United
States
Securities
and Exchange Commission
Washington,
D.C. 20549
Form
8-K
Current
Report
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of
Report (Date of earliest event reported): May 28,
2010
Clarus
Corporation
(Exact
name of registrant as specified in its charter)
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Delaware
(State
or other jurisdiction
of
incorporation)
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0-24277
(Commission
File Number)
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58-1972600
(IRS
Employer
Identification
Number)
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2084 East 3900 South, Salt Lake City,
Utah
(Address
of principal executive offices)
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84124
(Zip
Code)
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Registrant’s
telephone number, including area code: (801)
278-5552
N/A
(Former
name or former address, if changed since last report.)
Check the appropriate box below if the
Form 8-K filing is intended to simultaneously satisfy the filing obligation of
the registrant under any of the following provisions:
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Written communications pursuant to
Rule 425 under the Securities Act (17 CFR
230.425)
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Soliciting material pursuant to
Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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Pre-commencement communications
pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
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Pre-commencement communications
pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
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Forward-Looking
Statements
This
Current Report on Form 8-K (the “Report”) includes “forward-looking statements”
within the meaning of the Private Securities Litigation Reform Act of 1995.
Clarus may use words such as “anticipates,” “believes,” “plans,” “expects,”
“intends,” “future,” and similar expressions to identify forward-looking
statements. These forward-looking statements involve a number of
risks, uncertainties and assumptions which are difficult to predict. Clarus
cautions you that any forward-looking statement is not a guarantee of future
performance and that actual results could differ materially from those contained
in the forward-looking statement. Examples of forward-looking statements
include, but are not limited to: (i) statements about the benefits of Clarus’
acquisitions of Black Diamond and Gregory, including future financial and
operating results that may be realized from the acquisitions; (ii) statements of
plans, objectives and expectations of Clarus or its management or Board of
Directors; (iii) statements of future economic performance; and (iv) statements
of assumptions underlying such statements and other statements that are not
historical facts. Important factors that could cause actual results
to differ materially from those indicated by such forward-looking statements
include, but are not limited to: (i) our ability to successfully integrate Black
Diamond and Gregory; (ii) our ability to realize financial or operating results
as expected; (iii) material differences in the actual financial results of the
mergers compared with expectations, including the impact of the mergers on
Clarus’ future earnings per share; (iv) economic conditions and the impact they
may have on Black Diamond and Gregory and their respective customers or demand
for products; (v) our ability to implement our acquisition growth strategy or
obtain financing to support such strategy; (vi) the loss of any
member of our senior management or certain other key executives; (vii) our
ability to utilize our net operating loss carry forward; (viii) our ability to
adequately protect our intellectual property rights; and (ix) our ability to
list our common stock on the NASDAQ or another national securities
exchange. Additional factors that could cause Clarus’ results to
differ materially from those described in the forward-looking statements can be
found in the “Risk Factors” section of Clarus’ filings with the Securities and
Exchange Commission, including its latest annual report on Form 10-K and most
recently filed Forms 8-K and 10-Q, which may be obtained at our web site at
www.claruscorp.com or the Securities and Exchange Commission’s web site at
www.sec.gov. All forward-looking statements included in this Report
are based upon information available to Clarus as of the date of the Report, and
speak only as the date hereof. We assume no obligation to update any
forward-looking statements to reflect events or circumstances after the date of
this Report.
References
in this Report to: (i) “Clarus,” “Company,” “we,” “our,” and “us,” refer to
Clarus Corporation; (ii) “Black Diamond” and “BDE” refer to Black Diamond
Equipment, Ltd.; and (iii) “Gregory Mountain Products” and “Gregory”
refer to Gregory Mountain Products, Inc.
On June
1, 2010, Clarus issued a press release announcing its closing of the
acquisitions of each of Black Diamond and Gregory Mountain Products in two
separate merger transactions pursuant to agreements and plans of
merger dated May 7, 2010. A copy of the press release is filed as
Exhibit 99.1 to this Report and incorporated herein by reference.
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Item
1.01
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Entry
into a Material Definitive
Agreement.
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Zions Bank Loan Agreement
and Related Agreements
In
connection with the closing of the acquisition of Black Diamond (as discussed in
Item 2.01 of this Report under “Acquisition of Black Diamond”), the Company and
its direct and indirect subsidiaries entered into a Loan Agreement effective May
28, 2010 among Zions First National Bank, a national banking association
(“Lender”), Black Diamond, Black Diamond Retail, Inc. (“BD-Retail”), and
Everest/Sapphire Acquisition, LLC, as co-borrowers (together with Gregory
Mountain Products, LLC, the “Borrowers”) (the “Loan
Agreement”). Concurrently with the closing of the acquisition of
Gregory Mountain Products (discussed below in Item 2.01 – “Acquisition of
Gregory Mountain Products”), Gregory Mountain Products, LLC (the surviving
company of Gregory Mountain Products), entered into an Assumption Agreement and
became an additional Borrower under the Loan Agreement. Pursuant to
the terms of the Loan Agreement, the Lender has made available to the Borrowers
a $35,000,000 unsecured revolving credit facility (the “Loan”). The
Loan may be prepaid or terminated at the Company's option at any time without
penalty. Any outstanding principal balance together with any accrued
but unpaid interest or fees, if any, will be due in full on July 2,
2013. The Loan bears interest at the Ninety Day LIBOR rate plus an
applicable margin as follows: (i) Ninety Day LIBOR Rate plus 3.5% per annum at
all times that the Senior Net Debt (as calculated in the Loan Agreement) to
trailing twelve month EBITDA (as calculated in the Loan Agreement) ratio is
greater than or equal to 2.5; or (ii) Ninety Day LIBOR Rate plus 2.75% per annum
at all times that the Senior Net Debt to trailing twelve month EBITDA ratio is
less than 2.5.
The Loan
Agreement contains certain financial covenants, including the following that
require the Borrowers to maintain:
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a
EBITDA based minimum trailing twelve
month,
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a
minimum tangible net worth, and
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a
positive amount of asset coverage, all as calculated pursuant to the Loan
Agreement.
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In
addition, the Loan Agreement contains other covenants that restrict the
Borrowers from:
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pledging
or encumbering their assets, with certain exceptions,
and
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engaging
in acquisitions other than acquisitions permitted by the Loan
Agreement.
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In
connection with the closing of the acquisition of Gregory Mountain Products and
the addition of Gregory Mountain Products as a borrower under the Loan Agreement
(i) Kanders GMP Holdings, LLC (“Kanders GMP”) entered into a Subordination
Agreement dated May 28, 2010 among Lender, each of the Borrowers and Kanders GMP
(the “Kanders Subordination Agreement”), and (ii) Schiller Gregory Investment
Company, LLC (“SGIC,” together with Kanders GMP, the “Subordinated Noteholders”)
entered into a Subordination Agreement dated May 28, 2010 among Lender, each of
the Borrowers and SGIC (the “Schiller Subordination Agreement” and together with
the Kanders Subordination Agreement, the “Subordination
Agreements”). Pursuant to the terms of the Subordination Agreements,
the Subordinated Noteholders each agreed that so long as any amount is
outstanding and owing to Lender under the Loan Agreement (i) the right of the
Subordinated Noteholders to receive payment under the Merger Consideration
Subordinated Notes (as defined below) is subordinated in right of Lender to
receive payment under the Loan Agreement, (ii) to refrain from exercising
default rights under their respective Merger Consideration Subordinated Notes,
with permitted exceptions, and (iii) to accept only regularly scheduled cash
interest payments in respect of their Merger Consideration Subordinated Notes to
the extent that certain conditions are met.
Copies of the Loan Agreement, the forms
of promissory notes executed in favor of the Lender, the Assumption Agreement
and the Subordination Agreements are attached to this Report as Exhibits 10.1
through Exhibits 10.6 and are incorporated herein by reference as though fully
set forth herein. The foregoing summary description of the Loan Agreement, the
Assumption Agreement and the Subordination Agreements is not intended to be
complete and is qualified in its entirety by the complete text of the Loan
Agreement, the Assumption Agreement and the Subordination
Agreements.
Agreements
entered into in connection with the acquisition of Black Diamond
As
disclosed in Item 2.01 of this Report under “Acquisition of Black Diamond”, on
May 28, 2010, in connection with Clarus’ acquisition of Black Diamond pursuant
to the Agreement and Plan of Merger dated May 7, 2010, by and among Clarus,
Black Diamond, Everest/Sapphire Acquisition, LLC, Sapphire Merger Corp., and Ed
McCall, Clarus entered into the material agreements identified
below. The disclosure set forth in Item 2.01 of this Report under
“Acquisition of Black Diamond”, is incorporated by reference into this Item
1.01.
Escrow
Agreement
Everest/Sapphire
Acquisition, LLC (“Purchaser”), a Delaware limited liability company and
wholly-owned direct subsidiary of Clarus, entered into an escrow agreement (the
“Escrow Agreement”), dated as of May 28, 2010, with U.S. Bank National
Association, as escrow agent, Ed McCall, as stockholders representative, and
Black Diamond Equipment, Ltd. The Escrow Agreement was executed in connection
with the Black Diamond Merger described in Item 2.01 of this
Report. Pursuant to the Escrow Agreement, Purchaser has placed
approximately $4,500,000 dollars (the “Indemnification Fund”) and $375,000 (the
“Retention Bonus Fund”) into escrow to secure the payment of indemnification
obligations pursuant to the Merger Agreement and to provide for the payment by
Black Diamond Equipment, Ltd. of certain amounts that may become payable
pursuant to retention bonus agreements. No later than ten business days after
the first anniversary of the date of the Escrow Agreement, the Escrow Agent is
required to deliver the Indemnification Fund (less any amounts in respect of
settled indemnification claims or indemnification claims asserted) to the escrow
parties and the Retention Bonus Fund, to the Company.
A copy of
the Escrow Agreement is attached to this Report as Exhibit 10.7 and incorporated
herein by reference as though fully set forth herein. The foregoing summary
description of the Escrow Agreement is not intended to be complete and is
qualified in its entirety by the complete text of the Escrow
Agreement.
Black Diamond Registration
Rights Agreement
In connection with the private
placement of Clarus common stock with certain accredited investors who were
stockholders of Black Diamond described in Item 3.02 of this Report under “Black
Diamond Private Placement”, Clarus entered into a registration rights agreement
(the “Black Diamond Registration Rights Agreement”). Pursuant to the
Black Diamond Registration Rights Agreement, Clarus has agreed to use its
commercially reasonable efforts to prepare and file with the Securities and
Exchange Commission, as soon as reasonably practicable, a “shelf” Registration
Statement on Form S-3 covering the 483,767 shares of Clarus common stock, $0.0001 par value (the “Private
Placement Shares”) received by the stockholders in the private
placement. In addition, in the event that Clarus files a registration
statement during any period that there is not an effective Registration
Statement on Form S-3 covering all of the Private Placement Shares, the
stockholders shall have “piggyback” rights, subject to customary underwriter
cutbacks.
A copy of
the form of Black Diamond Registration Rights Agreement is attached to this
report as Exhibit 10.8, and is incorporated herein by reference as though fully
set forth herein. The foregoing summary description of the Black Diamond
Registration Rights Agreement is not intended to be complete and is qualified in
its entirety by the complete text of the Black Diamond Registration Rights
Agreement.
Agreements
entered into in connection with the acquisition of Gregory Mountain
Products.
As disclosed in Item 2.01 of this
Report under “Acquisition of Gregory Mountain Products”, on May 28, 2010, in
connection with Clarus’ acquisition of Gregory pursuant to the Agreement and
Plan of Merger dated May 7, 2010, by and among Clarus, Gregory, Everest/Sapphire
Acquisition, LLC, Everest Merger I Corp., Everest Merger II, LLC, and each of
Kanders GMP Holdings, LLC and Schiller Gregory Investment Company, LLC, as the
stockholders of Gregory (the “Gregory Stockholders”), Clarus entered into the
material agreements identified below. The disclosure set forth in
Item 2.01 of this Report under “Acquisition of Gregory Mountain Products”, is
incorporated by reference into this Item 1.01.
Merger Consideration
Subordinated Note
As part of the consideration payable to
the Gregory Stockholders, Clarus issued 5% seven year subordinated promissory
notes dated May 28, 2010 (the “Merger Consideration Subordinated Notes”) to each
of Kanders GMP Holdings, LLC in the aggregate principal amount of $14,516,945
and to Schiller Gregory Investment Company, LLC in the aggregate principal
amount of $7,538,578. The principle terms of the Merger Consideration
Subordinated Notes are as follows: (i) the principal amount is due and payable
on May 28, 2017 and is prepayable by Clarus at anytime; (ii) interest will
accrue on the principal amount at the rate of 5% per annum and shall be payable
quarterly in cash; (iii) the default interest rate shall accrue at the rate of
10% per annum during the occurrence of an event of default; and (iv) events of
default, which can only be triggered with the consent of Kanders GMP Holdings,
LLC, are: (a) the default by Clarus on any payment due under a Merger
Consideration Subordinated Note; (b) Clarus’ failure to perform or observe any
other material covenant or agreement contained in the Merger Consideration
Subordinated Notes; or (c) Clarus instituting or becoming subject to a
proceeding under the Bankruptcy Code. The Merger Consideration
Subordinated Notes are junior to all senior indebtedness of Clarus, except that
payments of interest continue to be made under the Merger Consideration
Subordinated Notes as long as no event of default exists under any senior
indebtedness. Additionally, an uncured event of default under the
Merger Consideration Subordinated Notes may result in an event of default under
the Loan Agreement discussed above.
A copy of
the form of Merger Consideration Subordinated Note is attached to this Report as
Exhibit 10.9, and is incorporated herein by reference as though fully set forth
herein. The foregoing summary description of the Merger Consideration
Subordinated Note is not intended to be complete and is qualified in its
entirety by the complete text of the form of Merger Consideration Subordinated
Note.
Gregory Registration Rights
Agreement
In connection with Clarus’ acquisition
of Gregory, on May 28, 2010 Clarus entered into a registration rights agreement
(the “Gregory Registration Rights Agreement”) with each of the Gregory
Stockholders. Pursuant to the Gregory Registration Rights Agreement,
Clarus has agreed to use its commercially reasonable efforts to prepare and file
with the Securities and Exchange Commission, as soon as reasonably practicable,
a “shelf” Registration Statement on Form S-3 covering the 3,675,920 shares of
Clarus common stock, $0.0001 par
value (the “Gregory Merger Consideration Shares”) received by the Gregory
Stockholders as part of the consideration received by them pursuant to the
Gregory Merger Agreement. In addition, in the event that Clarus files
a registration statement during any period that there is not an effective
Registration Statement on Form S-3 covering all of the Gregory Merger
Consideration Shares, the Gregory Stockholders shall have “piggyback” rights,
subject to customary underwriter cutbacks.
A copy of
the form of Gregory Registration Rights Agreement is attached to this report as
Exhibit 10.10, and is incorporated herein by reference as though fully set forth
herein. The foregoing summary description of the Gregory Registration Rights
Agreement is not intended to be complete and is qualified in its entirety by the
complete text of the Gregory Registration Rights Agreement.
Lock-up
Agreement
In connection with Clarus’ acquisition
of Gregory and the Gregory Stockholders’ receipt of the Gregory Merger
Consideration Shares, each of the Gregory Stockholders delivered a lock-up
agreement (the “Lock-up Agreement”) to Clarus. Under the terms of the
Lock-up Agreement, except for transfers to immediate family members, for a
period of two years (the “Lock-up Period”) the Gregory Stockholders may not
offer for sale, sell, pledge, transfer, negotiate, assign, or otherwise create
any interest in or otherwise dispose of the Gregory Merger Consideration Shares
except that they are permitted to hypothecate the Gregory Merger Consideration
Shares. Under certain circumstances, the Lock-up Period shall be
extended with respect to the Gregory Merger Consideration Shares until
indemnification claims made pursuant to the Gregory Merger Agreement (as defined
below) are resolved.
A copy of
the form of Lock-up Agreement is attached to this Report as Exhibit 10.11, and
is incorporated herein by reference as though fully set forth herein. The
foregoing summary description of the Lock-up Agreement is not intended to be
complete and is qualified in its entirety by the complete text of the Lock-up
Agreement.
Restrictive Covenant
Agreement
In connection with Clarus’ acquisition
of Gregory, each of the Gregory Stockholders delivered a restrictive covenant
agreement (the “Restrictive Covenant Agreement”) to Clarus. Under the
terms of the Restrictive Covenant Agreement, for a period of three years, each
of the Gregory Stockholders on behalf of themselves, their respective affiliates
and any of their respective employees, agents or others under their control,
agrees not to: (i) compete with Gregory; (ii) solicit or recruit Gregory
employees; (iii) accept competitive business; (iv) own a business competitive
with Gregory; (v) make any statements that are disparaging or derogatory
concerning Gregory; or (vi) disclose any confidential information.
