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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
CYRK, INC.
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(Name of Issuer)
COMMON STOCK, PAR VALUE $.01
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(Title of Class of Securities)
232817 10 6
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(CUSIP Number)
Allan I. Brown
c/o Simon Marketing Inc.
1900 Avenue of the Stars, 4th Floor
Los Angeles, California 900674301
Telephone: (310) 553 4460
Facsimile: (310) 553 1608
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(Name, Address and Telephone Number
of Person Authorized to Receive
Notices and Communications)
Copy to:
Alvin G. Segel
Irell & Manella LLP
1800 Avenue of the Stars, Suite 900
Los Angeles, California 90067
Telephone: (310) 277-1010
Facsimile: (310) 203-7199
JUNE 9, 1997
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(Date of Event Which Requires Filing of This Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ].
Check the following box if a fee is being paid with this Statement [ ].
Page 1 of 11 Pages
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CUSIP No. 232817 10 6 13D Page 2 of 11 Pages
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1 NAMES OF REPORTING PERSONS
S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
Allan I. Brown - SSN 120 32 0738
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) |X|
(b) [ ]
Not Applicable
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
OO
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEM 2(d) or 2(e) N/A
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States of America
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7 SOLE VOTING POWER: 920,069*
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NUMBER OF 8 SHARED VOTING POWER: 4,393,138*
SHARES
BENEFICIALLY
OWNED BY ------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER: 920,069
REPORTING
PERSON WITH ------------------------------------------------------
10 SHARED DISPOSITIVE POWER: 0
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Page 3 of 12 Pages
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
PERSON:
920,069 shares of Common Stock*
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (9) EXCLUDES
CERTAIN SHARES*
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (9):
Approximately 6.7%*
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14 TYPE OF REPORTING PERSON:
IN
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* Pursuant to the Shareholders Agreement described in Item 4 below, and which
is attached as Exhibit B, certain shareholders of the Issuer are required,
in specified circumstances, to vote all the shares of the Issuer's Common
stock held by each such shareholder in favor of the Reporting Person's
election to the Board of Directors of Issuer. Accordingly, the Reporting
Person may be deemed to be part of a "group" with such shareholders and
have voting power over such shares. Accordingly, the Reporting Person may
have shared voting power over 4,393,138 shares (or approximately 32.2% of
the Issuer's common stock). See Item 4. The Reporting Person expressly
disclaims beneficial ownership of any shares of Common Stock except the
920,069 shares with respect to which he possesses sole dispositive power.
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Page 4 of 12 Pages
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ITEM 1. SECURITY AND ISSUER.
The class of equity securities to which this statement on
Schedule 13D relates is the Common Stock, par value $.01 per
share (the "Common Stock"), of Cyrk, Inc. (the "Issuer"), a
Delaware corporation, with its principal executive offices
located at 3 Pond Road, Gloucester, massachusetts 01930.
ITEM 2. IDENTITY AND BACKGROUND.
This statement is being filed by Allan I. Brown (the
"Reporting Person"). The Reporting Person is a Citizen of
the United States of America.
The Reporting Person's business address is 1900 Avenue of
the Stars, 4th Floor, Los Angeles, California 90067-4301.
The Reporting Person is Chief Executive Officer of Simon
Marketing Inc., a wholly owned subsidiary of the Issuer.
During the last five years, the Reporting Person has not
been (a) convicted in a criminal proceeding (excluding
traffic violations or similar misdemeanors or (b) a party to
a civil proceeding of a judicial or administrative body of
competent jurisdiction and as a result of such proceeding
was or is subject to a judgment, decree or final order
enjoining future violations of, or prohibiting or mandating
activities subject to, federal or state securities laws or
finding any violation with respect to such laws.
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Page 5 of 12 Pages
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ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
Pursuant to an Agreement and Plan of Merger, dated as of May
7, 1997 (the "Merger Agreement") among the Issuer, SMI
Merger, Inc., a Delaware corporation and wholly owned
subsidiary of the Issuer, ("SMI"), Simon Marketing Inc., a
Nevada corporation ("Simon"), the Reporting Person and Eric
Stanton, the Reporting Person received 920,069 shares of
Common Stock and $12.5 million in cash from the Issuer on
June 9, 1997, in exchange for all of the Reporting Person's
shares of Simon's common stock, par value $.01 per share
(the "Simon Common Stock"). Prior to the merger of Simon
into and with SMI (the "Merger"), the Reporting Person and
Eric Stanton held all of the outstanding equity interests of
Simon. A copy of the Merger Agreement is filed herewith as
Exhibit A hereto and is incorporated in its entirety herein
by reference.
ITEM 4. PURPOSE OF TRANSACTION.
The Issuer and Simon are leading providers of promotional
products and services. The Boards of Directors of the
companies deemed it advisable and in the best interests of
the companies and their respective shareholders that the
Issuer and Simon combine businesses and operations in order
to advance their long term business interests. Simon has had
success in the youth market and in leveraging sports and
entertainment properties. The Issuer has experience in
loyalty and brand-building promotions.
To effect this combination, and pursuant to the Merger
Agreement, the Reporting Person converted all his shares of
Simon Common Stock into 920,069 shares of Common Stock and
$12.5 million in cash.
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Page 6 of 12 Pages
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Pursuant to a Shareholders agreement, dated as of June 9,
1997, (the "Shareholders Agreement") among the Issuer, the
Reporting Person, Eric Stanton, Gregory Shlopak and Patrick
Brady (each a "Shareholder" and together the
"Shareholders"), the Reporting Person shall have the right,
upon his request, to be appointed a member of the Board of
Directors of the Issuer (the "Board"). Within 90 days
following the Board's receipt of such request, the Board
shall take all necessary action to increase its size by one
and appoint the Reporting Person to be a member of the
Board. At each subsequent election of the class of directors
to which the Reporting Person is appointed, and provided
that the Reporting Person beneficially owns at least five
percent of the issued and outstanding Common Stock as of the
date of such election, the Shareholders shall nominate the
Reporting Person for election.
At all meetings (and written actions in lieu of meetings) of
the stockholders of the Issuer at which directors are to be
elected, and to which the Reporting Person has been
nominated, the Shareholders shall vote all of their shares
to elect the Reporting Person as a director of the Issuer. A
copy of the Shareholders Agreement is filed herewith as
Exhibit B hereto and is incorporated in its entirety herein
by reference.
Under the same conditions as pertain to the Reporting
Person, the Shareholders shall nominate and vote all their
shares to elect Eric Stanton as director of the Issuer.
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Page 7 of 12 Pages
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In addition, at all meetings (and written actions in lieu of
meetings) of the stockholders of the Issuer at which Gregory
Shlopak or Patrick Brady have been nominated as directors of
the Issuer, each Shareholders shall vote all of such
Shareholder's stock to elect them as directors of the
Issuer.
Except as set forth in this statement, the Reporting Person
has not formulated any plans or proposals which relate to or
would result in: (a) the acquisition by any person of
additional securities of the Issuer or the disposition of
securities of the Issuer; (b) an extraordinary corporate
transaction involving the Issuer or any of its subsidiaries;
(c) a sale or transfer of a material amount of the assets of
the Issuer or any of its subsidiaries; (d) any change in the
present board or management of the Issuer; (e) any material
change in the Issuer's capitalization or dividend policy;
(f) any other material change in the Issuer's business or
corporate structure; (g) any change in the Issuer's charter
or bylaws, or other instrument corresponding thereto, or
other action which may impede the acquisition of control of
the Issuer by any person; (h) causing a class of the
Issuer's securities to be deregistered or delisted; (i) a
class of equity securities of the Issuer becoming eligible
for termination of registration; or (j) any action similar
to any of those enumerated above.
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Page 8 of 12 Pages
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Item 5. INTEREST IN SECURITIES OF THE ISSUER.
(a) The Reporting Person has acquired beneficial ownership
of 920,069 shares of Common Stock. The Common Stock owned by
the Reporting Person represents approximately 6.7% of the
oustanding Common Stock. By virtue of the Shareholders
Agreement, the Reporting Person may be deemed to be a
member of a "group" within the meaning of Section 13(d)(3)
of the Securities Exchange Act of 1934. The Common Stock
owned by the Shareholders represents approximately 32.2% of
the oustanding Common Stock. The Reporting Person expressly
disclaims beneficial ownership of any shares of Common
Stock except the 920,069 shares with respect to which he
possesses sole dispositive power.
(b) The Reporting Person has sole power to vote, or to
direct the vote, of 920,069 shares of Common Stock, subject
to the Shareholders Agreement described in Item 4. Pursuant
to the Shareholders Agreement, the Reporting Person may
have shared power to vote for 4,393,138 shares of Common
Stock with respect to the election of certain directors.
The Reporting person has sole power to dispose, or to
direct the disposition of, the 920,069 shares of Common
Stock acquired as consideration for the Merger.
(c) Except for the acquisition of the shares of Common Stock
pursuant to the Merger Agreement, during the past 60 days
and the pledge of shares referenced in Item 6, the Reporting
Person has not effected any transactions in the shares of
Common Stock except as disclosed here in this statement.
(d) No other person is known to have the right to receive or
the power to direct the receipt of dividends from, or
proceeds from the sale of, any of the Common Stock
beneficially owned by the Reporting Person.
(e) Not applicable.
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Page 9 of 12 Pages
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Item 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS
WITH RESPECT TO SECURITIES OF THE ISSUER.
MERGER AGREEMENT. Pursuant to the Merger Agreement, the
Issuer issued to the Reporting Person 920,069 shares of
Common Stock in exchange for all of the Reporting Person's
shares of Simon Common Stock.
SHAREHOLDERS AGREEMENT. Pursuant to Section 7.01(d)(i) of
the Merger Agreement, the Issuer and the Shareholders have
entered into a Shareholders Agreement, described in Item 4.
REGISTRATION RIGHTS AGREEMENT. The Common Stock issued to
the Reporting Person are not registered securities within
the meaning of the Securities Act of 1933, as amended (the
"Act"). Pursuant to Section 7.01(d)(ii) of the Merger
Agreement, the Issuer has granted to the Reporting Person
certain registration rights, set forth in a Registration
Rights Agreement dated as of June 9, 1997 among the Issuer,
Eric Stanton and the Reporting Person (the "Registration
Rights Agreement").
If at any time commencing on June 9, 1999, or any earlier
date pursuant to which the Merger will continue to qualify
as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended and any
successor provisions thereto (the "Code") (as determined by
the Issuer and its counsel), either the Reporting Person or
Eric Stanton requests that the company file a registration
statement for at least 250,000 shares of the Common Stock
held by the Reporting Person and/or Eric Stanton on the date
of such request, the Issuer shall use its best efforts to
register the shares of Common Stock held by the Reporting
Person and/or Eric Stanton requested to be registered under
the Act. The Issuer shall effect an aggregate maximum of
three such "demand" requests, each of which must be made at
least six months apart from the others.
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Page 10 of 12 Pages
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Additionally, commencing on June 9, 1999, or any earlier
date pursuant to which the Merger will continue to qualify
as a reorganization within the meaning of Section 368(a) of
the Code (as determined by the Issuer and its counsel), if
the Issuer proposes to register any shares of Common Stock
for its own or others' account under the Act, other than a
registration solely relating to employee benefit plans or to
shares to be sold under Rule 145 under the Act, the Issuer
shall give the Reporting Person and Eric Stanton prompt
written notice of its intent. Upon written request of either
the Reporting Person or Eric Stanton, given within 15 days
after receipt of such notice, the Issuer shall include in
such registration all shares of Common Stock held by the
Reporting Person or Eric Stanton specified in such written
request, provided that such inclusion will not materially
and adversely affect the offering.
A copy of the Registration Rights Agreement is filed
herewith as Exhibit C hereto and is incorporated in its
entirety herein by reference.
PLEDGE OF STOCK. Reporting Person has pledged 52,904 shares
of the Common Stock issued to him in the Merger Agreement to
secure indebtedness in the principal amount of $575,000 owed
by him to the Issuer. The nonrecourse note matures on June
9, 1998 and bears interest at the rate of 7% per annum.
The foregoing descriptions of the Merger Agreement, the
Shareholders Agreement and the Registration Rights Agreement
are qualified in their entirety by reference to such
agreements, copies of which are attached hereto.
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Page 11 of 12 Pages
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
(Date)
/s/ ALLAN I. BROWN
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(Signature)
ALLAN I. BROWN
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Page 12 of 12 Pages
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
A Agreement and Plan of Merger dated as of May 7, 1997,
by and among Cyrk, Inc., SMI Merger, Inc., Simon
Marketing, Inc., Allan Brown and Eric Stanton
B Shareholders Agreement dated as of June 9, 1997, by and
among Cyrk, Inc., Allan Brown, Eric Stanton, Gregory
Shlopak and Patrick Brady
C Registration Rights Agreement, dated as of June 9,
1997, by and among Cyrk, Inc., Allan Brown and Eric
Stanton
D Note dated June 9, 1997 between Allan I. Brown and Eric
Stanton
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AGREEMENT AND PLAN OF MERGER
DATED AS OF MAY 7, 1997
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<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
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ARTICLE I - THE MERGER......................................................................2
Section 1.01. Effective Time of the Merger........................................2
Section 1.02. Closing.............................................................2
Section 1.03. Effects of the Merger...............................................2
Section 1.04. Directors and Officers..............................................3
Section 1.05. Additional Payments.................................................3
Section 1.06. Shareholders' Representative........................................7
ARTICLE II - CONVERSION OF SECURITIES.......................................................8
Section 2.01. Conversion of Capital Stock.........................................8
Section 2.02. Exchange of Certificates............................................9
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE
SHAREHOLDERS AND SIMON..........................................10
Section 3.01. Organization of Each Company.......................................10
Section 3.02. Capital Structure..................................................11
Section 3.03. Authority; No Conflict; Required Filings and Consents..............12
Section 3.04. Financial Statements...............................................13
Section 3.05. No Undisclosed Liabilities.........................................14
Section 3.06. Absence of Certain Changes or Events...............................14
Section 3.07. Taxes..............................................................15
Section 3.08. Properties.........................................................18
Section 3.09. Intellectual Property..............................................18
Section 3.10. Agreements, Contracts and Commitments..............................20
Section 3.11. Litigation.........................................................20
Section 3.12. Environmental Matters..............................................20
Section 3.13. Employee Benefit Plans.............................................21
Section 3.14. Compliance With Laws...............................................24
Section 3.15. Brokers or Finders.................................................24
Section 3.16. Insurance..........................................................24
Section 3.17. Sufficiency of Assets..............................................25
Section 3.18. Interests in Clients, Suppliers, Etc...............................25
Section 3.19. Employees and Compensation.........................................25
Section 3.20. Simon 9000.........................................................26
Section 3.21. No Other Representations and Warranties............................26
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF CYRK AND SUB................................26
Section 4.01. Organization of the Company........................................27
Section 4.02. Capital Structure..................................................27
Section 4.03. Authority; No Conflict; Required Filings and Consents..............28
Section 4.04. SEC Filings; Financial Statements..................................29
Section 4.05. No Undisclosed Liabilities.........................................30
Section 4.06. Absence of Certain Changes or Events...............................30
Section 4.07. Taxes..............................................................31
</TABLE>
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<TABLE>
<S> <C>
Section 4.08. Properties.........................................................34
Section 4.09. Intellectual Property..............................................34
Section 4.10. Agreements, Contracts and Commitments..............................35
Section 4.11. Litigation.........................................................35
Section 4.12. Environmental Matters..............................................35
Section 4.13. Employee Benefit Plans.............................................36
Section 4.14. Compliance with Laws...............................................39
Section 4.15. Brokers or Finders.................................................39
Section 4.16. Interim Operations of Sub..........................................39
Section 4.17. Insurance..........................................................39
Section 4.18. Sufficiency of Assets..............................................40
Section 4.19. Interests in Clients, Suppliers, Etc...............................40
Section 4.20. Employees and Compensation.........................................40
Section 4.21. No Other Representations and Warranties............................41
ARTICLE V - CONDUCT OF BUSINESS............................................................41
Section 5.01. Covenants of Simon and Shareholders................................41
Section 5.02. Covenants of Cyrk..................................................43
Section 5.03. Cooperation........................................................44
Section 5.04. Additional Covenants of Cyrk.......................................44
ARTICLE VI - ADDITIONAL AGREEMENTS.........................................................45
Section 6.01. No Solicitation....................................................45
Section 6.02. Regulatory Filings. ..............................................45
Section 6.03. Consents...........................................................45
Section 6.04. Access to Information..............................................46
Section 6.05. Legal Conditions to Merger.........................................46
Section 6.06. Public Disclosure..................................................46
Section 6.07. Tax-Free Organization..............................................47
Section 6.08. Obligations of Sub.................................................47
Section 6.09. Indemnification of Directors and Officers..........................47
Section 6.10. Indemnification; Subrogation.......................................47
Section 6.11. Additional Agreements; Reasonable Efforts..........................51
Section 6.12. Contribution of Simon Hong Kong Shares.............................51
Section 6.13. Simon 9000.........................................................52
ARTICLE VII - CONDITIONS TO MERGER.........................................................52
Section 7.01. Conditions to Each Party's Obligation to Effect the Merger.........52
Section 7.02. Additional Conditions to Obligations of Cyrk and Sub...............54
Section 7.03. Additional Conditions to Obligations of Simon and Shareholders.....55
ARTICLE VIII - TERMINATION AND AMENDMENT...................................................55
Section 8.01. Termination........................................................55
Section 8.02. Effect of Termination..............................................56
Section 8.03. Fees and Expenses..................................................56
Section 8.04. Amendment..........................................................57
Section 8.05. Extension; Waiver..................................................57
</TABLE>
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<TABLE>
<S> <C>
ARTICLE IX - MISCELLANEOUS ................................................................57
Section 9.01. Survival of Representations, Warranties and Agreements.............57
Section 9.02. Notices............................................................57
Section 9.03. Interpretation.....................................................59
Section 9.04. Counterparts. .....................................................59
Section 9.05. Entire Agreement; No Third Party Beneficiaries.....................59
Section 9.06. Governing Law......................................................60
Section 9.07. Severability.......................................................60
Section 9.08. Assignment.........................................................60
Exhibit 7.02(b) Tax Opinion of Counsel for Cyrk
Exhibit 7.03(b) Tax Opinion of Counsel for Simon
</TABLE>
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GLOSSARY OF DEFINED TERMS
"Acquisition Proposal" Section 6.01(a)
"Affiliate" Section 3.15
"Agreed Claims" Section 6.10(c)
"Agreement" Preamble
"Ancillary Agreements" Section 7.01(d)
"Arbiter" Section 1.05(c)
"Audited Balance Sheets" Section 3.04
"Business Combination" 2nd Whereas clause
"Business Day" Section 6.10(c)(iv)
"Buyer Indemnitee" Section 6.10(a)
"Certificate" Section 6.10(c)
"Certificate of Merger" Section 1.01
"Closing" Section 1.02
"Closing Date" Section 1.02
"Code" 5th Whereas clause
"Companies" 1st Whereas clause
"Company" 1st Whereas clause
"Constituent Corporations" Section 1.03(a)
"Contribution" 3rd Whereas clause
"Cyrk" Preamble
"Cyrk Balance Sheet" Section 4.04(b)
"Cyrk Benefit Plans" Section 4.13(a)
"Cyrk Disclosure Schedule" Introduction to Article IV
"Cyrk Group" Section 4.07(a)
"Cyrk Intellectual Property Section 4.09(a)
Rights"
"Cyrk Material Contracts" Section 4.10
"Cyrk Stock Plans" Section 4.02(a)
"Cyrk Preferred Stock" Section 4.02(a)
"Cyrk SEC Reports" Section 4.04(a)
"Cyrk Third Party Intellectual Section 4.09(a)
Property Rights"
iv
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"Determination Date" Section 1.05(b)
"DGCL" Section 1.01
"Determination Date Profit Section 1.05(b)
Statement"
"Earn-Out Acceleration Event" Section 1.05(f)
"Earn-Out Amount" Section 1.05(a)
"Earn-Out Measurement Section 1.05(a)
Commencement Date"
"Earn-Out Period" Section 1.05(a)
"Effective Time" Section 1.01
"Environmental Permits" Section 3.12(c)
"ERISA" Section 3.13(a)
"Exchange Act" Section 3.18
"Financial Statements" Section 3.04
"Fractional Share Amount" Section 2.02(c)
"Governmental Entity" Section 3.03(c)
"Hazardous Material" Section 3.12(a)
"Hazardous Material Activities" Section 3.12(b)
"HSR Act" Section 3.03(c)
"Indemnified Party" Section 6.10(c)
"Indemnifying Party" Section 6.10(c)
"Loss" Section 6.10(a)
"Material Adverse Effect" Section 3.01
"Material Lease" Section 3.08
"Merger" 4th Whereas clause
"Merger Cash Consideration" Section 2.01(b)
"NGCL" Section 1.01
"Pretax Profit" Section 1.05(a)
"Prior Cumulative Earn-Out Section 1.05(a)
Payments"
"Purchaser's Notice" Section 1.05(f)
"Returns" Section 3.07(a)
"Securities Act" Section 4.04(a)
v
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"SEC" Section 4.04(a)
"Seller Indemnitee" Section 6.12(b)
"Shareholder" Preamble
"Shareholders' Notice" Section 1.05(f)
"Shareholders' Representative" Section 1.06
"Simon" Preamble
"Simon 9000" Section 3.20
"Simon Benefit Plans" Section 3.13(a)
"Simon Common Stock" Section 2.01
"Simon Disclosure Schedule" Introduction to Article III
"Simon ERISA Affiliate" Section 3.13(a)
"Simon Group" Section 3.07(a)
"Simon Hong Kong" 1st Whereas clause
"Simon Hong Kong Shares" 3rd Whereas clause
"Simon Intellectual Property Section 3.09(a)
Rights"
"Simon Material Contracts" Section 3.10
"Simon Third Party Intellectual Section 3.09(a)
Property Rights"
"Sub" Preamble
"Subsidiary" Section 3.01
"Surviving Corporation" Section 1.03(a)
"Taxes" Section 3.07(a)
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AGREEMENT AND PLAN OF MERGER
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AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of May 7, 1997, by
and among Cyrk, Inc., a Delaware corporation ("Cyrk"), SMI Merger, Inc., a
Delaware corporation and a wholly owned subsidiary of Cyrk ("Sub"), Simon
Marketing, Inc., a Nevada corporation ("Simon"), and Allan Brown and Eric
Stanton (each a "Shareholder" and, collectively, the "Shareholders").
WITNESSETH:
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WHEREAS, the Shareholders are the sole record and beneficial owners of all
issued and outstanding shares of capital stock of Simon and Simon Marketing Hong
Kong Ltd., a company incorporated under the laws of Hong Kong ("Simon Hong
Kong") (Simon and Simon Hong Kong are sometimes individually referred to herein
as a "Company" and, collectively, as the "Companies");
WHEREAS, the Boards of Directors of Cyrk, Sub and Simon deem it advisable
and in the best interests of each corporation and its respective shareholders
that Cyrk, Simon and Simon Hong Kong combine their businesses and operations
(the "Business Combination") in order to advance the long-term business
interests of such companies and their respective stockholders;
WHEREAS, that portion of the Business Combination involving Simon Hong Kong
shall be effected through a contribution by the Shareholders to Simon (the
"Contribution") of all issued and outstanding shares of capital stock of Simon
Hong Kong (the "Simon Hong Kong Shares");
WHEREAS, that portion of the Business Combination involving Simon shall be
effected by the terms of this Agreement through a transaction in which Simon
will merge with and into Sub, with Sub as the surviving corporation (the
"Merger") and, by virtue of the Merger, the shareholders of Simon will become
stockholders of Cyrk; and
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended and any successor provisions thereto
(the "Code");
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth below, the
parties agree as follows:
<PAGE> 9
ARTICLE I
THE MERGER
Section 1.01. EFFECTIVE TIME OF THE MERGER. Subject to the provisions of
this Agreement, a certificate of merger in such form as is required by the
relevant provisions of the Nevada General Corporation Law ("NGCL") and the
Delaware General Corporation Law ("DGCL") (the "Certificate of Merger") shall be
duly prepared, executed and acknowledged by the Surviving Corporation (as
defined in Section 1.03) and thereafter delivered to the Secretary of State of
the State of Nevada and the Secretary of State of the State of Delaware, for
filing, as provided in the NGCL and the DGCL, as soon as practicable on or after
the Closing Date (as defined in Section 1.02). The Merger shall become effective
upon the filing of the Certificate of Merger with the Secretary of State of the
State of Nevada and the Secretary of State of the State of Delaware or at such
time thereafter as is provided in the Certificate of Merger (the "Effective
Time").
