that Company
and Parent have previously executed a Confidentiality Agreement, dated as of
October 10, 2001, (the "Confidentiality Agreement"), which Confidentiality
Agreement will continue in full force and effect in accordance with its terms.
Company will afford Parent and its accountants, counsel and other
representatives reasonable access during normal business hours, upon reasonable
notice, to the properties, books, records and personnel of Company during the
period prior to the Effective Time to obtain all information concerning the
business, including the status of product development efforts, properties,
results of operations and personnel of Company, as Parent may reasonably
request. No information or knowledge obtained by Parent in any investigation
pursuant to this Section 5.3 will affect or be deemed to modify any
representation or warranty contained herein or the conditions to the obligations
of the parties to consummate the Merger.
5.4 No Solicitation.
(a) The Company and its subsidiaries shall immediately cease any and all
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any Acquisition Proposal (as defined in Section
5.4(c) hereof). From and after the date of this Agreement until the
Effective Time or termination of this Agreement pursuant to Article VII
hereof, the Company and its subsidiaries shall not, nor will they authorize
or permit any of their respective officers, directors, affiliates or
employees or any investment banker, attorney or other advisor or
representative retained by any of them to, directly or indirectly (i)
solicit, initiate, encourage or induce the making, submission or
announcement of any Acquisition Proposal, (ii) participate in any
discussions or negotiations regarding, or furnish to any person any
non-public information with respect to, or take any other action to
facilitate any inquiries or the making of any proposal that constitutes or
may reasonably be expected to lead to, any Acquisition Proposal, (iii)
engage in discussions with any person with respect to any Acquisition
Proposal, (iv) subject to the terms of Section 5.4(c) hereof, approve,
endorse or recommend any Acquisition Proposal or (v) enter into any letter
of intent or similar document or any contract, agreement or commitment
contemplating or otherwise relating to any Acquisition Transaction;
provided, however, that the terms of this Section 5.4 shall not prohibit
the Company from furnishing nonpublic information regarding the Company and
its subsidiaries to, entering into a confidentiality agreement with or
entering into discussions with, any person or group in response to a
A-27
Superior Offer submitted by such person or group (and not withdrawn) if (1)
neither the Company nor any representative of the Company and its
subsidiaries shall have violated any of the restrictions set forth in this
Section 5.4, (2) the Board of Directors of the Company concludes in good
faith, after consultation with its outside legal counsel, that such action
is required in order for the Board of Directors of the Company to comply
with its fiduciary duties to the Company's stockholders under applicable
law, (3)(x) at least three (3) business days prior to furnishing any such
nonpublic information to, or entering into discussions or negotiations
with, such person or group, the Company gives Parent written notice of the
identity of such person or group and of the Company's intention to furnish
nonpublic information to, or enter into discussions or negotiations with,
such person or group and (y) the Company receives from such person or group
an executed confidentiality agreement containing customary limitations on
the use and disclosure of all nonpublic written and oral information
furnished to such person or group by or on behalf of the Company, and (4)
contemporaneously with furnishing any such nonpublic information to such
person or group, the Company furnishes such nonpublic information to Parent
(to the extent such nonpublic information has not been previously furnished
by the Company to Parent); and provided further, however, that the terms of
this Section 5.4 shall not prohibit the Company from taking any action
necessary in order to comply with Rule 14d-9 or Rule 14e-2 promulgated
under the Exchange Act. Without limiting the foregoing, it is understood
that any violation of the restrictions set forth in the preceding two
sentences by any officer or director of the Company or any of its
subsidiaries or any investment banker, attorney or other advisor or
representative of the Company or any of its subsidiaries shall be deemed to
be a breach of this Section 5.4 by the Company. In addition to the
foregoing, the Company shall (i) provide Parent with at least forty-eight
(48) hours prior notice (or such lesser prior notice as provided to the
members of the Company's Board of Directors but in no event less than eight
hours) of any meeting of the Company's Board of Directors at which the
Company's Board of Directors is reasonably expected to consider a Superior
Offer, and (ii) provide Parent with at least three (3) business days prior
written notice of a meeting of the Company's Board of Directors at which
the Company's Board of Directors is reasonably expected to recommend a
Superior Offer to its stockholders and together with such notice a copy of
all documentation relating to such Superior Offer, including proposed
written agreements, arrangements, or understandings and all applicable
financial statements and evidence of any planned financing with respect to
such Superior Proposal (and a description of all material oral agreements
with respect thereto.
(b) In addition to the obligations of the Company set forth in Section
5.4(a) hereof, the Company as promptly as practicable shall advise Parent
orally and in writing of any request received by the Company for non-public
information which the Company reasonably believes would lead to an
Acquisition Proposal or of any Acquisition Proposal, or any inquiry
received by the Company with respect to or which the Company reasonably
should believe would lead to any Acquisition Proposal, the material terms
and conditions of such request, Acquisition Proposal or inquiry, and the
identity of the person or group making any such request, Acquisition
Proposal or inquiry. The Company shall use reasonable efforts to keep
Parent informed in all material respects of the status and details
(including material amendments or proposed amendments) of any such request,
Acquisition Proposal or inquiry.
(c) For purposes of this Agreement, (i) "Acquisition Proposal" shall mean
any offer or proposal (other than an offer or proposal by Parent) relating
to any Acquisition Transaction; (ii) "Acquisition Transaction" shall mean
any transaction or series of related transactions other than the
transactions contemplated by this Agreement involving: (A) any acquisition
or purchase from the Company by any person or "group" (as defined under
Section 13(d) of the Exchange Act and the rules and regulations thereunder)
of more than a fifteen percent (15%) interest in the total outstanding
voting securities of the Company or any of its subsidiaries or any tender
offer or exchange offer that if consummated would result in any person or
"group" (as defined under Section 13(d) of the Exchange Act and the rules
and regulations thereunder) beneficially owning fifteen percent (15%) or
more of the total outstanding voting securities of the Company or any of
its subsidiaries or any merger, consolidation, business combination or
similar transaction involving the Company pursuant to which the
stockholders of the Company immediately preceding such transaction hold
less than eighty-five percent (85%) of the equity interests in the
surviving or resulting entity of such transaction; (B) any sale, lease,
exchange, transfer, license, acquisition or disposition of more than
fifteen percent (15%) of the assets of the Company; or (C) any liquidation
or dissolution of the Company; and (iii) "Superior Offer" shall mean an
unsolicited, bona fide written offer made by a third party to consummate
any of the following transactions: (A) a merger, consolidation, business
combination, recapitalization, liquidation, dissolution or similar
A-28
transaction involving the Company pursuant to which the stockholders of the
Company immediately preceding such transaction hold less than a majority of
the equity interests in the surviving or resulting entity of such
transaction; (B) the acquisition by any person or group (including by way
of a tender or exchange offer or issuance by the Company), directly or
indirectly, of beneficial ownership or a right to acquire beneficial
ownership of shares representing a majority of the voting power of the
outstanding shares of the Company's capital stock; or (C) a sale or other
disposition by the Company of substantially all of its assets, in the case
of each of clauses (A), (B) and (C) on terms that the Board of Directors of
the Company determines, in its reasonable judgment (based on advice of a
financial advisor of nationally recognized reputation) to be more favorable
to the Company stockholders from a financial point of view than the terms
of the Merger.
5.5 Public Disclosure. Parent and Company will consult with each other, and
agree, before issuing any press release, and will consult with each other and to
the extent practicable, agree, before otherwise making any public statement with
respect to this Agreement, the other party, or an Acquisition Proposal, and will
not issue any such press release or make any such public statement prior to such
consultation, except as may be required by law or any listing agreement with a
national securities exchange, in which case reasonable efforts to consult with
the other party will be made prior to any such release or public statement.
5.6 Efforts; Notification.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties agrees to use its commercially reasonable
efforts to take, or cause to be taken, all reasonable actions, and to do,
or cause to be done, and to assist and cooperate with the other parties in
doing, all things reasonably necessary, proper or advisable to consummate
and make effective, in the most expeditious manner practicable, the
transactions contemplated by this Agreement, including to accomplish the
following: (i) causing of the conditions precedent set forth in Article VI
to be satisfied, (ii) the obtaining of all necessary actions or nonactions,
waivers, consents, approvals, orders and authorizations from Governmental
Entities and the making of all necessary registrations, declarations and
filings (including registrations, declarations and filings with
Governmental Entities, if any) and the taking of all commercially
reasonable steps as may be necessary to avoid any suit, claim, action,
investigation or proceeding by any Governmental Entity, (iii) the defending
of any suits, claims, actions, investigations or proceedings, whether
judicial or administrative, challenging this Agreement or the consummation
of the transactions contemplated hereby, including seeking to have any stay
or temporary restraining order entered by any court or other Governmental
Entity vacated or reversed and (iv) the execution or delivery of any
additional instruments reasonably necessary to consummate the transactions
contemplated by, and to fully carry out the purposes of, this Agreement. In
connection with and without limiting the foregoing, Company and the Company
Board shall, if any state takeover statute or similar statute or regulation
is or becomes applicable to this Agreement or any of the transactions
contemplated by this Agreement, use its best efforts to take, or cause to
be taken, all reasonable actions to ensure that the transactions
contemplated by this Agreement may be consummated as promptly as
practicable on the terms contemplated by this Agreement and otherwise to
minimize the effect of such statute or regulation on this Agreement and the
transactions contemplated hereby.
(b) Company shall give prompt notice to Parent upon becoming aware that any
representation or warranty made by it contained in this Agreement has
become materially untrue or inaccurate, or of any failure of Company to
comply with or satisfy in any material respect any covenant, condition or
agreement to be complied with or satisfied by it under this Agreement;
provided, however, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement.
