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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 2003
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from _________ to _________
Commission File Number: 0-24277
Clarus Corporation
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(Exact name of registrant as specified in its charter)
Delaware 58-1972600
------------------------------ ---------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
One Pickwick Plaza
Greenwich, Connecticut 06830
----------------------------------------
(Address of principal executive offices)
(Zip code)
(203) 302-2000
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(Registrant's telephone number, including area code)
3970 Johns Creek Court, Suwanee, Georgia 30024
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(former address)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO_
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). YES X NO_
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, ($.0001 Par Value)
--------------------------------------------------------
15,847,978 shares outstanding as of May 12, 2003
INDEX
- ---------
CLARUS CORPORATION
PART I FINANCIAL INFORMATION
- ---------- --------------------------------------
Page
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (unaudited) -
March 31, 2003 and December 31, 2002............................................................1
Condensed Consolidated Statements of Operations (unaudited) -
Three months ended March 31, 2003 and 2002......................................................2
Condensed Consolidated Statements of Cash Flows (unaudited) -
Three months ended March 31, 2003 and 2002......................................................3
Notes to Condensed Consolidated Financial Statements (unaudited) -
March 31, 2003..................................................................................4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................................................8
Item 3. Quantitative and Qualitative Disclosures About Market Risk......................................14
Item 4. Procedures and Controls.........................................................................14
PART II OTHER INFORMATION
- ---------- --------------------------------
Item 1. Legal Proceedings...............................................................................14
Item 5. Other Information...............................................................................15
Item 6. Exhibits and Reports on Form 8-K................................................................16
SIGNATURE......................................................................................................16
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CLARUS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
MARCH 31, DECEMBER 31,
2003 2002
------------------- ------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $49,665 $ 42,225
Marketable securities 45,021 52,885
Accounts receivable, less allowance for doubtful accounts
of $203 and $586 in 2003 and 2002, respectively -- 467
Prepaids and other current assets 868 1,262
Assets held for sale -- 48
------------------- ------------------
Total current assets 95,554 96,887
PROPERTY AND EQUIPMENT, NET -- 809
OTHER ASSETS:
Deposits and other long-term assets 68 68
------------------- ------------------
TOTAL ASSETS $ 95,622 $ 97,764
=================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 2,160 $ 1,936
Deferred revenue 1,195 1,248
Current portion of long-term debt 5,000 5,000
Liabilities to be assumed -- 220
------------------- ------------------
Total current liabilities 8,355 8,404
LONG-TERM LIABILITIES:
Other long-term liabilities -- --
------------------- ------------------
Total liabilities 8,355 8,404
STOCKHOLDERS' EQUITY:
Preferred stock, $.0001 par value; 5,000,000 shares authorized; none
issued -- --
Common stock, $.0001 par value; 100,000,000 shares authorized;
15,902,300 and 15,762,707 shares issued and 15,827,300 and 15,687,707
outstanding in 2003 and 2002, respectively 2 2
Additional paid-in capital 362,116 361,715
Accumulated deficit (274,848) (272,436)
Treasury stock, at cost (2) (2)
Accumulated other comprehensive income 60 146
Deferred compensation (61) (65)
------------------- -------------------
Total stockholders' equity 87,267 89,360
------------------- -------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 95,622 $ 97,764
=================== ===================
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
1
CLARUS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED
MARCH 31,
----------------------------------
2003 2002
REVENUES:
License fees $ -- $ 1,473
Services fees 53 2,468
----------------------------------
Total revenues 53 3,941
COST OF REVENUES:
License fees -- 14
Services fees -- 1,938
----------------------------------
Total cost of revenues -- 1,952
OPERATING EXPENSES:
Research and development -- 2,629
Sales and marketing -- 3,646
General and administrative 1,891 1,504
Provision for doubtful accounts 67 2
Depreciation and amortization 761 1,357
----------------------------------
Total operating expenses 2,719 9,138
OPERATING LOSS (2,666) (7,149)
OTHER (EXPENSE)/INCOME (48) 15
INTEREST INCOME 358 733
INTEREST EXPENSE (56) (56)
----------------------------------
NET LOSS $ (2,412) $ (6,457)
==================================
Loss per common share:
Basic $ (0.15) $ (0.41)
Diluted $ (0.15) $ (0.41)
Weighted average shares outstanding
Basic 15,739 15,572
Diluted 15,739 15,572
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
2
CLARUS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
THREE MONTHS ENDED
MARCH 31,
--------------------------------------
2003 2002
----------------- ------------------
OPERATING ACTIVITIES:
Net loss $ (2,412) $ (6,457)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization on property and equipment 761 1,129
Amortization of intangible assets -- 228
Noncash sales and marketing expense -- 98
Noncash general & administrative expense 4 --
Provision for doubtful accounts (67) 2
Loss/(Gain) on sale of assets 48 (10)
Changes in operating assets and liabilities:
Accounts receivable 534 126
Prepaid and other current assets 394 584
Assets held for Sale 48 --
Deposits and other long-term assets -- (67)
Accounts payable and accrued liabilities 224 (1,121)
Deferred revenue (53) (1,867)
Liabilities to be assumed (220) --
Other long-term liabilities -- (4)
----------------- ------------------
NET CASH USED IN OPERATING ACTIVITIES (739) (7,359)
INVESTING ACTIVITIES:
Purchase of marketable securities (35,765) (15,919)
Proceeds from maturity of marketable securities 43,629 250
Proceeds from sale of investments -- 200
Proceeds from sale of equipment -- 22
Purchases of property and equipment -- (3)
----------------- ------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 7,864 (15,450)
FINANCING ACTIVITIES:
Proceeds from the exercises of stock options 391 10
Proceeds from issuance of common stock related to employee stock purchase
plan 10 78
----------------- ------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 401 88
----------------- ------------------
Effect of exchange rate change on cash (86) (85)
CHANGE IN CASH AND CASH EQUIVALENTS 7,440 (22,806)
CASH AND CASH EQUIVALENTS, beginning of period 42,225 55,628
----------------- ------------------
CASH AND CASH EQUIVALENTS, end of period $ 49,665 $ 32,822
================= ==================
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid for interest
$ 56 $ 56
================= ==================
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
CLARUS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of Clarus
Corporation and subsidiaries ("Clarus" or the "Company," which may be referred
to as "we," "us," or "our") for the three months ended March 31, 2003, have been
prepared in accordance with accounting principles generally accepted in the
United States of America and instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information in notes
required by accounting principles generally accepted in the United States of
America for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) necessary for a fair
presentation of the unaudited condensed consolidated financial statements have
been included. The results of the three months ended March 31, 2003 are not
necessarily indicative of the results to be obtained for the year ending
December 31, 2003. These interim financial statements should be read in
conjunction with the Company's audited consolidated financial statements and
footnotes thereto included in the Company's Form 10-K for the fiscal year ended
December 31, 2002, filed with the Securities and Exchange Commission.
NOTE 2. SIGNIFICANT EVENTS
As part of our previously announced strategy to limit operating losses and
enable the Company to redeploy its assets and use its substantial cash and cash
equivalent assets to enhance stockholder value, on December 6, 2002 we sold
substantially all of our electronic commerce business, which represented
substantially all of our revenue-generating operations and related assets.