Section 1.02. CLOSING. The closing of the Merger (the "Closing") will take
place at 10:00 a.m., E.S.T., on a date to be specified by Cyrk, Simon and the
Shareholders, which shall be on the second business day after satisfaction of
the latest to occur of the conditions set forth in Article VII (the "Closing
Date"), at the offices of Choate, Hall & Stewart, Exchange Place, 53 State
Street, Boston, Massachusetts, unless another date, place or time is agreed to
in writing by Cyrk, Simon and the Shareholders.
Section 1.03. Effects Of The Merger.
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(a) At the Effective Time (i) the separate existence of Simon shall cease
and Simon shall be merged with and into Sub (Simon and Sub are sometimes
referred to below as the "Constituent Corporations" and Sub is sometimes
referred to below as the "Surviving Corporation"), (ii) the Certificate of
Incorporation of Sub as in effect immediately prior to the Effective Time shall
be the Certificate of Incorporation of the Surviving Corporation and (iii) the
By-laws of Sub as in effect immediately prior to the Effective Time shall be the
By-laws of the Surviving Corporation.
(b) At and after the Effective Time, the Surviving Corporation shall
possess all the rights, privileges, powers and franchises of a public as well as
of a private nature, and be subject to all the restrictions, disabilities and
duties of each of the Constituent Corporations; and all and singular rights,
privileges, powers and franchises of each of the Constituent Corporations, and
all property, real, personal and mixed, and all debts due to either of the
Constituent Corporations on whatever account, as well as for stock subscriptions
and all other things in action or belonging to each of the Constituent
Corporations, shall be vested in the Surviving Corporation, and all property,
rights,
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privileges, powers and franchises, and all and every other interest shall be
thereafter the property of the Surviving Corporation as they were of the
Constituent Corporations, and the title to any real estate vested by deed or
otherwise, in either of the Constituent Corporations, shall not revert or be in
any way impaired; but all rights of creditors and all liens upon any property of
either of the Constituent Corporations shall be preserved unimpaired, and all
debts, liabilities and duties of the Constituent Corporations shall thereafter
attach to the Surviving Corporation, and may be enforced against it to the same
extent as if such debts and liabilities had been incurred by it.
Section 1.04. DIRECTORS AND OFFICERS. The initial directors of the
Surviving Corporation on and after the Effective Time shall be Gregory Shlopak,
Patrick Brady and Allan Brown, each to hold office in accordance with the
Certificate of Incorporation and By-laws of the Surviving Corporation. Allan
Brown shall, at the Effective Time, be the President and Chief Executive Officer
of the Surviving Corporation and the other officers of Simon immediately prior
to the Effective Time shall be the other initial officers of the Surviving
Corporation, in each case until their respective successors are duly elected or
appointed.
Section 1.05. ADDITIONAL PAYMENTS. Cyrk shall make additional payments as
additional consideration for the Merger in accordance with the terms and
conditions of this Section 1.05.
(a) CERTAIN DEFINITIONS. For the purposes of this Section 1.05, the
following terms shall have the following meanings:
"Earn-Out Amount" means, with respect to any Determination Date, the
product of (i) the difference of (A) the Pretax Profit as of such Determination
Date minus (B) $6,000,000 MULTIPLIED BY (ii) 2.5; PROVIDED, HOWEVER, that if
either the difference referred to in the foregoing clause (i) or the product
referred to in the foregoing clause (ii) is less than $0, the Earn-Out Amount
shall be equal to zero.
"Earn-Out Measurement Commencement Date" means the first anniversary of the
commencement of the Earn-Out Period.
"Earn-Out Period" means the two-year period commencing on the first day of
the first full calendar quarter subsequent to the Closing Date.
"Pretax Profit" means, with respect to any Determination Date, the
aggregate consolidated income for the twelve-month period ending on such
Determination Date before interest and income taxes of the Surviving Corporation
and Simon Hong Kong, determined in accordance with the generally accepted
accounting procedures, methods, principles and practices, consistently applied
in accordance with past practice, of the Surviving Corporation (which
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shall include the past practice of Simon and Simon Hong Kong), subject to the
following adjustments:
(i) the signing and stay bonuses paid or payable to Jay Babineau and Vivian
Foo that are considered to be purchase price in connection with the transactions
contemplated hereby shall not be included in the calculation of Pretax Profit;
(ii) any extraordinary nonrecurring items of income, gain, loss or expense
(including, without limitation, any such items arising out of the transactions
contemplated by this Agreement) shall be excluded from the calculation of Pretax
Profit;
(iii) any charge or expense for the amortization of goodwill arising out of
the transactions contemplated by this Agreement or related costs shall be
excluded from the calculation of Pretax Profit; and
(iv) any payment, charges or expenses for allocation of executive, selling,
general and administrative expenses or other payments, charges or expenses of
Cyrk and/or affiliates of Cyrk shall be excluded from the calculation of Pretax
Profit (except to the extent that the Surviving Corporation or any of its
Subsidiaries receives services, goods or funds in exchange for any such payment,
charge or expense).
"Prior Cumulative Earn-Out Payments" means, with respect to any
Determination Date, the sum of all payments previously made by Cyrk to the
Shareholders with respect to prior Determination Dates pursuant to this Section
1.05.
(b) DETERMINATION DATE PROFIT STATEMENT. As promptly as practicable, but in
any event within 45 calendar days following each of (i) the last day prior to
the Earn-Out Measurement Commencement Date and (ii) the last day of each of the
first four calendar quarters following the Earn-Out Measurement Commencement
Date (each a "Determination Date"), Allan Brown shall, or shall cause the
Surviving Corporation to, deliver to Cyrk and the Shareholders' Representative a
statement listing the Pretax Profit, the Earn-Out Amount and the Prior
Cumulative Earn-Out Payments (each a "Determination Date Profit Statement"),
together with a certificate executed by the Chief Financial Officer of the
Surviving Corporation stating that the Determination Date Profit Statement
fairly presents the aggregate Pretax Profit of the Surviving Corporation for the
twelve-month period ending on such Determination Date. Without limiting the
foregoing, Allan Brown shall, or shall cause the Surviving Corporation to,
provide Cyrk and the Shareholders' Representative with a reasonably detailed
statement of income of the Surviving Corporation for each twelve-month period
ending on a Determination Date, prepared in accordance with generally accepted
accounting principles applied on a basis consistent with the past practices of
the Surviving Corporation
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(which shall include the past practices of Simon and Simon Hong Kong), and with
a reasonably detailed calculation of Pretax Profit for such period.
(c) DISPUTES. Cyrk or the Shareholders' Representative may dispute any item
or amount reflected on any Determination Date Profit Statement to the extent
such disputed item or amount affects the calculation of the Earn-Out Amount;
PROVIDED, HOWEVER, that Cyrk or the Shareholders' Representative shall have
notified the other Person in writing of each disputed item, specifying the
amount thereof in dispute and setting forth, in reasonable detail, the basis for
such dispute, within thirty (30) calendar days of the delivery of such
Determination Date Profit Statement to Cyrk or the Shareholders' Representative,
as the case may be. Cyrk and the Shareholders' Representative shall attempt in
good faith to resolve the matter in dispute. If Cyrk and the Shareholders'
Representative, notwithstanding such good faith effort, shall have failed to
resolve any matter within ten (10) Business Days after receipt of the written
notice of dispute, then any such matter shall be finally and conclusively
determined by an arbiter (the "Arbiter") which shall be a nationally recognized
accounting firm selected by mutual agreement of Cyrk and the Shareholders'
Representative. Promptly, but not later than ten (10) Business Days after its
acceptance of its appointment, the Arbiter shall determine (based solely on
presentations by the Shareholders' Representative and Cyrk to the Arbiter and
not by independent review) only those issues in dispute and shall render a
report as to the dispute, which report shall be conclusive and binding upon the
parties hereto. In resolving any disputed item, the Arbiter may not assign a
value to any particular item greater than the greatest value for such item
claimed by either party or less than the smallest value for such item claimed by
either party, in each case, as presented to the Arbiter. The fees and
disbursements of the Arbiter shall be allocated between Cyrk and the
Shareholders based upon the percentage ratio that the sum of the net amounts
subject to dispute resolved against each of the parties bears to the total of
the net amounts subject to dispute. For this purpose, the "net amounts subject
to dispute" shall represent the difference between the amount of such items as
proposed by Cyrk and the corresponding amount of such items proposed by the
Shareholders' Representative, in each case as submitted to the Arbiter.
(d) COOPERATION. For purposes of complying with the terms set forth in this
Section 1.05, each party shall cooperate with and promptly make available to the
other party and its auditors and representatives, all information, records,
data, auditors' working papers, and access to its personnel, shall permit access
to its facilities and shall permit the other party and its auditors and
representatives to make copies of all information, records, data and auditor's
working papers, in each case as may be reasonably required in connection with
the analysis of the Determination Date Profit Statement, the calculation of
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Pretax Profit and the Earn-Out Amount and the resolution of any dispute(s)
thereunder.
(e) ADDITIONAL PAYMENTS. As soon as all disagreements, if any, with respect
to any item or amount of the Pretax Profit or the Earn-Out Amount as of any
Determination Date shall have been resolved directly by Cyrk and the
Shareholder's Representative or the report of the Arbiter shall have been
issued, additional payments shall be made from Cyrk to the Shareholders with
respect to each Determination Date Profit Statement calculated as follows and
payable subject to and in accordance with Section 1.05(g):
(i) if the Earn-Out Amount exceeds the Prior Cumulative Earn-Out Payments
as of the last day of the Earn-Out Period, or if the Earn-Out Amount exceeds the
Prior Cumulative Earn-Out Payments on any other Determination Date by $100,000
or more, then Cyrk shall pay each Shareholder one-half of the difference between
the Earn-Out Amount and the Prior Cumulative Earn-Out Payments as of such date;
or
(ii) if the Earn-Out Amount does not exceed the Prior Cumulative Earn-Out
Payments as of the last day of the Earn-Out Period, or if the Earn-Out Amount
does not exceed the Prior Cumulative Earn-Out Payments as of any other
Determination Date by at least $100,000, Cyrk shall not be required to make any
additional payment to the Shareholders with respect to such Determination Date
Profit Statement;
PROVIDED, HOWEVER, that notwithstanding anything to the contrary in this Section
1.05, Cyrk shall not be required to make any additional payments to the
Shareholders in excess of $5,000,000 in the aggregate.
(f) EARN-OUT ACCELERATION EVENTS. Notwithstanding the provisions of Section
1.05(a)-(e), if prior to the end of the Earn- Out Period, (i) all or
substantially all of the assets of Cyrk are sold, transferred or otherwise
disposed (in one transaction or a series of transactions) other than to an
Affiliate of Cyrk, (ii) Cyrk is merged or consolidated with or into any other
corporation, other than an Affiliate of Cyrk, in a transaction in which Cyrk is
not the survivor, (iii) a transaction or a series of transactions occur whereby
any Person, other than Allan Brown or Eric Stanton or any entity owned or
controlled by them, shall have become the beneficial owner of securities
representing more than 40% of the aggregate voting power of the then outstanding
voting securities of Cyrk, (iv) the employment of Allan Brown is terminated
"Without Cause" or Allan Brown resigns for "Good Reason" (as each is defined in
the employment agreement between Allan Brown and the Surviving Corporation
entered into on the date hereof), or (v) Cyrk materially breaches its
obligations under this Agreement and fails to cure such breach within thirty
(30) Business Days after receipt of written notice to Cyrk of such breach
setting forth, in
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reasonable detail, the basis for the breach (each event under clauses (i)-(v) is
hereinafter referred to as an "Earn-Out Acceleration Event"), then (A) in the
case of an Earn-Out Acceleration Event specified in clause (i), (ii) or (iii),
Cyrk may, at its option, provide written notice (a "Purchaser's Notice") thereof
to the Shareholders' Representative at least twenty (20) Business Days prior to
the occurrence of such Earn-Out Acceleration Event, and (B) in the case of any
Earn-Out Acceleration Event, the Shareholders' Representative shall provide
written notification (the "Shareholders' Notice") thereof to Cyrk within twenty
(20) Business Days after the occurrence thereof. Upon the receipt of a
Purchaser's Notice by the Shareholders' Representative or a Shareholders' Notice
by Cyrk, as the case may be, Cyrk's obligation to pay the Shareholders any
additional amounts under Sections 1.05(a)-(e) shall be suspended and, in lieu of
such payments, Cyrk shall immediately pay to each Shareholder, in accordance
with the provisions of Section 1.05(g), an additional payment equal to one-half
of the difference between $5,000,000 and any amounts already paid to such
Shareholder under this Section 1.05.
(g) METHOD AND TIMING OF ADDITIONAL PAYMENTS. All amounts due and payable
to each Shareholder pursuant to Sections 1.05(e) or (f) shall be paid to each
Shareholder by the delivery of such number of shares of Cyrk Common Stock equal
to the amount payable to such Shareholder divided by the average of the closing
prices of shares of Cyrk Common Stock on Nasdaq during the last twenty (20)
trading days prior to the date such payment becomes payable. All deliveries of
shares of Cyrk Common Stock due to the Shareholders with respect to any
Determination Date shall be paid by Cyrk no later than the fifth business day
following the date on which any dispute or disagreement with respect to a
Earn-Out Amount is deemed final.
(h) NO LIMITATION OF CONTRACTUAL REMEDIES. Nothing in this Section 1.05
shall be deemed to limit, in any manner, the contractual remedies of Allan Brown
or Cyrk available under the employment agreement between Allan Brown and Cyrk or
the indemnification obligations of the Shareholders and Cyrk available pursuant
to Section 6.10 hereof.
Section 1.06. SHAREHOLDERS' REPRESENTATIVE. Each of Allan Brown and Eric
Stanton hereby appoints Eric Stanton as such Shareholder's attorney-in-fact and
representative (the "Shareholders' Representative"), (i) to do any and all
things and to execute any and all documents or other papers, in each such
Shareholder's name, place and stead, in any way which each such Shareholder
could do if personally present, in connection with this Agreement and the
transactions contemplated hereby, including, without limitation, to accept or
make on each such Shareholder's behalf any payments due to such Shareholder
hereunder, (ii) to amend, cancel or extend, or waive the terms of, this
Agreement and
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(iii) to act on behalf of such Shareholder with respect to any claims (including
the settlement thereof) made by Cyrk or the Shareholders for indemnification
pursuant to Article VI. In the event that the Shareholders' Representative
becomes unable or unwilling to continue in his capacity as Shareholders'
Representative under this Agreement, Allan Brown and Eric Stanton shall promptly
appoint a successor Shareholders' Representative, who shall be reasonably
acceptable to Cyrk, by written notice to Cyrk. All references herein to the
Shareholders' Representative shall include any such successor Shareholders'
Representative. The Shareholders hereby consent to the taking by the
Shareholders' Representative of any and all actions and the making of any
decisions required or permitted to be taken by him under this Agreement. The
Shareholders shall be bound by all actions taken by the Shareholders'
Representative in his capacity as Shareholders' Representative. Copies of any
notice given by Cyrk to the Shareholders' Representative shall be promptly
provided to each of those Persons specified in Section 9.02.
ARTICLE II
CONVERSION OF SECURITIES
Section 2.01. CONVERSION OF CAPITAL STOCK. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holder of any
shares of Common Stock, par value $.01 per share, of Simon ("Simon Common
Stock") or any shares of capital stock of Sub:
(a) CANCELLATION OF TREASURY STOCK. Each share of Simon Common Stock that
is owned by Simon as treasury stock shall be cancelled and retired and shall
cease to exist, and no stock of Cyrk or Sub or other consideration shall be
delivered in exchange therefor.
(b) EXCHANGE OF STOCK. Subject to Section 2.02, each issued and outstanding
share of Simon Common Stock (other than shares to be cancelled in accordance
with Section 2.01(a)) shall be converted automatically into the right to receive
(i) 11.05188 fully paid and nonassessable shares of Common Stock, par value $.01
per share, of Cyrk ("Cyrk Common Stock") and (ii) an amount of cash equal to
$25,000,000 divided by the aggregate number of outstanding shares of Simon
Common Stock, in immediately available funds (the "Merger Cash Consideration").
All such shares of Simon Common Stock, when so converted, shall no longer be
outstanding and shall automatically be cancelled and retired and shall cease to
exist, and each holder of a certificate representing any such shares shall cease
to have any rights with respect thereto, except the right to receive the Merger
Cash Consideration, the shares of Cyrk Common Stock and the Fractional Share
Amount upon the surrender of such certificate in accordance with Section 2.02,
without interest.
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Section 2.02. EXCHANGE OF CERTIFICATES. The procedures for exchanging
outstanding shares of Simon Common Stock for Cyrk Common Stock, the Fractional
Share Amount and the Merger Cash Consideration pursuant to the Merger are as
follows:
(a) EXCHANGE PROCEDURES. Pursuant to the Merger, at the Closing, the Merger
Cash Consideration and the Fractional Share Amount in the amounts and as
apportioned on SCHEDULE I dated as of the date hereof and executed and delivered
by each of the parties simultaneously with the execution of this Agreement, and
certificates, duly executed and dated as of the Closing Date, representing the
shares of Cyrk Common Stock to be delivered to the Shareholders at the Effective
Time, shall be delivered by Cyrk to the Shareholders. At the Closing, the
Shareholders will deliver the certificates representing all shares of Simon
Common Stock, and stock powers, duly endorsed in blank or affidavits of lost
certificates in form and substance reasonably satisfactory to Cyrk, to Cyrk. As
of the Effective Time, the holder of each certificate, or affidavit of lost
certificate, of Simon Common Stock, shall be entitled to receive in exchange
therefor, the Merger Cash Consideration, the Fractional Share Amount and the
certificate representing that number of whole shares of Cyrk Common Stock which
such holder has the right to receive pursuant to the provisions of this Article
II, and each such certificate so surrendered shall immediately be cancelled.
(b) NO FURTHER OWNERSHIP RIGHTS IN SIMON COMMON STOCK. All shares of Cyrk
Common Stock issued upon the transfer of shares of Simon Common Stock, the
payment of the Merger Cash Consideration and the Fractional Share Amount in
exchange for shares of Simon Common Stock and the Earn-Out Amount in accordance
with the terms hereof shall be deemed to have been issued and paid in full
satisfaction of all rights pertaining to such shares of Simon Common Stock, and
there shall be no further registration of transfers on the stock transfer books
of the Surviving Corporation of the shares of Simon Common Stock which were
outstanding immediately prior to the Effective Time.
(c) NO FRACTIONAL SHARES. No certificate or scrip representing fractional
shares of Cyrk Common Stock shall be issued upon the surrender for exchange of
Simon Common Stock, and such fractional share interests will not entitle the
owner thereof to vote or to any rights of a stockholder of Cyrk. Notwithstanding
any other provision of this Agreement, to the extent that each Shareholder would
otherwise be entitled to receive a fraction of a share of Cyrk Common Stock
shall receive, in addition to Cyrk Common Stock delivered pursuant to Section
1.05(g) or 2.02(a) and the Merger Cash Consideration, cash (without interest) in
an amount equal to such fractional part of a share of Cyrk Common Stock
multiplied by the average of the closing prices of Cyrk Common Stock, as
reported on the Nasdaq National Market, on each of the twenty (20)trading days
immediately preceding the date hereof with
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respect to Cyrk Common Stock delivered pursuant to Section 2.02(a) (the
"Fractional Share Amount")and on each of the twenty trading days immediately
preceding the date of payment with respect to Cyrk Common Stock delivered
pursuant to Section 1.05(g).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS AND SIMON
Each Shareholder and Simon, severally and not jointly, represent and
warrant to Cyrk and Sub that the statements contained in this Article III are
true and correct, except as set forth in the disclosure schedule dated as of the
date hereof and delivered by Simon to Cyrk simultaneously with the execution of
this Agreement (the "Simon Disclosure Schedule"). The Simon Disclosure Schedule
shall be arranged in paragraphs corresponding to the numbered and lettered
paragraphs contained in this Article III.
Section 3.01. ORGANIZATION OF EACH COMPANY. Each of Simon and Simon Hong
Kong and their respective Subsidiaries is a corporation or other entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, has all requisite corporate power to own,
lease and operate its properties and to carry on its business as now being
conducted and as proposed to be conducted, and is duly qualified to do business
and is in good standing as a foreign corporation in each jurisdiction in which
the failure to be so qualified and in good standing would have a material
adverse effect on the business, assets, financial condition or results of
operations ("Material Adverse Effect") of the Companies and their respective
Subsidiaries, taken as a whole. Except as set forth in Schedule 3.01 of the
Simon Disclosure Schedule, neither Simon, Simon Hong Kong, nor any of their
respective Subsidiaries directly or indirectly owns any equity or similar
interest in, or any interest convertible into or exchangeable or exercisable
for, any corporation, partnership, joint venture or other business association
or entity, excluding securities in any publicly traded company held for
investment by Simon and comprising less than five percent (5%) of the
outstanding stock of such company.
As used in this Agreement, the word "Subsidiary" means, with respect to any
party, any corporation or other organization, whether incorporated or
unincorporated, of which (i) such party or any other Subsidiary of such party is
a general partner (excluding partnerships, the general partnership interests of
which held by such party or any Subsidiary of such party do not have a majority
of the voting interest in such partnership) or (ii) at least a majority of the
securities or other interests having by their terms ordinary voting power to
elect a majority of the Board of Directors or others performing similar
functions with respect to such corporation or other organization is directly or
indirectly owned
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or controlled by such party or by any one or more of its Subsidiaries, or by
such party and one or more of its Subsidiaries; PROVIDED, HOWEVER, that the
corporations listed on Schedule 3.18 of the Simon Disclosure Schedule shall not
be deemed to be Subsidiaries of Simon or the Shareholders.
Section 3.02. Capital Structure.
-----------------
(a) The authorized capital stock of Simon consists of 500,000 shares of
Simon Common Stock. As of the date hereof, (i) 166,500 shares of Simon Common
Stock are issued and outstanding, all of which are validly issued, fully paid
and nonassessable, (ii) no shares of Simon Common Stock are held in the treasury
of Simon or by Subsidiaries of Simon and (iii) no shares of Simon Common Stock
are reserved for future issuance pursuant to the exercise of stock options.
The authorized capital stock of Simon Hong Kong consists of 130 shares of
Common Stock. As of the date hereof, (i) 26 shares of Simon Hong Kong's Common
Stock are issued and outstanding, all of which are validly issued, fully paid
and nonassessable, (ii) no shares of Simon Hong Kong's Common Stock are held in
the treasury of Simon Hong Kong or by Subsidiaries of Simon Hong Kong and (iii)
no shares of Simon Hong Kong's Common Stock are reserved for future issuance
pursuant to the exercise of stock options.
Except as set forth in Schedule 3.02 of the Simon Disclosure Schedule,
there are no obligations, contingent or otherwise, of any Company or any of
their respective Subsidiaries to repurchase, redeem or otherwise acquire any
shares of capital stock of any Company or any of their respective Subsidiaries
or to provide funds to or make any investment (in the form of a loan, capital
contribution or otherwise) in any such Subsidiary or any other entity other than
guarantees of bank obligations of Subsidiaries entered into in the ordinary
course of business. All of the outstanding shares of capital stock of each
Company are duly authorized, validly issued, fully paid and nonassessable and
all such shares are owned directly by the Shareholders (except that all shares
of Simon Hong Kong as of the Closing Date will be owned directly by Simon) free
and clear of all security interests, liens, claims, pledges, agreements,
limitations on voting rights, charges or other encumbrances of any nature. All
of the outstanding shares of capital stock of each Company's Subsidiaries are
duly authorized, validly issued, fully paid and nonassessable and all such
shares (other than directors' qualifying shares in the case of foreign
Subsidiaries) are owned by one of the Companies or another Subsidiary free and
clear of all security interests, liens, claims, pledges, agreements, limitations
on voting rights, charges or other encumbrances of any nature.
