Exhibit 10.4

 

NEITHER THIS WARRANT NOR THE SECURITIES FOR WHICH THIS WARRANT IS EXERCISABLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH
APPLICABLE STATE SECURITIES OR BLUE SKY LAWS. NOTWITHSTANDING THE FOREGOING,
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF
THIS WARRANT.

 

 

CLEARONE, INC.

 

WARRANT

 

Warrant No. 1    Dated: ________ __, 2019

 

CLEARONE, INC., a Delaware corporation (the “Company”), hereby certifies that,
for value received, Edward D. Bagley or his assigns (the “Holder”), is entitled
to purchase from the Company up to a total of 340,909 (subject to adjustment as
provided herein) fully paid and non-assessable shares of common stock, $0.001
par value per share (the “Common Stock”), of the Company (each such share, a
“Warrant Share” and all such shares, the “Warrant Shares”) at an exercise price
equal to $1.76 per share (as adjusted from time to time as provided in Section
9, the “Exercise Price”), at any time and from time to time from and after the
date hereof (the “Issuance Date”) and through and including [__________ __],
2026 (as subject to extension as set forth herein, the “Expiration Date”), and
subject to the following terms and conditions. This Warrant (this “Warrant”) is
being issued pursuant to that certain Note Purchase Agreement, dated as of
December 8, 2019 (the “Note Purchase Agreement”), by and among the Company, as
borrower, the various guarantors party thereto, and the Holder, as purchaser.

 

1.       Definitions. In addition to the terms defined elsewhere in this
Warrant, capitalized terms that are not otherwise defined herein or in the Note
Purchase Agreement shall have the meanings set forth below:

 

(a)      “Business Day” means a day, other than a Saturday or Sunday, on which
banks in New York City are open for the general transaction of business.

 

(b)      “Change of Control” shall have the meaning ascribed to it in the Note
Purchase Agreement.

 

 

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(c)      “Closing Price” means, for any date, the price determined by the first
of the following clauses that applies: (a) if the Common Stock is then listed or
quoted on an Eligible Market or any other national securities exchange, the
closing bid price per share of Common Stock for such date (or the nearest
preceding date) on the primary Eligible Market or exchange on which the Common
Stock is then listed or quoted; (b) if the Common Stock is then listed or quoted
on the OTC Bulletin Board, the most recent closing bid price per share of Common
Stock so reported; (c) if prices for the Common Stock are then reported in the
“Pink Sheets” published by OTC Markets Group Inc. (or a similar organization or
agency succeeding to its functions of reporting prices), the most recent bid
price per share of Common Stock so reported; or (d) in all other cases, the fair
market value of a share of Common Stock as determined by an independent
appraiser selected in good faith by the Holder.

 

(d)      “Commission” means the U.S. Securities and Exchange Commission.

 

(e)      “Effective Date” means the date that a Registration Statement or
Registration Statements covering the Registrable Securities has been declared
effective by the Commission.

 

(f)      “Eligible Market” means any of the following markets or exchanges on
which the Common Stock is listed or quoted for trading on the date in question:
The NASDAQ Global Market, The NASDAQ Global Select Market, The NASDAQ Capital
Market, the New York Stock Exchange, NYSE Arca or the NYSE MKT (or any successor
to any of the foregoing).

 

(g)      “Exchange Act” means the Securities Exchange Act of 1934, as amended,
or any successor statute, and the rules and regulations promulgated thereunder.

 

(h)      “Person” means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof)
or other entity of any kind.

 

(i)      “Prospectus” means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.

 

(j)      “Registrable Securities” means the Warrant Shares (including any
Warrant Shares issuable pursuant to the anti-dilution provisions hereof),
together with any securities issued or issuable in exchange for the Warrant
Shares or upon any stock split, dividend or other distribution, recapitalization
or similar event with respect to the foregoing; provided, however, that Warrant
Shares held by a Holder shall cease to be “Registrable Securities” on the
earliest to occur of (i) the date on which a registration statement covering
such securities has been declared effective by the Commission and such shares
have been disposed of pursuant to such effective registration statement, (ii)
the date that such securities have been disposed of pursuant to Rule 144, or
(iii) the date on which all such shares may be disposed of by an Investor in one
transaction pursuant to Rule 144 without being subject to the public
information, volume and manner of sale conditions and restrictions under Rule
144.

 

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(k)      “Registration Statement” means the initial registration statement
required to be filed under paragraph (a)(i) of Schedule 8.13 of the Note
Purchase Agreement and any additional registration statements contemplated by
paragraph (a)(i) of Schedule 8.13 of the Note Purchase Agreement, including (in
each case) the Prospectus, amendments and supplements to such registration
statement or Prospectus, including pre- and post-effective amendments, all
exhibits thereto, and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement.

 

(l)      “Required Effectiveness Date” means with respect to (i) the initial
Registration Statement required pursuant to paragraph (a)(i) of Schedule 8.13 of
the Note Purchase Agreement, the one hundred eightieth (180th) day following the
Issuance Date and (ii) any additional Registration Statement required pursuant
to paragraph (a)(i) of Schedule 8.13 of the Note Purchase Agreement, the one
hundred eightieth (180th) day following the date thereof; provided, however, in
the event the Company is notified by the Commission that the Registration
Statement will not be reviewed or is no longer subject to further review and
comments, the Required Effectiveness Date as to such Registration Statement
shall be the fifth (5th) Trading Day following the date on which the Company is
so notified if such date precedes the dates required above.