(c) Parent shall give prompt notice to Company upon becoming aware that any
representation or warranty made by it or Merger Sub contained in this
Agreement has become materially untrue or inaccurate, or of any failure of
Parent or Merger Sub to comply with or satisfy in any material respect any
covenant, condition or agreement to be complied with or satisfied by it
under this Agreement; provided, however, that no such notification shall
affect the representations, warranties, covenants or agreements of the
parties or the conditions to the obligations of the parties under this
Agreement.
A-29
5.7 Third Party Consents. As soon as practicable following the date hereof,
Parent and Company will each use commercially reasonable efforts to obtain all
consents, waivers and approvals set forth in Section 5.7 of the Company
Schedule.
5.8 Stock Options; ESPP.
(a) Stock Options. Immediately prior to the Effective Time of the Merger,
and except as provided below, each outstanding Company Stock Option, and
the Company Option Plans shall terminate. In the case of any holder of a
Company Stock Option, the parties shall take reasonable steps (i) to enable
the holder thereof to exercise any portion of the option that is either
exercisable or that first becomes exercisable in connection with the
Merger, or (ii) convert such option to an option in the Parent's 1998 Stock
Option Plan as more fully described below.
(i) Following the date of execution of this Agreement, and unless the
Merger does not close as contemplated by this Agreement, the Company
shall make no additional grants of Company Stock Options;
(ii) At the Effective Time of the Merger, Parent shall assume the
Company Stock Options, and such assumed Company Stock Options will
continue to have, and be subject to, the terms and conditions of such
options immediately prior to the Effective Time except that (a) each
Company Grant will be solely exercisable (or will become exercisable
in accordance with its terms) for that number of whole shares of
Parent Common Stock equal to the product of the number of shares of
Company Common Stock that were issuable upon exercise of such Company
Stock Options immediately prior to the Effective Time multiplied by
the Option Exchange Ratio, rounded down to the nearest whole number of
shares of Parent Common Stock and (b) the per share exercise price for
the shares of Parent Common Stock issuable upon exercise of such
assumed Company Stock Options will be equal to the quotient determined
by dividing the exercise price per share of Company Common Stock at
which such Company Stock Option was exercisable immediately prior to
the Effective Time by the Option Exchange Ratio, rounded up to the
nearest whole cent. Parent shall comply with the terms of all such
grants of Company Stock Options. Parent shall take all corporate
actions necessary to reserve for issuance a sufficient number of
shares of Parent Common Stock for delivery pursuant to the terms set
forth in this Section 5.8(a). The "Option Exchange Ratio" shall be
determined as follows:
Option Exchange Ratio = (TV/ TS) / AP
Where
TV = The sum of $7,300,000 plus the product of (i) the
Average Price (defined below) times (ii) 873,000
("Transaction Value")
TS = The aggregate the number of shares of Company Common
Stock and Company Stock Options outstanding immediately
prior to the Effective Time
AP = The weighted average closing price of the Parent Common
Stock for the ten (10) trading days ending one trading day
prior to the Closing Date, as quoted on the NASDAQ
National Market (the "Average Price"))
The parties acknowledge that the formula for the Option Exchange Ratio
is intended to exchange a fraction of a share of Parent Common Stock
for each for each share of Company Common Stock subject to a Company
Stock Option, with the value of such fraction of a share of Parent
Common Stock to be approximately equivalent to the aggregate value of
the Cash Portion and Stock Portion exchanged for each outstanding
share of Company Common Stock, as such value is determined by the
Average Price.
(b) ESPP. Company shall take all steps necessary to terminate Company's
ESPP as soon as practicable following the Closing Date. Any shares of
Company Common Stock in the ESPP shall by virtue of the Merger, and without
any action on the part of the holder thereof, be converted into the right
A-30
to receive the Merger Consideration described in Section 1.7(a), above,
without issuance of certificates representing issued and outstanding shares
of Company Common Stock to participants under the ESPP. Company shall,
prior to the Effective Time, provide Parent with evidence of the
termination of the ESPP.
5.9 Employee Benefits.
(a) Company shall terminate, effective as of the day immediately preceding
the date the Company becomes a member of the same Controlled Group of
Corporations (as defined in Section 414(b) of the Code) as the Parent (the
"401(k) Termination Date"), any and all 401(k) plans unless Parent provides
notice to Company that such 401(k) plan(s) shall not be terminated. Parent
shall receive from Company evidence that Company's plan(s) and/or
program(s) have been terminated pursuant to resolutions of each such
entity's Board of Directors (the form and substance of such resolutions
shall be subject to review and approval of Parent), effective as of the
401(k) Termination Date. To the extent permitted by Parent's applicable
plan and otherwise practicable, Parent shall take appropriate steps to
enable continuing employees to roll over distributions from the terminated
plans to a tax-qualified defined contribution plan or plans maintained by
Parent or an affiliate.
(b) Parent will cause the Surviving Corporation to provide the benefits
(including health benefits, severance policies, 401(k) plans and general
employment policies and procedures, subject to the terms and conditions of
such plans) which are substantially comparable in the aggregate to benefits
that are available to similarly situated employees of Parent and its
subsidiaries as of the date hereof, provided, however, that such insurance
carriers, outside providers or the like are able to provide such benefits
on terms reasonably acceptable to Parent, and provided, further, that
nothing in this Section 5.8 shall prevent the Surviving Corporation or any
of its subsidiaries from making any change required by applicable law, and
provided, further, that it shall not result in any duplication of benefits.
5.10 Inspection of Real Property. From and after the date of this Agreement,
Parent and its agents, contractors and representatives shall have the right and
privilege of entering upon all properties owned or leased by Company and of
reviewing Company's books and records regarding such properties from time to
time as needed to make any inspections, evaluations, surveys or tests which
Parent may reasonably deem necessary or appropriate. Without limiting the
generality of the foregoing, Parent and its agents, contractors and
representatives shall have the right and privilege of conducting such
engineering studies, seismic tests, environmental studies (including, without
limitation, surface and subsurface tests, borings and samplings) and surveys of
such properties and such feasibility studies as Parent deems necessary or
appropriate and to investigate all matters relating to zoning, use and
compliance with other applicable laws regarding the use and occupancy of such
properties and any proposed impositions, assessments and governmental
regulations affecting such properties. Company shall cooperate reasonably with
Parent in completing such inspections and evaluations. Parent's exercise of its
right to inspect such properties, or Parent's election not to inspect any
property, shall in no way be interpreted as a waiver of any of Parent's rights
or remedies contained in this Agreement, including, without limitation, Parent's
right to rely on Company's representations and warranties made herein.
5.11 Company Affiliate Agreements. Set forth in Section 5.11 of the Company
Schedule is a complete and accurate list of those persons who may be deemed to
be, in Company's reasonable judgment, affiliates of Company within the meaning
of Rule 145 promulgated under the Securities Act (each, a "Company Affiliate").
Company will provide Parent with such information and documents as Parent
reasonably requests for purposes of reviewing such list. Company has delivered
herewith written Company Affiliate Agreements substantially in the form attached
hereto as Exhibit B executed by all Company Affiliates as of the date hereof.
Company will use its commercially reasonable efforts to deliver or cause to be
delivered to Parent, on or as promptly as practicable following the date hereof,
from each Company Affiliate that has not delivered a Company Affiliate Agreement
on or prior to the date hereof, an executed Company Affiliate Agreement. Each
Company Affiliate Agreement will be in full force and effect as of the Effective
Time. Parent will be entitled to place appropriate legends on the certificates
evidencing any Parent Common Stock to be received by a Company Affiliate
pursuant to the terms of this Agreement, and to issue appropriate stop transfer
instructions to the transfer agent for the Parent Common Stock, consistent with
the terms of the Company Affiliate Agreement.
A-31
5.12 NASDAQ Listing. Parent agrees to make such filings with NASDAQ as are
necessary to ensure that the shares of Parent Common Stock issuable in
connection with the Merger are eligible for quotation thereon.
5.13 Form S-8. Parent agrees to file, within fifteen (15) business days of the
Effective Time, a registration statement on Form S-8 for the shares of Parent
Common Stock issuable with respect to assumed Company Stock Options
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions. The respective obligations of each party to consummate the
Merger shall be subject to the satisfaction or waiver, where permissible, prior
to the Effective Time, of the following conditions:
(a) Stockholder Approval. This Agreement and the Merger shall have been
duly approved and adopted by the holders of a majority of the outstanding
shares of each class of the Company entitled to vote on this Agreement and
the Merger, in accordance with applicable law and the Certificate of
Incorporation and Bylaws of the Company;
(b) Litigation. No court or other Governmental Entity of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered
any statute, rule, regulation, judgment, decree, injunction or other order
(whether temporary, preliminary or permanent) which is in effect and
prohibits consummation of the Merger (collectively, an "Order").
(c) Registration Statement. The Registration Statement shall have been
declared effective and no stop order suspending effectiveness shall be in
effect and no proceedings for such purpose shall be pending before or
threatened by the SEC.
(d) Listing. The shares of Parent Common Stock to be issued in the Merger
shall have been approved for listing on the NASDAQ as may be required in
accordance with the rules thereof, subject to official notice of issuance,
or shall be exempt from such requirement under then applicable laws,
regulations and rules of NASDAQ.
6.2 Additional Conditions to Obligations of Company. The obligation of the
Company to consummate and effect the Merger shall be subject to the satisfaction
at or prior to the Closing Date of each of the following conditions, any of
which may be waived, in writing, exclusively by the Company:
(a) Representations and Warranties. Each representation and warranty of Parent
and Merger Sub contained in this Agreement (i) shall have been true and correct
as of the date of this Agreement and (ii) shall be true and correct on and as of
the Closing Date with the same force and effect as if made on the Closing Date
except (A) in each case, or in the aggregate, as does not constitute a Material
Adverse Effect on Parent and Merger Sub, (B) for changes contemplated by this
Agreement and (C) for those representations and warranties which address matters
only as of a particular date (which representations shall have been true and
correct (subject to the qualifications as set forth in the preceding clause (A)
as of such particular date) (it being understood that, for purposes of
determining the accuracy of such representations and warranties, (i) all
"Material Adverse Effect" qualifications and other qualifications based on the
word "material" or similar phrases contained in such representations and
warranties shall be disregarded and (ii) any update of or modification to the
Parent Schedule made or purported to have been made after the date of this
Agreement shall be disregarded). The Company shall have received a certificate
with respect to the foregoing signed on behalf of Parent by an authorized
officer of Parent.