(b) Except as set forth in this Section 3.02, there are no equity
securities of any class of any Company or any of their
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respective Subsidiaries, or any security exchangeable into or exercisable for
such equity securities, issued, reserved for issuance or outstanding. Except as
set forth in this Section 3.02 or in Schedule 3.02 of the Simon Disclosure
Schedule, there are no options, warrants, equity, securities, calls, rights,
commitments or agreements of any character to which any Company or any of their
respective Subsidiaries is a party or by which it is bound obligating any
Company or any of their respective Subsidiaries to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of capital stock of any
Company or any of their respective Subsidiaries or obligating any Company or any
of their respective Subsidiaries to grant, extend, accelerate the vesting of or
enter into any such option, warrant, equity security, call, right, commitment or
agreement. There are no voting trusts, proxies or other agreements or
understandings with respect to the shares of capital stock of any Company.
Section 3.03. Authority; No Conflict; Required Filings and Consents.
-----------------------------------------------------
(a) Simon has all requisite corporate power and authority and each
Shareholder has all requisite power and authority to enter into this Agreement
and the Ancillary Agreements (as defined in Section 7.01(d)) to which Simon or
such Shareholder is a party and to consummate the transactions contemplated
hereunder and thereunder. The execution and delivery of this Agreement and the
Ancillary Agreements to which Simon is a party and the consummation of the
transactions contemplated hereunder and thereunder have been duly authorized by
all necessary corporate action on the part of Simon. This Agreement and the
Ancillary Agreements to which Simon or either Shareholder is a party have been
duly executed and delivered by Simon and each Shareholder party thereto and
(assuming the due execution and delivery of the other parties thereto)
constitute the valid and binding obligations of Simon and each Shareholder party
thereto, enforceable in accordance with their terms, except to the extent that
such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and other similar laws
affecting the enforcement of creditors' rights generally, and by general
equitable principles.
(b) Assuming that all consents, approvals, filings, authorizations and
other actions described in clauses (i), (ii) and (iii) of Section 3.03(c) have
been obtained or made, the execution and delivery of this Agreement and the
Ancillary Agreements to which Simon or either Shareholder is a party by Simon or
either Shareholder does not, and the consummation of the transactions
contemplated hereunder and thereunder will not, (i) conflict with, or result in
any violation or breach of any provision of the Articles of Incorporation or
By-laws of Simon, (ii) except as set forth in Schedule 3.03(b)(ii) of the Simon
Disclosure Schedule, result in any violation or breach of, or constitute (with
or
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without notice or lapse of time, or both) a default (or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of any
material benefit) under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, lease, contract or other agreement, instrument or
obligation to which any Company or any of their respective Subsidiaries is a
party or by which any of them or any of their properties or assets may be bound,
or (iii) conflict with or violate any permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to any Company or any of their respective Subsidiaries or any of their
respective properties or assets, except in the case of (ii) and (iii) for any
such conflicts, violations, breaches, defaults, terminations, cancellations or
accelerations which would not be reasonably likely to have a Material Adverse
Effect on the Companies and their respective Subsidiaries, taken as a whole.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other governmental authority or instrumentality ("Governmental Entity") is
required by or with respect to any Company or any of their respective
Subsidiaries in connection with the execution and delivery of this Agreement and
the Ancillary Agreements to which Simon or either Shareholder is a party or the
consummation of the transactions contemplated hereunder and thereunder, except
for (i) the filing of the Certificate of Merger with the Nevada Secretary of
State and the Delaware Secretary of State, (ii) such consents, approvals,
orders, authorizations, registrations, declarations and filings as may be
required under applicable federal and state securities laws, "blue sky" laws or
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the
rules and regulations thereunder (the "HSR Act"), (iii) the filings and
registrations required by, or with respect to, any stock transfers required or
contemplated by this Agreement to the extent required by applicable law and (iv)
such other consents, authorizations, filings, approvals, orders, declarations
and registrations which, if not obtained or made, would not be reasonably likely
to have a Material Adverse Effect on the Companies and their respective
Subsidiaries, taken as a whole.
Section 3.04. Financial Statements.
--------------------
Each Company has made available to Cyrk complete copies of its audited
consolidated balance sheet as at November 30, 1996 (such audited balance sheets
for Simon and Simon Hong Kong are collectively referred to herein as the
"Audited Balance Sheets"), its audited consolidated income statement for the
twelve-month period ended November 30, 1996 and Simon has made available to Cyrk
Simon's unaudited consolidated financial statements as at or, as the case may
be, for a three-month period ended on February 28, 1997 (collectively, the
"Financial Statements"). Each of the Financial Statements (including, in each
case, any related notes)
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was prepared in accordance with U.S. generally accepted accounting principles or
Hong Kong statutory requirements, as the case may be, each applied on a
consistent basis throughout the periods involved (except as may be indicated in
the notes to such Financial Statements) and fairly present the consolidated
financial position of each Company and their respective Subsidiaries as at the
respective dates and the consolidated results of its operations for the periods
indicated, except that the unaudited interim financial statements were or are
subject to normal or recurring year-end adjustments which were not or are not
expected to be material in amount. The unaudited balance sheet of Simon as of
February 28, 1997 is referred to herein as the "February Balance Sheet."
Section 3.05. NO UNDISCLOSED LIABILITIES. The Companies and their
respective Subsidiaries do not have any liabilities, whether accrued, absolute,
contingent or otherwise, and whether due or to become due, which, individually
or in the aggregate, would be reasonably likely to have a Material Adverse
Effect on the Companies and their respective Subsidiaries, taken as a whole,
other than (i) liabilities reflected in the February Balance Sheet, as to Simon,
or in the Audited Balance Sheets, as to Simon Hong Kong, (ii) liabilities
specifically described in this Agreement, or in Schedule 3.05 of the Simon
Disclosure Schedule, (iii) normal or recurring liabilities incurred since
February 28, 1997, as to Simon, or November 30, 1996, as to Simon Hong Kong, in
either case only in the ordinary course of business, and (iv) liabilities that
relate to the subject matter of any of the other representations and warranties
set forth in this Agreement or any Ancillary Agreement.
Section 3.06. ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the date of the
Audited Balance Sheets, the Companies and their respective Subsidiaries have
conducted their businesses only in the ordinary course and in a manner
consistent with past practice and, other than as set forth in Schedule 3.06 of
the Simon Disclosure Schedule since such date, there has not been (i) any event
which has had a Material Adverse Effect on the Companies and their respective
Subsidiaries, taken as a whole; (ii) any material change by any Company in its
accounting methods, principles or practices to which Cyrk has not previously
consented in writing; (iii) any revaluation by any Company of any of its assets
having a Material Adverse Effect on the Companies and their respective
Subsidiaries, taken as a whole; or (iv) any other action or event that would
have required the consent of Cyrk pursuant to Section 5.01 of this Agreement had
such action or event occurred after the date of this Agreement and that would be
reasonably likely to have a Material Adverse Effect on the Companies and their
respective Subsidiaries, taken as a whole.
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Section 3.07. TAXES. Except as set forth in Section 3.07 of the Simon
Disclosure Schedule or reflected in the February Balance Sheet:
(a) DEFINITIONS. For purposes of this Agreement, the following definitions
shall apply:
(1) The term "Simon Group" shall mean, individually and collectively,
Simon and Simon Hong Kong and any individual, trust, corporation, partnership or
any other entity as to which Simon or Simon Hong Kong is liable for Taxes
incurred by such individual or entity either as a transferee, or pursuant to
Treasury Regulations Section 1.1502-6, or pursuant to any other provision of
federal, territorial, state, local or foreign law or regulations.
(2) The term "Taxes" shall mean all taxes, however, denominated,
including any interest, penalties or other additions to tax that may become
payable in respect thereof, imposed by any federal, territorial, state, local or
foreign government or any agency or political subdivision of any such
government, which taxes shall include, without limiting the generality of the
foregoing, all income or profits taxes (including, but not limited to, federal
income taxes and state income taxes), real property gains taxes, payroll and
employee withholding taxes, unemployment insurance taxes, social security (or
similar) taxes, sales and use taxes, ad valorem taxes, excise taxes, franchise
taxes, gross receipts taxes, business license taxes, occupation taxes, real and
personal property taxes, stamp taxes, environmental taxes (including under Code
Section 59A), transfer taxes, workers' compensation, Pension Benefit Guaranty
Corporation premiums and other governmental charges, alternative or add-on
minimum taxes and other obligations of the same or of a similar nature to any of
the foregoing, whether disputed or not, which any member of the Group is
required to pay, withhold or collect.
(3) The term "Returns" shall mean all reports, estimates, declarations
of estimated tax, information statements and returns relating to, or required to
be filed by the Simon Group or the Cyrk Group (as defined below), as the case
may be, in connection with, any Taxes, including information returns or reports
with respect to backup withholding and other payments to third parties, and any
schedules attached to or amendments of any of the foregoing.
(b) RETURNS FILED AND TAXES PAID. All Returns required to be filed by or on
behalf of members of the Simon Group have been duly filed on a timely basis and
such Returns are true, complete and correct. All Taxes shown to be payable on
such Returns or on subsequent assessments with respect thereto have been paid in
full on a timely basis and no other Taxes are payable by any member of the Simon
Group with respect to items or periods covered by such Returns (whether or not
shown on or reportable on such Returns) or
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with respect to any period prior to the date of this Agreement by it (except to
the extent appropriate reserves have been established therefor). Each member of
the Simon Group has withheld and paid over all Taxes required to have been
withheld and paid over by it (except to the extent appropriate reserves have
been established therefor), and has complied with all information reporting and
backup withholding requirements, including maintenance of required records with
respect thereto, in connection with amounts paid or owing to any employee,
creditor, independent contractor, or other third party. There are no liens on
any of the assets of Simon with respect to Taxes, other than liens for Taxes not
yet due and payable or for Taxes that a member of the Simon Group is contesting
in good faith through appropriate proceedings and for which appropriate reserves
have been established.
(c) TAX RESERVES. The amount of the liability of the members of the Simon
Group for unpaid Taxes for all periods ending on or before the date of this
Agreement do not, in the aggregate, materially exceed the amount of the current
liability accruals for Taxes (excluding reserves for deferred Taxes) as of the
date of this Agreement, and the amount of the liability of the members of the
Simon Group for unpaid Taxes for all periods ending on or before the Closing
Date shall not, in the aggregate, materially exceed the amount of the current
liability accruals for Taxes (excluding reserves for deferred Taxes) as such
accruals are reflected on the February Balance Sheet.
(d) RETURNS FURNISHED. The Shareholders or Simon have made available to
Cyrk true and complete copies of (i) relevant portions of income tax audit
reports, statements of deficiencies, closing or other agreements received by any
member of the Simon Group or on behalf of such member relating to Taxes, and
(ii) all federal and state income or franchise tax returns for the members of
the Simon Group for all periods ending on and after November 30, 1990. Neither
Simon nor any member of the Simon Group does business in or derives income from
any state, local, territorial or foreign taxing jurisdiction other than those
for which all Returns have been furnished to Cyrk in which no Taxes are payable.
(e) TAX DEFICIENCIES; AUDITS; STATUTES OF LIMITATIONS. The Returns of the
Simon Group have never been audited by a government or taxing authority and to
the best knowledge of Simon and the Shareholders, no such audit is in process,
pending or threatened (either in writing or verbally, formally or informally).
No deficiencies have been asserted (either in writing or verbally, formally or
informally) or are expected to be asserted with respect to Taxes of any member
of the Simon Group, and no member of the Simon Group has received notice (either
in writing or verbally, formally or informally) or expects to receive notice
that it has not filed a Return or paid Taxes required to be filed or paid by it.
No member of the Simon Group is a party to any action or proceeding for
assessment or collection of Taxes, nor has such
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event been asserted or threatened (either in writing or verbally, formally or
informally) against any member of the Simon Group or any of its assets. No
waiver or extension of any statute of limitations is in effect with respect to
Taxes or Returns of any member of the Simon Group. Simon and each member of the
Simon Group have disclosed on its federal income tax returns all positions taken
therein that could give rise to a substantial understatement penalty within the
meaning of Code Section 6662.
(f) TAX SHARING AGREEMENTS. No member of the Simon Group is or has ever
been a party to any tax sharing agreement and has not assumed the liability of
or indemnified or agreed to reimburse any other person under contract with
respect to Taxes.
(g) TAX ELECTIONS AND SPECIAL TAX STATUS. No member of the Simon Group is a
party to any safe harbor lease within the meaning of Section 168(f)(8) of the
Code, as in effect prior to amendment by the Tax Equity and Fiscal
Responsibility Act of 1982. No member of the Simon Group is or has been a United
States real property holding corporation within the meaning of Section 897(c)(2)
of the Code during the applicable period specified in Section 897(c)(1)(A)(ii)
of the Code and Cyrk is not required to withhold tax on the purchase of the
stock of Simon by reason of Section 1445 of the Code. Neither of the
Shareholders is a "foreign person" (as that term is defined in Section 1445 of
the Code). No member of the Simon Group is a "consenting corporation" under
Section 341(f) of the Code or agreed to have Section 341(f)(2) apply to the
disposition of any of the assets of any such member. With respect to Section
162(m) of the Code, no member of the Simon Group has entered into any
compensatory agreements with respect to the performance of services which
payment thereunder would result in a nondeductible expense to the Simon Group
pursuant to Section 280G or Section 162(m) of the Code or an excise tax to the
recipient of such payment pursuant to Section 4999 of the Code. No member of the
Simon Group has participated in an international boycott as defined in Code
Section 999. Simon has not agreed, nor is it required to make, any adjustment
under Code Section 481(a) or 263A by reason of a change in accounting method or
otherwise. No property used by any member of the Simon Group is "tax-exempt use
property" within the meaning of Section 168(h) of the Code. None of the assets
of any member of the Simon Group secures any debt the interest on which is tax
exempt under Section 103(a) of the Code. Except as reflected on the Financial
Statements or the Tax Returns, the Simon Disclosure Schedule sets forth each of
the material elections with respect to Taxes affecting any member of the Simon
Group.
(h) SECTION 6038A COMPLIANCE. The Shareholders, Simon and Simon Hong Kong
have filed all reports and have created and/or retained all records required
under Section 6038A of the Code with respect to the ownership of Simon by and
its transactions with related parties. Each related foreign person required to
maintain
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records under Section 6038A with respect to transactions between Simon and the
related foreign person has maintained such records. All documents that are
required to be created and/or preserved by the related foreign person with
respect to transactions with any member of the Simon Group are either maintained
in the United States, or such member is exempt from the record maintenance
requirements of Section 6038A with respect to such transactions under Treasury
Regulation Section 1.6038A-1. No member of the Simon Group is a party to any
record maintenance agreement with the Internal Revenue Service with respect to
Section 6038A. Each related foreign person that has engaged in transactions with
a member of the Simon Group has authorized Simon to act as its limited agent
solely for purposes of Sections 7602, 7603, and 7604 of the Code with respect to
any request by the Internal Revenue Service to examine records or produce
testimony related to any transaction with such member, and each such
authorization remains in full force and effect.
(i) PARTNERSHIPS OR JOINT VENTURES. No member of the Simon Group is a party
to any joint venture, partnership or other arrangement or contract that could be
treated as a partnership for federal income tax purposes.
(j) CONSOLIDATED, COMBINED OR UNITARY RETURNS. No member of the Simon Group
has participated in the filing of any consolidated, combined or unitary Return
with respect to which Simon was not the common parent.
Section 3.08. PROPERTIES. Simon has made available to Cyrk a true and
complete list of all real property owned by each Company or any of their
respective Subsidiaries and real property leased by each Company or any of their
respective Subsidiaries pursuant to any lease which is material to the Companies
and their respective Subsidiaries, taken as a whole (each, a "Material Lease"),
and the name of the lessor, the date of each such Material Lease and each
amendment to each such Material Lease and the aggregate annual rental or other
fee payable under any such Material Lease. All such Material Leases are in good
standing, valid and effective in accordance with their respective terms, and the
Company or Subsidiary party thereto is not in default under any of such Material
Leases, except where the lack of such good standing, validity and effectiveness
of the existence of such default would not be reasonably likely to have a
Material Adverse Effect on the Companies and their respective Subsidiaries,
taken as a whole.
Section 3.09. Intellectual Property.
---------------------
(a) Each Company owns, or is licensed or otherwise possesses legally
enforceable rights to use, all patents, trademarks, trade names, service marks,
copyrights, and any applications for such patents, trademarks, trade names,
service marks and copyrights, maskworks, schematics, technology, know-how,
computer software
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program or applications and tangible or intangible proprietary information or
material that are necessary to conduct its business as currently conducted, the
absence of which would be reasonably likely to have a Material Adverse Effect on
the Companies and their respective Subsidiaries, taken as a whole (the "Simon
Intellectual Property Rights"). Schedule 3.09 of the Simon Disclosure Schedule
lists (i) all patents and patent applications and all trademarks, registered
copyrights, maskworks, trade names and service marks, which Simon and the
Shareholders consider to be material to the business of the Companies and
included in the Simon Intellectual Property Rights, including the jurisdictions
in which each such Simon Intellectual Property Right has been issued or
registered or in which any such application for such issuance and registration
has been filed, (ii) all material licenses, sublicenses and other agreements as
to which each Company is a party and pursuant to which any person is authorized
to use any Simon Intellectual Property Rights, and (iii) all material licenses,
sublicenses and other agreements as to which any Company is a party and pursuant
to which such Company is authorized to use any third party patents, trademarks
or copyrights ("Simon Third Party Intellectual Property Rights").
(b) No Company is, nor will it be as a result of the execution and delivery
of this Agreement by Simon and the Shareholders or the performance of such
parties' obligations under this Agreement, in breach of any license, sublicense
or other agreement relating to the Simon Intellectual Property Rights or Simon
Third Party Intellectual Property Rights, the breach of which would be
reasonably likely to have a Material Adverse Effect on the Companies and their
respective Subsidiaries, taken as a whole.
(c) To Simon's knowledge, all material patents, registered trademarks,
service marks and copyrights held by each Company are valid and subsisting.
Except as set forth on Schedule 3.09 or Schedule 3.11 of the Simon Disclosure
Schedule, no Company (i) has been sued in any suit, action or proceeding which
involves a claim of infringement of any patents, trademarks, service marks,
copyrights or violation of any trade secret or other proprietary right of any
third party, which claim would reasonably be expected to have a Material Adverse
Effect on the Companies and their respective Subsidiaries, taken as a whole; and
(ii) has any knowledge that the manufacturing, marketing, licensing or sale of
its products infringes any patent, trademark, service mark, copyright, trade
secret or other proprietary right of any third party, which such infringement
would reasonably be expected to have a Material Adverse Effect on the Companies
and their respective Subsidiaries, taken as a whole.
Section 3.10. AGREEMENTS, CONTRACTS AND COMMITMENTS. No Company nor any of
their respective Subsidiaries has breached, or received in writing any claim or
threat that it has breached, any of the terms or conditions of any material
agreement, contract or
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commitment ("Simon Material Contracts") in such a manner as would permit any
other party to cancel or terminate the same or would permit any other party to
seek material damages from a Company or such Subsidiary under any Simon Material
Contract and which is reasonably likely to have a Material Adverse Effect on the
Companies and their respective Subsidiaries, taken as a whole. Each Simon
Material Contract is in full force and effect and is not subject to any material
default thereunder of which Simon or any Shareholder is aware by any party
obligated to a Company pursuant to such Simon Material Contract, the default of
which is reasonably likely to have a Material Adverse Effect on the Companies
and their respective Subsidiaries, taken as a whole.
Section 3.11. LITIGATION. Except as set forth in Schedule 3.11 of the Simon
Disclosure Schedule, there is no action, suit or proceeding, claim, arbitration
or investigation against any Company or any of its Subsidiaries pending or as to
which a Company or any such Subsidiary has received any written notice of
assertion, which is reasonably likely to have a Material Adverse Effect on the
Companies and their respective Subsidiaries, taken as a whole, or a material
adverse effect on the ability of Simon and the Shareholders to consummate the
transactions contemplated by this Agreement.
Section 3.12. Environmental Matters.
---------------------
(a) HAZARDOUS MATERIAL. As of the date hereof, to the knowledge of Simon
and each Shareholder, no underground storage tanks are present under any
property that any Company or any of its Subsidiaries has at any time owned,
operated, occupied or leased. As of the date hereof, no material amount of any
substance that has been designated by any Governmental Entity or by applicable
federal, state, local or foreign law to be radioactive, toxic, hazardous or
otherwise a danger to health or the environment, including, without limitation,
PCBs, asbestos, petroleum, urea formaldehyde and all substances listed as
hazardous substances pursuant to the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended, or defined as a hazardous
waste pursuant to the United States Resource Conservation and Recovery Act of
1976, as amended, and the regulations promulgated pursuant to said laws, (a
"Hazardous Material"), but excluding office and janitorial supplies, are
present, as a result of the actions of any Company, or to Simon's or either
Shareholder's knowledge, as a result of any actions of any third party or
otherwise, in on or under any property, including the land and the improvements,
ground water and surface water, that any Company or any of its Subsidiaries has
at any time owned, operated, occupied or leased.
(b) HAZARDOUS MATERIALS ACTIVITIES. At no time has any Company or any of
its Subsidiaries transported, stored, used, manufactured, disposed of, released
or exposed its employees or
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others to Hazardous Materials in violation of any law in effect on or before the
Closing Date, which has had or is reasonably likely to have a Material Adverse
Effect on the Companies and their respective Subsidiaries, taken as a whole, nor
has any Company or any of its Subsidiaries disposed of, transported, sold, or
manufactured any product containing a Hazardous Material (collectively,
"Hazardous Materials Activities") in violation of any rule, regulation, treaty
or statute promulgated by any Governmental Entity to prohibit, regulate or
control Hazardous Materials or any Hazardous Material Activity, which has had or
is reasonably likely to have a Material Adverse Effect on the Companies and
their respective Subsidiaries, taken as a whole.
(c) PERMITS. Each Company currently holds all environmental approvals,
permits, licenses, clearances and consents (the "Environmental Permits")
necessary for the conduct of its business as currently conducted, the absence of
which would be reasonably likely to have a Material Adverse Effect on the
Companies and their respective Subsidiaries, taken as a whole.
(d) ENVIRONMENTAL LIABILITIES. No action, proceeding, writ, injunction or
claim is pending or, to the knowledge of Simon and each Shareholder, threatened
concerning any Environmental Permit or any alleged material liability of any
Company under any environmental law or regulation.
Section 3.13. Employee Benefit Plans.
----------------------
(a) Schedule 3.13 of the Simon Disclosure Schedule lists all employee
compensation and benefit plans, agreements, commitments, practices or
arrangements of any type including, but not limited to, plans described in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended,
("ERISA"), all unexpired bonus, stock option, phantom stock option, stock
purchase, incentive, deferred compensation, supplemental retirement, severance,
separation, resignation and other similar employee benefit plans, written or
otherwise, for the benefit of, or relating to, any current or former employee of
each Company or any trade or business (whether or nor incorporated) which is a
member of a controlled group or which is under common control with any Company
within the meaning of Sections 414(b), (c), (m) or (o) of the Code or Section
4001 of ERISA (hereinafter a "Simon ERISA Affiliate"), offered, maintained or
contributed to by Simon or a Simon ERISA Affiliate, or with respect to which any
Company or a Simon ERISA Affiliate has or reasonably could be expected to have
any liability, whether direct or indirect, actual or contingent (collectively,
the "Simon Benefit Plans"). There are no material compensation or benefit plans,
agreements, commitments, practices or arrangements of any type providing
benefits to employees or directors of any Company or a Simon ERISA Affiliate, or
with respect to which any Company or a Simon ERISA Affiliate has or
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reasonably could be expected to have any liability other than the Simon Benefit
Plans. With respect to such Simon Benefit Plans:
(i) Each such Simon Benefit Plan (and each related trust, insurance
contract, or fund) is administered in all material respects in compliance
with its terms and complies in form and in operation in all material
respects with the applicable requirements of ERISA, the Code, and other
applicable laws, rulings and authority issued thereunder.