NOTE 3. EARNINGS PER SHARE
Basic and diluted net loss per share were computed in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share," using
the weighted average number of common shares outstanding. The diluted net loss
per share for the three months ended March 31, 2003 and 2002 does not include
the effect of potentially dilutive common stock equivalents, calculated using
the treasury stock method, as their impact would be antidilutive. The
potentially dilutive effects of excluded common stock equivalents are 48,000 and
168,000 for the three months ended March 31, 2003 and 2002 respectively.
NOTE 4. STOCK-BASED COMPENSATION PLAN
The Company accounts for its stock option plans in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees", and related interpretations. As such,
compensation expense is measured on the date of grant only if the current market
price of the underlying stock exceeds the exercise price. Such compensation
expense is recorded on a straight-line basis over the related vesting period.
SFAS 123, "Accounting for Stock-Based Compensation", permits entities to
recognize as expense over the vesting period the fair value of all stock-based
awards on the date of grant. Alternatively, SFAS 123 allows entities to continue
to apply the provisions of APB Opinion No. 25 and provide pro forma net income
(loss) and pro forma net income (loss) per share disclosures for employee stock
option grants as if the fair-value-based method defined in SFAS 123 had been
applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosures required by SFAS 123.
Had compensation cost been determined consistent with the provisions of SFAS No.
123, the Company's pro forma net loss and net loss per share in accordance with
SFAS No. 123 for the three month periods ended March 31, 2002 and 2003 would
have been as follows (in thousands, except per share amounts):
4
March 31,
2003 2002
-------------------------
Net loss, as reported...................................................... $(2,412) $(6,457)
Add stock-based employee compensation expense included in reported
net loss, net of tax.................................................... 4 98
Deduct total stock-based employee compensation expense determined
under fair-value based method for all awards, net of tax................ (1,255) (478)
--------- --------
Pro forma net loss......................................................... $(3,663) $(6,837)
========= ========
Basic and diluted net loss per share:
As reported................................................................ $(0.15) $(0.41)
Add stock-based employee compensation expense included in reported
net loss, net of tax.................................................... $ 0.00 $ 0.00
Deduct total stock-based employee compensation expense determined
under fair-value based method for all awards, net of tax $(0.08) $(0.03)
--------- ---------
Pro forma basic and diluted net loss per share.......................... $(0.23) $(0.44)
========= =========
NOTE 5. RESTRUCTURING AND RELATED COSTS
During 2002 and 2001, the Company's management approved restructuring plans to
reorganize and reduce operating costs. Restructuring and related charges of $4.2
million were expensed in 2001 to better align the Company's cost structure with
projected revenue. The charges were comprised of $3.0 million for employee
separation and related costs for 181 employees and $1.2 million for facility
closure and consolidation costs.
During the first quarter of 2002, the Company determined that amounts previously
charged during 2001 of approximately $202,000 that related to employee
separation and related charges were no longer required and this amount was
credited to sales and marketing expense in the accompanying consolidated
statement of operations during 2002. Restructuring and related charges of $8.6
million were expensed during 2002. The charges for 2002 were comprised of $4.6
million for employee separation and related costs for 183 employees and $4.0
million for facility closures and consolidation costs.
The facility closures and consolidation costs for 2001 and 2002 relate to the
abandonment of the Company's leased facilities in Suwanee, Georgia; Limerick,
Ireland; Maidenhead, England; and near Toronto, Canada. Total facilities closure
and consolidation costs include remaining lease liabilities, construction costs
and brokerage fees to sublet the abandoned space, net of estimated sublease
income. The estimated costs of abandoning these leased facilities, including
estimated costs to sublease, were based on market information trend analysis
provided by a commercial real estate brokerage firm retained by the Company. The
Company incurred a charge in the fourth quarter 2002 of $2.1 million for
facility closure and consolidation costs as a result of the termination of its
lease for the facility in Suwanee, Georgia.
The following is a reconciliation of the components of the accrual for
restructuring and related costs, the amounts charged against the accrual during
2002 and 2003 and the balance of the accrual as of March 31, 2003:
Balance Accruals Balance Balance
December During Expenditures Adjustments December 31, Expenditures March 31,
31, 2001 2002 During 2002 During 2002 2002 During 2003 2003
-------- ---- ----------- ----------- ----------- ----------- ---------
(in thousands)
Employee separation costs $ 680 $4,645 $(4,196) $ (202) $ 927 $(439) $488
Facility closure costs 1,209 3,905 (4,977) -- 137 (9) 128
----- ----- ------- ------- -------- ---------- ------
Total restructuring and
related costs $1,889 $8,550 $(9,173) $ (202) $ 1,064 $(448) $616
===== ====== ======== ======= ======== ======== ======
The accrual for restructuring and related costs is included in accounts payable
and accrued liabilities in the accompanying consolidated balance sheets.
5
NOTE 6. COMPREHENSIVE INCOME (LOSS)
The Company utilizes SFAS No. 130 "Reporting Comprehensive Income." SFAS 130
establishes standards for reporting and presentation of comprehensive income
(loss) and its components of net income (loss) and "Other Comprehensive Income
(Loss)." "Other Comprehensive Income (Loss)" refers to revenues, expenses and
gains and losses that are not included in net income (loss) but rather are
recorded directly in stockholders' equity. The components of comprehensive loss
for the three months ended March 31, 2003 and 2002 were as follows:
THREE MONTHS ENDED
MARCH 31,
2003 2002
---------------------------------
(in thousands)
Net loss $ (2,412) $ (6,457)
Increase in unrealized loss on marketable securities (109) (181)
Foreign currency translation adjustments (86) (85)
--------- ---------
Comprehensive loss $ (2,607) $ (6,723)
========= =========
NOTE 7. CREDIT AND CUSTOMER CONCENTRATIONS
The Company's accounts receivable potentially subject the Company to credit
risk, as collateral is generally not required. As of March 31, 2003, two
customers accounted for more than 10% each, totaling $178,000 or 87.6% of the
gross accounts receivable balance on that date. The percentage by customer was
57.7% and 29.9%, respectively, at March 31, 2003. As of December 31, 2002, four
customers accounted for more than 10% each, totaling $814,000 or 77.3% of the
gross accounts receivable balance on that date. The percentage of total accounts
receivable due from each of these four customers was 42.3%, 12.4%, 11.5% and
11.1%, respectively, at December 31, 2002.
During the quarter ended March 31, 2003, three customers accounted for more than
10% of total revenue, totaling $50,000 or 94.1% of total revenue. The percentage
by customer was 47.7%, 24.5% and 21.9%, respectively, at March 31, 2003. During
the quarter ended March 31, 2002, one customer accounted for more than 10% of
total revenue, totaling $1.8 million or 45.3% of total revenue.
NOTE 8. CONTINGENCIES
The Company is a party to various pending judicial and administrative
proceedings described more fully in Part I, Item 3 of the Company's Annual
Report on Form 10-K, as amended, for the fiscal year ended December 31, 2002,
and Part II, Item 1 of this Quarterly Report on Form 10-Q. After reviewing the
proceedings that are currently pending (including the probable outcomes,
reasonably anticipated costs and expenses, availability and limits of insurance
coverage, and our established reserves for uninsured liabilities), we do not
believe that any liabilities that may result from these proceedings are
reasonably likely to have a material adverse effect on our liquidity, financial
condition or results of operations. However, the results of complex legal
proceedings are difficult to predict. An unfavorable resolution of the
proceedings that are currently pending could adversely affect the Company's
business, results of operations, liquidity or financial condition.