(b) Agreements and Covenants. Parent and Merger Sub shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by them on or prior to the
Closing Date, and the Company shall have received a certificate to such effect
signed on behalf of Parent to the best knowledge of an authorized officer of
Parent.
A-32
6.3 Additional Conditions to the Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub to consummate and effect the Merger shall
be subject to the satisfaction at or prior to the Closing Date of each of the
following conditions, any of which may be waived, in writing, exclusively by
Parent:
(a) Representations and Warranties. Each representation and warranty of the
Company contained in this Agreement (i) shall have been true and correct as
of the date of this Agreement and (ii) shall be true and correct on and as
of the Closing Date with the same force and effect as if made on and as of
the Closing Date except (A) in each case, or in the aggregate, as does not
constitute a Material Adverse Effect on the Company; provided, however,
that such Material Adverse Effect qualifier shall be inapplicable with
respect to representations and warranties set forth in Section 2.3 hereof,
(B) for changes contemplated by this Agreement and (C) for those
representations and warranties which address matters only as of a
particular date (which representations shall have been true and correct
(subject to the qualifications as set forth in the preceding clause (A) as
of such particular date). For purposes of determining the accuracy of such
representations and warranties hereunder, (i) all "Material Adverse Effect"
qualifications and other qualifications based on the word "material" or
similar phrases contained in such representations and warranties shall be
disregarded and (ii) any update of or modification to the Company Schedule
made or purported to have been made after the date of this Agreement shall
be disregarded. Parent shall have received a certificate with respect to
the foregoing signed on behalf of the Company by an authorized officer of
the Company.
(b) Agreements and Covenants. The Company shall have performed or complied
in all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it at or prior to the Closing
Date, and Parent shall have received a certificate to such effect signed on
behalf of the Company to the best knowledge of the Chief Executive Officer
and the Chief Financial Officer of the Company.
(c) Affiliate Agreements. Each of the Company Affiliates set forth in
Section 5.11 of the Company Schedule shall have entered into the Affiliate
Agreement and each of such agreements will be in full force and effect as
of the Effective Time.
(d) Consents. The Company shall have obtained all consents, waivers and
approvals required in connection with the consummation of the transactions
contemplated hereby in connection with the agreements, contracts, licenses
or leases set forth in Section 6.3(d) of the Parent Schedule.
(e) Audited Financial Statements. The audited financial statements of the
Company for the year ended December 31, 2001, shall provide (i) balance
sheet net equity of not less than $7,267,500, (ii) year end revenues of not
less than $21,280,000 and (iii) net income of not less than $498,750
(excluding (y) transaction related expenses estimated to be $85,000, and
(z) any excess tax liability over forty percent (40%) that has been applied
to the calculation of net income by the Company for the year ending
December 31, 2001).
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time (notwithstanding any approval
of this Agreement by the stockholders of Company):
(a) by mutual written agreement of Company and Parent; or
(b) by either the Company or Parent if the Merger shall not have been
consummated by April 8, 2002 (the "Termination Date") for any reason;
provided; however, that (i) if the Registration Statement is reviewed by
the SEC, then the Termination Date will be May 7, 2002; and (ii) the right
to terminate this Agreement under this Section 7.1(b) shall not be
available to any party whose action or failure to act has been a principal
cause of or resulted in the failure of the Merger to occur on or before
such date and such action or failure to act constitutes a breach of this
Agreement; or
A-33
(c) by either the Company or Parent if the required approval of the
stockholders of the Company contemplated by this Agreement shall not have
been obtained by reason of the failure to obtain the required vote at a
meeting of the Company stockholders duly convened therefor or at any
adjournment thereof; provided, however, that the right to terminate this
Agreement under this Section 7.1(c) shall not be available to the Company
where the failure to obtain the Company stockholder approval shall have
been caused by the action or failure to act of the Company and such action
or failure to act constitutes a breach by the Company of this Agreement; or
(d) by either Company or Parent, if there shall be any applicable law or
regulation that makes consummation of the Merger illegal or otherwise
prohibited or any judgment, injunction, order or decree of any court or
governmental body having competent jurisdiction enjoining Company or Parent
from consummating the Merger is entered and such judgment, injunction,
judgment or order shall have become final and nonappealable; or
(e) by Company, upon a material breach of any covenant or agreement on the
part of Parent set forth in this Agreement, or if any representation or
warranty of Parent shall have been untrue or inaccurate when made or shall
have become untrue or inaccurate such that, in the aggregate, in the case
of such representations and warranties, such untruths or inaccuracies would
reasonably be expected to have a Material Adverse Effect on Company;
provided, that if such untruth or inaccuracy in Parent's representations
and warranties or breach by Parent is curable by Parent through exercise of
its commercially reasonable efforts, then Company may not terminate this
Agreement pursuant to this Section 7.1(e) until the earlier of (i) the
expiration of a thirty (30) day period after delivery of written notice
from Company to Parent of such untruth or inaccuracy or breach, or (ii)
Parent ceasing to exercise commercially reasonable efforts to cure such
untruth or inaccuracy or breach, provided, that Parent continues to
exercise commercially reasonable efforts to cure such untruth or inaccuracy
or breach (it being understood that Company may not terminate this
Agreement pursuant to this Section 7.1(e) if such untruth or inaccuracy or
breach by Parent is cured during such thirty-day period); or
(f) by Parent, upon a material breach of any covenant or agreement on the
part of Company set forth in this Agreement, or if any representation or
warranty of Company shall have been untrue or inaccurate when made or shall
have become untrue or inaccurate such that, in the aggregate, in the case
of such representations and warranties, such untruths or inaccuracies would
reasonably be expected to have a Material Adverse Effect on Parent Merger
Sub ; provided, that if such untruth or inaccuracy in Company's
representations and warranties or breach by Company is curable by Company
through exercise of its commercially reasonable efforts, then Parent may
not terminate this Agreement pursuant to this Section 7.1(f) until the
earlier of (i) the expiration of a thirty (30) day period after delivery of
written notice from Parent to Company of such untruth or inaccuracy or
breach, or (ii) Company ceasing to exercise commercially reasonable efforts
to cure such untruth or inaccuracy or breach, provided, that Company
continues to exercise commercially reasonable efforts to cure such untruth
or inaccuracy or breach (it being understood that Parent may not terminate
this Agreement pursuant to this Section 7.1(f) if such untruth or
inaccuracy or breach by Company is cured during such thirty-day period); or
(g) by Parent, if an event has occurred or a circumstance has arisen that
would reasonably be expected to have a Material Adverse Effect on the
Company that is not curable by the Company through the exercise of its
commercially reasonable efforts within sixty (60) days of the date of such
occurrence or circumstance; or
(h) by Company, if an event has occurred or a circumstance has arisen that
would reasonably be expected to have a Material Adverse Effect on Parent
that is not curable by Parent through the exercise of its commercially
reasonable efforts within sixty (60) days of the date of such occurrence;
or
(i) by Company, if it intends to enter into a definitive agreement with
respect to an Acquisition Proposal, provided that, (i) Company is not in
breach of its obligations under this Section 7.1(i) and under Section 5.4
hereof and continues to comply with all such obligations in all respects,
(ii) the Company Board has authorized, subject to complying with the terms
of this Agreement, Company to enter into a definitive written agreement for
a transaction that constitutes a Superior Proposal, (iii) Company notifies
Parent in writing that Company has received a Superior Proposal and intends
to enter into a definitive agreement with respect to such Superior
Proposal, attaching the most current version of such agreement to such
notice, (iv) Parent does not make, within three (3) business days after
receipt of Company's written notice of its intention to enter into a
A-34
definitive agreement for a Superior Proposal, an offer that the Company
Board in good faith reasonably determines, after consultation with a
financial advisor of nationally recognized standing and its outside legal
counsel, is at least as favorable to Company's stockholders as such
Superior Proposal, (v) during such period Company has informed Parent of
the terms and conditions of such Superior Proposal, and the identity of the
person making such Superior Proposal, with the intent of enabling both
parties to agree to a modification of the terms and conditions of this
Agreement so that the transactions contemplated hereby may be effected, and
(vi) prior to Company's termination pursuant to this Section 7.1(i),
Company pays to Parent the Termination Fee required by Section 7.3(b); or
(j) by Parent if any one of the following Triggering Events shall have
occurred: (i) the Board of Directors of the Company or any committee
thereof shall for any reason have withdrawn or shall have amended or
modified in a manner adverse to Parent its recommendation made with the
unanimous approval of all non-interested directors in favor of the adoption
and approval of the Agreement or the approval of the Merger; (ii) the
Company shall have failed to include in the Proxy Statement/Prospectus the
recommendation made with the unanimous approval of all non-interested
directors of the Company in favor of the adoption and approval of the
Agreement and the approval of the Merger; (iii) the Board of Directors of
the Company or any committee thereof shall have approved or recommended any
Acquisition Proposal; (iv) the Company shall have entered into any letter
of intent or similar document or any agreement, contract or commitment
accepting any Acquisition Proposal; or (v) a tender or exchange offer
relating to securities of the Company shall have been commenced by a person
unaffiliated with Parent and the Company shall not have sent to its
security holders pursuant to Rule 14e-2 promulgated under the Securities
Act, within ten (10) business days after such tender or exchange offer is
first published sent or given, a statement disclosing that the Company
recommends rejection of such tender or exchange offer; or
(k) by Parent, in the event that holders of Company Common Stock holding
fifteen percent (15%) or more of the issued and outstanding shares of
Company Common Stock elect to pursue dissenters rights, as described in
Section 1.11, whether such holders have perfected such rights or not; or
(l) By Parent or Company in the event that the weighted average closing
price of Parent Common Stock as quoted on the NASDAQ National Market for
the fifteen (15) trading days ending one day prior to the scheduled Closing
Date is greater than $23 or less than $14.
