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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities and Exchange Act of 1934
Date of Report:
SEPTEMBER 1, 1999
(Date of Earliest Event Reported)
CYRK, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE
(State or Other Jurisdiction of Incorporation)
0-21878 04-3081657
(Commission File Number) (I.R.S. Employer Identification No.)
3 POND ROAD, GLOUCESTER, MA 01930
(Address of Principal Executive Offices)
(Zip Code)
(978) 283-5800
(Registrant's Telephone Number, Including Area Code)
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ITEM 5. OTHER EVENTS.
On September 1, 1999, the registrant announced that, pursuant to a
Securities Purchase Agreement entered into as of September 1, 1999, The Yucaipa
Companies ("YUCAIPA"), a Los Angeles-based investment firm, will invest $25
million in the Company in exchange for convertible preferred stock of Cyrk, Inc.
and a warrant to purchase an addition $15 million of convertible preferred
stock. The proceeds from the investment will be used for general corporate
purposes and to fund the Company's growth and acquisition efforts. As part of
the agreement, which will require Cyrk shareholder approval, Ronald W. Burkle,
managing partner of Yucaipa, will be appointed chairman of Cyrk's Board of
Directors. Patrick D. Brady and Allan Brown will be named co-chief executive
officers of Cyrk, and Mr. Brown will be named to Cyrk's Board of Directors.
Commenting on the investment, Patrick Brady said, "We are very pleased
to enter into this relationship with The Yucaipa Companies. Their investment in
Cyrk is a clear indication of the value they place on the skills and strong
relationships that Cyrk and our subsidiary, Simon Marketing, have built over the
years. This investment strengthens our competitive position in the marketplace,
enhances our capital base and aligns us with a very capable and reputable
company with a strong history of delivering shareholder value. Furthermore,
Yucaipa's expanding presence in Web-based businesses is a tremendous asset to
Cyrk's rapidly growing Internet initiatives."
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Allan Brown added, "Simon Marketing values its decades-long
relationship with the McDonald's system as well as our newer clients such as
Chevron, Blockbuster and Toys "R" Us. Our reputation is based upon developing
unique and innovative promotional programs that help grow our clients'
businesses. This new arrangement will allow us to bring even greater innovation
and resources to these trusted relationships and to expand our business in the
future."
Ronald Burkle of Yucaipa said, "We are pleased to be part of another
company that serves the McDonald's system with the highest degree of quality
standards and service. Cyrk and Simon Marketing are clear leaders in delivering
high-impact promotional programs for companies including Phillip Morris, Ty,
Inc. and The Coca-Cola Company. They have consistently proven their ability to
create competitive advantages for clients seeking increased brand equity and
customer loyalty. We are hopeful that, through an association with Yucaipa, Cyrk
and Simon Marketing can provide additional value-added services to McDonald's
and their other clients."
Under the terms of the agreement, Yucaipa will purchase 25,000
newly-issued convertible preferred shares of Cyrk which shall pay an annual
dividend of 4% and shall initially be convertible into Cyrk common stock at
$8.25 a share. Yucaipa shall also receive a warrant to purchase an additional
15,000 convertible preferred shares, initially convertible at $9.00 per share.
Upon the close of the transaction and the exercising of the warrant, Yucaipa's
23% stake, on an as-converted basis, will make it Cyrk's largest shareholder.
Under the agreement, Cyrk would nominate three Yucaipa designees, including Mr.
Burkle, to a seven-person Cyrk Board of Directors, which would include Mr. Brady
and Mr. Brown.
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This Form 8-K contains forward-looking statements (within the meaning
of the Private Securities Litigation Reform Act of 1995). These statements
include statements regarding intent, belief or current expectations of the
Company and its management. You are cautioned that any such forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties that may cause the Company's actual results to differ materially
from the Company's expectations. Factors that could cause actual results to
differ materially are discussed in Exhibit 99.1 to the Company's First Quarter
1999 Report on Form 10-Q. Reference to this Cautionary Statement or Exhibit 99.1
in the context of a forward-looking statement or statements shall be deemed to
be a statement that any one or more of these factors may cause actual results to
differ materially from those anticipated in such forward-looking statement or
statements.
ITEM 7. EXHIBITS:
EXHIBIT 2.1 Securities Purchase Agreement between Cyrk, Inc. and
Overseas Toys, L.P., dated September 1, 1999.
EXHIBIT 3.1 Form of Certificate of Designation regarding the
Series A Senior Cumulative Participating Convertible
Preferred Stock to be issued to Overseas Toys, L.P.
EXHIBIT 4.1 Form of Warrant.
EXHIBIT 4.2 Form of Registration Rights Agreement between Cyrk,
Inc. and Overseas Toys, L.P.
EXHIBIT 10.1 Form of Management Agreement between Cyrk, Inc. and
The Yucaipa Companies.
EXHIBIT 10.2 Employment Agreement between Cyrk, Inc. and Allan
Brown.
EXHIBIT 10.3 Employment Agreement between Cyrk, Inc. and Patrick
Brady.
EXHIBIT 99.1 Termination Agreement among Cyrk, Inc., Patrick
Brady, Allan Brown, Gregory Shlopak, Eric Stanton,
and Eric Stanton Self-Declaration of Revocable Trust.
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SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned and hereunto duly authorized.
CYRK, INC.
Date: September 3, 1999 By: /s/ Dominic F. Mammola
-----------------------------
Dominic F. Mammola,
Chief Financial Officer
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- --------------------------------------------------------------------------------
SECURITIES PURCHASE AGREEMENT
Dated as of September 1, 1999
By and Between
OVERSEAS TOYS, L.P.
And
CYRK, INC.
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TABLE OF CONTENTS
PAGE
RECITALS 1
ARTICLE 1 DEFINITIONS 2
1.1 Certain Defined Terms 2
ARTICLE 2 SALE AND TRANSFER OF SECURITIES; CLOSING 2
2.1 Sale and Purchase of Securities 2
2.2 Purchase Price; Payment 2
2.3 Closing 2
ARTICLE 3 REPRESENTATIONS AND WARRANTIES 3
3.1 Disclosure Schedule 3
3.2 Representations and Warranties of the Company 3
(a) Organization, Standing and Corporate Power 3
(b) Subsidiaries 4
(c) Capitalization; Valid Issuance of Shares 4
(d) Authority; Noncontravention 5
(e) SEC Documents; Undisclosed Liabilities 6
(f) Information Supplied 7
(g) Absence of Certain Changes or Events 7
(h) Litigation; Labor Matters; Compliance with Laws 7
(i) Employee Matters 8
(j) Tax Returns and Tax Payments 9
(k) State Antitakeover Laws Not Applicable;
No Other Restrictions 10
(l) Environmental Matters 10
(m) Properties 11
(n) Intellectual Property 11
(o) Brokers 12
(p) Opinion of Financial Advisor 12
(q) Board and Special Committee Recommendations 12
(r) Common Shares Listing 12
(s) Required Vote 12
(t) Termination of Shareholders Agreement 12
(u) Year 2000 Compliance 13
3.3 Representations and Warranties of the Investor 13
(a) Organization, Standing and Power 13
(b) Authority; Noncontravention 13
(c) Information Supplied 14
(d) Litigation 14
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TABLE OF CONTENTS
(continued)
Page
(e) Brokers 14
(f) Investor Status 14
(g) Accredited Investor 14
(h) Financial Ability 15
(i) No Other Agreements 15
ARTICLE 4 COVENANTS OF THE COMPANY 15
4.1 Affirmative Covenants 15
4.2 Restrictions 16
4.3 No Solicitation 17
4.4 Certain Agreements 18
4.5 Continuing Covenants 18
ARTICLE 5 ADDITIONAL AGREEMENTS 20
5.1 Preparation of the Proxy Statement; Stockholder Meeting 20
5.2 Best Efforts 21
5.3 Public Announcements 21
5.4 Takeover Statutes 21
5.5 Restriction on Investor 22
5.6 Restrictive Legend 22
5.7 Standstill 22
5.8 Resignation of Investor Directors 24
ARTICLE 6 CONDITIONS PRECEDENT 24
6.1 Conditions to Each Party's Obligation To Effect the Closing 24
(a) HSR Act 24
(b) No Injunctions or Restraints 24
(c) Company Stockholder Approval 24
6.2 Conditions to Obligation of the Investor 24
(a) Representations and Warranties 25
(b) Performance of Obligations of the Company 25
(c) Consents, etc. 25
(d) No Material Adverse Change 25
(e) Delivery of Certain Documents 25
6.3 Conditions to Obligation of the Company 26
(a) Representations and Warranties 26
(b) Performance of Obligations of the Investor 26
(c) Delivery of Certain Documents 26
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TABLE OF CONTENTS
(continued)
Page
ARTICLE 7 TERMINATION, AMENDMENT AND WAIVER 27
7.1 Termination 27
7.2 Effect of Termination 27
7.3 Amendment 28
7.4 Extension; Waiver 28
ARTICLE 8 INDEMNIFICATION; REMEDIES 29
8.1 Survival; Right To Indemnification Not Affected By Knowledge 29
8.2 Indemnification and Payment of Damages By the Company 29
8.3 Indemnification and Payment of Damages By the Investor 30
8.4 Limitation on Amount 30
8.5 Procedure for Indemnification -- Third Party Claims 30
8.6 Procedure for Indemnification -- Other Claims 31
8.7 Remedies Exclusive 32
ARTICLE 9 GENERAL PROVISIONS 32
9.1 Notices 32
9.2 Interpretation 33
9.3 Counterparts 33
9.4 Entire Agreement; No Third-Party Beneficiaries 33
9.5 Costs and Expenses 33
9.6 Governing Law 34
9.7 Assignment 34
9.8 Enforcement 34
9.9 Severability 34
9.10 Further Assurances 35
9.11 Construction 35
EXHIBITS
EXHIBIT A Definitions
EXHIBIT B Certificate of Designation
EXHIBIT C Form of Warrant
EXHIBIT D Registration Rights Agreement
EXHIBIT E Management Agreement
EXHIBIT F Form of Opinion of Company Counsel
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SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (the "Agreement") is
entered into as of September 1, 1999 by and between OVERSEAS TOYS, L.P., a
Delaware limited partnership (the "Investor"), and CYRK, INC., a Delaware
corporation (the "Company").
RECITALS
WHEREAS, the Company desires to sell to the Investor, and the
Investor desires to purchase from the Company, (i) a total of 25,000 shares of
Series A Senior Cumulative Participating Convertible Preferred Stock of the
Company, the Certificate of Designation of which is attached hereto as Exhibit B
(the "Series A Preferred Stock"), and (ii) a warrant, in the form attached
hereto as Exhibit C, to purchase an additional 15,000 shares of Series A
Preferred Stock (the "Warrant"), pursuant to the terms and conditions set forth
in this Agreement;
WHEREAS, the Board of Directors of the Company has approved,
and deemed it advisable, that the Company (i) execute and deliver this Agreement
and consummate the Contemplated Transactions, and (ii) issue and sell to the
Investor such shares of Series A Preferred Stock and the Warrant on the terms
and conditions set forth herein;
WHEREAS, concurrently with the closing of the transactions
contemplated by this Agreement, the Company will enter into a registration
rights agreement with the Investor with respect to the shares of Series A
Preferred Stock and the Warrant being acquired by the Investor herein (the
"Registration Rights Agreement"), in the form attached hereto as Exhibit D;
WHEREAS, concurrently with the closing of the transactions
contemplated by this Agreement, the Company will enter into a management
agreement with The Yucaipa Companies, in the form attached hereto as Exhibit E
(the "Management Agreement"), to provide management and consulting services to
the Company;
WHEREAS, concurrently with the execution of this Agreement,
certain shareholders of the Company are entering into a voting agreement with
the Investor (the "Voting Agreement") whereby such shareholders have agreed to
vote their shares in favor (a) of the Company Stockholder Approval (as defined
in Section 3.2(s)) and any other vote, consent or action as required of the
stockholders of the Company to approve the Contemplated Transactions and (b) the
election of certain nominees selected by Investor to the Board of Directors of
the Company; and
WHEREAS, concurrently with the execution of this Agreement and
in order to
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induce the Investor to agree to the transactions contemplated hereby, the
Company has entered into Employment Agreements with each of Patrick Brady and
Allan Brown to serve as Co-Chief Executive Officers and Co-Presidents of the
Company (collectively, the "Employment Agreements"), such Employment Agreements
to be effective only as of the Closing.
NOW, THEREFORE, in consideration of the representations,
warranties, covenants, restrictions and agreements contained in this Agreement,
the parties agree as follows:
ARTICLE 1
DEFINITIONS
1.1 CERTAIN DEFINED TERMS. Capitalized words and phrases used in this
Agreement and not otherwise defined herein have the meanings ascribed to them in
Exhibit A hereto.
ARTICLE 2
SALE AND TRANSFER OF SECURITIES; CLOSING
2.1 SALE AND PURCHASE OF SECURITIES. At the Closing provided for in
Section 2.3, and on the terms and subject to the conditions herein set forth,
the Company shall sell, transfer, assign, convey, and deliver to the Investor,
and the Investor shall purchase, accept, and acquire from the Company, a total
of 25,000 shares of Series A Preferred Stock (the "Series A Preferred Shares")
and the Warrant (together with the Series A Preferred Shares, the "Purchased
Securities").
2.2 PURCHASE PRICE; PAYMENT. In consideration of the sale, transfer,
assignment, conveyance and delivery to the Investor of the Purchased Securities,
the Investor agrees to pay to the Company on the Closing Date, by wire transfer
of immediately available funds to an account specified by the Company, an
aggregate purchase price of Twenty-Five Million Dollars ($25,000,000) (the
"Purchase Price").
2.3 CLOSING.
(a) The closing of the transactions contemplated by Sections 2.1 and
2.2 shall take place at the offices of Munger, Tolles & Olson LLP, 355 South
Grand Avenue, Suite 3500, Los Angeles, California at 10:00 a.m., Pacific Time,
or at such other time and place as the Company and the Investor may mutually
agree in writing, as soon as practicable and in any event within two (2)
Business Days following, and subject to, the prior fulfillment or waiver of all
conditions (other than conditions to be satisfied at the Closing, but subject to
those conditions) set forth in Article 6 hereof (such event being called the
"Closing" and such date,
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the "Closing Date"). All transactions required to occur at the Closing shall be
deemed to have occurred simultaneously, and no such transaction shall be deemed
to have occurred until all have occurred.
(b) At the Closing, the Company will deliver the following to the
Investor:
(i) A duly executed stock certificate evidencing the
Series A Preferred Shares registered in the name of the Investor;
(ii) The duly executed Warrant registered in the name
of the Investor;
(iii) The Registration Rights Agreement and the
Management Agreement, each duly executed and delivered by the Company;
and
(iv) The documents, instruments and writings
contemplated or required to be delivered by the Company at the Closing
pursuant to Section 6.2 or otherwise contemplated or required under
this Agreement.
(c) At the Closing, the Investor will deliver to the Company:
(i) The Purchase Price;
(ii) The Registration Rights Agreement duly executed
and delivered by the Investor, and the Management Agreement duly
executed and delivered by The Yucaipa Companies; and
(iii) The documents, instruments and writings
contemplated or required to be delivered by the Investor at the Closing
pursuant to Section 6.3 or otherwise contemplated or required under
this Agreement.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1 DISCLOSURE SCHEDULE. On the date hereof, the Company has delivered to
the Investor a schedule (the "Disclosure Schedule") setting forth, among other
things, items the disclosure of which is necessary or appropriate either in
response to an express disclosure requirement contained in a provision hereof or
as an exception to one or more representations or warranties contained in
Section 3.2, or to one or more of its covenants contained herein.
3.2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to the Investor, except as set forth in the Disclosure Schedule, as
follows:
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(a) ORGANIZATION, STANDING AND CORPORATE POWER. The Company and each
of its Subsidiaries is duly organized, validly existing and in good standing
under the laws of the jurisdiction in which it is incorporated and has the
requisite corporate power and authority to carry on its business as now being
conducted. The Company and each of its Subsidiaries is duly qualified or
licensed to do business and is in good standing in each jurisdiction in which
the nature of its business or the ownership or leasing of its properties makes
such qualification or licensing necessary, other than in such jurisdictions
where the failure to be so qualified or licensed (individually or in the
aggregate) would not have a Material Adverse Effect. Section 3.2(a) of the
Disclosure Schedule contains complete and correct copies of the Certificate of
Incorporation and Bylaws of the Company and the comparable Organizational
Documents of each of its Subsidiaries.