A copy of
the form of Restrictive Covenant Agreement is attached to this Report as Exhibit
10.12, and is incorporated herein by reference as though fully set forth herein.
The foregoing summary description of the Restrictive Covenant Agreement is not
intended to be complete and is qualified in its entirety by the complete text of
the Restrictive Covenant Agreement.
Employment
Agreements and Compensation Arrangements
Warren B.
Kanders Employment Agreement
On May 28, 2010, the Company entered into an
employment agreement with Warren B. Kanders (the “Kanders Employment
Agreement”). Mr.
Kanders’s previously
existing employment
agreement with the Company dated December 6, 2002, as amended effective as of
May 1, 2006 and August 6, 2009, automatically terminated upon the
closing of the Black Diamond Merger. The Kanders Employment Agreement provides for
his employment as Executive Chairman of the Company for a term of three
years, subject to certain termination rights, during which time he will receive an annual base salary
of $175,000, subject to annual review by the
Company. In
addition, Mr. Kanders is entitled, at the discretion of the Compensation
Committee of the Company’s Board of Directors, to receive performance bonuses,
which may be based upon a variety of factors, and stock options and to
participate in other bonus plans of the Company. Mr. Kanders will
also be entitled, in the sole and absolute discretion of the Compensation
Committee of the Company’s Board of Directors, to bonuses in the form of cash,
stock options and/or restricted stock awards based upon his provision of
strategic advice to the Company in connection with capital markets transactions,
financings, capital structure optimization and mergers and acquisitions
transactions. The Company will maintain term life insurance on Mr.
Kanders in the amount of $2,000,000 for the benefit of his designees (the
“Kanders Life Insurance”).
The Kanders Employment Agreement
contains a non-competition covenant and non-interference (relating to the
Company’s customers) and non-solicitation (relating to the Company’s employees)
provisions effective during the term of his employment and for a period of three
years after termination of the Kanders Employment Agreement.
In the event that Mr. Kanders’ employment is terminated (i) by the Company without “cause” (as such term is defined in the
Kanders Employment Agreement); (ii) by Mr. Kanders for certain
reasons set forth in the Kanders Employment Agreement; or (iii) by Mr. Kanders upon a “change in control” (as such term is defined in the
Kanders Employment Agreement), Mr. Kanders will be entitled to receive an amount
equal to one year of his base salary in one lump sum
payment within five days after the effective date of such
termination. In the event that Mr.
Kanders fails to comply with any of his obligations under the Kanders Employment
Agreement, including, without limitation, the non-competition covenant and the
non-interference and non-solicitation provisions, Mr. Kanders will be required
to repay such lump sum payment as of the date of such failure to comply and he
will have no further rights in or to such lump sum payment. In the event that Mr. Kanders’ employment is terminated upon his death, Mr. Kanders’ designees will be entitled to receive the
proceeds of the Kanders
Life Insurance. The Kanders Employment Agreement may also be terminated by the Company for
“cause.”
A copy of
the Kanders Employment Agreement is attached to this Report as Exhibit 10.13,
and is incorporated herein by reference as though fully set forth herein. The
foregoing summary description of the Kanders Employment Agreement is not
intended to be complete and is qualified in its entirety by the complete text of
the Kanders Employment Agreement.
Robert R.
Schiller Employment Agreement
On May 28, 2010, the Company entered into an employment
agreement with Robert R.
Schiller (the “Schiller Employment Agreement”). The Schiller Employment Agreement provides for his
employment as Executive Vice Chairman of the Company for a term of three
years, subject to certain termination rights, during which time he will receive an annual base salary
of $175,000, subject to annual review by the
Company. In
addition, Mr. Schiller is entitled, at the discretion of the Compensation
Committee of the Company’s Board of Directors, to receive performance bonuses,
which may be based upon a variety of factors, and stock options and to
participate in other bonus plans of the Company. Mr. Schiller will
also be entitled, in the sole and absolute discretion of the Compensation
Committee of the Company’s Board of Directors, to bonuses in the form of cash,
stock options and/or restricted stock awards based upon his provision of
strategic advice to the Company in connection with capital markets transactions,
financings, capital structure optimization and mergers and acquisitions
transactions.
The Schiller Employment Agreement
contains a non-competition covenant and non-interference (relating to the
Company’s customers) and non-solicitation (relating to the Company’s employees)
provisions effective during the term of his employment and for a period of three
years after termination of the Schiller Employment
Agreement.
In the event that Mr. Schiller’s employment is terminated (i) by the Company without “cause” (as such term is defined in the
Schiller Employment Agreement); (ii) by Mr. Schiller for certain
reasons set forth in the Schiller Employment Agreement; (iii) or by Mr. Schiller upon a “change in control” (as such term is defined in the
Schiller Employment Agreement), Mr. Schiller will be entitled to receive an amount
equal to one year of his base salary in one lump sum
payment within five days after the effective date of such
termination. In
the event that Mr. Schiller fails to comply with any of his obligations under
the Schiller Employment Agreement, including, without limitation, the
non-competition covenant and the non-solicitation provisions, Mr. Schiller will
be required to repay such lump sum payment as of the date of such failure to
comply and he will have no further rights in or to such lump sum
payment. The
Schiller Employment Agreement may also be terminated by the Company for
“cause.”
A copy of
the Schiller Employment Agreement is attached to this Report as Exhibit 10.14,
and is incorporated herein by reference as though fully set forth herein. The
foregoing summary description of the Schiller Employment Agreement is not
intended to be complete and is qualified in its entirety by the complete text of
the Schiller Employment Agreement.
Peter Metcalf Employment
Agreement
On May 7, 2010, the Company entered into an
employment agreement with
Peter Metcalf (the
“Metcalf Employment Agreement”), which became effective on May 28, 2010 upon the closing of the Black Diamond Merger. Also on May 28, 2010, the Company
entered into Amendment No. 1 to the Metcalf Employment Agreement with Mr.
Metcalf. Amendment No. 1 to the Metcalf Employment Agreement modifies
the exercise price of the options to purchase 75,000 shares of the Company’s
common stock granted to Mr. Metcalf pursuant to the Metcalf Employment
Agreement to $6.85, the closing price of the Company’s shares of
common stock on May 28, 2010.
The
principal terms of the Metcalf Employment Agreement were previously disclosed in
the Company’s Form 8-K filed on May 10, 2010. A copy of the Metcalf Employment
Agreement was attached to such report as Exhibit 10.1, and is incorporated
herein by reference as though fully set forth herein. The foregoing summary
description of the Metcalf Employment Agreement is not intended to be complete
and is qualified in its entirety by the complete text of the Metcalf Employment
Agreement.
A copy of
Amendment No. 1 to the Metcalf Employment Agreement is attached to this Report
as Exhibit 10.16, and is incorporated herein by reference as though fully set
forth herein. The foregoing summary description of Amendment No. 1 to the
Metcalf Employment Agreement is not intended to be complete and is qualified in
its entirety by the complete text of Amendment No. 1 to the Metcalf Employment
Agreement.
Extension
of Term of
Non-Plan
Options
The Company’s Compensation Committee and Board of Directors approved, effective
as of May 28,
2010, the
extension of the expiration date from December 20, 2012 to May 31, 2020 of an
aggregate of 800,000 vested non-plan stock options previously granted to Mr.
Kanders pursuant to a stock option agreement, dated December 23, 2002,
between the Company and Mr.
Kanders (a copy of which is filed as Exhibit 4.6 of the Company’s Registration Statement on Form S-8 filed with the Securities and
Exchange Commission on August 19, 2005, and incorporated herein by
reference).
Acceleration
of Vesting of Restricted Shares
The Company’s Compensation Committee and Board of Directors approved, effective
as of May 28, 2010,
the acceleration of vesting
of 500,000 shares of
restricted common stock (“Restricted Shares”) that had been previously granted
to Mr. Kanders, pursuant to a restricted stock agreement dated April 11, 2003,
between the Company and Mr. Kanders (a copy of which is filed as Exhibit 4.1 of the Company’s Form
10-Q filed with the Securities and Exchange Commission on May 15,
2003).
Restricted Stock Award
Agreement – Warren B. Kanders
On May 28, 2010, the Company entered
into a restricted stock award agreement (the “RSA Agreement”) with Mr. Kanders.
Under the RSA Agreement, Mr. Kanders has been granted a seven year
restricted stock award of 500,000 restricted shares under the Clarus 2005 Stock
Incentive Plan, of which (i) 250,000 restricted shares will vest and become
nonforfeitable on the date the closing price of the Company’s common stock shall
have equaled or exceeded $10.00 per share for twenty consecutive trading
days; and (ii) 250,000 restricted shares shall vest and become
nonforfeitable on the date the closing price of the Company’s common stock
shall have equaled or exceeded $12.00 per share for twenty consecutive
trading days.
A copy of
the RSA Agreement is attached to this Report as Exhibit 10.19, and is
incorporated herein by reference as though fully set forth herein. The foregoing
summary description of the RSA Agreement is not intended to be complete and is
qualified in its entirety by the complete text of the RSA
Agreement.
Transition
Agreement
In
connection with Clarus’ acquisitions of Black Diamond and Gregory, the Company
relocated its corporate headquarters from Stamford, Connecticut to Black
Diamond’s corporate headquarters in Salt Lake City, Utah and became indemnified
from further accrual of liability under the Stamford, Connecticut lease
where it shares office space with Kanders & Company, Inc. (“Kanders &
Co.”), an entity owned and controlled by the Company's Executive Chairman,
Warren B. Kanders. On May 28, 2010, the Company entered into a
transition agreement (the “Transition Agreement”) with Kanders & Co. which
provides for, among other things, that (i) Clarus will be released from the
lease; (ii) Clarus shall reimburse Kanders & Co. for its assumption of
Clarus’ remaining lease obligations and any related cancellation fees in an
amount equal to approximately $1,076,507, which is comprised of Clarus’ 75% pro
rata portion of any such remaining lease obligations and any related
cancellation fees; (iii) Kanders & Co. shall indemnify and hold
Clarus harmless for any such remaining lease obligations and any related
cancellation fees; (iv) Clarus shall retain and pay Kanders & Co. an
immediate fee of $1,061,058 for severance payments and transition
services subsequent to the closing of the acquisitions of Black Diamond and
Gregory (the “Services”) through March 31, 2011; and (v) Clarus shall
indemnify and hold Kanders & Co. harmless for any liability resulting from
the Services. In connection with the Services Clarus assigned to Kanders &
Co., certain leasehold improvements, fixtures, hardware and office equipment
previously used by Clarus.
A copy of
the Transition Agreement is attached to this Report as Exhibit 10.20, and is
incorporated herein by reference as though fully set forth herein. The foregoing
summary description of the Transition Agreement is not intended to be complete
and is qualified in its entirety by the complete text of the Transition
Agreement.
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Item
2.01
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Completion
of Acquisition or Disposition of
Assets.
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Acquisition of Black
Diamond
On May
28, 2010, Clarus acquired
Black Diamond Equipment, Ltd., a Delaware corporation (“BDE”) pursuant to the
Agreement and Plan of Merger dated May 7, 2010 (the “Black Diamond Merger
Agreement”), by and among BDE, Everest/Sapphire Acquisition, LLC (“Purchaser”),
a Delaware limited liability company and wholly-owned direct subsidiary of
Clarus, Sapphire Merger Corp. (“Merger Sub”), a Delaware corporation and a
wholly-owned direct subsidiary of Purchaser, and Ed McCall, as Stockholders’
Representative. Under the Black Diamond Merger Agreement, Purchaser
acquired BDE and its three subsidiaries through the merger of Merger Sub with
and into BDE, with BDE as the surviving company of the merger (the “Black
Diamond Merger”).
In the
Black Diamond Merger Agreement, Clarus acquired all of the outstanding common
stock of BDE for an aggregate amount of approximately $85.7 million (after
closing adjustments of $4.335 million relating to working capital), $4.5 million
of which is being held in escrow for a one year period (the “Escrow Fund”) as
security for any working capital adjustments to the purchase price or
indemnification claims under the Black Diamond Merger Agreement.
The Black
Diamond Merger was unanimously approved by the Company’s Board of
Directors. On May 7, 2010, Rothschild Inc. delivered its opinion to
the Company’s Board of Directors that the consideration to be paid by the
Company pursuant to the Black Diamond Merger Agreement was fair, from a
financial point of view, to the Company. The Black Diamond Merger
Agreement was approved by the Board of Directors and stockholders of Black
Diamond.
A copy of
the Black Diamond Merger Agreement is filed as Exhibit 2.1 to Clarus’ Current
Report on Form 8-K filed with the Securities and Exchange Commission on May 10,
2010, and is incorporated herein by reference as though fully set
forth herein. The foregoing summary description of the Black Diamond Merger
Agreement is not intended to be complete and is qualified in its entirety by the
complete text of the Black Diamond Merger Agreement.
Acquisition of Gregory
Mountain Products
On May
28, 2010, Clarus acquired
Gregory Mountain Products, Inc., a Delaware corporation (“Gregory”) pursuant to
the Agreement and Plan of Merger, dated May 7, 2010 (the “Gregory Merger
Agreement”), by and among Gregory, Everest/Sapphire Acquisition, LLC
(“Purchaser”), a Delaware limited liability company and wholly-owned direct
subsidiary of Clarus, Everest Merger I Corp., a Delaware corporation and a
wholly-owned direct subsidiary of Purchaser (“Merger Sub One”), Everest Merger
II, LLC, a Delaware limited liability company and a wholly-owned direct
subsidiary of Gregory Purchaser (“Merger Sub Two”), and each of Kanders GMP
Holdings, LLC and Schiller Gregory Investment Company, LLC, as the stockholders
of Gregory (the “Gregory Stockholders”). Under the terms of the
Gregory Merger Agreement, (i) Merger Sub One merged with and into Gregory (the
“First Step Merger”), with Gregory as the surviving corporation of the First
Step Merger, and (ii) immediately following the effective time of the First Step
Merger, as part of the same overall transaction, Gregory merged with and into
Merger Sub Two, (the “Second Step Merger” and together with the First Step
Merger, the “Gregory Merger”), with Merger Sub Two as the surviving company of
the Second Step Merger. The name of the surviving company of the
Gregory Merger is Gregory Mountain Products, LLC, a Delaware limited liability
company.
The sole
member of Kanders GMP Holdings, LLC is Mr. Warren B. Kanders, Clarus’ Executive
Chairman and a member of Clarus’ Board of Directors, who will continue to serve
in such capacity. The sole manager of Schiller Gregory Investment
Company, LLC is Mr. Robert R. Schiller, who has become Clarus’ Executive Vice
Chairman and a member of Clarus’ Board of Directors. Except as set
forth herein, there is no material relationship, between Gregory, on the one
hand, and Clarus or any of its affiliates, or any director or officer of Clarus,
or any associate of any such director or officer, on the other
hand.
In the
Gregory Merger, the Company acquired all of the outstanding common stock of
Gregory for an aggregate amount of approximately $44.1 million (after closing
adjustments of $889,000 relating to debt repayments, working capital and equity
plan allocation), payable to the Gregory Stockholders in proportion to their
respective ownership interests of Gregory as follows: (i) the issuance of
2,419,490 shares to Kanders GMP Holdings, LLC and 1,256,429 shares to Schiller
Gregory Investment Company, LLC of unregistered Clarus’ common stock, and (ii)
the issuance by Clarus of the Merger Consideration Subordinated Notes in the
aggregate principal amount of $14,516,945 to Kanders GMP Holdings, LLC and in
the aggregate principal amount of $7,538,578 to Schiller Gregory Investment
Company, LLC.
The
Gregory Merger was approved by a special committee comprised of independent
directors of the Company’s Board of Directors and the merger consideration
payable to the Gregory Stockholders was confirmed to be fair to the Company’s
stockholders from a financial point of view by a fairness opinion received from
Ladenburg Thalmann & Co., Inc. The special committee was
represented by an independent legal counsel, Richards, Layton &
Finger.
A copy of the Gregory Merger Agreement
is filed as Exhibit 2.2 to Clarus’ Current Report on Form 8-K filed with the
Securities and Exchange Commission on May 10, 2010, and
is incorporated herein by reference as though fully set forth herein.
