<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
Commission File Number 0-21878
CYRK, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 04-3081657
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3 POND ROAD, GLOUCESTER, MASSACHUSETTS 01930
(Address of principal executive offices)
(Zip Code)
(978) 283-5800
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
At July 31, 1998, 15,011,616 shares of the Registrant's common stock were
outstanding.
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CYRK, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION PAGE NUMBER
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets -
June 30, 1998 and December 31, 1997 3
Consolidated Statements of Operations -
For the three and six months ended
June 30, 1998 and 1997 4
Consolidated Statements of Comprehensive Income -
For the three and six months ended
June 30, 1998 and 1997 5
Consolidated Statements of Cash Flows -
For the six months ended June 30, 1998
and 1997 6
Notes to Consolidated Financial Statements 7-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-12
PART II OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
CYRK, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 45,281 $ 42,513
Accounts receivable:
Trade, less allowance for doubtful accounts of $2,150
at June 30, 1998 and $3,801 at December 31, 1997 94,842 95,388
Officers, stockholders and related parties 238 228
Inventories 45,219 46,317
Prepaid expenses and other current assets 7,475 10,649
Deferred and refundable income taxes 12,715 9,746
--------- ---------
Total current assets 205,770 204,841
Property and equipment, net 14,988 16,268
Excess of cost over net assets acquired, net 78,987 77,483
Investments in and advances to affiliates 3,601 9,506
Other assets 6,282 5,747
========= =========
$ 309,628 $ 313,845
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 22,022 $ 20,826
Accounts payable:
Trade 46,286 57,690
Affiliates 1,483 180
Accrued expenses and other current liabilities 64,063 64,831
Accrued restructuring expenses 4,506 --
--------- ---------
Total current liabilities 138,360 143,527
Long-term obligations 7,324 9,611
Deferred income taxes 704 704
--------- ---------
Total liabilities 146,388 153,842
--------- ---------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 1,000,000 shares
authorized; none issued -- --
Common stock, $.01 par value; 50,000,000 shares
authorized; 14,965,343 shares issued and
outstanding at June 30, 1998 and 13,688,038 shares
issued and outstanding at December 31, 1997 150 137
Additional paid-in capital 133,683 119,840
Retained earnings 30,343 40,609
Accumulated other comprehensive income:
Cumulative translation adjustment (936) (583)
--------- ---------
Total stockholders' equity 163,240 160,003
--------- ---------
$ 309,628 $ 313,845
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE> 4
CYRK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
----------------------- -----------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $212,609 $106,567 $381,751 $203,755
Cost of sales 180,810 86,694 319,644 167,017
-------- -------- -------- --------
Gross profit 31,799 19,873 62,107 36,738
Selling, general and administrative expenses 31,164 17,769 61,398 28,905
Goodwill amortization expense 821 454 1,639 575
Restructuring expense -- -- 15,486 --
-------- -------- -------- --------
Operating income (loss) (186) 1,650 (16,416) 7,258
Interest income (671) (803) (1,237) (1,663)
Interest expense 635 584 1,249 1,138
Equity in loss of affiliates, net 489 309 908 616
-------- -------- -------- --------
Income (loss) before income taxes (639) 1,560 (17,336) 7,167
Income tax provision (benefit) (224) 936 (7,070) 4,300
======== ======== ======== ========
Net income (loss) $ (415) $ 624 $(10,266) $ 2,867
======== ======== ======== ========
Earnings (loss) per common share - basic $ (0.03) $ 0.05 $ (0.70) $ 0.25
======== ======== ======== ========
Earnings (loss) per common share - diluted $ (0.03) $ 0.05 $ (0.70) $ 0.25
======== ======== ======== ========
Weighted average shares outstanding - basic 14,853 12,200 14,582 11,503
======== ======== ======== ========
Weighted average shares outstanding - diluted 14,853 12,438 14,582 11,675
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE> 5
CYRK, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
-------------------- ------------------
1998 1997 1998 1997
----- ----- -------- ------
<S> <C> <C> <C> <C>
Net income (loss) $(415) $ 624 $(10,266) $2,867
----- ----- -------- ------
Other comprehensive income (loss), before
income taxes:
Foreign currency translation adjustments (82) (188) (353) (111)
Unrealized holding gains arising during period -- 14 -- 45
----- ----- -------- ------
Other comprehensive loss, before income taxes (82) (174) (353) (66)
Income tax benefit related to items of
other comprehensive loss (29) (104) (140) (40)
----- ----- -------- ------
Other comprehensive loss, net of income taxes (53) (70) (213) (26)
----- ----- -------- ------
Comprehensive income (loss) $(468) $ 554 $(10,479) $2,841
===== ===== ======== ======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE> 6
CYRK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
For the six months
ended June 30,
------------------------
1998 1997
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(10,266) $ 2,867
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 4,380 2,196
Gain on sale of property and equipment (297) (33)
Realized loss (gain) on sale of investments (215) 27
Provision for doubtful accounts 428 79
Equity in loss of affiliates 1,123 616
Non-cash restructuring charges 9,265 --
Increase (decrease) in cash from changes
in working capital items, net of acquisitions:
Accounts receivable 53 (12,840)
Inventories (293) 25,744
Prepaid expenses and other current assets 3,188 847
Refundable income taxes (2,969) --
Accounts payable (10,087) (1,185)
Accrued expenses and other current liabilities 1,792 (12,239)
-------- ---------
Net cash provided by (used in) operating activities (3.898) 6,079
-------- ---------
Cash flows from investing activities:
Purchase of property and equipment (2,807) (2,262)
Proceeds from sale of property and equipment 814 67
Acquisitions, net of cash acquired * -- (16,581)
Repayments from (advances to) affiliates, net 568 (127)
Purchase of investments -- (3,815)
Proceeds from sale of investments 529 4,968
Additional consideration related to acquisitions (1,960) --
Other, net (664) (2,423)
-------- ---------
Net cash used in investing activities (3,520) (20,173)
-------- ---------
Cash flows from financing activities:
Proceeds from short-term borrowings, net 1,196 14
Increase in (payments of) long-term obligations (2,287) 249
Proceeds from issuance of common stock 11,287 222
-------- ---------
Net cash provided by financing activities 10,196 485
-------- ---------
Effect of exchange rate changes on cash (10) 158
-------- ---------
Net increase (decrease) in cash and cash equivalents 2,768 (13,451)
Cash and cash equivalents, beginning of year 42,513 44,224
-------- ---------
Cash and cash equivalents, end of period $ 45,281 $ 30,773
======== =========
* Details of acquisitions:
Fair value of assets acquired $ -- $ 104,257
Cost in excess of net assets of companies acquired, net -- 73,162
Liabilities assumed -- (107,069)
Stock issued -- (32,000)
-------- ---------
Cash paid -- 38,350
Less: cash acquired -- (21,769)
======== =========
Net cash paid for acquisitions $ -- $ 16,581
======== =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 1,090 $ 707
======== =========
Income taxes $ 1,639 $ 2,416
======== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE> 7
CYRK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying unaudited financial statements have been prepared by
the Company pursuant to the rules and regulations of the Securities and
Exchange Commission regarding interim financial reporting. Accordingly,
they do not include all of the information and footnotes in accordance
with generally accepted accounting principles for complete financial
statements and should be read in conjunction with the audited financial
statements included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1997. In the opinion of management, the
accompanying unaudited financial statements contain all adjustments,
consisting only of those of a normal recurring nature, necessary for
fair presentation of the Company's financial position, results of
operations and cash flows at the dates and for the periods presented.
The operating results for the six months ended June 30, 1998 are not
necessarily indicative of the results to be expected for the full year.
Certain prior period amounts have been reclassified to conform with the
current period presentation.
2. Inventories
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------- -----------------
<S> <C> <C>
Raw materials $ 9,765 $10,807
Work in process 10,465 5,033
Finished goods 24,989 30,477
------- -------
$45,219 $46,317
======= =======
</TABLE>
3. Short-Term Borrowings
At June 30, 1998, the Company was contingently liable for letters of
credit used to finance the purchase of inventory in the aggregate
amount of $16.4 million. Such letters of credit expire at various dates
through September 1998. As of June 30, 1998, the Company was in
violation of certain financial covenants associated with its primary
domestic line of credit which have been waived by the bank.
4. Restructuring
On February 13, 1998, the Company announced a plan to restructure its
worldwide operations. The plan reflects the Company's strategy to focus
on its core business in the promotional marketing industry. The Company
intends to consolidate certain operating facilities, discontinue
certain divisions of its apparel business and eliminate approximately
450 positions or 28% of its worldwide work force. The majority of the
eliminated positions will affect the screen printing and embroidery
business in Gloucester, Massachusetts. As of June 30, 1998,
approximately 75% of anticipated employee terminations have occurred.
In the first quarter of 1998, the Company recorded a charge to
operations of $15.5 million primarily related to asset write-downs
($11.3 million), employee termination costs ($2.8 million), lease
cancellations ($1.1 million) and other related exit costs ($.3
million). This charge has had the effect of reducing after tax earnings
by $9.1 million or $0.64 per share. The Company anticipates the
restructuring will be completed during 1998 and once completed is
expected to yield annualized cost savings of $9 to $12 million. A
summary of activity in the restructuring accrual is as follows (in
thousands):
Balance at January 1, 1998 $ --
Restructuring provision 15,486
Employee termination costs
and other cash payments (1,715)
Non-cash asset write-downs (9,265)
-------
Balance at June 30, 1998 $ 4,506
=======
7
<PAGE> 8
5. Income Taxes
The effective tax rate for the six months ended June 30, 1998 was 41%
as compared to an effective tax rate of 60% for the year ended December
31, 1997. The effective rate of 41% represents the estimated federal
and state tax benefit expected to be realized primarily as a result of
the restructuring charge recorded in the first quarter.
6. Litigation
The Company and certain of its officers and directors were named as
defendants in a putative class action filed on October 18, 1995 in the
United States District Court for the Southern District of New York
(BARRY HALLETT, JR. V. LI & FUNG, ET AL., Docket No. 95 Civ. 8917). On
March 4, 1998, with the assistance of a professional mediator, all
parties to the litigation reached an agreement to settle the case which
was approved by the Federal District Court on June 26, 1998. The
settlement agreement called for a cash contribution by the Company of
$4.0 million; other parties and various insurance carriers have also
contributed to the settlement. In the opinion of management, after
consideration of amounts accrued, this settlement will not have a
material adverse effect on the Company's financial condition or results
of operations.
On February 11, 1993, Simon Marketing, Inc. ("Simon"), a wholly-owned
subsidiary of the Company, filed a complaint against Promotional
Concept Group, Inc. ("PCG") in the United States District Court for
the Central District of California (Case No. SA-CV 93-156 AHS (EEx)).
On April 30, 1993, PCG filed its answer, denying liability, as well as
its counterclaim against Simon. On June 30, 1998, Simon and PCG
entered into a settlement agreement and, subsequently, entered a
dismissal of the lawsuit with the court. As part of settling this
preacquisition contingency of Simon, the Company made an upfront
payment of $.6 million to a third party, Interpublic Group of
Companies, Inc. ("IPG"). The Company also agreed to pay IPG a total of
$2.9 million in additional consideration, comprised of warrants to
purchase 200,000 shares of the Company's common stock and cash based
on the difference between $2.9 million, certain amounts received by
IPG under a separate business arrangement with the Company, and the
value of the warrant shares as of different measurement dates. In the
opinion of management, this settlement will not have a material
adverse effect on the Company's financial condition or results of
operations.
7. Earnings Per Share Disclosure
The following is a reconciliation of the numerators and denominators of
the basic and diluted EPS computation for "income (loss) available to
common stockholders" and other related disclosures required by
Statement of Financial Accounting Standards No. 128, "Earnings per
Share" (in thousands, except share data):
<TABLE>
<CAPTION>
For the Quarters Ended June 30,
---------------------------------------------------------------------------------
1998 1997
-------------------------------------- -------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Income (loss) available to
common stockholders $(415) 14,853,076 $(0.03) $624 12,199,500 $0.05
====== =====
Effect of Dilutive Securities:
Common stock equivalents -- 127,136
Contingently and non-contingently
issuable shares -- 110,966
----- ---------- ---- ----------
Diluted EPS:
Income (loss) available to common
stockholders and assumed
conversions $(415) 14,853,076 $(0.03) $624 12,437,602 $0.05
===== ========== ====== ==== ========== =====
</TABLE>
For the quarter ended June 30, 1998, 981,114 of common stock
equivalents and contingently and non-contingently issuable shares
related to acquired companies were not included in the computation of
diluted EPS because to do so would have been antidilutive.
8
<PAGE> 9
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
---------------------------------------------------------------------------------
1998 1997
-------------------------------------- -------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Income (loss) available to
common stockholders $(10,266) 14,581,688 $(0.70) $2,867 11,503,451 $0.25
====== =====
Effect of Dilutive Securities:
Common stock equivalents -- 115,669
Contingently and non-contingently
issuable shares -- 55,483
--------- ---------- ------ ----------
Diluted EPS:
Income (loss) available to common
stockholders and assumed
conversions $(10,266) 14,581,688 $(0.70) $2,867 11,674,603 $0.25
======== ========== ====== ====== ========== =====
</TABLE>
For the six months ended June 30, 1998, 809,730 of common stock
equivalents and contingently and non-contingently issuable shares
related to acquired companies were not included in the computation of
diluted EPS because to do so would have been antidilutive.
8. New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS 131"). SFAS 131
specifies new guidelines for determining a company's operating segments
and related requirements for disclosure. The Company is in the process
of evaluating the impact of the new standard on the presentation of the
financial statements and the disclosures therein. The Statement will
become effective for fiscal years beginning after December 15, 1997.
The Company will adopt the new standard for the fiscal year ending
December 31, 1998.
9. Inpact of the Year 2000 Issue
The Company has made an initial review of issues related to the Year
2000 and does not expect that it will have a material impact on the
Company's business, operations or financial condition. However, the
Company could be adversely impacted by the Year 2000 issue if its key
customers and suppliers do not address the issue successfully. The
Company is addressing these risks in order to reduce the impact on the
Company.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following is a discussion of the financial condition and results of
operations of the Company for the three and six month periods ended June 30,
1998 as compared to the same periods in the previous year. This discussion
should be read in conjunction with the Consolidated Financial Statements of the
Company and related Notes included elsewhere in this Form-10Q.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
From time to time, the Company may provide forward-looking information such as
forecasts of expected future performance or statements about the Company's plans
and objectives. These forward-looking statements are based largely on the
Company's expectations and are subject to a number of risks and uncertainties,
certain of which are beyond the Company's control. The Company wishes to caution
readers that actual results may differ materially from those expressed in any
forward-looking statements made by, or on behalf of, the Company as a result of
factors described in the Company's Amended Cautionary Statement for Purposes of
the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of
1995, filed as Exhibit 99.3 to the Company's 1997 Annual Report on Form 10-K
which is incorporated herein by reference.
GENERAL
The Company is a full-service, integrated provider of marketing and promotional
products and services. As such, the Company generates revenue from the sale of
promotional products and the development of marketing programs. The majority of
the Company's revenue is derived from the sale of promotional products to
consumer product companies seeking to promote their brand and build customer
loyalty.
Historically, the Company's business has been heavily concentrated with two
customers, Philip Morris Incorporated ("Philip Morris") and Pepsi-Cola Company
("Pepsi"). Purchases of promotional products by Philip Morris and Pepsi in 1997
accounted for 16% and 21% of net sales, respectively. Net sales to Philip Morris
and Pepsi accounted for 9% and 2%, respectively, of total net sales in the first
six months of 1998.
As a part of its continuing effort to diversify its customer base and broaden
its capability, the Company completed the acquisition of two providers of
promotional services and products during the second quarter of 1997. These
transactions were completed through mergers of these providers with and into
wholly-owned subsidiaries of the Company. On April 7, 1997, the Company acquired
Tonkin, Inc. ("Tonkin"), a Monroe, Washington provider of custom promotional
programs and licensed promotional products. On June 9, 1997, the Company
acquired Simon Marketing, Inc. ("Simon"), a Los Angeles-based global marketing
and promotion agency and provider of custom promotional products. Simon's
business is heavily concentrated with McDonald's Corporation ("McDonald's"). Net
sales to McDonald's accounted for 36% of the Company's total net sales in 1997
and 60% of the Company's total net sales for the first six months of 1998.
The Company's business with McDonald's, Philip Morris and Pepsi (as well as
other promotional customers) is based upon purchase orders placed from time to
time during the course of promotions. There are no written agreements which
commit them to make a certain level of purchases. The actual level of purchases
depends on a number of factors, including the duration of the promotion and
consumer redemption rates. Consequently, the Company's level of net sales is
difficult to predict accurately and can fluctuate greatly from quarter to
quarter. The Company expects that a significant percentage of its net sales in
1998 will be to McDonald's and Philip Morris. The Company's agreements with
Pepsi were terminated in December 1997 and the Company expects sales to Pepsi in
1998 to be minimal.
While the Company has been seeking new major promotional customers in an effort
to replace the 1997 Pepsi revenues of $117.1 million, it is very unlikely that
sales to new customers, or increased sales to existing customers, in 1998 will
materially reduce the revenue shortfall caused by the termination of the Pepsi
agreements. Therefore, while the restructuring described below will help
mitigate the impact of the loss of Pepsi revenues on 1998 earnings, the Company
expects to report operating losses for the year.
10
<PAGE> 11
Philip Morris solicits competitive bids for its promotional programs. The
Company's profit margin depends, to a great extent, on its competitive position
when bidding and its ability to manage its costs after being awarded bids.
Increased competition is expected to continue and may adversely impact the
Company's profit margin on Philip Morris promotions in the future. Recent
negotiations between state attorneys general and certain tobacco companies,
including Philip Morris, as well as recent federal regulations, would result in
a ban on promotional programs relating to tobacco products and would have a
material adverse effect on the Company's business with Philip Morris and its
results of operations.
At June 30, 1998, the Company had written purchase orders for $242.5 million as
compared to $210.1 million at June 30, 1997. The Company's purchase orders are
generally subject to cancellation with limited penalty and are therefore not
necessarily indicative of future revenues or earnings.
CORPORATE RESTRUCTURING
On February 13, 1998, the Company announced a plan to restructure its worldwide
operations. The plan reflects the Company's strategy to focus on its core
business in the promotional marketing industry. The Company intends to
consolidate certain operating facilities, discontinue certain divisions of its
apparel business and eliminate approximately 450 positions or 28% of its
worldwide work force. The majority of the eliminated positions will affect the
screen printing and embroidery business in Gloucester, Massachusetts. In the
first quarter of 1998 the Company recorded a charge to operations of $15.5
million for asset write-downs, employee termination costs, lease cancellations
and other related exit costs associated with the restructuring. The Company
anticipates the restructuring will be completed during 1998 and once completed
is expected to yield annualized cost savings of $9 to $12 million. See notes to
consolidated financial statements.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
Net sales increased $106.0 million, or 100%, to $212.6 million in the second
quarter ended June 30, 1998 from $106.6 million in the second quarter of 1997.