(b) SUBSIDIARIES. The only direct or indirect Subsidiaries of the
Company and other ownership interests held by the Company in any other Person
are those listed in Section 3.2(b) of the Disclosure Schedule or in Exhibit 21.1
to the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1998, and other than such listed Subsidiaries and Persons, the Company does
not own (directly or indirectly) any stock, securities or equity interests in
any Person. All the outstanding shares of capital stock or other ownership
interests of each such listed Subsidiary and Person have been validly issued and
are fully paid and nonassessable and are owned (of record and beneficially) by
the Company, by another Subsidiary (wholly owned) of the Company or by the
Company and another such Subsidiary (wholly owned), free and clear of all
pledges, claims, liens, charges, encumbrances and security interests of any kind
or nature whatsoever (collectively, "Liens").
(c) CAPITALIZATION; VALID ISSUANCE OF SHARES. The authorized capital
stock of the Company consists of 50,000,000 shares of common stock, $0.01 par
value per share (the "Common Shares"), and 1,000,000 shares of "blank-check"
preferred stock, $0.01 par value per share (the "Preferred Shares"). As of the
date of this Agreement, there are (i) 15,740,857 Common Shares issued and
outstanding, (ii) no Common Shares held in the treasury of the Company or held
by any Subsidiary of the Company; (iii) 1,319,276 Common Shares reserved for
issuance upon exercise of authorized but unissued Company Stock Options pursuant
to the Option Plans; (iv) 2,313,155 Common Shares issuable upon exercise of
outstanding Company Stock Options; (v) 300,000 Common Shares issuable upon
exercise of the warrants listed in Section 3.2(c) of the Disclosure Schedule,
and (vi) no Preferred Shares issued or outstanding. Section 3.2(c) of the
Disclosure Schedule contains a complete and accurate list of all Company Stock
Options outstanding pursuant to the Option Plans including the date of grant,
name of option holder, exercise price and expiration date. Except as set forth
in this Section 3.2(c), no shares of capital stock or other equity securities of
the Company are issued, reserved for issuance or outstanding. All outstanding
shares of capital stock of the Company are, and all shares which may be issued
pursuant to the Stock Plans will be when issued, duly authorized, validly
issued, fully paid and nonassessable and not subject to preemptive rights. The
Series A Preferred Shares and the Warrant, when issued, paid for and delivered
in accordance with the terms of this Agreement, and the Series A Preferred
Shares to be issued pursuant to the Warrant, will be duly authorized, validly
issued, fully paid and nonassessable and not subject
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to preemptive rights. Except as set forth in Section 3.2(c) of the Disclosure
Schedule, there are no outstanding bonds, debentures, notes or other
indebtedness or other securities of the Company or any of its Subsidiaries
having the right to vote (or convertible into, or exchangeable for, securities
having the right to vote) on any matters on which stockholders of the Company or
such Subsidiary may vote. Except as set forth in Section 3.2(c) of the
Disclosure Schedule, there are no outstanding securities, options, warrants,
calls, rights, commitments, agreements, arrangements or undertakings of any kind
to which the Company or any of its Subsidiaries is a party or by which any of
them is bound obligating the Company or any of its Subsidiaries to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
capital stock or other equity or voting securities of the Company or of any of
its Subsidiaries or obligating the Company or any of its Subsidiaries to issue,
grant, extend or enter into any such security, option, warrant, call, right,
commitment, agreement, arrangement or undertaking. Other than the Company Stock
Options or the warrants set forth in Section 3.2(c) of the Disclosure Schedule
or as otherwise set forth in Section 3.2(c) of the Disclosure Schedule, (x)
there are no outstanding contractual obligations, commitments, understandings or
arrangements of the Company or any of its Subsidiaries to repurchase, redeem or
otherwise acquire or make any payment in respect of or measured or determined
based on the value or market price of any shares of capital stock of the Company
or any of its Subsidiaries and (y) to the Knowledge of the Company, there are no
irrevocable proxies with respect to shares of capital stock of the Company or
any Subsidiary of the Company. Except as set forth in Section 3.2(c) of the
Disclosure Schedule, there are no agreements or arrangements pursuant to which
the Company or any of its Subsidiaries is or would be required to register
Common Shares, Preferred Shares or other securities under the Securities Act of
1933, as amended.
(d) AUTHORITY; NONCONTRAVENTION. The Company has the requisite
corporate power and authority to enter into this Agreement and to consummate the
Contemplated Transactions. The execution and delivery of this Agreement, the
Management Agreement and the Registration Rights Agreement by the Company and
the consummation by the Company of the Contemplated Transactions have been duly
authorized by all necessary corporate action on the part of the Company, subject
to the approval of the Company's stockholders of the issuance and sale of the
Purchased Securities to the Investor and the election to the Board of Directors
of the Company of the Investor's nominees pursuant to Section 5.1(b). This
Agreement has been duly executed and delivered by the Company and constitutes a
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms. When duly executed and delivered by the Company at
Closing, each of the Management Agreement, the Registration Rights Agreement and
the Warrant shall constitute a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms. Except as
disclosed in Section 3.2(d) of the Disclosure Schedule, the execution and
delivery of this Agreement does not, and the consummation of the Contemplated
Transactions and compliance with the provisions hereof will not, conflict with,
or result in any breach or violation of, or default (with or without notice or
lapse of time, or both) under, or give rise to a right of termination,
cancellation, payment or acceleration of or "put" right with respect to any
obligation or to loss of a material benefit under, or result in the creation of
any Lien upon
<PAGE> 10
any of the properties or assets of the Company or any of its Subsidiaries under,
(i) the Certificate of Incorporation or Bylaws of the Company or the comparable
Organizational Documents of any of its Subsidiaries, (ii) any loan or credit
agreement, note, bond, mortgage, indenture, lease, contract or other agreement,
instrument, permit, concession, franchise or license applicable to the Company
or any of its Subsidiaries or their respective properties or assets which is
material to the Company and its Subsidiaries taken as a whole ("Material
Contracts") or (iii) subject to the governmental filings and other matters
referred to in the following sentence, any judgment, order, decree, statute,
law, ordinance, rule, regulation or arbitration award applicable to the Company
or any of its Subsidiaries or their respective properties or assets, other than,
in the case of clauses (ii) and (iii), any such conflicts, breaches, violations,
defaults, rights, losses or Liens that individually or in the aggregate would
not have a Material Adverse Effect or would not prevent or materially hinder or
delay the ability of the Company to consummate the Contemplated Transactions. No
consent, approval, order or authorization of, or registration, declaration or
filing with, or notice to, any federal, state or local government or any court,
administrative agency or commission or other governmental authority or agency,
domestic or foreign, (each a "Governmental Entity" and collectively,
"Governmental Entities") or any other Person, is required by or with respect to
the Company or any of its Subsidiaries in connection with the execution and
delivery of this Agreement by the Company or the consummation by the Company of
the Contemplated Transactions, except for (i) the filing of a premerger
notification and report form by the Company under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), (ii) the filing
with the Securities and Exchange Commission (the "SEC") of (x) the Proxy
Statement, and (y) such reports or schedules under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), as may be required in connection with
this Agreement and the Contemplated Transactions, (iii) the Company Stockholder
Approval, and (iv) such other consents, approvals, orders, authorizations,
registrations, declarations, filings or notices for which the absence of such
would not, individually or in the aggregate, have a Material Adverse Effect or
as are set forth in Section 3.2(d) of the Disclosure Schedule.
(e) SEC DOCUMENTS; UNDISCLOSED LIABILITIES. The Company has filed all
required reports, schedules, forms, statements and other documents with the SEC
since January 1, 1996 (collectively, and in each case including all exhibits and
schedules thereto and documents incorporated by reference therein, the "Company
SEC Documents"). As of their respective dates (or, if amended, at the time of
such amended filing or, in the case of Securities Act registration statements,
on their respective effective dates), the Company SEC Documents complied in all
material respects with the requirements of the Securities Act or the Exchange
Act, as the case may be, and the rules and regulations of the SEC promulgated
thereunder applicable to such Company SEC Documents, and none of the Company SEC
Documents (including any and all financial statements included therein) as of
such dates and as of the date hereof (except as set forth in subsequent filings
with the SEC prior to the date hereof and, only with respect to Company SEC
Documents filed after the date hereof, except as set forth in subsequent filings
with the SEC prior to the Closing Date) contained or contain any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which
<PAGE> 11
they were made, not misleading. The consolidated financial statements of the
Company included in the Company SEC Documents (the "Company SEC Financial
Statements") comply as to form in all material respects with the published rules
and regulations of the SEC with respect thereto, have been prepared in
accordance with GAAP (except, in the case of unaudited consolidated quarterly
statements, as permitted by Form 10-Q of the SEC) applied on a consistent basis
during the periods involved (except as may be indicated in the notes thereto)
and fairly present the consolidated financial position of the Company and its
consolidated Subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended (subject, in the
case of unaudited quarterly statements, to normal year-end audit adjustments).
Since December 31, 1998, neither the Company nor any of its Subsidiaries has
incurred any liabilities or obligations required to be reflected in its balance
sheet (whether accrued, absolute, contingent or otherwise) except (i) as and to
the extent set forth on the audited balance sheet of the Company and its
Subsidiaries as of December 31, 1998 (including the notes thereto), (ii) as
incurred in connection with the Contemplated Transactions, (iii) as set forth in
Section 3.2(e) of the Disclosure Schedule, (iv) as described in the Company SEC
Documents filed since December 31, 1998, but prior to the date of this Agreement
(the "Recent Company SEC Documents") or (v) as incurred in the ordinary course
of business consistent with past practice in amounts that are not material to
the Company and its Subsidiaries taken as a whole. Neither the Company, nor any
of its Subsidiaries is, or has received any notice or has any Knowledge that any
other party is, in default or breach under or is unable to perform in any
material respect under any Material Contracts, nor has there occurred any event
that with the lapse of time or the giving of notice or both would constitute
such a default or breach, except for those defaults, breaches or inability to
perform which would not reasonably be expected, either individually or in the
aggregate, to have a Material Adverse Effect.
(f) INFORMATION SUPPLIED. None of the information supplied or to be
supplied by the Company for inclusion or incorporation by reference in the Proxy
Statement will, at the date it is first mailed to the Company's stockholders or
at the time of the Company Stockholders Meeting contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Proxy Statement
will comply as to form in all material respects with the requirements of the
Exchange Act and the rules and regulations promulgated thereunder, except that
no representation is made by the Company with respect to statements made or
incorporated by reference therein based on information supplied in writing by
the Investor for inclusion or incorporation by reference therein.
(g) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in the
Recent Company SEC Documents or in Section 3.2(g) of the Disclosure Schedule,
since December 31, 1998, the Company has conducted its business only in the
ordinary course consistent with past practice, and there is not and has not
been: (i) any Material Adverse Change; (ii) any condition, event or occurrence
which, individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect or give rise to a Material Adverse
<PAGE> 12
Change; (iii) any event which, if it had taken place following the execution of
this Agreement, would not have been permitted by Sections 4.2 or 4.4 without the
prior written consent of the Investor; or (iv) any condition, event or
occurrence which would prevent or materially hinder or delay the ability of the
Company to consummate the Contemplated Transactions.
(h) LITIGATION; LABOR MATTERS; COMPLIANCE WITH LAWS.
(i) Except as disclosed in the Company SEC Documents,
there is no suit, action, proceeding, investigation or inquiry pending
or, to the Knowledge of the Company, Threatened against or affecting
the Company or any of its Subsidiaries or, to the Knowledge of the
Company, any basis for any such suit, action, proceeding, investigation
or inquiry that, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect or prevent or materially
hinder or delay the ability of the Company or the Investor to
consummate the Contemplated Transactions, nor is there any judgment,
decree, injunction, rule or order of any Governmental Entity or
arbitrator outstanding against the Company or any of its Subsidiaries
having, or which, in the future would reasonably be expected to have,
any such effect.
(ii) Neither the Company nor any of its Subsidiaries
is a party to, or bound by, any collective bargaining agreement,
contract or other agreement or understanding with a labor union or
labor organization, nor is it or any of its Subsidiaries the subject of
any proceeding asserting that it or any Subsidiary has committed an
unfair labor practice or seeking to compel it to bargain with any labor
organization as to wages or conditions of employment nor is there any
strike, work stoppage or other labor dispute involving it or any of its
Subsidiaries pending or, to its Knowledge, Threatened, any of which
would reasonably be expected to have a Material Adverse Effect.
(iii) The conduct of the business of each of the
Company and each of its Subsidiaries complies with all statutes, laws,
regulations, ordinances, rules, judgments, orders, decrees or
arbitration awards applicable thereto, except for violations or
failures so to comply, if any, that, individually or in the aggregate,
would not reasonably be expected to have a Material Adverse Effect.
(i) EMPLOYEE MATTERS. Section 3.2(i) of the Disclosure Schedule
contains a complete and accurate list of all employment, severance, bonus,
profit sharing, compensation, termination, stock option, stock appreciation
right, restricted stock, phantom stock, performance unit, pension, retirement,
deferred compensation, welfare or employee benefit plan, agreement, trust fund
or other arrangement and any union, guild or collective bargaining agreement
maintained or contributed to or required to be contributed to by the Company or
any of its ERISA Affiliates, for the benefit or welfare of any current or former
director, officer, employee, consultant of the Company or any of its ERISA
Affiliates (such plans, agreements, trust funds and arrangements being
collectively the "Employee Agreements and Plans"), other than employment
agreements which provide for compensation to an individual that is not in
<PAGE> 13
excess of $60,000 per year (including any payments available upon acceleration,
termination, or change of control). Each of the Employee Agreements and Plans is
in compliance with all applicable laws including ERISA and the Code except where
noncompliance would not reasonably be expected to have a Material Adverse
Effect. The IRS has issued a determination letter stating that each Employee
Agreement and Plan that is intended to be a qualified plan under Section 401(a)
of the Code is so qualified and the Company is aware of no event occurring after
the date of such determination that would adversely affect such determination.
The liabilities accrued under each such Employee Agreement and Plan are
reflected on the latest balance sheet of the Company included in the Recent SEC
Reports to the extent required in accordance with GAAP. No condition exists that
is reasonably likely to subject the Company or any of its Subsidiaries to any
direct or indirect liability under Title IV of ERISA or to a civil penalty under
Section 502(j) of ERISA or liability under Section 4069 of ERISA or 4975, 4976,
or 4980B of the Code or the loss of a federal tax deduction under Section 280G
of the Code or other liability with respect to the Employee Agreements and Plan
that would have a Material Adverse Effect and that is not reflected on such
balance sheet. No Employee Agreement and Plan (other than any one that is a
"multiemployer plan" as such term is defined in Section 4001(a)(3) of ERISA, all
of which are indicated in Section 3.2(i) of the Disclosure Schedule) is subject
to Title IV of ERISA. There are no pending or, to the Knowledge of the Company,
anticipated or Threatened claims (other than routine claims for benefits or
immaterial claims) by, on behalf of or against any of the Employee Agreements
and Plans or any trusts related thereto. "ERISA Affiliate" means, with respect
to any Person, any trade or business, whether or not incorporated, that together
with such Person would be deemed a "single employer" within the meaning of
Section 4001(a)(15) of ERISA.
(j) TAX RETURNS AND TAX PAYMENTS.
(i) The Company and each of its Subsidiaries has
filed or caused to be filed, on a timely basis, all Tax Returns that
are or were required to be filed by or with respect to any of them,
either separately or as a member of a group, pursuant to applicable
law. Each of the Company and its Subsidiaries has paid, or made
provision for the payment of, all Taxes that have or may have become
due pursuant to those Tax Returns or otherwise, or pursuant to any
assessment received by the Company or its Subsidiaries, except such
Taxes, if any, as are listed in Section 3.2(j)(i)(B) of the Disclosure
Schedule and are being contested in good faith and as to which adequate
reserves (determined in accordance with GAAP) have been provided in the
Company SEC Financial Statements;
(ii) The Company and its Subsidiaries have not
granted the IRS or relevant state tax authorities any extension or
waiver of or the applicable statute of limitations for their respective
United States federal and state income Tax Returns for any period. All
deficiencies proposed as a result of any audits of any Tax Returns have
been paid, reserved against, settled, or, as listed on Section
3.2(j)(ii) of the Disclosure Schedule, are being contested in good
faith by appropriate proceedings. No issues have been raised (and are
currently pending) by any taxing authority in connection with any
<PAGE> 14
Tax Return of the Company or any of its Subsidiaries, and neither the
Company nor any of its Subsidiaries has given or been requested to give
waivers or extensions (or is or would be subject to a waiver or
extension given by any other Person) of any statute of limitations
relating to the payment of Taxes of the Company or its Subsidiaries for
which any of them may be liable;
(iii) The charges, accruals, and reserves with
respect to Taxes on the respective books of each of the Company and its
Subsidiaries are adequate (determined in accordance with GAAP) and are
at least equal to that company's liability for Taxes. All Taxes that
the Company or any of its Subsidiaries is or was required by applicable
law to withhold or collect have been duly withheld or collected and, to
the extent required, have been paid to the proper governmental entity
or other Person;
(iv) All Tax Returns filed by (or that include on a
consolidated basis) the Company and/or its Subsidiaries are true,
correct, and complete. There is no tax sharing agreement that will
require any payment by the Company or any of its Subsidiaries after the
date of this Agreement. Except as set forth in Section 3.2(j)(iv) of
the Disclosure Schedule, neither the Company nor any of its
Subsidiaries is or has been a member of any consolidated, combined,
unitary or aggregate group for Tax purposes except such a group
consisting only of the Company and its Subsidiaries; and
(v) Neither the Company nor any of its Subsidiaries
has filed a consent pursuant to the collapsible corporation provisions
of Section 341(f) of the Code (or any corresponding provision of state,
local or foreign income tax law).