The foregoing summary description of the Gregory Merger Agreement is not
intended to be complete and is qualified in its entirety by the complete text of
the Gregory Merger Agreement.
|
Item
2.03
|
Creation
of a Direct Financial Obligation or an Obligation under an Off-Balance
Sheet Arrangement of Registrant.
|
(a) Direct Financial
Obligation. See Item 1.01 under the headings “Loan Agreement” and “Merger
Consideration Subordinated Note” which is incorporated herein by
reference.
|
Item 3.02
|
Unregistered Sales of Equity
Securities.
|
Gregory
Merger Consideration Shares and Merger Consideration
Subordinated Notes
On May 28, 2010, at the closing of the Gregory Merger, the Company issued, pursuant to the terms of the Gregory
Merger Agreement, 3,675,920 Merger Consideration Shares and Merger Consideration
Subordinated Notes in the aggregate principal amount of $22,055,523 to Kanders GMP Holdings, LLC and
Schiller Gregory Investment Company, LLC. The Merger Consideration Shares are subject to the
terms and provisions of the Registration Rights Agreement and Lock-up Agreement
discussed in Item 1.01 above, which is incorporated by reference into
this Item 3.02. The
issuance of the Merger
Consideration Shares
and Merger
Consideration Subordinated Notes is exempt from registration pursuant to
Section 4(2) and Regulation
D of the Securities Act of
1933, as amended.
Black
Diamond Private Placement
Effective May 28, 2010, the Company sold in a
private placement offering
(the “Private Placement”), an aggregate of
483,767 shares of Clarus common stock (valued at a price of $6.00 per
share) to 11
accredited
investors who were
shareholders of Black Diamond, including Mr. Metcalf, Mr. Peay, Mr.
Duff, and certain employees
for an aggregate purchase price of $2,902,602. The securities sold by the Company in
the Private Placement were exempt from registration under the Securities Act of
1933, as amended, pursuant to Regulation D promulgated thereunder and pursuant to
Section 4(2) and/or 4(6) thereof.
|
Item 5.02
|
Departure of Directors or
Principal Officers; Election of Directors; Appointment of Principal
Officers.
|
(b) (i)
On May 28, 2010, following
the closing of the Black Diamond and Gregory mergers, Mr. Burtt Erhlich resigned
as a member of the Company’s Board of Directors.
(ii) On
May 28, 2010, following the
closing of the Black Diamond and Gregory mergers, Mr. Philip A. Baratelli
resigned as the Company’s Chief Financial Officer (its principal financial
officer and principal accounting officer).
(c) (i) On
May 28, 2010, following the
closing of the Black Diamond Merger, the Board of Directors of the Company
appointed Mr. Peter Metcalf as the Company’s President and Chief Executive
Officer (its principal executive officer). Mr. Metcalf, who is 54
years of age, served as the Chief Executive Officer and Chairman of the Board of
Directors of BDE since co-founding BDE in 1989. He is a graduate of
the University of Colorado, with a major in Political Science. He also earned a
Certificate in Management from the Peter Drucker Center of
Management. Mr. Metcalf has no family relationships with any other
director or officer of the Company. The material terms of Mr.
Metcalf’s Employment Agreement is set forth in Item 1.01 to the Current Report
on Form 8-K filed with the Securities and Exchange Commission on May 10, 2010
and is incorporated herein by reference as though fully set forth herein.
Pursuant to the Metcalf Employment Agreement, as amended, upon the closing of
the Black Diamond Merger, the Company issued and granted to Mr. Metcalf an
option to purchase 75,000 shares of the Company’s common stock having an
exercise price of $6.85 per share, and vesting in three installments as
follows: 30,000 options on December 31, 2012 and 22,500 options on
each of December 31, 2013 and December 31, 2014. Additionally, Mr. Metcalf
purchased 85,000 shares of Clarus common stock in the private placement
discussed under Item 3.02 of this Report. Except as stated herein, there are no
transactions in which Mr. Metcalf has an interest requiring disclosure under
Item 404(a) of Regulation S-K. Mr. Metcalf was a Black Diamond shareholder
prior to its merger with Clarus, which is discussed in Item 2.01 of this
Report under “Acquisition of Black Diamond”, and incorporated herein by
reference.
(ii) On
May 28, 2010, following the
closing of the Black Diamond Merger, the Board of Directors of the Company
appointed Mr. Robert Peay as the Company’s Chief Financial Officer (its
principal financial officer and principal accounting officer). Mr.
Peay, who is 42 years of age, has been the Chief Financial Officer of BDE since
2008. Mr. Peay joined BDE in 1996 and has previously served as
Accounting Manager and Financial Controller of BDE. Before joining
BDE, Mr. Peay worked in public accounting for two years with Arthur Andersen
& Co. Mr. Peay received a Master’s degree in addition to a
Bachelor of Science in Accounting from the University of Utah. He has
also been a Certified Public Accountant since 1996. Mr. Peay has
no family relationships with any other director or executive officer of the
Company. Mr. Peay’s employment with the Company is at-will and the Company pays
Mr. Peay a salary of $175,000 per year. Upon the closing of the Black Diamond
Merger, the Company issued and granted to Mr. Peay an option to purchase 30,000
shares of the Company’s common stock, having an exercise price of $6.85 per
share, and vesting in three installments as follows: 12,000 options
on December 31, 2012 and 9,000 options on each of December 31, 2013 and December
31, 2014. Additionally, Mr. Peay purchased 1,700 shares of Clarus common stock
in the private placement discussed under Item 3.02 of this Report. Except as
stated herein, there are no transactions in which Mr. Peay has an interest
requiring disclosure under Item 404(a) of Regulation S-K. Mr. Peay was a Black Diamond shareholder
prior to its merger with Clarus, which is discussed in Item 2.01 of this
Report under “Acquisition of Black Diamond”, and incorporated herein by
reference.
(iii) On
May 28, 2010, the Board of
Directors of the Company appointed Mr. Robert R. Schiller to fill a vacancy on
the Board of Directors, to serve until the next annual meeting of stockholders,
and also appointed Mr. Schiller as the Company’s Executive Vice Chairman. Mr.
Schiller, who is 47 years of age, has been Vice Chairman of the Board of Gregory
since March 2008. Mr. Schiller previously served as a Director
from June 2005, President from January 2004, and Chief Operating
Officer from April 2003 of Armor Holdings Inc. (“Armor Holdings”), until
the completion of the acquisition of Armor Holdings by BAE Systems, PLC on
July 31, 2007. Mr. Schiller also held other positions at Armor Holdings and
served as Chief Financial Officer and Secretary from November 2000 to March
2004, as Executive Vice President from November 2000 to April 2003, as
Executive Vice President and Director of Corporate Development from January 1999
to October 2000, and as Vice President of Corporate Development from July 1996
to December 1998. Mr. Schiller graduated with a B.A. in Economics
from Emory University in 1985 and received a M.B.A. from Harvard Business School
in 1991. Mr. Schiller has no family relationships with any other director or
officer of the Company. The material terms of Mr. Schiller’s
Employment Agreement are set forth in Item 1.01 above and incorporated herein by
reference. Except as stated herein, there are no transactions in which Mr.
Schiller has an interest requiring disclosure under Item 404(a) of Regulation
S-K. Mr. Schiller is the sole manager of Schiller Gregory Investment
Company, LLC, a party to the Gregory Merger Agreement, which is discussed Item
2.01 of this Report under “Acquisition of Gregory Mountain Products”, and
incorporated herein by reference.
(d) (i) On
May 28, 2010, the Board of
Directors of the Company appointed Mr. Peter Metcalf to fill a vacancy on the
Board of Directors, to serve until the next annual meeting of
stockholders. The disclosure set forth in Item 5.02(c)(i) above with
respect to Mr. Metcalf is incorporated herein by reference.
(ii) On
May 28, 2010, the Board of
Directors of the Company appointed Mr. Mr. Schiller to fill a vacancy on the
Board of Directors, to serve until the next annual meeting of
stockholders. The disclosure set forth in Item 5.02(c)(iii) above
with respect to Mr. Schiller is incorporated herein by reference.
(iii) On
May 28, 2010, the Board of
Directors of the Company appointed Mr. Michael A. Henning to fill a vacancy on
the Board of Directors, to serve until the next annual meeting of
stockholders. Mr. Henning, who is 70 years of age, served as a
director and the Chairman of the Audit Committee of the Board of Directors of
Highlands Acquisition Corp., a publicly-held blank check company from May 2007
until September 2009. Since 2000, Mr. Henning has been the Chairman
of the Audit Committee and member of the Compensation Committee, and has
previously served as the Vice Chairman of the Finance Committee, of the Board of
Directors of CTS Corporation, a NYSE-listed company that provides electronic
components to auto, wireless and PC businesses. In December 2002, he joined the
Board of Directors of Omnicom Group Inc., a global communications company, where
he also serves on the Audit Committee and the Compensation
Committee. Mr. Henning is also a member of the Board of Directors,
and serves on the Audit Committee and Compensation Committee, of Landstar
System, Inc., a NASDAQ-listed transportation and logistics services
company. Mr. Henning retired as Deputy Chairman from Ernst &
Young in 2000 after forty years with the firm. Mr. Henning was the inaugural CEO
of Ernst & Young International, serving from 1993 to 1999. From 1991 to
1993, he served as Vice Chairman of Tax Services at Ernst & Young. Mr.
Henning was also the Managing Partner of the firm’s New York office, from 1985
to 1991, and the Partner in charge of International Tax Services, from 1978 to
1985. From 1994 to 2000, Mr. Henning served as a Co-Chairman of the Foreign
Investment Advisory Board of Russia, where he co-chaired a panel of 25 CEOs from
the G-7 countries who advised the Russian government in adopting international
accounting and tax standards. Mr. Henning is presently on the Board of Trustees
of St. Francis College in Brooklyn, New York and St. Francis Prep, Queens, New
York. Mr. Henning received a B.B.A. from St. Francis College and a Certificate
from the Harvard University Advanced Management Program. Mr. Henning is a
Certified Public Accountant.
(iv) On May
28, 2010, the Board of Directors of the Company appointed Mr. Philip N. Duff to
fill a vacancy on the Board of Directors, to serve until the next annual meeting
of stockholders. Mr. Duff, who is 53 years of age, is the Chief Executive
Officer and General Partner at Duff Capital Advisors. Mr. Duff is also the
founder of Duff Capital Advisors. Mr. Duff is also the Chairman & CEO of
White Oak Global Advisors. Prior to this, Mr. Duff served as one of the
founding partners, Chief Executive Officer, and Chairman of FrontPoint Partners,
LLC, which he co-founded in 2000. He was formerly the Chief Operating Officer,
Senior Managing Director, member of Management Committee, and member of the
Advisory Board of Tiger Management LLC. From 1984 to 1998, Mr. Duff was
also employed at Morgan Stanley, where his prior positions included serving as
Chief Financial Officer at Morgan Stanley Group Inc., as President and Chief
Executive Officer at Van Kampen America Capital (acquired by Morgan Stanley),
and as the head of Financial Institutions Group in Investment Banking at Morgan
Stanley. Prior to Morgan Stanley, Mr. Duff traded grain at Louis Dreyfus, Inc.
Mr. Duff currently serves as a member of the Board of Directors of Ambac
Financial Group, Solar Power Corporation, and TraDove. Mr. Duff is also a member
of the Advisory Board of Westbury Partners. He previously served on the
Board of Trustees of the Financial Accounting Foundation, and the Managed
Funds Association. Mr. Duff graduated from Massachusetts Institute of Technology
with an M.B.A. and from Harvard College with an A.B. in Mathematics.
(e) The
disclosure set forth in Item 1.01 and Item 5.02(c) of this Report with respect
to each Messrs. Kanders, Schiller, Metcalf and Peay is incorporated herein by
reference.
Philip A.
Baratelli
On May 28, 2010, in connection with Mr. Baratelli’s
resignation as the Company Chief Financial Officer, the Company’s Compensation Committee and Board of Directors approved (i) the acceleration of vesting of options
to purchase an aggregate of 50,000 of the Company’s common stock, which represent the unvested
portion of stock option awards previously granted to Philip A. Baratelli on December 13,
2007 under the Clarus 2005 Stock Incentive Plan; and (ii) extended the period in
which Mr. Baratelli may exercise such stock options until May 28,
2013.
|
Item 5.03
|
Amendments to Articles of
Incorporation or Bylaws; Change in Fiscal Year.
|
On May 28, 2010, the Board of Directors of the
Company adopted a resolution approving Amendment No. 2 to the Company’s
Amended and Restated Bylaws
to create the position of Executive Vice Chairman of the Board of
Directors. The
description of the amendment to the Amended and Restated Bylaws is qualified in its entirety by reference
to the Amendment No. 2 to
the Company’s Amended and Restated Bylaws dated May 28, 2010 and attached as Exhibit 3.1 to
this Current Report on Form 8-K and incorporated
herein by reference.
We are providing the information set
forth below to enhance the understanding of our Company’s business following the
redeployment of our assets and completion of the Black Diamond and Gregory
acquisitions discussed in Item 2.01 above.
BUSINESS
Overview
Clarus is
a leading developer, manufacturer and distributor of technical outdoor equipment
and lifestyle products for rock and ice climbers, alpinists, hikers, freeride
skiers and outdoor enthusiasts and travelers. The Company’s products are
principally sold under the Black DiamondTM and
Gregory® brand names through specialty and online retailers throughout the U.S.,
Canada, Europe, Asia, South America, New Zealand and Africa.
Operating
History
Since the
2002 sale of our e-commerce solutions business, we have engaged in a strategy of
seeking to enhance stockholder value by pursuing opportunities to redeploy our
assets through an acquisition of, or merger with, an operating business or
businesses that would serve as a platform company. On May 28, 2010,
we redeployed our capital through our acquisitions of Black Diamond and
Gregory. Because the Company had no operations at the time of our
acquisition of Black Diamond, Black Diamond is considered to be our predecessor
company for financial reporting purposes. The Company expects to seek
approval of its stockholders at its next annual meeting to change its name to
“Black Diamond Equipment” which we believe more accurately reflects our current
business.
Market
Overview
Our
primary target customers are outdoor-oriented consumers who understand the
importance of an active, healthy lifestyle. The users of our products
are made up of a wide range of outdoor athletes and enthusiasts, including rock,
ice and mountain climbers, skiers, backpackers and campers, cyclists, endurance
trail runners, and outdoor-inspired consumers. We believe we have a
strong reputation for style, quality, design, and durability in each of our
core product lines that address the needs of rock and ice climbers, alpinists,
backcountry and freeride skiers, day hikers and backpackers.
As the
variety of outdoor sports activities continue to grow and proliferate and
existing outdoor sports evolve and become ever more specialized, we believe
other outdoor sports and athletic equipment companies are failing to address the
unique aesthetics, fit and technical and performance needs of athletes and
enthusiasts involved in such specialized activities. We believe we
have been able to help address this void in the marketplace by leveraging our
user intimacy and improving on our existing product lines, by expanding our
product offerings into new niche categories, and by incorporating innovative
industrial design and engineering, along with comfort and functionality into our
products. Although we were founded to address the needs of core rock and ice
climbers, backcountry skiers, and alpinists, we are also successfully designing
products for more casual outdoor enthusiasts who also appreciate the technical
rigor and premium quality of our products. We believe the credibility and
authenticity of our brands expands our potential market beyond committed outdoor
athletes to those outdoor generalist consumers who desire to lead active,
healthy, and balanced lives.
Growth
Strategies
Our growth strategies are to achieve
sustainable, profitable growth organically and to expand the
business through targeted, strategic acquisitions. We intend to create
innovative new products, increase consumer and retailer awareness and demand for
our products, and build stronger emotional brand connections with consumers over
time across a growing number of geographic markets.
New Product
Development. To drive organic growth within our existing
businesses, we intend to leverage our strong brand names, customer relationships
and proven capacity for innovation to develop new products and product
extensions in each of our existing product categories, and to expand into new
product categories. Since 1989, our brands have introduced over 200
new products. We have also invested resources to develop processes for
developing internally hot-forged carabiners and closed loop anodizing and to
manufacture other products in our managed facility in Asia, which we expect to
increase our competitiveness. We have also recently developed a new
line of harnesses based on our Kinetic Core Construction technology
and a new line of Freeride ski boots. Last year, we introduced two via ferrata
protection kits with safety technologies previously unavailable to climbers. In
addition, we have introduced a number of new packs featuring our BioSyncTM,
FusionTM,
JetStreamTM and
ResponseTM
suspension systems, which provide backpackers with superior comfort, movement
and load transfer characteristics. We intend to expand our business
into both adjacent and complementary product categories.
Innovation and New Technology.
We have a long history of technical innovation, and in recent years have
introduced innovations such as the first plastic telemark boot, the AvaLung®
backpack, which helps adventurers survive an avalanche, and FlickLock® and
Control Shock Technology for its adjustable trekking poles. Our products have
introduced many firsts in the backpack market, including being the first to
build backpacks in different frame, harness and waist belt sizes; the first (and
still only) pack manufacturer to develop a waistbelt system that adjusts to fit
different hip angles, automatically improving load transfer; and the first to
develop the center-locking bar tack, a stitch that ends and locks off on the
center of a seam instead of the side for increased strength at major stress
points. Our new technologies are generally inspired by our continuing
commitment to maximize the enjoyment and safety of the outdoor sports for which
we design our products.