(ii) All required reports and descriptions (including Form 5500 Annual
Reports, Summary Annual Reports, PBGC-1's, and Summary Plan Descriptions)
have been timely filed or distributed appropriately with respect to each
such Simon Benefit Plan as required by ERISA, the Code and other applicable
law. The requirements of Sections 601-609 of ERISA and of Section 4980B of
the Code have been met with respect to each such Simon Benefit Plan which
is an "Employee Welfare Benefit Plan," within the meaning of Section 3(1)
of ERISA.
(iii) All contributions, premiums or other payments (including all
employer and employee contributions) which are due have been paid to each
Simon Benefit Plan. There are no unfunded benefit obligations with respect
to Simon Benefit Plans which have not been accounted for by records, or
otherwise properly footnoted in accordance with generally accepted
accounting principles on the financial statements of Simon or a Simon ERISA
Affiliate, whichever is applicable, which obligations are expected to have
a Material Adverse Effect on any Company or a Simon ERISA Affiliate.
(iv) Simon and the Shareholders have made available to Cyrk, true,
correct and complete copies of the Simon Benefit Plan documents, the most
recent determination letter received from the Internal Revenue Service, if
applicable, the three most recent Form 5500 Annual Reports, and all related
trust agreements, insurance contracts, investment management agreements,
any and all other funding agreements which implement each Simon Benefit
Plan, any and all material employee communications (including all summary
plan descriptions and material modifications thereto), the most recent
account of plan assets, if applicable, and, in the case of any unfunded or
self-insured plan or arrangement, a current estimate of accrued and
anticipated liabilities thereunder.
(b) With respect to each Simon Benefit Plan that any Company or a Simon
ERISA Affiliate maintains or ever has maintained or to which any Company or a
Simon ERISA Affiliate contributes, ever has contributed, or ever has been
required to contribute:
(i) No such Simon Benefit Plan which is an Employee Pension Benefit
Plan has been completely or partially
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terminated or been the subject of a "Reportable Event" within the meaning
of Section 4043 of ERISA as to which notices would be required to be filed
with the Pension Benefit Guaranty Corporation within the five years
preceding the date hereof with respect to which any Company or a Simon
ERISA Affiliate is likely to have any liability. No proceeding by the
Pension Benefit Guaranty Corporation to terminate any such Employee Pension
Benefit Plan has been instituted or threatened.
(ii) Neither Company nor a Simon ERISA Affiliate has incurred and none
of the Shareholders, directors and officers (and employees with
responsibility for employee benefits matters) of any Company or a Simon
ERISA Affiliate has any reason to expect that Simon or a Simon ERISA
Affiliate will incur any liability to the Pension Benefit Guaranty
Corporation (other than applicable premium payments) or otherwise under
Title IV of ERISA or under the Code with respect to any such Simon Benefit
Plan which is an Employee Pension Benefit Plan. No asset of any Company or
a Simon ERISA Affiliate is the subject of any lien arising under Section
302(f) of ERISA or Section 412(n) of the Code and neither Simon or a Simon
ERISA Affiliate has been required to post any security under Section 307 of
ERISA or Section 401(a)(29) of the Code and no fact or event exists, or is
reasonably expected to occur, which could give rise to any such lien or
requirement to post any such security.
(c) Neither Company nor a Simon ERISA Affiliate contributes to, ever has
contributed to, or ever has been required to contribute to any Multiemployer
Plan, within the meaning of Section 3(37) of ERISA, or has any liability
(including withdrawal liability, as determined under Sections 4201 et seq. of
ERISA) under any Multiemployer Plan.
(d) Neither Company nor a Simon ERISA Affiliate maintains, ever has
maintained, ever has contributed to, or ever has been required to contribute to
any Employee Welfare Benefit Plan providing medical, health, or life insurance
or other welfare-type benefits for current or future retired or terminated
employees, their spouses, or their dependents (other than in accordance with
Sections 601-609 of ERISA and Section 4980B of the Code).
(e) Subject to applicable requirements of ERISA, no provision of any Simon
Benefit Plan or any agreement with any employee of any Company or a Simon ERISA
Affiliate or any representation or course of conduct by or on behalf of any
Company or a Simon ERISA Affiliate would prevent the amendment or termination on
or after the Closing of any Simon Benefit Plan.
(f) No Simon Benefit Plan is a "multiple employer welfare arrangement"
within the meaning of Section 3(40) of ERISA.
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(g) Neither any Company nor a Simon ERISA Affiliate maintains or has any
obligation to contribute to any "voluntary employees' beneficiary association"
within the meaning of Code Section 501(c)(9) or other funding arrangement for
the provision of welfare or fringe benefits.
Section 3.14. COMPLIANCE WITH LAWS. Except as set forth on Schedule 3.14 of
the Simon Disclosure Schedule or as covered by any other representation or
warranty in this Article III, each Company and each of its Subsidiaries has
complied with, is not in violation of, and has not received any notices of
violation with respect to, any federal, state or local statute, law or
regulation with respect to the conduct of its business, or the ownership or
operation of its business, except for failures to comply or violations which
would not be reasonably likely to have a Material Adverse Effect on the
Companies and their respective Subsidiaries, taken as a whole.
Section 3.15. BROKERS OR FINDERS. Except as described in Schedule 3.15 of
the Simon Disclosure Schedule, Simon and each Shareholder represents, as to
itself, its Subsidiaries and its Affiliates, that no agent, broker, investment
banker, financial advisor or other firm or person is or will be entitled to any
broker's or finder's fee or any other commission or similar fee in connection
with any of the transactions contemplated by this Agreement. For purposes
hereof, "Affiliate" has the meaning given to it in Rule 405 promulgated under
the Securities Act.
Section 3.16. INSURANCE. Set forth in Schedule 3.16 of the Simon Disclosure
Schedule is a complete list of all insurance policies which are maintained by
each of the Companies and their respective Subsidiaries with respect to the
businesses, properties or employees of any Company and its Subsidiaries. Such
policies are in full force and effect and no party to any such policy has
repudiated, or given notice of an intent to repudiate, any provision thereof.
Such policies, with respect to their amounts and types of coverage, are adequate
to insure fully against risks to which such Company and its Subsidiaries, and
its property and assets are normally exposed in the operation of its businesses.
Except as set forth in Schedule 3.16 of the Simon Disclosure Schedule, no
Company self-insures. Since November 30, 1996, there has not been any material
adverse change in any Company's relationship with its insurers, in the premiums
payable pursuant to such policies or charges payable pursuant to such
self-insurance or in the allocation among the Companies of such premiums or
charges. Also set forth in Schedule 3.16 of the Simon Disclosure Schedule is a
summary of all material terms of any oral arrangements or agreements between any
Company and any of its clients, suppliers or customers that are in the nature of
insurance or indemnification in favor of any Company. Since November 30, 1996,
there has not been any material adverse changes in the terms of such
arrangements or agreements and neither Shareholder nor Simon has any reason to
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<PAGE> 32
believe that the announcement or consummation of the transactions contemplated
hereby may result in such a change.
Section 3.17. SUFFICIENCY OF ASSETS. Assets held by the Companies and their
respective Subsidiaries on the date hereof, in the aggregate, constitute on the
date hereof all the property, real and personal, tangible and intangible,
necessary for the conduct by the Companies and their respective Subsidiaries of
the business reflected in the February Balance Sheet, in the case of Simon, or
in the Audited Balance Sheets, in the case of Simon Hong Kong.
Section 3.18. INTERESTS IN CLIENTS, SUPPLIERS, ETC. Neither Shareholder nor
any Company nor any officer or director of any Company possesses, directly or
indirectly, any financial interest in, or is a director, officer or employee of,
any corporation, firm, association or business organization which is a client,
supplier, customer, lessor or is a competitor or potential competitor of any
Company or any of their respective Subsidiaries except as set forth in Schedule
3.18 of the Simon Disclosure Schedule; PROVIDED, HOWEVER, that ownership of
securities of a company whose securities are registered under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), not in excess of 5% of
any class of such securities shall not be deemed to be a financial interest for
purposes of this Section 3.18. Since November 30, 1996 and through the date
hereof, there has not been, to the knowledge of either Shareholder or the
Company, any material adverse change in any material relationship between, or
material transaction consummated or contemplated between, any Company or any of
its officers or directors, on the one hand, and any client, supplier or
customer, on the other hand.
Section 3.19. Employees and Compensation.
--------------------------
(a) Simon is in compliance in all material respects with all applicable
federal, state and local laws and regulations respecting employment and
employment practices, and terms and conditions of employment and wages and
hours. Except as described in Schedule 3.19(a) of the Simon Disclosure Schedule,
none of Simon's employees is represented by a union; and there is no labor
strike, dispute, arbitration, grievance, slow down, stoppage, organizational
effort, dispute or proceeding by or with any employee or former employee of
Simon or any labor union pending or, to the best knowledge of the Shareholders,
threatened against Simon.
(b) Except as set forth in Schedule 3.19(b) or Schedule 3.13 of the Simon
Disclosure Schedule, Simon is not a party to any oral or written (i) union or
collective bargaining agreement, (ii) agreement with any officer, employee, or
consultant, the benefits of which are contingent, or the terms of which are
materially altered, upon the occurrence of a transaction of the nature
contemplated by this Agreement, (iii) agreement with any officer, employee, or
consultant providing any term of employment or
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compensation guarantee, or (iv) agreement or plan, including any stock option
plan, stock appreciation right plan, restricted stock plan, phantom stock
agreement, or stock purchase plan, any of the benefits of which will be
increased, or the vesting of the benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement.
Section 3.20. SIMON 9000. The Shareholders are the sole record and
beneficial owners of a majority of all issued and outstanding shares (on a
fully-diluted basis) of capital stock of Simon 9000 Ltd., a company incorporated
under the laws of Hong Kong ("Simon 9000"). The Shareholders have made available
to Cyrk complete copies of the audited consolidated financial statements as at
November 30, 1996 for Simon 9000 (the "Simon 9000 Financial Statements"). The
Simon 9000 Financial Statements (including any related notes) were prepared in
accordance with Hong Kong statutory requirements, applied on a consistent basis
throughout the period involved (except as may be indicated in the notes thereto,
if any) and fairly present the consolidated financial position of Simon 9000 as
at the date and the consolidated results of its operations for the period
indicated. As of the date hereof and the Closing Date, Simon 9000 (i) is an
inactive company, (ii) does not conduct any business, (iii) does not have any
right, title or interest to or in any properties (real or personal, tangible or
intangible) or contracts (oral or written) that, in the aggregate, have any
material value.
Section 3.21. NO OTHER REPRESENTATIONS AND WARRANTIES. Except as
specifically set forth in this Agreement or any Ancillary Agreement, neither
Shareholder nor any Company nor any employee, agent or representative of any
Company or any Subsidiary thereof has made, or shall be deemed to have made, and
neither Shareholder nor any Company is liable for or bound in any manner by, any
express or implied representation, warranty, guarantee, promise or statement
pertaining to any Shareholder, any Company or any Subsidiary thereof, or any of
their assets or businesses.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CYRK AND SUB
Cyrk and Sub represent and warrant to the Shareholders and Simon that the
statements contained in this Article IV are true and correct, except as set
forth in the disclosure schedule dated as of the date hereof and delivered by
Cyrk to Simon simultaneously with the execution of this Agreement (the "Cyrk
Disclosure Schedule"). The Cyrk Disclosure Schedule shall be arranged in
paragraphs corresponding to the numbered and lettered paragraphs contained in
this Article IV.
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Section 4.01. ORGANIZATION OF THE COMPANY. Each of Cyrk and Sub and Cyrk's
other Subsidiaries is a corporation or other entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, has all requisite corporate power to own, lease and operate its
property and to carry on its business as now being conducted and as proposed to
be conducted, and is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction in which the failure to be so qualified
and in good standing would have a Material Adverse Effect on Cyrk and its
Subsidiaries, taken as a whole. Except as set forth in Schedule 4.01 of the Cyrk
Disclosure Schedule, neither Cyrk nor any of its Subsidiaries directly or
indirectly owns any equity or similar interest in, or any interest convertible
into or exchangeable or exercisable for, any corporation, partnership, joint
venture or other business association or entity, excluding securities in any
publicly traded company held for investment by Cyrk and comprising less than
five percent (5%) of the outstanding stock of such company.
Section 4.02. Capital Structure.
-----------------
(a) The authorized capital stock of Cyrk consists of 50,000,000 shares of
Cyrk Common Stock and 1,000,000 shares of Preferred Stock, $.01 par value ("Cyrk
Preferred Stock"). As of April 15, 1997, (i) 11,820,999 shares of Cyrk Common
Stock were issued and outstanding, all of which are validly issued, fully paid
and nonassessable, (ii) no shares of Cyrk Common Stock were held in the treasury
of Cyrk or by Subsidiaries of Cyrk, and (iii) 4,084,598 shares of Cyrk Common
Stock were reserved for future issuance pursuant to the exercise of stock
options granted and to be granted in the future under Cyrk's 1993 Omnibus Stock
Plan, Non-Employee Director Stock Option Plan, Employee Stock Purchase Plan and
1997 Acquisition Stock Plan (collectively, the "Cyrk Stock Plans"). No material
change in such capitalization has occurred between April 15, 1997 and the date
of this Agreement. As of the date of this Agreement, none of the shares of Cyrk
Preferred Stock is issued and outstanding. The authorized capital stock of Sub
consists of 3,000 shares of Common Stock, par value $.01 per share, of which, as
of the date of this Agreement, 3,000 shares are issued and outstanding and are
held by Cyrk. All shares of Cyrk Common Stock subject to issuance as specified
above, upon issuance on the terms and conditions specified in the instruments
pursuant to which they are issuable, shall be duly authorized, validly issued,
fully paid and nonassessable. There are no obligations, contingent or otherwise,
of Cyrk or any of its Subsidiaries to repurchase, redeem or otherwise acquire
any shares of Cyrk Common Stock or the capital stock of any Subsidiary or to
provide funds to or make any investment (in the form of a loan, capital
contribution or otherwise) in any such Subsidiary or any other entity other than
guarantees of bank obligations of Subsidiaries entered into in the ordinary
course of business. All of the outstanding shares of capital stock of each of
Cyrk's Subsidiaries are duly authorized,
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<PAGE> 35
validly issued, fully paid and nonassessable and all such shares (other than
directors' qualifying shares in the case of foreign subsidiaries) are owned by
Cyrk or another Subsidiary free and clear of all security interests, liens,
claims, pledges, agreements, limitations in Cyrk's voting rights, charges or
other encumbrances of any nature.
(b) Except as set forth in this Section 4.02 or as reserved for future
grants of options under the Cyrk Stock Plans, there are no equity securities of
any class of Cyrk or any of its Subsidiaries, or any security exchangeable into
or exercisable for such equity securities, issued, reserved for issuance or
outstanding. Except as set forth in this Section 4.02 or in Schedule 4.02 of the
Cyrk Disclosure Schedule, there are no options, warrants, equity securities,
calls, rights, commitments or agreements of any character to which Cyrk or any
of its Subsidiaries is a party or by which it is bound obligating Cyrk or any of
its Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of capital stock of Cyrk or any of its Subsidiaries or
obligating Cyrk or any of its Subsidiaries to grant, extend, accelerate the
vesting of or enter into any such option, warrant, equity security, call, right,
commitment or agreement. There are no voting trusts, proxies or other agreements
or understandings with respect to the shares of capital stock of Cyrk. The
shares of Cyrk Common Stock issuable in exchange for Simon Common Stock at the
Effective Time in accordance with this Agreement shall be, when so issued, duly
authorized, validly issued, fully paid and nonassessable and not subject to any
preemptive rights.
Section 4.03. Authority; No Conflict; Required Filings and Consents.
-----------------------------------------------------
(a) Cyrk has all requisite corporate power and authority to enter into this
Agreement and the Ancillary Agreements to which Cyrk is a party and to
consummate the transactions contemplated hereunder and thereunder. The execution
and delivery of this Agreement and the Ancillary Agreements to which Cyrk is a
party and the consummation of the transactions contemplated hereunder and
thereunder have been duly authorized by all necessary corporate action on the
part of Cyrk. This Agreement and the Ancillary Agreements to which Cyrk is a
party have been duly executed and delivered by Cyrk and (assuming the due
execution and delivery of the other parties thereto) constitute the valid and
binding obligations of Cyrk, enforceable in accordance with their terms, except
to the extent that such enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance and other similar
laws affecting the enforcement of creditors' rights generally, and by general
equitable principles.
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<PAGE> 36
(b) Assuming that all consents, approvals, filings authorizations and other
actions described in clauses (i), (ii) and (iii) of Section 4.03(c) have been
obtained or made, the execution and delivery of this Agreement and the Ancillary
Agreements to which Cyrk is a party by Cyrk does not, and the consummation of
the transactions contemplated hereunder and thereunder will not, (i) conflict
with, or result in any violation or breach of any provision of the Certificate
of Incorporation or By-laws of Cyrk, (ii) result in any violation or breach of,
or constitute (with or without notice or lapse of time, or both) a default (or
give rise to a right of termination, cancellation or acceleration of any
obligation or loss of any material benefit) under any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, lease, contract or other
agreement, instrument or obligation to which Cyrk or any of its Subsidiaries is
a party or by which any of them or any of their properties or assets may be
bound, or (iii) conflict with or violate any permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Cyrk or any of its Subsidiaries or any of their respective
properties or assets, except in the case of (ii) and (iii) for any such
conflicts, violations, breaches, defaults, terminations, cancellations or
accelerations which would not be reasonably likely to have a Material Adverse
Effect on Cyrk and its Subsidiaries, taken as a whole.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to Cyrk or any of its Subsidiaries in connection with the execution and
delivery of this Agreement and the Ancillary Agreements to which Cyrk is a party
or the consummation of the transactions contemplated hereunder and thereunder,
except for (i) the filing of the Certificate of Merger with the Nevada Secretary
of State and the Delaware Secretary of State, (ii) such consents, approvals,
orders, authorizations, registrations, declarations and filings as may be
required under federal and state securities laws, "blue sky" laws or the HSR Act
and (iii) such other consents, authorizations, filings, approvals, orders,
declarations and registrations which, if not obtained or made, would not be
reasonably likely to have a Material Adverse Effect on Cyrk and its
Subsidiaries, taken as a whole.
Section 4.04. Sec Filings; Financial Statements.
---------------------------------
(a) Cyrk has filed and made available to Simon all forms, reports and
documents required to be filed by Cyrk with the Securities and Exchange
Commission (the "SEC") since its initial public offering on July 7, 1993
(collectively, the "Cyrk SEC Reports"). The Cyrk SEC Reports (i) were prepared
in accordance, and complied, with the requirements of the Securities Act of
1933, as amended (the "Securities Act"), or the Exchange Act, as the case may
be, and the rules and regulations thereunder and (ii) did not at the time they
were filed contain any untrue statement of a
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material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. None of Cyrk's
Subsidiaries is required to file any forms, reports or other documents with the
SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes) contained in the Cyrk SEC Reports, including any form, report
or document filed with the SEC after the date of this Agreement and prior to the
Closing, complied or will comply as to form in all material respects with the
applicable published rules and regulations of the SEC with respect thereto, was
prepared in accordance with U.S. generally accepted accounting principles
applied on a consistent basis throughout the periods involved (except as may be
indicated in the notes to such financial statements or, in the case of unaudited
statements, as permitted by Form 10-Q of the SEC) and fairly present the
consolidated financial position of Cyrk and its Subsidiaries as at the
respective dates and the consolidated results of its operations and cash flows
for the periods indicated, except that the unaudited interim financial statement
was or is subject to normal or recurring year-end adjustments which were not or
are not expected to be material in amount. The audited balance sheet of Cyrk as
of December 31, 1996 is referred to herein as the "Cyrk Balance Sheet."
Section 4.05. NO UNDISCLOSED LIABILITIES. Cyrk and its Subsidiaries do not
have any liabilities, whether accrued, absolute, contingent or otherwise, and
whether due or to become due, which individually or in the aggregate would be
reasonably likely to have a Material Adverse Effect on Cyrk and its
Subsidiaries, taken as a whole, other than (i) liabilities reflected in the Cyrk
Balance Sheet, (ii) liabilities specifically described in this Agreement, or in
Schedule 4.05 of the Cyrk Disclosure Schedule, (iii) normal or recurring
liabilities incurred since the date of the Cyrk Balance Sheet in the ordinary
course of business consistent with past practice, and (iv) that relate to the
subject matter of any of the other representations or warranties set forth in
this Agreement or any Ancillary Agreement.
Section 4.06. ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the date of the
Cyrk Balance Sheet, except as disclosed in the Cyrk SEC Reports or in the Cyrk
Disclosure Schedule Cyrk and its Subsidiaries have conducted their businesses
only in the ordinary course and in a manner consistent with past practice and,
since such date, there has not been (i) any event which has had a Material
Adverse Effect on Cyrk and its Subsidiaries, taken as a whole; (ii) any material
change by Cyrk in its accounting methods, principles or practices; (iii) any
revaluation by Cyrk of any of its assets having a Material Adverse Effect on
Cyrk and its Subsidiaries, taken as a whole; or (iv) any other action or event
that would have required the consent of Simon pursuant to Section 5.02 of this
Agreement had such action or event occurred after the
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<PAGE> 38
date of this Agreement and that would be reasonably likely to have a Material
Adverse Effect on Cyrk and its Subsidiaries, taken as a whole.
Section 4.07. TAXES. Except as set forth in Schedule 4.07 of
the Cyrk Disclosure Schedule or reflected in the Cyrk Balance
Sheet:
(a) For purposes of this Agreement, the term "Cyrk Group" shall mean,
individually and collectively, Cyrk and any individual, trust, corporation,
partnership or any other entity as to which Cyrk is liable for Taxes incurred by
such individual or entity either as a transferee, or pursuant to Treasury
Regulations Section 1.1502-6, or pursuant to any other provision of federal,
territorial, state, local or foreign law or regulations.
(b) RETURNS FILED AND TAXES PAID. All Returns required to be filed by or on
behalf of members of the Cyrk Group have been duly filed on a timely basis and
such Returns are true, complete and correct. All Taxes shown to be payable on
such Returns or on subsequent assessments with respect thereto have been paid in
full on a timely basis, and no other Taxes are payable by any member of the Cyrk
Group with respect to items or periods covered by such Returns (whether or not
shown on or reportable on such Returns) or with respect to any period prior to
the date of this Agreement by it (except to the extent appropriate reserves have
been established therefor). Each member of the Cyrk Group has withheld and paid
over all Taxes required to have been withheld and paid over by it (except to the
extent appropriate reserves have been established therefor), and has complied
with all information reporting and backup withholding requirements, including
maintenance of required records with respect thereto, in connection with amounts
paid or owing to any employee, creditor, independent contractor, or other third
party. There are no liens on any of the assets of Cyrk with respect to Taxes,
other than liens for Taxes not yet due and payable or for Taxes that a member of
the Cyrk Group is contesting in good faith through appropriate proceedings and
for which appropriate reserves have been established.
(c) TAX RESERVES. The amount of the liability of the members of the Cyrk
Group for unpaid Taxes for all periods ending on or before the date of this
Agreement do not, in the aggregate, materially exceed the amount of the current
liability accruals for Taxes (excluding reserves for deferred Taxes) as of the
date of this Agreement, and the amount of the liability of the members of the
Cyrk Group for unpaid Taxes for all periods ending on or before the Closing Date
shall not, in the aggregate, materially exceed the amount of the current
liability accruals for Taxes (excluding reserves for deferred Taxes) as such
accruals are reflected on the Cyrk Balance Sheet.