(k) STATE ANTITAKEOVER LAWS NOT APPLICABLE; NO OTHER RESTRICTIONS. The
Board of Directors of the Company has approved this Agreement and the
Contemplated Transactions and such approval constitutes approval of the
Investor's acquisition of the Series A Preferred Shares and the Warrant and the
other Contemplated Transactions by the Board of Directors of the Company under
the provisions of Section 203 of the DGCL and Chapter 110C of the Massachusetts
General Laws such that such provisions do not apply to this Agreement or the
Contemplated Transactions. No other state takeover statute or similar statute or
regulation of the State of Delaware or The Commonwealth of Massachusetts (or, to
the Knowledge of the Company, of any other state or jurisdiction) applies to
this Agreement or the Contemplated Transactions. No provision of the Certificate
of Incorporation, Bylaws or other governing instruments of the Company or any of
its Subsidiaries or the terms of any plan or agreement of the Company would,
directly or indirectly, restrict or impair (i) the ability of the Investor to
vote, or otherwise to exercise the rights of a stockholder with respect to,
securities of the Company and its Subsidiaries that may be acquired or
controlled by the Investor by virtue of this Agreement or the Contemplated
Transactions or (ii) the rights granted hereunder, or permit any stockholder to
acquire securities of the Company or the Investor, or any of their respective
Subsidiaries, on a basis not available to the Investor in the event that the
Investor were to acquire securities of the Company.
<PAGE> 15
(l) ENVIRONMENTAL MATTERS. There are no legal, administrative,
arbitral or other proceedings, claims, actions, causes of action or, to the
Knowledge of the Company, private environmental investigations or remediation
activities or governmental investigations of any nature seeking to impose, or
that would reasonably be expected to result in the imposition, on the Company or
any of its Subsidiaries of any liability or obligations arising under common law
standards relating to environmental protection, human health or safety, or under
any local, state, federal, national or supernational environmental statute,
regulation or ordinance, including the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended (collectively, "Environmental
Laws"), pending or, to the Knowledge of the Company, Threatened, against the
Company or any of its Subsidiaries, which liability or obligation would have or
would reasonably be expected to have a Material Adverse Effect. To the Knowledge
of the Company or any of its Subsidiaries, there is no reasonable basis for any
such proceeding, claim, action or governmental investigation that would impose
any liability or obligation that would have or would reasonably be expected to
have a Material Adverse Effect. To the Knowledge of the Company, during or prior
to the period of (i) its or any of its Subsidiaries' ownership or operation of
any of their respective current properties, or (ii) its or any of its
Subsidiaries' holding of a security interest or other interest in any property,
there was no release or Threatened release of hazardous, toxic, radioactive or
dangerous materials or other materials regulated under Environmental Laws in,
on, under or affecting any such property which would reasonably be expected to
have a Material Adverse Effect. Neither the Company nor any of its Subsidiaries
is subject to any agreement, order, judgment, decree, letter or memorandum by or
with any court, regulatory agency, other Governmental Entity or third party
imposing any material liability or obligations pursuant to or under any
Environmental Law that would have or would reasonably be expected to have a
Material Adverse Effect.
(m) PROPERTIES. Except as disclosed in the Company SEC Documents, each
of the Company and its Subsidiaries (i) has good and marketable title to all the
properties and assets reflected in the latest audited balance sheet included in
such Recent Company SEC Documents as being owned by the Company or one of its
Subsidiaries or acquired after the date thereof which are, individually or in
the aggregate, material to the Company's business on a consolidated basis
(except properties and assets sold or otherwise disposed of since the date
thereof in the ordinary course of business), free and clear of all Liens except
Permitted Liens and (ii) is the lessee of all leasehold estates reflected in the
latest audited financial statements included in such Recent Company SEC
Documents or acquired after the date thereof which are material to its business
on a consolidated basis and is in possession of the properties purported to be
leased thereunder, and each such lease is valid without material default
thereunder by the lessee or, to the Company's Knowledge, the lessor.
(n) INTELLECTUAL PROPERTY. Section 3.2(n) of the Disclosure Schedule
contains a list of all copyrights, patents, trademarks, service marks and
tradenames (including applications, continuations, reissues and similar rights)
("Intellectual Property") and software (other than standard, off-the-shelf
software subject to "shrink wrap" licenses) ("Software") owned by or licensed to
the Company and its Subsidiaries which are material to the conduct of
<PAGE> 16
business of the Company or any of its Subsidiaries. The Company or the
Subsidiary using such Intellectual Property or Software either (i) owns the
entire right, title and interest in and to the Intellectual Property and
Software free and clear of any Liens (other than Permitted Liens) or (ii) has
the right and license to use the same in its business, except where the failure
to so own or have such right or license would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. No
proceedings are pending or, to the Knowledge of the Company, Threatened, which
challenge the validity, use or ownership of any of the Intellectual Property or
Software listed in Section 3.2(n) of the Disclosure Schedule. To the Knowledge
of the Company, no infringement by the Company or any of its Subsidiaries of any
Intellectual Property of any other Person has occurred and the Company and its
Subsidiaries have not received notice of a claim that the Company or its
Subsidiaries are infringing any Intellectual Property of any other Person. To
the Knowledge of the Company, no Person is engaged in any unauthorized use of
the Intellectual Property of the Company.
(o) BROKERS. No broker, investment banker, financial advisor or other
Person, other than Bear, Stearns & Co., the fees and expenses of which will be
paid by the Company, is entitled to any broker's, finder's, financial advisor's
or other similar fee or commission in connection with the Contemplated
Transactions based upon arrangements made by or on behalf of the Company. The
Company has provided to the Investor a true and correct copy of any agreement
with Bear, Stearns & Co. providing for payment of any such fee or commission.
(p) OPINION OF FINANCIAL ADVISOR. The Company has received, prior to
the execution of this Agreement, the oral opinion of Bear, Stearns & Co. to the
effect that the purchase price to be received by the Company for the Purchased
Securities is fair, from a financial point of view, to the Company, a signed
written copy of which opinion, dated as of the date of this Agreement (the "Bear
Stearns Opinion"), will be delivered to the Investor within five (5) Business
Days of the date hereof.
(q) BOARD AND SPECIAL COMMITTEE RECOMMENDATIONS. The Board of
Directors of the Company, at a meeting duly called and held, has by unanimous
vote of those directors present (who constituted 100% of the directors then in
office) (i) determined that this Agreement and the Contemplated Transactions are
fair to and in the best interests of the stockholders of the Company, (ii)
approved the Certificate of Designation in the form attached hereto as Exhibit B
and resolved that it be filed in accordance with applicable law as soon as
practicable following the Company Stockholder Approval and prior to the Closing
Date, and (iii) resolved to recommend that the holders of the Common Shares
approve this Agreement and the Contemplated Transactions. The special committee
of independent directors of the Board of Directors of the Company (the "Special
Committee") has, by unanimous vote, recommended that the Board of Directors
approve this Agreement, the Certificate of Designation and the Contemplated
Transactions.
(r) COMMON SHARES LISTING. The Common Shares are registered pursuant
to Section 12(g) of the Exchange Act and are listed on the Nasdaq National
Market ("Nasdaq").
<PAGE> 17
The Company has taken no action designed to cause, or likely to result in, the
termination of the registration of the Common Shares under the Exchange Act or
the delisting of the Common Shares from Nasdaq, nor has the Company received any
notification that the SEC or the National Association of Securities Dealers,
Inc. ("NASD") is contemplating the termination of such registration or listing.
(s) REQUIRED VOTE. The Company Stockholder Approval, required pursuant
to NASD Rule 4310(c)(25)(H)(i)d.2. prior to the purchase by the Investor of the
Purchased Securities and the consummation of the Contemplated Transactions in
order to avoid the possible delisting of the Common Shares from Nasdaq, is the
only vote of the holders of any class or series of the Company's securities
necessary to approve any of the Contemplated Transactions or this Agreement.
(t) TERMINATION OF SHAREHOLDERS AGREEMENT. The Shareholders Agreement,
dated as of June 9, 1997, and as amended as of July 21, 1997, by and among the
Company, Allan Brown, The Eric Stanton Self-Declaration of Revocable Trust,
Gregory Shlopak, and Patrick Brady, will be terminated as of the Closing by way
of a termination agreement duly executed by all of the parties to such
Shareholders Agreement, an executed copy of which termination agreement has been
delivered by the Company to the Investor. Pursuant to such termination
agreement, Eric Stanton has relinquished any right he may have had to be
nominated to and/or to serve on the Board of Directors of the Company, including
pursuant to such Shareholders Agreement, his Consulting Agreement, dated as of
May 7, 1997, by and among Eric Stanton, the Company and SMI Merger, Inc., or
otherwise.
(u) YEAR 2000 COMPLIANCE. The Company's disclosure in the Recent
Company SEC Documents concerning the "Year 2000" Issue is true and correct in
all material respects.
3.3 REPRESENTATIONS AND WARRANTIES OF THE INVESTOR. The Investor
represents and warrants to the Company as follows:
(a) ORGANIZATION, STANDING AND POWER. The Investor is duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has the requisite power and authority to carry on its business as now being
conducted. The Investor is duly qualified or licensed to do business and is in
good standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification or licensing
necessary, other than in such jurisdictions where the failure to be so qualified
or licensed (individually or in the aggregate) would not have a material adverse
effect on the Investor.
(b) AUTHORITY; NONCONTRAVENTION. The Investor has all requisite
partnership power and authority to enter into this Agreement and to consummate
the Contemplated Transactions. The execution and delivery of this Agreement by
the Investor and the consummation by the Investor of the Contemplated
Transactions have been duly authorized by
<PAGE> 18
all necessary action on the part of the Investor. This Agreement has been duly
executed and delivered by, and constitutes the valid and binding obligation of,
the Investor, enforceable against the Investor in accordance with its terms. The
execution and delivery of this Agreement does not, and the consummation of the
Contemplated Transactions and compliance with the provisions hereof will not,
conflict with, or result in any breach or violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of or "put" right with respect to any
obligation or to loss of a benefit under, or result in the creation of any Lien
upon its or its Subsidiaries' properties or assets under, (i) the Investor's
Certificate of Limited Partnership or the comparable Organizational Documents of
any of its Subsidiaries, (ii) any loan or credit agreement, note, bond,
mortgage, indenture, lease, contract or other agreement, instrument, permit,
concession, franchise or license applicable to the Investor or any of its
Subsidiaries, properties or assets which is material to the Investor or (iii)
subject to the governmental filings and other matters referred to in the
following sentence, any judgment, order, decree, statute, law, ordinance, rule,
regulation or arbitration award applicable to the Investor or its Subsidiaries,
properties or assets, other than, in the case of clauses (ii) and (iii), any
such conflicts, breaches, violations, defaults, rights, losses or Liens that
individually or in the aggregate would not have a material adverse effect with
respect to the Investor or would not prevent or materially hinder or delay the
ability of the Investor to consummate the Contemplated Transactions. No consent,
approval, order or authorization of, or registration, declaration or filing
with, or notice to, any Governmental Entity or any other Person is required by
or with respect to the Investor or any Subsidiary of Investor in connection with
the execution and delivery of this Agreement or the consummation by the Investor
of any of the Contemplated Transactions, except for (i) the filing of a
premerger notification and report form under the HSR Act, (ii) the filing with
the SEC of such reports or schedules under the Exchange Act as may be required
in connection with this Agreement and the Contemplated Transactions, and (iii)
such other consents, approvals, orders, authorizations, registrations,
declarations, filings or notices as may be required under the "takeover" or
"blue sky" laws of various states.
(c) INFORMATION SUPPLIED. None of the information supplied or to be
supplied by the Investor for inclusion or incorporation by reference in the
Proxy Statement will, at the date the Proxy Statement is first mailed to the
Company's stockholders or at the time of the Company Stockholders Meeting,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading.
(d) LITIGATION. There is no suit, action, proceeding, investigation or
inquiry pending or, to the Knowledge of the Investor, Threatened against or
affecting the Investor or any of its Subsidiaries or any basis for any such
suit, action, proceeding, investigation or inquiry that, individually or in the
aggregate, would reasonably be expected to have a material adverse effect with
respect to the Investor or prevent or materially hinder or delay the ability of
the Company or the Investor to consummate the Contemplated Transactions, nor is
there any judgment, decree, injunction, rule or order of any Governmental Entity
or arbitrator
<PAGE> 19
outstanding against the Investor or any of its Subsidiaries or Affiliates
having, or which, in the future would have, any such effect.
(e) BROKERS. No broker, investment banker, financial advisor or other
Person, other than Donaldson, Lufkin & Jenrette Securities Corporation, the fees
and expenses of which will be paid by the Company, is entitled to any broker's,
finder's, financial advisor's or other similar fee or commission in connection
with the Contemplated Transactions based upon arrangements made by or on behalf
of the Investor. The Investor has provided to the Company a true and correct
copy of any agreement with Donaldson, Lufkin & Jenrette Securities Corporation
providing for payment of any such fee or commission.
(f) INVESTOR STATUS. The Investor has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of its investment in the Series A Preferred Shares and the Warrant and is
able to bear the economic risks of such investment.
(g) ACCREDITED INVESTOR. The Investor is an "accredited investor" as
defined in Rule 501(a) under the 1933 Act. The Investor is acquiring the Series
A Preferred Shares and the Warrant for its own account and not with a view to
any resale, distribution or other disposition of the Series A Preferred Shares
or the Warrant in violation of the United States securities laws.
(h) FINANCIAL ABILITY. The Investor has the financial capability to
consummate the Contemplated Transactions, and the Investor understands that
under the terms of this Agreement the Investor's obligations hereunder are not
in any way contingent or otherwise subject to (i) the Investor's consummation of
any financing arrangements or the Investor's obtaining any financing or (ii) the
availability of any financing to the Investor.
(i) NO OTHER AGREEMENTS. Except for the Employment Agreements and the
Voting Agreement, the Investor has made no other agreements, arrangements or
understandings concerning the Contemplated Transactions or the Company or any of
its Subsidiaries with (a) any director, officer, employee or consultant of the
Company or any of its Subsidiaries, or (b) any stockholder beneficially owning
at least 5% of the outstanding Common Shares.
ARTICLE 4
COVENANTS OF THE COMPANY
4.1 AFFIRMATIVE COVENANTS. The Company covenants and agrees with the
Investor that it will do or cause to be done the following, until the earlier of
the Closing or the termination of this Agreement pursuant to Section 7.1:
(a) use its Best Efforts to obtain all consents, approvals and
authorizations
<PAGE> 20
set forth and marked with an asterisk in Section 3.2(d) of the Disclosure
Schedule, or otherwise required to consummate the Contemplated Transactions, and
to consult with the Investor and keep the Investor appraised of the progress
with respect to such consents, approvals and authorizations;
(b) permit a Representative of the Investor to attend all meetings of
the Board of Directors, provided, that the Representative of the Investor shall
excuse himself or herself from the meeting if so requested by the Board of
Directors;
(c) promptly provide the Investor with written notification of any
event, occurrence or other information of any kind whatsoever which in any way
would cause any representation or warranty made by the Company in this Agreement
to be untrue, incorrect or incomplete or would cause any of the conditions to
any party's obligations to consummate the Contemplated Transactions not to be
fulfilled ("UPDATES"). All such written notifications shall specifically
identify any and all of the representations or warranties affected by the event,
occurrence or information that necessitated the giving of such notice.