 

(m)      “Rule 144” means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rules may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.

 

(n)      “Securities Act” means the Securities Act of 1933, as amended, or any
successor statute, and the rules and regulations promulgated thereunder.

 

(o)      “Trading Day” means (a) any day on which the Common Stock is listed or
quoted and traded on its primary Trading Market, or (b) if the Common Stock is
not then listed or quoted and traded on any Trading Market, then any Business
Day.

 

(p)      “Trading Market” means The NASDAQ Capital Market or any other primary
Eligible Market or national securities exchange on which the Common Stock is
then listed or quoted.

 

(q)       “VWAP” means, on any particular Trading Day or for any particular
period, the volume weighted average trading price per share of Common Stock on
such Trading Day or for such particular period on the Eligible Market on which
the Common Stock is then traded as reported by Bloomberg L.P., through its
“Volume at Price” functions, or any successor performing similar functions, or,
if the foregoing does not apply, the average of the highest Closing Price and
the lowest closing ask price of the Common Stock on the OTC Bulletin Board or,
if none of the foregoing applies, the average of the highest Closing Price and
the lowest closing ask price of the Common Stock of any of the market makers for
the Common Stock as reported in the “pink sheets” by OTC Markets Group Inc.;
provided, however, that during any period the VWAP is being determined, the VWAP
shall be subject to adjustment from time to time for stock splits, stock
dividends, combinations and similar events as applicable.

 

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2.      Registration of Warrant. The Company shall register this Warrant, upon
records to be maintained by the Company for that purpose (the “Warrant
Register”), in the name of the record Holder hereof from time to time. The
Company may deem and treat the registered Holder of this Warrant as the sole and
absolute record and beneficial owner hereof for the purpose of any exercise
hereof or any distribution to the Holder, and for all other purposes, absent
actual notice to the contrary.

 

3.      Registration of Transfers. Subject to compliance with applicable federal
and state securities laws, this Warrant and all rights hereunder are
transferable in whole or in part upon the books of the Company by the Holder
hereof at any time and without restriction; provided, however, that the
transferee shall agree in writing to be bound by the terms and subject to the
conditions of this Warrant. The Company shall register the transfer of any
portion of this Warrant in the Warrant Register, upon surrender of this Warrant,
with the Form of Assignment attached hereto duly completed and signed, to the
Company at its address specified herein. Upon any such registration or transfer,
a new warrant to purchase Common Stock, in substantially the form of this
Warrant (any such new warrant, a “New Warrant”), evidencing the portion of this
Warrant so transferred shall be issued to the transferee and a New Warrant
evidencing the remaining portion of this Warrant not so transferred, if any,
shall be issued to the transferring Holder. The acceptance of the New Warrant by
the transferee thereof shall be deemed the acceptance by such transferee of all
of the rights and obligations of a holder of this Warrant.

 

4.      Exercise and Duration of Warrants.

 

(a)      This Warrant shall be exercisable by the registered Holder at any time
and from time to time on or after the Issuance Date to and including the
Expiration Date. At 6:30 P.M., New York City time on the Expiration Date, the
portion of this Warrant not exercised prior thereto shall be and become void and
of no value; provided that, if the average of the Closing Prices for the five
(5) Trading Days immediately prior to (but not including) the Expiration Date
exceeds the Exercise Price on the Expiration Date, then this Warrant shall be
deemed to have been exercised in full (to the extent not previously exercised)
on a “cashless exercise” basis at 6:30 P.M. New York City time on the Expiration
Date. Notwithstanding anything to the contrary herein, the Expiration Date shall
be extended for each day following the Effective Date that the Registration
Statement is not effective. For U.S. federal income tax purposes, each Holder
and the Company shall treat any “cashless exercise” as a reorganization under
Section 368(a)(1)(E) of the Internal Revenue Code.

 

(b)      A Holder may exercise this Warrant by delivering to the Company (i) an
exercise notice, in the form attached hereto (the “Exercise Notice”),
appropriately completed and duly signed, and (ii) payment of the Exercise Price
for the number of Warrant Shares as to which this Warrant is being exercised
(which may take the form of a “cashless exercise” if so indicated in the
Exercise Notice), and the date such items are delivered to the Company (as
determined in accordance with the notice provisions hereof) is an “Exercise
Date.” The Holder shall not be required to deliver the original Warrant in order
to effect an exercise hereunder. Execution and delivery of the Exercise Notice
shall have the same effect as cancellation of the original Warrant and issuance
of a New Warrant evidencing the right to purchase the remaining number of
Warrant Shares. The Holder shall deliver the original Warrant to the Company
within thirty (30) days after the full exercise of this Warrant, provided,
however, that the Holder’s failure to so deliver the original Warrant shall not
affect the validity of such exercise or any of the Company’s obligations under
this Warrant and the Company’s sole remedy for the Holder’s failure to deliver
the original Warrant shall be to obtain an affidavit of lost warrant from the
Holder.