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(d) RETURNS FURNISHED. Cyrk has made available to Simon true and complete
copies of (i) relevant portions of income tax audit reports, statements of
deficiencies, closing or other agreements received by any member of the Cyrk
Group or on behalf of such member relating to Taxes, and (ii) all federal and
state income or franchise tax returns for the members of the Cyrk Group for all
periods ending on and after November 30, 1990. Neither Cyrk nor any member of
the Cyrk Group does business in or derive income from any state, local,
territorial or foreign taxing jurisdiction other than those for which all
Returns have been furnished to Simon in which no Taxes are payable.
(e) TAX DEFICIENCIES; AUDITS; STATUTES OF LIMITATIONS. Except as set forth
in Section 4.07(e) of the Cyrk Disclosure Schedule, the Returns of the Cyrk
Group have never been audited by a government or taxing authority. To the best
knowledge of Cyrk, no such audit is in process, pending or threatened (either in
writing or verbally, formally or informally). No deficiencies exists or have
been asserted (either in writing or verbally, formally or informally) or are
expected to be asserted with respect to Taxes of any member of the Cyrk Group,
and no member of the Cyrk Group has received notice (either in writing or
verbally, formally or informally) or expects to receive notice that it has not
filed a Return or paid Taxes required to be filed or paid by it. No member of
the Cyrk Group is a party to any action or proceeding for assessment or
collection of Taxes, nor has such event been asserted or threatened (either in
writing or verbally, formally or informally) against any member of the Cyrk
Group or any of its assets. No waiver or extension of any statute of limitations
is in effect with respect to Taxes or Returns of any member of the Cyrk Group.
Cyrk and each member of the Cyrk Group have disclosed on its federal income tax
returns all positions taken therein that could give rise to a substantial
understatement penalty within the meaning of Code Section 6662.
(f) TAX SHARING AGREEMENTS. No member of the Cyrk Group is or has ever been
a party to any tax sharing agreement and has not assumed the liability of or
indemnified or agreed to reimburse any other person under contract with respect
to Taxes.
(g) TAX ELECTIONS AND SPECIAL TAX STATUS. No member of the Cyrk Group is a
party to any safe harbor lease within the meaning of Section 168(f)(8) of the
Code, as in effect prior to amendment by the Tax Equity and Fiscal
Responsibility Act of 1982. No member of the Cyrk Group is or has been a United
States real property holding corporation within the meaning of Section 897(c)(2)
of the Code during the applicable period specified in Section 897(c)(1)(A)(ii)
of the Code and Cyrk is not required to withhold tax on the purchase of the
stock of Cyrk by reason of Section 1445 of the Code. No member of the Cyrk Group
is a "consenting corporation" under Section 341(f) of the Code or agreed to have
Section 341(f)(2) apply to the disposition of any of the
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assets of any such member. No member of the Cyrk Group has entered into any
compensatory agreements with respect to the performance of services which
payment thereunder would result in a nondeductible expense to the Cyrk Group
pursuant to Section 280G or Section 162(m) of the Code or an excise tax to the
recipient of such payment pursuant to Section 4999 of the Code. No member of the
Cyrk Group has participated in an international boycott as defined in Code
Section 999. Cyrk has not agreed, nor is it required to make, any adjustment
under Code Section 481(a) or 263A by reason of a change in accounting method or
otherwise. No property used by any member of the Cyrk Group is "tax-exempt use
property" within the meaning of Section 168(h) of the Code. None of the assets
of any member of the Cyrk Group secures any debt the interest on which is tax
exempt under Section 103(a) of the Code. There is set forth on the Disclosure
Statement for this subsection each of the material elections with respect to
Taxes affecting any member of the Cyrk Group. Except as set forth in Schedule
4.07(g) of the Cyrk Disclosure Schedule, no member of the Cyrk Group has or has
had a branch in any foreign country.
(h) SECTION 6038A COMPLIANCE. Cyrk has filed all reports and has created
and/or retained all records required under Section 6038A of the Code with
respect to the ownership of Cyrk by and its transactions with related parties.
Each related foreign person required to maintain records under Section 6038A
with respect to transactions between Cyrk and the related foreign person has
maintained such records. All documents that are required to be created and/or
preserved by the related foreign person with respect to transactions with any
member of the Cyrk Group are either maintained in the United States, or such
member is exempt from the record maintenance requirements of Section 6038A with
respect to such transactions under Treasury Regulation Section 1.6038A-1. No
member of the Cyrk Group is a party to any record maintenance agreement with the
Internal Revenue Service with respect to Section 6038A. Each related foreign
person that has engaged in transactions with a member of the Cyrk Group has
authorized Cyrk to act as its limited agent solely for purposes of Sections
7602, 7603, and 7604 of the Code with respect to any request by the Internal
Revenue Service to examine records or produce testimony related to any
transaction with such member, and each such authorization remains in full force
and effect.
(i) PARTNERSHIPS OR JOINT VENTURES. Except as set forth in Section 4.07(i)
of the Cyrk Disclosure Schedule, no member of the Cyrk Group is a party to any
joint venture, partnership or other arrangement or contract that could be
treated as a partnership for federal income tax purposes.
(j) CONSOLIDATED, COMBINED OR UNITARY RETURNS. No member of the Cyrk Group
has participated in the filing of any consolidated, combined or unitary Return
with respect to which Cyrk was not the common parent.
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Section 4.08. PROPERTIES. Cyrk has provided or made available to Simon a
true and complete list of all real property owned by Cyrk and its Subsidiaries
and real property leased by Cyrk or its Subsidiaries pursuant to Material
Leases, the name of the lessor, the date of each such Material Lease and each
amendment to the Material Lease and the aggregate annual rental or other fee
payable under any such Material Lease. All such Material Leases are in good
standing, valid and effective in accordance with their respective terms, and
Cyrk or the Subsidiary party thereto is not in default under any of such
Material Leases, except where the lack of such good standing, validity and
effectiveness or the existence of such default would not be reasonably likely to
have a Material Adverse Effect on Cyrk and its Subsidiaries, taken as a whole.
Section 4.09. Intellectual Property.
---------------------
(a) Cyrk owns, or is licensed or otherwise possesses legally enforceable
rights to use, all patents, trademarks, trade names, service marks, copyrights,
and any applications for such patents, trademarks, trade names, service marks
and copyrights, maskworks, schematics, technology, know-how, computer software
programs or applications, and tangible or intangible proprietary information or
material that are necessary to conduct the business of Cyrk as currently
conducted, the absence of which would be reasonably likely to have a Material
Adverse Effect on Cyrk and its Subsidiaries, taken as a whole (the "Cyrk
Intellectual Property Rights"). Schedule 4.09 of the Cyrk Disclosure Schedule
lists (i) all patents and patent applications and all trademarks, registered
copyrights, maskworks, trade names and service marks which Cyrk considers to be
material to its business and included in the Cyrk Intellectual Property Rights,
including the jurisdictions in which each such Cyrk Intellectual Property Right
has been issued or registered or in which any such application for such issuance
and registration has been filed, (ii) all material business, sublicenses and
other agreements as to which Cyrk is a party and pursuant to which any person is
authorized to use any Cyrk Intellectual Property Rights, and (iii) all material
licenses, sublicenses and other agreements as to which Cyrk is a party and
pursuant to which Cyrk is authorized to use any third party patents, trademarks
or copyrights, including software ("Cyrk Third Party Intellectual Property
Rights").
(b) Cyrk is not, nor will it be as a result of the execution and delivery
of this Agreement or the performance of its obligations under this Agreement, in
breach of any license, sublicense or other agreement relating to the Cyrk
Intellectual Property Rights or Cyrk Third Party Intellectual Property Rights,
the breach of which would be reasonably likely to have a Material Adverse Effect
on Cyrk and its Subsidiaries, taken as a whole.
(c) To Cyrk's knowledge, all material patents, registered trademarks,
service marks and copyrights held by Cyrk are valid and
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subsisting. Cyrk (i) has not been sued in any suit, action or proceeding which
involves a claim of infringement of any patents, trademarks, service marks,
copyrights or violation of any trade secret or other proprietary right of any
third party, which claim would reasonably be expected to have a Material Adverse
Effect on Cyrk and its Subsidiaries, taken as a whole; and (ii) has no knowledge
that the manufacturing, marketing, license or sale of its products infringes any
patent, trademark, service mark, copyright trade secret or other proprietary
right of any third party, which such infringement would reasonably be expected
to have a Material Adverse Effect on Cyrk and its Subsidiaries, taken as a
whole.
Section 4.10. AGREEMENTS, CONTRACTS AND COMMITMENTS. Neither Cyrk nor any
of its Subsidiaries has breached, or received in writing any claim or threat
that it has breached, any of the terms or conditions of any material agreement,
contract or commitment ("Cyrk Material Contracts") in such manner as would
permit any other party to cancel or terminate the same or would permit any other
party to seek material damages from Cyrk or such Subsidiary under any Cyrk
Material Contract and which is reasonably likely to have a Material Adverse
Effect on Cyrk and its Subsidiaries taken as a whole. Each Cyrk Material
Contract is in full force and effect and is not subject to any material default
thereunder of which Cyrk is aware by any party obligated to Cyrk pursuant to
such Cyrk Material Contract, the default of which is reasonably likely to have a
Material Adverse Effect on Cyrk and its Subsidiaries taken as a whole.
Section 4.11. LITIGATION. Except as described in the Cyrk SEC Reports,
there is no action, suit or proceeding, claim arbitration or investigation
against Cyrk or any of its Subsidiaries pending or as to which Cyrk or any such
Subsidiary has received any written notice of assertion, which is reasonably
likely to have a Material Adverse Effect on Cyrk and its Subsidiaries, taken as
a whole, or a material adverse effect on the ability of Cyrk to consummate the
transactions contemplated by this Agreement.
Section 4.12. Environmental Matters.
---------------------
Except as disclosed on the Cyrk Disclosure Schedule:
(a) HAZARDOUS MATERIAL. As of the date hereof, to the knowledge of Cyrk, no
underground storage tanks are present under any property that Cyrk or any of its
Subsidiaries has at any time owned, operated, occupied or leased. As of the date
hereof, no material amount of any Hazardous Material, excluding office and
janitorial supplies, are present, as a result of the actions of Cyrk or, or to
Cyrk's knowledge, as a result of any actions of any third party or otherwise, in
on or under any property, including the land and the improvements, ground water
and surface water, that
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Cyrk or any of its Subsidiaries has at any time owned, operated, occupied or
leased.
(b) HAZARDOUS MATERIALS ACTIVITIES. At no time has Cyrk engaged in
Hazardous Materials Activities in violation of any rule, regulation, treaty or
statute promulgated by any Governmental Entity to prohibit, regulate or control
Hazardous Materials or any Hazardous Material Activity, which has had or is
reasonably likely to have a Material Adverse Effect on Cyrk and its
Subsidiaries, taken as a whole.
(c) PERMITS. Cyrk currently holds all Environmental Permits necessary for
the conduct of its businesses as currently conducted, the absence of which would
be reasonably likely to have a Material Adverse Effect on Cyrk and its
Subsidiaries, taken as a whole.
(d) ENVIRONMENTAL LIABILITIES. No action, proceeding, writ, injunction or
claim is pending or, to the knowledge of Cyrk, threatened concerning any
Environmental Permit or any alleged material liability of Cyrk under any
environmental law or regulation.
Section 4.13. Employee Benefit Plans.
----------------------
(a) Schedule 4.13 of the Cyrk Disclosure Schedule lists all employee
compensation and benefit plans, agreements, commitments, practices or
arrangements of any type including, but not limited to, plans described in
Section 3(3) of ERISA, all unexpired bonus, stock option, phantom stock option,
stock purchase, incentive, deferred compensation, supplemental retirement,
severance, separation, resignation and other similar employee benefit plans,
written or otherwise, for the benefit of, or relating to, any current or former
employee of Cyrk or any trade or business (whether or not incorporated) which is
a member of a controlled group or which is under common control with Cyrk within
the meaning of Sections 414(b), (c), (m) or (o) of the Code or Section 4001 of
ERISA (hereinafter a "Cyrk ERISA Affiliate"), offered, maintained or contributed
to by Cyrk or a Cyrk ERISA Affiliate, or with respect to which Cyrk or a Cyrk
ERISA Affiliate has or reasonably could be expected to have any liability,
whether direct or indirect, actual or contingent (collectively, the "Cyrk
Benefit Plans"). There are no material compensation or benefit plans,
agreements, commitments, practices or arrangements of any type providing
benefits to employees or directors of Cyrk or a Cyrk ERISA Affiliate, or with
respect to which Cyrk or a Cyrk ERISA Affiliate has or reasonably could be
expected to have any liability other than the Cyrk Benefit Plans. With respect
to such Cyrk Benefit Plans:
(i) Each such Cyrk Benefit Plan (and each related trust, insurance
contract, or fund) is administered in all material respects in compliance
with its terms and complies in form and
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in operation in all material respects with the applicable requirements of
ERISA, the Code, and other applicable laws, rulings and authority issued
thereunder.
(ii) All required reports and descriptions (including Form 5500 Annual
Reports, Summary Annual Reports, PBGC-1's, and Summary Plan Descriptions)
have been timely filed or distributed appropriately with respect to each
such Cyrk Benefit Plan as required by ERISA, the Code and other applicable
law. The requirements of Sections 601-609 of ERISA and of Section 4980B of
the Code have been met with respect to each such Cyrk Benefit Plan which is
an "Employee Welfare Benefit Plan," within the meaning of Section 3(1) of
ERISA.
(iii) All contributions, premiums or other payments (including all
employer contributions and employee contributions) which are due have been
paid to each Cyrk Benefit Plan. There are no unfunded benefit obligations
with respect to such Cyrk Benefit Plans which have not been accounted for
by records, or otherwise properly footnoted in accordance with generally
accepted accounting principles on the financial statements of Cyrk or a
Cyrk ERISA Affiliate, whichever is applicable, which obligations are
expected to have a material adverse effect on Cyrk or a Cyrk ERISA
Affiliate.
(iv) Cyrk has delivered to or made available to Simon, true, correct
and complete copies of the Cyrk Benefit Plan documents, the most recent
determination letter received from the Internal Revenue Service, if
applicable, the three most recent Form 5500 Annual Reports, and all related
trust agreements, insurance contracts, investment management agreements,
any and all other funding agreements which implement each Cyrk Benefit
Plan, any and all material employee communications (including all summary
plan descriptions and material modifications thereto), the most recent
account of plan assets, if applicable, and, in the case of any unfunded or
self-insured plan or arrangement, a current estimate of accrued and
anticipated liabilities thereunder.
(b) With respect to each Cyrk Benefit Plan that Cyrk or a Cyrk ERISA
Affiliate maintains or ever has maintained or to which Cyrk or a Cyrk ERISA
Affiliate contributes, ever has contributed, or ever has been required to
contribute:
(i) No such Cyrk Benefit Plan which is an Employee Pension Benefit
Plan has been completely or partially terminated or been the subject of a
"Reportable Event" within the meaning of Section 4043 of ERISA as to which
notices would be required to be filed with the Pension Benefit Guaranty
Corporation within the five years preceding the date hereof with respect to
which Cyrk or a Cyrk ERISA Affiliate is likely
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to have any liability. No proceeding by the Pension Benefit Guaranty
Corporation to terminate any such Employee Pension Benefit Plan has been
instituted or threatened.
(ii) Neither Cyrk nor a Cyrk ERISA Affiliate has incurred and none of
the stockholders, directors and officers (and employees with responsibility
for employee benefits matters) of Cyrk or a Cyrk ERISA Affiliate has any
reason to expect that Cyrk or a Cyrk ERISA Affiliate will incur any
liability to the Pension Benefit Guaranty Corporation (other than
applicable premium payments) or otherwise under Title IV of ERISA or under
the Code with respect to any such Cyrk Benefit Plan which is an Employee
Pension Benefit Plan. No asset of Cyrk or a Cyrk ERISA Affiliate is the
subject of any lien arising under Section 302(f) of ERISA or Section 412(n)
of the Code and neither Cyrk nor a Cyrk ERISA Affiliate has been required
to post any security under Section 307 of ERISA or Section 401(a)(29) of
the Code and no fact or event exists, or is reasonably expected to occur,
which could give rise to any such lien or requirement to post any such
security.
(c) Neither Cyrk nor a Cyrk ERISA Affiliate contributes to, ever has
contributed to, or ever has been required to contribute to any Multiemployer
Plan, within the meaning of Section 3(37) of ERISA, or has any liability
(including withdrawal liability, as determined under Sections 4201 et seq. of
ERISA) under any Multiemployer Plan.
(d) Neither Cyrk nor a Cyrk ERISA Affiliate maintains, ever has maintained,
ever has contributed to, or ever has been required to contribute to any Employee
Welfare Benefit Plan providing medical, health, or life insurance or other
welfare-type benefits for current or future retired or terminated employees,
their spouses, or their dependents (other than in accordance with Sections
601-609 of ERISA and Sections 4980B of the Code).
(e) Subject to applicable requirements of ERISA, no provision of any Cyrk
Benefit Plan or any agreement with any employee of Cyrk or a Cyrk ERISA
Affiliate or any representation or course of conduct by or on behalf of Cyrk or
a Cyrk ERISA Affiliate would prevent the amendment or termination on or after
the Closing of any Cyrk Benefit Plan.
(f) No Cyrk Benefit Plan is a "multiple employer welfare arrangement"
within the meaning of Section 3(40) of ERISA.
(g) Neither Cyrk nor Cyrk ERISA Affiliate maintains or has any obligation
to contribute to any "voluntary employees' beneficiary association" within the
meaning of Section 501(c)(9) of the Code or other funding arrangement for the
provision of welfare or fringe benefits.
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Section 4.14. COMPLIANCE WITH LAWS. Except as covered by any other
representation or warranty in this Article IV, Cyrk and each of its Subsidiaries
has complied with, is not in violation of, and has not received any notices of
violation with respect to, any federal, state or local statute, law or
regulation with respect to the conduct of its business, or the ownership or
operation of its business, except for failures to comply or violations which
would not be reasonably likely to have a Material Adverse Effect on Cyrk and its
Subsidiaries, taken as a whole.
Section 4.15. BROKERS OR FINDERS. Cyrk represents, as to itself, its
Subsidiaries and its Affiliates, that no agent, broker, investment banker,
financial advisor or other firm or person is or will be entitled to any broker's
or finder's fee or any other commission or similar fee in connection with any of
the transactions contemplated by this Agreement and the Ancillary Agreements
except such persons as are disclosed in Schedule 4.15 of the Cyrk Disclosure
Schedule, whose fees and expenses will be paid by Cyrk in accordance with Cyrk's
agreements with such persons. Nothing in this Section 4.15 shall preclude Cyrk
from engaging Montgomery Securities and paying customary advisory fees, in
connection with its rendering financial advice and a fairness opinion in
connection with the transactions contemplated hereby.
Section 4.16. INTERIM OPERATIONS OF SUB. Sub was formed solely for the
purpose of engaging in the transactions contemplated by this Agreement, has
engaged in no other business activities and has conducted its operations only as
contemplated by this Agreement.
Section 4.17 INSURANCE. Set forth in Schedule 4.17 of the Cyrk Disclosure
Schedule is a complete list of all insurance policies which are maintained by
Cyrk and its Subsidiaries with respect to the businesses, properties or
employees of Cyrk and its Subsidiaries. Such policies are in full force and
effect and no party to any such policy has repudiated, or given notice of an
intent to repudiate, any provision thereof. Such policies, with respect to their
amounts and types of coverage, are adequate to insure fully against risks to
which Cyrk and its Subsidiaries, and its property and assets are normally
exposed in the operation of its businesses. Neither Cyrk nor any of its
Subsidiaries self-insure. Since December 31, 1996, there has not been any
material adverse change in Cyrk's or any of its Subsidiaries relationship with
its insurers, in the premiums payable pursuant to such policies or charges
payable pursuant to such self-insurance or in the allocation among Cyrk and its
Subsidiaries of such premiums or charges. Also set forth in Schedule 4.17 is a
summary of all material terms of any oral arrangements or agreements between
Cyrk and any of its clients, suppliers or customers that are in the nature of
insurance or indemnification in favor of Cyrk. Since December 31, 1996, there
has not been any material adverse change in the terms of such arrangements or
agreements and Cyrk has no
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reason to believe that the announcement or consummation of the transactions
contemplated hereby may result in such a change.
Section 4.18. SUFFICIENCY OF ASSETS. Assets held by Cyrk and its
Subsidiaries on date hereof, in the aggregate, constitute on the date hereof all
the property, real and personal, tangible and intangible, necessary for the
conduct by Cyrk and its Subsidiaries of the business reflected in the Cyrk
Balance Sheet.
Section 4.19. INTERESTS IN CLIENTS, SUPPLIERS, ETC. Neither Cyrk nor any
officer or director of Cyrk possesses, directly or indirectly, any financial
interest in, or is a director, officer or employee of, any corporation, firm,
association or business organization which is a client, supplier, customer,
lessor or is a competitor or potential competitor of Cyrk and its Subsidiaries
except as set forth on Schedule 4.19 of the Cyrk Disclosure Schedule; provided
that ownership of securities of a company whose securities are registered under
the Exchange Act not in excess of 5% of any class of such securities shall not
be deemed to be a financial interest for purposes of this Section 4.19. Since
December 31, 1996 and through the date hereof, there has not been, to the
knowledge of Cyrk any material adverse change in any material relationship
between, or material transaction consummated or contemplated between, Cyrk or
any of its officers or directors, on the one hand, and any client, supplier or
customer, on the other hand.
Section 4.20. Employees and Compensation.
--------------------------
(a) Cyrk is in compliance in all material respects with all applicable
federal, state and local laws and regulations respecting employment and
employment practices, and terms and conditions of employment and wages and
hours. Except as described in Schedule 4.20(a) of the Cyrk Disclosure Schedule,
none of Cyrk's employees is represented by a union; and there is no labor
strike, dispute, arbitration, grievance, slow down, stoppage, organizational
effort, dispute or proceeding by or with any employee or former employee of Cyrk
or any labor union pending or, to the best knowledge of Cyrk, threatened against
Cyrk.
(b) Except as set forth in Schedule 4.20(b) of the Cyrk Disclosure
Schedule, Cyrk is not a party to any oral or written (i) union or collective
bargaining agreement, (ii) agreement with any officer, employee, or consultant,
the benefits of which are contingent, or the terms of which are materially
altered, upon the occurrence of a transaction of the nature contemplated by this
Agreement, (iii) agreement with any officer, employee, or consultant providing
any term of employment or compensation guarantee, or (iv) agreement or plan,
including any stock option plan, stock appreciation right plan, restricted stock
plan, phantom stock agreement, or stock purchase plan, any of the benefits of
which will be increased, or the vesting of the benefits of which
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will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement.
Section 4.21. NO OTHER REPRESENTATIONS AND WARRANTIES. Except as
specifically set forth in this Agreement or in any Ancillary Agreement, neither
Cyrk nor any of its Subsidiaries nor any employee, agent or representative of
Cyrk or any of its Subsidiaries has made, or shall be deemed to have made, and
neither Cyrk nor any of its Subsidiaries is liable for or bound in any manner
by, any express or implied representation, warranty, guarantee, promise or
statement pertaining to Cyrk or any Subsidiary thereof, or any of their assets
or businesses.