Notwithstanding the foregoing, the Updates shall not be given effect for the
purposes of (i) determining the accuracy of the representations and warranties
contained in this Agreement, (ii) determining the satisfaction of the conditions
precedent to the obligations of the Investor contained in Section 6.2 of this
Agreement, or (iii) limiting the Investor's ability to seek indemnification from
the Company pursuant to the terms of this Agreement; and
(d) subject to the provisions of the Confidentiality Agreement, will,
and will cause its Subsidiaries and each of their Representatives to, give the
Investor and its respective Representatives reasonable access, upon reasonable
notice and during normal business hours, to the offices and other facilities and
to the books and records of the Company and its Subsidiaries and will cause the
Representatives of the Company and the Company's Subsidiaries to furnish the
Investor and Representatives of the Investor with such financial and operating
data and such other information with respect to the business and operations of
the Company and its Subsidiaries as the Investor may from time to time
reasonably request.
4.2 RESTRICTIONS. Except as contemplated by this Agreement or with the
prior written consent of Investor (which consent shall not be unreasonably
withheld or delayed), during the period from the date of this Agreement to the
earlier of the termination of this Agreement pursuant to Section 7.1 and the
Closing, the Company will, and will cause each of its Subsidiaries to, conduct
its operations according to its ordinary course of business and consistent with
past practice and use its and their respective reasonable Best Efforts to
preserve intact their current business organizations, keep available the
services of their current officers and employees and preserve their
relationships with customers, suppliers, licensors, licensees, advertisers,
distributors and others having business dealings with them and to preserve
goodwill. Without limiting the generality of the foregoing, and except as
otherwise expressly provided in this Agreement or required by law prior to the
Closing Date, the Company will not, and will cause its Subsidiaries not to,
without the prior written consent of the Investor (which consent shall not be
unreasonably withheld or delayed):
<PAGE> 21
(a) (i) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock (except for any dividend
payable by a wholly owned Subsidiary of the Company to the Company or any wholly
owned Subsidiary of the Company), (ii) split, combine or reclassify any of its
capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock or
(iii) purchase, redeem or otherwise acquire any shares of capital stock of the
Company or any of its Subsidiaries or any other securities thereof or any
rights, warrants or options to acquire any such shares or other securities;
(b) authorize for issuance, issue, deliver, sell or agree or commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise), pledge
or otherwise encumber any shares of its capital stock or the capital stock of
any of its Subsidiaries, any other voting securities or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares, voting securities or convertible securities or any other securities or
equity equivalents (including without limitation stock appreciation rights),
other than the issuance of Common Shares upon the exercise of the Company Stock
Options or the warrants set forth in Section 3.2(c) of the Disclosure Schedule
outstanding on the date of this Agreement and in accordance with their present
terms, or pursuant to the 1993 Employee Stock Purchase Plan;
(c) propose, authorize or effect any change or amendment to its
articles, by-laws or equivalent Organizational Documents or alter through
merger, liquidation. reorganization, restructuring or in any other fashion the
corporate structure or ownership of any material Subsidiary of the Company;
(d) take any action that would, or is reasonably likely to, result in
any of its representations and warranties in this Agreement becoming untrue, or
in any of the conditions to the Closing set forth in Section 6.1 or 6.2 not
being satisfied; or
(e) authorize any of, or commit or agree to take any of, the foregoing
actions.
4.3 NO SOLICITATION. From and after the date hereof until the earlier of
the Closing Date or the termination of this Agreement pursuant to Section 7.1:
(a) The Company shall not, nor shall it permit any of its Subsidiaries
to, nor shall it authorize (and shall use Best Efforts to prevent) any of its or
its Subsidiaries' Representatives to, directly or indirectly through another
Person, (i) solicit, initiate or encourage (including by way of furnishing
non-public information), or take any other action designed to facilitate, any
inquiries or the making of any proposal which constitutes a Company Takeover
Proposal or (ii) participate in any negotiations regarding any Company Takeover
Proposal; PROVIDED, HOWEVER, that if the Board of Directors of the Company or
the Special Committee determines in good faith, following consultation with
outside counsel, that
<PAGE> 22
failure to do so would be reasonably likely to constitute a breach of its
fiduciary duties to the Company's stockholders under applicable law, the Company
may, in response to any Company Takeover Proposal made prior to the Company
Stockholder Approval, which proposal was not solicited by it or any of its
Subsidiaries and which did not otherwise result from a breach of this Section
4.3(a), and subject to providing prior written notice of its decision to take
such action to the Investor and compliance with Section 4.3(c), (x) furnish
information with respect to the Company and its Subsidiaries to any person
making a Company Takeover Proposal pursuant to a customary confidentiality
agreement (as determined by the Company or the Special Committee following
consultation with its outside counsel) and (y) participate in negotiations
regarding such Company Takeover Proposal.
(b) Except as expressly permitted by this Section 4.3(b), neither the
Board of Directors of the Company, the Special Committee, nor any other
committee thereof shall (i) withdraw or modify, or propose publicly to withdraw
or modify, in a manner adverse to the Investor, the approval or recommendation
by such Board of Directors, the Special Committee, or such other committee of
the Contemplated Transactions, (ii) approve or recommend, or propose to approve
or recommend, any Company Takeover Proposal, or (iii) cause the Company to enter
into any Company Acquisition Agreement. Notwithstanding the foregoing, the Board
of Directors of the Company or the Special Committee, to the extent that it
determines in good faith, following consultation with outside counsel, that in
light of a Company Superior Proposal failure to do so would be reasonably likely
to constitute a breach of its fiduciary duties to the Company's stockholders
under applicable law, may terminate this Agreement solely in order to
concurrently enter into a Company Acquisition Agreement with respect to a
Company Superior Proposal, but only following notice to the Investor and payment
to the Investor of a fee of $3.5 million.
(c) In addition to the obligations of the Company set forth in
paragraphs (a) and (b) of this Section 4.3, the Company shall immediately (but
in any event within one day) advise the Investor orally and in writing of any
request for information or any Company Takeover Proposal, the material terms and
conditions of such initial request or Company Takeover Proposal and the identity
of the person making such request or Company Takeover Proposal.
(d) Nothing contained in this Section 4.3 shall prohibit the Company
from taking and disclosing to its stockholders a position contemplated by Rule
14e-2(a) promulgated under the Exchange Act if, in the good faith judgment of
the Board of Directors of the Company or the Special Committee, following
consultation with outside counsel, failure so to disclose would be a violation
of its obligations under applicable law; PROVIDED, HOWEVER, that, neither the
Company nor its Board of Directors, the Special Committee, nor any other
committee thereof shall withdraw or modify, or propose publicly to withdraw or
modify, its position with respect to this Agreement or the Contemplated
Transactions or approve or recommend, or propose publicly to approve or
recommend, a Company Takeover Proposal unless this Agreement is first terminated
in accordance with Section 4.3(b).
<PAGE> 23
4.4 CERTAIN AGREEMENTS. The Company will immediately cease and cause its
Representatives to cease any and all existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any Company
Takeover Proposal, and shall use its Best Efforts to cause such parties in
possession of confidential information about the Company or its Subsidiaries
that was furnished by or on behalf of the Company or its Subsidiaries to return
or destroy all such information in the possession of any such party or in the
possession of any attorney, agent, advisor or representative of such party.
Neither the Company nor any Subsidiary of the Company will waive or fail to
enforce any provision of any confidentiality agreement entered into in
connection with a potential Company Takeover Proposal or standstill or similar
agreement to which it is a party without the prior written consent of the
Investor.
4.5 CONTINUING COVENANTS. The Company covenants that from and after the
date of this Agreement and through the Closing and thereafter so long as the
Investor owns Common Shares and/or Series A Preferred Shares (including shares
underlying the Warrant) representing on an as converted basis, in the aggregate,
at least 782,828 Common Shares (or an equivalent adjusted number of shares of
voting securities of the Company into which such Common Shares have been
converted following any reclassification or combination or similar change to the
common stock of the Company):
(a) The Company shall not issue or authorize for issuance any shares of
equity securities of the Company in violation of the provisions of the
Certificate of Designation;
(b) The Company shall use its Best Efforts to maintain its status as a
registrant under the Exchange Act that is not in default or contravention of any
requirement of the Exchange Act, except in the event that, following the
Closing, there is a merger, sale of all or substantially all of the assets of
the Company or similar transaction involving the Company and its Subsidiaries
and requiring approval of the Board of Directors and shareholders of the
Company;
(c) The Company shall use its Best Efforts to maintain the listing and
posting for trading of the Common Shares on Nasdaq, except in the event that,
following the Closing, there is a merger, sale of all or substantially all of
the assets of the Company or similar transaction involving the Company and its
Subsidiaries and requiring approval of the Board of Directors and shareholders
of the Company;
(d) The Company shall at all times reserve and keep available, solely
for issuance and delivery upon conversion of the Purchased Securities, the
number of Common Shares from time to time issuable upon conversion of all of the
Purchased Securities at the time outstanding. All Common Shares issuable upon
conversion of the Purchased Securities shall be duly authorized and, when issued
upon such conversion, shall be validly issued, fully paid and nonassessable, and
admitted for listing and quotation on Nasdaq;
(e) Upon the written request of the Investor from time to time
following the
<PAGE> 24
Closing, (i) nominate and recommend for election to the Board of Directors of
the Company at each annual meeting of the stockholders of the Company (and each
special meeting of the stockholders of the Company at which Directors are to be
elected): (A) so long as the Investor owns Common Shares and/or Series A
Preferred Shares (including shares underlying the Warrant) representing on an as
converted basis, in the aggregate, at least 3,131,313 Common Shares (or an
equivalent adjusted number of shares of voting securities of the Company into
which such Common Shares have been converted following any reclassification or
combination or similar change to the common stock of the Company), three (3)
nominees for director designated by the Investor (but not its permitted
transferees that are not affiliates of the Investor) in each such written
request, or, if the size of the Board of Directors is changed with the consent
of the Investor pursuant to Section 4.5(g) below, such other number of nominees
for director designated by the Investor as would constitute one less than a
majority of the Board of Directors, (B) so long as the Investor owns Common
Shares and/or Series A Preferred Shares (including shares underlying the
Warrant) representing on an as converted basis, in the aggregate, at least
1,565,656 Common Shares but less than 3,131,313 Common Shares (or an equivalent
adjusted number of shares of voting securities of the Company into which such
Common Shares have been converted following any reclassification or combination
or similar change to the common stock of the Company), two (2) nominees for
director designated by the Investor (but not its permitted transferees that are
not affiliates of the Investor) in each such written request, or, if the size of
the Board of Directors is changed with the consent of the Investor pursuant to
Section 4.5(g) below, such other number of nominees for director designated by
the Investor as would constitute at least two-sevenths of the members of the
Board of Directors, and (C) so long as the Investor owns Common Shares and/or
Series A Preferred Shares (including shares underlying the Warrant) representing
on an as converted basis, in the aggregate, at least 782,828 Common Shares but
less than 1,565,656 Common Shares (or an equivalent adjusted number of shares of
voting securities of the Company into which such Common Shares have been
converted following any reclassification or combination or similar change to the
common stock of the Company), one (1) nominee for director designated by the
Investor (but not its permitted transferees that are not affiliates of the
Investor) in each such written request, or, if the size of the Board of
Directors is changed with the consent of the Investor pursuant to Section 4.5(g)
below, such other number of nominees for director designated by the Investor as
would constitute at least one-seventh of the members of the Board of Directors;
and (ii) nominate and use Best Efforts to cause to be elected as Chairman of the
Board of Directors, Ron Burkle or such other nominee as is designated by the
Investor (but not its permitted transferees that are not affiliates of the
Investor) in such written request;
(f) In the event that any member of the Board of Directors of the
Company nominated by the Investor pursuant to the provisions of 4.5(e) or 5.1(b)
vacates his position as a director of the Company as a result of his death,
resignation, disqualification, removal or other cause other than pursuant to a
vote of the stockholders of the Company, the Company agrees to appoint to the
Board of Directors a replacement member designated by the Investor to serve out
the remainder of the term of such former member in accordance with the
provisions of the Certificate of Incorporation of the Company; and
<PAGE> 25
(g) Except as set forth in Section 6.2(h), the Company shall not make
any change in the size of its Board of Directors, change the term of office of
any member of the Board of Directors, or otherwise reclassify its Board of
Directors or amend or otherwise modify the effect of any provision of Article
VII of the Restated Certificate of Incorporation of the Company, filed with the
Office of the Secretary of State of the State of Delaware on January 27, 1995,
without the prior written consent of the Investor.
ARTICLE 5
ADDITIONAL AGREEMENTS
5.1 PREPARATION OF THE PROXY STATEMENT; STOCKHOLDER MEETING.
(a) Promptly following the date of execution of this Agreement, the
Company shall prepare and file with the SEC a Proxy Statement on Schedule 14A
(the "Proxy Statement"). The Investor shall provide to the Company all
information required by applicable securities laws to be included in the Proxy
Statement regarding the Investor and its Affiliates and designees (as described
below in Section 5.1(b)). The Company will use its reasonable Best Efforts to
cause the Proxy Statement to be mailed to its stockholders as promptly as
practicable after any comments thereto issued by the SEC are cleared by the SEC.
(b) The Company will, as promptly as practicable following the date of
execution of this Agreement, duly call, give notice of, convene and hold a
meeting of its stockholders (the "Company Stockholders Meeting") for the purpose
of obtaining the approval of the Company stockholders of: (i) the Company's
issuance and sale of the Purchased Securities to the Investor, by means of the
affirmative vote of a majority of the votes cast by holders of the outstanding
Common Shares as required by Nasdaq, and (ii) the election to the Board of
Directors of the Company of three (3) nominees designated by the Investor to the
Company in writing prior to the filing of the Proxy Statement, to serve as
members of a class of directors to serve for a term of two (2) years or until
the annual meeting of the stockholders of the Company in the year 2001, if
later, by means of the affirmative vote of a plurality of the votes cast by
holders of the outstanding Common Shares as required by the Company's by-laws
(such approval of the Company stockholders of the foregoing matters set forth in
clauses (i) and (ii) being referred to herein as the "Company Stockholder
Approval"). The Company will, through its Board of Directors in accordance with
the provisions of Section 3.2(q), recommend to its stockholders that they vote
in favor of the Company Stockholders Approval. Such recommendation, together
with a copy of the Bear Stearns Opinion, shall be included in the Proxy
Statement. The Company will use Best Efforts to hold such meeting as soon as
practicable after the date of execution of this Agreement.
5.2 BEST EFFORTS. Each of the parties agrees to use its Best Efforts to
take, or cause to be taken, all actions, and to do, or cause to be done, and to
assist and cooperate with the
<PAGE> 26
other parties in doing, all things necessary, proper or advisable, to
consummate, in the most expeditious manner practicable, the Closing and the
other Contemplated Transactions. The Investor and the Company will use their
Best Efforts and cooperate with one another (i) in promptly determining whether
any filings are required to be made or consents, approvals, waivers, permits or
authorizations are required to be obtained under any applicable law or
regulation or from any governmental authorities or third parties in connection
with the Contemplated Transactions, and (ii) in promptly making any such
filings, in furnishing information required in connection therewith and in
timely seeking to obtain any such consents, approvals, waivers, permits or
authorizations, including any notification and report forms and related material
that it may be required to file with the Federal Trade Commission and the
Antitrust Division of the United States Department of Justice under the HSR Act.
Each of the parties shall use its Best Efforts to obtain an early termination of
the applicable waiting period under the HSR Act, and shall make any further
filings or information submissions pursuant thereto that may be necessary,
proper or advisable.
5.3 PUBLIC ANNOUNCEMENTS. The Investor and the Company will consult with
each other before issuing, and provide each other the opportunity to review and
comment upon, any press release or other public statements with respect to the
Contemplated Transactions, and shall not issue any such press release or make
any such public statement prior to such consultation, except as may be required
by applicable law, court process or by obligations pursuant to any listing
agreement with any national securities exchange or as are agreed upon in
advance. The parties agree that the initial press release or releases to be
issued with respect to the Contemplated Transactions shall be mutually agreed
upon prior to the issuance thereof.
5.4 TAKEOVER STATUTES. If any "fair price," "moratorium," "control share
acquisition" or other form of antitakeover statute or regulation shall become
applicable to the Contemplated Transactions, the Company and the members of its
Board of Directors, on the one hand, and the Investor and its general partner,
on the other hand, shall grant such approvals and take such actions as are
reasonably necessary so that the Contemplated Transactions may be consummated as
promptly as practicable on the terms contemplated hereby and otherwise act to
eliminate or minimize the effects of such statute or regulation on the
Contemplated Transactions.
5.5 RESTRICTION ON INVESTOR. Except as expressly provided in this
Agreement or required by law prior to the Closing Date, the Investor will not,
without the prior written consent of the Company (which consent shall not be
unreasonably withheld or delayed), take any action that would, or is reasonably
likely to, result in any of its representations and warranties in this Agreement
becoming untrue, or in any of the conditions to the Closing set forth in Section
6.1 or 6.3 not being satisfied.