The increase in net sales was primarily attributable to revenues associated with
Simon. Promotional product sales accounted for substantially all of the
Company's revenue in the second quarter of 1998 as compared to $96.4 million in
the second quarter of 1997. Net sales related to the Company's private label and
Cyrk brand business in the second quarter of 1998 were minimal as compared to
$10.2 million in the second quarter of 1997 which reflects the Company's
strategy to focus on its core business in the promotional marketing industry.
Gross profit increased $11.9 million, or 60%, to $31.8 million in the second
quarter of 1998 from $19.9 million in the second quarter of 1997. As a
percentage of net sales, the second quarter gross profit decreased to 15.0% in
1998 from 18.6% in 1997. This decrease was primarily the result of a
concentration of sales volume and lower margins associated with the large
promotional programs.
Selling, general and administrative expenses totaled $32.0 million in the
second quarter of 1998 as compared to $18.2 million in the second quarter of
1997. As a percentage of net sales, selling, general and administrative costs
totaled 15.0% as compared to 17.1% in the second quarter of 1997. The Company's
increased spending was primarily attributable to its expanded global sales and
operations associated with its 1997 acquisitions.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Net sales increased $178.0 million, or 87%, to $381.8 million in the first six
months of 1998 from $203.8 million in the first six months of 1997. The increase
in net sales was primarily attributable to revenues associated with Simon and
Tonkin. Promotional product sales accounted for substantially all of the
Company's revenue in the first six months of 1998 as compared to $183.0 million
in the first six months of 1997. Net sales related to the Company's private
label and Cyrk brand business in the first six months of 1998 were minimal as
compared to $20.8 million in the first six months of 1997 which reflects the
Company's strategy to focus on its core business in the promotional marketing
industry.
Gross profit increased $25.4 million, or 69%, to $62.1 million in the first six
months of 1998 from $36.7 million in the first six months of 1997. As a
percentage of net sales, gross profit decreased to 16.3% in 1998 from 18.0% in
1997. This decrease was primarily the result of a concentration of sales volume
and lower margins associated with the large promotional programs.
11
<PAGE> 12
Selling, general and administrative expenses totaled $63.0 million in the first
six months of 1998 as compared to $29.5 million in the first six months of 1997.
As a percentage of net sales, selling, general and administrative costs totaled
16.5% as compared to 14.5% in the first six months of 1997. The Company's
increased spending was primarily attributable to its expanded global sales and
operations associated with its 1997 acquisitions.
In connection with its February 1998 announcement to restructure worldwide
operations, the Company recorded a restructuring charge of $15.5 million
attributable to asset write-downs, employee termination costs, lease
cancellations and other related exit costs. See notes to consolidated financial
statements.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at June 30, 1998 was $67.4 million compared to $61.3 million at
December 31, 1997. Net cash used in operating activities during the first six
months of 1998 was $3.9 million, due principally to a $10.3 million net loss
and a $10.1 million decrease in accounts payable which were partially offset by
$9.3 million of non-cash asset write-downs related to the restructuring, $4.4
million of depreciation and amortization expense and $3.2 million of prepaid
expenses and other current assets.
Net cash used in investing activities was $3.5 million, which was primarily
attributable to $2.8 million for purchases of property and equipment and an
increase of $2.0 million in intangible assets. In the first six months of 1997,
net cash used by investing activities was $20.2 million which was primarily
attributable to $16.6 million of net cash used to acquire Simon and Tonkin in
the second quarter of 1997.
The Company currently expects to make cash payments totaling approximately
$2.5 million for employee termination costs, lease buyouts and other exit costs
associated with its plan to restructure its operations, of which $1.7 million
has been paid as of June 30, 1998.
In February 1998, the Company issued 975,610 shares of its common stock and a
warrant to purchase up to 100,000 shares of its common stock in a private
placement, resulting in net proceeds of approximately $10.0 million which will
be used for general corporate purposes.
Since inception, the Company has financed its working capital and capital
expenditure requirements through cash generated from operations, public sales of
common stock, bank borrowings and capital equipment leases. Such cash
requirements for 1997 were provided principally by operating activities, and
principally by financing activities for 1998 to date.
The Company currently has available several worldwide bank letters of credit
and revolving credit facilities which expire at various dates beginning in
September 1998. As of June 30, 1998, based on the borrowing base formulas
prescribed by these credit facilities, the Company's borrowing capacity was
$111.2 million, of which $21.7 million of short-term borrowings and $17.2
million in letters of credit were outstanding. Borrowings under these
facilities are collateralized by all assets of the Company.
OUTLOOK: ISSUES AND UNCERTAINTIES
Management believes that the Company's existing cash position, credit
facilities, and its ability to obtain additional financing, combined with
internally generated cash flow, as well as the anticipated proceeds in the
second half of the year from the sale of an equity investment, will satisfy its
liquidity and capital needs through the end of 1998. However, the likelihood of
operating losses for the year will exert increased pressure on the Company's
existing cash position. In the event of sustained operating losses, the Company
will incur increasing difficulty in renewing existing credit facilities, or
obtaining additional financing. The Company may seek additional equity
financing during the next twelve months. However, there can be no assurance
that such financing will be available on acceptable terms, and any additional
equity financing could result in additional dilution to existing investors.
12
<PAGE> 13
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and certain of its officers and directors were named as defendants
in a putative class action filed on October 18, 1995 in the United States
District Court for the Southern District of New York (Barry Hallett, Jr. v. Li &
Fung, et al., Docket No. 95 Civ. 8917). On March 4, 1998, with the assistance of
a professional mediator, all parties to the litigation reached an agreement to
settle the case which was approved by the Federal District Court on June 26,
1998. The settlement agreement called for a cash contribution by the Company of
$4.0 million; other parties and various insurance carriers have also contributed
to the settlement. In the opinion of management, after consideration of amounts
accrued, this settlement will not have a material adverse effect on the
Company's financial condition or results of operations.
On February 11, 1993, Simon filed a complaint against Promotional Concept
Group, Inc. ("PCG") in the United States District Court for the Central
District of California (Case No. SA-CV 93-156 AHS (EEx)). On April 30, 1993,
PCG filed its answer, denying liability, as well as its counterclaim against
Simon. On June 30, 1998, Simon and PCG entered into a settlement agreement and,
subsequently, entered a dismissal of the lawsuit with the court. As part of
settling this preacquisition contingency of Simon, the Company made an upfront
payment of $.6 million to a third party, Interpublic Group of Companies, Inc.
("IPG"). The Company also agreed to pay IPG a total of $2.9 million in
additional consideration, comprised of warrants to purchase 200,000 shares of
the Company's common stock and cash based on the difference between $2.9
million, certain amounts received by IPG under a separate business arrangement
with the Company, and the value of the warrant shares as of different
measurement dates. In the opinion of management, this settlement will not have
a material adverse effect on the Company's financial condition or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 19, 1998 the Company held its Annual Meeting of Stockholders. The matters
considered at the meeting consisted of the following:
The election of two Class II directors to serve for a term of three
years and until their successors are elected and qualified. The results
of the voting were as follows:
<TABLE>
<CAPTION>
Nominee For Votes Withheld Broker Non-Votes
------- --- -------------- ----------------
<S> <C> <C> <C>
Patrick D. Brady 10,195,020 1,011,484 0
Joseph Anthony Kouba 10,194,542 1,011,962 0
The ratification of the appointment of Coopers & Lybrand L.L.P. as the
Company's independent auditors for the 1998 fiscal year. The results of
the voting were as follows:
<CAPTION>
For Against Abstain Broker Non-Votes
<S> <C> <C> <C>
11,181,930 1,453 23,121 0
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Stipulation and Agreement of Settlement dated as of April 7,
1998 by and between plaintiff Barry Hallett, Jr. and defendants
Li & Fung, Cyrk, Inc., et al.
10.2 Agreement dated as of April 2, 1998, by and among Grant &
Partners Limited Partnership, Cyrk, Inc., Grant & Partners,
Inc., and Alan Grant
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter for which this report
is filed.
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: August 13, 1998 CYRK, INC.
/s/ Dominic F. Mammola
--------------------------------------------
Dominic F. Mammola
Executive Vice President and Chief Financial
Officer (duly authorized officer and
principal financial and accounting officer)
14
<PAGE> 15
EXHIBIT INDEX
Exhibit Description
- ------- -----------
10.1 Stipulation and Agreement of Settlement dated as of April 7, 1998
by and between plaintiff Barry Hallett, Jr. and defendants
Li & Fung, Cyrk, Inc., et al.
10.2 Agreement dated as of April 2, 1998, by and among Grant &
Partners Limited Partnership, Cyrk, Inc., Grant & Partners, Inc.,
and Alan Grant.
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 10.1
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
- --------------------------------------------x
BARRY HALLET, JR., On Behalf Of :
Himself and All Others Similarly :
Situated, :
:
Plaintiff, : Civil Action No.
:
-v- : 95 Civ. 8917 (JSM)
:
LI & FUNG, LTD., LI & FUNG (B.V.I.) :
LIMITED, LF INTERNATIONAL, INC., :
PATRICK BRADY, GREGORY SHLOPAK, :
JOSEPH BARTLETT, MICHAEL HSIEH :
and CYRK, INC., :
:
Defendants. :
- --------------------------------------------x
STIPULATION AND AGREEMENT OF SETTLEMENT
This stipulation and agreement of settlement dated as of April 7, 1998
(the "Stipulation") is submitted pursuant to Rule 23 of the Federal Rules of
Civil Procedure. Subject to the approval of the Court, this Stipulation is
entered into among Plaintiff Barry Hallett, Jr., and the Class as hereinafter
defined, and defendants Cyrk, Inc. ("Cyrk"), and Gregory P. Shlopak ("Shlopak"),
Chairman and Chief Executive Officer of Cyrk, Patrick O. Brady ("Brady"),
President, Chief Operating Officer and Chief Financial Officer and a director of
Cyrk, Joseph Bartlett ("Bartlett") a director of Cyrk, Michael T. Hsieh
("Hsieh") formerly a director of Cyrk, (collectively Shlopak, Brady, Bartlett
and Hsieh are referred to as the "Officer and Director Defendants"), Li & Fung
Limited, Li & Fung (B.V.I.) Limited, and LF International, Inc. (collectively
"Li & Fung") (Cyrk, the Officer
<PAGE> 2
and Director Defendants and Li & Fung are collectively referred to hereinafter
as the "Defendants"), by and through their respective counsel.
WHEREAS:
A. The above-captioned action was filed in this Court on or about
October 18, 1995, and is hereinafter referred to as the "Action".
B. The Action was brought as a class action under Rule 23 of the
Federal Rules of Civil Procedure on behalf of a plaintiff class ("Class")
consisting of all persons who purchased the common stock of Cyrk, Inc. between
May 10, 1994 and May 1, 1995, inclusive (the "Class Period"), and who sustained
damage as a result of such purchases.
C. The Complaint filed in the Action generally alleges, among other
things, that Defendants issued false and misleading statements regarding the
strength of Cyrk's relationship with its largest and most important customer,
Philip Morris, Incorporated ("Philip Morris"), including the likelihood of
Cyrk's large Philip Morris/Marlboro promotions continuing at high levels during
1995, the likelihood of Cyrk receiving new promotional contracts from other
major brand name product sellers during 1995, its competitive position and
advantages, and its future business and earnings prospects including that it
would have during 1995, high revenues and earnings. The Complaint also alleges
that during the Class Period the Defendants knew for several reasons that
problems were afflicting Cyrk's business.
- 2 -
<PAGE> 3
D. The Complaint alleges further that these statements were each
false and misleading when made. They allegedly inflated the price of Cyrk's
stock to a Class Period high of $44.75 per share so that Cyrk's insiders,
including Shlopak, Brady and Li & Fung, could sell large amounts of their Cyrk
stock under SEC Rule 144 and in a registered secondary public offering of Cyrk
stock on December 1, 1994 (the "Offering") all allegedly without disclosing
material non-public adverse information.
E. The Complaint further alleges that Plaintiff and other class
members purchased the common stock of Cyrk during the Class Period at prices
artificially inflated as a result of the Defendants' dissemination of false and
misleading statements regarding Cyrk in violation of Sections 10(b) and 20(a) of
the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder.
F. The Defendants filed motions to dismiss the Complaint for failure
to state a claim, and Li & Fung Limited and Li & Fung (B.V.I.) Limited moved to
dismiss for lack of jurisdiction. By Memorandum Opinion and Order, the Court
denied the Defendants' motions. (Li & Fung Limited and Li & Fung (B.V.I.)
Limited have continued to dispute this Court's exercise of personal jurisdiction
over them; however, both entities agree to consent to this Court's exercise of
jurisdiction over them for the limited purpose of considering and potentially
approving and enforcing the Settlement set forth in this Stipulation, as set
forth in paragraph 25 below.)
- 3 -
<PAGE> 4
G. Plaintiff sought certification of this Action as a class action.
By Opinion and Order dated October 6, 1997, the Court certified this Action as a
class action pursuant to Federal Rules of Civil Procedure 23(a) and 23(b)(3).
H. The Defendants filed answers, denying the allegations of
Plaintiff's Complaint and asserting several defenses. The Defendants deny any
wrongdoing of any nature and this Stipulation shall in no event be construed or
deemed to be evidence of or an admission or concession on the part of any
Defendant with respect to any claim or of any fault or liability or wrongdoing
or damage whatsoever, or any infirmity in the defenses that Defendants have
asserted. Defendants assert no claim that this action was brought in violation
of Federal Rule of Civil Procedure 11 and recognize that the litigation is being
voluntarily settled after advice of counsel, and that the terms of the
settlement are fair, adequate and reasonable. This Stipulation shall not be
construed or deemed to be a concession by Plaintiff of any infirmity in the
claims asserted in the Action. The Defendants have concluded that further
conduct of the litigation would be protracted, expensive and disruptive to their
businesses and that it is desirable to fully and finally settle the litigation
on the terms and conditions herein to avoid further expense, inconvenience and
distraction of the litigation and to dispel any uncertainty occasioned thereby.
I. Plaintiff's Counsel have conducted an extensive investigation
relating to the claims and the underlying events and
- 4 -
<PAGE> 5
transactions alleged in the Complaint. Document discovery has been obtained from
Defendants and from third parties, numerous witnesses have been interviewed, and
nine depositions were taken. Plaintiff's Counsel have analyzed the evidence
adduced during pretrial discovery and have researched the applicable law with
respect to the claims of Plaintiff and the Class against the Defendants and the
potential defenses thereto.
J. Plaintiff, by his counsel, have conducted discussions and
arms'-length negotiations with counsel for Defendants with respect to a
compromise and settlement of the Action with a view to settling the issues in
dispute and achieving the best relief possible consistent with the interests of
the Class.
K. Based upon their investigation and pretrial discovery as set forth
above, counsel for Plaintiff and the Class have concluded that the terms and
conditions of this Stipulation are fair, reasonable and adequate to Plaintiff
and the Class, and in their best interests, and have agreed to settle the claims
raised in the Action pursuant to the terms and provisions of this Stipulation,
after considering (a) the substantial benefits that Plaintiff and the members of
the Class will receive from settlement of the Action, (b) the attendant risks of
litigation, and (c) the desirability of permitting the Settlement to be
consummated as provided by the terms of this Stipulation.
NOW THEREFORE, without any admission or concession on the part of
Plaintiff of any lack of merit of the Action whatsoever, and without any
admission or concession of any liability or
- 5 -
<PAGE> 6
wrongdoing or lack of merit in the defenses whatsoever by Defendants, it is
hereby further STIPULATED AND AGREED, by and among the parties to this
Stipulation, through their respective attorneys, subject to approval of the
Court pursuant to Rule 23(e) of the Federal Rules of Civil Procedure, in
consideration of the benefits flowing to the parties hereto from the Settlement,
that all Settled Claims (as defined below) as against the Released Persons (as
defined below) shall be compromised, settled, released and dismissed with
prejudice, upon and subject to the following terms and conditions:
CERTAIN DEFINITIONS
1. As used in this Stipulation, the following terms shall have the
following meanings:
a. "Authorized Claimant" means a Class Member who submits a
timely and valid Proof of Claim form to the Claims Administrator.
b. "Claims Administrator" means the firm of Gilardi & Co. LLC,
which shall administer the Settlement.
c. "Class" and "Class Members" means all persons who purchased
the common stock of Cyrk during the period from May 10, 1994 through May 1,
1995, inclusive, and were damaged thereby. Excluded from the Class are the
Defendants in this action, their immediate family members, and the directors,
officers, subsidiaries and affiliates of Cyrk. Also excluded from the Class are
any putative Class Members who exclude themselves by filing a request for
exclusion in accordance with the requirements set forth in the
- 6 -
<PAGE> 7
Notice.
d. "Class Period" means the period of time from May 10, 1994
through May 1, 1995, inclusive.
e. "Defendants' Counsel" means the law firms of FRIEDMAN KAPLAN
& SEILER LLP; CHOATE, HALL & STEWART; and HELLER, EHRMAN, WHITE & McAULIFFE.
f. "Effective Date of Settlement" or "Effective Date" means the
date upon which the Settlement contemplated by this Stipulation shall become
effective, as set forth in paragraph 21 below.
g. "Notice" means the Notice of Pendency of Class Action,
Hearing On Proposed Settlement and Attorneys' Fee Petition, and Notice of Right
to Share in Settlement Fund, which is to be sent to members of the Class in the
form attached hereto as Exhibit 1 to Exhibit A.
h. "Order and Final Judgment" means the proposed order in the
form attached hereto as Exhibit B.
i. "Order for Notice and Hearing" means the proposed order in
the form attached hereto as Exhibit A.
j. "Plaintiff's Counsel" means counsel for Plaintiff and the
Class, the law firms of KAPLAN, KILSHEIMER & FOX LLP; MILBERG WEISS BERSHAD
HYNES & LERACH LLP; and BERMAN, DEVALERIO & PEASE LLP.
k. "Publication Notice" means the Summary Notice Of Pendency Of
Class Action, Proposed Settlement And Settlement Hearing for publication in the
form attached as Exhibit 3 to
- 7 -
<PAGE> 8
Exhibit A.
l. "Released Persons" means any and all of the Defendants, their
past or present subsidiaries, parents, affiliates, successors, predecessors, and
insurers, and each of their present or former officers, directors, shareholders,
employees, attorneys, advisors, investment advisors, underwriters, investment
bankers, and accountants, and any person, firm, trust, corporation, officer,
director or other individual or entity in which any Defendant has a controlling
interest or which is related to or affiliated with any of the Defendants, and
the legal representatives, agents, heirs, estates, successors in interest, or
assigns of the Defendants.
m. "Settled Claims" means all claims, including both known
claims and Unknown Claims, demands, rights, liabilities and causes of action of
every nature and description whatsoever, whether in contract, tort, equity or
otherwise, whether or not concealed or hidden, asserted or that might have been
asserted, including without limitation, claims for negligence, gross negligence,
indemnification, breach of duty of care and/or breach of duty of loyalty, fraud,
breach of fiduciary duty, or violations of any state or federal statutes, rules
or regulations (including, without limitation, under any insider trading
prohibition, or any antifraud provision of the Securities Act of 1933, the
Securities Exchange Act of 1934, or similar provisions of any state statute,
regulation or common law provision of any state) by any Class Member against the
Released Persons (i) that arise out of, now or
- 8 -
<PAGE> 9
hereafter, or relate, directly or indirectly, to the purchase or sale of Cyrk
common stock by any Class Member during the Class Period and (a) the Company's
Offering of Cyrk common stock in December 1994, or (b) the Company's public
disclosures during the Class Period, or (c) this Stipulation And Agreement Of
Settlement (except for actions to enforce compliance with the terms hereof), or
(d) any matters, transactions or occurrences referred to in the Complaint or
this Stipulation, or (ii) that are, were or could have been alleged in any court
or forum by Plaintiff or any Class Member, either directly, indirectly,
representatively or in any other capacity, based upon, relating to, or arising
from the facts which were, or could have been, alleged in the Complaint and
relating, directly or indirectly, to the purchase or sale of Cyrk common stock
during the Class Period, or (iii) that arise out of, now or hereafter, or
relate, directly or indirectly, to the sale of any Cyrk stock during the Class
Period by any Defendant.
n. "Settlement" means the settlement contemplated by this
Stipulation.
o. "Unknown Claims" means any Settled Claims which Plaintiff or
any Class Member does not know or suspect to exist in his, her or its favor at
the time of the release of the Released Persons which if known by him, her or it
might have affected his, her or its decision not to object to this settlement.