 

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(c)      If upon the Expiration Date, any portion of this Warrant remains
unexercised, then the Company shall issue to the Holder a new warrant to
purchase Common Stock, in substantially the same form of this Warrant, with a
new expiration date of seven (7) years from the original Expiration Date, and
with an exercise price equal to the Exercise Price then in effect under this
Warrant (i.e., the original Exercise Price as adjusted in accordance with the
terms hereof) and exercisable for the number of Warrant Shares equal to the
quotient of (A) the greater of the Black-Scholes value of the remaining
unexercised portion of this Warrant (without regard to any limitations on the
exercise hereof) (x) on the original Issuance Date and (y) on the original
Expiration Date, in each case as determined in accordance with Exhibit A of this
Warrant, divided by (B) the Exercise Price then in effect under this Warrant.

 

5.      Delivery of Warrant Shares.

 

(a)      Subject to Section 5(c) below, upon exercise of this Warrant, the
Company shall promptly (but in no event later than three (3) Trading Days after
the Exercise Date) issue or cause to be issued and cause to be delivered to or
upon the written order of the Holder and in such name or names as the Holder may
designate, a certificate for the Warrant Shares issuable upon such exercise or
credit the Holder’s balance account with DTC for the Warrant Shares issuable
upon such exercise, in either case, free of restrictive legends unless a
Registration Statement covering the resale of the Warrant Shares and naming the
Holder as a selling stockholder thereunder is not then effective and the Warrant
Shares are not freely transferable without volume restrictions pursuant to Rule
144. The Holder, or any Person so designated by the Holder to receive Warrant
Shares, shall be deemed to have become holder of record of such Warrant Shares
as of the Exercise Date. If within three (3) Trading Days after the Exercise
Date, the Company shall fail to issue and deliver a certificate to the Holder
and register such shares of Common Stock on the Company’s share register or
credit the Holder’s balance account with DTC for the number of shares of Common
Stock to which the Holder is entitled upon the Holder’s exercise hereunder,
then, in addition to all other remedies available to the Holder, the Company
shall pay in cash to the Holder on each day after such third (3rd) Trading Day
that the issuance of such shares of Common Stock is not timely effected an
amount equal to two percent (2%) of the product of (A) the aggregate number of
shares of Common Stock not issued to the Holder on a timely basis and to which
the Holder is entitled and (B) the Closing Price of the Common Stock on the
Trading Day immediately preceding the last possible date on which the Company
could have issued such shares of Common Stock to the Holder without violating
Section 5(a).

 

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(b)      Subject to Section 5(c) below, this Warrant is exercisable, either in
its entirety or, from time to time, for a portion of the number of Warrant
Shares. Upon surrender of this Warrant following one or more partial exercises,
the Company shall issue or cause to be issued, at its expense, a New Warrant
evidencing the right to purchase the remaining number of Warrant Shares.

 

(c)      In addition to any other rights available to a Holder, if the Company
fails to credit the Holder’s balance account with DTC for the number of Warrant
Shares to which the Holder is entitled upon the Holder’s exercise hereunder or
at the Holder’s option deliver or cause to be delivered to the Holder a
certificate representing Warrant Shares, in either case, by the third (3rd)
Trading Day after the Exercise Date, and if after such third (3rd) Trading Day
the Holder purchases (in an open market transaction or otherwise) shares of
Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant
Shares that the Holder anticipated receiving from the Company (a “Buy-In”), then
the Company shall, at the option of the Holder (in its sole discretion), either
(i) pay cash to the Holder in an amount equal to the Holder’s total purchase
price (including brokerage commissions, if any) for the shares of Common Stock
so purchased (the “Buy-In Price”), at which point the Company’s obligation to
deliver such certificate (and to issue such Common Stock) shall terminate, or
(ii) promptly honor its obligation to credit the Holder’s balance account with
DTC for the number of Warrant Shares to which the Holder is entitled upon the
Holder’s exercise hereunder or at the Holder’s option deliver to the Holder a
certificate or certificates representing such Warrant Shares and pay cash to the
Holder in an amount equal to the excess (if any) of the Buy-In Price over the
product of (A) such number of shares of Common Stock, times (B) the Closing
Price on the date of the event giving rise to the Company’s obligation to credit
such Holder’s balance account with DTC or deliver such certificate.

 

(d)      The Company’s obligations to issue and deliver Warrant Shares in
accordance with the terms and subject to the conditions hereof (including, but
not limited to, the exercise of this Warrant) are absolute and unconditional,
irrespective of any action or inaction by the Holder to enforce the same, any
waiver or consent with respect to any provision hereof, the recovery of any
judgment against any Person or any action to enforce the same, or any setoff,
counterclaim, recoupment, limitation or termination, or any breach or alleged
breach by the Holder or any other Person of any obligation to the Company or any
violation or alleged violation of law by the Holder or any other Person, and
irrespective of any other circumstance which might otherwise limit such
obligation of the Company to the Holder in connection with the issuance of
Warrant Shares (other than such limitations contemplated by this Warrant).
Nothing herein shall limit the Holder’s right to pursue any other remedies
available to it hereunder, at law or in equity including, without limitation, a
decree of specific performance and/or injunctive relief with respect to the
Company’s failure to timely deliver certificates representing shares of Common
Stock or credit the Holder’s balance account with DTC upon exercise of the
Warrant as required pursuant to the terms hereof.