NOTE 9. NEW ACCOUNTING PRONOUNCEMENTS
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities, an interpretation of ARB No. 51." This
interpretation addresses the consolidation by business enterprises of variable
interest entities as defined in the interpretation. The interpretation applies
immediately to variable interests in variable interest entities created after
January 31, 2003, and to variable interests in variable interest entities
obtained after January 31, 2003. The application of this interpretation did not
have a material effect on the Company's financial statements.
In December 2002, the FASB issued SFAS 148, "Accounting for Stock-Based
Compensation, Transition and
6
Disclosure, an amendment of FASB Statement No. 123." SFAS 148 amends SFAS 123,
"Accounting for Stock-Based Compensation," to provide alternative methods of
transition for a voluntary change to the fair value method of accounting for
stock-based employee compensation. In addition, this statement amends the
disclosure requirements of SFAS 123 to require prominent disclosures in both
annual and interim financial statements. Certain of the disclosures are required
for quarterly financial reporting and are included in the notes to these
condensed consolidated financial statements.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness to Others, an interpretation of FASB Statements No. 5, 57 and 107
and a rescission of FASB Interpretation No. 34." This interpretation elaborates
on the disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under guarantees issued. Interpretation No. 45
also clarifies that a guarantor is required to recognize, at inception of a
guarantee, a liability for the fair value of the obligation undertaken. The
initial recognition and measurement provisions of the interpretation are
applicable to guarantees issued or modified after December 31, 2002 and are not
expected to have a material effect on the Company's financial statements. The
disclosure requirements are effective for financial statements of interim or
annual periods ending after December 15, 2002. The Company does not currently
have any guarantees requiring disclosure in the notes to these condensed
consolidated financial statements. Accordingly the application of this
interpretation did not have a material effect on the Company's financial
statements.
In June 2002, the FASB issued SFAS 146, "Accounting for Costs Associated with
Exit or Disposal Activities." SFAS 146 addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies
Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for
Certain Employee termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." The provisions of SFAS
146 are effective for exit or disposal activities that are initiated after
December 31, 2002, with early application encouraged. The Company does not
believe that SFAS 146 will have a material impact on its financial statements.
In April 2002, the FASB issued SFAS 145, "Rescission of FASB Statements No. 4,
44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." SFAS
145 rescinds SFAS 4, "Reporting Gains and Losses from Extinguishment of Debt,"
SFAS 44, "Accounting for Intangible Assets of Motor Carriers" and SFAS 64,
"Extinguishments of Debt Made to Satisfy Sinking Fund Requirements." SFAS 145
amends SFAS 13, "Accounting for Leases," eliminating an inconsistency between
the required accounting for sale-leaseback transactions and the required
accounting for certain lease modifications with similar economic effects as
sale-leaseback transactions. This statement also amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under certain conditions. The
provisions related to SFAS 13 are effective for transactions occurring after May
15, 2002. All other provisions of the statement are effective for financial
statements issued on or after May 15, 2002. The adoption of SFAS 145 did not
have a material impact on the Company's financial statements.
In August 2001, the FASB issued SFAS 143 "Accounting for Asset Retirement
Obligations." SFAS 143 addresses financial accounting and reporting obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. The company adopted SFAS 143 on January 1, 2003. The
adoption of SFAS 143 did not have a material impact on the Company's financial
statements.
NOTE 10. RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform to the current
period presentation.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements, including information
about or related to our future results, certain projections and business trends.
Assumptions relating to forward-looking statements involve judgments with
respect to, among other things, future economic, competitive and market
conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond our control. When
used in this report, the words "estimate," "project," "intend," "believe,"
"expect" and similar expressions are intended to identify forward-looking
statements. Although we believe that our assumptions underlying the
forward-looking statements are reasonable, any or all of the assumptions could
prove inaccurate, and we may not realize the results contemplated by the
forward-looking statements. Management decisions are subjective in many respects
and susceptible to interpretations and periodic revisions based upon actual
experience and business developments, the impact of which may cause us to alter
our business strategy or capital expenditure plans that may, in turn, affect our
results of operations. In light of the significant uncertainties inherent in the
forward-looking information included in this report, you should not regard the
inclusion of such information as our representation that we will achieve any
strategy, objectives or other plans. The forward-looking statements contained in
this report speak only as of the date of this report, and we have no obligation
to update publicly or revise any of these forward-looking statements.
These and other statements, which are not historical facts, are based largely
upon our current expectations and assumptions and are subject to a number of
risks and uncertainties that could cause actual results to differ materially
from those contemplated by such forward-looking statements. These risks and
uncertainties include, among others, our planned effort to redeploy our assets
to enhance stockholder value following the sale of substantially all of our
revenue generating operations and assets, and the risks and uncertainties set
forth in the section headed "Factors That May Affect Our Future Results" of Part
I of our Annual Report on Form 10-K, as amended, for the fiscal year ended
December 31, 2002 and described below. The Company cannot guarantee its future
performance.
CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES
The Company's discussion of financial condition and results of operations are
based on the consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these consolidated financial statements require management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of the
consolidated financial statements. Estimates also affect the reported amounts of
revenues and expenses during the reporting periods. The Company continually
evaluates its estimates and assumptions including those related to revenue
recognition, allowance for doubtful accounts, impairment of long-lived assets,
and contingencies and litigation. The Company bases its estimates on historical
experience and other assumptions that are believed to be reasonable under the
circumstances. Actual results could differ from these estimates.
The Company believes the following critical accounting policies include the more
significant estimates and assumptions used by management in the preparation of
its consolidated financial statements.
- The Company has recognized revenue from two primary sources, software
licenses and services. Revenue from software licensing and services
fees is recognized in accordance with Statement of Position ("SOP")
97-2, "Software Revenue Recognition," and SOP 98-9, "Software Revenue
Recognition with Respect to Certain Transactions" and related
interpretations. The Company recognized software license revenue when:
(1) persuasive evidence of an arrangement exists; (2) delivery has
occurred; (3) the fee is fixed or determinable; and (4) collectibility
is probable.
- The Company maintains allowances for doubtful accounts based on
expected losses resulting from the inability of the Company's
customers to make required payments. The Company has recorded a
provision for doubtful accounts of $2,000 during the three months
ended March 31, 2002. The Company recorded a provision for doubtful
accounts of $67,000 during the three months ended March 31, 2003.
8
- The Company had significant long-lived assets, primarily intangibles,
as a result of acquisitions completed during 2000. During 2002, the
Company evaluated the carrying value of its long-lived assets,
including intangibles, according to Statement of Financial Accounting
Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets" and
SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived
Assets." Prior to 2002, the Company periodically evaluated the
carrying value of its long-lived assets, including intangibles,
according to SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." During
the fourth quarter of 2001, the Company's evaluation of the
performance of the SAI/Redeo companies compared to initial
projections, negative economic trends and a decline in industry growth
rate projections indicated that the carrying value of these intangible
assets exceeded management's revised estimates of future undiscounted
cash flows. This assessment resulted in a $36.8 million impairment
charge to goodwill based on the amount by which the carrying amount of
these assets exceeded fair value. As a result of a change in the
Company's strategic direction during the second quarter of 2002, the
Company determined that remaining goodwill and intangible assets
should be tested for further impairment, as a result of such tests,
the Company recorded an additional impairment charge to goodwill of
$6.7 million and an impairment charge to intangible assets of $3.6
million during the three months ended June 30, 2002. The Company
recorded no amortization expense related to intangible assets with
definite lives during the three months ended March 31, 2003. As a
result of adopting SFAS 142, the Company did not record amortization
expense related to goodwill during 2002.