With respect to any and all Settled Claims the parties stipulate and agree that,
upon the Effective Date of the Settlement, Plaintiff shall expressly and the
Class Members shall be deemed to have, and by
- 9 -
<PAGE> 10
operation of the Order and Final Judgment shall have, expressly waived and
relinquished, to the fullest extent permitted by law, the provisions, rights and
benefits of ss. 1542 of the California Civil Code, or any law of any state or
territory of the United States, or principle of common law, which is similar,
comparable or equivalent to ss. 1542 of the California Civil Code, which
provides:
A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor.
Plaintiff and the members of the Class may hereafter discover facts in addition
to or different from those which he, she or it now knows or believes to be true
with respect to the subject matter of the Settled Claims but the release herein
provided shall expressly include all such Unknown Claims.
SCOPE AND EFFECT OF SETTLEMENT
2. The obligations incurred pursuant to this Stipulation shall be
in full and final disposition of the Action and any and all Settled Claims as
against all Released Persons.
3. a. Upon the Effective Date of this Settlement, Plaintiff and
members of the Class on behalf of themselves, their heirs, executors,
administrators, successors and assigns, and any persons they represent, shall,
with respect to each and every Settled Claim release and forever discharge, and
shall forever be enjoined from prosecuting any Settled Claims against any of the
Released Persons.
- 10 -
<PAGE> 11
b. Upon the Effective Date of this Settlement, the Settling
Defendants, on behalf of themselves and the Released Persons, shall release and
forever discharge any claims, rights, causes of action or liabilities for
contribution, indemnification, damages or costs against any other of the
Settling Defendants arising out of or related to the Settled Claims as actually
resolved, released and extinguished by the Settlement of this Action; provided,
however, that this paragraph 3.b. shall have no effect whatsoever on any rights
held by any Settling Defendant or Released Person (including rights to
contribution or indemnification from any other of the Settling Defendants) with
respect to any other claims or causes of action that may be brought against them
for which such rights exist in their favor in the absence of this paragraph
3.b.; and provided further, however, that this paragraph 3.b. shall have no
effect whatsoever on any rights held by any Settling Defendant or Released
Person (including rights to contribution or indemnification from any other of
the Settling Defendants) with respect to claims, if any, brought against any
Settling Defendant or Released Person by any Class Member who requests exclusion
or who challenges the validity of this Settlement in any proceeding; and,
provided further, however, that this paragraph 3.b. shall have no effect
whatsoever on any rights or claims against Cyrk, to the extent such rights or
claims may exist for the payment of expenses (including attorneys' fees but
excluding amounts paid in settlement of the Action) actually and reasonably
incurred by any Settling Defendant who is an officer or
- 11 -
<PAGE> 12
director of Cyrk in connection with the defense of this Action.
THE SETTLEMENT CONSIDERATION
4. On or before April 7, 1998, Defendants shall pay or cause to be
paid by wire transfer, or by other mutually agreed method of delivery (provided
that such funds shall be available for investment by the Escrow Agents on
April 7, 1998), into escrow on behalf of Plaintiff and the Class $13,650,000
(the "Settlement Amount"), each Defendant or insurer of a Defendant having a
several, but not joint, obligation to deposit into the escrow the amount that
that Defendant and their insurers have agreed among themselves separately to
fund. If Defendants fail to deposit all of the Settlement Amount as contemplated
by this paragraph 4, then Plaintiff's Counsel shall have the option to terminate
the Settlement as their sole and exclusive remedy; provided however, that if
Plaintiff's Counsel elects to exercise this option, all money deposited into the
escrow shall be returned to the Defendant or insurer who deposited it, together
with any interest earned thereon, within 10 days of such exercise by Plaintiff's
Counsel. The Settlement Amount and any interest earned thereon shall be the
Gross Settlement Fund.
5. The Gross Settlement Fund, net of any Taxes (as defined below) on
the income thereof, shall be used to pay (i) the Notice and Administration Costs
referred to in paragraph 7 hereof, (ii) the attorneys' fee and expense award
referred to in paragraph 8 hereof, (iii) the remaining administration expenses
referred to in paragraph 9 hereof. The balance of the Gross Settlement Fund
- 12 -
<PAGE> 13
after the above payments shall be the Net Settlement Fund which shall be
distributed to the Authorized Claimants as provided in paragraphs 10-12 hereof.
Any sums required to be held in escrow hereunder prior to the Effective Date
shall be held by Kaplan, Kilsheimer & Fox LLP and Milberg Weiss Bershad Hynes &
Lerach LLP as Escrow Agents for the Settlement Fund. All funds held by the
Escrow Agents shall be deemed to be IN CUSTODIA LEGIS of the Court and shall
remain subject to the jurisdiction of the Court until such time as the funds
shall be distributed or returned to Defendants pursuant to this Stipulation
and/or further order of the Court. The Escrow Agent shall invest any funds in
excess of $100,000 in United States Government obligations with a maturity of
180 days or less, and shall collect and reinvest all interest accrued thereon.
Any funds held in escrow in an amount of less than $100,000 may be held in an
interest bearing bank account insured by the FDIC. The Plaintiff, the
Defendants, and their counsel shall not bear any risk related to the investment
of any funds held hereunder. The parties hereto agree that the Settlement Fund
is intended to be a Qualified Settlement Fund within the meaning of Treasury
Regulation ss. 1.468B-1 and that the Escrow Agent as administrator of the
Settlement Fund within the meaning of Treasury Regulation ss.1.468B-2(k)(3),
shall be responsible for filing tax returns for the Settlement Fund and paying
from the Settlement Fund any Taxes owed with respect to the Settlement Fund.
Counsel for Defendants agree to provide promptly to the Escrow Agent the
statement described in Treasury Regulation ss. 1.468B-3(e).
- 13 -
<PAGE> 14
a. All (i) taxes on the income of the Settlement Fund, and (ii)
expenses and costs incurred in connection with the taxation of the Settlement
Fund (including, without limitation, expenses of tax attorneys and accountants)
(collectively "Taxes") shall be paid out of the Settlement Fund, shall be
considered to be a cost of administration of the settlement and shall be timely
paid by the Escrow Agent without prior Order of the Court.
(I) ADMINISTRATION
6. The Claims Administrator shall administer the Settlement under
Plaintiff's Counsel's supervision and subject to the jurisdiction of the Court.
Except as stated in paragraph 12 hereof, Defendants shall have no responsibility
for the administration of the Settlement and shall have no liability to the
Class in connection with such administration. Defendants' Counsel shall
cooperate in the administration of the Settlement to the extent reasonably
necessary to effectuate its terms, including providing all information from
their transfer records concerning the identity of Class Members and their
transactions.
7. Prior to the Effective Date, Plaintiff's Counsel may expend from
the Settlement Amount, without further approval from the Defendants or the
Court, up to the sum of $100,000.00 to pay the reasonable costs and expenses
associated with the administration of the Settlement, including without
limitation, the costs of identifying members of the Class and effecting mail
Notice and Publication Notice. Such amounts shall include, without limitation,
the actual costs of publication, printing and mailing
- 14 -
<PAGE> 15
the Notice, reimbursements to nominee owners for forwarding notice to their
beneficial owners, and the administrative expenses incurred and fees charged by
the Claims Administrator in connection with providing notice and processing the
claims filed.
(II) ATTORNEYS' FEES AND EXPENSES
8. Plaintiff's Counsel will apply to the Court for an award from the
Gross Settlement Fund of attorneys' fees not to exceed one-third (33-1/3%) of
the Gross Settlement Fund and reimbursement of expenses. The application for
attorneys fees and for reimbursement of expenses shall be considered by the
Court separate and apart from the approval of the Settlement and is not a
condition of the Settlement. Such attorneys' fee and expenses as are awarded by
the Court shall be paid from the Gross Settlement Fund to Plaintiff's Counsel
immediately upon award, notwithstanding the existence of any timely filed
objections thereto, or potential for appeal therefrom, or collateral attack on
the settlement or any part thereof, subject to Plaintiff's Counsel's obligation
to make appropriate refunds or repayments to the Settlement Fund plus accrued
interest, if and when, as a result of any appeal and/or further proceedings on
remand, or successful collateral attack, the fee or cost award is reduced or
reversed. Provided, however, that in the event that the Stipulation and the
Settlement set forth herein does not become Effective for any reason, or the
Judgment or the Order making the fee and expense award is reversed or modified
on appeal, and in the event that the fee and expense award has been paid to any
extent, then Plaintiff's Counsel shall within five (5)
- 15 -
<PAGE> 16
business days from the event which precludes the Effective Date from occurring
or such reversal or modification, refund to the Gross Settlement Fund the fees,
expenses, costs and interest previously paid to them from the Gross Settlement
Fund, including accrued interest on any such amount at the average rate earned
on the Gross Settlement Fund from the time of withdrawal until the date of
refund. Each such Plaintiff's Counsel's law firm, as a condition of receiving
such fees and expense, on behalf of itself and each partner and/or shareholder
of it, shall be jointly and severally responsible to refund the fees, expenses,
costs and interest as set forth above, and each Plaintiff's Counsel's law firm
agrees that the law firm and its partners and/or shareholders are subject to the
jurisdiction of the Court for the purpose of enforcing this paragraph 8 of the
Stipulation. Without limitation, each such law firm and its partners and/or
shareholders agree that the Court may, upon application of Defendants, summarily
issue orders, including but not limited to, judgments and attachment orders, and
may make appropriate findings of or sanctions for contempt, against them or any
of them should such law firm fail timely to repay fees and expenses pursuant to
this paragraph 8 of the Stipulation.
(III) ADMINISTRATION EXPENSES
9. Plaintiff's Counsel will apply to the Court, on notice to
Defendants' Counsel, for an order (the "Class Distribution Order") approving the
Claims Administrator's administrative determinations concerning the acceptance
and
- 16 -
<PAGE> 17
rejection of the claims filed herein and approving the fees and expenses of the
Claims Administrator, and, if the Effective Date has occurred, directing payment
of the Net Settlement Fund to Authorized Claimants.
(IV) DISTRIBUTION TO AUTHORIZED CLAIMANTS
10. The Claims Administrator shall determine each Authorized
Claimant's PRO RATA share of the "Net Settlement Fund" (the Gross Settlement
Amount including interest net of Taxes and less all approved costs fees and
expenses) based upon each Authorized Claimant's Recognized Claim as defined in
the Plan of Allocation set forth in the Notice, or such other Plan of Allocation
as is ultimately proposed by Plaintiff's Counsel and approved by the Court.
Approval of the Plan of Allocation provided in the Notice annexed hereto is not
a condition of this Settlement.
ADMINISTRATION OF THE SETTLEMENT
11. Any member of the Class who does not file a valid Proof of Claim
will not be entitled to receive any of the proceeds from the Net Settlement
Amount but will otherwise be bound by all of the terms of this Stipulation and
the Settlement, including the terms of the Judgment to be entered in the Action
and the releases provided for herein, and will be barred from bringing any
action against the Released Persons concerning the Settled Claims.
12. Plaintiff's Counsel shall be responsible for supervising the
administration of the Settlement and disbursement of the Net Settlement Fund by
the Claims Administrator. Except for their obligation to pay the Settlement
Amount, and to cooperate in the
- 17 -
<PAGE> 18
production of information with respect to the identification of class members
from the company's shareholder transfer records, as provided herein, Defendants
shall have no liability, obligation or responsibility for the administration of
the Settlement or disbursement of the Gross or Net Settlement Fund. Plaintiff's
Counsel shall have the right, but not the obligation, to waive what they deem to
be formal or technical defects in any Proofs of Claim filed in the interests of
achieving substantial justice.
13. For purposes of determining the extent, if any, to which a Class
Member shall be entitled to be treated as an "Authorized Claimant", the
following conditions shall apply:
a. Each Class Member shall be required to submit a signed Proof
of Claim (see attached Exhibit 2 to Exhibit A), supported by such documents as
are designated therein, including proof of the Claimant's loss, or such other
documents or proof as Plaintiff's Counsel, in their discretion, may deem
acceptable;
b. All Proofs of Claim must be submitted by the date specified
in the Notice unless such period is extended by Order of the Court. Any Class
Member who fails to file a Proof of Claim by such date shall be forever barred
from receiving any payment pursuant to this Stipulation (unless, by Order of the
Court, a later filed Proof of Claim by such Class Member is approved), but shall
in all other respects be bound, as all Class Members will be bound, by all of
the terms of this Stipulation and the Settlement including the terms of the
Judgment to be entered in the Action and the releases provided for herein, and
will be barred
- 18 -
<PAGE> 19
from bringing any action against the Released Persons concerning the Settled
Claims. Provided that it is received before the distribution of the Net
Settlement Fund, a Proof of Claim shall be deemed to have been submitted when
posted, if received with a postmark indicated on the envelope and if mailed
first-class postage prepaid and addressed in accordance with the instructions
thereon. In all other cases, the Proof of Claim shall be deemed to have been
submitted when actually received by Plaintiff's Counsel or its designee;
c. Each Proof of Claim shall be submitted to and reviewed by the
Claims Administrator, under the supervision of Plaintiff's Counsel, who shall
determine in accordance with this Stipulation, and the Plan of Allocation
ultimately approved by the Court, the extent, if any, to which each claim shall
be allowed, subject to review by the Court pursuant to subparagraph e. below;
d. Proofs of Claim that do not meet the filing requirements may
be rejected. Prior to rejection of a Proof of Claim, the Claims Administrator
shall communicate with the Claimant in order to remedy the curable deficiencies
in the Proof of Claims submitted. The Claims Administrator, under supervision of
Plaintiff's Counsel, shall notify, in a timely fashion and in writing, all
Claimants whose Proofs of Claim they propose to reject in whole or in part,
setting forth the reasons therefor, and shall indicate in such notice that the
Claimant whose claim is to be rejected has the right to a review by the Court if
the Claimant so desires and complies with the requirements of subparagraph (e)
- 19 -
<PAGE> 20
below; and
e. If any Claimant whose claim has been rejected in whole or in
part desires to contest such rejection, the Claimant must, within twenty (20)
days after the date of mailing of the notice required in subparagraph (d) above,
serve upon the Claims Administrator a notice and statement of reasons indicating
the Claimant's grounds for contesting the rejection along with any supporting
documentation, and requesting a review thereof by the Court. If a dispute
concerning a claim cannot be otherwise resolved, Plaintiff's Counsel shall
thereafter present the request for review to the Court.
f. The administrative determinations of the Claims Administrator
accepting and rejecting claims shall be presented to the Court, on notice to
Defendants' Counsel, for approval by the Court in the Class Distribution Order.
14. Each Claimant shall be deemed to have submitted to the
jurisdiction of the Court with respect to the Claimant's claim, and the claim
will be subject to investigation and discovery under the Federal Rules of Civil
Procedure, provided that such investigation and discovery shall be limited to
that Claimant's status as a Class Member and the validity and amount of the
Claimant's claim. No discovery shall be allowed on the merits of the Action or
Settlement in connection with processing of the Proofs of Claim. Defendants and
their counsel shall have no responsibility for or obligation to participate in
the review, investigation or discovery relating to any Claimant's claim.
- 20 -
<PAGE> 21
15. Payment pursuant to this Stipulation shall be deemed final and
conclusive against all Class Members. All Class Members whose claims are not
approved by the Court shall be barred from participating in distributions from
the Net Settlement Amount, but otherwise shall be bound, as all Class Members
will be bound, by all of the terms of this Stipulation and the Settlement,
including the terms of the Judgment to be entered in the Action and the releases
provided for herein, and will be barred from bringing any action against the
Released Persons concerning the Settled Claims.
16. All proceedings with respect to the administration, processing and
determination of claims described by paragraphs 11 through 17 of this
Stipulation and the determination of all controversies relating thereto,
including disputed questions of law and fact with respect to the validity of
claims, shall be subject to the jurisdiction of the Court.
17. The Net Settlement Amount shall be distributed to Authorized
Claimants by the Claims Administrator only after the Effective Date and after:
(i) all Claims have been processed, and all Claimants whose Claims have been
rejected or disallowed, in whole or in part, have been notified and provided the
opportunity to be heard concerning such rejection or disallowance; (ii) all
objections with respect to all rejected or disallowed claims have been resolved
by the Court, and all appeals therefrom have been resolved or the time therefor
has expired; and (iii) all matters with respect to attorneys' fees, costs, and
disbursements have been resolved by the Court, all appeals therefrom have been
resolved or
- 21 -
<PAGE> 22
the time therefor has expired, and (iv) all costs of administration have been
paid.