ARTICLE V
CONDUCT OF BUSINESS
Section 5.01. COVENANTS OF SIMON AND SHAREHOLDERS. Except as set forth in
Schedule 5.01 of the Simon Disclosure Schedule, during the period from the date
of this Agreement and continuing until the earlier of the termination of the
Agreement or the Effective Time, Simon agrees as to itself and its Subsidiaries,
and the Shareholders agree to cause each Company and their respective
Subsidiaries (except to the extent that the other parties hereto shall otherwise
consent in writing prior thereto), to carry on their business in the usual,
regular and ordinary course in substantially the same manner as previously
conducted, to pay their debts and taxes when due subject to good faith disputes
over such debts or taxes, to pay or perform their other obligations when due,
and, to the extent consistent with such business, use reasonable efforts
consistent with past practices and policies to preserve intact their present
business organization, keep available the services of their present key
employees and preserve their relationships with customers, suppliers,
distributors, licensors, licensees, and others having significant business
dealings with Simon. The Shareholders shall promptly notify the other parties
hereto of any event or occurrence not in the ordinary course of business of a
Company or itself, as the case may be. Except as expressly contemplated by this
Agreement, subject to Schedule 5.01 of the Simon Disclosure Schedule, prior to
the Effective Time or the termination of this Agreement, Simon shall not (and
shall not permit any of its Subsidiaries to) and the Shareholders shall cause
each Company and their respective Subsidiaries to not, without the prior written
consent of the other parties hereto:
(a) accelerate, amend or change the period of exercisability of options or
restricted stock granted under any employee stock plan of such party or
authorize cash payments in exchange for any options granted under any of such
plans except as required by the
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terms of such plans or any related agreements in effect as of the
date of this Agreement;
(b) transfer or license to any person or entity or otherwise extend, amend
or modify any material rights to the Simon Intellectual Property Rights, except
in the ordinary course of business consistent with past practice;
(c) declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital stock, or
split, combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock, or purchase or otherwise acquire, directly or
indirectly, any shares of its capital stock;
(d) issue, deliver or sell or authorize or propose the issuance, delivery
or sale of, any shares of its capital stock or securities convertible into
shares of its capital stock, or subscriptions, rights, warrants or options to
acquire, or other agreements or commitments of any character obligating it to
issue any such shares or other convertible securities;
(e) acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in or substantial portion of the assets
of, or by any other manner, any business or any corporation, partnership or
other business organization or division;
(f) sell, lease, license or otherwise dispose of any of its properties or
assets which are material, individually or in the aggregate, to the business of
the Companies and their respective Subsidiaries, taken as a whole, except for
transactions in the ordinary course of business;
(g) except in the ordinary course of business consistent with past
practice, (i) increase or agree to increase the compensation payable or to
become payable to its key employees; (ii) grant any additional severance or
termination pay to, or enter into any employment or severance agreements with,
its key employees, (iii) enter into any collective bargaining agreement, (iv)
establish, adopt, enter into or amend any bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan, trust, fund,
policy or arrangement for the benefit of any directors or key employees;
(h) revalue any of its assets, including writing down the value of
inventory or writing off notes or accounts receivable other than in the ordinary
course of business;
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(i) incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or warrants or rights to
acquire any debt securities of itself, a Company or any of its Subsidiaries, as
the case may be, or guarantee any debt securities of others, other than
indebtedness incurred under outstanding lines of credit consistent with past
practice;
(j) amend or propose to amend its Certificate or Articles of Incorporation
or Bylaws; or
(k) take, or agree in writing or otherwise to take, any of the actions
described in Sections (a) through (j) above, or any action which is reasonably
likely to make any of such party's representations or warranties contained in
this Agreement untrue or incorrect in any material respect on the date made (to
the extent so limited).
Section 5.02. COVENANTS OF CYRK. During the period from the date of this
Agreement and continuing until the earlier of the termination of the Agreement
or the Effective Time, Cyrk shall not (and shall not permit any of its
Subsidiaries to), without the prior written consent of the Shareholders'
Representative:
(a) declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital stock, or
split, combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock, or purchase or otherwise acquire, directly or
indirectly, any shares of its capital stock;
(b) issue, deliver or sell or authorize the issuance, delivery or sale of,
any shares of its capital stock or securities convertible into shares of its
capital stock, or subscriptions, rights, warrants or options to acquire, or
other agreements or commitments of any character obligating it to issue any such
shares or other convertible securities other than shares issued pursuant to the
Cyrk Stock Plans;
(c) for consideration in excess of $10,000,000, acquire or agree to acquire
by merging or consolidating with, or by purchasing a substantial equity interest
in or substantial portion of the assets of, or by any other manner, any business
or any corporation, partnership or other business organization or division;
(d) for consideration in excess of $10,000,000, sell, lease, license or
otherwise dispose of any of its properties or assets which are material,
individually or in the aggregate, to the business of Cyrk and its Subsidiaries,
taken as a whole, except for transactions in the ordinary course of business;
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(e) incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or warrants or rights to
acquire any debt securities of itself, or any of its Subsidiaries, as the case
may be, or guarantee any debt securities of others in an aggregate amount in
excess of $10,000,000, other than indebtedness incurred under outstanding lines
of credit consistent with past practice;
(f) amend or propose to amend its Certificate or Articles of Incorporation
or Bylaws in any manner that materially and adversely affects the rights or
obligations of the Shareholders on or after the Effective Time; or
(g) take, or agree in writing or otherwise to take, any of the actions
described in Sections (a) through (f) above, or any action which is reasonably
likely to make any of Cyrk's or Sub's representations or warranties contained in
this Agreement untrue or incorrect in any material respect on the date made (to
the extent so limited).
Section 5.03. COOPERATION. Subject to compliance with applicable law, from
the date hereof until the Effective Time, each of Cyrk, Simon and each
Shareholder shall confer on a regular and frequent basis with one or more
representatives of the other party or parties to report operational matters of
materiality and the general status of ongoing operations of each Company, Cyrk
and their respective Subsidiaries and shall promptly provide the other party or
parties or its or their counsel with copies of all filings made by such party
with any Governmental Entity in connection with this Agreement, the Ancillary
Agreements, the Merger and the transactions contemplated hereby and thereby.
Section 5.04. ADDITIONAL COVENANTS OF CYRK. Cyrk agrees that, after the
Effective Time, it will either (i) continue the existing compensation and
benefits packages provided to the employees of the Companies and their
respective Subsidiaries immediately preceding the Effective Time, (ii) provide a
compensation and benefits package to such employees of the Companies and their
respective Subsidiaries, which package shall be determined on terms
substantially the same as provided to other employees of Cyrk or (iii) enter
into new compensation and benefits arrangements negotiated on an individual
basis with certain employees of the Companies and their respective Subsidiaries.
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.01. No Solicitation.
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(a) Neither Shareholder nor Simon shall, directly or indirectly, through
any officer, director, employee, financial advisor, representative or agent or
any of its Subsidiaries or Simon Hong Kong, (I) solicit or initiate any
inquiries or proposals that constitute, or could reasonably be expected to lead
to, a proposal or offer for a merger, consolidation, business combination, sale
of substantial assets (other than inventory in the ordinary course of business),
sale of shares of capital stock (including, without limitation by way of a
tender offer) or similar transactions involving any Company or any of their
respective Subsidiaries, other than the transactions contemplated by this
Agreement (any of the foregoing inquiries or proposals being referred to in this
Agreement as an "Acquisition Proposal"), (ii) engage in negotiations concerning,
or knowingly provide any non-public information to any person or entity relating
to, any Acquisition Proposal, (iii) respond favorably or unfavorably to any
Acquisition Proposal, PROVIDED that a response that Simon cannot currently
engage in negotiations with respect to any such Acquisition Proposal shall not
be deemed to violate the provisions of this Agreement, or (iv) agree to, approve
or recommend any Acquisition Proposal.
(b) Either Simon or a Shareholder shall notify Cyrk orally and in writing
within one business day (or by any of the other aforementioned Simon-related
persons or entities) of any Acquisition Proposal or any request for nonpublic
information in connection with an Acquisition Proposal or for access to the
properties, books or records of such party by any person or entity that informs
such party that it is considering making, and has made, an Acquisition Proposal.
Such notice shall indicate in reasonable detail the identify of the offeror.
Section 6.02. REGULATORY FILINGS. Each of the parties hereto will furnish
to the other party hereto such necessary information and reasonable assistance
as such other party may reasonably request in connection with its preparation of
necessary filings or submissions to any governmental agency. Cyrk and Simon each
agree to file any information required by the HSR Act, and shall promptly
supplement such information, as advisable, and promptly use reasonable
commercial efforts to effect compliance with the conditions specified in Article
VII hereof.
Section 6.03. CONSENTS. Each of Cyrk, Simon and each Shareholder shall use
all reasonable commercial efforts to obtain all necessary consents, waivers and
approvals under any of Cyrk's or any Company's or any Subsidiary's material
agreements, contracts, licenses or leases in connection with the Merger.
Section 6.04. ACCESS TO INFORMATION. Subject to applicable law and, upon
reasonable notice, Simon and the Shareholders, on the one hand, and Cyrk, on the
other hand, shall each (and shall cause each of their respective Subsidiaries
and, in the case of the
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Shareholders, Simon Hong Kong to) afford to the officers, employees,
accountants, counsel and other representatives of the other party, access,
during normal business hours during the period prior to the Effective Time, to
all of their respective properties, books, contracts, commitments and records
and, during such period, each of Simon, each Shareholder, and Cyrk shall (and
shall cause each of their respective Subsidiaries and, in the case of the
Shareholders, Simon Hong Kong to) furnish promptly to the other party (a) a copy
of each report, schedule, registration statement and other document filed or
received by it during such period pursuant to the requirements of federal
securities laws and (b) all other information concerning its business,
properties and personnel as such other party may reasonably request. Unless
otherwise required by law, each party shall hold any such information which is
nonpublic in confidence in accordance with the confidentiality agreement
previously delivered to the other party in connection herewith. No information
or knowledge obtained in any investigation pursuant to this Section 6.04 shall
affect or be deemed to modify any representation or warranty contained in this
Agreement or the conditions to the obligations of the parties to consummate the
Merger.
Section 6.05. LEGAL CONDITIONS TO MERGER. Each of Cyrk and Simon and each
Shareholder shall take all reasonable commercial actions necessary to comply
promptly with all legal requirements which may be imposed on it with respect to
the Merger (which actions shall include, without limitation, furnishing all
information required, as advisable, in connection with approvals of or filings
with any other Governmental Entity) and shall promptly cooperate with and
furnish information to each other in connection with any such requirements
imposed upon any of them or any other Company or any of their Subsidiaries in
connection with the Merger. Each Shareholder and each of Cyrk and Simon shall,
and shall cause its Subsidiaries to, take all reasonable commercial actions
necessary or desirable to obtain (and shall cooperate with each other in
obtaining) any consent, authorization, order or approval of, or any exemption
by, any Governmental Entity, required to be obtained or made by Cyrk, Simon or
any of their respective Subsidiaries in connection with the Merger or the taking
of any action contemplated thereby or by this Agreement.
Section 6.06. PUBLIC DISCLOSURE. Prior to the Effective Time, Cyrk and
Simon and the Shareholders shall consult with each other before issuing any
press release or otherwise making any public statement with respect to the
Merger, this Agreement or the Ancillary Agreements and shall not issue any such
press release or make any such public statement without the prior written
consent of the other parties, except as may be required by law or the applicable
rules and regulations of any recognized stock exchange and then only after
consultation with the other party.
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Section 6.07. TAX-FREE ORGANIZATION. Cyrk and Simon shall each use its best
efforts to cause the Merger to be treated as a reorganization within the meaning
of Section 368(a) of the Code.
Section 6.08. OBLIGATIONS OF SUB. Cyrk shall take all action necessary to
cause Sub to perform its obligations under this Agreement and to consummate the
Merger on the terms and subject to conditions set forth in this Agreement.
Section 6.09. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Cyrk shall
indemnify and hold harmless all past and present officers and directors of each
Company and of its Subsidiaries to the fullest extent permitted by applicable
law, and such indemnity obligation shall survive the Effective Time without
limitation. Cyrk shall also reimburse all expenses, including reasonable
attorney's fees, incurred by any person required to enforce the indemnity
obligations set forth in this Section 6.09.
Section 6.10. Indemnification; Subrogation.
----------------------------
(a) INDEMNIFICATION OF THE BUYER INDEMNITEES. Each Shareholder agrees
(severally but not jointly) to defend, indemnify and hold harmless Cyrk, its
Subsidiaries (including, after the Effective Time, any Company) and their
respective successors and assigns, employees, officers, directors and agents
(individually, a "BUYER INDEMNITEE" and collectively, the "BUYER INDEMNITEES"),
against and in respect of:
(i) any and all costs, losses, damages, deficiencies, expenses or
liabilities (including, without limitation, reasonable attorneys' fees and
expenses)(each, a "Loss") caused by, resulting or arising from or otherwise
relating to any failure of any representation or warranty made by Simon or
such Shareholder in this Agreement to be true and correct as of the date
hereof (or, if a representation or warranty speaks as of another date, as
of such other date); and
(ii) any and all Losses caused by, resulting or arising from or
otherwise relating to any failure by Simon or such Shareholder to perform
or otherwise fulfill or comply with any undertaking, agreement or
obligation to be performed, fulfilled or complied with by Simon or such
Shareholder prior to the Closing or any undertaking or other agreement or
obligation hereunder to be performed, fulfilled or otherwise complied with
by such Shareholder after the Closing.
(b) INDEMNIFICATION OF THE SELLER INDEMNITEES. Cyrk agrees to defend,
indemnify and hold harmless each Shareholder and their respective successors and
assigns (individually, a "SELLER INDEMNITEE", and collectively, the "SELLER
INDEMNITEES"), against and in respect of:
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(i) any and all Losses caused by, resulting or arising from or
otherwise relating to any failure of any representation or warranty made by
Cyrk in this Agreement to be true and correct as of the date hereof (or, if
a representation or warranty speaks as of another date, as of such other
date); and
(ii) any and all Losses caused by, resulting or arising from or
otherwise relating to any failure by Cyrk or Sub to perform or otherwise
fulfill or comply with any undertaking, agreement or obligation to be
performed, fulfilled or complied with by Cyrk or Sub prior to or after the
Closing.
(c) Indemnification Procedure.
-------------------------
(i) Within a reasonable time after the incurrence of any Loss
described in Section 6.10(a) or 6.10(b) by the party seeking
indemnification (the "INDEMNIFIED PARTY"), including, without limitation,
pursuant to any claim by a third party described in Section 6.10(c)(iii)
which might give rise to indemnification hereunder, the Indemnified Party
shall deliver to the party from which indemnification is sought (the
"INDEMNIFYING PARTY") a certificate (the "CERTIFICATE"), which Certificate
shall:
(I) state that the Indemnified Party has paid or properly accrued
Losses, or anticipates that it will incur liability for Losses for
which such Indemnified Party is entitled to indemnification pursuant
to this Agreement; and
(II) specify in reasonable detail each individual item of Loss
included in the amount so stated, the date such item was paid or
properly accrued, the basis for any anticipated liability and the
nature of the misrepresentation, breach of warranty or breach of
covenant or claim to which each such item is related and the
computation of the amount to which such Indemnified Party claims to be
entitled hereunder.
(ii) In case the Indemnifying Party shall object to the
indemnification of an Indemnified Party in respect of any claim or claims
specified in any Certificate, the Indemnifying Party shall, within twenty
(20) days after receipt by the Indemnifying Party of such Certificate,
deliver to the Indemnified Party a written notice to such effect and the
Indemnifying Party and the Indemnified Party shall, within the 30-day
period beginning on the date of receipt by the Indemnified Party of such
written objection, attempt in good faith to agree upon the rights of the
respective parties with respect to each of such claims to which the
Indemnifying Party shall have so objected. If the Indemnified Party and the
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Indemnifying Party shall succeed in reaching agreement on their respective
rights with respect to any of such claims, the Indemnified Party and the
Indemnifying Party shall promptly prepare and sign a memorandum setting
forth such agreement. Should the Indemnified Party and the Indemnifying
Party be unable to agree as to any particular item or items or amount or
amounts, then the Indemnified Party and the Indemnifying Party shall submit
such dispute to a court of competent jurisdiction.
(iii) As soon as practical after the assertion by any third party of
any claim against any Indemnified Party that, in the reasonable judgment of
such Indemnified Party, may result in the incurrence by such Indemnified
Party of Losses for which such Indemnified Party would be entitled to
indemnification pursuant to this Agreement, such Indemnified Party shall
deliver to the Indemnifying Party a written notice describing in reasonable
detail such claim and such Indemnifying Party may, at its option, assume
the defense of the Indemnified Party against such claim (including the
employment of counsel, who shall be reasonably satisfactory to such
Indemnified Party, and the payment of expenses). Any Indemnified Party
shall have the right to employ separate counsel in any such action or claim
and to participate in the defense thereof, but the fees and expenses of
such counsel shall not be at the expense of the Indemnifying Party unless
(i) the Indemnifying Party shall have failed within a reasonable time after
having been notified by the Indemnified Party of the existence of such
claim as provided in the preceding sentence to assume the defense of such
claim or (ii) the employment of such counsel has been specifically
authorized in writing by the Indemnifying Party, or (iii) such Indemnified
Party shall have been advised in writing by its legal counsel that there
may be one or more legal defenses reasonably available to the Indemnified
Party, the assertion of which would be materially adverse to the interests
of the Indemnifying Party. No Indemnifying Party shall be liable to
indemnify any Indemnified Party for any settlement of any such action or
claim effected without the consent of the Indemnifying Party but, if
settled with the written consent of the Indemnifying Party, or if there
will be a final judgment against the Indemnified Party in any such action,
the Indemnifying Party shall indemnify and hold harmless each Indemnified
Party from and against any loss or liability by reason of such settlement
or judgment. No Indemnifying Party shall settle any action or claim without
the consent of the Indemnified Party if such settlement would adversely
affect the Indemnified Party.
(iv) Claims for the Losses specified in any Certificate to which an
Indemnifying Party shall not object in writing within twenty (20) days of
receipt of such Certificate, claims
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for Losses covered by a memorandum of agreement of the nature described in
paragraph (ii), claims for Losses the validity and amount of which have
been the subject of a final and unappealable judicial determination as
described in paragraph (iii) are hereinafter referred to, collectively as
"AGREED CLAIMS". Within ten (10) Business Days of the determination of the
amount of any Agreed Claims, and subject to Section 6.10(e), the
Indemnifying Party shall pay to the Indemnified Party an amount equal to
the Agreed Claim by wire transfer in immediately available funds to the
bank account or accounts designated in writing by the Indemnified Party not
less than two Business Days prior to such payment. "BUSINESS DAY" shall
mean any day of the year other than a Saturday or Sunday or a day as to
which banking institutions in Massachusetts and California are required or
authorized to close.
(d) REMEDIES. The sole and exclusive remedy of Cyrk, Simon and the
Shareholders from and after the Closing hereunder, except in the case of fraud,
shall be restricted to the indemnification rights set forth in this Article VI.
(e) Certain Limitations.
-------------------
(i) Each Shareholder shall have no obligation to indemnify any Buyer
Indemnitee for any item of Loss unless all such individual items exceed
$200,000 in the aggregate. Cyrk shall have no obligation to indemnify any
Seller Indemnitee for any item of Loss unless all such individual items
exceed $200,000 in the aggregate.
(ii) No Loss shall be asserted by a Seller Indemnitee or Buyer
Indemnitee with respect to any matter (A) which is covered by insurance, to
the extent proceeds of such insurance are received (net of any additional
costs incurred by reason of such recovery) or (B) for which any Tax benefit
is received by the Seller Indemnitee or Buyer Indemnitee, as applicable, to
the extent of such tax benefit.
(iii) If the Closing shall have occurred, notwithstanding anything to
the contrary contained herein (other than as provided in Section 6.10(d)),
after such time that the aggregate of all amounts paid by any Shareholder
in respect of any Loss (or a portion thereof) equals $1,125,000 plus five
percent (5%) of all amounts paid to any Shareholder pursuant to Section
1.05, such Shareholder shall have no further obligation to indemnify or
hold harmless any Buyer Indemnitee for any Loss (or portion thereof) and,
after such time that the aggregate of all amounts paid by Cyrk in respect
of any Loss (or a portion thereof) equals $2,250,000 plus five percent (5%)
of all amounts paid to any Shareholder pursuant to Section 1.05, Cyrk shall
have no further obligation to
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indemnify or hold harmless any Seller Indemnitee for any Loss (or portion
thereof); PROVIDED, HOWEVER, that the foregoing limitations on
indemnification shall not be applicable to any Loss arising out of a breach
of Section 3.20 or Section 6.13 hereof.
(iv) If the Closing shall have occurred, each Shareholder's obligation
to indemnify a Buyer Indemnitee pursuant to this Section 6.10 shall be
payable only by and to the extent of the shares of Cyrk Common Stock
received by such Shareholder pursuant to this Agreement, and in no event
shall such obligation be payable in cash or any other form of consideration
(other than with respect to breaches of Sections 3.01, 3.02, 3.03, 3.20 and
6.13). If the Closing shall have occurred, Cyrk's obligation to indemnify a
Seller Indemnitee pursuant to this Section 6.10 may, at Cyrk's option, be
payable fifty percent (50%) in shares of Cyrk Common Stock and the
remainder in cash and, absent a decision by Cyrk to exercise such option,
shall be payable in cash. For purposes of valuing the Cyrk Common Stock
payable to indemnify an Indemnified Party, shares of Cyrk Common Stock
shall be deemed to have a price per share equal to the 20-day average of
the closing price of Cyrk Common Stock on the Nasdaq National Market for
the period ending on the date that an Indemnified Party makes a claim
hereunder.
(v) Any payment pursuant to this Section 6.10 shall be treated as a
purchase price adjustment.
(f) SURVIVAL. Notwithstanding anything herein to the contrary, this Section
6.10 shall survive termination of this Agreement without limitation.
Section 6.11. ADDITIONAL AGREEMENTS; REASONABLE EFFORTS. Subject to the
terms and conditions of this Agreement, each of the parties agrees to use all
reasonable commercial efforts to take, or cause to be taken, all action and to
do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, including cooperating fully with
the other party, including by provision of information. In case at any time
after the Effective Time any further action is necessary or desirable to carry
out the purposes of this Agreement or to vest the Surviving Corporation with
full title to all properties, assets, rights, approvals, immunities and
franchises of either of the Constituent Corporations, the proper officers and
directors of each party to this Agreement shall take all such necessary action.
Section 6.12. CONTRIBUTION OF SIMON HONG KONG SHARES. Each Shareholder and
Simon shall cause the Contribution to occur, without any consideration (other
than nominal consideration) in exchange therefor, prior to the Closing, with the
result being
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that, as of the Closing, all of the Simon Hong Kong Shares shall be owned
directly by Simon.
Section 6.13. SIMON 9000. Each Shareholder shall not take or agree to take
any action (and will not authorize or permit any other person or entity to take
any action) that would cause the representations and warranties set forth in
Section 3.20 hereof to not be true and correct at any time on or prior to the
Closing Date. Each Shareholder further agrees not to conduct business, or to
cause any other person to conduct business under the name "Simon 9000" except to
the extent that it relates to the Surviving Corporation and/or any of its
Subsidiaries. In the event that either Shareholder becomes aware of any
corporate opportunity that relates to a service or product previously provided
by Simon 9000, each Shareholder agrees that, prior to such opportunity being
undertaken by Simon 9000, such Shareholder will present such opportunity to Cyrk
and hereby provide Cyrk with a right of first offer with respect thereto without
any fee or payment to either Shareholder in exchange therefor; provided,
however, that such Shareholder shall not be required to provide Cyrk with such
right if such Shareholder is not then subject to any noncompetition agreement
relating to Cyrk or the Surviving Corporation.
ARTICLE VII
CONDITIONS TO MERGER
Section 7.01. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER.
The respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction prior to the Closing (except where
otherwise specified) of the following conditions:
(a) SHAREHOLDER APPROVAL. On or prior to the date hereof, this Agreement
and the Merger shall have been approved and adopted by unanimous written consent
of Simon's shareholders and any payments that could constitute "parachute
payments" within the meaning of Section 280G of the Code shall have been
approved in a manner consistent with Section 280G(b)(5)(B) of the Code and the
proposed treasury regulations issued thereunder.