 

(e)      Each certificate for Warrant Shares shall bear a restrictive legend
only if (i) there is not then an effective Registration Statement covering the
resale of the Warrant Shares and naming the Holder as a selling stockholder
thereunder and (ii) the Warrant Shares are not freely transferable without
volume restrictions pursuant to Rule 144; provided, that, no such restrictive
legend shall be required if, in the opinion of counsel for the Holder or the
Company, the securities represented thereby are not, at such time, required by
law to bear such legend.

 

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6.      Charges, Taxes and Expenses. Issuance and delivery of certificates for
shares of Common Stock upon exercise of this Warrant shall be made without
charge to the Holder for any issue or transfer tax, withholding tax, transfer
agent fee or other incidental tax or expense in respect of the issuance of such
certificates, all of which taxes and expenses shall be paid by the Company;
provided, however, that the Company shall not be required to pay any tax which
may be payable in respect of any transfer involved in the registration of any
certificates for Warrant Shares or Warrants in a name other than that of the
Holder or an affiliate thereof.

 

7.      Replacement of Warrant. If this Warrant is mutilated, lost, stolen or
destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation hereof, or in lieu of and substitution
for this Warrant, a New Warrant, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and customary and
reasonable indemnity, if requested. Applicants for a New Warrant under such
circumstances shall also comply with such other reasonable regulations and
procedures as the Company may prescribe.

 

8.      Reservation of Warrant Shares. The Company covenants that it will at all
times reserve and keep available out of the aggregate of its authorized but
unissued and otherwise unreserved Common Stock, solely for the purpose of
enabling it to issue Warrant Shares upon exercise of this Warrant as herein
provided, the number of Warrant Shares which are then issuable and deliverable
upon the exercise of this entire Warrant, free from preemptive rights or any
other contingent purchase rights of persons other than the Holder (taking into
account the adjustments and restrictions of Section 9). The Company covenants
that all Warrant Shares so issuable and deliverable shall, upon issuance and the
payment of the applicable Exercise Price in accordance with the terms hereof, be
duly and validly authorized, issued and fully paid and nonassessable. The
Company will take all such action as may be necessary to assure that such shares
of Common Stock may be issued as provided herein without violation by the
Company of any applicable law or regulation, or of any requirements of any
securities exchange or automated quotation system upon which the Common Stock
may be listed.

 

9.      Certain Adjustments. The Exercise Price and number of Warrant Shares
issuable upon exercise of this Warrant are subject to adjustment from time to
time as set forth in this Section 9.

 

(a)      Stock Dividends and Splits. If the Company, at any time while this
Warrant is outstanding, (i) pays a stock dividend on its Common Stock or
otherwise makes a distribution on any class of capital stock that is payable in
shares of Common Stock, (ii) subdivides outstanding shares of Common Stock into
a larger number of shares, or (iii) combines outstanding shares of Common Stock
into a smaller number of shares, then in each such case the Exercise Price shall
be multiplied by a fraction of which the numerator shall be the number of shares
of Common Stock outstanding immediately before such event and of which the
denominator shall be the number of shares of Common Stock outstanding
immediately after such event. Any adjustment made pursuant to clause (i) of this
paragraph shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution,
and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall
become effective immediately after the effective date of such subdivision or
combination.

 

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(b)      Pro Rata Distributions. If the Company, at any time while this Warrant
is outstanding, distributes to holders of Common Stock (i) evidences of its
indebtedness, (ii) any security (other than a distribution of Common Stock
covered by the preceding paragraph), (iii) rights or warrants to subscribe for
or purchase any security, or (iv) cash or any other asset (in each case,
“Distributed Property”), then in each such case the Exercise Price in effect
immediately prior to the record date fixed for determination of stockholders
entitled to receive such distribution shall be adjusted (effective on such
record date) to equal the product of such Exercise Price times a fraction of
which the denominator shall be the average of the Closing Prices for the five
(5) Trading Days immediately prior to (but not including) such record date and
of which the numerator shall be such average less the then fair market value of
the Distributed Property distributed in respect of one outstanding share of
Common Stock, as determined by the Company’s independent certified public
accountants that regularly examine the financial statements of the Company (an
“Appraiser”). In such event, the Holder, after receipt of the determination by
the Appraiser, shall have the right to select an additional appraiser (which
shall be a nationally recognized accounting firm), in which case such fair
market value shall be deemed to equal the average of the values determined by
each of the Appraiser and such appraiser. As an alternative to the foregoing
adjustment to the Exercise Price, at the request of the Holder delivered before
the ninetieth (90th) day after such record date, the Company will deliver to
such Holder, within five (5) Trading Days after such request (or, if later, on
the effective date of such distribution), the Distributed Property that the
Holder would have been entitled to receive in respect of the Warrant Shares for
which this Warrant could have been exercised immediately prior to such record
date. If such Distributed Property is not delivered to the Holder pursuant to
the preceding sentence, then upon expiration of or any exercise of the Warrant
that occurs after such record date, the Holder shall remain entitled to receive,
in addition to the Warrant Shares otherwise issuable upon such exercise (if
applicable), such Distributed Property.