Acquisition of Complementary
Businesses. We expect to target acquisitions as a viable
opportunity to gain access to new product groups and customer channels and
increase penetration of existing markets. To the extent we pursue
future acquisitions, we intend to focus on businesses with product offerings
that provide geographic or product diversification, or that expand our business
into related categories that can be marketed through our existing distribution
channels or that provide us access to new distribution channels for our existing
products, thereby increasing marketing and distribution
efficiencies. We are particularly interested in companies with
category-leading brands, recurring revenue, sustainable margins and strong cash
flow. We anticipate financing future acquisitions prudently through a
combination of cash on hand, operating cash flow, bank financings and new
capital markets offerings.
Competitive
Strengths
Experienced
Management. Our management team has been involved in the
successful operation, acquisition and integration of a substantial number of
companies. Throughout his 30 year business career, our Executive Chairman,
Warren B. Kanders, has established a track record of building public companies
through strategic acquisitions to enhance organic growth. Peter Metcalf, the
co-founder of Black Diamond and our President and Chief Executive Officer,
boasts a lifetime of active participation in outdoor sports and a compelling
track record in the outdoor/ski products industry. During the last 20 years, Mr.
Metcalf has led Black Diamond through a period of consistent growth and steady
diversification, and Black Diamond has emerged as a global brand. We are equally
reliant upon the skills and experience of our Executive Vice Chairman,
Robert R. Schiller, who previously served as the President, Chief Operating
Officer and Chief Financial Officer of Armor Holdings, Inc., and has a proven
record of managing operations as well as identifying, executing and integrating
strategic acquisitions.
Strong Base of
Business. Our outdoor products business benefits from a strong
reputation for paradigm changing, high quality, innovative products that make us
a leader in the outdoor industry with particular strength in product categories
such as backpacking, hiking, rock climbing, ice climbing, skiing, and
mountaineering. Underlying our innovative product lines is a strong stable of
intellectual property, with multiple patents and patent applications, as well as
valuable brands and trademarks. In addition, our user intimacy, strong retailer
partnerships, operations and execution acumen and leadership as a champion in
the access, education, and stewardship issues that affect our customers
contribute to the robustness of our business.
Incentivized
Management. The members of our Board of Directors and our
executive officers, including Messrs. Kanders, Metcalf and Schiller, are
substantial stockholders of the Company, and beneficially own approximately
39% of our outstanding common stock, which we believe aligns the interests of
our Board of Directors and our executive officers with that of our
stockholders.
Growth-Oriented Capital
Structure. Our capital structure provides us with the capacity
to fund future growth and our net operating loss and tax credit carryforwards
are expected to offset our net taxable income which is expected to allow us to
retain cash flow for future growth.
Distribution. Our
products are primarily distributed through a strong, global network of
independent specialty retailers, specialty chains and consumer catalogs. We
enjoy strong relationships with customers in a number of these sales channels
that can provide for additional diversification and the ability to pursue growth
opportunities in a number of different markets across a variety of product types
and price points.
Products
We have
developed a reputation for designing, manufacturing and distributing products
considered to be both innovative and dependable in their respective market
niches. Our commitment to designing innovative, durable and reliable products
that enhance our customers’ capabilities, comfort and safety in their outdoor
endeavors will remain our hallmark and mission. In addition to
function, we believe our products’ unique aesthetic appearance is another
hallmark that distinguishes us in the outdoor marketplace. Our products have won
numerous awards from industry magazines including Alpinist, Backpacker,
Climbing, Consumers Digest, National Geographic Adventure, Men’s Journal,
Outside, Popular Science, Powder, Rock & Ice, Ski and
Skiing.
Our products include a wide
variety of technical outdoor equipment and lifestyle products for rock and ice
climbers, alpinists, hikers, freeride skiers, outdoor enthusiasts and travelers.
Many of our products are designed for extreme applications, such as high
altitude mountaineering, ice and rock climbing, as well as backcountry,
Freeride, and alpine skiing. Generally, our product offerings are
divided into three primary categories: climb, mountain, and ski. Our climb line
consists of technical equipment such as belay/rappel devices, bouldering
products, carabiners and quickdraws, chalk, chalk bags, climbing packs,
crampons, crash pads, dogbones and runners, harnesses, ice axes and piolets, ice
protection and rock protection devices and various other climbing accessories.
Our mountain line consists of mountaineering backpacks for alpine expeditions,
backpacks for backcountry excursions, overnight trips, and day hikes, bivy
sacks, rain sacks, gaiters, gloves, headlamps, lights, tents, trekking poles and
various other hiking and mountaineering accessories. Our ski line consists of
AvaLung backpacks, winter packs for skiing and snowboarding, bindings, boots,
poles, skis, skins, snow gloves, snow packs, and snow safety devices. We also
offer hydration packs for trail running and cycling, and travel and lifestyle
products such as duffle bags, messenger bags, and small bags and pouches
designed to carry electronics and other accessories, and a variety of Black
Diamond branded apparel and accessories.
Customers
We market
and distribute our products in over 40 countries primarily through independent
specialty stores and specialty chains, including premium sporting goods and
outdoor recreation stores and consumer catalogs, in the United States,
Canada, New Zealand, Europe, Asia and Africa. In addition, our Gregory branded
products are sold through Gregory-supplied retail stores in Tokyo, Japan, Seoul,
South Korea and Taipei, Taiwan. We also sell our products directly to
customers through our wholly-owned retail store in Salt Lake City, Utah and
online at www.blackdiamondequipment.com.
We have
highly diversified account bases and sell products in over 1,500 retail
locations through over 1,000 individual accounts, with the bulk of our business
being done through independent retailers. Despite the benefits of
this diversification, we remain highly dependent on consumer discretionary
spending patterns and the purchasing patterns of our wholesale and other
customers as they attempt to match their seasonal purchase volumes to volatile
consumer demand.
Our end
users constitute a broad range of consumers including mountain climbers, winter
outdoor enthusiasts, backpackers and campers, cyclists, top endurance trail
runners, and outdoor-inspired consumers. Such consumers demand high
quality, reliable, and well-designed products to enhance their performance and
safety in a multitude of outdoor activities in virtually any climate. We expect
to leverage our user intimacy, engineering prowess and design ability to expand
into related technical product categories that target the same demographic group
and distribution channels while leveraging our user intimacy, engineering
prowess and design ability.
During
2009, Recreational Equipment, Inc. (“REI”) accounted for approximately 14% of
our sales, while Kabushiki Kaisha A&F (“A&F (Japan)”) accounted for
approximately 9% of our sales. The loss of either of these customers
could have a material adverse effect on the Company.
Sales
and Marketing
Our sales
force is generally deployed by geographic region: Canada, Europe, Latin America,
Asia, and the United States. Our focus is on providing our products to a broad
spectrum of outdoor enthusiasts, from expert rock climbers to beginner skiers.
Within each of our brands, we strive to create a unique look for our products
and are beginning to utilize new and enhanced in-store merchandising displays
and techniques to communicate those differences to the consumer. In addition, we
are exploring uses for brand and market research. We also regularly utilize
various promotions and public relations campaigns.
We have
consistently established relationships with professional athletes to help
evaluate, promote and establish product performance and authenticity with
customers. Such endorsers are one of many elements in our array of
marketing materials, including in-store displays, brochures and on our
website.
In
addition to brand development, we are focused on expanding our licensing
strategy to enhance brand exposure, brand equity and recognition through
appropriate product extensions, while generating incremental high margin
revenue. Our reputation for high quality, reliability and excellent value
attracts and is, in turn, required of our licensees.
Research
and Development
The Company commits significant
resources to new product research and development. We conduct our
product research and design activities at our locations in Salt Lake City, Utah,
Sacramento, California, Zhuhai, China, and conduct product evaluations at our
offices located outside of Basel, Switzerland.
The Company expenses research and
development costs as incurred. Over the last three calendar years we
have spent approximately $9.3 million in connection with research and
development activities.
Manufacturing,
Distribution and Sourcing
Manufacturing
and Global Distribution
Most of
our products are manufactured in our facilities in the United States and Asia.
Certain of our products are also manufactured to our specifications by
independently owned facilities in China and the Philippines. While we do not
maintain a long-term manufacturing contract with such facilities, we believe
that our long-term relationship with our manufacturing facilities in Asia will
help to ensure that a sufficient supply of goods built to our specification are
available in a timely manner and on satisfactory economic terms in the
future.
In 2006,
Black Diamond Equipment Asia Ltd. (“Black Diamond Asia”), a wholly-owned
subsidiary of Black Diamond, was established in southeast China. The
facility in southeast China is a Black Diamond-managed 100,000 sq. ft. facility
that is operated and staffed by our employees. Each piece of equipment is tested
to the same degree at the Black Diamond Asia facility as they are at our Salt
Lake City facility. Each of those facilities rely on identical, thoroughly
documented systems and procedures to ensure consistent quality and safety for
every piece of gear we put our name on. Our manufacturing operations
in Salt Lake City and southeast China are each ISO 9001 certified by
European-based auditors.
In
addition to manufacturing, we run our own global distribution and quality
control operation at our Salt Lake City facility, allowing us to aggregate for
global shipping the goods that we and our Asian-based facilities
manufacture.
Sourcing
We source
raw materials and components from a variety of suppliers. Our primary raw
materials include aluminum, steel, nylon, corrugated cardboard for packaging,
electrical components, plastic resin, urethane and various textiles, foams and
fabrics. The raw materials used in the manufacture of our products are generally
available from numerous suppliers in quantities sufficient to meet normal
requirements.
We source
packaging materials both domestically as well as from sources in Asia and
Europe. We believe that all of our purchased products and materials could be
readily obtained from alternative sources at comparable costs.
Competition
Because
of the diversity of our product offerings, we compete by niche with a variety of
companies. Our products must stand up to the high standards set by
the world’s elite mountain climbers, alpine skiers and
adventurers. In the outdoor industry, quality and durability are
paramount among such athletes, who rely on our products to withstand some of the
world’s most extreme conditions. In addition to extreme adventurers, we
believe all outdoor enthusiasts benefit from the high quality standards of our
products. We also believe our products compete favorably on the basis of product
innovation, product performance, marketing support, and price.
The
popularity of outdoor activities and changing design trends affect the
desirability of our products. Therefore, we seek to anticipate and respond to
trends and shifts in consumer preferences by adjusting the mix of available
product offerings, developing new products with innovative performance features
and designs, and by marketing our products in a persuasive and memorable fashion
to drive consumer awareness and demand. Failure to anticipate or respond to
consumer needs and preferences in a timely and adequate manner could have a
material adverse effect on our sales and profitability.
We
compete with niche, privately-owned companies and with a number of brands owned
by large multinational companies, such as those set forth below.
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Climbing: Our
climbing products and accessories, including but not limited to, belays
devices, carabiners, and harnesses, compete with products from companies
such as Arc’Teryx, Petzl and
Mammut.
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Skiing: Our
skiing equipment and accessories, including but not limited to, skis, ski
bindings, poles and boots, compete with products from competitors such as
Atomic, Dynafit (Salewa), Dynastar (Lange), Garmont, K2, Volkl, Marker,
Nordica, Rossignol, Salomon, Scarpa, and
Scott.
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Mountaineering: Our
mountaineering products, including but not limited to, backpacks, trekking
poles, headlamps and tents, compete with products from companies such as
Peltz, Mammut, Deuter, Kelty, Leki, Komperdell, Marmot, Mountain Hardwear,
Mountainsmith, Osprey, Dakine, Sierra Designs and The North
Face.
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In
addition, we compete with certain of our large wholesale customers who focus on
the outdoor market, such as REI, Eastern Mountain Sports, Mountain Equipment
Co-op (“MEC”) and Decathlon which manufacture, market and
distribute their own climbing, skiing and mountaineering products under their
own private labels.
Patents
and Trademarks
We
believe our primary and pending word and icon trademarks worldwide, including
the Black Diamond and Gregory logos, Black DiamondTM, ATC®,
Camalot®, Gregory®, AvaLung®, FlickLock®, Ascension®, Time is Life®, Hexentric®,
Stopper® and Bibler Tents® create international brand recognition for our
products.
We
believe our brands have an established reputation for high quality, reliability
and value and, accordingly, we actively monitor and police our brands against
infringement to ensure their viability and enforceability.
In
addition to trademarks, we hold over 70 patents worldwide for a wide variety of
technologies across our product lines.
Our
success with our proprietary products is generally derived from our “first
mover” advantage in the market as well as our commitment to protecting our
current and future proprietary technologies and products, which acts as a
deterrent to infringement of our intellectual property rights. While we believe
our patent and trademark protection policies are robust and effective, if we
fail to adequately protect our intellectual property rights, competitors may
manufacture and market products similar to ours. Our principal intellectual
property rights include our patents and trademarks but also include products
containing proprietary trade secrets.
We cannot
be sure that we will receive patents for any of our patent applications or that
any existing or future patents that we receive or license will provide
competitive advantages for our products. While we actively monitor our
competitors to ensure that we do not compromise the intellectual property of
others, we cannot be sure that competitors will not challenge, invalidate or
avoid the application of any existing or future patents that we receive or
license. In addition, patent rights may not prevent our competitors from
developing, using or selling products that are in similar product niches as
ours.
Employees
As of
June 4, 2010, our combined company has over 475 employees, located in
California, Utah, China, Germany, Japan, the Philippines and Switzerland. None
of our employees are represented by unions or covered by any collective
bargaining agreements. We have not experienced any work stoppages or
employee-related slowdowns and believe that our relationship with employees is
satisfactory.
Seasonality
The
Company’s products are outdoor recreation related, which results in seasonal
variations in sales and profitability. On a calendar year basis, we generally
experience our greatest sales in the first and second quarters for certain of
our products including rock climbing gear, headlamps, lanterns, packs, trekking
poles and tents, and in the third and fourth quarters for our ski, glove and ice
climbing products. Sales of these products may be negatively affected by
unfavorable weather conditions and other market trends. The fall/winter season
represents approximately 60% of our sales while spring/summer represents
approximately 40%.
Working
capital requirements vary throughout the year. Working capital increases during
the first and third quarters of the year as inventory builds to support peak
shipping periods and then decreases during the second and fourth quarters of the
year as those inventories are sold and accounts receivable are collected. Cash
provided by operating activities is substantially higher in the first half of
the year due to reduced working capital requirements.
Available
Information
Our
Internet address is www.claruscorp.com. We make available free of charge on or
through our website our annual reports on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K, and amendments to those reports, and the
proxy statement for our annual meeting of stockholders as soon as reasonably
practicable after we electronically file such material with, or furnish it to,
the Securities and Exchange Commission. Forms 3, 4 and 5 filed with respect to
our equity securities under section 16(a) of the Securities Exchange Act of
1934, as amended, are also available on our website. All of the foregoing
materials are located at the ‘‘SEC Filings’’ tab under the section titled
“Investor Relations”. The information found on our website shall not be deemed
incorporated by reference by any general statement incorporating by reference
this report into any filing under the Securities Act of 1933, as amended, or
under the Securities Exchange Act of 1934, as amended, and shall not otherwise
be deemed filed under such Acts.
Materials
we file with the Securities and Exchange Commission may be read and copied at
the Securities and Exchange Commission’s Public Reference Room at 100 F Street,
N.E., Washington, D.C. 20549. You may obtain information on the operation of the
Securities and Exchange Commission’s Public Reference Room by calling the
Securities and Exchange Commission at 1-800-SEC-0330. The Securities and
Exchange Commission also maintains a website that contains reports, proxy and
information statements, and other information regarding issuers that file
electronically with the Securities and Exchange Commission at www.sec.gov. In
addition, you may request a copy of any such materials, without charge, by
submitting a written request to: Clarus Corporation, c/o the Secretary, 2084
East 3900 South, Salt Lake City, UT 84124.
RISK
FACTORS
In
addition to other information in this Current Report on Form 8-K, the following
risk factors should be carefully considered in evaluating our business, because
such factors may have a significant impact on our business, operating results,
liquidity and financial condition. As a result of the risk factors set forth
below, actual results could differ materially from those mentioned in any
forward-looking statements. Additional risks and uncertainties not presently
known to us, or that we currently consider to be immaterial, may also impact our
business, operating results, liquidity and financial condition. If any of the
following risks occur, our business, operating results, liquidity and financial
condition, and the price of our common stock, could be materially adversely
affected.
Risks
Related to Our Industry
Many
of the products we sell are used for inherently risky mountain and outdoor
pursuits and could give rise to product liability or product warranty claims and
other loss contingencies, which could affect our earnings and financial
condition.