(b) APPROVALS. As of the Closing, other than the filings provided for by
Section 1.01, all authorizations, consents, orders or approvals of, or
declarations or filings with, or expirations of waiting periods imposed by, any
Governmental Entity the failure of which to obtain would be reasonably likely to
have a Material Adverse Effect on Cyrk and its Subsidiaries or the Companies and
their respective Subsidiaries, in each case taken as a whole, shall have been
filed, occurred or been obtained; PROVIDED that any filing required by the HSR
shall be made by each of Cyrk and Simon no later than two days following the
date hereof; and PROVIDED,
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FURTHER, that any waiting period (and any extension thereof) under the HSR Act
applicable to the Merger shall have expired or shall have been terminated prior
to the Closing.
(c) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. As of the Closing, no
temporary restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint or prohibition preventing the consummation of the Merger or materially
limiting or restricting any Company's conduct or operation of the business of
any Company after the Merger shall have been issued, nor shall any proceeding
brought by an administrative agency or commission or other Governmental Entity
seeking any of the foregoing be pending; nor shall there be any action taken, or
any statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the Merger that would make the consummation of the Merger illegal.
(d) The following agreements and instruments (the "Ancillary Agreements")
have been executed and delivered by the parties thereto at the Closing (except
where otherwise specified):
(i) the Shareholders Agreement by and among Gregory Shlopak, Patrick
Brady, Allan Brown and Eric Stanton in the form of Section A of the
Transaction Disclosure Schedule dated as of the date hereof (the
"Transaction Disclosure Schedule");
(ii) the Registration Rights Agreement by and among Cyrk, Allan Brown
and Eric Stanton in the form of Section B of the Transaction Disclosure
Schedule;
(iii) on or prior to the date hereof, Letter Agreements relating to
term sheets for, INTER ALIA, Employment and/or Consulting Agreements, as
applicable, and Releases by and among Cyrk, Simon and Sub and each of Jay
Babineau, Edwin D. Rickerson, Sr. and Paul Marcus in accordance with the
term sheets attached as Sections C-1, C-2 and C-3 respectively, of the
Transaction Disclosure Schedule;
(iv) on or prior to the date hereof, Letter Agreements relating to
term sheets for, INTER ALIA, Agreements and Releases by and among Cyrk,
Simon and Sub and each of Jerry Beckman and Frank Chessman in accordance
with the term sheets attached as Sections D-1 and D-2, respectively, of the
Transaction Disclosure Schedule;
(v) on or prior to the date hereof, an Employment Agreement by and
among Cyrk, Simon and Sub and each of Allan Brown and Vivian Foo in the
form of Sections E-1 and E-2 of the Transaction Disclosure Schedule; a
Consulting Agreement by and among Cyrk, Simon and Sub and Eric Stanton in
the form of Section E-3 of the Transaction Disclosure Schedule;
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(vi) a spousal consent to the Merger from each of Vivian Foo and Kelly
Brown in substantially the form of Sections F-1 and F-2, respectively, of
the Transaction Disclosure Schedule or an opinion of counsel, in form and
substance reasonably satisfactory to Cyrk, that no such consents are needed
in connection herewith;
(vii) a resignation letter from Eric Stanton concerning his
directorships with Simon Hong Kong and Simon GmbH; and
(viii) each of Cyrk and the Shareholders shall have received all
documents, instruments and other closing deliveries specified in Articles I
and II hereof.
Section 7.02. ADDITIONAL CONDITIONS TO OBLIGATIONS OF CYRK AND SUB. The
obligations of Cyrk and Sub to effect the Merger are subject to the satisfaction
of each of the following conditions, any of which may be waived in writing
exclusively by Cyrk and Sub:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Simon and the Shareholders set forth in this Agreement shall be true and correct
in all material respects as of the date hereof (except to the extent such
representations and warranties speak as of another date, in which case such
representations and warranties shall be true and correct in all material
respects as of such other date), except where the failure to be true and correct
would not be reasonably likely to have a Material Adverse Effect on the
Companies and their respective Subsidiaries, taken as a whole, or a material
adverse effect upon the ability of Simon and the Shareholders to consummate the
transactions contemplated hereby.
(b) TAX OPINION. Cyrk shall have received from its counsel, Choate, Hall &
Stewart, an opinion, dated the Closing Date, in substantially the form attached
as Exhibit 7.02(b), in form and substance reasonably satisfactory to Cyrk,
substantially to the effect that on the basis of facts, representations, and
assumptions set forth in such opinion which are consistent with the state of
facts existing at Closing, the Merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368 of the Code.
Notwithstanding the provisions of Section 4.21 hereof, in rendering such
opinion, such counsel may require and, to the extent it deems necessary or
appropriate, may rely upon representations made in certificates of officers of
Cyrk, Simon and the Shareholders. Unexecuted copies of such opinion and
certificates shall be provided at the date hereof.
(c) BLUE SKY LAWS. Cyrk shall have received, on or prior to the Closing
Date, all state securities or "blue sky" permits and other authorizations
necessary to issue shares of Cyrk Common Stock pursuant to the Merger.
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(d) CONTRIBUTION. The Contribution shall have occurred in accordance with
Section 6.12 hereof.
(e) ADDITIONAL LEGAL OPINIONS. The Shareholders and Simon shall have
furnished Cyrk with opinions, dated the Closing Date and in form and substance
reasonably satisfactory to Cyrk, of counsel for the Shareholders and Simon.
Section 7.03. ADDITIONAL CONDITIONS TO OBLIGATIONS OF SIMON AND
SHAREHOLDERS. The obligation of Simon and the Shareholders to effect the Merger
is subject to the satisfaction of each of the following conditions, any of which
may be waived, in writing, exclusively by Simon and the Shareholders:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Cyrk and Sub set forth in this Agreement shall be true and correct in all
material respects as of the date hereof (except to the extent such
representations speak as of another earlier date, in which case such
representations and warranties shall be true and correct in all material
respects as of such other date), except where the failure to be true and correct
would not be reasonably likely to have a Material Adverse Effect on Cyrk and its
Subsidiaries, taken as a whole, or a material adverse effect upon the ability of
Cyrk and Sub to consummate the transactions contemplated hereby.
(b) TAX OPINION. Simon shall have received from its counsel, Shearman &
Sterling, an opinion, dated the Closing Date, in substantially the form attached
as Exhibit 7.03(b), in form and substance reasonably satisfactory to Simon,
substantially to the effect that on the basis of facts, representations, and
assumptions set forth in such opinion which are consistent with the state of
facts existing at Closing, the Merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368 of the Code.
Notwithstanding the provisions of Section 3.21 hereof, in rendering such
opinion, such counsel may require and, to the extent it deems necessary or
appropriate, may rely upon representations made in certificates of officers of
Cyrk, Simon and the Shareholders. Unexecuted copies of such opinion and
certificates shall be provided at the date hereof.
(c) ADDITIONAL LEGAL OPINIONS. Cyrk shall have furnished Simon with
opinions, dated the Closing Date and in form and substance reasonably
satisfactory to Simon, of counsel for Cyrk.
ARTICLE VIII
TERMINATION AND AMENDMENT
Section 8.01. TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time (with respect to Sections
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8.01(b) through 8.01(d), by written notice by the terminating party to the other
parties), whether before or after approval of the matters presented in
connection with the Merger by the shareholders of Simon:
(a) by mutual written consent of Cyrk, Simon and the Shareholders; or
(b) by any of Cyrk, Simon or either Shareholder if the Merger shall not
have been consummated by July 31, 1997 (provided that the right to terminate
this Agreement under this Section 8.01(b) shall not be available to any party
whose failure to fulfill any obligation under this Agreement has been the cause
of the failure of the Merger to occur on or before such date); or
(c) by any of Cyrk, Simon or either Shareholder if a court of competent
jurisdiction or other Governmental Entity shall have issued a nonappealable
final order, decree or ruling or taken any other action, in each case having the
effect of permanently restraining, enjoining or otherwise prohibiting the
Merger, except, if the party relying on such order, decree or ruling or other
action has not complied with its obligations under Section 6.05 of this
Agreement; or
(d) by any of Cyrk, Simon or either Shareholder, if there has been a breach
of any representation, warranty, covenant or agreement on the part of the other
party set forth in this Agreement, which breach (I) causes the conditions set
forth in Section 7.02(a) or (b) (in the case of termination by Cyrk) or 7.03(a)
or (b) (in the case of termination by Simon) not to be satisfied, and (II) shall
not have been cured within 10 Business Days following receipt by the breaching
party of written notice of such breach from the other party.
Section 8.02. EFFECT OF TERMINATION. In the event of termination of this
Agreement as provided in Section 8.01, this Agreement shall immediately become
void and there shall be no liability or obligation on the part of the
Shareholders or Cyrk, Simon, Sub or their respective officers, directors,
shareholders or Subsidiaries, except as set forth in Section 8.03 and to the
extent that such termination results from the wilful breach by a party of any of
its representations, warranties or covenants set forth in this Agreement;
PROVIDED, HOWEVER, that, the provisions of Section 8.03 of this Agreement shall
remain in full force and effect and survive any termination of this Agreement.
Section 8.03. FEES AND EXPENSES. All fees and expenses incurred in
connection with this Agreement and the Ancillary Agreements and the transactions
contemplated hereby and thereby shall be paid by the party incurring such
expenses, whether or not the Merger is consummated; PROVIDED that (i) the fees
and expenses of Allan Brown, including the fees and expenses of Irell & Manella,
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shall be paid by Allan Brown, (ii) the fees and expenses of Eric Stanton,
including the fees and expenses of Shapiro, Rosenfeld & Close and Mihaly,
Schuyler & Mitchell, shall be paid by Eric Stanton and (iii) all other fees and
expenses incurred by each Company in connection with this Agreement and the
Ancillary Agreements and the transactions contemplated hereby and thereby shall
be paid by Simon.
Section 8.04. AMENDMENT. This Agreement may be amended by the parties
hereto, in the case of Cyrk, Simon and Sub, by action taken or authorized by
their respective Boards of Directors, at any time before or after approval of
the matters presented in connection with the Merger by the shareholders of
Simon, but, after any such approval, no amendment shall be made which by law
requires further approval by such shareholders without such further approval.
This Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties hereto.
Section 8.05. EXTENSION; WAIVER. At any time prior to the Effective Time,
the parties hereto, in the case of Cyrk, Simon and Sub, by action taken or
authorized by their respective Boards of Directors, may, to the extent legally
allowed, (I) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (II) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (III) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in a written
instrument signed on behalf of such party.
ARTICLE IX
MISCELLANEOUS
Section 9.01. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. The
respective representations and warranties of Simon and the Shareholders, on the
one hand, and Cyrk, on the other hand, contained in this Agreement or in any
Schedule delivered pursuant hereto shall survive the Closing, but shall expire
on April 30, 1998 except with respect to and to the extent of any claim of which
written notice specifying, in reasonable detail, the nature and amount of the
claim has been given by an Indemnified Party to an Indemnifying Party prior to
such expiration. Notwithstanding the foregoing, the representations and
warranties contained in Sections 3.07, 3.13, 4.07 and 4.13 shall expire on the
date of expiration of the applicable statute of limitations (except in any case
with respect to and to the extent of any claim of which written notice
specifying, in reasonable detail, the nature and amount of the claim has been
given by the Indemnified Party to the
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Indemnifying Party prior to such expiration). The respective covenants and
agreements of Simon and the Shareholders, on the one hand, and Cyrk, on the
other hand, contained in this Agreement shall survive the consummation of the
transactions contemplated by this Agreement.
Section 9.02. NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, telecopied
(which is confirmed) or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
(a) if to Cyrk or Sub, to:
Cyrk, Inc.
3 Pond Road
Gloucester, MA 01930
Attention: Patrick Brady
with a copy to:
Choate, Hall & Stewart
Exchange Place
53 State Street
Boston, MA 02109
Attention: Cameron Read, Esq.
(b) if to Simon or Simon Hong Kong to:
Simon Marketing, Inc.
1900 Avenue of the Stars
4th Floor, Suite 400
Los Angeles, CA 90067
Attention: Chief Executive Officer
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, NY 10022
Attention: David W. Heleniak, Esq.
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<PAGE> 66
(c) if to either Shareholder or to the Shareholders'
Representative, to:
Allan Brown
c/o Simon Marketing, Inc.
1900 Avenue of the Stars
4th Floor, Suite 400
Los Angeles, CA 90067
Eric Stanton
c/o Simon Marketing Hong Kong Ltd.
Evergo House, 3rd Floor
38 Gloucester Road
Wanchai, Hong Kong
with a copy to:
Irell & Manella
1800 Avenue of the Stars
Suite 900
Los Angeles, CA 90067
Attention: Alvin Segal, Esq.
Mihaly, Schuyler & Mitchell
1801 Century Park East
Suite 1201
Los Angeles, CA 90067
Attention: Zoltan Mihaly
Shearman & Sterling
599 Lexington Avenue
New York, NY 10022
Attention: David W. Heleniak, Esq.
Section 9.03. INTERPRETATION. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement they shall be deemed to be
followed by the words "without limitation". The phrases "made available" in this
Agreement shall mean that the information referred to has been made available if
requested by the party to whom such information is to be made available.
Section 9.04. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
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Section 9.05. ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement and the Ancillary Agreements (including the documents and the
instruments referred to herein) (A) constitute the entire agreement and
supersedes all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof, and (B) except as
provided in Sections 6.09 and 6.10, are not intended to confer upon any person
other than the parties hereto any rights or remedies hereunder; provided that
the Confidentiality Agreements dated March 11, 1996, between Simon and Cyrk
shall remain in full force and effect until the Effective Time.
Section 9.06. GOVERNING LAW. This Agreement shall be governed and construed
in accordance with the laws of the State of Delaware without regard to any
applicable conflicts of law.
Section 9.07. SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any law or
public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner in
order that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible.
Section 9.08. ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and permitted assigns.
[The remainder of this page is left blank intentionally.]
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IN WITNESS WHEREOF, Cyrk, Sub and Simon have caused this Agreement to be
signed by their respective officers thereunto duly authorized, and each of the
Shareholders have signed this Agreement, as of the date first above written.
CYRK, INC.
By: /s/ Gregory P. Shlopak
---------------------------------
Name: Gregory P. Shlopak
Title:
SMI MERGER, INC.
By: /s/ Patrick Brady
---------------------------------
Name:
Title:
SIMON MARKETING, INC.
By: /s/ Allan Brown
---------------------------------
Name: Allan Brown
Title: Chief Executive Officer
By: /s/ Eric Stanton
---------------------------------
Name: Eric Stanton
Title: Chief Operating Officer
/s/ Allan Brown
-----------------------------------
Allan Brown, as an individual
/s/ Eric Stanton
-----------------------------------
Eric Stanton, as an individual
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<PAGE> 69
SCHEDULE I
<TABLE>
<CAPTION>
No. of Shares of Cyrk Common
Merger Cash Consideration Stock to be Issued at Closing
------------------------- -----------------------------
<S> <C> <C>
Allan Brown $12,500,000 920,069
Eric Stanton 12,500,000 920,069
----------- ---------
$25,000,000 1,840,138
</TABLE>
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<PAGE> 1
SHAREHOLDERS AGREEMENT
----------------------
This Shareholders Agreement (this "Agreement") is entered into as of this
9th day of June, 1997 by and among Cyrk, Inc., a Delaware corporation (the
"Company"), Allan Brown, Eric Stanton, Gregory Shlopak, and Patrick Brady (each
a "Shareholder", and together the "Shareholders").
INTRODUCTION
------------
The Company, Allan Brown and Eric Stanton, along with Simon Marketing,
Inc., a Nevada corporation, and SMI Merger, Inc., a Delaware corporation, are
parties to an Agreement and Plan of Merger, dated as of May 7, 1997 (as amended
from time to time, the "Merger Agreement"), pursuant to which, INTER ALIA, Allan
Brown and Eric Stanton have acquired shares of common stock, par value $.01 per
share, of the Company (the "Common Stock"). The execution of this Agreement is a
condition precedent to the Closing of the transaction contemplated under the
Merger Agreement. Capitalized terms used herein and not otherwise defined shall
have the meanings given to them in the Merger Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
Section 1. Appointment of Director.
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(a) Promptly upon the execution of this Agreement, the Board of Directors
of the Company (the "Board") shall take all necessary action to increase the
size of the Board to six and to appoint Allan Brown to be a member of the Board
as a class I director; PROVIDED, HOWEVER, that Allan Brown's appointment to be a
member of the Board shall be effective as soon as determined by Allan Brown to
be reasonably practicable but no later than January 1, 1998. At each election
thereafter of class I directors, and provided that Allan Brown beneficially owns
at least five percent (5%) of the issued and outstanding Common Stock of the
Company as of the date of such election, the Shareholders shall nominate Allan
Brown for election as a class I director.
(b) At any time following the execution of this Agreement, Eric Stanton
shall have the right, upon his request, to be appointed a member of the Board
(and to be a class I, II or III director, as determined by Eric Stanton in his
sole discretion and set forth in such request). Within ninety (90) days
following the Board's receipt of such request of Eric Stanton, the Board shall
take all necessary action to increase the size of
<PAGE> 2
the board by one (1) and appoint Eric Stanton to be a member of the Board as a
class I, II, or III director in accordance with Eric Stanton's request referred
to above. At each election thereafter of the class of directors of the Board to
which Eric Stanton is appointed, and provided that Eric Stanton beneficially
owns at least five percent (5%) of the issued and outstanding Common Stock of
the Company as of the date of such election, the Shareholders shall nominate
Eric Stanton for election as a class I, II or III director, as the case may be.
SECTION 2. VOTING. At all meetings (and written actions in lieu of
meetings) of the stockholders of the Company at which directors are to be
elected, and at which Allan Brown, Eric Stanton, Gregory Shlopak or Patrick
Brady have been nominated for election, each Shareholder shall vote all of such
Shareholder's stock to elect Allan Brown, Eric Stanton, Gregory Shlopak and
Patrick Brady, as the case may be, as directors of the Company.
SECTION 3. MEETINGS. The Company will cause its Board of Directors to meet
on a regular basis, not less often than quarterly, and will give each director
at least 7 days prior notice of the time and place of any meeting.
SECTION 4. REPRESENTATIONS. Each Shareholder represents and warrants to
each other party that such Shareholder is not bound by any agreement or
commitment that conflicts with or would interfere with the performance of such
Shareholder's obligations under this Agreement.
SECTION 5. MISCELLANEOUS. This Agreement shall survive indefinitely and
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Delaware. If any
provision of this Agreement is rendered void, invalid or unenforceable by any
court of law for any reason, such invalidity or unenforceability shall not void
or render invalid or unenforceable any other provision of this Agreement. This
Agreement may be changed, waived, discharged or terminated only with the written
consent of each party hereto. This Agreement may be executed in one or more
counterparts, and with counterpart signature pages, each of which shall be an
original, but all of which together shall constitute one in the same Agreement.
SECTION 6. NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally, telecopied (which
is confirmed) or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
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<PAGE> 3
(a) if to Allan Brown or Eric Stanton, to:
Allan Brown
c/o Simon Marketing, Inc.
1900 Avenue of the Stars
4th Floor, Suite 400
Los Angeles, CA 90067
Eric Stanton
c/o Simon Marketing Hong Kong Ltd.
Evergo House, 3rd Floor
38 Gloucester Road
Wanchai, Hong Kong
with a copy to:
Irell & Manella
1800 Avenue of the Stars
Suite 900
Los Angeles, CA 90067
Attention: Alvin Segal, Esq.
Mihaly, Schuyler & Mitchell
1801 Century Park East
Suite 1201
Los Angeles, CA 90067
Attention: Zoltan Mihaly, Esq.
Shearman & Sterling
599 Lexington Avenue
New York, NY 10022
Attention: David W. Heleniak, Esq.
(b) if to the Company, Patrick Brady or to Gregory
Shlopak, to:
Cyrk, Inc.
3 Pond Road
Gloucester, MA 01930
Patrick Brady
c/o Cyrk, Inc.
3 Pond Road
Gloucester, MA 01930
Gregory Shlopak
c/o Cyrk, Inc.
3 Pond Road
Gloucester, MA 01930
with a copy to:
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<PAGE> 4
Choate, Hall & Stewart
Exchange Place
53 State Street
Boston, MA 02109
Attention: Cameron Read, Esq.
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<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
CYRK, INC.
By: /s/ Gregory P. Shlopak
-------------------------
Name: Gregory P. Shlopak
Title:
/s/ Allan Brown
----------------------------
Allan Brown
/s/ Eric Stanton
----------------------------
Eric Stanton
/s/ Gregory Shlopak
----------------------------
Gregory Shlopak
/s/ Patrick Brady
----------------------------
Patrick Brady
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<PAGE> 1
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This Registration Rights Agreement (this "Agreement") is entered into as of
this 9th day of June, 1997 by and among Cyrk, Inc., a Delaware corporation (the
"Company"), Allan Brown and Eric Stanton.
Introduction
------------
The parties to this Agreement, along with Simon Marketing, Inc., a Nevada
corporation, and SMI Merger, Inc., a Delaware corporation, are parties to an
Agreement and Plan of Merger dated as of May 7, 1997 (as amended from time to
time, the "Merger Agreement"), pursuant to which, INTER ALIA, Allan Brown and
Eric Stanton have acquired, or will receive, shares of common stock, par value
$.01 per share (the "Common Stock"), of the Company. The execution of this
Agreement is a condition precedent to the Closing of the transaction
contemplated under the Merger Agreement and to acquire the shares of Common
Stock. Capitalized terms used herein and not otherwise defined shall have the
meanings given to them in the Merger Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
Section 1. Demand Registration Rights.
--------- ---------------------------
(a) If, at any time commencing on the second anniversary of the
Closing Date or any earlier date pursuant to which the Merger will continue to
qualify as a reorganization within the meaning of Section 368(a) of the Code (as
determined by the Company and its counsel), Allan Brown or Eric Stanton request
that the Company file a registration statement under the Securities Act of 1933,
as amended (the "Act"), for all or part of the shares of Common Stock held by
Allan Brown and/or Eric Stanton on the date of such request (including, without
limitation, any shares received by Allan Brown or Eric Stanton as an additional
payment pursuant to Section 1.05 of the Merger Agreement), provided that the
number of shares covered by such request equals or exceeds 250,000 shares, the
Company shall use its best efforts to register under the Act the shares of
Common Stock held by Allan Brown or Eric Stanton requested to be registered in
accordance with the procedures outlined in Section 4 hereof. The Company shall
effect an aggregate maximum of three such demand registrations, provided that no
such demand may be requested within six months of any prior demand; PROVIDED,
further, that if the Company defers any such registration request (an "Initial
Registration Request") pursuant to Section 1(b)(i), then the Initial
Registration Request and such registration made
<PAGE> 2
following such deferral but initiated by the Initial Registration Request shall,
together, constitute one demand registration hereunder.
(b) With respect to each demand registration right exercised by Allan
Brown pursuant to Section 1(a) hereof, the Company hereby agrees to promptly
give notice of the exercise of such demand registration right (a "Demand
Registration Notice") to Eric Stanton. With respect to each demand registration
right exercised by Eric Stanton pursuant to Section 1(a) hereof, the Company
hereby agrees to promptly give a Demand Registration Notice to Allan Brown. Upon
receipt by Allan Brown or Eric Stanton (the "Notice Recipient") of a Demand
Registration Notice, the Notice Recipient shall have the right to participate in
such demand registration by providing notice of its intent to so participate to
the Company within fifteen (15) days following the date of receipt by the Notice
Recipient of the Demand Registration Notice. The participation by the Notice
Recipient in such demand registration shall not constitute an additional demand
registration hereunder.
(c) If Allan Brown (without Eric Stanton) exercises the first two
demand registration rights pursuant to Section 1(a) hereof, then Eric Stanton
(but not Allan Brown) shall have the right to exercise the third demand
registration right pursuant to Section 1(a) hereof. If Eric Stanton (without
Allan Brown) exercises the first two demand registration rights pursuant to
Section 1(a) hereof, then Allan Brown (but not Eric Stanton) shall have the
right to exercise the third demand registration right pursuant to Section 1(a)
hereof.