 

(c)      Fundamental Transactions. If, at any time while this Warrant is
outstanding, (i) the Company effects any merger or consolidation of the Company
with or into another Person, (ii) the Company effects any sale of all or
substantially all of the assets of the Company and such sale is not approved by
the Holder, (iii) any tender offer or exchange offer (whether by the Company or
another Person) is completed pursuant to which holders of Common Stock are
permitted to tender or exchange their shares for other securities, cash or
property, (iv) the Company effects any reclassification of the Common Stock or
any compulsory share exchange pursuant to which the Common Stock is effectively
converted into or exchanged for other securities, cash or property (other than
as a result of a subdivision or combination of shares of Common Stock covered by
Section 9(a) above), or (v) there is a Change of Control (in any such case, a
“Fundamental Transaction”), then the Holder shall have the right thereafter to
receive, upon exercise of this Warrant, the same amount and kind of securities,
cash or property as it would have been entitled to receive upon the occurrence
of such Fundamental Transaction if it had been, immediately prior to such
Fundamental Transaction, the holder of the number of Warrant Shares then
issuable upon exercise in full of this Warrant (the “Alternate Consideration”).
The aggregate Exercise Price for this Warrant will not be affected by any such
Fundamental Transaction, but the Company shall apportion such aggregate Exercise
Price among the Alternate Consideration in a reasonable manner reflecting the
relative value of any different components of the Alternate Consideration. If
holders of Common Stock are given any choice as to the securities, cash or
property to be received in a Fundamental Transaction, then the Holder shall be
given the same choice as to the Alternate Consideration it receives upon any
exercise of this Warrant following such Fundamental Transaction. The Company
shall notify the Holder, in writing, of such Fundamental Transaction at least
thirty (30) days prior to the closing of such Fundamental Transaction (the
“Fundamental Transaction Notice”), which written notice shall describe in detail
the terms of the Fundamental Transaction (including the Alternate Consideration
issuable upon exercise of this Warrant). In the event of, and as a condition to
the consummation of, a Fundamental Transaction, the Company or the successor or
purchasing Person, as the case may be, shall execute with the Holder a written
agreement providing that:

 

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(x)      this Warrant shall thereafter entitle the Holder to purchase the
Alternate Consideration in accordance with this Section 9(c),

 

(y)     in the case of any such successor or purchasing Person, upon such
consolidation, merger, statutory exchange, combination, sale or conveyance such
successor or purchasing Person shall be jointly and severally liable with the
Company for the performance of all of the Company’s obligations under this
Warrant, and

 

(z)     if registration or qualification is required under the Exchange Act or
applicable state law for the public resale by the Holder of shares of stock and
other securities so issuable upon exercise of this Warrant, such registration or
qualification shall be completed prior to such reclassification, change,
consolidation, merger, statutory exchange, combination or sale.

 

If, in the case of any Fundamental Transaction, the Alternate Consideration
includes shares of stock, other securities, other property or assets of a Person
other than the Company or any such successor or purchasing Person, as the case
may be, in such Fundamental Transaction, then such written agreement shall also
be executed by such other Person and shall contain such additional provisions to
protect the interests of the Holder as the Holder shall reasonably consider
necessary by reason of the foregoing. At the Holder’s request, prior to or at
the closing of the Fundamental Transaction, any successor to the Company or
surviving entity in such Fundamental Transaction shall issue to the Holder a New
Warrant consistent with the foregoing provisions and evidencing the Holder’s
right to purchase the Alternate Consideration for the aggregate Exercise Price
upon exercise thereof. The terms of any agreement pursuant to which a
Fundamental Transaction is effected shall include terms requiring any such
successor or surviving entity to comply with the provisions of this paragraph
(c) and insuring that the Warrant (or any such replacement security) will be
similarly adjusted upon any subsequent transaction analogous to a Fundamental
Transaction.

 

Notwithstanding the foregoing paragraph or anything contained herein to the
contrary, in the event of a Fundamental Transaction, at the request of the
Holder delivered on or before the later to occur of: (y) the end of the
ninetieth (90th) day following Holder’s receipt of the Fundamental Transaction
Notice; and (z) the ninetieth (90th) day after such Fundamental Transaction, the
Company (or any such successor or surviving entity) will purchase this Warrant
from the Holder for a purchase price, payable in cash within five (5) Trading
Days after such request (or, if later, on the effective date of the Fundamental
Transaction), equal to the sum of (1) the greater of (A) the Original Issuance
Value (as such term is defined in Exhibit A) in respect of the remaining
unexercised portion of this Warrant and (B) the Black Scholes value of the
remaining unexercised portion of this Warrant on the date of the consummation of
the Fundamental Transaction, without regard to any limitations on the exercise
hereof (including the inability of the Holder to exercise the Warrant following
a Fundamental Transaction) and as determined in accordance with Exhibit A
attached hereto and (2) any Distributed Property in accordance with the last
sentence of Section 9(b) above. The time period specified in clause (y) of the
foregoing sentence shall be extended day for day to account for any delays in
the closing of a Fundamental Transaction caused by regulatory or legal review of
the proposed Fundamental Transaction.