5.6 RESTRICTIVE LEGEND. The Purchased Securities shall be stamped or
otherwise imprinted with the following legend and the Investor agrees to
transfer such Purchased Securities only in accordance therewith:
<PAGE> 27
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
(THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE AND NEITHER
THIS SECURITY, NOR ANY INTEREST THEREIN, MAY BE OFFERED, SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR (ii) AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
ANY APPLICABLE STATE SECURITIES LAWS, SUCH EXEMPTION TO BE EVIDENCED BY
SUCH DOCUMENTATION AS THE ISSUER MAY REASONABLY REQUEST."
5.7 STANDSTILL. Investor agrees that for so long as Investor beneficially
owns Common Shares and/or Series A Preferred Shares (including shares underlying
the Warrant) representing on an as converted basis, in the aggregate, at least
782,828 Common Shares, neither it nor its Affiliates will, directly or
indirectly, without the prior written consent of a majority of the Board of
Directors of the Company (other than the nominees or designees or the Investor),
(i) acquire, agree to acquire, make any proposal to acquire or in any way
participate in a "group" (within the meaning of Section 13(d)(3) of the Exchange
Act) to do any of the foregoing, any equity securities (other than the shares of
Series A Preferred Stock and the Warrants or any shares of capital stock
issuable upon the conversion or exercise thereof) of the Company, or (ii) make,
or in any way participate in any "solicitation" of "proxies" (as such terms are
used in the proxy rules of the Securities Exchange Commission) to vote any
voting securities of the Company (other than in connection with the solicitation
of proxies by the Board of Directors of the Company, or as contemplated by the
Voting Agreement); provided, however, that the agreements of Investor set forth
in this Section 5.7 shall not apply (A) following the breach by the Company of
any of the covenants set forth in Section 4.5, upon which breach such agreements
of the Investor shall be of no further force and effect; (B) in the event that
any of the following events occurs and such event has not been endorsed or
supported by the Board of Directors of the Company within ten (10) Business Days
of the earlier of its occurrence or the receipt by the Board of Directors of
notice of its anticipated occurrence: (x) the acquisition by any "group" (within
the meaning of Section 13(d)(3) of the Exchange Act) of 20% of any class of
equity securities of the Company, (y) the solicitation of proxies by any Person
or group (other than Investor or the Board of Directors of the Company) or (z)
the public announcement of any of the foregoing, or of any intent to engage in
the foregoing, in which event the Investor shall be permitted to make a proposal
to the disinterested members of the Board of Directors of the Company with
respect to an acquisition or solicitation described in clause (i) or (ii) above;
(C) (x) to the extent of any sales or transfers of Common Shares by any of the
parties to the Voting Agreement (other than the Investor) or any of their
transferees to any Person not subject to the Voting Agreement, and the Investor
shall be permitted to acquire and/or solicit for the acquisition of Common
Shares up to the aggregate amount of any such sales or transfers, or (y) upon
the material breach of the Voting Agreement by any of the parties thereto (other
than the Investor), (1) upon which material breach, if arising from the failure
of the
<PAGE> 28
breaching party to vote such party's shares in accordance with the provisions of
the Voting Agreement and the Investor is unable to exercise its proxy with
respect to such shares, the Investor shall be entitled to purchase the number of
Common Shares equal to the percentage of ownership of the outstanding capital
stock of the Company (including the Common Shares underlying the Warrant) owned
by such breaching party or parties immediately following the date of this
Agreement (or as of the date any such breaching party acquired its Common Shares
if the breaching party is a transferee of a party to the Voting Agreement which
transferee agreed to bound by the Voting Agreement), or (2) upon which material
breach, if arising from the sale or other transfer of Common Shares by the
breaching party in violation of the provisions of the Voting Agreement, the
Investor shall be entitled to purchase the number of Common Shares equal to the
aggregate amount of any such sales or transfers; or (D) in the event of any
issuances of voting securities of the Company other than to current or former
officers, employees, directors or consultants of the Company or its wholly owned
Subsidiaries pursuant to the Option Plans or future stock option plans of the
Company approved by the Board of Directors of the Company or pursuant to the
Employment Agreements and Exchange Agreements listed at Section 3.2(c)(iii)(B)
through (G) of the Disclosure Schedule, in which event the Investor shall be
able to acquire and/or solicit for the acquisition of voting securities of the
Company (including Common Shares) such that the Investor's total ownership of
the Company is equal to the sum of (1) the number of Common Shares equal to
twenty-three percent (23%) of the outstanding capital stock of the Company
(including the Common Shares underlying the Warrant) PLUS (2) the number of
Common Shares equal to the excess of twenty-four percent (24%) over the
percentage of ownership of the outstanding capital stock of the Company
(including the Common Shares underlying the Warrant) owned by the stockholders
of the Company who are parties to the Voting Agreement (or any transferees of
such stockholders who have agreed to the terms of the Voting Agreement)
following the issuance of the voting securities referenced at the beginning of
this clause (D).
In the event that the Investor acquires shares pursuant to the provisions
of clause (C) or (D)(2) in the preceding paragraph, the Investor agrees that,
with respect to any vote of the shareholders of the Company other than a vote
involving the election, replacement, removal or disqualification of any person
nominated by the Investor pursuant to Section 4.5(e) hereof, it will vote the
excess number of (X) Common Shares beneficially owned by the Investor OVER (Y)
the number of Common Shares representing the percentage of ownership of the
fully diluted capital stock of the Company represented by the Purchased
Securities as of the date of this Agreement (including, without limitation, the
Common Shares underlying the Warrant), as if the Purchased Securities had been
issued to the Investor as of the date of this Agreement, PRO RATA in accordance
with the votes of the other holders of Common Shares of the Company.
5.8 RESIGNATION OF INVESTOR DIRECTORS. The Investor agrees that if at any
time as a result of a sale, transfer or otherwise it beneficially owns capital
stock of the Company in an amount that would cause its number of director
nominees to be reduced pursuant to Section 4.5(e), then the Investor shall cause
its current designee or designees to the Board of Directors, as the case may be,
to resign from the Board of Directors effective immediately as of such date in
proportion to the amount of directors the Investor would be entitled to
designate for nomination pursuant to Section 4.5(e). As a condition to the
Company's obligation to nominate
<PAGE> 29
and recommend Investor's designees under Section 4.5(e), each such designee
shall agree to resign as set forth in this Section 5.8 under the circumstances
set forth herein.
ARTICLE 6
CONDITIONS PRECEDENT
6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE CLOSING. The
respective obligation of each party to effect the transactions to be effected by
it at the Closing, shall be subject to the satisfaction, or waiver, on or prior
to the Closing Date of the following conditions:
(a) HSR ACT. The waiting period (and any extension thereof) applicable
to the HSR Act shall have been terminated or shall have expired.
(b) NO INJUNCTIONS OR RESTRAINTS. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of any of the Contemplated Transactions shall be in effect;
PROVIDED, HOWEVER, that the parties hereto shall use their Best Efforts to have
any such injunction, order, restraint or prohibition vacated.
(c) COMPANY STOCKHOLDER APPROVAL. The Company Stockholder Approval
shall have been obtained.
(d) NASDAQ LISTING. The Company shall not have received any notice
(which notice has not subsequently been withdrawn) that the Common Shares will
not be eligible or approved for listing or quotation on Nasdaq as a result of
the Contemplated Transactions.
6.2 CONDITIONS TO OBLIGATION OF THE INVESTOR. The obligation of the
Investor to effect the transactions to be effected by it at the Closing, shall
be subject to the satisfaction, or waiver, on or prior to the Closing Date of
the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company set forth in this Agreement, shall be true and correct in all
respects, in each case as of the date of this Agreement and as of the Closing
Date as though made on and as of the Closing Date; PROVIDED that for purposes of
determining the satisfaction of the foregoing, such representations and
warranties shall be deemed true and correct if the failure or failures of such
representations and warranties to be so true and correct (excluding the effect
of any qualification set forth therein relating to "materiality", "Material
Adverse Change" or "Material Adverse Effect") have not had and would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect or a material effect on the ability of the Company to consummate
the Contemplated Transactions or to perform its obligations hereunder. The
Investor shall have received a certificate signed on behalf of the Company by
<PAGE> 30
the chief executive officer and the chief financial officer of the Company,
dated as of the date of the Closing Date, to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The Company shall have
performed the obligations required to be performed by it under this Agreement at
or prior to the Closing Date in all material respects, and the Investor shall
have received a certificate signed on behalf of the Company by the chief
executive officer and the chief financial officer of the Company, dated as of
the date of the Closing Date, to such effect.
(c) CONSENTS, ETC. The Investor has received evidence, in form and
substance reasonably satisfactory to it, that such licenses, permits, consents,
approvals, authorizations, qualifications and orders of Governmental Entities
and other third parties as are necessary in connection with the transactions
contemplated hereby have been obtained.
(d) NO MATERIAL ADVERSE CHANGE From the date of this Agreement to the
Closing Date, there shall not have occurred any Material Adverse Change with
respect to the Company.
(e) DELIVERY OF CERTAIN DOCUMENTS. The Company shall have delivered to
the Investor (i) a certificate dated as of the Closing Date, executed by an
officer of the Company, attaching true and correct copies of the Certificate of
Incorporation and bylaws of the Company and the resolutions of its Board of
Directors and stockholders made in connection with this Agreement and the
Contemplated Transactions, and certifying as to the genuineness and authenticity
of the signature, and the accuracy of the title, of each officer of the Company
executing this Agreement or any document delivered at the Closing, and (ii) the
legal opinion of Choate, Hall & Stewart, or such other counsel as is reasonably
acceptable to the Investor, dated as of the Closing Date, as set forth in
Exhibit F hereto.
(f) DELIVERY AND PERFORMANCE OF AGREEMENTS. The Registration Rights
Agreement, the Management Agreement and the Warrant shall have been duly
executed and delivered by the Company.
(g) CERTIFICATE OF DESIGNATION. The Company shall have filed with the
Secretary of State of the State of Delaware the Certificate of Designation and
such instrument shall have become effective.
(h) BOARD ELECTION. The Board of Directors of the Company shall have
been expanded to seven (7) members and the Investor's three (3) nominees to the
Board of Directors shall have been elected, effective following the Closing.
6.3 CONDITIONS TO OBLIGATION OF THE COMPANY. The obligation of the Company
to effect the transactions to be effected by it at the Closing, shall be subject
to the satisfaction, or waiver, on or prior to the Closing Date of the following
conditions:
<PAGE> 31
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Investor set forth in this Agreement shall be true and correct in all
respects, in each case as of the date of this Agreement and as of the Closing
Date as though made on and as of the Closing Date; PROVIDED that for purposes of
determining the satisfaction of the foregoing, such representations and
warranties shall be deemed true and correct if the failure or failures of such
representations and warranties to be so true and correct (excluding the effect
of any qualification set forth therein relating to "materiality", "material
adverse change" or "material adverse effect") have not had and would not
reasonably be expected to have, individually or in the aggregate, a material
adverse effect on the ability of the Investor to consummate the Contemplated
Transactions or to perform its obligations hereunder. The Company shall have
received a certificate signed on behalf of the Investor by the chief executive
officer and the chief financial officer of the general partner of the Investor,
dated as of the date of the Closing Date, to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF THE INVESTOR. The Investor shall have
performed the obligations required to be performed by it under this Agreement at
or prior to the Closing Date in all material respects, and the Company shall
have received a certificate signed on behalf of the Investor by the chief
executive officer and the chief financial officer of the general partner of the
Investor, dated as of the date of the Closing Date, to such effect.
(c) DELIVERY OF CERTAIN DOCUMENTS. The Investor shall have delivered to
the Company a certificate dated as of the Closing Date, executed by a general
partner of the Investor, attaching true and correct copies of the Certificate of
Limited Partnership of the Investor and the resolutions of its partners made in
connection with this Agreement and the Contemplated Transactions, and certifying
as to the genuineness and authenticity of the signature, and the accuracy of the
title, of the general partner of the Investor executing this Agreement or any
document delivered at the Closing.
(d) DELIVERY AND PERFORMANCE OF AGREEMENTS. The Registration Rights
Agreement shall have been duly executed and delivered by the Investor, the
Management Agreement shall have been duly executed and delivered by the Yucaipa
Companies, and the Purchase Price shall have been delivered to the Company
pursuant to Section 2.3(c)(i).
ARTICLE 7
TERMINATION, AMENDMENT AND WAIVER
7.1 TERMINATION. Prior to the Closing, this Agreement may be terminated
and the Contemplated Transactions may be abandoned:
(i) at any time by mutual written consent of the
Company and the Investor;
(ii) by either the Company or the Investor if the
Closing shall not
<PAGE> 32
have occurred prior to the earlier of (A) ten (10) days following
notice to the non-terminating party of the prior fulfillment or waiver
of all conditions set forth in Article 6 hereof and (B) February 15,
2000, other than due to the failure of the party seeking to terminate
this Agreement to perform its obligations under this Agreement required
to be performed at or prior to the Closing;
(iii) by either the Company or the Investor if
consummation of the Contemplated Transactions would violate any
nonappealable final order, decree or judgment of any Governmental
Entity having competent jurisdiction; or
(iv) by either party if, after 10 days notice to the
other party, any condition to the terminating party's obligations to
consummate the transactions contemplated by this Agreement to take
place at the Closing is incapable of being satisfied prior to February
15, 2000;
(v) by either the Company or the Investor if the
Company Stockholder Approval is not received (or is voted down) prior
to February 15, 2000;
(vi) by the Company as provided in Section 4.3(b); or
(vii) by either the Company or the Investor if a
material breach of any provision of this Agreement has been committed
by the other party, and such breach has not been cured or waived within
ten (10) days of the delivery of written notice to the breaching party
thereof;
PROVIDED, THAT, no party may terminate this Agreement pursuant to clauses (ii),
(iii), (iv), (v), (vi) or (vii) above, if such party is, at the time of any such
attempted termination, in material breach of any term hereof.
7.2 EFFECT OF TERMINATION.
(a) If there has been a termination pursuant to Section 7.1, then this
Agreement shall be deemed void and of no further force and effect, and all
further obligations of the parties hereunder shall terminate, except that the
obligations set forth in Section 9.5 shall survive. Nothing contained in this
Section 7.2 (with the exception of the last sentence of Section 7.2(b)),
however, shall (i) relieve any party for any breach of the representations,
warranties, covenants or agreements set forth in this Agreement prior to any
such termination or the corresponding liability for indemnification arising
therefrom pursuant to Article 8, or (ii) limit or restrict the availability of
specific performance or other injunctive or equitable relief to the extent that
specific performance or such other relief would otherwise be available to a
party hereunder.
(b) Notwithstanding the foregoing provisions of this Section 7.2, in
the event of a termination of this Agreement: (i) by the Investor pursuant to
Sections 7.1(iv) or
<PAGE> 33
(vii) because of the breach or non-performance by the Company of any of its
covenants or obligations set forth in Section 5.1 and prior to, simultaneously
with or within twelve (12) months after such termination the Company enters into
a Company Acquisition Agreement (substituting 23% for 10% in the definition of
the term "Company Takeover Proposal" contained in the definition of Company
Acquisition Agreement); (ii) after (A) a bona fide Company Takeover Proposal has
been proposed by a third party and such Company Takeover Proposal has not been
withdrawn prior to the Company Stockholders Meeting and the Company Stockholder
Approval is not obtained at the Company Stockholders Meeting and (B) prior to,
simultaneously with or within twelve (12) months after such termination the
Company enters into a Company Acquisition Agreement (substituting 23% for 10% in
the definition of the term "Company Takeover Proposal" contained in the
definition of Company Acquisition Agreement); or (iii) after (A) the Company
fails to comply with Section 4.3 and (B) a Company Takeover Proposal has been
proposed by a third party; then the Company will immediately pay to the Investor
a fee of Three Million Five Hundred Thousand Dollars ($3,500,000), in addition
to the amount due to the Investor under Section 9.5, by wire transfer of
immediately available funds to accounts designated by the Investor; provided,
however, that any such fee otherwise payable pursuant to this Section 7.2 or
Section 4.3(b) and the amount otherwise due under Section 9.5 shall not be
payable, and any attempted termination of this Agreement by the Investor shall
not be effective, if the Investor is, at the time of such attempted termination,
in material breach of any term hereof. Upon the Investor's receipt from the
Company of such $3,500,000 fee pursuant to this Section 7.2 or Section 4.3(b),
plus the amount due under Section 9.5, this Agreement shall be deemed void and
the Investor shall have no further claims against the Company for any breach of
any provision of this Agreement, and all further obligations of the parties
hereunder shall terminate.