(d) Notwithstanding the foregoing, (i) if the Company shall furnish to
such holder(s) requesting a registration statement pursuant to Section 1(a) a
certificate signed by an officer of the Company stating that in the good faith
judgment of the Company it would have a materially adverse impact on the
business of the Company and be materially adverse to its shareholders for such
registration statement to be filed and it is therefor essential to defer the
filing of such registration statement, the Company shall have the right to defer
such filing for a period of not more than 120 days from the date of the request
of such holder(s) requesting such registration and (ii) no holder shall be
allowed to exercise its registration rights set forth in Section 1(a) within 180
days from the date that the Company has registered any shares of Common Stock or
any securities similar to Common Stock for its own or others' account under the
Act (other than a registration statement on Form S-4 or S-8 or any substitute
form that may be adopted by the Securities and Exchange Commission (the
"Commission")).
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<PAGE> 3
Section 2. Piggyback Registration Rights.
--------- -----------------------------
(a) Whenever, at any time commencing on the second anniversary of the
Closing Date or any earlier date pursuant to which the Merger will continue to
qualify as a reorganization within the meaning of Section 368(a) of the Code (as
determined by the Company and its counsel), the Company proposes to register any
shares of Common Stock for its own or others' account under the Act, other than
a registration solely relating to employee benefit plans or a registration
solely relating to shares to be sold under Rule 145 under the Act, the Company
shall give Allan Brown and Eric Stanton prompt written notice of its intent to
do so no less than 30 days before the filing of any registration statement. Upon
the written request of either Allan Brown or Eric Stanton given within 15 days
after receipt of such notice, the Company shall, subject to Section 2(b), cause
to be included in such registration all of the shares of Common Stock held by
Allan Brown and/or Eric Stanton specified in such written request.
(b) If the Company is advised in writing in good faith by any managing
underwriter of the securities being offered pursuant to any registration
statement under this Section 2 that, because of marketing considerations, the
number of shares of Common Stock to be sold by persons other than the Company is
greater than the number of such shares which can be offered without materially
and adversely affecting the offering, the Company may reduce PRO RATA the number
of shares offered for the accounts of such persons (based upon the number of
shares requested by each such person to be included in the registration) to a
number deemed sufficient by such managing underwriter to eliminate the material
and adverse effect.
Section 3. Selection of Underwriter.
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(a) If the Company so requires, or if Allan Brown or Eric Stanton so
elects, the offering of shares of Common Stock held by them pursuant to Section
1 shall be in the form of a firm commitment underwritten offering. In such
event, (i) Allan Brown, Eric Stanton and the Company shall jointly select the
book-running and other managing underwriters in connection with such offering
and any additional investment bankers and managers to be used in connection with
such offering and (ii) the right of any holder to include his registrable shares
in such registration shall be conditioned upon such holder's participation in
such underwriting and the inclusion of such holder's registrable shares in the
underwriting to the extent provided herein.
(b) Holders of Common Stock other than Allan Brown and Eric Stanton
may request that their shares of Common Stock be included in any registration
requested under Section 1. If the underwriter managing the offering determines
that, because of
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<PAGE> 4
marketing considerations, all of the shares of Common Stock requested to be
registered may not be included in the offering, then all holders of Common Stock
other than Allan Brown or Eric Stanton who have requested registration shall
participate in the offering PRO RATA based upon the number of shares of Common
Stock which they have requested to be so registered; PROVIDED that any such
reduction shall not apply to the shares of Common Stock held by Allan Brown or
Eric Stanton.
SECTION 4. REGISTRATION PROCEDURES. If and whenever the Company is required
by the provisions of this Agreement to use its best efforts to effect the
registration of any shares of Common Stock under the Act, the Company shall:
(a) as expeditiously as reasonably possible (and, in the case of a
registration under Section 1, within 60 days of any request thereunder) file
with the Commission a registration statement, in form and substance required by
the Act, with respect to such Common Stock and use its best efforts to cause
that registration statement to become effective;
(b) as expeditiously as reasonably possible, prepare and file with the
Commission any amendments and supplements to the registration statement and the
prospectus included in the registration statement as may be necessary to keep
the registration statement effective, in the case of a firm commitment
underwritten public offering, until completion of the distribution of all
securities described therein and, in the case of any other offering, until the
earlier of the sale of all Common Stock covered thereby or 120 days after the
effective date thereof;
(c) as expeditiously as reasonably possible, furnish to each holder
that requested that Common Stock be registered, such reasonable number of copies
of such registration statement, each amendment and supplement thereto (in each
case including all exhibits thereto and documents incorporated by reference
therein) and the prospectus included in such registration statement, including
each preliminary prospectus, in conformity with the requirements of the Act, and
such other documents as such holder may reasonably request in order to
facilitate the public sale or other disposition of the Common Stock owned by
such holder;
(d) as expeditiously as reasonably possible, use its best efforts to
register or qualify the Common Stock covered by the registration statement for
offer and sale under the securities or blue sky laws of such jurisdictions in
the United States as the holders thereof shall reasonably request, and do any
and all other acts and things that may be necessary or desirable to enable the
holders thereof to consummate the public sale or other disposition in such
jurisdictions of the Common Stock owned by the holders; PROVIDED, HOWEVER, that
the Company
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<PAGE> 5
shall not be required in connection with this paragraph (d) to qualify as a
foreign corporation or execute a general consent to service of process in any
jurisdiction;
(e) after the filing of the registration statement, promptly notify
the holder that requested that Common Stock be registered of any stop order
issued or, to the knowledge of the Company, threatened to be issued by the
Commission and use all commercially reasonable efforts to prevent the entry of
such stop order or to remove it if entered;
(f) in connection with each registration pursuant to Sections 1 and 2
above covering an underwritten public offering with the agreement of each
participating holder, enter into a written agreement with the managing
underwriter in such form and containing such provisions as are customary in the
securities business for such an arrangement between such underwriter and
companies of the Company's size and investment stature;
(g) furnish to each underwriter, if any, and the participating
holders, a legal opinion of its counsel and a comfort letter from its
independent certified public accountants, each in customary form and substance,
at such time or times as such documents are customarily provided in the type of
offering involved;
(h) as promptly as practicable, notify the holder that requested that
Common Stock be registered, at any time when a prospectus relating to the sale
of the Common Stock is required by law to be delivered in connection with sales
by an underwriter or dealer, of the occurrence of any event requiring the
preparation of a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of the registered Common Stock, such
prospectus will not contain an untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, and as promptly as practicable make available to the
holder that requested that Common Stock be registered and to the underwriters
any such supplement or prospectus and, in the event that the Company shall give
such notice, the Company shall extend the period during which such registration
statement shall be maintained effective as provided in Section 4(b) hereof by
the number of days during the period from and including the date of the giving
of such notice to the date when the Company shall make available to such holder
such supplemented or amended prospectus;
(i) whenever the Company is registering any Common Stock under the Act
and a holder of Common Stock is selling securities under such registration or
determines that it may be a controlling person under the Act, keep such holder
advised in
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<PAGE> 6
writing of the initiation, progress and completion of such registration, allow
such holder and such holders's counsel to participate in the preparation of the
registration statement and to have access to all relevant corporate records,
documents and information, include in the registration statement such
information as such holder may reasonably request and take all such other action
as such holder may reasonably request;
(j) as of the effective date of any registration statement relating
thereto, cause all such Common Stock to be listed on each securities exchange on
which similar securities issued by the Company are then listed, and, if not so
listed, to be listed on the NASDAQ National Market; and
(k) as of the effective date of any registration statement relating
thereto, provide a transfer agent and registrar for all such Common Stock.
Each holder of Common Stock included in a registration shall furnish to the
Company such information regarding such holder and the distribution proposed by
such holder as the Company may reasonably request in writing and as shall be
required in connection with the registration, qualification or compliance
referred to in this Agreement.
SECTION 5. EXPENSES. The Company shall pay all expenses incurred in
complying with this Agreement, including, without limitation, all registration
and filing fees, exchange listing fees, printing expenses, transfer taxes, fees
and expenses of counsel and independent certified public accountants for the
Company and the fees and expenses of one counsel selected by each holder of
Common Stock to represent him in connection with each such registration, state
securities and blue sky fees and expenses, and the expense of any special audits
incident to or required by any such registration, but excluding underwriting
discounts and selling commissions relating to the sale of the Common Stock. The
Company shall pay all internal Company expenses (including, without limitation,
all salaries and expenses of its officers and employees performing legal or
accounting duties) incurred in complying with this Agreement.
SECTION 6. INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify
and hold harmless Allan Brown and Eric Stanton from and against any and all
losses, claims, damages and liabilities caused by any untrue statement or
alleged untrue statement of a material fact contained in any registration
statement or prospectus relating to the Common Stock to be registered (as
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto) or any preliminary prospectus, or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not
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<PAGE> 7
misleading, except insofar as such losses, claims, damages or liabilities are
caused by any such untrue statement or omission or alleged untrue statement or
omission based upon information furnished in writing to the Company by or on
behalf of Allan Brown or Eric Stanton expressly for use therein. The Company
also agrees to indemnify any underwriters of the Common Stock, their officers
and directors and each person who controls such underwriters on substantially
the same basis as that of the indemnification of Allan Brown and Eric Stanton
provided in this Section 6.
Section 7. Indemnification by Allan Brown and Eric Stanton.
--------- -----------------------------------------------
(a) Allan Brown agrees to indemnify and hold harmless the Company, its
officers and directors, and each person, if any, who controls the Company within
the meaning of the Act or the Securities Exchange Act of 1934, as amended, (the
"Exchange Act") to the same extent as the foregoing indemnity from the Company
to Allan Brown, but only with reference to information furnished in writing by
or on behalf of Allan Brown expressly for use in any registration statement or
prospectus relating to Common Stock to be registered, or any amendment or
supplement thereto, or any preliminary prospectus and not in reference to
information furnished in writing by or on behalf of Eric Stanton. Allan Brown
also agrees to indemnify and hold harmless the underwriters of the Common Stock,
their officers and directors and each person who controls such underwriters on
substantially the same basis as that of the indemnification of the Company
provided in this Section 7(a).
(b) Eric Stanton agrees to indemnify and hold harmless the Company,
its officers and directors, and each person, if any, who controls the Company
within the meaning of the Act or the Securities Exchange Act of 1934, as
amended, (the "Exchange Act") to the same extent as the foregoing indemnity from
the Company to Eric Stanton, but only with reference to information furnished in
writing by or on behalf of Eric Stanton expressly for use in any registration
statement or prospectus relating to Common Stock to be registered, or any
amendment or supplement thereto, or any preliminary prospectus and not in
reference to information furnished in writing by or on behalf of Allan Brown.
Eric Stanton also agrees to indemnify and hold harmless the underwriters of the
Common Stock, their officers and directors and each person who controls such
underwriters on substantially the same basis as that of the indemnification of
the Company provided in this Section 7(b).
SECTION 8. CONDUCT OF INDEMNIFICATION PROCEEDINGS. In case any proceeding
(including any governmental investigation) shall be instituted involving any
person in respect of which indemnity may be sought pursuant to Section 6 or 7,
such person (the "Indemnified Party") shall promptly notify the person against
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<PAGE> 8
whom such indemnity may be sought (the "Indemnifying Party") in writing and the
Indemnifying Party, upon the request of the Indemnified Party shall retain
counsel reasonably satisfactory to such Indemnified Party to represent such
Indemnified Party and any others the Indemnifying Party may designate in such
proceeding and shall pay the fees and expenses of such counsel related to such
proceeding. In any such proceeding, any Indemnified Party shall have the right
to retain its own counsel, but the fees and expenses of such counsel shall be at
the expense of such Indemnified Party unless (i) the Indemnifying Party shall
have failed within a reasonable time after having been notified by the
Indemnified Party of the existence of such claim as provided in the preceding
sentence; (ii) the Indemnifying Party and the Indemnified Party shall have
mutually agreed to the retention of such counsel or (iii) such Indemnified Party
shall have been advised in writing by his or its legal counsel that there may be
one or more legal defenses available to the Indemnified Party the assertion of
which would be materially adverse to the interests of the Indemnifying Party. It
is understood that the Indemnifying Party shall not, in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for the
fees and expenses of more than one separate law firm (in addition to any local
counsel) at any time for all such Indemnified Parties, and that all such fees
and expenses shall be reimbursed as they occur. In the case of any such separate
firm for the Indemnified Parties, such firm shall be designated in writing by
the Indemnified Parties. The Indemnifying Party shall not be liable for any
settlement or any proceeding effected without its written consent, but if
settled with such consent, or if there shall be a final judgment for the
plaintiff, the Indemnifying Party shall indemnify and hold harmless such
Indemnified Parties from and against any loss or liability (to the extent stated
above) by reason of such settlement or judgment. No Indemnifying Party shall
settle any action or claim without the consent of the Indemnified Party if such
settlement (i) does not provide for a full release of the Indemnified Party or
(ii) would adversely effect the Indemnified Party.
Section 9. Contribution.
--------- ------------
(a) If the indemnification provided for in this Agreement is
unavailable to the Indemnified Parties in respect of any losses, claims, damages
or liabilities referred to herein, then each such Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company, Allan Brown, Eric Stanton and the underwriters
from the offering of the securities or (ii) if the allocation provided by clause
(i) above is not permitted by applicable law, in such proportion as is
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<PAGE> 9
appropriate to reflect not only the relative benefits referred to in clause (i)
but also the relative fault of the Company, Allan Brown, Eric Stanton and the
underwriters in connection with the statements or omissions that resulted in
such losses, claims, damages or liabilities, as well as any other relevant
equitable considerations. The relative benefits received by the Company, Allan
Brown, Eric Stanton and the underwriters shall be deemed to be in the same
proportion as the total proceeds from the offering (net of underwriting
discounts and selling commissions but before deducting expenses) received by
each of the Company, Allan Brown, Eric Stanton and the total underwriting
discounts and commissions received by the underwriters, in each case as set
forth in the table on the cover page of the prospectus, with respect to the
aggregate public offering price of the securities. The relative fault of the
Company, Allan Brown, Eric Stanton and the underwriters shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
related to information supplied by such party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
(b) The Company, Allan Brown and Eric Stanton agree that it would not
be just and equitable if contribution pursuant to this Section 9 were determined
by pro rata allocation (even if the underwriters were treated as one entity for
such purpose) or by any other method of allocation that does not take account of
the equitable considerations referred to in Section 9(a). The amount paid or
payable by an Indemnified Party as a result of the losses, claims, damages or
liabilities referred to Section 9(a) shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such Indemnified Party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 9, no
underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages that such underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission, and
Allan Brown and Eric Stanton shall not be required to contribute any amount in
excess of the amount by which the net proceeds of the offering (before deducting
expenses) received by such person has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
SECTION 10. REPORTS UNDER THE EXCHANGE ACT. With a view to making
available to the holders of Common Stock the benefits of
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<PAGE> 10
Rule 144 promulgated under the Act and any other rule or regulation of the
Commission that may at any time permit a holder to sell securities of the
Company to the public without registration or pursuant to a registration on Form
S-3, the Company shall use its best efforts to satisfy the requirements of all
such rules and regulations now in effect or hereinafter adopted (including the
requirements for public information, registration under the Exchange Act and
timely reporting to the Commission). The Company shall furnish to each holder of
Common Stock, whenever requested, a written statement as to its compliance with
the reporting requirements of Rule 144, the Act and the Exchange Act, a copy of
its most recent annual or quarterly report, and such other reports and
information filed by the Company as Allan Brown and Eric Stanton may reasonably
request in connection with the sale of Common Stock without registration.
Section 11. Lock-up Agreement.
---------- -----------------
(a) Subject to the subsequent sentence of this Section 11(a), Allan
Brown and Eric Stanton each agrees that in connection with any public offering
of the Company's Common Stock, and upon the request of the managing underwriter
in such offering, such holders will not sell, grant any option for the purchase
of, or otherwise dispose of any of the Company's securities held by such holder
(other than those included in such registration) without the prior written
consent of such underwriter, for such period of time as may be requested by such
underwriter (not to exceed 90 days after the effective date of such
registration). The obligation of Allan Brown and Eric Stanton under this Section
11 is conditional upon the agreement of all of the Company's officers and
directors to be bound by the terms of this Section 11.
(b) The Company agrees that in connection with any public offering of
any Common Stock or any securities similar to Common Stock, and upon the request
of the managing underwriter in such offering, the Company will not sell, grant
any option for the purchase of, or otherwise dispose of any Common Stock or any
securities similar to Common Stock (other than those included in such
registration) without the prior written consent of such underwriter, for such
period of time as may be requested by such underwriter (not to exceed 90 days
after the effective date of such registration).
SECTION 12. NOTICES. All notices, demands, requests or other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered in person, telecopied (which is confirmed) or by United States mail,
certified or registered with return receipt requested, or by nationally
recognized overnight courier service, to the addresses of the
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<PAGE> 11
respective parties for notices as set forth in the Merger Agreement.
SECTION 13. ASSIGNMENT. The rights to cause the Company to register shares
pursuant to this Agreement, and all other rights of Allan Brown and Eric Stanton
hereunder, shall not be assignable or transferable to any other person or entity
without the Company's prior written consent; PROVIDED, HOWEVER, that the terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the respective executors, administrators, heirs, successors and permitted
assigns of each of Allan Brown and Eric Stanton.
SECTION 14. MISCELLANEOUS. This Agreement shall survive indefinitely and
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without regard to
any applicable conflict of laws. If any provision of this Agreement is rendered
void, invalid or unenforceable by any court of law for any reason, such
invalidity or unenforceability shall not void or render invalid or unenforceable
any other provision of this Agreement. This Agreement may be changed, waived,
discharged or terminated only with the written consent of each party hereto.
This Agreement may be executed in one or more counterparts, and with counterpart
signature pages, each of which shall be an original, but all of which together
shall constitute one in the same Agreement.
SECTION 15. EFFECTIVENESS AND TERMINATION. This Agreement shall become
effective on the Closing of the Merger. This Agreement shall be deemed
terminated if the Merger Agreement is terminated pursuant to Section 8.01
thereof.
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<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
CYRK, INC.
By: /s/ Gregory P. Shlopak
-------------------------
Name:
Title:
/s/ Allan Brown
----------------------------
Allan Brown
/s/ Eric Stanton
----------------------------
Eric Stanton
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<PAGE> 1
PROMISSORY NOTE AND PLEDGE AGREEMENT
------------------------------------
$575,000 June 9, 1997
For value received, Allan Brown (the "MAKER") promises to pay to Cyrk,
Inc. (the "COMPANY"), the sum of Five Hundred Seventy Five Thousand and 00/100
Dollars ($575,000), together with interest at the rate of 7% per annum from the
date hereof until the principal hereof shall be paid in full.
The unpaid principal balance and accrued but unpaid interest hereof
shall be due and payable upon the first anniversary of the date hereof (the "DUE
DATE"). Failure to repay all principal and interest owed hereunder on the Due
Date shall constitute an event of default ("EVENT OF DEFAULT").
For the purposes of securing payment of this Note, the Maker pledges
and delivers over to the Company the following described property (hereinafter,
the "PLEDGED SHARES") and grants to the Company a security interest in the
Pledged Shares:
(i) 52,904 shares of the Common Stock of the Company,
represented by stock certificate number ___; and
(ii) all shares of stock of the Company resulting from
stock splits, options, non-cash dividends received or
distributed in respect of or in exchange for the
securities referred to in subparagraph (i) above.
The Pledged Shares shall be accompanied by stock powers duly executed
in blank or other instruments of transfer satisfactory to the Company.
The Company shall be without recourse to the Maker for the payment of
all principal and interest due on this Note and shall look solely to the Pledged
Shares for the payment of such amounts.
The Maker hereby represents, warrants and covenants to the Company
that:
(a) The Maker has good title to the Pledged Shares, free and clear of
all claims, mortgages, pledges, liens, security interests and other encumbrances
of every nature whatsoever other than those under applicable securities law or
set forth herein or in a certain Shareholders Agreement dated as of even date by
and between the Company, the Maker, Eric Stanton, Gregory Shlopak and Patrick
Brady (as amended from time to time, the "SHAREHOLDERS AGREEMENT").
<PAGE> 2
(b) The Maker will not sell, convey or otherwise dispose of any of the
Pledged Shares, nor will the Maker grant, create, incur or permit to exist any
pledge, mortgage, lien, charge, encumbrance or any security interest whatsoever
or any option, right of first refusal or other preemptive right with respect to
any of the Pledged Shares or the proceeds thereof, other than liens on and
security interests in the Pledged Shares created hereby and restrictions
contained in the Shareholders Agreement or under applicable securities laws.
Upon the occurrence of an Event of Default, the Company shall have all
of the rights and remedies provided by law, including, without limitation, those
provided by the Uniform Commercial Code of the Commonwealth of Massachusetts
(the "CODE") (whether or not the Code is in effect in the jurisdiction where
such rights are exercised).
In case there shall exist an Event of Default, subject to the
provisions of the Code or other applicable law, the Company may, by giving 30
day advance written notice to the Maker, cause all or any of the Pledged Shares
to be transferred into its name or into the name of its nominee or nominees. So
long as no Event of Default shall exist, the Maker shall be entitled to exercise
as the Maker shall deem fit, but in a manner not inconsistent with the terms
hereof, the voting power with respect to the Pledged Shares; PROVIDED, HOWEVER,
that upon the occurrence of an Event of Default all rights of the Maker to
exercise such voting power shall cease, and all such rights shall thereupon
become vested in the Company.
Upon the occurrence of an Event of Default and after giving the maker
30 days advance written notice (which notice shall be deemed to meet any
requirements hereunder or under any applicable law, including, without
limitation, the Code, that reasonable notification be given of the time and
place of such sale or other disposition), the Company shall have the right at
any time or times thereafter to sell, resell, assign and deliver all or any of
the Pledged Shares in one or more parcels at any exchange or broker's board or
at public or private sale. Notice may be given without any demand of performance
or other demand, all such demands being hereby expressly waived by the Maker.
All such sales shall be at such commercially reasonable price or prices as the
Company shall deem best and either for cash or on credit or for future delivery
(without assuming any responsibility for credit risk). At any such sale or sales
the Company may purchase any or all of the Pledged Shares to be sold thereat
upon such terms as the Company may deem best. Upon any such sale or sales the
Pledged Shares so purchased shall be held by the purchaser absolutely free from
any claims or rights of whatsoever kind or nature, including any equity of
redemption and any similar rights, all such equity of redemption and any similar
rights
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<PAGE> 3
being hereby expressly waived and released by the Maker, other than restrictions
under the Shareholders Agreement or applicable securities law. In the event any
consent, approval or authorization of any governmental agency will be necessary
to effectuate any such sale or sales, the Maker shall execute all such
applications or other instruments as may be required. The proceeds of any such
sale or sales shall be received and applied: first, to the payment of all costs
and expenses of such sale or otherwise in connection with this agreement,
including court costs and attorneys' fees and expenses; second, to the payment
of the amount owed hereunder; and third, any surplus thereafter remaining shall
be paid to the Maker or as a court of competent jurisdiction may otherwise
direct.
The Maker recognizes that the Company may be unable to effect a public
sale of all or a part of the Pledged Shares by reason of certain prohibitions
contained in the Securities Act of 1933, but may be compelled to resort to one
or more private sales to a restricted group of purchasers, each of whom will be
obligated to agree, among other things, to acquire such Pledged Shares for its
own account, for investment and not with a view to the distribution or resale
thereof. The Maker acknowledges that private sales so made may be at prices and
upon other terms less favorable to the seller than if such Pledged Shares were
sold at public sales, and that the Company has no obligation to delay sale of
any such Pledged Shares for the period of time necessary to permit such Pledged
Shares to be registered for public sale under the Securities Act of 1933. The
Maker agrees that any such private sales shall not be deemed to have been made
in a commercially unreasonable manner solely because they shall have been made
under the foregoing circumstances.
This agreement shall be governed by the internal laws of the
Commonwealth of Massachusetts, without giving effect to any choice of law or
conflicts of law provision or rule that would cause the application of domestic
substantive laws of any other jurisdiction.
IN WITNESS WHEREOF, the undersigned has executed this agreement this
9th day of June, 1997.
/s/ Allan Brown
------------------------------
Allan Brown
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