7.2 Notice of Termination; Effect of Termination. Any proper termination of this
Agreement under Section 7.1 above will be effective immediately (or if the
termination is pursuant to Section 7.1(e) or (f) above and the proviso is
applicable, thirty (30) days after) upon the delivery of written notice of the
terminating party to the other parties hereto. In the event of the termination
of this Agreement under Section 7.1, this Agreement shall be of no further force
or effect without liability of any party (or any stockholder, director, officer,
employee, agent, consultant or representative of such party) to the other
parties hereto, except (i) as set forth in this Section 7.2, Section 7.3 and
Article VIII, each of which shall survive the termination of this Agreement, and
(ii) that nothing herein shall relieve any party from liability for any
intentional or willful breach of or fraud in connection with this Agreement. No
termination of this Agreement shall affect the obligations of the parties
contained in the Confidentiality Agreement, all of which obligations shall
survive termination of this Agreement in accordance with their terms.
7.3 Fees and Expenses.
(a) General. Except as set forth in this Section 7.3, all attorneys',
accountants' and consultants' fees and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such fees and expenses whether or not the Merger is
consummated.
(b) Termination Payments.
(i) If this Agreement is terminated prior to the Effective Time
pursuant to Sections 7.1(i) or (j) Company shall promptly, but in any
event no later than one day after the date of such termination, pay
Parent a fee equal to $1,000,000 together with up to $500,000 of
A-35
Parent's actual legal and accounting fees in connection with the
Merger, in immediately available funds (the "Termination Fee").
(ii) If this Agreement is terminated by Parent pursuant to Section
7.1(f) then the Company shall pay to Parent up to $500,000 of the
actual legal, advisory, and accounting fees incurred by parent in
connection with the Merger.
(iii) If this Agreement is terminated by Company pursuant to Section
7.1(e), then Parent shall pay up to $500,000 of the actual legal,
advisory, and accounting fees incurred by Company in connection with
the Merger.
(iv) Company acknowledges that the agreements contained in this
Section 7.3(b) are an integral part of the transactions contemplated
by this Agreement, and that, without these agreements, Parent would
not enter into this Agreement. Accordingly, if Company fails to pay in
a timely manner the amounts due pursuant to this Section 7.3(b), and,
in order to obtain such payment, Parent makes a claim that results in
a judgment against Company, Company shall pay to Parent its reasonable
costs and expenses (including reasonable attorneys' fees and expenses)
in connection with such suit, together with interest on the amounts
set forth in this Section 7.3(b) at the prime rate BankOne, N.A. in
effect on the date such payment was required to be made. Payment of
the fees described in this Section 7.3(b) shall not be in lieu of
damages incurred in the event of breach of this Agreement.
7.4 Amendment. Subject to applicable law, this Agreement may be amended by the
parties hereto at any time by execution of an instrument in writing signed on
behalf of each of Parent and Company.
7.5 Extension; Waiver. At any time prior to the Effective Time any party hereto
may, to the extent legally allowed and except as otherwise set forth herein, (i)
extend the time for the performance of any of the obligations or other acts of
the other parties hereto, (ii) waive any inaccuracies in the representations and
warranties made to such party contained herein or in any document delivered
pursuant hereto and (iii) waive compliance with any of the agreements or
conditions for the benefit of such party contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in an instrument in writing signed on behalf of such party. Delay in
exercising any right under this Agreement shall not constitute a waiver of such
right.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Non-Survival of Representations and Warranties. The representations,
warranties and covenants of Company, Parent and Merger Sub contained in this
Agreement shall terminate at the Effective Time, and only the covenants that by
their terms survive the Effective Time shall survive the Effective Time.
8.2 Notices. All notices and other communications hereunder shall be in writing
and shall be deemed given if delivered personally or by commercial delivery
service, or sent via telecopy (receipt confirmed) to the parties at the
following addresses or telecopy numbers (or at such other address or telecopy
numbers for a party as shall be specified by like notice):
(a) if to Parent or Merger Sub, to:
ClearOne Communications, Inc.
1825 Research Way
Salt Lake City, UT 84119
Attention: Frances Flood and Randall J. Wichinski
Telecopy No.: (801) 974-3742
A-36
with a copy to:
Jones Waldo Holbrook & McDonough
170 South Main Street
Suite 1500
Salt Lake City, UT 84101
Attention: James A. Valeo, Esq.
Telecopy No.: (801) 328-0537
(b) if to Company, to:
E.mergent, Inc.
5960 Golden Hills Drive
Golden Valley, MN 55416
(763) 542-0069
Attention: James Hansen
with a copy to:
Fredrickson & Bryon, P.A.
1100 International Centre
900 Second Avenue South
Minneapolis, MN 55402
Telecopy No: (612) 347-7077
Attention: Robert Ribeiro, Esq.
8.3 Interpretation; Knowledge.
(a) When a reference is made in this Agreement to Exhibits, such reference
shall be to an Exhibit to this Agreement unless otherwise indicated. When a
reference is made in this Agreement to Sections, such reference shall be to
a Section of this Agreement. Unless otherwise indicated the words
"include," "includes" and "including" when used herein shall be deemed in
each case to be followed by the words "without limitation." The table of
contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation
of this Agreement. When reference is made herein to "the business of" an
entity, such reference shall be deemed to include the business of all
direct and indirect subsidiaries of such entity. Reference to the
subsidiaries of an entity shall be deemed to include all direct and
indirect subsidiaries of such entity.
(b) For purposes of this Agreement, the term "knowledge" means with respect
to a party hereto, with respect to any matter in question, knowledge of the
executive officers or directors of such party if: (a) such individual is
actually aware of such fact or matter; or (b) a prudent individual could be
expected to discover or otherwise become aware of such fact or other matter
in the course of conducting a reasonable investigation concerning the
existence of such fact or matter.
(c) The word "agreement" when used herein shall be deemed in each case to
mean any contract, commitment or other agreement, whether oral or written,
that is legally binding.
(d) For purposes of this Agreement, the term "person" shall mean any
individual, corporation (including any non-profit corporation), general
partnership, limited partnership, limited liability partnership, joint
venture, estate, trust, company (including any limited liability company or
joint stock company), firm or other enterprise, association, organization,
entity or Governmental Entity.
(e) When used in connection with Parent or Company, as the case may be, the
term "Material Adverse Effect" means any change or effect in the business
of the Company that, individually or when taken together with all other
A-37
such changes or effects that have occurred prior to the date of
determination of the occurrence of the Material Adverse Effect, is or is
reasonably likely to be materially adverse to the business, assets
(including intangible assets), financial condition or results of operations
of such entity and its subsidiaries, taken as a whole; provided, however,
that in no event shall any of the following, alone or in combination, be
deemed to constitute, nor shall any of the following be taken into account
in determining whether there has been or will be, a Material Adverse Effect
on any entity: (i) any change or effect that results or arises from changes
affecting any of the industries in which such entity operates generally or
the United States economy generally (which changes or effects in each case
do not materially disproportionately affect such entity); or (ii) any
change or effect that results or arises from changes affecting general
worldwide economic or capital market conditions (which changes in each case
do not materially disproportionately affect such entity).
8.4 Counterparts. This Agreement may be executed in one or more counterparts,
all of which shall be considered one and the same agreement and shall become
effective when one or more counterparts have been signed by each of the parties
and delivered to the other party, it being understood that all parties need not
sign the same counterpart.
8.5 Entire Agreement; Third Party Beneficiaries. This Agreement and the
documents and instruments and other agreements among the parties hereto as
contemplated by or referred to herein, including the Company Schedule and the
Parent Schedule constitute the entire agreement among the parties with respect
to the subject matter hereof and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, it being understood that the Confidentiality Agreement
shall continue in full force and effect until the Closing and shall survive any
termination of this Agreement. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any third party any
right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement.
8.6 Severability. In the event that any provision of this Agreement, or the
application thereof, becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of this Agreement will
continue in full force and effect and the application of such provision to other
persons or circumstances will be interpreted so as reasonably to effect the
intent of the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of such void or unenforceable provision.
8.7 Other Remedies; Specific Performance. Except as otherwise provided herein,
any and all remedies herein expressly conferred upon a party will be deemed
cumulative with and not exclusive of any other remedy conferred hereby, or by
law or equity upon such party, and the exercise by a party of any one remedy
will not preclude the exercise of any other remedy. The parties hereto agree
that irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be
entitled to seek an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions hereof in any
court of the United States or any state having jurisdiction, this being in
addition to any other remedy to which they are entitled at law or in equity.
8.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof.
8.9 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
8.10 Assignment. No party may assign either this Agreement or any of its rights,
interests, or obligations hereunder without the prior written approval of the
other parties. Subject to the preceding sentence, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
A-38
8.11 WAIVER OF JURY TRIAL. EACH OF PARENT, COMPANY AND MERGER SUB HEREBY
IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE ACTIONS OF PARENT, COMPANY OR MERGER SUB IN
THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
A-39
IN WITNESS WHEREOF, the parties have executed this instrument as of the
date first set forth above.
ClearOne Communications, Inc.
By: Frances Flood
--------------------------------
President and Chief Executive Officer
E.mergent, Inc.
By: James Hansen
--------------------------------
President and Chief Executive Officer
Tundra Acquisition Corporation
By: Randall J. Wichinski
--------------------------------
Vice President and Secretary
A-40
ANNEX A-1
AMENDMENT AGREEMENT
THIS AMENDMENT AGREEMENT is dated March 29, 2002, by and among ClearOne
Communications, Inc. (formerly, Gentner Communications Corporation), a Utah
corporation ("Parent"), Tundra Acquisition Corporation, a Delaware corporation
and a wholly-owned subsidiary of Parent ("Merger Sub") and E.mergent, Inc., a
Delaware corporation (the "Company").