7.3 AMENDMENT. This Agreement may be amended by mutual agreement of the
parties at any time, but only pursuant to an instrument in writing duly executed
on behalf of each of the Company and the Investor.
7.4 EXTENSION; WAIVER. At any time prior to the Closing Date, the parties
may (a) extend the time for the performance of any of the obligations or other
acts of the other parties, (b) waive any inaccuracies in the representations and
warranties contained in this Agreement or in any document delivered pursuant to
this Agreement or (c) waive compliance with any of the agreements or conditions
contained in this Agreement. Any agreement on the part of a party to any such
extension or waiver shall be valid only if set forth in an instrument in writing
duly executed on behalf of such party. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of such rights.
ARTICLE 8
INDEMNIFICATION; REMEDIES
8.1 SURVIVAL; RIGHT TO INDEMNIFICATION NOT AFFECTED BY KNOWLEDGE. All
<PAGE> 34
representations and warranties in this Agreement, the Disclosure Schedule and in
any certificate or document delivered pursuant to this Agreement shall survive
for a period of one (1) year following the Closing Date. This Section 8.1 shall
not limit any covenant, restriction, obligation or other agreement of the
parties set forth or contemplated herein, each of which shall survive for its
respective term set forth in this Agreement. The right to indemnification,
payment of Damages or other remedy based on such representations, warranties,
covenants, restrictions, obligations and agreements will not be affected by any
investigation conducted with respect to, or any Knowledge acquired (or capable
of being acquired) at any time, whether before or after the execution and
delivery of this Agreement or the Closing Date, with respect to the accuracy or
inaccuracy of or compliance with, any such representation, warranty, covenant,
or obligation. The waiver of any condition based on the accuracy of any
representation or warranty, or on the performance of or compliance with any
covenant or obligation, will not affect the right to indemnification, payment of
Damages, or other remedy based on such representations, warranties, covenants,
and obligations.
8.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY THE COMPANY. The Company
will indemnify and hold harmless the Investor and its Representatives, partners,
controlling persons, and Affiliates and each of their respective Representatives
(collectively, the "Company Indemnified Persons") from and against, and will pay
to the Company Indemnified Persons the amount of, any and all losses,
liabilities, claims, damages, or expenses (including costs of investigation,
defense, litigation and reasonable attorneys' fees), whether or not involving a
third-party claim (collectively, "Damages"), arising, directly or indirectly,
from or in connection with:
(a) any breach of any representation or warranty made by the Company in
this Agreement, the Disclosure Schedule or any other certificate or document
delivered by the Company pursuant to this Agreement, provided that notice of
such breach is given to the Company pursuant to Section 8.5 or 8.6, as
applicable, on or prior to the first anniversary of the Closing Date; or
(b) any breach by the Company of any covenant, restriction, obligation
or agreement of the Company in this Agreement.
8.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY THE INVESTOR. The Investor
will indemnify and hold harmless the Company, its respective Representatives,
and Affiliates and each of their respective Representatives (collectively, the
"Investor Indemnified Persons"), and will pay to the Company the amount of any
Damages arising, directly or indirectly, from or in connection with:
(a) any breach of any representation or warranty made by the Investor
in this Agreement or in any certificate or document delivered by the Investor
pursuant to this Agreement, provided that notice of such breach is given to the
Investor pursuant to Section 8.5 or 8.6, as applicable, within three months of
the expiration of the survivability of the
<PAGE> 35
representation or warranty; or
(b) any breach by the Investor of any covenant, restriction, obligation
or agreement of the Investor in this Agreement.
8.4 LIMITATION ON AMOUNT.
(a) The Company will have no liability (for indemnification or
otherwise) with respect to the matters described in clause (a) or clause (b) of
Section 8.2 until the total of all Damages attributable to the Company with
respect to such matters taken as a whole exceeds $250,000, after which the
amount of such Damages in excess of such initial $250,000 shall be recoverable
hereunder up to a maximum recovery equal to the entire amount of the Purchase
Price paid by the Investor to the Company hereunder. Notwithstanding the
foregoing, this Section 8.4(a) will not apply to any breach of any of the
Company's representations and warranties set forth in Section 3.2(o), and the
Company will be liable for all Damages with respect to such breaches.
(b) The Investor will have no liability (for indemnification or
otherwise) with respect to the matters described in clause (a) or clause (b) of
Section 8.3 until the total of all Damages incurred by the Company with respect
to such matters taken as a whole exceeds $25,000, after which the amount of such
Damages in excess of such initial $25,000 shall be recoverable hereunder up to a
maximum recovery equal to $100,000.
8.5 PROCEDURE FOR INDEMNIFICATION -- THIRD PARTY CLAIMS.
(a) Promptly after receipt by an Indemnified Person described in
Section 8.2 or 8.3 of notice of the commencement of any Proceeding against
it, including reasonable details as to the basis for such claim (to the
extent within the Knowledge of the Indemnified Person), such Indemnified
Person will, if a claim is to be made against an indemnifying party under
such Section, give notice to the indemnifying party of the commencement of
such claim, but the failure to notify the indemnifying party will not
relieve the indemnifying party of any liability that it may have to any
Indemnified Person, except to the extent that the indemnifying party
demonstrates that the defense of such action is prejudiced by the
Indemnified Person's failure to give such notice.
(b) If any Proceeding referred to in Section 8.5(a) is brought against
an Indemnified Person and it gives notice to the indemnifying party of the
commencement of such Proceeding, the indemnifying party will be entitled to
participate in such Proceeding and, to the extent that it wishes (unless
the indemnifying party fails to provide reasonable assurance to the
Indemnified Person of its financial capacity to defend such Proceeding and
provide indemnification with respect to such Proceeding), to assume the
defense of such Proceeding with counsel reasonably satisfactory to the
Indemnified Person and, after notice from the indemnifying party to the
Indemnified Person of its election to assume the defense of such
Proceeding, the indemnifying party will not, as long as it diligently
conducts such defense, be liable to the Indemnified
<PAGE> 36
Person under this Article 8 for any fees of other counsel or any other
expenses with respect to the defense of such Proceeding, in each case
subsequently incurred by the Indemnified Person in connection with the
defense of such Proceeding, other than reasonable costs of investigation;
PROVIDED that if the indemnifying party is also a party to such Proceeding
and, under applicable standards of professional conduct, joint
representation of the Indemnified Person and the indemnifying party would
be inappropriate, then the Indemnified Person shall be entitled to retain
separate counsel whose fees and expenses shall be paid by the indemnifying
party. If the indemnifying party assumes the defense of a Proceeding, (i)
no compromise or settlement of such claims may be effected by the
indemnifying party without the Indemnified Person's consent not to be
unreasonably withheld unless (A) there is no finding or admission of any
violation of Legal Requirements or any violation of the rights of any
Person and no effect on any other claims that may be made against the
Indemnified Person, and (B) the sole relief provided is monetary damages
that are paid in full by the indemnifying party; and (ii) the Indemnified
Person will have no liability with respect to any compromise or settlement
of such claims effected without its consent. If notice is given to an
indemnifying party of the commencement of any Proceeding and the
indemnifying party does not, within ten (10) days after the Indemnified
Person's notice is given, give notice to the Indemnified Person of its
election to assume the defense of such Proceeding, the indemnifying party
will be bound by any determination made in such Proceeding or any
compromise or settlement effected by the Indemnified Person. The
Indemnified Person shall provide its reasonable cooperation with the
indemnifying party in connection with the defense of a proceeding assumed
by indemnifying party hereunder, including the provision of information
reasonably requested by the indemnifying party.
(c) The Company and the Investor hereby consent to the non-exclusive
jurisdiction of any court in which a Proceeding is brought against any
Indemnified Person for purposes of any claim that an Indemnified Person may
have under this Agreement with respect to such Proceeding or the matters
alleged therein, and agree that process may be served on the Company and
the Investor with respect to such a claim anywhere in the world.
8.6 PROCEDURE FOR INDEMNIFICATION -- OTHER CLAIMS. A claim for
indemnification for any matter not involving a third-party claim may be asserted
by notice to the party from whom indemnification is sought.
8.7 REMEDIES EXCLUSIVE. The remedies provided in this Section 8 shall be
exclusive remedies of the parties hereto after the Closing in connection with
any breach of a representation or warranty, non-performance, partial or total,
of any covenant or agreement contained herein, except with respect to any breach
or non-performance of any post-Closing covenant or obligation including, without
limitation, those set forth in Section 4.5 or Section 5.7, or in the case of
fraud, with respect to which the remedies shall not be limited to those set
forth herein.
<PAGE> 37
ARTICLE 9
GENERAL PROVISIONS
9.1 NOTICES. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given when received if delivered personally, on the next Business Day if sent by
overnight courier for next Business Day delivery (providing proof of delivery),
when confirmation is received, if sent by facsimile or in 5 Business Days if
sent by U.S. registered or certified mail, postage prepaid (return receipt
requested) to the other parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) if to Investor, to:
The Yucaipa Companies
10000 Santa Monica Blvd., 5th Floor
Los Angeles, California 90067
Attn: Robert Bermingham
Facsimile: 310-789-7201
with a copy to:
Munger, Tolles & Olson LLP
355 South Grand Avenue, 35th Floor
Los Angeles, California 90071-1560
Attn: Judith Kitano
Facsimile: 213-687-3702
(b) if to the Company, to:
Cyrk, Inc.
3 Pond Road
Gloucester, Massachusetts 01930
Attn: President
Facsimile: 978-281-2088
with a copy to:
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, New York 10019
<PAGE> 38
Attn: Richard D. Pritz
Facsimile: 212-259-6333
and
Choate, Hall & Stewart
Exchange Place
53 State Street
Boston, Massachusetts 02109
Attn: Cameron Read
Facsimile: 617-248-4000
9.2 INTERPRETATION. A reference made in this Agreement to an Article,
Section, Exhibit or Schedule, shall be to an Article or Section of, or an
Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect the meaning or interpretation of this Agreement.
Whenever the words "include," "includes" or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation."
9.3 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
9.4 ENTIRE AGREEMENT; NO THIRDPARTY BENEFICIARIES. This Agreement, the
Registration Rights Agreement and the Confidentiality Agreement together
constitute the entire agreement between the parties with respect to the subject
hereof and thereof, and supersede all prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter of such
agreements. Except as explicitly provided in Sections 8.2 and 8.3, this
Agreement is not intended to confer upon any Person other than the parties any
rights or remedies.
9.5 COSTS AND EXPENSES. All costs and expenses in connection with the
negotiation, preparation, execution, delivery and performance of this Agreement
and the Contemplated Transactions (including, irrespective of whether the
Closing shall have occurred, costs incurred by the Investor and its Affiliates
in connection with an investment in (or acquisition of) the Company, which
include, without limitation, all attorney fees and other consultant and advisor
fees, including all fees and expenses arising from any due diligence
investigation and fees of brokers, investment bankers or financial advisors)
shall be borne by the Company, and the Company shall reimburse the Investor for
all such costs and expenses on the earlier to occur of: (i) the Closing, (ii)
the third Business Day following the Company Stockholders Meeting if the Company
Stockholder Approval is not received, (iii) immediately following the
termination of
<PAGE> 39
the Agreement pursuant to Section 4.3(b) or under circumstances in which a fee
is payable pursuant to Section 7.2(b), and (iv) the third Business Day following
the termination of the Agreement for any other reason, other than for material
breach of any term hereof by the Investor, provided, in the event of (i) above
the Company's reimbursement obligation hereunder shall be limited to Two Million
Two Hundred Thousand Dollars ($2,200,000) in the aggregate; provided, further,
in the event of (ii) or (iv) above the Company's reimbursement obligation
hereunder shall be limited to One Million Seven Hundred Thousand Dollars
($1,700,000) in the aggregate; and provided, further, in the event of (iii)
above, the Company's reimbursement obligation hereunder shall be limited to One
Million Two Hundred Thousand Dollars ($1,200,000) in the aggregate.
9.6 GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
9.7 ASSIGNMENT. Neither this Agreement nor any of the rights, interests or
obligations under this Agreement shall be assigned, in whole or in part, by
operation of law or otherwise, by any of the parties without the prior written
consent of the other parties. Any assignment in violation of the preceding
sentence shall be void. Subject to the preceding two sentences, this Agreement
will be binding upon, inure to the benefit of, and be enforceable by, the
parties and their respective successors and assigns.
9.8 ENFORCEMENT. The parties agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the State of Delaware
or of the United States located in the State of Delaware in the event any
dispute arises out of this Agreement or any of the Contemplated Transactions,
and each party agrees (a) it will not attempt to deny or defeat personal
jurisdiction or venue in any such court by motion or other request for leave
from any such court and (b) it will not bring any action relating to this
Agreement or any of the Contemplated Transactions in any court other than any
such court.
9.9 SEVERABILITY. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein, so long as the economic and legal substance of the
Contemplated Transactions are not affected in a manner materially adverse to any
party hereto.
9.10 FURTHER ASSURANCES. The parties agree (i) to furnish upon request to
each other such further information, (ii) to execute and deliver to each other
such other documents, and
<PAGE> 40
(iii) to do such other acts and things, all as the other party may reasonably
request for the purpose of carrying out the intent of this Agreement and the
documents referred to in this Agreement.
9.11 CONSTRUCTION. In entering into this Agreement, each party represents
and warrants that such party does so freely and voluntarily, after having had
the opportunity to meet and confer with such party's respective attorneys
regarding the contents and legal effect of this Agreement. Each party represents
and warrants that such party has full power and authority to enter into and
execute this Agreement. Every covenant, term, and provision of this Agreement
shall be construed simply according to its fair meaning and not strictly for or
against any party. In the event any claim is made by any party relating to any
conflict, omission, or ambiguity in this Agreement, no presumption or burden of
proof or persuasion shall be implied by virtue of the fact that this Agreement
was prepared by or at the request of a particular party or such party's counsel.
<PAGE> 41
IN WITNESS WHEREOF, the Investor and the Company have caused
this Agreement to be signed by their respective general partner or officer
hereunto duly authorized, all as of the date first written above.
OVERSEAS TOYS, L.P.
By:
----------------------------
Its:
----------------------------
CYRK, INC.
By:
----------------------------
Its:
----------------------------
<PAGE> 42
EXHIBIT A
DEFINITIONS
"AFFILIATE" means, with respect to any Person, another Person that
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, such first Person.
"AGREEMENT" or "SECURITIES PURCHASE AGREEMENT" means this Securities
Purchase Agreement, including all Exhibits and Disclosure Schedules attached
hereto, as amended from time to time in accordance with the provisions of
Section 7.3. Words such as "herein," "hereinafter," "hereof," "hereto" and
"hereunder" refer to this Agreement as a whole, unless the context otherwise
requires.
"BEAR STEARNS OPINION" has the meaning set forth in Section 3.2(p).
"BEST EFFORTS" means the commercially reasonable efforts that a prudent
Person desirous of achieving a result would use in good faith in similar
circumstances to ensure that such result is achieved as expeditiously as can
reasonably be expected.
"BUSINESS DAY" means any day other than a Saturday, Sunday or a day
which is a legal holiday in the State of Delaware.
"CERTIFICATE OF DESIGNATION" means the Certificate of Designation for
the Series A Preferred Stock attached hereto as Exhibit B.
"CLOSING" has the meaning set forth in Section 2.3.
"CLOSING DATE" has the meaning set forth in Section 2.3.
"CODE" means the Internal Revenue Code of 1986, as amended, or any
successor law, and regulations issued by the IRS pursuant to the Internal
Revenue Code or any successor law.
"COMMON SHARES" has the meaning set forth in Section 3.2(c).
"COMPANY" has the meaning set forth in the Preamble.
"COMPANY ACQUISITION AGREEMENT" means any letter of intent, agreement
in principle, acquisition agreement or other similar agreement related to any
Company Takeover Proposal.
"COMPANY SEC FINANCIAL STATEMENTS" has the meaning set forth in Section
3.2(e)
"COMPANY SEC DOCUMENTS" has the meaning set forth in Section 3.2(e)
<PAGE> 43
"COMPANY STOCK OPTIONS" means all outstanding officer, employee,
director or consultant stock options to purchase shares of Common Stock granted
under the Option Plans.
"COMPANY STOCKHOLDER APPROVAL" has the meaning set forth in Section
5.1(b).
"COMPANY STOCKHOLDERS MEETING" has the meaning set forth in Section
5.1(b).