- The Company is a party to various pending judicial and administrative
proceedings described more fully in Part I, Item 3 of the Company's
Annual Report on Form 10-K, as amended, for the fiscal year ended
December 31, 2002 and Part II, Item 1 of this Quarterly Report on Form
10-Q. After reviewing the proceedings that are currently pending
(including the probable outcomes, reasonably anticipated costs and
expenses, availability and limits of insurance coverage, and our
established reserves for uninsured liabilities), we do not believe
that any liabilities that may result from these proceedings are
reasonably likely to have a material adverse effect on our liquidity,
financial condition or results of operations. However, the results of
complex legal proceedings are difficult to predict. An unfavorable
resolution of the proceedings that are currently pending could
adversely affect the Company's business, results of operations,
liquidity or financial condition.
Sources of Revenue
Prior to December 6, 2002, the Company's revenue consisted of license fees and
services fees. License fees were generated from the licensing of the Company's
suite of products. Services fees were generated from consulting, implementation,
training, content aggregation and maintenance support services. Following the
sale of substantially all of the Company's remaining operating assets, the
Company's revenue consists solely of the recognition of deferred service fees
that are recognized ratably over the maintenance term. This revenue will
continue to decrease during 2003 and will be fully recognized by year-end. Prior
to a redeployment of the Company's assets, the Company's earnings will consist
of interest, dividend and other investment income from short-term investments
that is reported as interest income in the Company's statement of operations.
Revenue Recognition
The Company historically recognized revenue from two primary sources, software
licenses and services. Revenue from software licensing and services fees was
recognized in accordance with SOP 97-2, "Software Revenue Recognition," and SOP
98-9, "Software Revenue Recognition with Respect to Certain Transactions" and
related interpretations. The Company recognizes software license revenue when:
(1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3)
the fee is fixed or determinable; and (4) collectibility is probable.
SOP No. 97-2 generally requires revenue earned on software arrangements
involving multiple elements to be allocated to each element based on the
relative fair values of the elements. The fair value of an element must be based
on evidence that is specific to the vendor. License fee revenue allocated to
software products generally was recognized by the Company upon delivery of the
products or deferred and recognized in future periods to the extent that an
arrangement includes one or more elements to be delivered at a future date and
for which fair values have not
9
been established. Revenue allocated to maintenance was recognized ratably over
the maintenance term, which is typically 12 months and revenue allocated to
training and other service elements is recognized as the services are performed.
Under SOP No. 98-9, if evidence of fair value does not exist for all elements of
a license agreement and post-contract customer support was the only undelivered
element, then all revenue for the license arrangement was recognized ratably
over the term of the agreement as license revenue. If evidence of fair value of
all undelivered elements exists but evidence does not exist for one or more
delivered elements, then revenue was recognized using the residual method. Under
the residual method, the fair value of the undelivered elements was deferred and
the remaining portion of the arrangement fee was recognized as revenue. The
Company uses the residual method since it does not have fair value of the
license fees. Revenue from hosted software agreements is recognized ratably over
the term of the hosting arrangements.
Cost of Revenues and Operating Expenses
Cost of license fees includes royalties and software duplication and
distribution costs. The Company recognized these costs as the applications were
shipped.
Cost of services fees includes personnel related expenses and third-party
consulting fees incurred to provide implementation, training, maintenance,
content aggregation, and upgrade services to customers and partners. These costs
were recognized as they are incurred for time and material arrangements and are
recognized using the percentage of completion method for fixed price
arrangements.
Research and development expenses consisted primarily of personnel related
expenses and third-party consulting fees. The Company accounts for software
development costs under Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed." The Company charges research and development costs related to new
products or enhancements to expense as incurred until technological feasibility
is established, after which the remaining costs are capitalized until the
product or enhancement is available for general release to customers. The
Company defines technological feasibility as the point in time at which a
working model of the related product or enhancement exists. Historically, the
costs incurred during the period between the achievement of technological
feasibility and the point at which the product is available for general release
to customers have not been material.
Sales and marketing expenses consisted primarily of personnel related expenses,
including sales commissions and bonuses, expenses related to travel, customer
meetings, trade show participation, public relations, promotional activities,
regional sales offices, and advertising.
General and administrative expenses consist primarily of personnel related
expenses for financial, administrative and management personnel, fees for
professional services, board of director fees and the provision for doubtful
accounts. The Company allocates the total cost of its information technology
function and costs related to the occupancy of its corporate headquarters, to
each of the functional areas. Information technology expenses include personnel
related expenses, communication charges, and software support. Occupancy charges
include rent, utilities, and maintenance services.
Restructuring and Related Costs
See "Restructuring and Related Costs" Note 5 of the Notes to the Unaudited
Condensed Consolidated Financial Statements
10
OVERVIEW
AS PART OF OUR PREVIOUSLY ANNOUNCED STRATEGY TO LIMIT OPERATING LOSSES AND
ENABLE THE COMPANY TO REDEPLOY ITS ASSETS AND USE ITS SUBSTANTIAL CASH AND CASH
EQUIVALENT ASSETS TO ENHANCE STOCKHOLDER VALUE, ON DECEMBER 6, 2002 WE SOLD
SUBSTANTIALLY ALL OF OUR ELECTRONIC COMMERCE BUSINESS, WHICH REPRESENTED
SUBSTANTIALLY ALL OF OUR REVENUE-GENERATING OPERATIONS AND RELATED ASSETS. THE
INFORMATION APPEARING BELOW, WHICH RELATES TO PRIOR PERIODS, IS THEREFORE NOT
INDICATIVE OF THE RESULTS THAT MAY BE EXPECTED FOR ANY SUBSEQUENT PERIODS. THE
CURRENT THREE-MONTH PERIOD AND FUTURE PERIODS PRIOR TO A REDEPLOYMENT OF ASSETS
WILL PRIMARILY REFLECT GENERAL AND ADMINISTRATIVE EXPENSES ASSOCIATED WITH THE
CONTINUING ADMINISTRATION OF THE COMPANY AND ITS EFFORTS TO REDEPLOY ITS ASSETS.
RESULTS OF OPERATIONS - COMPARISON OF FIRST QUARTER 2003 TO FIRST QUARTER 2002
Revenues
Total Revenues. Total revenues from operations for the quarter ended March 31,
2003 decreased 98.7% to $53,000 from $3.9 million during the same period in
2002. The decrease in total revenues resulted primarily from the sale of
substantially all of the Company's operating assets, discussed above. During the
quarter ended March 31, 2003, three customers accounted for more than 10% each
of total revenue, totaling $50,000 or 94.1%. The percentage of total revenue for
each of these three customers was 47.7%, 24.5%, and 21.9%, respectively, for the
quarter ended March 31, 2003. During the quarter ended March 31, 2002, one
customer accounted for more than 10% of total revenue, totaling $1.8 million or
45.3% of total revenue.
License Fees. As a result of the sale of substantially all of the Company's
operating assets, discussed above, the Company did not recognize any license fee
revenue during 2003. License fees were $1.5 million or 37.4% of total revenues,
for the quarter ended March 31, 2002.
Services Fees. Services fees decreased 97.9% to $53,000, for the quarter ended
March 31, 2003, from $2.5 million for the same period in 2002. This decrease is
primarily attributable to the sale of substantially all of the Company's
operating assets, discussed above.