TERMS OF ORDER FOR NOTICE AND HEARING
18. Concurrently with their application for preliminary Court approval
of the Settlement contemplated by this Stipulation, Plaintiff's Counsel and
Defendants' Counsel jointly shall apply to the Court for entry of an Order for
Notice and Hearing, substantially in the form annexed hereto as Exhibit A.
TERMS OF ORDER AND FINAL JUDGMENT
19. If the Settlement contemplated by this Stipulation is approved by
the Court, counsel for the parties shall request that the Court enter an Order
and Final Judgment substantially in the form annexed hereto as Exhibit B.
SUPPLEMENTAL AGREEMENT
20. Simultaneously herewith, Plaintiff's Counsel and Defendants'
Counsel are executing a "Supplemental Agreement" setting forth certain
conditions under which this Stipulation may be withdrawn or terminated by
Defendants if potential Class Members who purchased in excess of a certain
number of shares of Cyrk common stock traded during the Class Period exclude
themselves from the Class. The Supplemental Agreement shall be filed under seal
if permitted by the Court, and, if not so permitted, shall not be filed, but its
substantive content can, if necessary, be brought to the attention of the Court,
IN CAMERA if so requested by the attorneys for any of the undersigned parties
and permitted by the Court. In the event of a withdrawal from this Stipulation
pursuant
- 22 -
<PAGE> 23
to the Supplemental Agreement, this Stipulation shall become null and void and
of no further force and effect and the provisions of paragraph 23 shall apply.
Notwithstanding the foregoing, the Stipulation shall not become null and void as
a result of the election by the Defendants to exercise their option to withdraw
from the Stipulation pursuant to the Supplemental Agreement until the conditions
set forth in the Supplemental Agreement have been satisfied.
EFFECTIVE DATE OF SETTLEMENT, WAIVER OR TERMINATION
21. The Effective Date of Settlement shall be the date when all the
following shall have occurred:
(a) entry of the Order for Notice and Hearing in all material
respects in the form annexed hereto as Exhibit A;
(b) approval by the Court of the Settlement, following notice to
the Class and a hearing, as prescribed by Rule 23 of the Federal Rules of Civil
Procedure; and
(c) entry by the Court of an Order and Final Judgment, in all
material respects in the form set forth in Exhibit B annexed hereto, and the
expiration of any time for appeal or review of such Order and Final Judgment,
or, if any appeal is filed and not dismissed, after such Order and Final
Judgment is upheld on appeal in all material respects and is no longer subject
to review upon appeal or review by writ of certiorari, or, in the event that the
Court enters an order and final judgment in form other than that provided above
("Alternative Judgment") and none of the parties hereto elect to terminate this
Settlement, the date that
- 23 -
<PAGE> 24
such Alternative Judgment becomes final and no longer subject to appeal or
review.
22. Defendants' Counsel or Plaintiff's Counsel shall have the right to
terminate the Settlement and this Stipulation by providing written notice of
their election to do so ("Termination Notice") to all other parties hereto
within thirty days of (a) the Court's declining to enter the Order for Notice
and Hearing in any material respect; (b) the Court's refusal to approve this
Stipulation or any material part of it; (c) the Court's declining to enter the
Order and Final Judgment in any material respect; (d) the date upon which the
Order and Final Judgment is modified or reversed in any material respect by the
Court of Appeals or the Supreme Court; or (e) the date upon which an Alternative
Judgment is modified or reversed in any material respect by the Court of Appeals
or the Supreme Court.
23. Except as otherwise provided herein, in the event the Settlement
is terminated or modified in any material respect or fails to become effective
for any reason, then the parties to this Stipulation shall be deemed to have
reverted to their respective status in the Action as of the date and time
immediately prior to the execution of this Stipulation and, except as otherwise
expressly provided, the parties shall proceed in all respects as if this
Stipulation and any related orders had not been entered, and any portion of the
Settlement Amount previously paid by Defendants, together with any interest
earned thereon, less any Taxes due with respect to such income, and less costs
of administration and notice
- 24 -
<PAGE> 25
actually incurred and paid or payable from the Settlement Amount (not to exceed
$100,000 without the prior approval of Defendants or the Court), shall be
returned to Defendants in accordance with instructions to be provided by
Defendants' Counsel that will apportion the amount to be returned according to
each Defendants' or insurers' contribution to the Settlement Amount.
NO ADMISSION OF WRONGDOING
24. This Stipulation, whether or not consummated, and any proceedings
taken pursuant to it:
(a) shall not be offered or received against the Defendants as
evidence of or construed as or deemed to be evidence of any presumption,
concession, or admission by any of the Defendants of the truth of any fact
alleged by Plaintiff or the validity of any claim that had been or could have
been asserted in the Action or in any litigation, or the deficiency of any
defense that has been or could have been asserted in the Action or in any
litigation, or of any liability, negligence, fault, or wrongdoing of Defendants;
(b) shall not be offered or received against the Defendants as
evidence of a presumption, concession or admission of any fault,
misrepresentation or omission with respect to any statement or written document
approved or made by any Defendant, or against the Plaintiff and the Class as
evidence of any infirmity in the claims of Plaintiff and the Class;
(c) shall not be offered or received against the Defendants as
evidence of a presumption, concession or admission of
- 25 -
<PAGE> 26
any liability, negligence, fault or wrongdoing, or in any way referred to for
any other reason as against any of the parties to this Stipulation, in any other
civil, criminal or administrative action or proceeding, other than such
proceedings as may be necessary to effectuate the provisions of this
Stipulation; provided, however, that if this Stipulation is approved by the
Court, Defendants may refer to it to effectuate the liability protection granted
them hereunder; and
(d) shall not be construed against the Defendants or the
Plaintiff and the Class as an admission or concession that the consideration to
be given hereunder represents the amount which could be or would have been
recovered after trial.
MISCELLANEOUS PROVISIONS
25. Notwithstanding their asserted, ongoing objection to the Court's
exercise of personal jurisdiction over them, Li & Fung Limited and Li & Fung
(B.V.I.) Limited consent to the jurisdiction of the Court for the limited
purpose of considering, and should the Court so rule, of approving and enforcing
the Stipulation and its terms. This Stipulation, whether or not consummated, and
any proceedings taken pursuant to it, shall not be offered or received against
Li & Fung Limited or Li & Fung (B.V.I.) Limited as evidence of, or construed as
or deemed to be evidence of, any presumption, concession or admission that any
Court in the United States of America may properly exercise personal
jurisdiction over either Li & Fung Limited or Li & Fung (B.V.I.) Limited or that
either Li & Fung Limited or Li & Fung (B.V.I.) consent to the exercise of
- 26 -
<PAGE> 27
personal jurisdiction over them by any Court in the United States of America in
any other context.
26. All of the exhibits attached hereto are hereby incorporated by
reference as though fully set forth herein.
27. Each Defendant warrants as to himself, or itself that, as to the
payments made by or on behalf of him or it, at the time of such payment that the
Defendant made or caused to be made pursuant to paragraph 4 above, he or it was
not insolvent nor did nor will the payment required to be made by or on behalf
of him or it render such Defendant insolvent within the meaning of and/or for
the purposes of the United States Bankruptcy Code, including secs. 101 and 547
thereof. This warranty is made by each such Defendant and not by such
Defendant's counsel.
28. If a case is commenced in respect of any Defendant under Title 11
of the United States Code (Bankruptcy), or a trustee, receiver or conservator is
appointed under any similar law, and in the event of the entry of a final order
of a court of competent jurisdiction determining the transfer of money to the
Escrow Account or any portion thereof by or on behalf of such Defendant to be a
preference, voidable transfer, fraudulent transfer or similar transaction and
any portion thereof is required to be returned, and such amount plus applicable
interest is not promptly deposited to the Gross Settlement Fund by other
settling Defendants, then, at the election of Plaintiff's Counsel, the parties
shall jointly move the Court to vacate and set aside the releases given and
Judgment entered in favor of the Defendants
- 27 -
<PAGE> 28
pursuant to this Settlement Agreement, which releases and Judgment shall be null
and void, and the Parties shall be restored to their respective positions in the
litigation as of the date a day prior to the date of this Settlement Agreement
and any cash amounts in the escrow shall be returned as provided in paragraph 23
above.
29. The Parties to this Stipulation intend the Settlement to be a
full, final and complete resolution of all disputes asserted or which could be
asserted by the Class Members against the Released Persons with respect to the
Settled Claims. Accordingly, the Defendants agree not to assert in any court or
arbitration forum that the litigation was brought in bad faith or without a
reasonable basis. The Parties agree that the amount paid and the other terms of
the Settlement were negotiated at arm's length in good faith by the Parties, and
reflect a settlement that was reached voluntarily after consultation with
experienced legal counsel.
30. This Stipulation may not be modified or amended, nor may any of
its provisions be waived except by a writing signed by all parties hereto or
their successors-in-interest.
31. The headings herein are used for the purpose of convenience only
and are not meant to have legal effect.
32. The administration and consummation of the Settlement as embodied
in this Stipulation shall be under the authority of the Court and the Court
shall retain jurisdiction for the purpose of entering orders providing for
awards of attorneys' fees and expenses to Plaintiff's Counsel and enforcing the
terms of this
- 28 -
<PAGE> 29
Stipulation.
33. The waiver by one party of any breach of this Stipulation by any
other party shall not be deemed a waiver of any other prior or subsequent breach
of this Stipulation.
34. This Stipulation and its exhibits and the Supplemental Agreement
constitute the entire agreement as between the Plaintiff and the Defendants
concerning the Settlement of the Action, and no representations, warranties, or
inducements have been made by any party hereto concerning this Stipulation and
its exhibits and the Supplemental Agreement other than those contained and
memorialized in such documents.
35. This Stipulation may be executed in one or more counterparts. All
executed counterparts and each of them shall be deemed to be one and the same
instrument provided that counsel for the parties to this Stipulation shall
exchange among themselves original signed counterparts.
36. This Stipulation shall be binding upon, and inure to the benefit
of, the successors and assigns of the parties hereto.
37. The construction, interpretation, operation, effect and validity
of this Stipulation, and all documents necessary to effectuate it, shall be
governed by the internal laws of the State of New York without regard to
conflicts of laws, except to the extent that federal law requires that federal
law governs.
38. This Stipulation shall not be construed more strictly against one
party than another merely by virtue of the fact that it, or any part of it, may
have been prepared by counsel
- 29 -
<PAGE> 30
for one of the parties, it being recognized that it is the result of
arm's-length negotiations between the parties and all parties have contributed
substantially and materially to the preparation of this Stipulation.
39. All counsel and any other person executing this Stipulation and
any of the exhibits hereto, or any related settlement documents, warrant and
represent that they have the full authority to do so and that they have the
authority to take appropriate action required or permitted to be taken pursuant
to the Stipulation to effectuate its terms.
40. Plaintiff's Counsel and Defendants' Counsel agree to cooperate
fully with one another in seeking Court approval of the Order for Notice and
Hearing, the Stipulation and the Settlement, and to promptly agree upon and
execute all such other documentation as may be reasonably required to obtain
final approval by the District Court and as necessary of the Settlement.
Dated: New York, New York
April , 1998
KAPLAN, KILSHEIMER & FOX LLP
------------------------------
Robert N. Kaplan (RK 3100)
Laurence D. King (LK 7190)
Paul B. Lyons (PL 5036)
685 Third Avenue
New York, NY 10017
(212) 687-1980
30 -
<PAGE> 31
MILBERG WEISS BERSHAD
HYNES & LERACH LLP
------------------------------
David J. Bershad (DB 9981)
George A. Bauer III (GB 2919)
Kenneth J. Vianale (KV 4607)
One Pennsylvania Plaza
New York, NY 10119
(212) 594-5300
BERMAN, DEVALERIO & PEASE LLP
------------------------------
Glen DeValerio
Jeffrey C. Block (JB 0387)
One Liberty Square
Boston, MA 02109
(617) 542-8300
Attorneys for Plaintiff
Barry Hallet, Jr.
FRIEDMAN KAPLAN & SEILER LLP
------------------------------
Bruce S. Kaplan
Hal Neier
Daniel B. Rapport
875 Third Avenue
New York, New York 10022
Attorneys for Defendants
Partick Brady, Gregory Shlopak
and Joseph Bartlett
- 31 -
<PAGE> 32
CHOATE, HALL & STEWART
------------------------------
Mitchell H. Kaplan
John R. Baraniak, Jr.
Denise W. DeFranco
Exchange Place
53 State Street
Boston, Massachusetts 02109
Attorneys for Defendant Cyrk,
Inc.
HELLER, EHRMAN, WHITE &
McAULIFFE
------------------------------
Douglas M. Schwab, Esq.
Laurence A. Weiss, Esq.
333 Bush Street
San Francisco, CA 94104-2878
-and-
Michael L. Charlson, Esq.
525 University Avenue
Palo Alto, CA 94301-1900
Attorneys for Defendants
Michael Hsieh, LF
International, Inc., Li & Fung
Limited and Li & Fung (B.V.I.)
Limited
- 32 -
<PAGE> 33
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
- --------------------------------------------x
BARRY HALLET, JR., On Behalf Of :
Himself and All Others Similarly :
Situated, :
:
Plaintiff, : Civil Action No.
:
-v- : 95 Civ. 8917 (JSM)
:
LI & FUNG, LTD., LI & FUNG (B.V.I.) :
LIMITED, LF INTERNATIONAL, INC., :
PATRICK BRADY, GREGORY SHLOPAK, :
JOSEPH BARTLETT, MICHAEL HSIEH :
and CYRK, INC., :
:
Defendants. :
- --------------------------------------------x
PRELIMINARY ORDER IN CONNECTION
WITH SETTLEMENT PROCEEDINGS
WHEREAS, on April, 1998, the parties to the above-entitled litigation
entered into a Stipulation and Agreement of Settlement (the "Stipulation") which
is subject to review under Rule 23 of the Federal Rules of Civil Procedure
("F.R.Civ.P.") and which, together with the exhibits thereto, sets forth the
terms and conditions for the proposed settlement of the claims alleged in the
Complaint on the merits and provides for the dismissal of this Action with
prejudice as against all Defendants upon the terms and conditions set forth in
the Stipulation; and the Court having read and considered the Stipulation and
the accompanying documents; and the parties to the Stipulation having consented
to the entry of this Order; and all capitalized terms used herein having the
meanings defined in the Stipulation; and the Court having previously, by Opinion
and Order dated October 6, 1997, certified
<PAGE> 34
this action to proceed as a class action pursuant to Federal Rules of Civil
Procedure 23(a) and 23(b)(3) on behalf of a Class consisting of all persons who
purchased the common stock of Cyrk, Inc. ("Cyrk") during the period from May 10,
1994 through May 1, 1995, inclusive, and were damaged thereby. Excluded from the
Class are the Defendants in this action, their immediate family members, and the
directors, officers, subsidiaries and affiliates of Cyrk.
NOW, THEREFORE, IT IS HEREBY ORDERED, this _______ day of ___________,
1998, that:
1. A hearing (the "Settlement Fairness Hearing") pursuant to
F.R.Civ.P. 23(e) is hereby scheduled to be held before the Court on
________________, 1998, at __: _.m. [a date no sooner than 70 days following the
date of this Order] for the following purposes:
a. to finally determine whether this action satisfies the applicable
prerequisites for class action treatment under F.R.Civ.P. 23(a) and (b);
b. to determine whether the proposed Settlement is fair, reasonable,
adequate and in the best interests of the Class and should be approved by the
Court;
c. to determine whether the Order and Final Judgment as provided
under the Stipulation should be entered, dismissing the Complaint filed herein,
on the merits and with
-2-
<PAGE> 35
prejudice, and to determine whether the release by the Class to the Released
Persons, as set forth in the Order and Final Judgement, should be provided to
the Released Persons;
d. to determine whether the Plan of Allocation for the Net Settlement
Fund is a fair and reasonable method for allocating the Net Settlement Fund
among Class Members.
e. to consider Plaintiff's Counsel's application for an award of
Attorneys' Fees and Expenses; and
f. to rule upon such other matters as the Court may deem appropriate.
2. The Court reserves the right to approve the Settlement with or
without modification and with or without further notice of any kind. The Court
further reserves the right to enter its Order and Final Judgment approving the
Stipulation and dismissing the Complaint on the merits and with prejudice
regardless of whether it has approved or awarded attorneys' fees and expenses.
3. The Court approves the form, substance and requirements of the
Notice of Pendency of Class Action, Hearing On Proposed Settlement and
Attorneys' Fee Petition, and Notice of Right to Share in Settlement Fund (the
"Class Notice"), and the Proof of Claim form annexed hereto as Exhibits 1 and 2
respectively.
-3-
<PAGE> 36
4. Plaintiff's Counsel shall cause the Class Notice and the Proof of
Claim, substantially in the form annexed hereto, to be mailed, by first class
mail, postage prepaid, within ten (10) business days from the date hereof (the
"Notice Mailing Date") to all Class Members who can be identified with
reasonable effort by Plaintiff's Counsel. Cyrk shall cooperate in making their
books, records and information available to Plaintiff's Counsel or their agent
for the purpose of identifying and giving notice to the Class. Plaintiff's
Counsel shall use reasonable efforts to give notice to nominee owners such as
brokerage firms and other persons or entities who held or now hold Cyrk common
stock as record owners but not as beneficial owners. Such nominee owners are
directed to promptly forward copies of the Class Notice and Proof of Claim to
their beneficial owners or to provide Plaintiff's Counsel with lists of the
names and addresses of the beneficial owners, and Plaintiff's Counsel are
ordered to send the Class Notice and Proof of Claim promptly to such beneficial
owners. Additional copies of the Class Notice shall be made available to any
record holder requesting such for the purpose of distribution to beneficial
owners, and such record holders shall be reimbursed from the Settlement Fund,
upon receipt by Plaintiff's Counsel of proper documentation, for the reasonable
expense of sending the Class Notices and Proof of Claim to beneficial owners.
Plaintiff's Counsel shall, at or before the Settlement Fairness Hearing, file
with the Court proof of mailing of the Class Notice and Proof of Claim.
-4-
<PAGE> 37
5. The Court approves the form of Publication Notice of the pendency
of this class action and the proposed settlement in substantially the form and
content annexed hereto as Exhibit 3 and directs that Plaintiff's Counsel shall
cause the Publication Notice to be published once in the national edition of THE
NEW YORK TIMES within ten (10) business days of the Notice Mailing Date.
Plaintiff's Counsel shall, at or before the Settlement Fairness Hearing, file
with the Court proof of publication of the Published Notice.
6. The form and method set forth herein of notifying the Class of the
Settlement and its terms and conditions meet the requirements of F.R.Civ.P. 23
and due process, constitute the best notice practicable under the circumstances,
and shall constitute due and sufficient notice to all persons and entities
entitled thereto.