Many of
our products are used in applications and situations that involve high levels of
risk of personal injury and death. As a result, we maintain staff who focus on
testing and seek to assure the quality and safety of our products. In addition,
we provide thorough and protective disclaimers and instructions on all of our
products and packaging. Failure to use our products for their intended purposes,
failure to use or care for them properly, or their malfunction, or, in some
limited circumstances, even correct use of our products, could result in serious
bodily injury or death.
As a
manufacturer and distributor of consumer products, we are subject to the
Consumer Products Safety Act, which empowers the Consumer Products Safety
Commission to exclude from the market products that are found to be unsafe or
hazardous. Under certain circumstances, the Consumer Products Safety Commission
could require us to repurchase or recall one or more of our products.
Additionally, laws regulating certain consumer products exist in some cities and
states, as well as in other countries in which we sell our products, and more
restrictive laws and regulations may be adopted in the future. Any repurchase or
recall of our products could be costly to us and could damage our reputation. If
we were required to remove, or we voluntarily removed, our products from the
market, our reputation could be tarnished and we might have large quantities of
finished products that we could not sell.
We also
face exposure to product liability claims in the event that one of our products
is alleged to have resulted in property damage, bodily injury or other adverse
effects. Any such product liability claims may include allegations of defects in
manufacturing, defects in design, a failure to warn of dangers inherent in the
product or activities associated with the product, negligence, strict liability,
and a breach of warranties. Although we maintain product liability insurance in
amounts that we believe are reasonable, there can be no assurance that we will
be able to maintain such insurance on acceptable terms, if at all, in the future
or that product liability claims will not exceed the amount of insurance
coverage. Additionally, we do not maintain product recall insurance. As a
result, product recalls or product liability claims could have a material
adverse effect on our business, results of operations and financial
condition.
In
addition, we face potential exposure to unusual or significant litigation
arising out of alleged defects in our products or otherwise. We spend
substantial resources ensuring compliance with governmental and other applicable
standards. However, compliance with these standards does not necessarily prevent
individual or class action lawsuits, which can entail significant cost and risk.
We do not maintain insurance against many types of claims involving alleged
defects in our products that do not involve personal injury or property damage.
As a result, these types of claims could have a material adverse effect on our
business, results of operations and financial condition.
Our
product liability insurance program is an occurrence-based program based on our
current and historical claims experience and the availability and cost of
insurance. We currently either self insure or administer a high retention
insurance program for product liability risks. Historically, product liability
awards have not exceeded our individual per occurrence self-insured retention.
We cannot assure you, however, that our future product liability experience will
be consistent with our past experience.
A
substantial portion of our revenues and gross profit is derived from a small
number of large customers. The loss of any of these customers could
substantially reduce our profits.
A few of
our customers account for a significant portion of revenues. In the year ended
December 31, 2009, REI and A&F (Japan) accounted for approximately 14% and
9%, respectively, of revenues. Sales are generally on a purchase
order basis, and we do not have long-term agreements with any of our customers.
A decision by any of our major customers to decrease significantly the number of
products purchased from us could substantially reduce revenues and have a
material adverse effect on our business, financial condition and results of
operations. Moreover, in recent years, the retail industry has experienced
consolidation and other ownership changes. In the future, retailers may further
consolidate, undergo restructurings or reorganizations, realign their
affiliations or reposition their stores’ target market. These developments could
result in a reduction in the number of stores that carry our products, increased
ownership concentration within the retail industry, increased credit exposure or
increased retailer leverage over their suppliers. These changes could impact our
opportunities in the market and increase our reliance on a smaller number of
large customers.
We
are subject to risks related to our dependence on the strength of retail
economies in various parts of the world and our performance may be affected by
general economic conditions and the current global financial
crisis.
The
Company’s business depends on the strength of the retail economies in various
parts of the world, primarily in North America and to a lesser extent Asia,
Central and South America and Europe, which have recently deteriorated
significantly and may remain depressed, or be subject to further deterioration,
for the foreseeable future. These retail economies are affected primarily by
factors such as consumer demand and the condition of the retail industry, which,
in turn, are affected by general economic conditions and specific events such as
natural disasters, terrorist attacks and political unrest. The impact of these
external factors is difficult to predict, and one or more of the factors could
adversely impact our business, results of operations and financial
condition.
Purchases
of many consumer products are discretionary and tend to be highly correlated
with the cycles of the levels of disposable income of consumers. As a result,
any substantial deterioration in general economic conditions could adversely
affect consumer discretionary spending patterns, our sales and our results of
operations. In particular, decreased consumer confidence or a reduction in
discretionary income as a result of unfavorable macroeconomic conditions may
negatively affect our business. If the current macroeconomic environment
persists or worsens, consumers may reduce or delay their purchases of our
products. Any such reduction in purchases could have a material adverse effect
on our business, financial condition and results of operations.
Changes
in the retail industry and markets for consumer products affecting our customers
or retailing practices could negatively impact existing customer relationships
and our results of operations.
We sell
our products to retailers, including sporting goods and specialty retailers, as
well as direct to consumers. A significant deterioration in the financial
condition of our major customers could have a material adverse effect on our
sales and profitability. We regularly monitor and evaluate the credit status of
our customers and attempt to adjust sales terms as appropriate. Despite these
efforts, a bankruptcy filing by a key customer could have a material adverse
effect on our business, results of operations and financial
condition.
In
addition, as a result of the desire of retailers to more closely manage
inventory levels, there is a growing trend among retailers to make purchases on
a “just-in-time” basis. This requires us to shorten our lead time for production
in certain cases and more closely anticipate demand, which could in the future
require us to carry additional inventories.
We may be
negatively affected by changes in the policies of our retailer customers, such
as inventory destocking, limitations on access to and time on shelf space, use
of private label brands, price demands, payment terms and other conditions,
which could negatively impact our results of operations.
There is
a growing trend among retailers in the U.S. and in foreign markets to undergo
changes that could decrease the number of stores that carry our products or
increase the concentration of ownership within the retail industry,
including:
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consolidating their operations;
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undergoing restructurings or store closings;
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undergoing reorganizations; or
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realigning their affiliations.
These
consolidations could result in a shift of bargaining power to the retail
industry and in fewer outlets for our products. Further consolidations could
result in price and other competition that could reduce our margins and our net
sales.
Competition
in our industries may hinder our ability to execute our business strategy,
achieve profitability, or maintain relationships with existing
customers.
We
operate in a highly competitive industry. In this industry, we compete against
numerous other domestic and foreign companies. Competition in the markets in
which we operate is based primarily on product quality, product innovation,
price and customer service and support, although the degree and nature of such
competition vary by location and product line. Some of our competitors are more
established in their industries and have substantially greater revenue or
resources than we do. Our competitors may take actions to match new product
introductions and other initiatives. Since many of our competitors source their
products from third parties, our ability to obtain a cost advantage through
sourcing is reduced. Certain of our competitors may be willing to reduce prices
and accept lower profit margins to compete with us. Further, retailers often
demand that suppliers reduce their prices on existing products. Competition
could cause price reductions, reduced profits or losses or loss of market share,
any of which could have a material adverse effect on our business, results of
operations and financial condition.
To
compete effectively in the future in the consumer products industry, among other
things, we must:
• maintain
strict quality standards;
• develop
new and innovative products that appeal to consumers;
• deliver
products on a reliable basis at competitive prices;
• anticipate
and respond to changing consumer trends in a timely manner;
• maintain
favorable brand recognition; and
• provide
effective marketing support.
Our
inability to do any of these things could have a material adverse effect on our
business, results of operations and financial condition.
If
we fail to develop new or expand existing customer relationships, our ability to
grow our business will be impaired.
Our
growth depends to a significant degree upon our ability to develop new customer
relationships and to expand existing relationships with current customers. We
cannot guarantee that new customers will be found, that any such new
relationships will be successful when they are in place, or that business with
current customers will increase. Failure to develop and expand such
relationships could have a material adverse effect on our business, results of
operations and financial condition.
Seasonality
and weather conditions may cause our operating results to vary from quarter to
quarter.
Sales of
certain of our products are seasonal. Sales of our outdoor recreation products
such as carabiners, harnesses and related climbing equipment products increase
during warm weather months and decrease during winter, while sales of winter
sports equipment such as our skis, boots, bindings and related ski equipment
increase during the cold weather months and decrease during summer. Weather
conditions may also negatively impact sales. For instance, fewer than
anticipated natural disasters (i.e., ice storms) could negatively affect the
sale of certain outdoor recreation products; mild winter weather may negatively
impact sales of our winter sports products. These factors could have a material
adverse effect on our business, results of operations and financial
condition.
If
we fail to adequately protect our intellectual property rights, competitors may
manufacture and market products similar to ours, which could adversely affect
our market share and results of operations.
Our
success with our proprietary products depends, in part, on our ability to
protect our current and future technologies and products and to defend our
intellectual property rights. If we fail to adequately protect our intellectual
property rights, competitors may manufacture and market products similar to
ours. Our principal intellectual property rights include our trademarks and
patents.
We hold
numerous utility patents covering a wide variety of products. We cannot be sure
that we will receive patents for any of our patent applications or that any
existing or future patents that we receive or license will provide competitive
advantages for our products. We also cannot be sure that competitors will not
challenge, invalidate or avoid the application of any existing or future patents
that we receive or license. In addition, patent rights may not prevent our
competitors from developing, using or selling products that are similar or
functionally equivalent to our products.
Third
parties may have patents of which we are unaware, or may be awarded new patents,
that may materially adversely affect our ability to market, distribute, and sell
our products. Accordingly, our products, including, but not limited
to, our technical climbing and backpack products, may become subject to patent
infringement claims or litigation or interference proceedings, any adverse
determination of which could have a material adverse effect on our business,
results of operations and financial condition.
Changes
in foreign, cultural, political and financial market conditions could impair our
international operations and financial performance.
Some of
our operations are conducted or products are sold in countries where economic
growth has slowed, such as Japan; or where economies have suffered economic,
social and/or political instability or hyperinflation or where the ability to
repatriate funds has been delayed or impaired in recent
years. Current government economic and fiscal policies, including
stimulus measures and currency exchange rates and controls, in these economies
may not be sustainable and, as a result, our sales or profits related to those
countries may decline. The economies of other foreign countries important to our
operations, including other countries in Asia and Europe, could also suffer
slower economic growth or economic, social and/or political instability or
hyperinflation in the future. International operations, including manufacturing
and sourcing operations (and the international operations of our customers), are
subject to inherent risks which could adversely affect us, including, among
other things:
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protectionist
policies restricting or impairing the manufacturing, sales or import and
export of our products;
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new
restrictions on access to markets;
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lack
of developed infrastructure;
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inflation
or recession;
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devaluations
or fluctuations in the value of
currencies;
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changes
in and the burdens and costs of compliance with a variety of foreign laws
and regulations, including tax laws, accounting standards, environmental
laws and occupational health and safety
laws;
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social,
political or economic instability;
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acts
of war and terrorism;
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natural
disasters or other crises;
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reduced
protection of intellectual property rights in some
countries;
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increases
in duties and taxation; and
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restrictions
on transfer of funds and/or exchange of currencies; expropriation of
assets; and other adverse changes in policies, including monetary, tax
and/or lending policies, encouraging foreign investment or foreign trade
by our host countries.
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Should
any of these risks occur, our ability to sell or export our products or
repatriate profits could be impaired and we could experience a loss of sales and
profitability from our international operations, which could have a material
adverse impact on our business.
If
we cannot continue to develop new products in a timely manner, and at favorable
margins, we may not be able to compete effectively.
We
believe that our future success will depend, in part, upon our ability to
continue to introduce innovative design extensions for our existing products and
to develop, manufacture and market new products. We cannot assure you that we
will be successful in the introduction, manufacturing and marketing of any new
products or product innovations, or develop and introduce, in a timely manner,
innovations to our existing products that satisfy customer needs or achieve
market acceptance. Our failure to develop new products and introduce them
successfully and in a timely manner, and at favorable margins, would harm our
ability to successfully grow our business and could have a material adverse
effect on our business, results of operations and financial
condition.
Our
results of operations could be materially harmed if we are unable to accurately
forecast demand for our products.
We often
schedule internal production and place orders for products with independent
manufacturers before our customers’ orders are firm. Therefore, if we fail to
accurately forecast customer demand, we may experience excess inventory levels
or a shortage of product to deliver to our customers. Factors that could affect
our ability to accurately forecast demand for our products include:
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an
increase or decrease in consumer demand for our products or for products
of our competitors;
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our
failure to accurately forecast customer acceptance of new
products;
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new
product introductions by
competitors;
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unanticipated
changes in general market conditions or other factors, which may result in
cancellations of orders or a reduction or increase in the rate of reorders
placed by retailers;
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weak
economic conditions or consumer confidence, which could reduce demand for
discretionary items such as our
products; and
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terrorism
or acts of war, or the threat of terrorism or acts of war, which could
adversely affect consumer confidence and spending or interrupt production
and distribution of product and raw
materials.
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Inventory
levels in excess of customer demand may result in inventory write-downs and the
sale of excess inventory at discounted prices, which could have an adverse
effect on our business, results of operations and financial
condition. On the other hand, if we underestimate demand for our products, our
manufacturing facilities or third party manufacturers may not be able to produce
products to meet customer requirements, and this could result in delays in the
shipment of products and lost revenues, as well as damage to our reputation and
customer relationships. There can be no assurance that we will be able to
successfully manage inventory levels to exactly meet future order and reorder
requirements.
Our
operating results can be adversely affected by changes in the cost or
availability of raw materials.
Pricing
and availability of raw materials for use in our businesses can be volatile due
to numerous factors beyond our control, including general, domestic and
international economic conditions, labor costs, production levels, competition,
consumer demand, import duties and tariffs and currency exchange rates. This
volatility can significantly affect the availability and cost of raw materials
for us, and may, therefore, have a material adverse effect on our business,
results of operations and financial condition.
During
periods of rising prices of raw materials, there can be no assurance that we
will be able to pass any portion of such increases on to customers. Conversely,
when raw material prices decline, customer demands for lower prices could result
in lower sale prices and, to the extent we have existing inventory, lower
margins. As a result, fluctuations in raw material prices could have a material
adverse effect on our business, results of operations and financial
condition.
Supply
shortages or changes in availability for any particular type of raw material can
delay production or cause increases in the cost of manufacturing our products.
We may be negatively affected by changes in availability and pricing of raw
materials, which could negatively impact our results of operations.
Our
operations in international markets, and earnings in those markets, may be
affected by legal, regulatory, political and economic risks.
Our
ability to maintain the current level of operations in our existing
international markets and to capitalize on growth in existing and new
international markets is subject to risks associated with international
operations. These include the burdens of complying with a variety of foreign
laws and regulations, unexpected changes in regulatory requirements, new tariffs
or other barriers to some international markets.
We cannot
predict whether quotas, duties, taxes, exchange controls or other restrictions
will be imposed by the United States, the European Union or other countries upon
the import or export of our products in the future, or what effect any of these
actions would have on our business, financial condition or results of
operations. We cannot predict whether there might be changes in our ability to
repatriate earnings or capital from international jurisdictions. Changes in
regulatory, geopolitical policies and other factors may adversely affect our
business or may require us to modify our current business
practices.
Approximately
54.9% of our revenue is earned in international jurisdictions. We are
exposed to risks of changes in U.S. policy for companies having business
operations outside the United States. In recent months, the President and others
in his Administration have proposed changes in U.S. income tax laws that
could, among other things, accelerate the U.S. taxability of
non-U.S. earnings or limit foreign tax credits. Although such proposals
have been deferred, if new legislation were enacted, it is possible our
U.S. income tax expense could increase, which would reduce our
earnings.
We
use foreign suppliers and manufacturing facilities for a significant portion of
our raw materials and finished products, which poses risks to our business
operations.