"COMPANY SUPERIOR PROPOSAL" means any Company Takeover Proposal
(substituting 25% for 10% in the definition thereof), on terms which the Board
of Directors of the Company or the Special Committee determines in its good
faith judgment, following consultation with its outside counsel and its
financial advisor, taking into account all legal, financial, regulatory and
other aspects of such proposal, to be more favorable to the Company's
stockholders than the Contemplated Transactions and for which financing, to the
extent required, is then committed or which, in the good faith judgment of the
Board of Directors of the Company or the Special Committee, following
consultation with its outside counsel and its financial advisor, is reasonably
capable of being obtained by such third party.
"COMPANY TAKEOVER PROPOSAL" means, other than the transactions
contemplated by this Agreement, any inquiry, proposal or offer from any Person
unaffiliated with the Investor relating to (i) any direct or indirect
acquisition or purchase (including by merger, consolidation, business
combination, recapitalization, reorganization, liquidation, dissolution or
similar transaction) from the Company or any of its Subsidiaries of assets,
equity securities, or any other interest of or in the Company or any of its
Subsidiaries with a fair market value, in the aggregate, of 10% or more of the
total market capitalization of the Company (i.e., the average of the Closing
Prices (as defined in the Certificate of Designation) of the Common Shares for
the twenty (20) consecutive Trading Days (as defined in the Certificate of
Designation) ending on the day before the Company Takeover Proposal is made
MULTIPLIED by the number of outstanding Common Shares as of the most recent
annual or quarterly SEC filing of the Company), (ii) any tender offer or
exchange offer that if consummated would result in any person beneficially
owning 10% or more of any class of any equity securities of the Company (other
than the Series A Preferred Shares), or (iii) any merger, consolidation,
business combination, recapitalization, reorganization, or similar transaction
involving the Company in which the holders of voting stock of the Company
immediately prior to such transaction do not own at least 90% of the voting
stock of the company surviving such transaction.
"CONFIDENTIALITY AGREEMENT" means that certain letter agreement dated
as of January 25, 1999 by and between the Company and the Investor.
"CONTEMPLATED TRANSACTIONS" means all of the transactions contemplated
by this Agreement, including, without limitation, (i) the sale by the Company of
the Series A Preferred Shares and the Warrant to the Investor, (ii) the
execution, delivery, and performance of the Registration Rights Agreement, the
Management Agreement, and the Voting Agreement, (iii) the performance by the
Investor and the Company of their respective
<PAGE> 44
covenants and obligations under this Agreement, and (iv) the Investor's
acquisition and ownership of the Preferred Shares and the Warrant. "DAMAGES" has
the meaning set forth in Section 8.2.
"DGCL" means the General Corporation Law of the State of Delaware, as
amended.
"DISCLOSURE SCHEDULE" has the meaning set forth in Section 3.1.
"EMPLOYEE AGREEMENTS AND PLANS" has the meaning set forth in Section
3.2(i).
"EMPLOYMENT AGREEMENTS" has the meaning set forth in the Recitals.
"ENVIRONMENTAL LAWS" has the meaning set forth in Section 3.2(l).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor law, and regulations and rules issued pursuant to that
Act or any successor law.
"ERISA AFFILIATE" has the meaning set forth in Section 3.2(i).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
or any successor law, and regulations and rules issued pursuant to that Act or
any successor law.
"GAAP" means generally accepted accounting principles as used in the
United States.
"GOVERNMENTAL ENTIT(Y/IES)" has the meaning set forth in Section
3.2(d).
"HSR ACT" has the meaning set forth in Section 3.2(d).
"INDEMNIFIED PERSONS" means the Investor Indemnified Persons and the
Company Indemnified Persons, each an "Indemnified Person".
"INTELLECTUAL PROPERTY" has the meaning set forth in Section 3.2(n).
"INVESTOR" has the meaning set forth in the Preamble.
"INVESTOR INDEMNIFIED PERSONS" has the meaning set forth in Section
8.3.
"IRS" means the United States Internal Revenue Service or any successor
agency, and, to the extent relevant, the United States Department of the
Treasury.
"KNOWLEDGE" means, with respect to an individual, that such individual
will be deemed to have "Knowledge" of a particular fact or other matter if (a)
such individual is actually aware
<PAGE> 45
of such fact or other matter, or (b) a prudent individual would be expected to
discover or otherwise become aware of such fact or other matter in the course of
conducting a reasonably comprehensive investigation concerning the existence of
such fact or other matter. A Person (other than an individual) will be deemed to
have "Knowledge" of a particular fact or other matter if any individual who is
serving, or who has at any time served, as a director or executive officer of
such Person (or in any similar capacity) has, or at any time had, Knowledge of
such fact or other matter.
"LIENS" has the meaning set forth in Section 3.2(b).
"MANAGEMENT AGREEMENT" has the meaning set forth in the Recitals.
"MATERIAL ADVERSE CHANGE" or "MATERIAL ADVERSE EFFECT" means any change
or effect that either individually or in the aggregate with all other such
changes or effects is, or would reasonably be expected to be, materially adverse
to the business, assets, financial condition or results of operations of the
Company and its Subsidiaries taken as a whole (except for changes affecting the
economy generally or resulting from the announcement or execution of this
Agreement or the consummation of the Contemplated Transactions);
"MATERIAL CONTRACTS" has the meaning set forth in Section 3.2(d).
"NASD" has the meaning set forth in Section 3.2(r).
"NASDAQ" has the meaning set forth in Section 3.2(r).
"OPTION PLANS" mean the Company's 1993 Omnibus Stock Plan, 1997
Acquisition Stock Plan, or 1993 Employee Stock Purchase Plan, each an "Option
Plan."
"ORGANIZATIONAL DOCUMENTS" means (i) the articles or certificate of
incorporation and the bylaws of a corporation, (ii) the partnership agreement
and any statement of partnership of a general partnership, (iii) the limited
partnership agreement and the certificate of limited partnership of a limited
partnership, (iv) any charter or similar document adopted or filed in connection
with the creation, formation, or organization of a Person, and (v) any amendment
to any of the foregoing (including any pending or proposed amendments).
"PERMITTED LIENS" means (i) liens, charges and encumbrances for any
taxes, assessments or other governmental charges for sums not yet due; (ii)
liens granted under the Company's or any of its Subsidiaries' senior secured
lending facilities; (iii) purchase money liens, and (iv) such other liens,
restrictions and other encumbrances, if any, which do not materially detract
from the value of, or materially interfere with, the present use of the Company
of the property subject thereof or affected thereby.
"PERSON" means an individual, or a corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity.
<PAGE> 46
"PREFERRED SHARES" has the meaning set forth in Section 3.2(c).
"PROCEEDING" means any action, arbitration, audit, hearing,
investigation, litigation, or suit (whether civil, criminal, administrative,
investigative, or informal) commenced, brought, conducted, or heard by or
before, or otherwise involving, any Governmental Entity or arbitrator.
"PROXY STATEMENT" has the meaning set forth in Section 5.1(a).
"PURCHASE PRICE" has the meaning set forth in Section 2.2.
"PURCHASED SECURITIES" has the meaning set forth in Section 2.1.
"RECENT COMPANY SEC DOCUMENTS" has the meaning set forth in Section
3.2(e).
"REGISTRATION RIGHTS AGREEMENT" has the meaning set forth in the
Recitals.
"REPRESENTATIVE" means with respect to a particular Person, any
authorized director, officer, employee, agent, consultant, advisor, or other
authorized representative of such Person, including legal counsel, accountants,
and financial advisors.
"SEC" has the meaning set forth in Section 3.2(d).
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"SERIES A PREFERRED SHARES" has the meaning set forth in Section 2.1.
"SERIES A PREFERRED STOCK" has the meaning set forth in the Recitals.
"SOFTWARE" has the meaning set forth in Section 3.2(n).
"SPECIAL COMMITTEE" has the meaning set forth in Section 3.2(q).
"STOCK PLANS" means the Option Plans, the warrants set forth in Section
3.2(c) of the Disclosure Schedule and any other plan, program, agreement or
arrangement providing for the issuance or grant of any interest in respect of
the capital stock of the Company or any Subsidiary of the Company.
"SUBSIDIARY" of any Person means another Person, an amount of the
voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its board of directors or
other governing body or, if there are no such voting interests, 50% or more of
the equity interest of which, is owned directly or indirectly by such
<PAGE> 47
first Person.
"TAX RETURN(S)" means any return(s), report(s) or statement(s) required
to be filed with any Governmental Entity with respect to any Tax(es).
"TAX(ES)" means any and all tax(es) of any kind, including, without
limitation, those on or measured by or referred to as income, gross receipts,
sales, use, ad valorem, franchise, profits, license, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, value added, property
or windfall profits taxes, customs, duties or similar fees, assessments or
charges of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts imposed by any Governmental Entity.
"THREATENED" means a claim, Proceeding, dispute, action, or other
matter will be deemed to have been "Threatened" if any demand or statement has
been made (orally or in writing) or any notice has been given (orally or in
writing).
"UPDATES" has the meaning set forth in Section 4.1(e).
"VOTING AGREEMENT" means the Voting Agreement, entered into as of the
date hereof and as amended from time to time pursuant to the provisions of
Section 4.2 thereof, by and among the Investor and the stockholders of the
Company listed on the signature page thereof or who subsequently become a party
thereto.
"WARRANT" has the meaning set forth in the Recitals.
<PAGE> 1
Exhibit 3.1
CERTIFICATE OF DESIGNATION OF VOTING POWER,
DESIGNATIONS, PREFERENCES
AND RELATIVE, PARTICIPATING, OPTIONAL AND
OTHER SPECIAL RIGHTS
AND QUALIFICATIONS, LIMITATIONS
AND RESTRICTIONS
OF
SERIES A SENIOR CUMULATIVE PARTICIPATING
CONVERTIBLE PREFERRED STOCK
OF
C, INC.
------------------------
PURSUANT TO SECTION 151 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
------------------------
C, Inc., a Delaware corporation (the "Corporation"), certifies
that pursuant to the authority contained in Article IV of its Certificate of
Incorporation (the "Certificate of Incorporation"), and in accordance with the
provisions of Section 151 of the General Corporation Law of the State of
Delaware, the Board of Directors of the Corporation at a meeting duly called and
held on ________, 1999 duly approved and adopted the following resolution which
resolution remains in full force and effect on the date hereof:
RESOLVED, that pursuant to the authority vested in the Board
of Directors by the Certificate of Incorporation, the Board of Directors does
hereby designate, create, authorize and provide for the issue of a series
preferred stock having a par value of $.01 per share, with a liquidation
preference of $1,000 per share (the "Base Liquidation Preference") which shall
be designated as Series A Senior Cumulative Participating Convertible Preferred
Stock (the "Preferred Stock")
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<PAGE> 2
consisting of 40,000 shares, of which 25,000 shares shall be designated Series
A1 Senior Cumulative Participating Convertible Preferred Stock (the "Series A1
Stock") and 15,000 shares shall be designated Series A2 Senior Cumulative
Participating Convertible Preferred Stock (the "Series A2 Stock"), plus, in each
case, such additional shares of Preferred Stock as may be issued pursuant to
paragraph 2 hereof, having the following voting powers, preferences and
relative, participating, optional and other special rights, and qualifications,
limitations and restrictions thereof as follows:
1. RANKING. The Preferred Stock shall, with respect to dividend
distributions and distributions upon the liquidation, winding-up and dissolution
of the Corporation, rank (i) senior to all classes of Common Stock of the
Corporation and to each other class of capital stock or series of preferred
stock established after ______, ___ by the Board of Directors the terms of which
do not expressly provide that it ranks senior to or on a parity with the
Preferred Stock as to dividend distributions and distributions upon the
liquidation, winding-up and dissolution of the Corporation (collectively
referred to with the Common Stock of the Corporation as "Junior Securities");
(ii) on a parity with any additional shares of Preferred Stock issued by the
Corporation in the future and any other class of capital stock or series of
preferred stock issued by the Corporation established after _______,____, by the
Board of Directors, the terms of which expressly provide that such class or
series will rank on a parity with the Preferred Stock as to dividend
distributions and distributions upon the liquidation, winding-up and dissolution
of the Corporation (collectively referred to as "Parity Securities"); and (iii)
junior to each class of capital stock or series of preferred stock issued by the
Corporation established after , by the Board of Directors the terms of which
expressly provide that such class or series will rank senior to the Preferred
Stock as to dividend distributions and distributions upon liquidation,
winding-up and dissolution of the Corporation (collectively referred to as
"Senior Securities").
2. DIVIDENDS.
(i) The holders of shares of the Preferred Stock shall be entitled to
receive, when, as and if dividends are declared by the Board of Directors out of
funds of the Corporation legally available therefor, cumulative dividends from
the date of issuance of the Preferred Stock accruing at the rate per annum of 4%
of the Base Liquidation Preference per share, payable quarterly in arrears on
each ________, ________, ________ and ________, commencing on ________, ____
(each a "Dividend Payment Date"), to the holders of record as of the next
preceding ________, ________, ________ and ________, (each, a "Record Date")
whether or
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<PAGE> 3
not such Record Date is a Business Day. If any Dividend Payment Date is not a
Business Day, such payment shall be made on the next succeeding Business Day.
Dividends will be payable, at the option of the Corporation, (A) in cash, (B) by
delivery of shares of Preferred Stock of the same designation as the shares on
which the dividend is paid or (C) through any combination of the foregoing. In
addition, if the Corporation declares or pays any cash dividends on the Common
Stock, the Corporation shall also declare and pay to the holders of the
Preferred Stock at the same time that it declares and pays such dividends, the
dividends which would have been declared and paid with respect to the Common
Stock issuable upon conversion of the Preferred Stock had all of the outstanding
Preferred Stock been converted immediately prior to the record date for such
dividend.
(ii) Dividends on the Preferred Stock shall accrue whether or not the
Corporation has earnings or profits, whether or not there are funds legally
available for the payment of such dividends and whether or not dividends are
declared. Dividends will accumulate to the extent they are not paid on the
Dividend Payment Date for the period to which they relate, compounded quarterly.
(iii) No dividend whatsoever shall be declared or paid upon, or any sum
set apart for the payment of dividends upon, any outstanding share of the
Preferred Stock with respect to any dividend period unless all dividends for all
preceding dividend periods have been declared and paid, or declared and a
sufficient sum set apart for the payment of such dividend, upon all outstanding
shares of Preferred Stock. Unless full cumulative dividends on all outstanding
shares of Preferred Stock for all past dividend periods shall have been declared
and paid, or declared and a sufficient sum for the payment thereof set apart,
then: (a) no dividend (other than a divided payable solely in shares of any
Junior Securities) shall be declared or paid upon, or any sum set apart for the
payment of dividends upon, any shares of Junior Securities or Parity Securities;
(b) no other distribution shall be declared or made upon, or any sum set apart
for the payment of any distribution upon, any shares of Junior Securities or
Parity Securities, other than a distribution consisting solely of Junior
Securities; (c) no shares of Junior Securities or Parity Securities shall be
purchased, redeemed or otherwise acquired or retired for value (excluding an
exchange for shares of other Junior Securities or Parity Securities) by the
Corporation or any of its subsidiaries; and (d) no monies shall be paid into or
set apart or made available for a sinking or other like fund for the purchase,
redemption or other acquisition or retirement for value of any shares of Junior
Securities or Parity Securities by the Corporation or any of its subsidiaries.
Holders of the Preferred Stock will not be entitled to any dividends, whether
payable in cash, property or stock, in excess of the full cumulative dividends
as herein described.
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<PAGE> 4
3. CONVERSION RIGHTS.
(i) A holder of shares of Preferred Stock may convert such shares at
any time, unless previously redeemed, at the option of the holder thereof into
shares Common Stock of the Corporation. For the purposes of conversion, each
share of Preferred Stock shall be valued at the Base Liquidation Preference plus
accrued and unpaid dividends, which shall be divided by the Conversion Price in
effect on the Conversion Date to determine the number of shares of Common Stock
issuable upon conversion, except that the right to convert shares of Preferred
Stock called for redemption shall terminate at the close of business on the
Business Day preceding the Redemption Date and shall be lost if not exercised
prior to that time, unless the Corporation shall default in payment of the
redemption price contemplated by Section 5(i) or 5(ii). Immediately following
such conversion, the rights of the holders of converted Preferred Stock shall
cease and the persons entitled to receive the Common Stock upon the conversion
of Preferred Stock shall be treated for all purposes as having become the owners
of such Common Stock.