7. To be entitled to participate in the Net Settlement Fund, in the
event the Settlement is effected in accordance with all of the terms and
conditions thereof, each Class Member shall take the following actions and be
subject to the following conditions:
(a) A properly executed Proof of Claim (the "Proof of Claim"),
substantially in the form attached hereto as Exhibit 2, must be filed with the
Claims Administrator, at the Post Office box indicated in the Class Notice, not
later than 120 calendar days
- 5 -
<PAGE> 38
after the Notice Mailing Date. Such deadline may be further extended by Court
Order. Each Proof of Claim shall be deemed to have been filed when postmarked
(if properly addressed and mailed by first class mail, postage prepaid) provided
such Proof of Claim is actually received prior to the order of the Court
approving distribution of the Net Settlement Fund. Any Proof of Claim submitted
in any other manner shall be deemed to have been filed when it was actually
received at the address designated in the Class Notice.
(b) The Proof of Claim filed by each Class Member must satisfy the
following conditions: (i) it must be properly filled out, signed and filed in a
timely manner in accordance with the provisions of the preceding subparagraph;
(ii) it must be accompanied by adequate supporting documentation for the
transactions reported therein, in the form of broker confirmation slips, broker
account statements, an authorized statement from the broker containing the
transactional information found in a broker confirmation slip, or such other
documentation as is deemed adequate by Plaintiff's Counsel; (iii) if the person
executing the Proof of Claim is acting in a representative capacity, a
certification of his current authority to act on behalf of the Class Member must
be included in the Proof of Claim; and (iv) the Proof of Claim must be complete
and contain no material deletions or modifications of any of the printed matter
contained therein and must be signed under penalty of perjury.
- 6 -
<PAGE> 39
(c) As part of the Proof of Claim, each Class Member shall submit to
the jurisdiction of the Court with respect to the claim submitted, and shall
(subject to effectuation of the Settlement) release all claims as provided in
the Stipulation.
8. Any putative Class Member who wishes to be excluded from the Class
may request exclusion by submitting a written notice requesting exclusion from
the Class and showing the Class Member's name, address and Social Security or
Taxpayer Identification Number and the date(s) and amount(s) of shares of Cyrk
common stock purchased in the Class Period. To be effective, the written request
for exclusion must be signed by the beneficial owner of the stock, or his, her
or its legal representative, and must be mailed, postage prepaid, on or before
45 calendar days after the Notice Mailing Date, to Cyrk Securities Litigation --
Exclusion Requests, C/O Claims Administrator, [P.O. Box , City, State,
Zip Code].
9. Class Members requesting exclusion from the Class shall not be
entitled to receive any payment out of the Net Settlement Fund as described in
the Stipulation and Class Notice.
10. The Court will consider comments and/or objections to the
Settlement, the Plan of Allocation or the award of attorneys' fees and
reimbursement of expenses only if such comments or objections and any supporting
papers are filed in writing with the Clerk of the Court, United States District
Court,
- 7 -
<PAGE> 40
500 Pearl Street, New York, New York 10007, and copies of all such papers are
served, on or before 45 calendar days after the Notice Mailing Date, on the
following: Robert N. Kaplan, Esq. Kaplan, Kilsheimer & Fox LLP, 685 Third
Avenue, New York, NY 10017; David J. Bershad, Esq., Milberg Weiss Bershad Hynes
& Lerach LLP, One Pennsylvania Plaza, New York, New York 10119; and Glen
DeValerio, Esq., Berman Dvalerio & Pease LLP, One Liberty Square, Boston, MA
02109 on behalf of Plaintiff; and Bruce S. Kaplan, Esq. Friedman, Kaplan &
Seiler LLP, 875 Third Avenue, New York, New York 10022; Mitchell H. Kaplan,
Esq., Choate, Hall & Stewart, Exchange Place, 53 State Street, Boston,
Massachusetts 02109; and Douglas M. Schwab, Esq., Heller, Ehrman, White &
McAuliffe, 333 Bush Street, San Francisco, CA 94104-2878 on behalf of the
defendants. Attendance at the hearing is not necessary; however, persons wishing
to be heard orally in opposition to the approval of the Settlement are required
to indicate in their written objection their intention to appear at the hearing.
Persons who intend to object to the Settlement and/or counsel's application for
an award of attorneys fees and expenses and desire to present evidence at the
Settlement Fairness Hearing must include in their written objections the
identity of witnesses they may call to testify and exhibits they intend to
introduce into evidence at the Settlement Fairness Hearing. Class Members do not
need to appear at the hearing or take any other action to indicate their
approval.
- 8 -
<PAGE> 41
11. Pending final determination of whether the Settlement should be
approved, the Plaintiff, all Class Members, and each of them, and anyone who
acts or purports to act on their behalf, shall not institute, commence or
prosecute any action which asserts Settled Claims against any Released Party.
12. The Court retains exclusive jurisdiction over the action to
consider all further matters arising out of or connected with the Settlement.
Dated: New York, New York
______________ ____, 1998
____________________________
JOHN S. MARTIN
UNITED STATES DISTRICT JUDGE
- 9 -
<PAGE> 42
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
- --------------------------------------------x
BARRY HALLET, JR., On Behalf Of :
Himself and All Others Similarly :
Situated, :
:
Plaintiff, : Civil Action No.
:
-v- : 95 Civ. 8917 (JSM)
:
LI & FUNG, LTD., LI & FUNG (B.V.I.) :
LIMITED, LF INTERNATIONAL, INC., :
PATRICK BRADY, GREGORY SHLOPAK, :
JOSEPH BARTLETT, MICHAEL HSIEH :
and CYRK, INC., :
:
Defendants. :
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NOTICE OF PENDENCY OF CLASS ACTION,
HEARING ON PROPOSED SETTLEMENT AND ATTORNEYS' FEE PETITION,
AND NOTICE OF RIGHT TO SHARE IN SETTLEMENT FUND
TO: ALL PERSONS WHO PURCHASED THE COMMON STOCK OF CYRK, INC.,
("CYRK") DURING THE PERIOD FROM MAY 10, 1994 THROUGH MAY 1,
1995, INCLUSIVE (THE "CLASS PERIOD").
PLEASE READ THIS NOTICE CAREFULLY AND IN ITS ENTIRETY. YOUR RIGHTS WILL BE
AFFECTED BY PROCEEDINGS IN THIS LITIGATION. IF YOU ARE A CLASS MEMBER, YOU
ULTIMATELY MAY BE ENTITLED TO RECEIVE BENEFITS PURSUANT TO THE PROPOSED
SETTLEMENT DESCRIBED HEREIN.
CLAIMS DEADLINE: CLAIMANTS MUST SUBMIT PROOFS OF CLAIM, ON THE FORM ACCOMPANYING
THIS NOTICE, POST-MARKED ON OR BEFORE _______________, 1998.
EXCLUSION DEADLINE: REQUESTS FOR EXCLUSION MUST BE POST-MARKED ON OR BEFORE
_______________, 1998.
SECURITIES BROKERS AND OTHER NOMINEES: PLEASE SEE INSTRUCTIONS ON PAGE ___
HEREIN.
This Notice is given pursuant to rule 23 of the Federal Rules of Civil
Procedure and an Order of the Court dated __________ 1998. The purpose of this
Notice is to inform you that this Action and the proposed Settlement will affect
all Class Members' rights.
<PAGE> 43
This Notice describes rights you may have under the proposed Settlement and what
steps you may take in relation to this litigation. This Notice is not an
expression of any opinion by the Court as to the merits of any claims or any
defenses asserted by any party in this litigation, or the fairness or adequacy
of the proposed Settlement.
Pursuant to the Settlement described herein, a Settlement Fund
consisting of $13,650,000 in cash, plus interest has been established.
NOTICE OF SETTLEMENT HEARING
NOTICE IS HEREBY GIVEN, pursuant to Rule 23 of the Federal Rules of
Civil Procedure and an Order of the United States District Court for the
Southern District of New York (the "Court") dated _________, 1998, that a
hearing will be held before the Honorable John S. Martin, in Courtroom No. ___
of the United States Courthouse, 500 Pearl Street, New York, New York 10007, at
___, on _________, 1998 (the "Settlement Hearing") to determine whether a
proposed settlement (the "Settlement") of the above-captioned litigation (the
"Litigation") as set forth in the Stipulation of Settlement dated April __, 1998
(the "Stipulation"), is fair, reasonable and adequate, to consider the Plan of
Allocation and to consider the application of class counsel for attorneys' fees
and reimbursement of expenses.
By Opinion and Order dated October 6, 1997, the Court certified this
Action as a class action pursuant to Federal Rules of Civil Procedure 23(a) and
23(b)(3). The certified class
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<PAGE> 44
consists of: "all persons who purchased the common stock of Cyrk during the
period from May 10, 1994 through May 1, 1995, inclusive, and were damaged
thereby." Excluded from the Class are the Defendants in this action, their
immediate family members, and the directors, officers, subsidiaries and
affiliates of Cyrk. The Court will also exclude from the Class any putative
Class Members who exclude themselves by filing a request for exclusion in
accordance with the requirements set forth in paragraph 34 below.
BACKGROUND OF THE LITIGATION
1. The Complaint filed in the Action generally alleges, among other
things, that Defendants(1) issued false and misleading statements regarding the
strength of Cyrk's relationship with its largest and most important customer,
Philip Morris, Incorporated ("Philip Morris"), including the likelihood of
Cyrk's large Philip Morris/Marlboro promotions continuing at high levels during
1995, the likelihood of Cyrk receiving new promotional contracts from other
major brand name product sellers during 1995, its competitive position and
advantages, and its future business and earnings prospects including that it
would have during 1995, high revenues and earnings. The Complaint also alleged
that during the Class Period, the Defendants knew for several reasons that
problems were afflicting Cyrk's business.
- --------
(1) The "Defendants" are: Cyrk, Inc.; Gregory P. Shlopak; Patrick D. Brady;
Joseph Bartlett; Michael T. Hsieh; Li & Fung, Ltd.; Li & Fung (B.V.I.) Limited;
and LF International, Inc.
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<PAGE> 45
2. The Complaint alleges further that these statements were each
false and misleading when made. They allegedly inflated the price of Cyrk's
stock to a Class Period high of $44.75 per share so that Cyrk's insiders,
including Shlopak, Brady and Li & Fung, could sell large amounts of their Cyrk
stock under SEC Rule 144 and in a registered secondary public offering of Cyrk
stock on December 1, 1994 (the "Offering") all allegedly without disclosing
material non-public adverse information.
3. The Complaint further alleged that Plaintiff and other class
members purchased the common stock of Cyrk during the Class Period at prices
artificially inflated as a result of the Defendants' dissemination of false and
misleading statements regarding Cyrk in violation of Sections 10(b) and 20(a) of
the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder.
4. The Defendants filed motions to dismiss the Complaint for failure
to state a claim, and Li & Fung Limited and Li & Fung (B.V.I.) Limited moved to
dismiss for lack of jurisdiction. By Memorandum Opinion and Order, the Court
denied the Defendants' motions. (Li & Fung Limited and Li & Fung (B.V.I.)
Limited have continued to dispute the Court's exercise of personal jurisdiction
over them; however, both entities have conditionally agreed to consent to the
Court's exercise of jurisdiction over them for the limited purpose of
considering and potentially approving and enforcing the Settlement.)
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<PAGE> 46
BACKGROUND TO THE SETTLEMENT
5. The Defendants filed Answers to the Complaint, denying the
allegations of Plaintiff's Complaint and asserting several defenses. The
Defendants have denied all averments of wrongdoing or liability in the
litigation and all other accusations of wrongdoing or violations of law. The
Stipulation is not and shall not be construed or be deemed to be evidence or an
admission or a concession on the part of any of the Defendants of any fault or
liability or damages whatsoever, and Defendants do not concede any infirmity in
the defenses which they have asserted or intended to assert in the Litigation.
6. Prior to entering into the Stipulation, Plaintiff's Counsel
conducted an extensive investigation relating to the claims and the underlying
events and transactions alleged in the complaint. Document discovery has been
obtained from Defendants and from third parties, numerous witnesses have been
interviewed and nine depositions were taken. Plaintiff's Counsel have analyzed
the evidence adduced during pretrial discovery and have researched the
applicable law with respect to the claims of Plaintiff and the Class against the
Defendants and the potential defenses thereto.
7. All of the parties have now agreed to settle all aspects of the
Litigation, subject to approval of the Court.
8. Plaintiff's counsel's decision to enter into this Settlement was
made with knowledge of the facts and circumstances underlying plaintiff's claims
and the strengths and weaknesses of those claims. In determining to settle the
action, they have
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<PAGE> 47
evaluated the extensive discovery taken in the litigation and taken into account
the substantial expense and length of time necessary to prosecute the litigation
through trial, post-trial motions and likely appeals, taking into consideration
the risk of the outcome of any litigation, especially complex litigation such as
this, and the significant uncertainties in predicting the outcome of this
litigation. Counsel for plaintiff believe that the Settlement described herein
confers very substantial benefits upon the Class. Based upon their consideration
of all of these factors, plaintiff and his counsel have concluded that it is in
the best interest of plaintiff and the Class to settle the action on the terms
described herein. Counsel for the Class deem the settlement to be fair,
reasonable and adequate to, and in the best interests of the members of the
Class.
9. The Defendants, while continuing to deny all allegations of
wrongdoing or liability whatsoever, desired to settle and terminate all existing
or potential claims against them, without in any way acknowledging any fault or
liability. The Defendants have concluded that further conduct of the litigation
would be protracted, expensive and disruptive to their businesses and that it is
desirable to fully and finally settle the litigation on the terms and conditions
in the Stipulation to avoid further expense, inconvenience and distraction of
the litigation and to dispel any uncertainty occasioned thereby.
10. The amount of damages, if any, which plaintiff could prove was
also a matter of serious dispute, and the Recognized
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<PAGE> 48
Claim formula for distributing the Settlement proceeds described below does not
constitute a finding, admission or concession that provable damages could be
measured by the Recognized Claim formula. No determination has been made by the
Court as to liability or the amount, if any, of damages suffered by the Class,
nor on the proper measure of any such damages. The determination of damages,
like the determination of liability, is a complicated and uncertain process,
typically involving conflicting expert opinions. During the course of the
Litigation, in addition to denying any liability, the Defendants disputed that
Plaintiff and the Class were damaged by any wrongful conduct on Defendant's
part. The Settlement herein is providing an immediate and substantial cash
benefit and avoids the risks that liability or damages might not have been
proven at trial.
11. THE COURT HAS NOT DETERMINED THE MERITS OF THE PLAINTIFF'S CLAIMS
OR THE DEFENSES THERETO. THIS NOTICE DOES NOT IMPLY THAT THERE HAS BEEN OR WOULD
BE ANY FINDING OF VIOLATION OF THE LAW OR THAT RECOVERY COULD BE HAD IN ANY
AMOUNT IF THE ACTION WERE NOT SETTLED.
TERMS OF THE SETTLEMENT
12. In full and complete settlement of the known claims and Unknown
Claims (as defined below) which have or could have been asserted in this action,
and subject to the terms and conditions of the Stipulation, Defendants have paid
into escrow on behalf of Plaintiff and the Class $13,650,000 (the "Settlement
Amount"), which has been earning interest for the benefit of the Class since
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<PAGE> 49
April 7, 1998.
13. Pursuant to the Settlement, and on the Effective Date, plaintiff
and members of the Class on behalf of themselves, their heirs, executors,
administrators, successors and assigns, and any persons they represent, shall
release and forever discharge, and shall forever be enjoined from prosecuting
the Released Persons (defined below) with respect to each and every Settled
Claim (defined below).
14. The Defendants will be released from all claims relating to the
allegations in the Complaint or to any purchase of common stock of Cyrk during
the Class Period. In addition the Settlement will release the Class' claims
against any and all of the Defendants, their past or present subsidiaries,
parents, affiliates, successors, predecessors, and insurers, and each of their
present or former officers, directors, shareholders, employees, attorneys,
advisors, investment advisors, underwriters, investment bankers, and
accountants, and any person, firm, trust, corporation, officer, director or
other individual or entity in which any Defendant has a controlling interest or
which is related to or affiliated with any of the Defendants, and the legal
representatives, agents, heirs, estates, successors in interest, or assigns of
the Defendants (collectively the "Released Persons").
15. "Settled Claims" means all claims, including both known claims and
Unknown Claims, demands, rights, liabilities and causes of action of every
nature and description whatsoever, whether in contract, tort, equity or
otherwise, whether or not
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<PAGE> 50
concealed or hidden, asserted or that might have been asserted, including
without limitation, claims for negligence, gross negligence, indemnification,
breach of duty of care and/or breach of duty of loyalty, fraud, breach of
fiduciary duty, or violations of any state or federal statutes, rules or
regulations (including, without limitation, under any insider trading
prohibition, or any antifraud provision of the Securities Act of 1933, the
Securities Exchange Act of 1934, or similar provisions of any state statute,
regulation or common law provision of any state) by any Class Member against the
Released Persons (i) that arise out of, now or hereafter, or relate, directly or
indirectly, to the purchase or sale of Cyrk common stock by any Class Member
during the Class Period and (a) the Company's Offering of Cyrk common stock in
December 1994, or (b) the Company's public disclosures during the Class Period,
or (c) this Stipulation And Agreement Of Settlement (except for actions to
enforce compliance with the terms hereof), or (d) any matters, transactions or
occurrences referred to in the Complaint or this Stipulation, or (ii) that are,
were or could have been alleged in any court or forum by Plaintiff or any Class
Member, either directly, indirectly, representatively or in any other capacity,
based upon, relating to, or arising from the facts which were, or could have
been, alleged in the Complaint and relating, directly or indirectly, to the
purchase or sale of Cyrk common stock during the Class Period, or (iii) that
arise out of, now or hereafter, or relate, directly or indirectly, to the sale
of any Cyrk stock during the Class Period by any Defendant.
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<PAGE> 51
16. "Unknown Claims" means any Settled Claims which Plaintiff or any
Class Member does not know or suspect to exist in his, her or its favor at the
time of the release of the Released Persons which if known by him, her or it
might have affected his, her or its decision not to object to this settlement.
With respect to any and all Settled Claims the parties stipulate and agree that,
upon the Effective Date of the Settlement, Plaintiff shall expressly and the
Class Members shall be deemed to have, and by operation of the Order and Final
Judgment shall have, expressly waived and relinquished, to the fullest extent
permitted by law, the provisions, rights and benefits of ss. 1542 of the
California Civil Code, or any law of any state or territory of the United
States, or principle of common law, which is similar, comparable or equivalent
to ss. 1542 of the California Civil Code, which provides:
A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor.