During
fiscal 2009, a significant portion of our products sold were produced by and
purchased from independent manufacturers primarily located in Asia, with
substantially all of the remainder produced by our manufacturing facilities
located in California, Switzerland, Utah, China and the Philippines. Although no
single supplier and no one country is critical to our production needs, any of
the following could materially and adversely affect our ability to produce or
deliver our products and, as a result, have a material adverse effect on our
business, financial condition and results of operations:
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|
political
or labor instability in countries where our facilities, contractors and
suppliers are located;
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•
|
political
or military conflict, which could cause a delay in the transportation of
raw materials and products to us and an increase in transportation
costs;
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•
|
heightened
terrorism security concerns, which could subject imported or exported
goods to additional, more frequent or more lengthy inspections, leading to
delays in deliveries or impoundment of goods for extended periods or could
result in decreased scrutiny by customs officials for counterfeit goods,
leading to lost sales, increased costs for our anti-counterfeiting
measures and damage to the reputation of its
brands;
|
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•
|
disease
epidemics and health-related concerns, such as the H1N1 virus, bird flu,
SARS, mad cow and hoof-and-mouth disease outbreaks in recent years, which
could result in closed factories, reduced workforces, scarcity of raw
materials and scrutiny or embargo of ours goods produced in infected
areas;
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•
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imposition
of regulations and quotas relating to imports and our ability to adjust
timely to changes in trade regulations, which, among other things, could
limit our ability to produce products in cost-effective countries that
have the labor and expertise
needed;
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•
|
imposition
of duties, taxes and other charges on
imports; and
|
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•
|
imposition
or the repeal of laws that affect intellectual property
rights.
|
Our
business is subject to foreign, national, state and local laws and regulations
for environmental, employment, safety and other matters. The costs of compliance
with, or the violation of, such laws and regulations by us or by independent
suppliers who manufacture products for us could have an adverse effect on our
business, results of operations and financial condition.
Numerous
governmental agencies in the United States and in other countries in which we
have operations, enforce comprehensive national, state and local laws and
regulations on a wide range of environmental, employment, health, safety and
other matters. We could be adversely affected by costs of compliance or
violations of those laws and regulations. In addition, the costs of products
purchased by us from independent contractors could increase due to the costs of
compliance by those contractors. Further, violations of such laws and
regulations could affect the availability of inventory, thereby affecting our
net sales.
We
may incur significant costs in order to comply with environmental remediation
obligations.
Environmental
laws also impose obligations on various entities to clean up contaminated
properties or to pay for the cost of such remediation, often upon parties that
did not actually cause the contamination. Accordingly, we may be liable, either
contractually or by operation of law, for remediation costs even if the
contaminated property is not presently owned or operated by us, is a landfill or
other location where we have disposed wastes, or if the contamination was caused
by third parties during or prior to our ownership or operation of the property.
Given the nature of the past industrial operations conducted by us and others at
these properties, there can be no assurance that all potential instances of soil
or groundwater contamination have been identified, even for those properties
where an environmental site assessment has been conducted. Future events, such
as changes in existing laws or policies or their enforcement, or the discovery
of currently unknown contamination, may give rise to additional remediation
liabilities that may have a material adverse effect upon our business, results
of operations or financial condition.
Risks
Related to our Business
There
are significant risks associated with our strategy of acquiring and integrating
businesses.
A key
element of our strategy is the acquisition of businesses and assets that will
complement our current business, increase size, expand our geographic scope of
operations, and otherwise offer growth opportunities. We may not be able to
successfully identify attractive acquisition opportunities, obtain financing for
acquisitions, make acquisitions on satisfactory terms, or successfully acquire
and/or integrate identified targets. In identifying, evaluating and selecting a
target business for a potential acquisition, we expect to encounter intense
competition from other entities including blank check companies, private equity
groups, venture capital funds, leveraged buyout funds, and operating businesses
seeking strategic acquisitions. Many of these entities are well-established and
have extensive experience identifying and effecting business combinations
directly or through affiliates. Moreover, many of these competitors possess
greater financial, technical, human and other resources than us which will give
them a competitive advantage in pursuing the acquisition of certain target
businesses.
Our
ability to implement our acquisition strategy is also subject to other risks and
costs, including:
|
|
•
|
loss
of key employees, customers or suppliers of acquired
businesses;
|
|
|
•
|
diversion
of management's time and attention from our core
businesses;
|
|
|
•
|
adverse
effects on existing business relationships with suppliers and
customers;
|
|
|
•
|
our
ability to secure necessary
financing;
|
|
|
•
|
our
ability to realize operating efficiencies, synergies, or other benefits
expected from an acquisition;
|
|
|
•
|
risks
associated with entering markets in which we have limited or no
experience;
|
|
|
•
|
risks
associated with our ability to execute successful due diligence;
and
|
|
|
•
|
assumption
of contingent or undisclosed liabilities of acquisition
targets.
|
The above
risks could have a material adverse effect on the market price of our common
stock and our business, financial condition and results of
operations
Recent
turmoil across various sectors of the financial markets may negatively impact
the Company’s business, financial condition and/or operating results as well as
our ability to effectively execute our acquisition strategy.
Recently,
the various sectors of the credit markets and the financial services industry
have been experiencing a period of unprecedented turmoil and upheaval
characterized by disruption in the credit markets and availability of credit and
other financing, the failure, bankruptcy, collapse or sale of various financial
institutions and an unprecedented level of intervention from the United States
federal government. While the ultimate outcome of these events cannot
be predicted, they may have a material adverse effect on our ability to obtain
financing necessary to effectively execute our acquisition strategy, the ability
of our customers and suppliers to continue to operate their businesses or the
demand for our products which could have a material adverse effect on the market
price of our common stock and our business, financial condition and results of
operations.
We
may not be able to adequately manage our growth.
We have
expanded, and are seeking to continue to expand, our business. This growth has
placed significant demands on our management, administrative, operating and
financial resources as well as our manufacturing capacity capabilities. The
continued growth of our customer base, the types of products offered and the
geographic markets served can be expected to continue to place a significant
strain on our resources. Personnel qualified in the production and marketing of
our products are difficult to find and hire, and enhancements of information
technology systems to support growth are difficult to implement. Our future
performance and profitability will depend in large part on our ability to
attract and retain additional management and other key personnel as well as our
ability to increase and maintain our manufacturing capacity capabilities to meet
the needs of our current and future customers. Any failure to adequately manage
our growth could have a material adverse effect on the market price of our
common stock and our business, financial condition and results of
operations.
The
Company’s existing credit agreement contains financial and restrictive covenants
that may limit our ability to operate our business
The
agreement governing the Company’s credit facility contains, and any of its other
future debt agreements may contain, covenant restrictions that limit its ability
to operate its business, including restrictions on its ability to:
|
|
·
|
incur
debt (including secured debt) or issue
guarantees;
|
|
|
·
|
grant
liens on its assets;
|
|
|
·
|
sell
substantially of our assets; and
|
|
|
·
|
enter
into certain mergers or consolidations or make certain
acquisitions.
|
In
addition, the Company’s credit facility contains other affirmative and negative
covenants, including the requirements to maintain a minimum level of earnings
before interest, tax, depreciation and amortization, tangible net worth, and
asset coverage. The Company’s ability to comply with these covenants is
dependent on its future performance, which will be subject to many factors, some
of which are beyond its control, including prevailing economic conditions. Any
failure to comply with the restrictions of our credit facility or any subsequent
financing agreements may result in an event of default. An event of default may
allow the creditors, if the agreements so provide, to accelerate the related
debt as well as any other debt to which a cross-acceleration or cross-default
provision applies. In addition, the lender under our credit facility
may be able to terminate any commitments it had made to supply us with further
funds. If we default on the financial covenants in our credit
facility, our lender could exercise all rights and remedies available to it,
which could have a material adverse effect on our business, results of
operations, and financial condition.
As a
result of these covenants, the Company’s ability to respond to changes in
business and economic conditions and to obtain additional financing, if needed,
may be significantly restricted, and the Company may be prevented from engaging
in transactions or making acquisitions of a business that might otherwise be
beneficial to it.
Our
variable rate indebtedness subjects us to interest rate risk, which could cause
our debt service obligations to increase significantly.
Borrowings
under the revolving portion of our credit facility are at variable rates of
interest and expose us to interest rate risk. If interest rates increase, our
debt service obligations on the variable rate indebtedness would increase even
though the amount borrowed remained the same, and our net income and cash flows
would decrease.
Compliance
with the Sarbanes-Oxley Act of 2002 will require substantial financial and
management resources and may increase the time and costs of completing an
acquisition.
Section
404 of the Sarbanes-Oxley Act of 2002 requires that we evaluate and report on
our system of internal controls and requires that we have such system of
internal controls audited. If we fail to maintain the adequacy of our internal
controls, we could be subject to regulatory scrutiny, civil or criminal
penalties and/or stockholder litigation. Any inability to provide reliable
financial reports could harm our business. Section 404 of the Sarbanes-Oxley Act
also requires that our independent registered public accounting firm report on
management’s evaluation of our system of internal controls. An acquisition
target may not be in compliance with the provisions of the Sarbanes-Oxley Act
regarding adequacy of their internal controls. The development of the internal
controls of any such entity to achieve compliance with the Sarbanes-Oxley Act
may increase the time and costs necessary to complete any such acquisition.
Furthermore, any failure to implement required new or improved controls, or
difficulties encountered in the implementation of adequate controls over our
financial processes and reporting in the future, could harm our operating
results or cause us to fail to meet our reporting obligations. Inferior internal
controls could also cause investors to lose confidence in our reported financial
information, which could have a negative effect on the trading price of our
stock.
Our
Board of Directors and executive officers have significant influence over our
affairs.
The
members of our Board of Directors and our executive officers, which includes
Warren B. Kanders, Peter Metcalf and Robert R. Schiller, beneficially own
approximately 39% of our outstanding common stock. As a result, our
Board of Directors and executive officers, to the extent they vote their shares
in a similar manner, have influence over our affairs and could exercise such
influence in a manner that is not in the best interests of our other
stockholders, including by attempting to delay, defer or prevent a change of
control transaction that might otherwise be in the best interests of our
stockholders.
We
may be unable to realize the benefits of our net operating loss (“NOL”) and tax
credit carryforwards.
NOLs may
be carried forward to offset federal and state taxable income in future years
and eliminate income taxes otherwise payable on such taxable income, subject to
certain adjustments. Based on current federal corporate income tax rates, our
NOL and other carryforwards could provide a benefit to us, if fully utilized, of
significant future tax savings. However, our ability to use these tax benefits
in future years will depend upon the amount of our otherwise taxable income. If
we do not have sufficient taxable income in future years to use the tax benefits
before they expire, we will lose the benefit of these NOL carryforwards
permanently.
Additionally,
if we underwent an ownership change, the NOL carryforward limitations would
impose an annual limit on the amount of the taxable income that may be offset by
our NOL generated prior to the ownership change. If an ownership change were to
occur, we may be unable to use a significant portion of our NOL to offset
taxable income. In general, an ownership change occurs when, as of any testing
date, the aggregate of the increase in percentage points of the total amount of
a corporation’s stock owned by “5-percent stockholders” within the meaning of
the NOL carryforward limitations whose percentage ownership of the stock has
increased as of such date over the lowest percentage of the stock owned by each
such “5-percent stockholder” at any time during the three-year period preceding
such date is more than 50 percentage points. In general, persons who own 5% or
more of a corporation’s stock are “5-percent stockholders,” and all other
persons who own less than 5% of a corporation’s stock are treated together as a
public group. The issuance of a large number of shares of common stock in
connection with our acquisition strategy could result in a limitation of the use
of our NOLs.
Moreover,
if a corporation experiences an ownership change and does not satisfy the
continuity of business enterprise, or COBE, requirement (which generally
requires that the corporation continue its historic business or use a
significant portion of its historic business assets in a business for the
two-year period beginning on the date of the ownership change), it cannot,
subject to certain exceptions, use any NOL from a pre-change period to offset
taxable income in post-change years.
The
actual ability to utilize the tax benefit of any existing NOLs will be subject
to future facts and circumstances with respect to meeting the above described
COBE requirements at the time NOLs are being utilized on a tax return. The
realization of NOLs and the recognition of asset and valuation allowances for
deferred taxes require management to make estimates and judgments about the
Company’s future profitability which are inherently uncertain. Deferred tax
assets are reduced by valuation allowance when, in the opinion of management, it
is more likely than not that some portion or all of the deferred tax assets will
not be realized. If, in the opinion of management, it becomes more likely than
not that some portion or all of the deferred tax assets will not be realized,
deferred tax assets would be reduced by a valuation allowance and any such
reduction could have a material adverse effect on the financial condition of the
Company.
The
amount of NOL and tax credit carryforwards that we have claimed has not been
audited or otherwise validated by the U.S. Internal Revenue Service (the “IRS”).
The IRS could challenge our calculation of the amount of our NOL or our
determinations as to when a prior change in ownership occurred and other
provisions of the Internal Revenue Code of 1986, as amended (the “Code”) may
limit our ability to carry forward our NOL to offset taxable income in future
years. If the IRS was successful with respect to any such challenge, the
potential tax benefit of the NOL carryforwards to us could be substantially
reduced.
Certain
protective measures implemented by us to preserve our NOL may not be effective
or may have some unintended negative effects.
On July
24, 2003, at our Annual Meeting of Stockholders, our stockholders approved an
amendment (the “Amendment”) to our Amended and Restated Certificate of
Incorporation to restrict certain acquisitions of our securities in order to
help assure the preservation of our NOL. The Amendment generally restricts
direct and indirect acquisitions of our equity securities if such acquisition
will affect the percentage of Clarus’ capital stock that is treated as owned by
a “5% stockholder.” Additionally, on February 7, 2008, our board of directors
approved a Rights Agreement which is designed to assist in limiting the number
of 5% or more owners and thus reduce the risk of a possible “change of
ownership” under Section 382 of the Code.
Although
the transfer restrictions imposed on our capital stock and the Rights Agreement
are intended to reduce the likelihood of an impermissible ownership change,
there is no guarantee that such protective measures would prevent all transfers
that would result in an impermissible ownership change. These protective
measures also will require any person attempting to acquire a significant
interest in us to seek the approval of our board of directors. This may have an
“anti-takeover” effect because our board of directors may be able to prevent any
future takeover. Similarly, any limits on the amount of capital stock that a
stockholder may own could have the effect of making it more difficult for
stockholders to replace current management. Additionally, because protective
measures implemented by us to preserve our NOL will have the effect of
restricting a stockholder’s ability to acquire our common stock, the liquidity
and market value of our common stock might suffer.
The
loss of any member of our senior management or certain other key executives
could significantly harm our business.
Our
ability to maintain our competitive position is dependent to a large degree on
the efforts and skills of our senior management team, including Warren B.
Kanders, Peter Metcalf and Robert R. Schiller. If we lose the services of any
member of our senior management, our business may be significantly impaired. In
addition, many of our senior executives have strong industry reputations, which
aid us in identifying acquisition and borrowing opportunities, and having such
opportunities brought to us. The loss of the services of these key personnel
could materially and adversely affect our operations because of diminished
relationships with lenders, existing and prospective tenants, property sellers
and industry personnel.
Our
board of directors may change significant corporate policies without stockholder
approval.
Our
investment, financing, borrowing and dividend policies and our policies with
respect to all other activities, including growth, debt, capitalization and
operations, will be determined by our board of directors. These policies may be
amended or revised at any time and from time to time at the discretion of the
board of directors without a vote of our stockholders. In addition, the board of
directors may change our policies with respect to conflicts of interest provided
that such changes are consistent with applicable legal requirements. A change in
these policies could have an adverse effect on our financial condition, results
of operations, cash flow, per share trading price of our common stock and
ability to satisfy our debt service obligations and to pay dividends to
you.
Compensation
awards to our management may not be tied to or correspond with our improved
financial results or share price.
The
compensation committee of our board of directors is responsible for overseeing
our compensation and employee benefit plans and practices, including our
executive compensation plans and our incentive compensation and equity-based
compensation plans. Our compensation committee has significant discretion in
structuring compensation packages and may make compensation decisions based on
any number of factors. As a result, compensation awards may not be tied to or
correspond with improved financial results at our company or the share price of
our common stock.
Risks
Related to our Common Stock
Our
common stock is not currently listed on any securities exchange, quotation
system or market.
Although
the Company announced that it has applied to list its shares of common stock on
the NASDAQ Global Market (“NASDAQ”) under the ticker symbol “BDE”, there can be
no assurance that such listing application will be approved or that a regular
trading market will develop or that if developed, will be sustained. Our common
stock is not currently listed on any securities exchange, quotation system or
market and is currently quoted on the OTC Pink Sheets Electronic Quotation
Service under the symbol “CLRS.PK”. As a result, stockholders may
find it more difficult to dispose of, or to obtain accurate quotations as to the
price of, our common stock, the liquidity of our stock may be reduced, making it
difficult for a stockholder to buy or sell our stock at competitive market
prices or at all, we may lose support from institutional investors and/or market
makers that currently buy and sell our stock and the price of our common stock
could decline.
Our
Amended and Restated Certificate of Incorporation authorizes the issuance of
shares of preferred stock.
Our
Amended and Restated Certificate of Incorporation provides that our board of
directors will be authorized to issue from time to time, without further
stockholder approval, up to 5,000,000 shares of preferred stock in one or more
series and to fix or alter the designations, preferences, rights and any
qualifications, limitations or restrictions of the shares of each series,
including the dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, including sinking fund provisions, redemption price or
prices, liquidation preferences and the number of shares constituting any series
or designations of any series. Such shares of preferred stock could have
preferences over our common stock with respect to dividends and liquidation
rights. We may issue additional preferred stock in ways which may delay, defer
or prevent a change in control of Clarus without further action by our
stockholders. Such shares of preferred stock may be issued with voting rights
that may adversely affect the voting power of the holders of our common stock by
increasing the number of outstanding shares having voting rights, and by the
creation of class or series voting rights.