WHEREAS, Parent, Merger Sub and the Company entered into an Agreement
and Plan of Merger, dated as of January 21, 2002 (the "Merger Agreement"); and
WHEREAS, Parent, Merger Sub and the Company desire to amend the Merger
Agreement to extend the period of time within which the Merger may be
consummated before Parent and the Company gain a right of termination of the
Merger Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Company, Parent and Merger Sub hereby agree as follows:
1. Section 7.1(b) is hereby amended to read in its entirety as follows:
"(b) by either the Company or Parent if the Merger shall
not have been consummated by April 8, 2002 (the
"Termination Date") for any reason; provided; however,
that (i) if the Registration Statement is reviewed by the
SEC, then the Termination Date will be May 31, 2002; and
(ii) the right to terminate this Agreement under this
Section 7.1(b) shall not be available to any party whose
action or failure to act has been a principal cause of or
resulted in the failure of the Merger to occur on or
before such date and such action or failure to act
constitutes a breach of this Agreement;"
2. Except as provided in Section 1. above, the Merger Agreement shall
remain in full force and effect with no amendment or modification.
3. This Amendment Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof.
4. This Amendment Agreement may be executed in one or more counterparts,
all of which shall be considered one and the same agreement and shall become
effective when one or more counterparts have been signed by each of the parties
and delivered to the other party, it being understood that all parties need not
sign the same counterpart.
A-1-1
IN WITNESS WHEREOF, the parties have executed the Amendment Agreement as
of the date set forth above.
CLEARONE COMMUNICATIONS, INC.
By: /s/ F.M. Flood
-------------------------------------------
Its: Chief Executive Officer
TUNDRA ACQUISITION CORPORATION
By: /s/ Randy J. Wichinski
-------------------------------------------
Its: Vice-President
E.MERGENT, INC.
By: /s/ James W. Hansen
---------------------------------------------
Its: Chief Executive Officer and President
A-1-2
ANNEX B
VOTING AGREEMENT
This VOTING AGREEMENT (this "Agreement"), dated as of January 21, 2002, by
and among CLEARONE COMMUNICATIONS, INC. (formerly, Gentner Communications
Corporation), a Utah corporation ("Parent"), TUNDRA ACQUISITION CORPORATION, a
Delaware corporation ("Purchaser") and a wholly-owned subsidiary of Parent, and
each of the individuals listed on the Signature Pages hereto (each in his
individual capacity, a "Stockholder", and collectively, the "Stockholders").
A. Each of the Stockholders is, as of the date hereof, the record and
beneficial owner of the shares of common stock, par value $0.01 per share (the
"Common Stock"), of E.mergent, Inc., a Delaware corporation (the "Company") set
forth on Annex I hereto;
B. Parent, Purchaser and the Company concurrently herewith are entering
into an Agreement and Plan of Merger, dated as of the date hereof (the "Merger
Agreement;" capitalized terms used but not defined herein have the meanings
ascribed to such terms in the Merger Agreement), which provides, among other
things, for the acquisition of the Company by Parent by means of a merger of the
Company with an into Purchaser (the "Merger") upon the terms and subject to the
conditions set forth in the Merger Agreement; and
C. As a condition to the willingness of Parent and Purchaser to enter into
the Merger Agreement, and in order to induce Parent and Purchaser to enter into
the Merger Agreement, the Stockholders have agreed (solely in their capacity as
stockholders of the Company) to enter into this Agreement.
NOW, THEREFORE, in consideration of the execution and delivery by Parent
and Purchaser of the Merger Agreement and the foregoing and the mutual
representations, warranties, covenants and agreements set forth herein and
therein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
SECTION 1. Representations and Warranties of the Stockholder. Stockholder
(i) is the sole beneficial owner of the shares of Common Stock or other voting
securities and the options and warrants and other rights to purchase shares of
Common Stock indicated on Annex I of this Agreement (the "Shares"), free and
clear of any liens, claims, options, rights of first refusal, co-sale rights,
charges or other encumbrances that, in each case, would deprive Parent of the
benefits of this Agreement; (ii) does not beneficially own any securities of the
Company other than the Shares; and (iii) has full power and authority to make,
enter into and carry out the terms of this Agreement and the proxy contained
herein.
SECTION 2. Voting of the Shares. The Stockholders each agree to vote the
Shares, and to exercise all voting, consent and similar rights of the
undersigned with respect to the Shares (including, without limitation, the power
to execute and deliver written consents) at every annual, special, adjourned or
postponed meeting of stockholders of the Company and in every written consent in
lieu of such meeting in favor of approval of the Merger and the adoption and
approval of the Merger Agreement and in favor of each of the other actions
contemplated by the Merger Agreement and any action required in furtherance
thereof, and against approval of any proposal made in opposition to, or in
competition with, consummation of the Merger and the transactions contemplated
by the Merger Agreement.
B-1
SECTION 3. Grant of Irrevocable Proxy; Appointment of Proxy. Concurrently
with the execution of this Agreement, the Stockholder each agree to deliver to
Parent a Proxy in the form attached hereto as Exhibit A (the "Proxy"), which
shall be irrevocable to the fullest extent permissible by applicable law, and,
except as provided therein, with respect to the Shares.
SECTION 4. Transfer of the Shares. Each of the Stockholders hereby agrees
that, at all times during the period commencing with the execution and delivery
of this Agreement until the Effective Time or termination of the Merger
Agreement pursuant to Article VII thereof, he shall not cause or permit any
Transfer (as defined below) of any of the Shares to be effected, or discuss,
negotiate or make any offer regarding any Transfer of any of the Shares, unless
each person to which any such Shares, or any interest therein, is or may be
Transferred shall have (i) executed a counterpart of this Agreement and a proxy
in the form attached hereto as Exhibit A (with such modifications as Parent may
reasonably request), and (ii) agreed in writing to hold such Shares, or such
interest therein, subject to all of the terms and conditions set forth in this
Agreement. A Stockholder shall be deemed to have effected a "Transfer" of Shares
if such Stockholder directly or indirectly (i) sells, pledges, encumbers, grants
an option with respect to, transfers or otherwise disposes of such Shares or any
interest therein, or (ii) enters into an agreement or commitment providing for
the sale of, pledge of, encumbrance of, grant of an option with respect to,
transfer of or disposition of such Shares or any interest therein. Each of the
Stockholders hereby also agrees that, at all times commencing with the execution
and delivery of this Agreement until the Expiration Date, he shall not deposit,
or permit the deposit of, any Shares in a voting trust, grant any proxy (other
than the Proxy) in respect of the Shares, or enter into any stockholder voting
agreement or similar arrangement or commitment in contravention of the
obligations of such Stockholder under this Agreement with respect to any of the
Shares.
SECTION 5. Certain Events. In the event of any stock split, stock dividend,
merger, reorganization, recapitalization or other change in the capital
structure of the Company affecting the Common Stock or the acquisition of
additional shares of Common Stock or other securities or rights of the Company
by any Stockholder, the number of Shares shall be adjusted appropriately, and
this Agreement and the rights and obligations hereunder shall attach to any
additional shares of Common Stock or other securities or rights of the Company
issued to or acquired by any such Stockholder.
SECTION 6. Certain Other Agreements. From and after the date of this
Agreement until the Effective Time or termination of the Merger Agreement
pursuant to Article VII thereof, no Stockholder will, nor will any Stockholder
authorize or permit any of such Stockholder's affiliates or any investment
banker, attorney or other advisor or representative retained by any of them to,
directly or indirectly, (i) solicit, initiate, encourage or induce the making,
submission or announcement of any Acquisition Proposal, (ii) participate in any
discussions or negotiations regarding, or furnish to any person any information
with respect to, or take any other action to facilitate any inquiries or the
making of any proposal that constitutes or may reasonably be expected to lead
to, any Acquisition Proposal, (iii) engage in discussions with any person with
respect to any Acquisition Proposal, (iv) approve, endorse or recommend any
Acquisition Proposal, or (v) enter into any letter of intent or similar document
or any contract, agreement or commitment contemplating or otherwise relating to
any Acquisition Transaction; provided, however, that nothing herein shall
prohibit a Stockholder from taking action in his capacity as a director or
officer of the Company to the extent otherwise permitted by the Merger
Agreement.
SECTION 7. Further Assurances. Each of the Stockholders shall, upon request
of Parent or Purchaser, execute and deliver any additional documents and take
such further actions as may reasonably be deemed by Parent or Purchaser to be
B-2
necessary or desirable to carry out the provisions hereof and to vest in Parent
the power to vote the Shares as contemplated by Section 3 hereof.
SECTION 8. Termination. Except as otherwise provided in this Agreement,
this Agreement, and all rights and obligations of the parties hereunder, shall
terminate immediately upon the earlier of (i) the termination of the Merger
Agreement in accordance with its terms or (ii) the Effective Time; provided,
however, that Sections 9 and 11 shall survive any termination of this Agreement.
SECTION 9. Expenses. All fees and expenses incurred by any one party hereto
shall be borne by the party incurring such fees and expenses.
SECTION 10. Appraisal. Each Stockholder also agrees not to exercise any
rights (including, without limitation, under Section 262 of the General
Corporation Law of the State of Delaware) to demand appraisal of any Shares
which may arise with respect to the Merger.
SECTION 11. Certificate Legends. The Stockholders each hereby agree that
Parent shall have the discretion to include a legend on the certificates
representing the Shares indicating that the Shares are subject to this Agreement
and the Proxy.
SECTION 12. Miscellaneous.
(a) Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, then the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
(b) Binding Effect and Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns, but, except as otherwise
specifically provided herein, neither this Agreement nor any of the rights,
interests or obligations of the parties hereto may be assigned by either of the
parties without prior written consent of the other.