Plaintiff and the members of the Class may hereafter discover facts in addition
to or different from those which he, she or it now knows or believes to be true
with respect to the subject matter of the Settled Claims but the release herein
provided shall expressly include all such Unknown Claims.
17. The Stipulation provides that the Defendants may withdraw from and
terminate the Settlement in the event that claimants representing in excess of a
certain amount of shares of Cyrk common stock exclude themselves from the Class.
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<PAGE> 52
18. The Settlement will become effective at such time as Orders
entered by the Court approving the Settlement shall become final and not subject
to appeal (including any review by WRIT OF CERTIORARI) (the "Effective Date").
PLAN OF ALLOCATION OF SETTLEMENT PROCEEDS AMONG CLASS MEMBERS
19. The $13,650,000 Settlement Amount and the interest earned thereon
shall be the Gross Settlement Fund. The Gross Settlement Fund, less all taxes,
approved costs, attorneys' fees and litigation expenses and administration
expenses (the "Net Settlement Fund") shall be distributed to members of the
Class who file acceptable Proofs of Claim ("Authorized Claimants") in proportion
to their "Recognized Claim" as defined below.
20. An Authorized Claimant's "Recognized Claim" shall be calculated as
follows:
a. for each share of Cyrk purchased from 5/10/94 through 1/9/95,
inclusive, and:
(1) Retained after 5/1/95, Recognized Claim equals the lesser of (i)
purchase price per share minus $10.875 per share (the average closing
price for the three-day period following the end of the Class Period)
if a loss, or (ii) $14.71 per share;
(2) Sold between 1/10/95 and 5/1/95 inclusive, Recognized Claim equals
the lesser of (i) purchase price per share minus the sales price per
share, if a loss, or (ii) $11.46 per share;
(3) Sold before 1/10/95, Recognized Claim equals zero;
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<PAGE> 53
b. for each share of Cyrk purchased from 1/10/95 through 5/1/95,
inclusive, and:
(1) Retained after 5/1/95, Recognized Claim equals the lesser of (i)
the purchase price per share minus $10.875 per share, or (ii) $3.25 per share;
(2) Sold on or before 5/1/95, Recognized Claim equals zero.
21. In computing the Recognized Claim, any brokerage commissions,
taxes and fees paid shall be included in the purchase price and deducted from
the sales price. In the event that an Authorized Claimant bought and sold Cyrk
common stock more than once during the Class Period, each such sale shall be
matched against each such purchase on a First-In-First-Out basis.
22. In computing each Authorized Claimant's Recognized Claim, the
Recognized Claim per share for all Cyrk shares purchased during the Class Period
will be totalled. In the event that an Authorized Claimant sustained a profit on
any Cyrk transactions during the Class Period, such a gain will be deducted from
the Claimant's total Recognized Claim and the result will constitute the
Authorized Claimant's "Net Recognized Claim."
23. The Net Recognized Claim computation is not intended to be an
estimate of what a Class Member might have been able to recover at trial, and it
is not an estimate of the amount that will be paid pursuant to this Settlement.
Instead, this computation is only a method to weigh Class Members' claims
against one another. Each Authorized Claimant will receive a pro-rata share of
the Net
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<PAGE> 54
Settlement Fund based on his, her or its Net Recognized Claim.
24. Short sales will be included as sales herein and covered short
sales will be included as purchases herein. Shares sold short during the Class
Period and still short as of May 2, 1995 will be considered to have been covered
at $10.875 per share. Shares sold short prior to the Class Period and covered
during the Class Period will have the sales price matched to the covering
purchase price.
25. Authorized Claimants shall receive their PRO-RATA share of the Net
Settlement Fund based upon the ratio of the Authorized Claimant's Net Recognized
Claim to the total Net Recognized Claims of all Authorized Claimants. Therefore,
if the Net Settlement Fund is less than the total of the Recognized Claims of
all Authorized Claimants, the amount each Authorized Claimant receives will be
less than his, her or its Net Recognized Claim; conversely, if the Net
Settlement Fund is more than the total of the Recognized Claims of all
Authorized Claimants, the amount each Authorized Claimant receives will be more
than his, her or its Net Recognized Claim.
26. The computation of Recognized Claims will be the responsibility of
the Claims Administrator.
27. Class Members who do not file acceptable Proofs of Claim will not
share in the settlement proceeds. Class Members who do not either file a request
for exclusion or file acceptable Proofs of Claim will nevertheless be bound by
the Judgment and the Settlement.
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<PAGE> 55
THE RIGHTS OF CLASS MEMBERS
28. The Court has certified this action to proceed as a class action.
If you purchased common stock of Cyrk during the period between May 10, 1994 and
May 1, 1995, inclusive, and you sustained damage as a result of such purchases,
then you are a Class Member. Class Members have the following options pursuant
to Rule 23(c)(2) of the Federal Rules of Civil Procedure:
(a) If you wish to remain a member of the Class you may share in the
proceeds of the settlement, provided that you submit an acceptable Proof of
Claim. Class Members will be represented by the Plaintiff and his counsel,
unless you enter an appearance through counsel of your own choice at your own
expense. You are not required to retain your own counsel, but if you choose to
do so, such counsel must file an appearance on your behalf on or before
___________, 1998, and must serve copies of such appearance on the attorneys
listed in Paragraph 36 below.
(b) If you do not wish to remain a member of the Class you may exclude
yourself from the Class by following the instructions in Paragraph 34 below.
Persons who exclude themselves from the Class will NOT receive any share of the
settlement proceeds and will not be bound by the Settlement.
FILING AND PROCESSING OF PROOFS OF CLAIM
29. TO BE ELIGIBLE TO RECEIVE ANY DISTRIBUTION FROM THE SETTLEMENT
FUND, YOU MUST COMPLETE AND SIGN THE ATTACHED PROOF OF CLAIM AND RELEASE FORM
AND SEND IT BY PREPAID FIRST CLASS MAIL
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<PAGE> 56
POST-MARKED ON OR BEFORE ______________, 1998, ADDRESSED AS FOLLOWS:
Claims Administrator
Cyrk Securities Litigation
Post Office Box ___
___________, _______ __________
30. IF YOU DO NOT FILE A PROPER PROOF OF CLAIM FORM, YOU WILL NOT BE
ENTITLED TO ANY SHARE OF THE SETTLEMENT FUND.
31. IF YOU ARE A CLASS MEMBER AND YOU DO NOT PROPERLY EXCLUDE YOURSELF
FROM THE CLASS, YOU WILL BE BOUND BY THE SETTLEMENT AND THE FINAL JUDGMENT OF
THE COURT DISMISSING THIS LITIGATION, EVEN IF YOU DO NOT FILE A PROOF OF CLAIM.
IF YOU EXCLUDE YOURSELF, YOU WILL NOT BE BOUND BY THE JUDGMENT BUT YOU WILL NOT
BE ENTITLED TO ANY SHARE OF THE SETTLEMENT FUND.
32. All Proofs of Claim must be submitted by the date specified in
this Notice unless such period is extended by Order of the Court.
33. Each Claimant shall be deemed to have submitted to the
jurisdiction of the United States District Court for the Southern District of
New York with respect to his, her or its claim.
EXCLUSION FROM THE SETTLEMENT
34. Each Member of the Class shall be bound by all determinations and
the Judgment in this action unless such person shall mail, by first class mail,
a written request for exclusion from the Class, postmarked no later than
________, 1998, addressed to Cyrk Securities Litigation Exclusions, C/O Claims
Administrator,
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<PAGE> 57
[Post Office Box , city, state, zip code]. No person may exclude himself from
the Settlement Class after that date. To be valid, each such request for
exclusion must set forth the following information with respect to the person
requesting exclusion: name, address, Social Security or Taxpayer Identification
Number, the number of shares of Cyrk common stock purchased during the Class
Period and the price paid therefor, and the number of shares of Cyrk common
stock sold during the class period and the amount received therefor, and the
number of shares still owned as of the close of trading on May 1, 1995. If a
request for exclusion does not include all of the foregoing information, it may
not be a valid request for exclusion.
SETTLEMENT HEARING
35. At the Settlement Hearing, the Court will determine whether to
finally approve this Settlement and dismiss the Litigation and the claims of the
Class. The Court will also determine whether the terms of the Plan of Allocation
for the Net Settlement Fund are fair and reasonable and in the best interests of
the Class. At or after the Settlement Hearing the Court will also be asked to
consider the application of Plaintiff's counsel for an award of attorneys' fees
and reimbursement of expenses. The Settlement Hearing may be adjourned from time
to time by the Court without further written notice to the Class.
36. At the Settlement Hearing, any Class member who has not filed a
Request for Exclusion from the Class may appear in person or by counsel and be
heard to the extent allowed by the
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<PAGE> 58
Court in opposition to the fairness, reasonableness and adequacy of the
Settlement, the Plan of Allocation, or the application for an award of
attorneys' fees and reimbursement of expenses. Provided, however, that no person
shall be heard in opposition to the Settlement, Plan of Allocation or
plaintiff's counsel's application for attorneys' fees and expenses and no paper
or brief submitted by any such person shall be accepted or considered by the
Court, unless, on or before _________, 1998, such person (a) files with the
Clerk of the Court notice of such person's intention to appear, together with a
statement that indicates the basis for such opposition, along with any
documentation in support of such objection, and (b) simultaneously serves copies
of such notice, statement and documentation, together with copies of any other
papers or briefs such person files with the Court, in person or by mail upon
Plaintiff's Counsel:
Robert N. Kaplan, Esq. David J. Bershad, Esq.
KAPLAN, KILSHEIMER & FOX LLP MILBERG WEISS BERSHAD
685 Third Avenue HYNES & LERACH LLP
New York, NY 10017 One Pennsylvania Plaza
(212) 687-1980 New York, NY 10119
(212) 594-5300
Glen DeValerio, Esq.
BERMAN, DEVALERIO & PEASE LLP
One Liberty Square
Boston, MA 02109
(617) 542-8300
and upon Defendants' Counsel:
Bruce S. Kaplan, Esq. Mitchell H. Kaplan, Esq.
FRIEDMAN KAPLAN & SEILER LLP CHOATE, HALL & STEWART
875 Third Avenue Exchange Place
New York, New York 10022 53 State Street
Boston, Massachusetts 02109
Douglas M. Schwab, Esq.
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HELLER, EHRMAN, WHITE & McAULIFFE
333 Bush Street
San Francisco, CA 94104-2878
ATTORNEYS' FEES AND DISBURSEMENTS
37. At the Settlement Hearing or at such other time as the Court may
direct, class counsel intend to apply to the Court for an award of attorneys'
fees from the Settlement Fund in an amount not greater than one-third of the
Gross Settlement Fund and for reimbursement of their actual, out-of-pocket
expenses up to a maximum amount of $__________, plus interest at the same rate
as earned by the Settlement Fund. Plaintiff's counsel, without further notice to
the Class, may subsequently apply to the Court for fees and expenses incurred in
connection with administering and distributing the settlement proceeds to the
members of the Class.
FURTHER INFORMATION
38. For a more detailed statement of the matters involved in this
Litigation, reference is made to the pleadings, to the Stipulation, to the
Orders entered by the Court and to the other papers filed in the Litigation,
which may be inspected at the Office of the Clerk of the United States District
Court for the Southern District of New York, United States Courthouse, 500 Pearl
Street, New York, New York 10007, during regular business hours.
39. ALL INQUIRIES CONCERNING THIS NOTICE OR THE PROOF OF CLAIM FORM BY
CLASS MEMBERS SHOULD BE MADE TO THE CLAIMS ADMINISTRATOR IN WRITING. NO
INQUIRIES SHOULD BE DIRECTED TO THE COURT.
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<PAGE> 60
SPECIAL NOTICE TO
SECURITIES BROKERS AND OTHER NOMINEES
40. If you purchased common stock of Cyrk, Inc. during the Class
Period for the beneficial interest of a person or organization other than
yourself, the Court has directed that within seven days of your receipt of this
Notice; you either (a) provide to the Claims Administrator the name and last
known address of each person or organization for whom or which you purchased
such stock during such time period or (b) you request additional copies of this
Notice and the Proof of Claim form, which will be provided to you free of
charge, and within seven days mail the Notice and Proof of Claim form directly
to the beneficial owners of the securities referred to herein. If you choose to
follow this alternative procedure (b), the Court has ordered that you must, upon
such mailing, send a statement to the Claims Administrator confirming that the
mailing was made as directed. You are entitled to reimbursement from the
Settlement Fund of your reasonable expenses actually incurred in connection with
the foregoing, including reimbursement of postage expense and the cost of
ascertaining the names and addresses of beneficial owners. Those expenses will
be paid upon request and submission of appropriate supporting documentation to
the Claims Administrator. All
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communications concerning the foregoing should be addressed to the
Claims Administrator:
Claims Administrator
Cyrk Securities Litigation
P.O. Box ______
_____________, _______ _________
Dated: New York, New York
______________, 1998
By Order of the Court
---------------------
CLERK OF THE COURT
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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
- --------------------------------------------x
BARRY HALLET, JR., On Behalf Of :
Himself and All Others Similarly :
Situated, :
:
Plaintiff, : Civil Action No.
:
-v- : 95 Civ. 8917 (JSM)
:
LI & FUNG, LTD., LI & FUNG (B.V.I.) :
LIMITED, LF INTERNATIONAL, INC., :
PATRICK BRADY, GREGORY SHLOPAK, :
JOSEPH BARTLETT, MICHAEL HSIEH :
and CYRK, INC., :
:
Defendants. :
- --------------------------------------------x
PROOF OF CLAIM AND RELEASE
DEADLINE FOR SUBMISSION: _____________, 1998.
IF YOU PURCHASED COMMON STOCK OF CYRK, INC. ("CYRK") DURING THE PERIOD
FROM MAY 10, 1994 THROUGH MAY 1, 1995, INCLUSIVE ("CLASS PERIOD"), AND
WERE DAMAGED THEREBY YOU ARE A "CLASS MEMBER" AND YOU MAY BE ENTITLED
TO SETTLEMENT PROCEEDS. (EXCLUDED FROM THE CLASS ARE THE DEFENDANTS IN
THIS ACTION, THEIR IMMEDIATE FAMILY MEMBERS, AND THE DIRECTORS,
OFFICERS, SUBSIDIARIES AND AFFILIATES OF CYRK, AND ANYONE WHO FILED A
REQUEST FOR EXCLUSION IN ACCORDANCE WITH THE REQUIREMENTS SET FORTH IN
THE NOTICE.)
IF YOU ARE A CLASS MEMBER, YOU MUST COMPLETE AND SUBMIT THIS FORM IN
ORDER TO BE ELIGIBLE FOR ANY SETTLEMENT BENEFITS.
YOU MUST COMPLETE AND SIGN THIS PROOF OF CLAIM AND MAIL IT BY PRE-PAID,
FIRST CLASS MAIL, POSTMARKED NO LATER THAN _____________, 1998 TO THE
FOLLOWING ADDRESS:
Claims Administrator
Cyrk Securities Litigation
Post Office Box ___
____________, _______ ________
YOUR FAILURE TO SUBMIT YOUR CLAIM BY ________, 1998 WILL SUBJECT YOUR
CLAIM TO REJECTION AND PRECLUDE YOUR
<PAGE> 63
RECEIVING ANY MONEY IN CONNECTION WITH THE SETTLEMENT OF THIS
LITIGATION. DO NOT MAIL OR DELIVER YOUR CLAIM TO THE COURT OR TO ANY OF
THE PARTIES OR THEIR COUNSEL AS ANY SUCH CLAIM WILL BE DEEMED NOT TO
HAVE BEEN SUBMITTED. SUBMIT YOUR CLAIM ONLY TO THE CLAIMS
ADMINISTRATOR.
I. I did ___, I did not ___ (check one) purchase the Common Stock of
Cyrk, Inc. during the period from May 10, 1994 through May 1, 1995, inclusive.
II. By submitting this Proof of Claim, I state that I believe in good
faith that I am a Class member as defined above and in the Notice Of Pendency Of
Class Action, Proposed Settlement Thereof, Settlement Hearing And Right To Share
In Settlement Fund (the "Notice"), or am acting for such person; that I have
read and understand the Notice; that I believe that I am entitled to receive a
share of the Net Settlement Fund; and that I elect to participate in the
proposed Settlement described in the Notice.
III. I have set forth where requested below all relevant information
with respect to each purchase of Cyrk common stock, during the Class Period, and
each sale, if any, of such securities.
IV. I have enclosed photocopies of the stockbroker's confirmation
slips, stockbroker's statements, relevant portions of my tax returns or other
documents evidencing each purchase, sale or retention of Cyrk common stock
listed below in support of my claim. IF ANY SUCH DOCUMENTS ARE NOT IN YOUR
POSSESSION, PLEASE OBTAIN A COPY OR EQUIVALENT DOCUMENTS FROM YOUR BROKER OR TAX
ADVISOR BECAUSE THESE DOCUMENTS ARE NECESSARY TO PROVE AND PROCESS YOUR CLAIM.
V. I understand that the information contained in this
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<PAGE> 64
Proof of Claim is subject to such verification as the Court may direct, and I
agree to cooperate in any such verification.
VI. I further agree and understand that if the proposed Settlement is
approved by the Court and becomes effective all Settled Claims (as defined in
the Notice) that I may have against all Released Persons (as defined in the
Notice) will be satisfied, discharged and extinguished forever.
VII. STATEMENT OF CLAIM
Name(s) of Beneficial Owner(s):
_______________________________________________________________________
Name
_______________________________________________________________________
Name
_______________________________________________________________________
Street No.
___________________________________ _______________ ________
City State Zip Code
_______________________________________________________________________
( ) ( )
___________________ _____________________
Telephone No. (Day) Telephone No. (Night)
_______________________________________________________________________
Taxpayer I.D. No. or Social Security No.
Check one:
___ Individual ___ Corporation ___ Estate
___ Other _____________________________________________________________
(specify)
_______________________________________________________________________
Record Owner's Name (if different from Beneficial
Owner listed above)
- 3 -
<PAGE> 65
A. At the close of business on May 9, 1994 I owned ______ shares of
Cyrk common stock.
B. I made the following purchases of Cyrk common stock during the
period from May 10, 1994 through May 1, 1995, inclusive. (Persons who received
Cyrk common stock during the Class Period other than by purchase are not
eligible to file claims for those transactions.)