Cost of Revenues
Total Cost of Revenues. As a result of the sale of substantially all of the
Company's operating assets, the Company did not record any costs of revenues
during the quarter ended March 31, 2003. Costs of revenue expenses were $2.0
million, or 49.5% of total revenue, during the same period in 2002.
Cost of License Fees. As a result of the sale of substantially all of the
Company's operating assets, the Company did not record any cost of license fees
during 2003. Cost of license fees was $14,000 during the same period in 2002.
Cost of Services Fees. As a result of the sale of the Company's operating
assets, the Company did not record any cost of services fees during the quarter
ended March 31, 2003. Cost of service fees was $1.9 million, or 78.5% of total
services fees revenues, during the same period in 2002.
Research and Development Expense
As a result of the sale of the Company's operating assets, the Company did not
record any research and development expenses during the quarter ended March 31,
2003. Research and development expenses were $2.6 million, or 66.7% of total
revenues, during the same period in 2002.
11
Sales and Marketing
As a result of the sale of the Company's operating assets, the Company did not
record any sales and marketing expenses during the quarter ended March 31, 2003.
Sales and marketing expenses were $3.6 million, or 92.5% of total revenues,
during the same period in 2002.
General and Administrative
General and administrative expenses, including the provision for doubtful
accounts, increased to $2.0 million during the quarter ended March 31, 2003 from
$1.5 million of total revenues, during the same period in 2002. The increase in
general and administrative expense for the three months ended March 31, 2003 was
primarily attributable to increased professional fees, costs associated with
closing the Company's facility in Suwanee, Georgia and transition costs of
relocating the Company's headquarters to Greenwich, Connecticut.
Depreciation and Amortization
Depreciation and amortization decreased to $761,000 in the quarter ended March
31, 2003 from $1.4 million in the same period of 2002. The decrease is primarily
attributable to the sale of substantially all of the Company's operating assets,
the write-down of certain assets related to the Company's Maidenhead, England,
Limerick, Ireland and Suwanee, Georgia facilities during 2002 and the write-off
of intangible assets with definite lives during 2002.
Other Income
For the three months ended March 31, 2003, the Company recorded a loss on the
disposal of property and equipment of $48,000. For the three months ended March
31, 2002, the Company recorded a gain on the sale of property and equipment of
$10,000 and a gain on foreign currency transactions of $5,000.
Interest Income
Interest income decreased to $358,000 in the first quarter of 2003 from
$733,000, in the same period of 2002. The decrease in interest income was due to
lower levels of cash and cash equivalents available for investment and lower
interest rates.
Interest Expense
Interest expense was $56,000 during the three months ended March 31, 2003 and
2002. In March of 2000, the Company entered into a $5.0 million borrowing
arrangement with an interest rate of 4.5% with Peachtree Equity Partners L.P.,
assignee of Wachovia Capital Investments, Inc. The interest expense in 2003 and
2002 is related to this agreement. The debt was repaid on April 17, 2003.
Income Taxes
As a result of the operating losses incurred since the Company's inception, no
provision or benefit for income taxes was recorded during the three months ended
March 31, 2003 and 2002, respectively.
Liquidity and Capital Resources
The Company's cash and cash equivalents increased to $49.7 million at March 31,
2003 from $42.2 million at December 31, 2002. Marketable securities decreased to
$45.0 million at March 31, 2003 from $52.9 million at December 31, 2002. The
overall decrease in cash and cash equivalents and marketable securities is due
primarily to cash used in operating activities. After giving effect to the
repayment of the Company's indebtedness to Peachtree Equity Partners L.P., the
Company's cash and cash equivalents was $89.7 million, or $5.70 per share gross
cash on a fully diluted basis.
Cash used in operating activities was approximately $739,000 during the quarter
ended March 31, 2003. This was primarily attributable to the Company's net loss
partially offset by noncash items, a decrease in accounts receivable and prepaid
and other current assets and an increase in accounts payable and accrued
liabilities. Cash used in operating activities was approximately $7.4 million
during the quarter ended March 31, 2002. The cash used was
12
primarily attributable to the Company's net loss and to decreases in accounts
payable and accrued liabilities and deferred revenue partially offset by noncash
items and a decrease in prepaid and other current assets.
Cash provided by investing activities was approximately $7.8 million during the
quarter ended March 31, 2003. The cash was provided primarily from the maturity
of marketable securities partially offset by the purchase of marketable
securities. Cash used for investing activities was approximately $15.5 million
during the quarter ended March 31, 2002. The cash was used primarily for
purchases of marketable securities partially offset by the sale of investments
and the sale and maturity of marketable securities.
Cash provided by financing activities was approximately $401,000 during the
quarter ended March 31, 2003, and approximately $88,000 during the quarter ended
March 31, 2002. The cash provided by financing activities during the quarters
ended March 31, 2003 and 2002 was primarily attributable to proceeds from shares
issued under the employee stock purchase plan and stock option exercises.
The Company's accounts receivable potentially subject the Company to credit
risk, as collateral is generally not required. As of March 31, 2003, two
customers accounted for more than 10% each, totaling $178,000 or 87.6% of the
gross accounts receivable balance on that date. The percentage by customer was
57.7% and 29.9%, respectively, at March 31, 2003. As of December 31, 2002, four
customers accounted for more than 10% each, totaling $814,000 or 77.3% of the
gross accounts receivable balance on that date. The percentage of total accounts
receivable due from each of these four customers was 42.3%, 12.4%, 11.5% and
11.1%, respectively, at December 31, 2002.
During the quarter ended March 31, 2003, three customers accounted for more than
10% each of total revenue, totaling $50,000 or 94.1% of total revenue. The
percentage of total revenue for each of these three customers was 47.7%, 24.5%,
and 21.9%, respectively, for the quarter ended March 31, 2003. During the
quarter ended March 31, 2002, one customer accounted for more than 10% of total
revenue, totaling $1.8 million or 45.3% of total revenue.
At March 31, 2003, the Company had net operating loss carryforwards, research
and experimentation credit, and alternative minimum tax credit carryforwards for
U.S. federal income tax purposes that expire in varying amounts beginning in the
year 2009. The Company's ability to benefit from certain net operating loss
carryforwards is limited under section 382 of the Internal Revenue Code as the
Company is deemed to have had an ownership change of greater than 50%.
Accordingly, certain net operating losses may not be realizable in future years
due to this limitation.
As part of our previously announced strategy, we are seeking to redeploy our
assets, to reduce significantly our cash expenditure rate and targeting, to the
extent practicable, our overhead expenses to the amount of our interest income
until the completion of such redeployment.
The following summarizes the Company's contractual obligations and commercial
commitments at March 31, 2003, and the effect such obligations are expected to
have on our liquidity and cash flow in future periods:
Total 2003 2004 2005 2006 2007 Thereafter
----- ---- ---- ---- ---- ---- ----------
(in thousands)
Long-term debt $ 5,000 $ 5,000 $ -- $ -- $ -- $ -- $ --
Operating leases 393 189 96 96 12 -- --
--------- -------- ------ ------ ------ ------- ------
Total $ 5,393 $ 5,189 $ 96 $ 96 $ 12 $ -- $ --
========= ======== ====== ====== ====== ======= ======
The Company does not have commercial commitments under capital leases, lines of
credit, standby lines of credit, guaranties, standby repurchase obligations or
other such arrangements, other than the standby letter of credit described in
"Related Party Transactions" below.