(c) Amendments and Modification. This Agreement may not be modified,
amended, altered or supplemented except upon the execution and delivery of a
written agreement executed by the parties hereto.
(d) Specific Performance; Injunctive Relief. The parties hereto acknowledge
that Parent shall be irreparably harmed and that there shall be no adequate
remedy at law for a violation of any of the covenants or agreements of
Stockholder set forth herein. Therefore, it is agreed that, in addition to any
other remedies that may be available to Parent upon any such violation, Parent
shall have the right to enforce such covenants and agreements by specific
performance, injunctive relief or by any other means available to Parent at law
or in equity
(e) Notices. All notices and other communications pursuant to this
Agreement shall be in writing and deemed to be sufficient if contained in a
written instrument and shall be deemed given if delivered personally,
telecopied, sent by nationally-recognized overnight courier or mailed by
registered or certified mail (return receipt requested), postage prepaid, to the
parties at the following address (or at such other address for a party as shall
be specified by like notice):
B-3
If the Parent: Gentner Communications Corporation
1825 Research Way
Salt Lake City, UT 84119
Attention: Frances Flood and Randall J. Wichinski
Telecopy No.: (801) 974-3742
with a copy to: Jones Waldo Holbrook & McDonough
170 South Main Street, Suite 1500
Salt Lake City, UT 84101
Attention: James A. Valeo, Esq.
Telecopy No.: (801) 328-0537
If the Stockholders: To the address set forth on Annex I hereto
with a copy to: Fredrickson & Bryon, P.A.
1100 International Centre
900 Second Avenue South
Minneapolis, MN 55402
Telecopy No: (612) 347-7077
Attention: Robert Ribeiro, Esq.
(f) Governing Law. This Agreement shall be governed by the laws of the
State of Delaware, without giving effect to the conflicts of law principles
thereof.
(g) Entire Agreement. This Agreement and the Proxy contain the entire
understanding of the parties in respect of the subject matter hereof, and
supersede all prior negotiations and understandings between the parties with
respect to such subject matter.
(h) Effect of Headings. The section headings are for convenience only and
shall not affect the construction or interpretation of this Agreement.
(i) Counterparts. This Agreement may be executed in several counterparts,
each of which shall be an original, but all of which together shall constitute
one and the same agreement.
[signature page follows]
B-4
IN WITNESS WHEREOF, each of Parent, the Purchaser and the Stockholders have
caused this Agreement to be duly executed and delivered as of the date first
written above.
CLEARONE COMMUNICATIONS, INC.
By:
-------------
President and
Chief Executive Officer
TUNDRA ACQUISITION CORPORATION
By:
--------------------
Randall J. Wichinski,
Vice President
STOCKHOLDERS
-------------
Robin Sheeley
------------
James Hansen
--------------
Richard Craven
-----------
Jill Larson
B-5
ANNEX I
SHARES
Shares of Company Common Stock Shares of Company Common
Stockholder Name and Address issuable upon the exercise of Stock beneficially owned
outstanding options, warrants or other
rights
-----------------------------------------------------------------------------------------------------
Robin Sheeley 35,000 1,209,828
-----------------------------------------------------------------------------------------------------
James Hansen 130,000 554,634
-----------------------------------------------------------------------------------------------------
Richard Craven 28,000 625,448
-----------------------------------------------------------------------------------------------------
Jill Larson 105,000 3,890
-----------------------------------------------------------------------------------------------------
B-6
EXHIBIT A
IRREVOCABLE PROXY
The undersigned stockholder of E.mergent, Inc., a Delaware corporation (the
"Company"), hereby irrevocably (to the fullest extent permitted by law), solely
in his capacity as a stockholder, appoints the directors on the Board of
Directors of ClearOne Communications, Inc. (formerly, Gentner Communications
Corporation), a Utah corporation ("Parent"), and each of them, as the sole and
exclusive attorneys and proxies of the undersigned, with full power of
substitution and resubstitution, to vote and exercise all voting and related
rights (to the full extent that the undersigned is entitled to do so) with
respect to all of the shares of capital stock of the Company that now are or
hereafter may be beneficially owned by the undersigned, and any and all other
shares or securities of the Company issued or issuable in respect thereof on or
after the date hereof (collectively, the "Shares") in accordance with the terms
of this Proxy. The Shares beneficially owned by the undersigned stockholder of
the Company as of the date of this Proxy are listed on the final page of this
Proxy. Upon the execution of this Proxy by the undersigned, any and all prior
proxies given by the undersigned with respect to any Shares are hereby revoked
and the undersigned hereby agrees not to grant any subsequent proxies with
respect to the Shares until after the Expiration Date (as defined below).
This Proxy is irrevocable (to the fullest extent permitted by law), is
coupled with an interest and is granted pursuant to that certain Voting
Agreement of even date herewith by and between Parent and the undersigned
stockholder, and is granted in consideration of Parent entering into that
certain Agreement and Plan of Merger (the "Merger Agreement"), by and among
Parent, Tundra Acquisition Corporation, a Delaware corporation and a
wholly-owned subsidiary of Parent ("Purchaser"), and the Company, which provides
for the merger of the Company with and into the Purchaser in accordance with its
terms (the "Merger"). As used herein, the term "Expiration Date" shall mean the
earlier to occur of (i) such date and time as the Merger Agreement shall have
been terminated in accordance with its terms, or (ii) such date and time as the
Merger shall become effective in accordance with the terms and conditions set
forth in the Merger Agreement. Upon the Expiration Date, this proxy shall be of
no further force or effect.
The attorneys and proxies named above, and each of them, are hereby
authorized and empowered by the undersigned, at any time prior to the Expiration
Date, to act as the undersigned's attorney and proxy to vote the Shares, and to
exercise all voting, consent and similar rights of the undersigned with respect
to the Shares (including, without limitation, the power to execute and deliver
written consents) at every annual, special, adjourned or postponed meeting of
stockholders of the Company and in every written consent in lieu of such
meeting:
(i) in favor of approval of the Merger and the adoption and approval
of the Merger Agreement, and in favor of each of the other
actions contemplated by the Merger Agreement and any action
required in furtherance thereof;
(ii) against approval of any proposal made in opposition to, or in
competition with, consummation of the Merger and the transactions
contemplated by the Merger Agreement; and
B-7
(iii) against any of the following actions (other than those actions
that relate to the Merger and the transactions contemplated by
the Merger Agreement): (A) any merger, consolidation, business
combination, sale of assets, reorganization or recapitalization
of the Company or any subsidiary of the Company with any party,
(B) any sale, lease or transfer of any significant part of the
assets of the Company or any subsidiary of the Company, (C) any
reorganization, recapitalization, dissolution, liquidation or
winding up of the Company or any subsidiary of the Company, (D)
any material change in the capitalization of the Company or any
subsidiary of the Company, or the corporate structure of the
Company or any subsidiary of the Company, or (E) any other action
that is intended, or could reasonably be expected to, impede,
interfere with, delay, postpone, discourage or adversely affect
the Merger or any of the other transactions contemplated by the
Merger Agreement; and (iv) in favor of waiving any notice that
may have been or may be required relating to any reorganization
of the Company or any subsidiary of the Company, any
reclassification or recapitalization of the capital stock of the
Company or any subsidiary of the Company, or any sale of assets,
change of control, or acquisition of the Company or any
subsidiary of the Company by any other person, or any
consolidation or merger of the Company or any subsidiary of the
Company with or into any other person.
The attorneys and proxies named above may not exercise this Proxy on any
other matter except as provided above. The undersigned stockholder may vote the
Shares on all other matters.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
This Proxy is irrevocable (to the fullest extent permitted by law). This
Proxy shall terminate, and be of no further force and effect, automatically upon
the Expiration Date.
Dated: January [ ], 2002
Signature of ___________________________
Stockholder:
Print Name of
Stockholder: ___________________________
Shares of Company
Common Stock
beneficially owned: __________________
Shares of Company Common
Stock issuable
upon the exercise of
outstanding options,
warrants or other rights: __________________
B-8
ANNEX C
18 January 2002
Confidential
The Board of Directors
E.mergent Corporation
5960 Golden Hills Drive
Minneapolis, MN 55416
Re: Fairness Opinion
Members of the Board of Directors:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of common stock of E.mergent Corporation, a Delaware
corporation ("E.mergent" or the "Company"), of the consideration to be received
by such shareholders for their common stock pursuant to the terms of a proposed
Merger Agreement (the "Merger Agreement") to be executed on or about the date
hereof by and among the Company, ClearOne Communications Corporation (formerly
Gentner Communications Corporation) ("ClearOne"), and Tundra Acquisition
Corporation, a wholly owned subsidiary of ClearOne ("Merger Sub"). All
capitalized and undefined terms used herein have the meanings given to them in
the Merger Agreement.
The Merger Agreement provides for, among other things, the merger of the Company
with and into Merger Sub (the "Merger"), as a result of which each share of
E.mergent common stock ("Company Common Stock") outstanding on the Closing Date
will be converted into the right to receive an amount of cash and shares of
common stock of ClearOne ("ClearOne Common Stock") equal to the amounts
resulting from dividing each of $7,300,000 cash and 873,000 shares of ClearOne
Common Stock by the number of shares of Company Common Stock outstanding on the
Closing Date (subject to adjustment, as more fully described in the Merger
Agreement) (as so adjusted, the "Consideration"). As a result of the Merger, the
Company shall be merged with and into the Merger Sub, with the Merger Sub
surviving and remaining a wholly owned subsidiary of ClearOne. We understand
that the Merger is intended to qualify as a tax-free reorganization within the
meaning of Sections 368(a)(1)(A) and 368(a)(2)(D) of the Internal Revenue Code
C-1
of 1986, as amended. The terms and conditions of the Merger are set forth more
fully in the Merger Agreement.