 

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(d)      Number of Warrant Shares. Simultaneously with any adjustment to the
Exercise Price pursuant to paragraphs (a) or (b) of this Section, the number of
Warrant Shares that may be purchased upon exercise of this Warrant shall be
increased or decreased proportionately, so that after such adjustment the
aggregate Exercise Price payable hereunder for the increased or decreased number
of Warrant Shares shall be the same as the aggregate Exercise Price in effect
immediately prior to such adjustment.

 

(e)      Calculations. All calculations under this Section 9 shall be made to
the nearest cent or the nearest 1/100th of a share, as applicable. The number of
shares of Common Stock outstanding at any given time shall not include shares
owned or held by or for the account of the Company, and the disposition of any
such shares shall be considered an issue or sale of Common Stock.

 

(f)      Notice of Adjustments. Upon the occurrence of each adjustment pursuant
to this Section 9, the Company at its expense will promptly compute such
adjustment in accordance with the terms of this Warrant and prepare a
certificate setting forth such adjustment, including a statement of the adjusted
Exercise Price and adjusted number or type of Warrant Shares or other securities
issuable upon exercise of this Warrant (as applicable), describing the
transactions giving rise to such adjustments and showing in detail the facts
upon which such adjustment is based. Upon written request, the Company will
promptly deliver a copy of each such certificate to the Holder and to the
Company’s transfer agent.

 

(g)      Notice of Corporate Events. If the Company (i) declares a dividend or
any other distribution of cash, securities or other property in respect of its
Common Stock, including without limitation any granting of rights or warrants to
subscribe for or purchase any capital stock of the Company or any subsidiary,
(ii) authorizes or approves, enters into any agreement contemplating or solicits
stockholder approval for a Fundamental Transaction or (iii) authorizes the
voluntary dissolution, liquidation or winding up of the affairs of the Company,
then the Company shall deliver to the Holder a notice describing the material
terms and conditions of such transaction, at least twenty (20) calendar days
prior to the applicable record or effective date on which a Person would need to
hold Common Stock in order to participate in or vote with respect to such
transaction, and the Company will take all steps necessary in order to ensure
that the Holder has sufficient opportunity to exercise this Warrant prior to
such time so as to participate in or vote with respect to such transaction;
provided, however, that the failure to deliver such notice or any defect therein
shall not affect the validity of the corporate action required to be described
in such notice.

 

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10.      Payment of Exercise Price. The Holder shall pay the Exercise Price in
immediately available funds; provided, however, that if at the time of exercise
there is not an effective registration statement covering the immediate resale
of any Warrant Shares that are Registrable Securities that are issuable upon
such exercise, then the Holder may satisfy its obligation to pay the Exercise
Price through a “cashless exercise,” in which event the Company shall issue to
the Holder the number of Warrant Shares determined as follows:

 

 

X = Y [(A-B)/A]

where:

   

X = the number of Warrant Shares to be issued to the Holder.

     

Y = the number of Warrant Shares with respect to which this Warrant is being
exercised.

     

A = the Current Market Price (as of the date of such calculation) of one share
of Common Stock.

     

B = the Exercise Price (as adjusted to the date of such calculation).

 

For purposes of this Warrant, the “Current Market Price” of one share of the
Company’s Common Stock as of a particular date shall be determined as follows:
(a) if traded on a national securities exchange (including the Nasdaq Stock
Market), the Current Market Price shall be deemed to be the arithmetic average
of the VWAPs for the five (5) consecutive Trading Days immediately preceding the
applicable date; (b) if traded over-the-counter but not on the Nasdaq Stock
Market, the Current Market Price shall be deemed to be the average of the
closing bid and asked prices as of five (5) Business Days immediately prior to
the date of exercise indicated in the Notice of Exercise; and (c) if there is no
active public market, the Current Market Price shall be the fair market value of
the Common Stock as of the date of exercise, as determined by an independent
appraiser selected in good faith by the Holder.

 

For purposes of Rule 144, it is intended, understood and acknowledged that the
Warrant Shares issued in a cashless exercise transaction shall be deemed to have
been acquired by the Holder, and the holding period for the Warrant Shares shall
be deemed to have commenced, on the Issuance Date.

 

11.      [Intentionally Omitted]

 

12.      Certain Restricted Issuances. For as long as the Warrant is
outstanding, the Company shall not, without the written consent of the holders
of a majority of the outstanding Warrants issued pursuant to the Note Purchase
Agreement, issue (A) any shares of Common Stock at a per share purchase price
less than the Exercise Price or issue any Common Stock Equivalents (as defined
in the Note Purchase Agreement) with a conversion price or exercise price less
than the Exercise Price, (B) any shares of Common Stock or Common Stock
Equivalents to the extent the effective purchase or conversion price or the
number of underlying shares floats or resets or otherwise varies or is subject
to adjustment (directly or indirectly) based on market prices of the Common
Stock or (C) any warrants or other rights to purchase Common Stock that, when
valued on a black scholes basis, decreases the purchase price for such warrants
or other rights below the Exercise Price.

 

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13.      Fractional Shares. The Company shall not be required to issue or cause
to be issued fractional Warrant Shares on the exercise of this Warrant. If any
fraction of a Warrant Share would, except for the provisions of this Section, be
issuable upon exercise of this Warrant, the number of Warrant Shares to be
issued will be rounded up to the nearest whole share or right to purchase the
nearest whole share, as the case may be.