The Company does not engage in any transactions or have relationships or other
arrangements with an unconsolidated entity. These include special purpose and
similar entities or other off-balance sheet arrangements. The Company also does
not trade in energy, weather or other commodity based contracts.
13
Related Party Transactions
In 2003, we entered into an oral agreement with Kanders & Company pursuant to
which we sublease approximately 1,989 square feet in Greenwich, Connecticut for
$9,572 a month (subject to increases every three years). For the three-month
period ended March 31, 2003, Clarus incurred $28,716 of rent expense owed to
Kanders & Company. Under the terms of the agreement, we are required to pay
approximately $325,000 in build-out construction costs, fixtures, equipment and
furnishings related to preparation of the space. Clarus incurred $23,060 of such
costs during the three-month period ended March 31, 2003. In January 2003, the
Company obtained a standby letter of credit in the amount of $118,345 to secure
lease obligations for the Greenwich, Connecticut facility that is being
constructed. Kanders & Company reimburses Clarus a pro rata portion of the
$3,000 annual cost of the letter of credit. Kanders & Company is owned and
controlled by the Company's Executive Chairman, Warren B. Kanders.
After the closing of the sale of the e-commerce software business, Steven
Jeffery, resigned as the Company's Chief Executive Officer and Chairman of the
Board of Directors. Under Mr. Jeffery's employment agreement, he is entitled to
receive a severance payment equal to one year's salary of $250,000, payable over
one year. In addition, Mr. Jeffery entered into a three-year consulting
agreement with the Company and will receive total consideration of $250,000
payable over the three-year term, which was accrued as of December 31, 2002.
During the three-month period ended March 31, 2003, Mr. Jeffery received $93,750
related to these arrangements leaving a balance of $406,250 which is included in
accrued liabilities as of March 31, 2003.
In the opinion of management, the rates, terms and considerations of the
transactions with the related parties described above approximate those that the
Company would have received in transactions with unaffiliated parties.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes to our exposures to market risk since
December 31, 2002.
ITEM 4. PROCEDURES AND CONTROLS
Within 90 days prior to the date of filing of this report, the Company carried
out an evaluation, under the supervision and with the participation of the
Company's officers performing the function of principal executive officer (the
"Principal Executive Officer") and the principal financial officer (the
"Principal Financial Officer"), of the design and operation of the Company's
disclosure controls and procedures pursuant to Rule 13a-14 under the Securities
Exchange Act of 1934. Based on this evaluation, the Principal Executive Officer
and Principal Financial Officer concluded that the Company's disclosure controls
and procedures are effective for gathering, analyzing and disclosing the
information the Company is required to disclose in the reports it files under
the Securities Exchange Act of 1934, within the time periods specified in the
SEC's rules and forms. The Principal Executive Officer and Principal Financial
Officer also concluded that the Company's disclosure controls and procedures are
effective in timely alerting them to material information relating to the
Company required to be included in the Company's periodic SEC filings. In
connection with the new rules, the Company is in the process of further
reviewing and documenting its disclosure controls and procedures, including its
internal controls and procedures for financial reporting, and may from time to
time make changes designed to enhance their effectiveness and to ensure that the
Company's systems evolve with its business.
There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of this evaluation.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a party to various pending judicial and administrative
proceedings, which, except as set forth below, are described more fully in Part
I, Item 3 of the Company's Annual Report on Form 10-K, as amended, for the
fiscal year ended December 31, 2002. After reviewing the proceedings that are
currently pending (including the probable outcomes, reasonably anticipated costs
and expenses, availability and limits of insurance coverage, and our established
reserves for uninsured liabilities), we do not believe that any liabilities that
may result from these proceedings are reasonably likely to have a material
adverse effect on our liquidity, financial condition or results of operations.
However, the results of complex legal proceedings are difficult to predict. An
unfavorable resolution of the proceedings that are currently pending could
adversely affect the Company's business, results of operations, liquidity or
financial condition.
14
Peachtree Equity Partners, L.P. v. Clarus Corporation. On April 18, 2003,
Peachtree Equity Partners L.P., as the assignee of a five-year promissory note
made by the Company in the amount of $5 million, agreed to dismiss with
prejudice, an action commenced by Peachtree Equity in the Georgia state court
for prepayment of the promissory note, plus interest and attorneys fees. In
connection with such dismissal, the Company made a payment to Peachtree Equity
comprised of the $5 million outstanding principal amount of the promissory note.
ITEM 5. OTHER INFORMATION
On April 11, 2003 pursuant to the provisions of a restricted stock grant
agreement, Warren B. Kanders, Executive Chairman of the Board of Directors, was
awarded 500,000 restricted shares of our common stock (the "Restricted Shares"),
with full voting, dividend, distribution and other rights, which vest and become
nonforfeitable if Mr. Kanders is an employee and/or a director of the Company or
a subsidiary or affiliate of the Company on the earlier of (i) the date the
closing price of the Company's common stock, as listed or quoted on any national
securities exchange or NASDAQ, shall have equaled or exceeded $15.00 per share
for each of the trading days during a ninety (90) consecutive day period, or
(ii) the tenth (10th) anniversary of the date of grant; provided however that
all of the Restricted Shares immediately vest and become nonforfeitable upon a
"change in control" or in the event Mr. Kander's employment with the Company is
terminated without "cause".
15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Number Exhibit
------ -------
4.1 Restricted Stock Agreement dated as of April 11, 2003 between the
Company and Warren B. Kanders.
99.1 Certifications pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March 31, 2003.
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CLARUS CORPORATION
Date: May 15, 2003
/s/ Nigel P. Ekern,
------------------------------
Nigel P. Ekern,
Chief Administrative Officer
/s/ Susan Luckfield,
------------------------------
Susan Luckfield,
Controller
16
CERTIFICATION
I, Nigel P. Ekern, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Clarus Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: May 15, 2003
/s/ Nigel P. Ekern
-----------------------
Nigel P. Ekern
17
CERTIFICATION
I, Susan Luckfield, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Clarus Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
d) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
e) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
c) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: May 15, 2003
/s/ Susan Luckfield
-----------------------
Susan Luckfield
18
EXHIBIT INDEX
Number Exhibit
------ -------
4.1 Restricted Stock Agreement dated as of April 11, 2003
between the Company and Warren B. Kanders.
99.1 Certifications pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to section 906 of the Sarbanes-Oxley Act
of 2002
19
EXHIBIT 4.1
CLARUS CORPORATION
RESTRICTED STOCK AGREEMENT
RESTRICTED STOCK AGREEMENT (the "Agreement") made as of this 11th
day of April, 2003, by and between Clarus Corporation, a Delaware corporation,
having its principal office at One Pickwick Plaza, Greenwich, Connecticut 06830
(the "Corporation"), and Warren B. Kanders, an individual residing at Two
Soundview Drive, Greenwich, CT 06830 (the "Restricted Stockholder").
W I T N E S S E T H:
WHEREAS, the Restricted Stockholder is a valued and trusted
employee and director of the Corporation and the Corporation believes it to be
in the best interests of the Corporation to secure the future services of the
Restricted Stockholder by providing the Restricted Stockholder with an
inducement to remain an employee and/or a director of the Corporation or any of
its affiliates or subsidiaries (each a "Participating Corporation") and through
the grant of restricted shares of common stock (the "Common Stock"), par value
$.0001 per share, of the Corporation.