As a customary part of its investment banking business, Goldsmith, Agio, Helms
Securities, Inc. is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, private placements, and
valuations for corporate and other purposes. In return for our services in
connection with providing this opinion, the Company will pay us a fee, which fee
is not contingent upon the consummation of the Merger, and indemnify us against
certain liabilities. We also are acting as the exclusive financial advisor to
the Company in connection with the Merger, for which we will receive certain
other fees, a significant portion of which is contingent upon the consummation
of the Merger.
In arriving at our opinion, we have undertaken such reviews, analyses and
inquiries as we deemed necessary and appropriate under the circumstances. Among
other things, we have (i) reviewed the latest draft of the Merger Agreement,
dated January 17, 2002; (ii) reviewed certain financial and other information
that is publicly available relating to the Company and ClearOne; (iii) reviewed
certain internal financial and operating data of the Company that has been made
available to us by the Company; (iv) discussed with senior management of the
Company the past and present financial condition, operating results, business
outlook and prospects of the Company; (v) discussed with senior management of
ClearOne the present financial condition, operating results, and near term
business outlook of ClearOne; (vi) reviewed the Company's and ClearOne's
historical common stock price trends; (vii) analyzed the stock price premiums
paid in recent mergers and acquisitions of publicly traded companies with
transaction values ranging from $10 to $50 million, and compared those premiums
to the premium implied by the consideration in the Merger; (viii) performed a
discounted cash flow analysis of the Company's projected financial performance;
(ix) reviewed the valuations of publicly traded companies that we deemed
generally comparable to the Company; and (x) reviewed the financial terms of
certain transactions we deemed generally similar to the Merger that recently
have been effected.
We have relied upon and assume, without independent verification, the accuracy
and completeness of the financial statements and other information furnished by,
or publicly available relating to, the Company and ClearOne, or otherwise made
available to us. We have also relied upon the representations and warranties of
the Company and other parties thereto contained in the Merger Agreement and have
assumed, without independent verification, that they are true and correct. We
were not engaged to, and did not attempt to, or assume responsibility to, verify
independently such information. We have further relied upon assurances by the
C-2
Company that the information provided to us has a reasonable basis, and with
respect to projections and other business outlook information, reflects the best
currently available estimates and judgments of the future financial performance
of the Company, and that the Company is not aware of any information or fact
that would make the information provided to us incomplete or misleading. We have
also assumed that the Company and ClearOne each will perform all of the
covenants and agreements to be performed by it under the Merger Agreement, that
the conditions to the Merger set forth in the Merger Agreement would be
satisfied and that the Merger would be consummated on a timely basis in the
manner contemplated by the Merger Agreement. We have assumed that the executed
version of the Merger Agreement will not differ in any material respects from
the last draft we reviewed, and that the terms of the consideration to be paid
to the holders of the Company Common Stock will be identical to those set forth
in the last draft that we reviewed. We have also assumed that, once consummated,
the Merger will qualify as a tax-free reorganization for federal income tax
purposes. In arriving at our opinion, we have not performed any appraisals or
valuations of specific assets or liabilities of the Company, nor have we been
furnished with any such appraisals. Our opinion is necessarily based upon the
information available to us and the facts and circumstances as they exist and
are subject to evaluation on the date hereof, including the financial, economic,
market and other conditions as in effect on the date hereof; events and
conditions occurring or existing after the date hereof could materially affect
the assumptions used in preparing this opinion.
Our opinion is rendered for the benefit and use of the Board of Directors of the
Company in connection with the Board's consideration of the Merger and does not
constitute a recommendation to any holder of Company Common Stock as to how to
vote such holder's shares of Company Common Stock in connection with the Merger.
We do not opine on, nor does our opinion consider, the tax consequences of the
Merger to any holder of Company Common Stock. We have not been asked to, nor do
we, express any opinion as to the relative merits of the Merger as compared to
any alternative business strategies that might exist for the Company, the effect
of any other transaction in which the Company might engage, or the form of the
Merger Agreement or the terms contained therein. Furthermore, we express no
opinion as to the prices at which either Company Common Stock or ClearOne Common
Stock may trade following the date of this opinion. This opinion may not be
published or otherwise used or referred to publicly without our written consent;
provided, however, that this opinion may be included in its entirety in any
filing with the Securities and Exchange Commission with respect to the Merger.
C-3
Based upon and subject to the foregoing, it is our opinion that, as of the date
hereof, the Consideration to be received by the holders of Company Common Stock
in the proposed Merger is fair, from a financial point of view, to such
shareholders.
Sincerely,
Goldsmith, Agio, Helms Securities, Inc.
C-4
ANNEX D
SECTION 262 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
Section 262. Appraisal Rights.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to ss. 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one (1) or more shares, or fractions
thereof, solely of stock of a corporation, which stock is deposited with the
depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to ss. 251 (other than a merger effected pursuant to ss.
251(g) of this title), ss. 252, ss. 254, ss. 257, ss. 258, ss. 263 or ss. 264 of
this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class of series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of ss. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to ss.ss.
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or depository
receipts in respect thereof) or depository receipts at the effective
date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by more than
2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts
and cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a, b and c of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under ss. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
D-1
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of
such stockholder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such stockholder's
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must
do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant toss. 228 or
ss. 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class of series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
D-2
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10 days
after such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing in a newspaper of general circulation
published in the City of Wilmington, Delaware or such publication as the Court
deems advisable. The forms of the notices by mail and by publication shall be
approved by the Court, and the costs thereof shall be borne by the surviving or
resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
D-3
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(1) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
asserted to the merger or consolidation shall have the status of authorized
and unissued shares of the surviving or resulting corporation.
D-4
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
ClearOne's Articles of Incorporation provide for the mandatory
indemnification of ClearOne's directors to the fullest extent permitted by the
Utah Revised Business Corporation Act ("URBCA"). The liability of directors and
officers of ClearOne is limited such that a director or officer is not liable to
ClearOne or its stockholders for any action taken or any failure to take any
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 841 of the URBCA; and (ii) the breach or failure to
perform constitutes gross negligence, willful misconduct, or intentional
infliction of harm on ClearOne or its stockholders. If a director of ClearOne
votes for or assents to an distribution prohibited under the URBCA or ClearOne's
Articles of Incorporation, the director is personally liable to ClearOne for the
prohibited amount of the distribution.
ClearOne will, pursuant to Section 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, ClearOne's best interests; and (iii) in the case of any criminal
proceeding, he had no reasonable cause to believe his conduct was unlawful;
provided that, the company 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 ClearOne 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 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 903 of the URBCA ClearOne must indemnify a
director, 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 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 904 of the URBCA, ClearOne 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 902 of the
URBCA; (ii) the director furnishes to ClearOne a written undertaking, executed
personally or on his behalf, to repay the advance if 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 under the URBCA.
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. A court may order
indemnification if it is required under Section 903 of the URBCA, or in other
circumstances if deem fair and reasonable to do so.
ClearOne may indemnify and advance expenses to an officer, employee,
fiduciary or agent of ClearOne to the extent consistent with public policy, as
determined by the board of directors.
ClearOne maintains 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, as amended, may be permitted to officers and directors under any of the
foregoing provisions, ClearOne has 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.
II-1
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
----------- -------------------------------------------------------------- --------------------------------------
Exhibit Description Incorporated By Reference
Filed
Form Date Herewith
----------- -------------------------------------------------------------- --------------------------------------
2.1 Share Purchase Agreement relating to Ivron Systems Ltd. by 8-K 10/3/01
and among Michael Peirce, Alex Peirce, Mentor Capital Ltd.,
Dave Nelson, David Smyth, Joe Stockton, Gentner Ventures,
Inc., and the Registrant
----------- -------------------------------------------------------------- --------------------------------------
2.2 Agreement and Plan of Merger, by and among the registrant,
E.mergent, Inc., and Tundra Acquisition Corporation (1)
----------- -------------------------------------------------------------- --------------------------------------
2.3 Amendment No. 1 to Agreement and Plan of Merger, dated as of
March 29, 2002, by and among the registrant, E.mergent,
Inc., and Tundra Acquisition (2)
----------- -------------------------------------------------------------- --------------------------------------
2.4 First Amendment to Share Purchase Agreement among ClearOne 8-K 4/8/02
Communications Inc., and the former shareholders of Ivron
Systems, Ltd., dated April 8, 2002.
----------- -------------------------------------------------------------- --------------------------------------
3.1 Articles of Incorporation and all amendments thereto through 10-KSB 06/30/89
March 1, 1988
----------- -------------------------------------------------------------- --------------------------------------
3.2 Amendment to Articles of Incorporation, dated July 1, 1991. 10-KSB 06/30/91
----------- -------------------------------------------------------------- --------------------------------------
3.3 Amended bylaws 10-KSB 06/30/93
----------- -------------------------------------------------------------- --------------------------------------
5.1 Opinion of Jones, Waldo, Holbrook & McDonough, P.C.(5)
----------- -------------------------------------------------------------- --------------------------------------
8.1 Tax Opinion of Jones, Waldo, Holbrook & McDonough, P.C X
----------- -------------------------------------------------------------- --------------------------------------
8.2 Tax Opinion of Fredrikson & Byron, P.A. X
----------- -------------------------------------------------------------- --------------------------------------
10.1 VRC-1000 Purchase Agreement between Gentner Engineering 10-KSB 06/30/89
Company, Inc. (a former subsidiary of the registrant which
was merged into the registrant) and Gentner Research Ltd.,
dated January 1, 1987
----------- -------------------------------------------------------------- --------------------------------------
10.2 Digital Hybrid Purchase Agreement between Gentner 10-KSB 06/30/91
Engineering, Inc. and Gentner Research, Ltd., dated
September 8, 1988
----------- -------------------------------------------------------------- --------------------------------------
10.3 1990 Incentive Plan, as amended August 7, 1996 10-KSB 06/30/96
----------- -------------------------------------------------------------- --------------------------------------
10.4 1997 Employee Stock Purchase Plan 10-KSB 06/30/97
----------- -------------------------------------------------------------- --------------------------------------
10.5 Lease between the Registrant and Valley American Investment 10-KSB 06/30/97
Company
----------- -------------------------------------------------------------- --------------------------------------
10.6 1998 Stock Option Plan and Form of Grant 10-KSB 06/30/98
----------- -------------------------------------------------------------- --------------------------------------
10.7 Promissory Note, Loan Agreement, and Commercial Security 10-QSB 12/31/98
Agreement between the Registrant and Bank One, Utah, N.A.