 

14.      Notices. Any and all notices or other communications or deliveries
hereunder (including without limitation any Exercise Notice) shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section 14 prior to 6:30 p.m. (New York City
time) on a Trading Day, (ii) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section on a day that is not a Trading Day or
later than 6:30 p.m. (New York City time) on any Trading Day, (iii) the Trading
Day following the date of mailing, if sent by a nationally recognized overnight
courier service specifying next Business Day delivery, or (iv) upon actual
receipt by the party to whom such notice is required to be given, if by hand
delivery. The address and facsimile number of a party for such notices or
communications shall be as set forth in the Note Purchase Agreement, unless
changed by such party by two (2) Trading Days’ prior notice to the other party
in accordance with this Section 14.

 

15.      Warrant Agent. The Company shall serve as warrant agent under this
Warrant. Upon thirty (30) days’ notice to the Holder, the Company may appoint a
new warrant agent. Any corporation into which the Company or any new warrant
agent may be merged or any corporation resulting from any consolidation to which
the Company or any new warrant agent shall be a party or any corporation to
which the Company or any new warrant agent transfers substantially all of its
corporate trust or stockholders services business shall be a successor warrant
agent under this Warrant without any further act. Any such successor warrant
agent shall promptly cause notice of its succession as warrant agent to be
mailed (by first class mail, postage prepaid) to the Holder at the Holder’s last
address as shown on the Warrant Register.

 

16.      Extension of Expiration Date. At the option of the Holder, the
Expiration Date may be extended for the number of Trading Days during any period
occurring after the Required Effectiveness Date in which (i) trading in the
Common Stock is suspended by any Trading Market, (ii) the Registration Statement
is not effective, or (iii) the Prospectus included in the Registration Statement
may not be used by the Holder for the resale of Registrable Securities
thereunder.

 

17.      Furnishing of Information. The Company covenants to timely file (or
obtain extensions in respect thereof and file within the applicable grace
period) all reports required to be filed by the Company after the date hereof
pursuant to the Exchange Act. Upon the request of the Holder, the Company shall
deliver to the Holder a written certification of a duly authorized officer as to
whether it has complied with the preceding sentence. If the Company is not
required to file reports pursuant to such laws, it will prepare and furnish to
the Holder and make publicly available in accordance with paragraph (c) of Rule
144 such information as is required for the Holder to sell the Warrant under
Rule 144. The Company further covenants that it will take such further action as
the Holder may reasonably request to satisfy the provisions of Rule 144
applicable to the issuer of securities relating to transactions for the sale of
securities pursuant to Rule 144.

 

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18.      Miscellaneous.

 

(a)      Subject to the restrictions on transfer set forth on the first page
hereof and in Section 3, this Warrant may be assigned by the Holder. This
Warrant may not be assigned by the Company except to a successor in the event of
a Fundamental Transaction or with the prior written consent of the Holder. This
Warrant shall be binding on and inure to the benefit of the parties hereto and
their respective successors and assigns. Subject to the preceding sentence,
nothing in this Warrant shall be construed to give to any Person other than the
Company and the Holder any legal or equitable right, remedy or cause of action
under this Warrant. This Warrant constitutes the entire agreement of the parties
with respect to the subject matter hereof. This Warrant may be amended only in
writing signed by the Company and the Holder and their successors and assigns.

 

(b)      The Company will not, by amendment of its governing documents or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms of this Warrant,
but will at all times in good faith assist in the carrying out of all such terms
and in the taking of all such action as may be necessary or appropriate in order
to protect the rights of the Holder against impairment. Without limiting the
generality of the foregoing, the Company (i) will not increase the par value of
any Warrant Shares above the amount payable therefor on such exercise, (ii) will
take all such action as may be reasonably necessary or appropriate in order that
the Company may validly and legally issue fully paid and nonassessable Warrant
Shares on the exercise of this Warrant, and (iii) will not close its stockholder
books or records in any manner which interferes with the timely exercise of this
Warrant.

 

(c)      Governing Law; Venue; Waiver Of Jury Trial. all questions concerning
the construction, validity, enforcement and interpretation of this warrant shall
be governed by and construed and enforced in accordance with the laws of the
state of new york (except for matters governed by corporate law in the state of
Delaware). each party hereby irrevocably submits to the exclusive jurisdiction
of the state and federal courts sitting in the city of new york, borough of
manhattan, for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein, and
hereby irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of
any such court, that such suit, action or proceeding is improper. each party
hereby irrevocably waives personal service of process and consents to process
being served in any such suit, action or proceeding by mailing a copy thereof
via registered or certified mail or overnight delivery (with evidence of
delivery) to such party at the address in effect for notices to it under this
warrant and agrees that such service shall constitute good and sufficient
service of process and notice thereof. nothing contained herein shall be deemed
to (i) limit in any way any right to serve process in any manner permitted by
law. the company hereby waives all rights to a trial by jury or (ii) limit any
provision of section 18(f).

 

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(d)      The headings herein are for convenience only, do not constitute a part
of this Warrant and shall not be deemed to limit or affect any of the provisions
hereof.

 

(e)      In case any one or more of the provisions of this Warrant shall be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Warrant shall not in any way be affected
or impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.