NOW THEREFORE, in consideration of the mutual agreements herein
contained, the parties hereto agree as follows:
1. GRANT OF RESTRICTED SHARES. (a) Effective as of April 11, 2003
(the "Date of Grant"), the Corporation hereby grants to the Restricted
Stockholder Five Hundred Thousand (500,000) shares of Common Stock (the
"Restricted Shares"), subject to all of the terms and conditions of this
Agreement. As more fully described below, the shares granted hereby are subject
to forfeiture by the Restricted Stockholder if certain criteria are not
satisfied.
(b) Simultaneously with the execution of this Agreement,
Restricted Stockholder hereby delivers to the Corporation the purchase price for
the Restricted Shares in an amount equal to $50 in cash (or $.0001 for each
share granted) (the "Purchase Price").
2. VESTING PERIOD.
(a) Vesting. All of the Restricted Shares shall vest and
become nonforfeitable if the Restricted Stockholder is an employee and/or a
director of the Corporation or a Participating Corporation on the earlier of (i)
the date the closing price of the Corporation's Common Stock, as listed or
quoted on any national securities exchange or NASDAQ, shall have exceeded $15.00
per share for each of the trading days during a ninety (90) consecutive day
period and (ii) the tenth (10th) anniversary of the Date of Grant; provided,
however that all of the Restricted Shares shall immediately vest and become
nonforfeitable upon the occurrence of a Change in Control or in the event the
Restricted Stockholder's employment with the Corporation is terminated without
Cause.
(b) Restricted Shares that are vested pursuant to the
provisions of this Section 2 hereof are "Vested Restricted Shares." Restricted
Shares that are not vested pursuant to Section 2 hereof are "Unvested Restricted
Shares."
(c) For purposes of this Agreement, the following terms shall
have the following meanings:
"Affiliate" shall have the same meaning ascribed to such a
term in Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
"Cause" shall have the same meaning ascribed to such a term in
the Employment Agreement (the "Employment Agreement") dated December 6, 2002
between the Restricted Stockholder and the Corporation.
"Change in Control" shall have the same meaning ascribed to
such a term in the Employment Agreement.
"Subsidiary" or "Subsidiaries" of a person means a
corporation, partnership, joint venture, limited liability company or other
business entity of which a majority of the shares of securities or other
interests having ordinary voting power for the election of directors or other
governing body (other than securities or interests having such power only by
reason of
the happening of a contingency) are at the time beneficially owned, or the
management of which is otherwise controlled, directly, or indirectly through one
or more intermediaries, or both, by such person.
3. NON-TRANSFERABILITY. Until the Restricted Shares shall be
vested and until the satisfaction of any and all other conditions specified
herein, the Restricted Shares may not be sold, transferred, assigned, pledged or
otherwise encumbered or disposed of by the Restricted Stockholder, except upon
the written consent of the Corporation.
4. CERTIFICATES FOR SHARES; DIVIDENDS AND STOCKHOLDER RIGHTS.
(a) Stock certificates for Restricted Shares shall be issued
in the Restricted Stockholder's name and shall be held by the Corporation until
the Restricted Shares shall become vested. The Corporation shall serve as
attorney-in-fact for the Restricted Stockholder during the period during which
the Restricted Shares are unvested with full power and authority in the
Restricted Stockholder's name to assign and convey to the Corporation any
Restricted Shares held by the Corporation for the Restricted Stockholder if the
Restricted Stockholder forfeits the shares under the terms of this Agreement.
Stock certificates representing the Restricted Shares shall bear the following
legend:
The Shares represented by this Stock Certificate have been granted as
restricted stock. Without the prior written consent of the Corporation, the
Shares represented by this Stock Certificate may not be sold, exchanged,
assigned, transferred, pledged, hypothecated or otherwise encumbered or
disposed of unless the restrictions set forth in the Restricted Stock
Agreement between the registered holder of these Shares and Clarus
Corporation shall have lapsed.
Upon the vesting of the Restricted Shares, the Corporation
shall so notify the Secretary of the Corporation and the Secretary shall obtain
from the Corporation stock certificates representing all such shares that have
vested, which stock certificates shall not bear any restrictive endorsement
making reference to this Agreement, and shall promptly issue and deliver such
stock certificates, if any, to the Restricted Stockholder.
(b) Upon the full execution of this Agreement and delivery of
the Purchase Price pursuant to Section 1 above, the Restricted Stockholder shall
thereupon be a stockholder and the Corporation shall issue stock certificates
representing the Restricted Shares. Thereupon, subject to the provisions of
Section 2 hereof, the Restricted Stockholder shall have all the rights of a
stockholder with respect to such Restricted Shares, including the right to vote
and receive all dividends or other distributions made or paid with respect to
such Restricted Shares; provided, however, that such Restricted Shares and any
new, additional or different securities the Restricted Stockholder may become
entitled to receive with respect to such Restricted Shares by virtue of a stock
split, dividend or other change in the corporate or capital structure of the
Corporation shall be subject to the vesting and forfeiture provisions,
restrictions on transfer and other restrictions set forth in this Agreement.
5. SHARE ADJUSTMENTS. In the event of any stock dividend, stock
split, combination or exchange of shares, merger, consolidation, spin-off or
other distribution (other than normal cash dividends) of the Corporation's
assets to stockholders, or any other change affecting shares of the
Corporation's capitalization, the Corporation's Board of Directors in its
discretion may make such adjustments as it may deem appropriate to reflect such
change and to fairly preserve the intended benefits of this Agreement.
6. NO RIGHT TO CONTINUED EMPLOYMENT. Nothing in this Agreement
shall confer upon the Restricted Stockholder any right with respect to
continuance of employment by the Corporation or any Participating Corporation,
nor shall it interfere in any way with the right of the Corporation or any
Participating Corporation to terminate the Restricted Stockholder's employment
at any time. This Agreement does not constitute an employment contract. This
Agreement does not guarantee employment for the length of time of the vesting
period or for any portion thereof.
8. SECTION 83(b) ELECTION. If the Restricted Stockholder files an
election with the Internal Revenue Service to include the fair market value of
any Restricted Shares in gross income as of the Date of Grant, the Restricted
Stockholder agrees to promptly furnish the Corporation with a copy of such
election, together with the amount of any federal, state, local or other taxes
required to be withheld to enable the Corporation to claim an income tax
deduction with respect to such election.
9. WITHHOLDING TAXES. The Restricted Stockholder acknowledges that
the Corporation is not responsible for the tax consequences to the Restricted
Stockholder of the granting or vesting of the Restricted Shares, and that it is
the responsibility of the Restricted Stockholder to consult with the Restricted
Stockholder's personal tax advisor regarding all matters with respect to the tax
consequences of the granting and vesting of the Restricted Shares. The
Corporation shall have the right to deduct from the Restricted Shares or any
payment to be made with respect to the Restricted Shares any amount that
federal, state, local or foreign tax law required to be withheld with respect to
the Restricted Shares or any such payment. Alternatively, the Corporation may
require that the Restricted Stockholder, prior to or simultaneously with the
Corporation incurring any obligation to withhold any such amount, pay such
amount to the Corporation in cash or in shares of the Corporation's Common Stock
(including shares of Common Stock retained from the Restricted Shares creating
the tax obligation), which shall be valued at the fair market value of such
shares on the date of such payment. In any case where it is determined that
taxes are required to be withheld in connection with the issuance, transfer or
delivery of the shares, the Corporation may reduce the number of shares so
issued, transferred or delivered by such number of shares as the Corporation may
deem appropriate to comply with such withholding. The Corporation may also
impose such conditions on the payment of any withholding obligations as may be
required to satisfy applicable regulatory requirements under the Exchange Act.