Date(s) of Purchase Aggregate
Purchase Number of Price Per Cost (including
(List Chrono- Shares of Share of commission,
logically) Common Stock Common Stock taxes and fees)
- ------------- ------------ ------------ ---------------
______________ ______________ $______________ $______________
______________ ______________ $______________ $______________
______________ ______________ $______________ $______________
______________ ______________ $______________ $______________
C. I made the following sales of Cyrk common stock during the period
May 10, 1994 through May 1, 1995, inclusive:
Date(s) of Number of Proceeds
Sale (List Shares of Sales Price (net of
Chronologically) Common Stock Per Share of commission,
Month/Day/Year Sold Common Stock taxes and fees)
- -------------- ------------ ------------ ---------------
______________ ______________ $______________ $______________
______________ ______________ $______________ $______________
______________ ______________ $______________ $______________
______________ ______________ $______________ $______________
D. At the close of business on May 1, 1995, I still owned ____ shares
of Cyrk common stock.
- 4 -
<PAGE> 66
VIII. SUBSTITUTE FORM W-9
Request for Taxpayer Identification Number: Enter taxpayer
identification number below for the Beneficial Owner(s). For most individuals,
this is your Social Security number. The Internal Revenue Service ("I.R.S.")
requires such taxpayer identification number. If you fail to provide this
information, your claim may be rejected.
_______________________________________________________________________
Social Security Number
(for individuals) or
_______________________________________________________________________
Employer Identification Number
(for estates, trusts, corporations, etc.)
IX. CERTIFICATION
UNDER THE PENALTIES OF PERJURY, I (WE) CERTIFY THAT ALL OF THE
INFORMATION PROVIDED ON THIS FORM IS TRUE, CORRECT AND COMPLETE.
I (We) certify that I am (we are) NOT subject to backup withholding
under the provisions of Section 3406 (a)(1)(c) of the Internal Revenue Code
because: (a) I am (We are) exempt from backup withholding, or (b) I (We) have
not been notified by the I.R.S. that I am (we are) subject to backup withholding
as a result of a failure to report all interest or dividends, or (c) the I.R.S.
has notified me (us) that I am (we are) no longer subject to backup withholding.
NOTE: If you have been notified by the I.R.S. that you are subject to backup
withholding, please strike out the
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<PAGE> 67
language that you are not subject to backup withholding in the certification
above.
Signature of Claimant (If this
claim is being made on behalf of
Joint Claimants, then each must sign)
____________________________________________
(Signature)
____________________________________________
(Signature)
Date: ______________________________________
THIS PROOF OF CLAIM MUST BE SUBMITTED NO LATER THAN _________ , 1998,
AND MUST BE MAILED TO:
Claims Administrator
Cyrk Securities Litigation
Post Office Box ___
____________, _______ _________
A Proof of Claim received by the Claims Administrator shall be deemed
to have been submitted when posted, if mailed by _____________, 1998, and if a
postmark is indicated on the envelope and it is mailed first class postage
prepaid, and addressed in accordance with the above instructions. In all other
cases, a Proof of Claim shall be deemed to have been submitted when actually
received by the Claims Administrator.
If you wish to be assured that your Proof of Claim is actually received
by the Claims Administrator then you should send it by Certified Mail, Return
Receipt Requested. No acknowledgment will be made as to the receipt of claim
forms. You should be aware that it will take a significant amount of time to
process fully all of the Proofs of Claim and to administer the Settlement. This
work
- 6 -
<PAGE> 68
will be completed as promptly as time permits, given the need to investigate and
tabulate each Proof of Claim.
- 7 -
<PAGE> 69
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
- --------------------------------------------x
BARRY HALLET, JR., On Behalf Of :
Himself and All Others Similarly :
Situated, :
:
Plaintiff, : Civil Action No.
:
-v- : 95 Civ. 8917 (JSM)
:
LI & FUNG, LTD., LI & FUNG (B.V.I.) :
LIMITED, LF INTERNATIONAL, INC., :
PATRICK BRADY, GREGORY SHLOPAK, :
JOSEPH BARTLETT, MICHAEL HSIEH :
and CYRK, INC., :
:
Defendants. :
- --------------------------------------------x
SUMMARY NOTICE OF PENDENCY OF CLASS ACTION,
PROPOSED SETTLEMENT AND SETTLEMENT HEARING
TO: ALL PERSONS WHO PURCHASED COMMON STOCK OF CYRK, INC. ("CYRK") DURING
THE PERIOD FROM MAY 10, 1994 THROUGH MAY 1, 1995, INCLUSIVE, AND WERE
DAMAGED THEREBY (THE "CLASS").
YOU ARE HEREBY NOTIFIED, pursuant to Rule 23 of the Federal Rules of
Civil Procedure and an Order of Court, that the above-captioned action has been
certified as a class action, and that a settlement for $13,650,000 has been
proposed. A hearing will be held before the Honorable John S. Martin in
Courtroom No. ___ of the United States Courthouse, 500 Pearl Street, New York,
New York, at ____, on ___________, 1998 to determine whether the proposed
settlement should be approved by the Court as fair, reasonable and adequate, and
to consider the application of Class Counsel for attorneys' fees and
reimbursement of expenses.
IF YOU ARE A MEMBER OF THE CLASS DESCRIBED ABOVE, YOUR RIGHTS WILL BE
AFFECTED AND YOU MAY BE ENTITLED TO SHARE IN THE
<PAGE> 70
SETTLEMENT FUND. If you have not yet received the full printed Notice of
Pendency of Class Action, Proposed Settlement and Settlement Hearing and a Proof
of Claim form, you may obtain copies of these documents by identifying yourself
as a member of the Class and by writing to:
Claims Administrator
Cyrk Securities Litigation
Post Office Box ___
____________, ___ ________
Inquiries, other than requests for the forms of Notice and Proof of Claim, may
be made to Plaintiff's Counsel:
Robert N. Kaplan, Esq. David J. Bershad, Esq.
KAPLAN, KILSHEIMER & FOX LLP MILBERG WEISS BERSHAD
685 Third Avenue HYNES & LERACH LLP
New York, NY 10017 One Pennsylvania Plaza
(212) 687-1980 New York, NY 10119
(212) 594-5300
Glen DeValerio, Esq.
BERMAN, DEVALERIO & PEASE LLP
One Liberty Square
Boston, MA 02109
(617) 542-8300
To participate in the Settlement, you must file a Proof of Claim
postmarked no later than ___________, 1998. To exclude yourself from the Class
you must file a request for exclusion postmarked no later than ___________,
1998. IF YOU ARE A CLASS MEMBER AND DO NOT EXCLUDE YOURSELF OR DO NOT FILE A
PROPER PROOF OF CLAIM, YOU WILL NOT SHARE IN THE SETTLEMENT BUT YOU WILL BE
BOUND BY THE FINAL ORDER AND JUDGMENT OF THE COURT.
Further information may be obtained by directing your inquiry in
writing to the Claims Administrator.
- 2 -
<PAGE> 71
PLEASE DO NOT CONTACT THE COURT OR THE CLERK'S OFFICE FOR INFORMATION.
By Order of The Court
- 3 -
<PAGE> 72
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
- --------------------------------------------x
BARRY HALLET, JR., On Behalf Of :
Himself and All Others Similarly :
Situated, :
:
Plaintiff, : Civil Action No.
:
-v- : 95 Civ. 8917 (JSM)
:
LI & FUNG, LTD., LI & FUNG (B.V.I.) :
LIMITED, LF INTERNATIONAL, INC., :
PATRICK BRADY, GREGORY SHLOPAK, :
JOSEPH BARTLETT, MICHAEL HSIEH :
and CYRK, INC., :
:
Defendants. :
- --------------------------------------------x
ORDER AND FINAL JUDGMENT
A hearing having been held before this Court on the ______ day of
_______________, 1998, to determine, INTER ALIA: (1) whether the terms and
conditions of the Stipulation and Agreement of Settlement, dated April ______,
1998 (the "Stipulation") are fair, reasonable and adequate for the settlement of
all claims asserted by the Class against the Defendants in the complaint now
pending in this Court in this Action, including the release of the Defendants
and the Released Persons and should be approved; and (2) whether judgment should
be entered dismissing the Complaint on the merits and with prejudice in favor of
the Defendants and as against all persons or entities who are members of the
certified Class herein who have not requested exclusion therefrom. The Court
having considered all matters submitted to it at the hearing and otherwise; and
it appearing that a notice of the hearing
<PAGE> 73
substantially in the form approved by the Court was mailed to all persons or
entities reasonably identifiable, who purchased common stock of Cyrk, Inc.
("Cyrk") during the period from May 10, 1994 through May 1, 1995, inclusive, as
shown by the records of Cyrk's transfer agent, at the respective addresses set
forth in such records, and that a summary notice of the hearing substantially in
the form approved by the Court was published in the national edition of THE NEW
YORK TIMES pursuant to the specifications of the Court; and all capitalized
terms used herein having the meanings as set forth and defined in the
Stipulation.
NOW, THEREFORE, IT IS HEREBY ORDERED THAT:
1. The Stipulation is approved as fair, reasonable and adequate, and
in the best interests of the Class, and the Class Members and the Parties are
directed to consummate the Stipulation in accordance with its terms and
provisions.
2. The forms and methods used for notifying the class of the pendency
and proposed settlement of this action provided the best notice practicable
under the circumstances and fully met the requirements of Rule 23 of the Federal
Rules of Civil Procedure and of due process. Such notification constituted due
and sufficient notice to all persons and entities entitled to notice of the
pendency of the action as a class action and of the terms of the Settlement.
3. The Complaint is hereby dismissed with
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<PAGE> 74
prejudice and without costs, except as provided in the Stipulation, as against
each and every one of the Defendants, their past or present subsidiaries,
parents, affiliates, successors, predecessors, and insurers, and each of their
present or former officers, directors, shareholders, employees, attorneys,
advisors, investment advisors, underwriters, investment bankers, and
accountants, and any person, firm, trust, corporation, officer, director or
other individual or entity in which any Defendant has a controlling interest or
which is related to or affiliated with any of the Defendants, and the legal
representatives, agents, heirs, estates, successors in interest, or assigns of
the Defendants.
4. Members of the Class (except as to members of the Class identified
in Exhibit 1 annexed hereto, each of whom have validly and timely filed requests
for exclusion from the Class and who may bring individual claims only) and the
successors and assigns of any of them, are hereby permanently barred and
enjoined from instituting, commencing or prosecuting, either directly or in any
other capacity, any Settled Claims against any of the Released Persons. The
Settled Claims are hereby compromised, settled, released, discharged and
dismissed as against the Released Persons on the merits and with prejudice by
virtue of the proceedings herein and this Order and Final Judgment. This release
of Settled Claims includes the release of Unknown Claims. As of the Effective
Date all Class members shall conclusively be deemed to have
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<PAGE> 75
acknowledged that the Settled Claims includes Unknown Claims. Plaintiff and all
members of the Class shall, as of the Effective Date, conclusively be deemed to
have waived the rights afforded by California Civil Code Section 1542 and any
other or similar statute or law, or principle of common law, of California or
any other jurisdiction.
5. Neither the Stipulation, nor any of its terms and provisions, nor
any of the negotiations or proceedings connected with it, nor any of the
documents or statements referred to therein shall be:
(a) offered or received against the Defendants as evidence of or
construed as or deemed to be evidence of any presumption, concession, or
admission by any of the Defendants of the truth of any fact alleged by Plaintiff
or the validity of any claim that had been or could have been asserted in the
Action or in any litigation, or the deficiency of any defense that has been or
could have been asserted in the Action or in any litigation, or of any
liability, negligence, fault, or wrongdoing of Defendants;
(b) offered or received against the Defendants as evidence of a
presumption, concession or admission of any fault, misrepresentation or omission
with respect to any statement or written document approved or made by any
Defendant, or against the Plaintiff and the Class as evidence of any infirmity
in the claims of Plaintiff and the Class;
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<PAGE> 76
(c) offered or received against the Defendants as evidence of a
presumption, concession or admission of any liability, negligence, fault or
wrongdoing, or in any way referred to for any other reason as against any of the
parties to this Stipulation, in any other civil, criminal or administrative
action or proceeding, other than such proceedings as may be necessary to
effectuate the provisions of this Stipulation; provided, however, that if this
Stipulation is approved by the Court, Defendants may refer to it to effectuate
the liability protection granted them hereunder; or
(d) construed against the Defendants or the Plaintiff and the
Class as an admission or concession that the consideration to be given hereunder
represents the amount which could be or would have been recovered after trial.
6. Notwithstanding their asserted, ongoing objection to the Court's
exercise of personal jurisdiction over them, defendants Li & Fung Limited and Li
& Fung (B.V.I.) Limited have consented to the jurisdiction of the Court for the
limited purpose of considering, approving and enforcing the Stipulation and its
terms. Neither the Stipulation and any proceedings taken pursuant to it, nor
this Order and Final Judgment, shall be offered or received against Li & Fung
Limited or Li & Fung (B.V.I.) Limited as evidence of, or construed as or deemed
to be evidence of, any presumption, concession or admission by either Li & Fung
Limited or Li & Fung (B.V.I.) Limited that any Court in the United States of
-5-
<PAGE> 77
America may properly exercise personal jurisdiction over either Li & Fung
Limited or Li & Fung (B.V.I.) Limited or that either Li & Fung Limited or Li &
Fung (B.V.I.) consent to the exercise of personal jurisdiction over them by any
Court in the United States of America in any other context.
7. Without affecting the finality of this Order and Final Judgment in
any way, exclusive jurisdiction is hereby retained over the Parties and the
Class Members for all matters relating to this litigation, including the
administration, interpretation, effectuation or enforcement of the Stipulation
and this Order and Final Judgment, including, without limitation, the injunction
set forth in paragraph 4 above.
8. Without further order of the Court, the Parties may agree to
reasonable extensions of time to carry out any of the provisions of the
Stipulation.
Dated: New York, New York
____________, 1998
__________________________________
JOHN S. MARTIN
UNITED STATES DISTRICT JUDGE
- 6 -
<PAGE> 1
EXHIBIT 10.2
AGREEMENT
This Agreement is entered into as of this 2nd day of April, 1998 by
and among (i) Grant & Partners Limited Partnership, a Delaware limited
partnership ("GPLP"), (ii) Cyrk, Inc., a Delaware corporation and sole limited
partner of GPLP ("Cyrk"), (iii) Grant & Partners, Inc., a Massachusetts
corporation and sole general partner of GPLP ("GP, Inc."), and (iv) Alan Grant
("Grant"). Grant shall be a party to this Agreement solely for purposes of
Sections 1 and 3 below.
WHEREAS, GPLP was formed under the Delaware Revised Uniform Limited
Partnership Act and is governed currently by that certain First Amended and
Restated Agreement of Limited Partnership, dated March 28, 1995 as amended by
the certain agreement entered into as of September 30, 1997 by and among GPLP,
Cyrk, GP, Inc. and Grant & Partners, LLC (the "Partnership Agreement").
WHEREAS, Cyrk and GP, Inc. desire to restructure GPLP.
In consideration of the mutual covenants contained herein and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:
1. ADMISSION OF NEW LIMITED PARTNER. Prior to giving effect to
Section 2 below, Cyrk and GP, Inc. each hereby consent to and approve the
admission of Grant as a Limited Partner to GPLP, effective as of the last
business day prior to the date of this Agreement, in accordance with Section 21
of the Partnership Agreement. By executing this Agreement, Grant hereby assumes
the rights and obligations of a Limited Partner under the Partnership Agreement,
pursuant to such additional terms and conditions as may be mutually agreed upon
between GP, Inc. and Grant after the date hereof.
2. WITHDRAWAL OF CYRK AS A LIMITED PARTNER. Upon execution of this
Agreement by the parties hereto and after giving effect to Section 1 above, Cyrk
hereby withdraws from GPLP in accordance with Section 14(b) of the Partnership
Agreement and relinquishes all of its right, title and interest in GPLP as a
Limited Partner under the Partnership Agreement.
3. TRANSFER TO CYRK OF CERTAIN OF GPLP'S EQUITY INTERESTS IN EXCHANGE
APPLICATIONS, INC. ("EA"). Simultaneously herewith, GP, Inc. has caused GPLP to
distribute to Cyrk all of GPLP's right, title and interest in (i) 1,150,000
shares of Common Stock, $.001 par value per share, of EA (the "Cyrk EA Common
Shares"), and (ii) 377,408 shares of Series A Preferred Stock, $.001 par value
per share, of EA (the "Cyrk EA Preferred Shares").
4. TRANSFER TO ESCROW AGENT OF CERTAIN OF GPLP'S EQUITY INTERESTS IN
EA. Simultaneously herewith, GP, Inc. has caused GPLP to transfer to Michael
Murphy, Esq. (the
<PAGE> 2
"Escrow Agent") 155,250 shares of Common Stock, $.001 par value per share, of
EA (the "Escrow Shares") to be subsequently delivered by the Escrow Agent to
Cyrk or GPLP, as the case may be, in accordance with the terms and conditions
of this Agreement and the escrow agreement of even date herewith that is
attached as EXHIBIT A hereto (the "Escrow Agreement").
5. DISTRIBUTION OF ESCROW SHARES PRIOR TO OCTOBER 1, 1999. If an EA
Valuation Event, defined below, occurs prior to October 1, 1999 where the Cyrk
EA Implied Common Share Value, defined below, exceeds $8,200,000, then the
Escrow Shares shall be returned to GPLP.
6. DISTRIBUTION OF ESCROW SHARES AS OF OCTOBER 1, 1999. If prior to
October 1, 1999, there has not been an EA Valuation Event which results in a
Cyrk EA Implied Common Share Value exceeding $8,200,000, then Cyrk and Grant
shall mutually agree on the value of the Cyrk EA Common Shares as of October 1,
1999 and if the agreed amount exceeds $8,200,000, then the Escrow Shares shall
be returned to GPLP. Otherwise, the Escrow Shares shall be delivered to Cyrk. If
Cyrk and Grant cannot agree on the valuation of the Cyrk EA Common Shares, they
shall submit the matter to binding arbitration in accordance with Section 12 of
this Agreement.
7. CERTAIN DEFINITIONS. "EA Valuation Event" shall mean (i) any sale
of all or a majority of the assets of EA (an "Asset Sale"), (ii) any merger,
consolidation, sale or other transaction which results in a change of ownership
in more than 50% of the voting capital stock of EA (a "Change-of-Ownership
Transaction"), (iii) any issuance of equity securities by EA for consideration
greater than or equal to $5,000,000 (an "Equity Transaction"), (iv) ten
successive trading days on NASDAQ NMS, the New York Stock Exchange or the
American Stock Exchange of EA Common Shares which produces a Cyrk EA Implied
Common Share Value exceeding $8,200,000 based on the average of the closing sale
prices (the "Average Closing Price") for such ten trading days (a "Stock Market
Transaction") or (v) a sale or series of sales by Cyrk of more than 50% of the
Cyrk EA Common Shares (a "Cyrk Sale").