dated as of January 5, 1999 (original aggregate amount of
$5,000,000)
----------- -------------------------------------------------------------- --------------------------------------
10.8 Third Addendum to Lease between the Registrant and Valley 10-QSB 12/31/00
American Investment Company dated as of September 18, 2000
----------- -------------------------------------------------------------- --------------------------------------
10.9 Modification Agreement to Promissory Note, Loan Agreement, 10-QSB 12/31/00
and Commercial Security Agreement between the Registrant and
Bank One, Utah, N.A. dated as of December 22, 2000 (original
aggregate amount of $5,000,000)
----------- -------------------------------------------------------------- --------------------------------------
21.1 Subsidiaries of the Registrant (5)
----------- -------------------------------------------------------------- --------------------------------------
23.1 Consent of Ernst & Young LLP X
----------- -------------------------------------------------------------- --------------------------------------
23.2 Consent of KPMG, Chartered Accountants X
----------- -------------------------------------------------------------- --------------------------------------
23.3 Consent of Deloitte & Touche LLP X
----------- -------------------------------------------------------------- --------------------------------------
23.4 Consent of Jones, Waldo, Holbrook & McDonough (5)
----------- -------------------------------------------------------------- --------------------------------------
23.5 Consent of Fredrickson & Byron, P.A. (5)
----------- -------------------------------------------------------------- --------------------------------------
23.6 Consent of Goldsmith, Agio, Helms Securities, Inc. (4)
----------- -------------------------------------------------------------- --------------------------------------
23.7 Consent of LECG, LLC X
----------- -------------------------------------------------------------- --------------------------------------
24.1 Power of Attorney (5)
----------- -------------------------------------------------------------- --------------------------------------
II-2
----------- -------------------------------------------------------------- --------------------------------------
99.1 Form of Proxy X
----------- -------------------------------------------------------------- --------------------------------------
99.2 Fairness Opinion of Goldsmith, Agio, Helms Securities, Inc.
(3)
----------- -------------------------------------------------------------- --------------------------------------
(1) Included in this Registration Statement as Annex A.
(2) Included in this Registration Statement as Annex A-1
(3) Included in this Registration Statement as Annex C.
(4) Included as part of the Opinion in Annex C.
(5) Previously filed as part of this Registration Statement.
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) that, for purposes of determining any liability under Securities Act of
1933, each filing of the registrant's annual report pursuant to section
13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement 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;
(2) that prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this registration statement,
by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form;
(3) that every prospectus (i) that is filed pursuant to paragraph (2)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to
the registration statement and will not be used until such amendment is
effective, and that, for purposes 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;
(4) to respond to requests for information that is incorporated by reference
into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form,
within one business day of receipt of such request and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request; and
(5) to supply by means of a post-effective amendment all information concerning
a transaction, and the company being acquired involved therein, that was
not the subject of and included in the registration statement when it
became effective.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions described in Item 20 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer, or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Salt Lake City, Utah,
on April 26, 2002.
CLEARONE COMMUNICATIONS, INC.
By: /s/ FM Flood
----------------------------------------------
Name: Frances M. Flood
Title: Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
/s/ FM Flood Chairman of the Board and Chief April 26, 2002
------------------------- Executive Officer
Frances M. Flood (Principal Executive Officer)
/s/ Randy J. Wichinski Chief Financial Officer (Principal April 26, 2002
------------------------- Accounting and Financial Officer)
Randall J. Wichinski
* Director April 26, 2002
-------------------------
Brad R. Baldwin
* Director April 26, 2002
-------------------------
Michael A. Peirce
* Director April 26, 2002
-------------------------
Harry Spielberg
* Director April 26, 2002
-------------------------
Edward Dallin Bagley
* Director April 26, 2002
-------------------------
David Wiener
*By: /s/ FM Flood
--------------------
Frances M. Flood
Attorney in Fact
----------------
II-4
EXHIBIT INDEX
----------- -------------------------------------------------------------- --------------------------------------
Exhibit Description Incorporated By Reference
Filed
Form Date Herewith
----------- -------------------------------------------------------------- --------------------------------------
2.1 Share Purchase Agreement relating to Ivron Systems Ltd. by 8-K 10/3/01
and among Michael Peirce, Alex Peirce, Mentor Capital Ltd.,
Dave Nelson, David Smyth, Joe Stockton, Gentner Ventures,
Inc., and the Registrant
----------- -------------------------------------------------------------- --------------------------------------
2.2 Agreement and Plan of Merger, by and among the registrant,
E.mergent, Inc., and Tundra Acquisition Corporation (1)
----------- -------------------------------------------------------------- --------------------------------------
2.3 Amendment No. 1 to Agreement and Plan of Merger, dated as of
March 29, 2002, by and among the registrant, E.mergent,
Inc., and Tundra Acquisition (2)
----------- -------------------------------------------------------------- --------------------------------------
2.4 First Amendment to Share Purchase Agreement among ClearOne 8-K 4/8/02
Communications Inc., and the former shareholders of Ivron
Systems, Ltd., dated April 8, 2002.
----------- -------------------------------------------------------------- --------------------------------------
3.1 Articles of Incorporation and all amendments thereto through 10-KSB 06/30/89
March 1, 1988
----------- -------------------------------------------------------------- --------------------------------------
3.2 Amendment to Articles of Incorporation, dated July 1, 1991. 10-KSB 06/30/91
----------- -------------------------------------------------------------- --------------------------------------
3.3 Amended bylaws 10-KSB 06/30/93
----------- -------------------------------------------------------------- --------------------------------------
5.1 Opinion of Jones, Waldo, Holbrook & McDonough, P.C.(5)
----------- -------------------------------------------------------------- --------------------------------------
8.1 Tax Opinion of Jones, Waldo, Holbrook & McDonough, P.C X
----------- -------------------------------------------------------------- --------------------------------------
8.2 Tax Opinion of Fredrikson & Byron, P.A. X
----------- -------------------------------------------------------------- --------------------------------------
10.1 VRC-1000 Purchase Agreement between Gentner Engineering 10-KSB 06/30/89
Company, Inc. (a former subsidiary of the registrant which
was merged into the registrant) and Gentner Research Ltd.,
dated January 1, 1987
----------- -------------------------------------------------------------- --------------------------------------
10.2 Digital Hybrid Purchase Agreement between Gentner 10-KSB 06/30/91
Engineering, Inc. and Gentner Research, Ltd., dated
September 8, 1988
----------- -------------------------------------------------------------- --------------------------------------
10.3 1990 Incentive Plan, as amended August 7, 1996 10-KSB 06/30/96
----------- -------------------------------------------------------------- --------------------------------------
10.4 1997 Employee Stock Purchase Plan 10-KSB 06/30/97
----------- -------------------------------------------------------------- --------------------------------------
10.5 Lease between the Registrant and Valley American Investment 10-KSB 06/30/97
Company
----------- -------------------------------------------------------------- --------------------------------------
10.6 1998 Stock Option Plan and Form of Grant 10-KSB 06/30/98
----------- -------------------------------------------------------------- --------------------------------------
10.7 Promissory Note, Loan Agreement, and Commercial Security 10-QSB 12/31/98
Agreement between the Registrant and Bank One, Utah, N.A.
dated as of January 5, 1999 (original aggregate amount of
$5,000,000)
----------- -------------------------------------------------------------- --------------------------------------
10.8 Third Addendum to Lease between the Registrant and Valley 10-QSB 12/31/00
American Investment Company dated as of September 18, 2000
----------- -------------------------------------------------------------- --------------------------------------
10.9 Modification Agreement to Promissory Note, Loan Agreement, 10-QSB 12/31/00
and Commercial Security Agreement between the Registrant and
Bank One, Utah, N.A. dated as of December 22, 2000 (original
aggregate amount of $5,000,000)
----------- -------------------------------------------------------------- --------------------------------------
21.1 Subsidiaries of the Registrant (5)
----------- -------------------------------------------------------------- --------------------------------------
23.1 Consent of Ernst & Young LLP X
----------- -------------------------------------------------------------- --------------------------------------
23.2 Consent of KPMG, Chartered Accountants X
----------- -------------------------------------------------------------- --------------------------------------
23.3 Consent of Deloitte & Touche LLP X
----------- -------------------------------------------------------------- --------------------------------------
23.4 Consent of Jones, Waldo, Holbrook & McDonough (5)
----------- -------------------------------------------------------------- --------------------------------------
23.5 Consent of Fredrickson & Byron, P.A. (5)
----------- -------------------------------------------------------------- --------------------------------------
23.6 Consent of Goldsmith, Agio, Helms Securities, Inc. (4)
----------- -------------------------------------------------------------- --------------------------------------
23.7 Consent of LECG, LLC X
----------- -------------------------------------------------------------- --------------------------------------
24.1 Power of Attorney (5)
----------- -------------------------------------------------------------- --------------------------------------
II-5
----------- -------------------------------------------------------------- --------------------------------------
99.1 Form of Proxy X
----------- -------------------------------------------------------------- --------------------------------------
99.2 Fairness Opinion of Goldsmith, Agio, Helms Securities, Inc.
(3)
----------- -------------------------------------------------------------- --------------------------------------
(1) Included in this Registration Statement as Annex A.
(2) Included in this Registration Statement as Annex A-1
(3) Included in this Registration Statement as Annex C.
(4) Included as part of the Opinion in Annex C.
(5) Previously filed as part of this Registration Statement.
II-6