 

(f)       

 

(i)     In the case of a dispute relating to the Exercise Price, the Closing
Price, the Current Market Price, the Black Scholes value or fair market value or
the arithmetic calculation of the Warrant Shares (as the case may be)
(including, without limitation, a dispute relating to the determination of any
of the foregoing), the Company or the Holder (as the case may be) shall submit
the dispute to the other party via facsimile (A) if by the Company, within two
(2) Business Days after the occurrence of the circumstances giving rise to such
dispute, or (B) if by the Holder, at any time after the Holder learned of the
circumstances giving rise to such dispute. If the Holder and the Company are
unable to promptly resolve such dispute relating to such Exercise Price, Closing
Price, Current Market Price, Black Scholes value or fair market value or
arithmetic calculation of the Warrant Shares (as the case may be), at any time
after the second (2nd) Business Day following such initial notice by the Company
or the Holder (as the case may be) of such dispute to the Company or the Holder
(as the case may be), then the Holder may, at its sole option, select an
independent, reputable investment bank to resolve such dispute, it being
acknowledged that the Black Scholes value shall be calculated by such investment
bank in a manner consistent with Exhibit A.

 

(ii)     The Holder and the Company shall each deliver to such investment bank
(A) a copy of the initial dispute submission so delivered in accordance with
this Section 18(f) and (B) written documentation supporting its position with
respect to such dispute, in each case, no later than 5:00 p.m. (New York time)
by the fifth (5th) Business Day immediately following the date on which the
Holder selected such investment bank (the “Dispute Submission Deadline”) (the
documents referred to in the immediately preceding clauses (A) and (B) are
collectively referred to herein as the “Required Dispute Documentation”) (it
being understood and agreed that if either the Holder or the Company fails to so
deliver all of the Required Dispute Documentation by the Dispute Submission
Deadline, then the party who fails to so submit all of the Required Dispute
Documentation shall no longer be entitled to (and hereby waives its right to)
deliver or submit any written documentation or other support to such investment
bank with respect to such dispute and such investment bank shall resolve such
dispute based solely on the Required Dispute Documentation that was delivered to
such investment bank prior to the Dispute Submission Deadline). Unless otherwise
agreed to in writing by both the Company and the Holder or otherwise requested
by such investment bank, neither the Company nor the Holder shall be entitled to
deliver or submit any written documentation or other support to such investment
bank in connection with such dispute (other than the Required Dispute
Documentation).

 

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(iii)     The Company and the Holder shall cause such investment bank to
determine the resolution of such dispute and notify the Company and the Holder
of such resolution no later than ten (10) Business Days immediately following
the Dispute Submission Deadline. The fees and expenses of such investment bank
shall be borne solely by the Company, and such investment bank’s resolution of
such dispute shall be final and binding upon all parties absent manifest error.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by
its authorized officer as of the date first indicated above.

 

 

 

CLEARONE, INC.

 

 

 

 

 

 

 

 

 

 

By:

 

 

 

Name: 

 

 

 

Title: 

 

 

 

Acknowledged and Agreed to by: 

 

 

 

 

 

 

Edward D. Bagley 

 

 

 

       

 

 

 

 

 

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FORM OF EXERCISE NOTICE

 

(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)

 

To: CLEARONE, inc.

 

The undersigned is the Holder of Warrant No. 1 (the “Warrant”) issued by
ClearOne, Inc., a Delaware corporation (the “Company”). Capitalized terms used
herein and not otherwise defined have the respective meanings set forth in the
Warrant.

 

1.

The Warrant is currently exercisable to purchase a total of ______________
Warrant Shares.

 

2.

The undersigned Holder hereby exercises its right to purchase _________________
Warrant Shares pursuant to the Warrant.

 

3.

The Holder intends that payment of the Exercise Price shall be made as (check
one):

 

____     “Cash Exercise” under Section 10

 

____     “Cashless Exercise” under Section 10

 

4.

If the Holder has elected a Cash Exercise, the Holder shall pay the sum of
$____________ to the Company in accordance with the terms of the Warrant.

 

5.

Pursuant to this exercise, the Company shall deliver to the Holder
_______________ Warrant Shares in accordance with the terms of the Warrant.

 

6.

Following this exercise, the Warrant shall be exercisable to purchase a total of
______________ Warrant Shares.

 

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE PAGE FOLLOWS]

 

 

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IN WITNESS WHEREOF, the undersigned has caused this Exercise Notice to be duly
executed as of the date indicated below.

 

           

Dated:                                 ,               

 

Name of Holder:

         

(Print)                                                                         
            

         

By:

   

Name:                                                                           
          

   

Title:

         

(Signature must conform in all respects to name of holder as specified on the
face of the Warrant)

 

 

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FORM OF ASSIGNMENT

 

[To be completed and signed only upon transfer of Warrant]

 

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
________________________________ the right represented by the within Warrant to
purchase ____________ shares of Common Stock of ClearOne, Inc. to which the
within Warrant relates and appoints ________________ attorney to transfer said
right on the books of ClearOne, Inc. with full power of substitution in the
premises.

 

       

Dated:                                 ,               

                                                                               
                  

(Signature must conform in all respects to name of holder as specified on the
face of the Warrant)

         

Address of Transferee

                       

In the presence of:

                                                                               
   

 

 

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EXHIBIT A