"Cyrk EA Implied Common Share Value" shall mean the going concern
value of EA attributable to the Cyrk EA Common Shares, regardless of whether
Cyrk continues to own the Cyrk EA Common Shares, derived from the consideration
received by EA or EA shareholders in an EA Valuation Event determined in good
faith by the mutual agreement of Grant and Cyrk or absent such agreement by
arbitration. In determining the Cyrk EA Implied Common Share Value, the
following principles shall be applied. In an Asset Sale, the EA Implied Common
Share Value shall be based on the after tax consideration received by EA as well
as the residual fair value of any assets retained by EA in excess of the
retained liabilities of EA. In a Change-of-Ownership Transaction, the common
equivalent per share consideration received by selling shareholders of EA shall
be multiplied by 1,150,000 to determine the Cyrk EA Implied Common Share Value.
In an Equity Transaction, the Cyrk EA Implied Common Share Value shall be the
common equivalent per share consideration received by EA multiplied by
1,150,000. In a Stock Market Transaction, the Cyrk EA Implied Common Share Value
shall be determined by multiplying the Average Closing Price for the ten
successive trading days by 1,150,000. In a Cyrk Sale, the Cyrk EA Implied Common
Share Value shall be determined by multiplying the per share consideration
received by Cyrk by 1,150,000.
-2-
<PAGE> 3
8. RELINQUISHMENT OF RIGHTS. Cyrk hereby relinquishes all of its
rights under that certain Agreement dated as of September 30, 1997 (the "9/30
Agreement") by and among GPLP, Cyrk, GP, Inc, Grant and Grant & Partners, LLC, a
Massachusetts limited liability company, including without limitation, (i) the
distribution preferences provided for in Section 2.1, (ii) the remainder
distributions provided for in Section 2.3, (iii) the license restrictions in
Sections 5.3 and 5.4, (iv) the provisions relating to the election of GP, Inc.
directors provided for in Section 7.1, (v) the provisions relating to the
transfer of GP, Inc. shares provided for in Section 7.2, (vi) the Grant
non-competes provided for in Sections 8.1 through 8.3, and (vii) the various
covenants contained in Sections 9.1 and 9.2. GPLP hereby relinquishes any rights
it may have under the 9/30 Agreement, including without limitation, its interest
under Section 11, in the 2,522,592 shares of Series A Preferred Stock, $.001 par
value per share, of EA, previously issued to Cyrk and the other residual
interests set described therein.
9. NO OTHER OBLIGATIONS; MUTUAL RELEASES. Each of Cyrk and GP, Inc
hereby confirm to each other and on behalf of their respective affiliates that,
except as otherwise provided in this Agreement, there are no other contractual
or equitable undertakings or obligations between Cyrk and its affiliates on the
one hand and GP, Inc. and its affiliates on the other. Each of Cyrk and GP, Inc.
hereby releases and forever discharges the other and each of their respective
officers, directors, employees, affiliates and agents (the "Releasees") from all
debts, demands, actions, contracts, damages, and any and all claims, demands and
liabilities which such party may now have or ever had against the Releasees
except for the obligations created by this Agreement and the Escrow Agreement.
10. FURTHER ASSURANCES. In case at any time after the date hereof any
further action is necessary to carry out the purposes of this Agreement, each of
the parties hereto hereby agrees to take such further action (including the
execution and delivery of such further instruments and documents) as any other
party reasonably may request, all at the sole cost and expense of the requesting
party.
11. INFORMATION. Cyrk and GP, Inc. shall each cooperate with the
other after the date hereof by providing without additional consideration and
promptly upon request, copies of such records and other information regarding
GPLP as may reasonably be requested from time to time by Cyrk or GP, Inc., as
the case may be, and in particular as necessary for the preparation or audit of
federal, state and local income and other tax returns, audits, third party
disputes, refund claims and other valid business purposes.
12. ARBITRATION. Subject to Section 13.2 hereof, all controversies or
claims arising among the parties hereto (or their respective successors or
permitted assigns) that are not resolved within thirty (30) days after a party
notifies the others in writing of the controversy or claim, shall be submitted
for arbitration on demand any of such parties. Such arbitration proceedings will
be conducted in Boston, Massachusetts, and except as otherwise provided in this
Agreement, will be conducted in accordance with the then-current Commercial
Arbitration Rules of the American Arbitration Association. There shall be three
arbitrators. Cyrk and GPLP each shall appoint one arbitrator and the two so
appointed shall appoint a third. If either party shall refuse to appoint an
arbitrator within fourteen (14) days of demand by the other, the arbitration
shall proceed without said arbitrator. The arbitrators will have the right to
award or
-3-
<PAGE> 4
include in the award any relief which they deem proper in the circumstances,
including, but not limited to, money damages, interest on unpaid amounts,
specific performance and other injunctive relief, and reimbursement of
arbitration costs. The award and decision of a majority of the arbitrators will
be conclusive and binding, and judgment on the award may be entered in any court
of competent jurisdiction. Each party hereto, for itself and its respective
successors and permitted assigns, acknowledges that any arbitration award may be
enforced in a court of competent jurisdiction and waives any right to contest
the validity or enforceability of such award.
13. MISCELLANEOUS
13.1. SEVERABILITY. The provisions of this Agreement are severable,
so that the invalidity of unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other term or provision
of this Agreement, which shall remain in full force and effect.
13.2. SPECIFIC PERFORMANCE. In addition to any and all other
remedies that may be available at law in the event of any breach of this
Agreement, each party hereto shall be entitled to specific performance of this
agreements and obligations of the other parties hereunder and to such other
injunctive or other equitable relief as may be granted by a court of competent
jurisdiction.
13.3. SUBMISSION TO JURISDICTION. Each of the parties hereto submits
to the jurisdiction of any state or federal court sitting in Boston,
Massachusetts in any action or proceeding arising out of or relating to this
Agreement and/or the Escrow Agreement and agrees that all claims in respect of
the action or proceeding may be heard and determined in any such court. Each
party also agrees not to bring any action or proceeding arising out of or
relating to this Agreement and/or the Escrow Agreement in any other court. Each
of the parties waives any defense of inconvenient forum to the maintenance of
any action or proceeding so brought and waives any bond, surety, or other
security that might be required of any other party with respect thereto.
13.4 GOVERNING LAW. This Agreement and the Escrow Agreement shall
be governed by, and construed and enforced in accordance with, the internal laws
of the Commonwealth of Massachusetts, without regard to the conflict of law
principles thereof.
13.5. NOTICES. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be delivered
by hands, by overnight delivery service or by facsimile.
13.6. AMENDMENTS. No amendment, modification or termination of any
provision of this Agreement shall be valid unless in writing and signed by all
the parties hereto.
13.7. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the respective parties hereto and their respective
successors and assigns.
-4-
<PAGE> 5
13.8. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall constitute one agreement binding on all the
parties hereto.
13.9. CAPTIONS. Captions of sections have been added only for
convenience and shall not be deemed to be a part of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
under seal as of the date first above written.
GENERAL PARTNER LIMITED PARTNER
GRANT & PARTNERS, INC. CYRK, INC.
By: /s/ Alan W. Grant By: /s/ Ted Axelrod
------------------------ -------------------
Alan W. Grant, President duly authorized
/s/ Alan W. Grant
---------------------------
Alan W. Grant, Individually
-5-
<PAGE> 6
ESCROW AGREEMENT
ESCROW AGREEMENT (the "Agreement"), made as of the ____ day of
__________, 1998, by and among Grant & Partners Limited Partnership, a Delaware
limited partnership ("GPLP"), Cyrk, Inc., a Delaware corporation ("Cyrk"), and
Michael Murphy, Esq., as Escrow Agent ("Escrow Agent").
RECITALS:
WHEREAS, each of GPLP and Cyrk, among other parties, have executed
and delivered an agreement of even date herewith, which agreement sets forth the
terms and conditions regarding the restructure of GPLP (the "Restructure
Agreement"); and
WHEREAS, the effectiveness of the Restructure Agreement is
conditioned upon, among other things, (i) the deposit of 155,250 shares of
Common Stock, $.001 par value per share, of Exchange Applications, Inc. ("EA")
(including any distributions with respect thereto) (the "Escrowed Shares") with
Escrow Agent, and (ii) the execution and delivery of an escrow agreement among
the parties hereto setting forth the terms and conditions thereof.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. The provisions of the foregoing recitals are hereby incorporated
by reference into this Agreement as if fully stated herein. Unless otherwise
provided herein, all terms not defined herein shall have the respective meanings
attributed to them in the Restructure Agreement.
2. The parties hereto hereby appoint and designate Michael Murphy,
Esq. as Escrow Agent for the purpose of holding and disbursing the Escrowed
Shares in accordance with this Agreement. Escrow Agent hereby agrees to act as
escrow agent on behalf of the parties hereto in accordance with this Agreement.
Simultaneously with the execution and delivery hereof, GPLP shall have caused
the Escrowed Shares, as set forth in EXHIBIT A attached hereto and incorporated
herein by reference, to be delivered to Escrow Agent. Escrow Agent hereby
acknowledges receipt of the Escrow Shares. Escrow Agent shall submit a statement
of account with respect to the Escrowed Shares to each of the parties hereto
upon termination of this Agreement.
3. Escrow Agent shall make no distributions of the Escrowed Shares
except in accordance with this paragraph. In the event that (i) an EA Valuation
Event occurs prior to October 1, 1999 that satisfies the conditions set forth in
Section 5 of the Restructure Agreement, or (ii) Cyrk and Grant agree on a
valuation of the Cyrk EA Common Shares in accordance with Section 6 of the
Restructure Agreement, GPLP and Cyrk shall each instruct the Escrow Agent to
deliver to one of them, as the case may be, the Escrowed Shares. Within five (5)
days following Escrow Agent's receipt of any written instructions executed and
sent by either GPLP or Cyrk (the "Notifying Party") notifying Escrow Agent that
the Escrowed Shares shall be delivered to the
<PAGE> 7
Notifying Party pursuant to this Agreement (the "Disbursement Notice"), Escrow
Agent shall mail a copy of the Disbursement Notice to the other party to this
Agreement (the "Non-Notifying Party"). If, within ten (10) days from the date of
receipt of the Disbursement Notice by the Non-Notifying Party, the Escrow Agent
has not received a notice from the Non-Notifying Party objecting to the delivery
of the Escrowed Shares in accordance with the Disbursement Notice, Escrow Agent
shall promptly deliver the Escrowed Shares to the Notifying Party pursuant to
the terms of this Agreement. If, within said ten (10)-day period, Escrow Agent
shall receive a written notice from the Non-Notifying Party objecting to the
delivery of the Escrowed Shares in accordance with the Disbursement Notice,
Escrow Agent shall not deliver the Escrowed Shares to the Notifying Party
unless: (a) Escrow Agent has received written authorization executed by both the
Notifying Party and the Non-Notifying Party; or (b) such dispute is settled by
arbitration pursuant to the terms set forth in Section 12 of the Restructure
Agreement; or (c) such dispute is resolved by a court of competent jurisdiction
and, in the case of appeal, a court of last resort, whichever first occurs;
provided, however, that the Escrow Agent shall hold the Escrowed Shares
continuously as provided in this Agreement pending resolution of any such
dispute. If such written authorization is not given, or such legal proceedings
for such determination are not commenced and diligently continued, Escrow Agent
may, but shall not be obligated to, bring an appropriate proceeding for leave to
deposit the Escrowed Shares in the registry of a court having jurisdiction in
the Commonwealth of Massachusetts pending such determination.
4. GPLP and Cyrk shall each deliver to the other a copy of every
statement, certificate, notice and other paper delivered by them to Escrow Agent
hereunder. Such delivery shall be made in the same manner and on the same
business day as delivery is made to Escrow Agent hereunder.
5. Escrow Agent shall have no obligation hereunder except to
receive the Escrowed Shares referred to herein and to make distributions of said
shares in accordance with the provisions hereof. Escrow Agent's duties shall be
determined only with reference to this Agreement and applicable laws, and Escrow
Agent is not charged with knowledge of or any duties or responsibilities in
connection with any other document or agreement.
6. Escrow Agent shall be protected in acting upon any written
notice, certificate, waiver, consent or other instrument or document which it
believes to be genuine. Escrow Agent shall not be liable for any error of
judgment or for any act or omission to act taken in good faith except that it
shall be liable for its own gross negligence or willful misconduct. In no event
shall Escrow Agent be required to account for any shares subsequent to the
distribution thereof in accordance with this Agreement.
7. Escrow Agent may consult with and obtain advice from legal
counsel in the event of any dispute or question as to the construction of any of
the provisions herein or its duties hereunder and shall incur no liability and
shall be fully protected in acting in accordance with the opinion of such
counsel.
8. Escrow Agent may execute any of its powers or responsibilities
hereunder and exercise any rights hereunder either directly or through its
agents or attorneys. Nothing in this
2
<PAGE> 8
Agreement shall be deemed to impose upon Escrow Agent any duty to qualify to do
business or to act as fiduciary or otherwise in any jurisdiction other than the
Commonwealth of Massachusetts. Escrow Agent shall not be responsible for and
shall not be under a duty to examine or pass upon the validity, binding effect,
execution or sufficiency of this Agreement or of any subsequent amendment or
supplement hereto.
9. If Escrow Agent shall incur any liability, damage or expense
whatsoever arising out of or resulting from any claim brought against Escrow
Agent in connection with this Agreement, GPLP and Cyrk shall indemnify and hold
Escrow Agent harmless from any claim, damage or expense including reasonable
attorney's fees unless such claim, damage or expense results from the Escrow
Agent's gross negligence or willful misconduct.
10. The fees charged by Escrow Agent to provide the services
hereunder shall be nonrefundable and payable in advance, 50% by GPLP and 50% by
Cyrk. Each of GPLP and Cyrk hereby agree to pay on demand Escrow Agent's costs
and expenses, including reasonable fees and expenses of counsel to Escrow Agent,
incurred in connection with its duties hereunder. Such fees and expenses shall
be allocated between GPLP and Cyrk as follows: 50% to GPLP and 50% to Cyrk.
Escrow Agent shall have a lien on all shares held hereunder to pay all of Escrow
Agent's expenses under this Agreement.
11. The parties hereto may, by joint notice to Escrow Agent,
designate a successor Escrow Agent or Escrow Agents which, upon accepting such
designation in writing, and upon payment to any predecessor Escrow Agent of fees
and expenses in connection with its performance as Escrow Agent hereunder, shall
succeed to all of the rights, duties and obligations of Escrow Agent hereunder.
If a successor Escrow Agent is designated by GPLP and Cyrk, Escrow Agent shall,
upon written notice from all parties hereto, promptly deliver the Escrowed
Shares and documents, if any, held by Escrow Agent pursuant to this Agreement to
such successor Escrow Agent. In the event that there is any conflict between the
provisions of the Restructure Agreement and this Agreement, the provisions of
this Agreement shall control.
12. Escrow Agent may resign as Escrow Agent hereunder at any time by
giving ten (10) days' written notice of such intention to GPLP and Cyrk. Upon
the effective date of its resignation, Escrow Agent will deliver the Escrowed
Shares and documents held hereunder to such successor escrow agent as directed
by written instructions of GPLP and Cyrk. In the event that GPLP and Cyrk do not
agree on the appointment of a successor escrow agent within ten (10) days of
notice of Escrow Agent's intention to resign, Escrow Agent may appoint as its
successor any bank or trust company having an office in Boston, Massachusetts.
After the effective date of its resignation, Escrow Agent shall have no duty
with respect to the Escrowed Shares except to hold such property in safekeeping
and to deliver the same to its successor or as directed, in writing, by notice
executed by each of GPLP and Cyrk.
13. All notices, requests, demands, claims and other communications
hereunder will be in writing. Any notice, request, demand, claim, or other
communication hereunder shall be deemed duly given if (and then two business
days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below or to such address as they may hereunder designate:
3
<PAGE> 9
To Escrow Michael Murphy, Esq.
Agent: 5 Commonwealth Road
Natick, MA 01760
To GPLP: Grant & Partners Limited Partnership
150 Federal Street
Boston, MA 02110
ATTENTION: Alan Grant
With a McDermott, Will & Emery
copy to: 75 State Street, Suite 1700
Boston, MA 02109
ATTENTION: Arthur I. Anderson, P.C.
To Cyrk: Cyrk, Inc.
3 Pond Road
Gloucester, MA 01930
ATTENTION: President
With a Choate, Hall & Stewart
copy to: Exchange Place
53 State Street
Boston, MA 02109
ATTENTION: Robert V. Jahrling, III, Esq.
14. This Agreement shall be binding upon and inure to the benefit
of the parties named herein and their respective successors and permitted
assigns. No party may assign either this Agreement or any of its rights,
interests, or obligations hereunder without the prior written approval of the
other party.
15. This Agreement shall be governed by and construed in accordance
with the internal laws of the Commonwealth of Massachusetts without regard to
the conflict of law principles thereof.
16. This Agreement may be executed in two or more counterparts, each
of which shall constitute the original, and all of which collectively shall
constitute one and the same instrument.
[THIS SPACE INTENTIONALLY LEFT BLANK.]
4
<PAGE> 10
WITNESS, the signatures of the undersigned this ___ day of ___________, 1998.
GRANT & PARTNERS LIMITED PARTNERSHIP CYRK, INC.
By: GRANT & PARTNERS, INC.
Its General Partner
By: _________________________ By: _____________________________________
Alan Grant, President authorized officer
By: _____________________________________
Michael Murphy, Esq., as Escrow Agent
5
<PAGE> 11
EXHIBIT A
DESCRIPTION OF SECURITIES
Certificate No. 64 for 155,250 shares of common stock of Exchange
Applications, Inc.
6
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 45,281
<SECURITIES> 0
<RECEIVABLES> 96,992
<ALLOWANCES> 2,150
<INVENTORY> 45,219
<CURRENT-ASSETS> 205,770
<PP&E> 32,518
<DEPRECIATION> 17,530
<TOTAL-ASSETS> 309,628
<CURRENT-LIABILITIES> 138,360
<BONDS> 0
0
0
<COMMON> 150
<OTHER-SE> 163,090
<TOTAL-LIABILITY-AND-EQUITY> 309,628
<SALES> 381,751
<TOTAL-REVENUES> 381,751
<CGS> 319,644
<TOTAL-COSTS> 319,644
<OTHER-EXPENSES> 908
<LOSS-PROVISION> 428
<INTEREST-EXPENSE> 1,249
<INCOME-PRETAX> (17,336)
<INCOME-TAX> (7,070)
<INCOME-CONTINUING> (10,266)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,266)
<EPS-PRIMARY> (0.70)
<EPS-DILUTED> (0.70)
</TABLE>