We
may issue a substantial amount of our common stock in the future, which could
cause dilution to current investors and otherwise adversely affect our stock
price.
A key
element of our growth strategy is to make acquisitions. As part of our
acquisition strategy, we may issue additional shares of common stock as
consideration for such acquisitions. These issuances could be significant. To
the extent that we make acquisitions and issue our shares of common stock as
consideration, your equity interest in us will be diluted. Any such issuance
will also increase the number of outstanding shares of common stock that will be
eligible for sale in the future. Persons receiving shares of our common stock in
connection with these acquisitions may be more likely to sell off their common
stock, which may influence the price of our common stock. In addition, the
potential issuance of additional shares in connection with anticipated
acquisitions could lessen demand for our common stock and result in a lower
price than might otherwise be obtained. We may issue common stock in the future
for other purposes as well, including in connection with financings, for
compensation purposes, in connection with strategic transactions or for other
purposes. The issuance of a large number of shares of common stock in connection
with our acquisition strategy could also have a negative effect on our ability
to use our NOLs.
We
do not expect to pay dividends on our common stock in the foreseeable
future.
Although
our stockholders may receive dividends if, as and when declared by our board of
directors, we do not intend to pay dividends on our common stock in the
foreseeable future. Therefore, you should not purchase our common stock if you
need immediate or future income by way of dividends from your
investment. In addition, upon an event of default under our credit
facility, we are prohibited from declaring or paying any dividends on our common
stock or generally making other distributions to our stockholders.
The
price of our common stock has been and is expected to continue to be volatile,
which could affect a stockholder’s return on investment.
There has
been significant volatility in the stock market and in particular in the market
price and trading volume of securities, which has often been unrelated to the
performance of the companies. The market price of our common stock has been
subject to significant fluctuations, and we expect it to continue to be subject
to such fluctuations for the foreseeable future. We believe the reasons for
these fluctuations include, in addition to general market volatility, the
relatively thin level of trading in our stock, and the relatively low public
float. Therefore, variations in financial results, announcements of
material events, technological innovations or new products by us or our
competitors, our quarterly operating results, changes in general conditions in
the economy or the health care industry, other developments affecting us or our
competitors or general price and volume fluctuations in the market are among the
many factors that could cause the market price of our common stock to fluctuate
substantially.
Shares
of our common stock have been thinly traded in the past.
The
trading volume of our common stock has not been significant, and there may not
be an active trading market for our common stock in the future. As a result of
the thin trading market or “float” for our stock, the market price for our
common stock may fluctuate significantly more than the stock market as a whole.
Without a large float, our common stock is less liquid than the stock of
companies with broader public ownership and, as a result, the trading prices of
our common stock may be more volatile. In the absence of an active public
trading market, an investor may be unable to liquidate his investment in our
common stock. Trading of a relatively small volume of our common stock may have
a greater impact on the trading price for our stock than would be the case if
our public float were larger. We cannot predict the prices at which our common
stock will trade in the future.
PROPERTIES
The
following table identifies and provides certain information regarding our
principal facilities.
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Location
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Annual
Rent
|
|
Owned/
Leased
|
|
Approximate
Size
|
|
Activity
|
|
|
|
|
|
|
|
|
|
|
|
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2084
East 3900 South
Salt
Lake City, Utah
|
|
N/A
|
|
Owned
|
|
90,000
(sq ft)
|
|
Manufacturing,
resale, research, and office.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2080
East 3900 South,
Building
N
Salt
Lake City, Utah
|
|
N/A
|
|
Owned
|
|
1,235
(sq ft)
|
|
Leased
to G.M.C.A. LLC for retail of food and drinks.
|
|
|
|
|
|
|
|
|
|
|
|
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1957
South West
Salt
Lake City, Utah
|
|
$198,441
|
|
Leased
|
|
47,248(sq
ft)
|
|
Distribution
and retail operations
|
|
|
|
|
|
|
|
|
|
|
|
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2074
East 3900 South
Salt
Lake City, Utah
|
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N/A
|
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Owned
|
|
2,600
(sq ft)
|
|
Leased
to OldRock, Inc.
|
|
|
|
|
|
|
|
|
|
|
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Gangyun
Factory, Lot 2
Free
Trade Zone, Zhuhai City, Guangdong Providence, PR China
|
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$352,960
|
|
Leased
|
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100,000
(sq ft)
|
|
Warehousing
and light manufacturing
|
|
|
|
|
|
|
|
|
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|
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Christoph
Merain Ring 7
4153
Reinach, Switzerland
|
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$123,797
|
|
Leased
|
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6,360(sq
ft)
|
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Office;
storage and parking
|
|
|
|
|
|
|
|
|
|
|
|
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1026
Echandens,
Switzerland
|
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$13,858
|
|
Leased
|
|
600
(sq ft)
|
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Showroom
Floor
|
|
|
|
|
|
|
|
|
|
|
|
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Trendhouse
Thurgauerstrasse
117 II
8152
Glattbrugg, Switzerland
|
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$14,900
|
|
Leased
|
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485
(sq ft)
|
|
Showroom
|
|
|
|
|
|
|
|
|
|
|
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1414
K Street, Suite 100
Sacramento,
California
|
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$246,872
|
|
Leased
|
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8,540(sq
ft)
|
|
Office
|
|
|
|
|
|
|
|
|
|
|
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416
W. 5th
Street
Calexico,
California
|
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$156,948
|
|
Leased
|
|
40,680(sq
ft)
|
|
Manufacturing
and distribution operations
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|
|
|
|
|
|
|
|
|
|
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1631
Enterprise Blvd, Suite 30
West
Sacramento, California
|
|
$50,400
|
|
Leased
|
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16,000(sq
ft)
|
|
Office
and distribution operations
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|
|
|
|
|
|
|
|
|
|
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1-17-1
Aioicho, Naka-Ward
Yokohama
City, Japan
|
|
$35,455
|
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Leased
|
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1,046(sq
ft)
|
|
Office
|
LEGAL
PROCEEDINGS
The Company is involved in various
legal disputes and other legal proceedings that arise from time to time in the
ordinary course of business. Based on currently available information, the
Company does not believe that the disposition of any of the legal disputes the
Company or its subsidiaries is currently involved in will have a material
adverse effect upon the Company’s consolidated financial condition, results of
operations or cash flows. It is possible that, as additional information becomes
available, the impact on the Company of an adverse determination could have a
different effect.
Litigation
The Company is involved in various
lawsuits arising from time to time that the Company considers ordinary routine
litigation incidental to its business. Amounts accrued for litigation matters
represent the anticipated costs (damages and/or settlement amounts) in
connection with pending litigation and claims and related anticipated legal fees
for defending such actions. The costs are accrued when it is both probable that
a liability has been incurred and the amount can be reasonably estimated. The
accruals are based upon the Company’s assessment, after consultation with
counsel (if deemed appropriate), of probable loss based on the facts and
circumstances of each case, the legal issues involved, the nature of the claim
made, the nature of the damages sought and any relevant information about the
plaintiffs and other significant factors that vary by case. When it is not
possible to estimate a specific expected cost to be incurred, the Company
evaluates the range of probable loss and records the minimum end of the range.
The Company believes that anticipated probable costs of litigation matters have
been adequately reserved to the extent determinable. Based on current
information, the Company believes that the ultimate conclusion of the various
pending litigation of the Company, in the aggregate, will not have a material
adverse effect on the Company’s consolidated financial position, results of
operations or cash flows.
Product
Liability
As a consumer goods manufacturer and
distributor, the Company faces the risk of product liability and related
lawsuits involving claims for substantial money damages, product recall actions
and higher than anticipated rates of warranty returns or other returns of
goods. The Company is therefore party to various personal injury and
property damage lawsuits relating to its products and incidental to its
business.
Based on current information, the
Company believes that the ultimate conclusion of the various pending product
liability claims and lawsuits of the Company, in the aggregate, will not have a
material adverse effect on the Company’s consolidated financial position,
results of operations or cash flows.
SELECTED
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following selected unaudited pro
forma financial information contains the non-GAAP measures: EBITDA, Adjusted
EBITDA, cash earnings per share and adjusted cash earnings per
share.
The selected unaudited pro forma
financial information below is being provided in connection with the other
financial information included as part of this Current Report on Form 8-K
because the Company believes the presentation of these non-GAAP measures
provides useful information for the understanding of its future combined
operations included therein. It its intended to enable investors to
focus on period-over-period future operating performance, and thereby enhance
the user’s overall understanding of the Company’s current financial performance
relative to past performance. It is also intended to provide, to the
nearest GAAP measures, a better baseline for modeling future earnings
expectations. The Company cautions that non-GAAP measures should be
considered in addition to, but not as a substitute for, the Company’s reported
GAAP results.
EBITDA and Adjusted
EBITDA
“EBITDA” which represents earnings
before interest, taxes, depreciation and amortization and other special items
and “Adjusted EBITDA” which includes EBITDA plus transaction costs, non-cash
equity compensation and merger and integration, are presented in the following
selected unaudited pro forma financial information because management believes
that EBITDA, as defined above, is a common alternative to measure value and
performance. We cannot assure you that this measure is comparable to similarly
titled measures presented by other companies.
RECONCILIATION
FROM OPERATING INCOME TO EBITDA AND ADJUSTED EBITDA
FOR
THE YEAR ENDED DECEMBER 31, 2009
(IN
THOUSANDS)
|
|
|
Clarus
|
|
|
Black
Diamond
Equipment
|
|
|
Gregory
Mountain
Products
|
|
|
BDE Pro
Forma
Adjustments
|
|
|
GMP Pro
Forma
Adjustment
|
|
|
Pro Forma
Combined
Clarus, BDE
and GMP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss)
income
|
|
$ |
(5,552 |
) |
|
$ |
6,494 |
|
|
$ |
2,370 |
|
|
$ |
(364 |
) |
|
$ |
(66 |
) |
|
$ |
2,882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation in cost of goods
sold
|
|
|
|
|
|
|
1,106 |
|
|
|
56 |
|
|
|
(181 |
) |
|
|
(27 |
) |
|
|
954 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation in selling, general
and admin
|
|
|
342 |
|
|
|
1,144 |
|
|
|
272 |
|
|
|
(187 |
) |
|
|
(132 |
) |
|
|
1,439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
- |
|
|
|
4 |
|
|
|
243 |
|
|
|
845 |
|
|
|
225 |
|
|
|
1,317 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$ |
(5,210 |
) |
|
$ |
8,748 |
|
|
$ |
2,941 |
|
|
$ |
113 |
|
|
$ |
- |
|
|
$ |
6,592 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction
costs
|
|
|
1,613 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash equity
compensation
|
|
|
490 |
|
|
|
- |
|
|
|
- |
|
|
|
48 |
|
|
|
- |
|
|
|
538 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger
and integration
|
|
|
- |
|
|
|
- |
|
|
|
739 |
|
|
|
- |
|
|
|
- |
|
|
|
739 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA
|
|
$ |
(3,107 |
) |
|
$ |
8,748 |
|
|
$ |
3,680 |
|
|
$ |
161 |
|
|
$ |
- |
|
|
$ |
9,482 |
|
RECONCILIATION
FROM OPERATING INCOME TO EBITDA AND ADJUSTED EBITDA
FOR
THE THREE MONTHS ENDED MARCH 31, 2010
(IN
THOUSANDS)
|
|
|
Clarus
|
|
|
Black
Diamond
Equipment
|
|
|
Gregory
Mountain
Products
|
|
|
BDE Pro
Forma
Adjustments
|
|
|
GMP Pro
Forma
Adjustment
|
|
|
Pro Forma
Combined
Clarus, BDE
and GMP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss)
income
|
|
$ |
(2,377 |
) |
|
$ |
1,805 |
|
|
$ |
1,847 |
|
|
$ |
1,326 |
|
|
$ |
(6 |
) |
|
$ |
2,595 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation in cost of goods
sold
|
|
|
|
|
|
|
196 |
|
|
|
14 |
|
|
|
(10 |
) |
|
|
(8 |
) |
|
|
192 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation in selling, general
and admin
|
|
|
79 |
|
|
|
299 |
|
|
|
73 |
|
|
|
(14 |
) |
|
|
(43 |
) |
|
|
394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
- |
|
|
|
1 |
|
|
|
61 |
|
|
|
212 |
|
|
|
57 |
|
|
|
331 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$ |
(2,298 |
) |
|
$ |
2,301 |
|
|
$ |
1,995 |
|
|
$ |
1,514 |
|
|
$ |
- |
|
|
$ |
3,512 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction
costs
|
|
|
1,509 |
|
|
|
- |
|
|
|
- |
|
|
|
(1,486 |
) |
|
|
- |
|
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash equity
compensation
|
|
|
118 |
|
|
|
- |
|
|
|
- |
|
|
|
12 |
|
|
|
- |
|
|
|
130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger
and integration
|
|
|
- |
|
|
|
- |
|
|
|
64 |
|
|
|
- |
|
|
|
- |
|
|
|
64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA
|
|
$ |
(671 |
) |
|
$ |
2,301 |
|
|
$ |
2,059 |
|
|
$ |
40 |
|
|
$ |
- |
|
|
$ |
3,729 |
|
Cash Earnings Per Share and Adjusted
Cash Earnings Per Share
“Cash earnings per share”, which
represents net income adjusted for amortization, other non-cash items, GAAP and
cash taxes, and “adjusted cash earnings per share,” which represents cash
earnings per share plus transaction costs and merger and integration expenses,
net of the cash tax effect, are presented in the following selected unaudited
pro forma financial information because management believes that cash earnings
per share more accurately reflects the benefit of our net operating loss
carryforward’s ability to offset the majority of our federal income taxes. We
cannot assure you that this measure is comparable to similarly titled measures
presented by other companies.