10. REPRESENTATIONS AND WARRANTIES.
10.1 Shares Unregistered. The Restricted Stockholder
acknowledges and represents that the Restricted Stockholder has been advised by
the Corporation that:
(a) the offer and sale of the Restricted Shares have not been
registered under the Securities Act of 1933, as amended, and all rules and
regulations promulgated thereunder, as the same may be amended from time to time
(the "Securities Act");
(b) the Restricted Stockholder must continue to bear the
economic risk of the investment in the Restricted Shares unless the offer and
sale of such Restricted Shares are subsequently registered under the Securities
Act and all applicable state securities laws or an exemption from such
registration is available;
(c) restrictive legends, in the form set forth below, shall be
placed on the stock certificates:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and the rules and
regulations thereunder (the "Securities Act"), or under the securities laws of
any state, and may not be pledged, hypothecated, sold or transferred unless
registered and qualified under the Securities Act and, if applicable, state
securities laws, or in the opinion of counsel reasonably satisfactory to the
corporation such registration and qualification are not required."
(e) the Corporation may endorse such legend or legends upon
the stock certificates for Restricted Shares and may issue such "stop transfer"
instructions to its transfer agent in respect of such Restricted Shares as, in
its discretion, it determines to be necessary or appropriate to: (i) prevent a
violation of, or to perfect an exemption from, the registration requirements of
the Securities Act; and (ii) implement the provisions of the Agreement and any
agreement between the Corporation and the Restricted Stockholder;
(f) any subsequent resale or distribution of the Restricted
Shares by the Restricted Stockholder shall be made only pursuant to either (i) a
registration statement on an appropriate form under the Securities Act, which
registration statement has become effective and is current with regard to the
Restricted Shares being sold, or (ii) a specific exemption, from the
registration requirements of the Securities Act.
10.2 Additional Investment Representations. The Restricted
Stockholder represents and warrants that:
(a) Restricted Stockholder's financial situation is such that
Restricted Stockholder can afford to bear the economic risk of holding the
Restricted Shares for an indefinite period of time, has adequate means for
providing for Restricted Stockholder's current needs and personal contingencies,
and can afford to suffer a complete loss of Restricted Stockholder's investment
in the Restricted Shares;
(b) Restricted Stockholder's knowledge and experience in
financial and business matters is such that Restricted Stockholder is capable of
evaluating the merits and risks of the investment in the Restricted Shares;
(c) Restricted Stockholder understands that the Restricted
Shares involve a high degree of risk of loss of Restricted Stockholder's
investment therein, there are substantial restrictions on the transferability of
the Restricted Shares and there may not be a public market for the Restricted
Shares and, accordingly, it may not be possible for Restricted Stockholder to
liquidate its investment in case of emergency, if at all;
(d) Restricted Stockholder understands and has taken
cognizance of all the risk factors related to the purchase of the Restricted
Shares and, except as set forth in this Agreement, no representations or
warranties have been made to Restricted Stockholder or its representatives
concerning the Restricted Shares or the Corporation or their prospects or other
matters; and
(e) Restricted Stockholder has been given the opportunity to
ask questions of, and to receive answers from, the Corporation and its
representatives concerning the Corporation and its subsidiaries, the
Stockholders Agreement, and to obtain any additional information that Restricted
Stockholder deems necessary.
11. REPRESENTATIONS OF THE CORPORATION. The Corporation represents
to the Restricted Stockholder that the following statements contained in this
Section 11 are correct and complete as of the date of this Agreement:
(a) Organization and Power. The Corporation is a corporation
validly existing and in good standing under the laws of the State of Delaware,
with full power and authority to enter into this Agreement and perform its
obligations hereunder.
(b) Authorization. The execution, delivery and performance of
this Agreement by the Corporation and the consummation of the transactions
contemplated hereby by the Corporation have been duly and validly authorized by
all requisite corporate action on the part of the Corporation, and no other
proceedings on its part are necessary to authorize the execution, delivery or
performance of this Agreement. This Agreement has been duly executed and
delivered by the Corporation, and this Agreement constitutes a valid and binding
obligation of the Corporation, enforceable in accordance with its terms and
conditions.
(c) The Corporation will use its commercially reasonable
efforts to file a registration statement on Form S-8 with the Securities and
Exchange Commission covering the Restricted Shares on or before December 31,
2003.
12. INTERPRETATION. Any dispute regarding the interpretation of
this Agreement shall be submitted by Restricted Stockholder or the Corporation
to the Corporation's Board of Directors for review. The resolution of such a
dispute by the Corporation's Board of Directors shall be final and binding on
the Corporation and Restricted Stockholder.
13. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and understanding of the parties hereto with respect to the subject
matter hereof and supersedes all prior understandings and agreements with
respect to such subject matter.
14. NOTICES. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporate Secretary of the Corporation at its principal corporate
offices. Any notice required to be given or delivered to Restricted Stockholder
shall be in writing and addressed to Restricted Stockholder at the address
indicated above or to such other address as such party may designate in writing
from time to time to the Corporation. All notices shall be deemed to have been
given or delivered upon: (i) personal delivery; (ii) three (3) days after
deposit in the United States mail by certified or registered mail (return
receipt requested); (iii) one (1) business day after deposit with any return
receipt express courier (prepaid); or (iv) one (1) business day after
transmission by facsimile.
15. SUCCESSORS AND ASSIGNS. The Corporation may assign any of its
rights under this Agreement. This Agreement shall be binding upon and inure to
the benefit of the successors and assigns of the Corporation. Subject to the
restrictions on transfer set forth herein, this Agreement shall be binding upon
Restricted Stockholder and Restricted Stockholder's heirs, executors,
administrators, legal representatives, successors and assigns.
16. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, applicable to
agreements made and to be performed entirely within such state, other than
conflict of laws principles thereof directing the application of any law other
than that of Delaware.
17. ACCEPTANCE. Restricted Stockholder hereby acknowledges receipt
of a copy of this Agreement. Restricted Stockholder has read and understands the
terms and provisions thereof, and accepts this Restricted Shares subject to all
the terms and conditions of this Agreement. Restricted Stockholder acknowledges
that there maybe adverse tax consequences upon receipt of the Restricted Shares
or disposition of the Restricted Shares and that the Corporation has advised
Restricted Stockholder to consult a tax advisor prior to such receipt and
disposition.
18. MISCELLANEOUS
18.1 This Agreement cannot be amended, supplemented or
changed, and no provision hereof can be waived, except by a written instrument
making specific reference to this Agreement and signed by the party against whom
enforcement of any such amendment, supplement, modification or waiver is sought.
A waiver of any right derived hereunder by either the Restricted Stockholder or
Corporation shall not be deemed a waiver of any other right derived hereunder.
18.2 This Agreement may be executed in any number of
counterparts, but all counterparts will together constitute but one agreement.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed by its duly authorized officer and the Restricted Stockholder has
executed this Agreement as of the 11th day of April, 2003.
CLARUS CORPORATION
By: /s/ Nigel P. Ekern
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Name: Nigel P. Ekern
Title: Chief Administrative Offficer
RESTRICTED STOCKHOLDER
/s/ Warren B. Kanders
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Name: Warren B. Kanders
Address:
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