RECONCILIATION
FROM NET INCOME TO CASH NET INCOME, ADJUSTED CASH NET INCOME AND
CASH
EARNINGS PER SHARE AND ADJUSTED CASH EARNINGS PER SHARE
FOR
THE YEAR ENDED DECEMBER 31, 2009
(IN
THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
|
Clarus
|
|
|
Black
Diamond
Equipment
|
|
|
Gregory
Mountain
Products
|
|
|
BDE Pro
Forma
Adjustments
|
|
|
GMP Pro
Forma
Adjustment
|
|
|
Pro Forma
Combined
Clarus, BDE
and GMP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)
income
|
|
$ |
(4,845 |
) |
|
$ |
4,050 |
|
|
$ |
1,634 |
|
|
$ |
892 |
|
|
$ |
(1,725 |
) |
|
$ |
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of
intangibles
|
|
|
- |
|
|
|
4 |
|
|
|
243 |
|
|
|
845 |
|
|
|
225 |
|
|
|
1,317 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation in cost of goods
sold
|
|
|
|
|
|
|
1,106 |
|
|
|
56 |
|
|
|
(181 |
) |
|
|
(27 |
) |
|
|
954 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation in selling, general
and admin
|
|
|
342 |
|
|
|
1,144 |
|
|
|
272 |
|
|
|
(187 |
) |
|
|
(132 |
) |
|
|
1,439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of note
discount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,389 |
|
|
|
1,389 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash equity
compensation
|
|
|
490 |
|
|
|
|
|
|
|
|
|
|
|
48 |
|
|
|
|
|
|
|
538 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP tax
provision/(benefit)
|
|
|
(6 |
) |
|
|
1,820 |
|
|
|
812 |
|
|
|
(1,753 |
) |
|
|
(868 |
) |
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash income
taxes
|
|
|
6 |
|
|
|
(1,045 |
) |
|
|
(1,280 |
) |
|
|
901 |
|
|
|
1,163 |
|
|
|
(255 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash net
income
|
|
$ |
(4,013 |
) |
|
$ |
7,079 |
|
|
$ |
1,737 |
|
|
$ |
565 |
|
|
$ |
25 |
|
|
$ |
5,393 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction
costs
|
|
|
1,613 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger and
integration
|
|
|
- |
|
|
|
- |
|
|
|
739 |
|
|
|
- |
|
|
|
- |
|
|
|
739 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State cash taxes on
adjustments
|
|
|
(81 |
) |
|
|
- |
|
|
|
(37 |
) |
|
|
- |
|
|
|
- |
|
|
|
(118 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMT cash taxes on
adjustments
|
|
|
(31 |
) |
|
|
- |
|
|
|
(14 |
) |
|
|
- |
|
|
|
- |
|
|
|
(45 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted cash net
income
|
|
$ |
(2,512 |
) |
|
$ |
7,079 |
|
|
$ |
2,425 |
|
|
$ |
565 |
|
|
$ |
25 |
|
|
$ |
7,582 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash earnings per common share
attributable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common
share
|
|
$ |
(0.24 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common
share
|
|
$ |
(0.24 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted cash earnings per common
share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
attributable to
stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common
share
|
|
$ |
(0.15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common
share
|
|
$ |
(0.15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common
shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
outstanding for earnings per
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
16,867 |
|
|
|
|
|
|
|
|
|
|
|
484 |
|
|
|
3,707 |
|
|
|
21,058 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
16,867 |
|
|
|
|
|
|
|
|
|
|
|
484 |
|
|
|
3,707 |
|
|
|
21,124 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66 |
|
|
|
|
|
|
|
|
|
RECONCILIATION
FROM NET INCOME TO CASH INCOME, ADJUSTED CASH INCOME AND
CASH
EARNINGS PER SHARE AND ADJUSTED CASH EARNINGS PER SHARE
FOR
THE THREE MONTHS ENDED MARCH 31, 2010
(IN
THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
|
Clarus
|
|
|
Black
Diamond
Equipment
|
|
|
Gregory
Mountain
Products
|
|
|
BDE Pro
Forma
Adjustments
|
|
|
GMP Pro
Forma
Adjustment
|
|
|
Pro Forma
Combined
Clarus, BDE
and GMP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)
income
|
|
$ |
(2,355 |
) |
|
$ |
1,117 |
|
|
$ |
1,096 |
|
|
$ |
1,441 |
|
|
$ |
(346 |
) |
|
$ |
953 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of
intangibles
|
|
|
- |
|
|
|
1 |
|
|
|
61 |
|
|
|
212 |
|
|
|
57 |
|
|
|
331 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation in cost of goods
sold
|
|
|
- |
|
|
|
196 |
|
|
|
14 |
|
|
|
(10 |
) |
|
|
(8 |
) |
|
|
192 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation in selling, general
and admin
|
|
|
79 |
|
|
|
299 |
|
|
|
73 |
|
|
|
(14 |
) |
|
|
(43 |
) |
|
|
394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of note
discount
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
347 |
|
|
|
347 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash equity
compensation
|
|
|
118 |
|
|
|
|
|
|
|
|
|
|
|
12 |
|
|
|
|
|
|
|
130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP tax
provision/(benefit)
|
|
|
- |
|
|
|
331 |
|
|
|
757 |
|
|
|
(205 |
) |
|
|
(292 |
) |
|
|
591 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash income
taxes
|
|
|
- |
|
|
|
(418 |
) |
|
|
(19 |
) |
|
|
381 |
|
|
|
(97 |
) |
|
|
(153 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash net
income
|
|
$ |
(2,158 |
) |
|
$ |
1,526 |
|
|
$ |
1,982 |
|
|
$ |
1,817 |
|
|
$ |
(382 |
) |
|
$ |
2,785 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction
costs
|
|
|
1,509 |
|
|
|
- |
|
|
|
- |
|
|
|
(1,486 |
) |
|
|
- |
|
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger and
integration
|
|
|
- |
|
|
|
- |
|
|
|
64 |
|
|
|
- |
|
|
|
- |
|
|
|
64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State cash taxes on
adjustments
|
|
|
(75 |
) |
|
|
- |
|
|
|
(3 |
) |
|
|
74 |
|
|
|
- |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMT cash taxes on
adjustments
|
|
|
(29 |
) |
|
|
- |
|
|
|
(1 |
) |
|
|
28 |
|
|
|
- |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted cash net
income
|
|
$ |
(753 |
) |
|
$ |
1,526 |
|
|
$ |
2,042 |
|
|
$ |
433 |
|
|
$ |
(382 |
) |
|
$ |
2,866 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash earnings per common share
attributable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common
share
|
|
$ |
(0.13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common
share
|
|
$ |
(0.13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted cash earnings per common
share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
attributable to
stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common
share
|
|
$ |
(0.04 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common
share
|
|
$ |
(0.04 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common
shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
outstanding for earnings per
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
16,867 |
|
|
|
|
|
|
|
|
|
|
|
484 |
|
|
|
3,707 |
|
|
|
21,058 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
16,867 |
|
|
|
|
|
|
|
|
|
|
|
484 |
|
|
|
3,707 |
|
|
|
21,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
124 |
|
|
|
|
|
|
|
|
|
|
Item 9.01
|
Financial Statements and
Exhibits
|
(a) Financial Statements of the Business
Acquired. The
financial statements required by this item are
hereby included in Exhibit 99.2 attached hereto with respect to Black Diamond in
Exhibit 99.3 attached hereto with respect to Gregory.
(b) Pro Forma Financial
Information. The pro forma financial information
required by this item is
hereby included
in Exhibit 99.4 attached hereto with respect to the
Company.
(d) Exhibits. The following Exhibits are filed herewith
as a part of this report:
| |
Exhibit
|
Description
|
| |
2.1
|
Agreement and Plan of Merger,
dated as of May 7, 2010, by and among Clarus Corporation, Everest/Sapphire
Acquisition, LLC, Sapphire Merger Corp., Black Diamond Equipment, Ltd. and
Ed McCall, as
Stockholders’ Representative (incorporated herein by
reference to Exhibit 2.1 of the Current Report on Form 8-K dated May 7,
2010, filed by Clarus Corporation, on May 10, 2010).
|
| |
2.2
|
Agreement and Plan of Merger,
dated as of May 7, 2010, by and among Clarus Corporation, Everest/Sapphire
Acquisition, LLC, Everest Merger I Corp., Everest Merger II, LLC, Gregory
Mountain Products, Inc., Kanders GMP Holdings, LLC and Schiller
Gregory Investment
Company, LLC (incorporated herein by
reference to Exhibit 2.2 of the Current Report on Form 8-K dated May 7,
2010, filed by Clarus Corporation, on May 10, 2010).
|
| |
3.1
|
Amendment No. 2 to the Amended and Restated
Bylaws of the Company.
|
| |
10.1
|
Loan
Agreement, dated May
28, 2010, by
and among Zions First National Bank, a national banking association, the
Company and its direct and indirect subsidiaries, Black Diamond Equipment
Ltd., Black Diamond Retail, Inc., and Everest/Sapphire Acquisition, LLC,
as co-borrowers.
|
| |
10.2
|
Promissory
Note, dated May 28, 2010, by and among Zions First National Bank, a
national banking association, the Company, Black Diamond Equipment Ltd.,
Black Diamond Retail, Inc., and Everest/Sapphire Acquisition, LLC, as
co-borrowers.
|
| |
10.3
|
Assumption
Agreement, dated May 28,
2010, between Zions First National Bank, a national banking
association and Gregory Mountain Products, LLC.
|
| |
10.4
|
First
Substitute Promissory Note, dated May 28, 2010, by and among Zions First
National Bank, a national banking association, the Company, Black Diamond
Equipment Ltd., Black Diamond Retail, Inc., Everest/Sapphire Acquisition,
LLC and Gregory Mountain Products, LLC, as
co-borrowers.
|
| |
10.5
|
Subordination
Agreement, dated May 28, 2010, by and among
Zions First National Bank, a national banking association, the Company,
Black Diamond Equipment Ltd., Black Diamond Retail, Inc., Everest/Sapphire
Acquisition, LLC and Gregory Mountain Products, LLC, as co-borrowers, and
Kanders GMP Holdings,
LLC.
|
| |
10.6
|
Subordination
Agreement, dated May 28, 2010, by and among
Zions First National Bank, a national banking association, the Company,
Black Diamond Equipment Ltd., Black Diamond Retail, Inc., Everest/Sapphire
Acquisition, LLC and Gregory Mountain Products, LLC, as co-borrowers, and
Schiller Gregory Investment Company, LLC.
|
| |
10.7
|
Escrow
Agreement, dated May
28, 2010, by
and among Clarus Corporation, Everest/Sapphire Acquisition, LLC, U.S. Bank
National Association, Ed McCall, and Black Diamond Equipment,
Ltd.
|
| |
10.8
|
Form
of Black Diamond Registration Rights Agreement, dated May 28, 2010.
|
| |
10.9
|
Form
of 5% Subordinated Promissory Note Due May 28,
2017.
|
| |
10.10
|
Form
of Gregory Registration Rights Agreement, dated May 28, 2010.
|
| |
10.11
|
Form
of Lock-up Agreement dated May 28, 2010.
|
| |
10.12
|
Form
of Restrictive Covenant Agreement, dated May 28, 2010.
|
| |
10.13
|
Employment Agreement, dated as of
May 28,
2010, between Clarus
Corporation and Warren B. Kanders.
|
| |
10.14
|
Employment Agreement, dated as of
May 28,
2010, between Clarus
Corporation and Robert R. Schiller.
|
| |
10.15
|
Employment Agreement, dated as of
May 7,
2010, between Clarus
Corporation and Peter Metcalf (incorporated herein by
reference to Exhibit
10.1 of the Company’s
Current Report on
Form 8-K filed with
the Securities and Exchange Commission on May 10, 2010).
|
| |
10.16
|
Amendment No. 1 to Employment
Agreement, dated as of May 28, 2010, between Clarus Corporation and Peter
Metcalf.
|
| |
10.17
|
Stock Option Agreement, dated
December 23, 2002, between Clarus Corporation and Warren B. Kanders
(incorporated herein by reference to Exhibit 4.6 of the
Company’s
Registration Statement Form S-8 filed with the Securities and Exchange
Commission on August 19, 2005).
|
| |
10.18
|
Restricted Stock Agreement, dated
April 11, 2003, between Clarus Corporation and Warren B. Kanders (a copy of which is filed as
Exhibit 4.1 of the Company's
Form 10-Q filed with the Securities and Exchange Commission on May 15,
2003).
|
| |
10.19
|
Restricted Stock Agreement, dated
May 28,
2010, between Clarus
Corporation and Warren B.
Kanders
|
| |
10.20
|
Transition Agreement, dated May
28, 2010 between Clarus Corporation and Kanders and Company,
Inc.
|
| |
23.1
|
Consent
of Tanner
LC
|
| |
23.2
|
Consent
of Burr Pilger Mayer, Inc.
|
| |
99.1
|
Press
Release, dated June 1,
2010
(incorporated herein by reference to Exhibit 99.1 of the Current
Report on Form 8-K dated June 1, 2010, filed by Clarus Corporation, on
June 1, 2010).
|
| |
99.2
|
Financial
Statements of Black Diamond Equipment, Ltd.
|
| |
99.3
|
Financial
Statements of Gregory Mountain Products, Inc.
|
| |
99.4
|
Pro
Forma Financial Statements of Clarus
Corporation.
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
Dated:
June 4, 2010
CLARUS
CORPORATION
By: /s/ Robert
Peay
Name:
Robert Peay
Title:
Chief Financial Officer
(Principal
Financial Officer
and
Principal Accounting Officer)
| |
|
Description
|
| |
2.1
|
Agreement and Plan of Merger,
dated as of May 7, 2010, by and among Clarus Corporation, Everest/Sapphire
Acquisition, LLC, Sapphire Merger Corp., Black Diamond Equipment, Ltd. and
Ed McCall, as
Stockholders’ Representative (incorporated herein by
reference to Exhibit 2.1 of the Current Report on Form 8-K dated May 7,
2010, filed by Clarus Corporation, on May 10, 2010).
|
| |
2.2
|
Agreement and Plan of Merger,
dated as of May 7, 2010, by and among Clarus Corporation, Everest/Sapphire
Acquisition, LLC, Everest Merger I Corp., Everest Merger II, LLC, Gregory
Mountain Products, Inc., Kanders GMP Holdings, LLC and Schiller
Gregory Investment
Company, LLC (incorporated herein by
reference to Exhibit 2.2 of the Current Report on Form 8-K dated May 7,
2010, filed by Clarus Corporation, on May 10, 2010).
|
| |
3.1
|
Amendment No. 2 to the Amended and Restated
Bylaws of the Company.
|
| |
10.1
|
Loan
Agreement, dated May
28, 2010, by
and among Zions First National Bank, a national banking association, the
Company and its direct and indirect subsidiaries, Black Diamond Equipment
Ltd., Black Diamond Retail, Inc., and Everest/Sapphire Acquisition, LLC,
as co-borrowers.
|
| |
10.2
|
Promissory
Note, dated May 28, 2010, by and among Zions First National Bank, a
national banking association, the Company, Black Diamond Equipment Ltd.,
Black Diamond Retail, Inc., and Everest/Sapphire Acquisition, LLC, as
co-borrowers.
|
| |
10.3
|
Assumption
Agreement, dated May 28,
2010, between Zions First National Bank, a national banking
association and Gregory Mountain Products, LLC.
|
| |
10.4
|
First
Substitute Promissory Note, dated May 28, 2010, by and among Zions First
National Bank, a national banking association, the Company, Black Diamond
Equipment Ltd., Black Diamond Retail, Inc., Everest/Sapphire Acquisition,
LLC and Gregory Mountain Products, LLC, as
co-borrowers.
|
| |
10.5
|
Subordination
Agreement, dated May 28, 2010, by and among
Zions First National Bank, a national banking association, the Company,
Black Diamond Equipment Ltd., Black Diamond Retail, Inc., Everest/Sapphire
Acquisition, LLC and Gregory Mountain Products, LLC, as co-borrowers, and
Kanders GMP Holdings, LLC.
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| |
10.6
|
Subordination
Agreement, dated May 28, 2010, by and among
Zions First National Bank, a national banking association, the Company,
Black Diamond Equipment Ltd., Black Diamond Retail, Inc., Everest/Sapphire
Acquisition, LLC and Gregory Mountain Products, LLC, as co-borrowers, and
Schiller Gregory Investment Company,
LLC.
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| |
10.7
|
Escrow
Agreement, dated May
28, 2010, by
and among Clarus Corporation, Everest/Sapphire Acquisition, LLC, U.S. Bank
National Association, Ed McCall, and Black Diamond Equipment,
Ltd.
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| |
10.8
|
Form
of Black Diamond Registration Rights Agreement, dated May 28, 2010.
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| |
10.9
|
Form
of 5% Subordinated Promissory Note Due May 28,
2017.
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| |
10.10
|
Form
of Gregory Registration Rights Agreement, dated May 28, 2010.
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| |
10.11
|
Form
of Lock-up Agreement, dated May 28, 2010.
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| |
10.12
|
Form
of Restrictive Covenant Agreement dated May 28, 2010.
|
| |
10.13
|
Employment Agreement, dated as of
May 28,
2010, between Clarus
Corporation and Warren B. Kanders.
|
| |
10.14
|
Employment Agreement, dated as of
May 28,
2010, between Clarus
Corporation and Robert R. Schiller.
|
| |
10.15
|
Employment Agreement, dated as of
May 7,
2010, between Clarus
Corporation and Peter Metcalf (incorporated herein by
reference to Exhibit
10.1 of the Company’s
Current Report on
Form 8-K filed with
the Securities and Exchange Commission on May 10, 2010).
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| |
10.16
|
Amendment No. 1 to Employment
Agreement, dated as of May 28, 2010, between Clarus Corporation and Peter
Metcalf.
|
| |
10.17
|
Stock Option Agreement, dated
December 23, 2002, between Clarus Corporation and Warren B. Kanders
(incorporated herein by reference to Exhibit 4.6 of the
Company’s
Registration Statement Form S-8 filed with the Securities and Exchange
Commission on August 19, 2005).
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| |
10.18
|
Restricted Stock Agreement, dated
April 11, 2003, between Clarus Corporation and Warren B. Kanders (a copy of which is filed as
Exhibit 4.1 of the Company's
Form 10-Q filed with the Securities and Exchange Commission on May 15,
2003).
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| |
10.19
|
Restricted Stock Agreement, dated
May 28,
2010, between Clarus
Corporation and Warren B.
Kanders
|
| |
10.20
|
Transition Agreement, dated May
28, 2010 between Clarus Corporation and Kanders and Company,
Inc.
|
| |
23.1
|
Consent
of Tanner LC
|
| |
23.2
|
Consent
of Burr Pilger Mayer, Inc.
|
| |
99.1
|
Press
Release, dated June 1,
2010
(incorporated herein by reference to Exhibit 99.1 of the Current
Report on Form 8-K dated June 1, 2010, filed by Clarus Corporation, on
June 1, 2010).
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| |
99.2
|
Financial
Statements of Black Diamond Equipment, Ltd.
|
| |
99.3
|
Financial
Statements of Gregory Mountain Products, Inc.
|
| |
99.4
|
Pro
Forma Financial Statements of Clarus
Corporation.
|