(ii) To convert Preferred Stock, a holder must (A) surrender the
certificate or certificates evidencing the shares of Preferred Stock to be
converted, duly endorsed in a form satisfactory to the Corporation, at the
office of the Corporation or transfer agent for the Preferred Stock, (B) notify
the Corporation at such office that he elects to convert Preferred Stock and the
number of shares he wishes to convert, (C) state in writing the name or names in
which he wishes the certificate or certificates for shares of Common Stock to be
issued, and (D) pay any transfer or similar tax if required pursuant to
paragraph 3(iv). In the event that a holder fails to notify the Corporation of
the number of shares of Preferred Stock which he wishes to convert, he shall be
deemed to have elected to convert all shares represented by the certificate or
certificates surrendered for conversion. The date on which the holder satisfies
all those requirements is the "Conversion Date." As soon as practical following
the Conversion Date, the Corporation shall deliver to the holder a certificate
for the number of full shares of Common Stock issuable upon the conversion, and
a new certificate representing the unconverted portion, if any, of the shares of
Preferred Stock represented by the certificate or certificates surrendered for
conversion. The person in whose name the Common Stock certificate is registered
shall be treated as the stockholder of record on and after the Conversion Date.
The holder of record of a share of Preferred Stock at the close of business on a
Record Date with respect to the payment of dividends on the Preferred Stock will
be entitled to receive such dividends with respect to such share of Preferred
Stock on the corresponding Dividend Payment Date, notwithstanding the conversion
of such share after such Record Date and prior to such Dividend Payment Date.
The dividend
4
<PAGE> 5
payment with respect to a share of Preferred Stock called for redemption on a
date during the period from the close of business on any Record Date for the
payment of dividends to the close of business on the Business Day immediately
following the corresponding Dividend Payment Date will be payable on such
Dividend Payment Date to the record holder of such share on such Record Date,
notwithstanding the conversion of such share after such Record Date and prior to
such Dividend Payment Date, and the holder converting such share of Preferred
Stock need not include a payment of such dividend amount upon surrender of such
share of Preferred Stock for conversion. If a holder of Preferred Stock converts
more than one share at a time, the number of full shares of Common Stock
issuable upon conversion shall be based on the total Base Liquidation
Preferences plus accrued and unpaid dividends thereon of all shares of Preferred
Stock converted. If the last day on which Preferred Stock may be converted is
not a Business Day, Preferred Stock may be surrendered for conversion on the
next succeeding Business Day.
(iii) The Corporation shall not issue any fractional shares of Common
Stock upon conversion of Preferred Stock. Instead the Corporation shall pay a
cash adjustment based upon the Closing Price of the Common Stock on the Business
Day prior to the Conversion Date.
(iv) If a holder converts shares of Preferred Stock, the Corporation
shall pay any documentary, stamp or similar issue or transfer tax due on the
issue of shares of Common Stock upon the conversion. However, the holder shall
pay any such tax that is due because the shares are issued in a name other than
the holder's name.
(v) The Corporation has reserved and shall continue to reserve out of
its authorized but unissued Common Stock or its Common Stock held in treasury
enough shares of Common Stock to permit the conversion of the Preferred Stock in
full. All shares of Common Stock that may be issued upon conversion of Preferred
Stock shall be fully paid and nonassessable.
(vi) In case the Corporation shall pay or make a dividend or other
distribution on any class of capital stock of the Corporation (other than the
Preferred Stock) in Common Stock, the Conversion Price in effect at the opening
of business on the day following the date fixed for the determination of
stockholders entitled to receive such dividend or other distribution shall be
reduced by multiplying such Conversion Price by a fraction the numerator of
which shall be the number of shares of Common Stock outstanding at the close of
business on the date fixed for such determination and the denominator of which
shall be the sum of such number of shares and the total number of shares
constituting such dividend or other distribution,
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<PAGE> 6
such reduction to become effective immediately after the opening of business on
the day following the date fixed for such determination of the holders entitled
to such dividends and distributions. For the purposes of this paragraph 3(vi),
the number of shares of Common Stock at any time outstanding shall not include
shares held in the treasury of the Corporation. The Corporation will not pay any
dividend or make any distribution on shares of Common Stock held in the treasury
of the Corporation.
(vii) In case the Corporation shall issue rights, options or warrants
to all holders of its Common Stock entitling them to subscribe for, purchase or
acquire shares of Common Stock at a price per share less than the current market
price per share (determined as provided in paragraph 3(xi) below) of the Common
Stock on the date fixed for the determination of stockholders entitled to
receive such rights, options or warrants, the Conversion Price in effect at the
opening of business on the day following the date fixed for such determination
shall be reduced by multiplying such Conversion Price by a fraction the
numerator of which shall be the number of shares of Common Stock outstanding at
the close of business on the date fixed for such determination plus the number
of shares of Common Stock which the aggregate of the offering price of the total
number of shares of Common Stock so offered for subscription, purchase or
acquisition would purchase at such current market price and the denominator of
which shall be the number of shares of Common Stock outstanding at the close of
business on the date fixed for such determination plus the number of shares of
Common Stock so offered for subscription, purchase or acquisition, such
reduction to become effective immediately after the opening of business on the
day following the date fixed for such determination of the holders entitled to
such rights, options or warrants. However, upon the expiration of any right,
option or warrant to purchase Common Stock, the issuance of which resulted in an
adjustment in the Conversion Price pursuant to this paragraph 3(vii), if any
such right, option or warrant shall expire and shall not have been exercised,
the Conversion Price shall be recomputed immediately upon such expiration and
effective immediately upon such expiration shall be increased to the price it
would have been (but reflecting any other adjustments to the Conversion Price
made pursuant to the provisions of this paragraph 3 after the issuance of such
rights, options or warrants) had the adjustment of the Conversion Price made
upon the issuance of such rights, options or warrants been made on the basis of
offering for subscription or purchase only that number of shares of Common Stock
actually purchased upon the exercise of such rights, options or warrants. No
further adjustment shall be made upon exercise of any right, option or warrant
if any adjustment shall be made upon the issuance of such security. For the
purposes of this paragraph 3(vii), the number of shares of Common Stock at any
time outstanding shall not include shares held in the treasury of the
Corporation. The Corporation will not issue any rights, options or warrants in
respect of shares of Common Stock held
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<PAGE> 7
in the treasury of the Corporation.
(viii) In case the outstanding shares of Common Stock shall be
subdivided into a greater number of shares of Common Stock, the Conversion Price
in effect at the opening of business on the day following the day upon which
such subdivision becomes effective shall be reduced, and, conversely, in case
the outstanding shares of Common Stock shall each be combined into a smaller
number of shares of Common Stock, the Conversion Price in effect at the opening
of business on the day following the day upon which such combination becomes
effective shall be increased, in each case to equal the product of the
Conversion Price in effect on such date and a fraction the numerator of which
shall be the number of shares of Common Stock outstanding immediately prior to
such subdivision or combination, as the case may be, and the denominator of
which shall be the number of shares of Common Stock outstanding immediately
after such subdivision or combination, as the case may be. Such reduction or
increase, as the case may be, shall become effective immediately after the
opening of business on the day following the day upon which such subdivision or
combination becomes effective.
(ix) In case the Corporation shall, by dividend or otherwise,
distribute to all holders of its Common Stock (A) evidences of its indebtedness
or (B) shares of any class of capital stock, cash or other assets (including
securities, but excluding (x) any rights, options or warrants referred to in
paragraph 3(vii) above, (y) any dividends or distributions referred to in
paragraph 3(vi) or 3(viii) above, and (z) cash dividends), then in each case,
the Conversion Price in effect at the opening of business on the day following
the date fixed for the determination of holders of Common Stock entitled to
receive such distribution shall be adjusted by multiplying such Conversion Price
by a fraction of which the numerator shall be the current market price per share
(determined as provided in paragraph 3(xi) below) of the Common Stock on such
date of determination (or, if earlier, on the date on which the Common Stock
goes "ex-dividend" in respect of such distribution) less the then fair market
value as determined by the Board of Directors (whose determination shall be
conclusive and shall be described in a statement filed with the Transfer Agent)
of the portion of the capital stock, cash or other assets or evidences of
indebtedness so distributed (and for which an adjustment to the Conversion Price
has not previously been made pursuant to the terms of this paragraph 3)
applicable to one share of Common Stock, and the denominator shall be such
current market price per share of the Common Stock, such adjustment to become
effective immediately after the opening of business on the day following such
date of determination of the holders entitled to such distribution.
(ixA) In case a tender or exchange offer made by the Corporation or any
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<PAGE> 8
subsidiary of the Corporation for all or any portion of the Common Stock shall
expire and such tender or exchange offer shall involve the payment by the
Corporation or such subsidiary of consideration per share of Common Stock having
a fair market value (as determined by the Board of Directors or, to the extent
permitted by applicable law, a duly authorized committee thereof, whose
determination shall be conclusive and described in a resolution of the Board of
Directors or such duly authorized committee thereof, as the case may be) at the
last time (the "Expiration Time") tenders or exchanges may be made pursuant to
such tender or exchange offer (as it shall have been amended) that exceeds the
current market price per share (determined as provided in paragraph 3(xi) below)
of the Common Stock on the Trading Day next succeeding the Expiration Time, the
Conversion Price shall be reduced so that the same shall equal the price
determined by multiplying the Conversion Price in effect immediately prior to
the Expiration Time by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding (including any tendered or exchanged shares)
on the Expiration Time multiplied by the current market price per share of the
Common Stock on the Trading Day next succeeding the Expiration Time and the
denominator shall be the sum of (x) the fair market value (determined as
aforesaid) of the aggregate consideration payable to stockholders based on the
acceptance (up to any maximum specified in the terms of the tender or exchange
offer) of all shares validly tendered or exchanged and not withdrawn as of the
Expiration Time (the shares deemed so accepted, up to any such maximum, being
referred to as the "Purchased Shares") and (y) the product of the number of
shares of Common Stock outstanding (less any Purchased Shares) on the Expiration
Time and the current market price per share of the Common Stock on the Trading
Day next succeeding the Expiration Time, such reduction to become effective
immediately prior to the opening of business on the day following the Expiration
Time. For the purposes of this paragraph 3(ixA), the number of shares of Common
Stock at any time outstanding shall not include shares held in the treasury of
the Corporation.
(x) The reclassification or change of Common Stock into securities,
including securities other than Common Stock (other than any reclassification
upon a consolidation or merger to which paragraph 3(xviii) below shall apply)
shall be deemed to involve (A) a distribution of such securities other than
Common Stock to all holders of Common Stock (and the effective date of such
reclassification shall be deemed to be "the date fixed for the determination of
holders of Common Stock entitled to receive such distribution" within the
meaning of paragraph 3(ix) above), and (B) a subdivision or combination, as the
case may be, of the number of shares of Common Stock outstanding immediately
prior to such reclassification into the number of Common Shares outstanding
immediately thereafter (and the effective date of such reclassification shall be
deemed to be "the day upon which such
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<PAGE> 9
subdivision becomes effective" or "the day upon which such combination becomes
effective," as the case may be, and "the day upon which such subdivision or
combination becomes effective" within the meaning of paragraph 3(viii) above).
(xi) For the purpose of any computation under paragraph 3(vii), or
3(ix) or 3(ixA) above, the current market price per share of Common Stock on any
day shall be deemed to be the average of the Closing Prices of the Common Stock
for the 20 consecutive Trading Days ending on the day before the day in
question; provided, that, in the case of paragraph 3(ix), if the period between
the date of the public announcement of the dividend or distribution and the date
for the determination of holders of Common Stock entitled to receive such
dividend or distribution (or, if earlier, the date on which the Common Stock
goes "ex-dividend" in respect of such dividend or distribution) shall be less
than 20 Trading Days, the period shall be such lesser number of Trading Days
but, in any event, not less than five Trading Days.
(xii) No adjustment in the Conversion Price need be made until all
cumulative adjustments amount to 1% or more of the Conversion Price as last
adjusted. Any adjustments that are not made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under this paragraph
3 shall be made to the nearest 1/10,000th of a cent or to the nearest 1/10,000th
of a share, as the case may be.
(xiii) For purposes of this Certificate of Designation, "Common Stock"
includes any stock of any class of the Corporation which has no preference in
respect of dividends or of amounts payable in the event of any voluntary or
involuntary liquidation, dissolution or winding-up of the Corporation and which
is not subject to redemption by the Corporation. However, subject to the
provisions of paragraph 3(xviii) below, shares issuable on conversion of shares
of Preferred Stock shall include only shares of the class designated as Common
Stock of the Corporation on the Preferred Stock Issue Date or shares of any
class or classes resulting from any reclassification thereof and which have no
preferences in respect of dividends or amounts payable in the event of any
voluntary or involuntary liquidation, dissolution or winding-up of the
Corporation and which are not subject to redemption by the Corporation; provided
that, if at any time there shall be more than one such resulting class, the
shares of each such class then so issuable shall be substantially in the
proportion which the total number of shares of such class resulting from all
such reclassifications bears to the total number of shares of all such classes
resulting from all such reclassifications.
(xiv) No adjustment in the Conversion Price shall reduce the Conversion
Price below the then par value of the Common Stock. No adjustment in the
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<PAGE> 10
Conversion Price need be made under paragraphs 3(vi), 3(vii) and 3(ix) above if
the Corporation issues or distributes to each holder of Preferred Stock the
shares of Common Stock, evidences of indebtedness, assets, rights, options or
warrants referred to in those paragraphs which each holder would have been
entitled to receive had Preferred Stock been converted into Common Stock prior
to the happening of such event or the record date with respect thereto.
(xv) Whenever the Conversion Price is adjusted, the Corporation shall
promptly mail to holders of Preferred Stock, first class, postage prepaid, a
notice of the adjustment. The Corporation shall file with the transfer agent for
the Preferred Stock, if any, a certificate from the Corporation's independent
public accountants briefly stating the facts requiring the adjustment and the
manner of computing it. Unless holders of a majority of the outstanding shares
of Preferred Stock shall notify (a "Dispute Notice") the Corporation, within 30
days of the date the Corporation mails such notice of adjustment, that such
holders (the "Disputing Holders") dispute such adjustment, such adjustment shall
be final and binding. The Dispute Notice shall set forth in reasonable detail
the basis for such dispute and shall name a representative (the
"Representative") for the Disputing Holders. The Corporation and the
Representative shall jointly engage an accounting firm of national reputation
which shall be instructed to resolve such dispute as promptly as practicable.
The decision of such accounting firm shall be final and binding. The Corporation
and the Representative, on behalf of the Disputing Holders, shall each bear
one-half of the fees and expenses (including the responsibility for any
indemnity or similar obligations) of such accounting firm.
(xvi) The Corporation from time to time may reduce the Conversion Price
if it considers such reductions to be advisable in order that any event treated
for federal income tax purposes as a dividend of stock or stock rights will not
be taxable to the holders of Common Stock by any amount, but in no event may the
Conversion Price be less than the par value of a share of Common Stock. Whenever
the Conversion Price is reduced, the Corporation shall mail to holders of
Preferred Stock a notice of the reduction. The Corporation shall mail, first
class, postage prepaid, the notice at least 15 days before the date the reduced
Conversion Price takes effect. The notice shall state the reduced Conversion
Price and the period it will be in effect. A reduction of the Conversion Price
pursuant to this paragraph 3(xvi) does not change or adjust the Conversion Price
otherwise in effect for purposes of paragraphs 3(vi), 3(vii), 3(viii), 3(ix),
3(ixA) and 3(x) above.
(xvii) If:
(A) the Corporation takes any action which would require an
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adjustment in the Conversion Price pursuant to paragraph 3(vii), 3(ix) or 3(x)
above;
(B) the Corporation consolidates or merges with, or transfers
all or substantially all of its assets to, another entity, and stockholders of
the Corporation must approve the transaction; or
(C) there is a dissolution or liquidation of the Corporation;
the Corporation shall mail to holders of the Preferred Stock, first class,
postage prepaid, a notice stating the proposed record or effective date, as the
case may be. The Corporation shall mail the notice at least 10 days before such
date. However, failure to mail the notice or any defect in it shall not affect
the validity of any transaction referred to in clause (A), (B) or (C) of this
paragraph 3(xvii).
(xviii) In the case of any consolidation of the Corporation or the
merger of the Corporation with or into any other entity or the sale or transfer
of all or substantially all the assets of the Corporation pursuant to which the
Corporation's Common Stock is converted into other securities, cash or assets,
upon consummation of such transaction, each share of Preferred Stock shall
automatically become convertible into the kind and amount of securities, cash or
other assets receivable upon the consolidation, merger, sale or transfer by a
holder of the number of shares of Common Stock into which such share of
Preferred Stock is convertable immediately prior to such consolidation, merger,
transfer or sale (assuming such holder of Common Stock failed to exercise any
rights of election and received per share the kind and amount of consideration
receivable per share by a plurality of non-electing shares). Appropriate
adjustment (as determined by the Board of Directors of the Corporation) shall be
made in the application of the provisions herein set forth with respect to the
rights and interests thereafter of the holders of Preferred Stock, to the end
that the provisions set forth herein (including provisions with respect to
changes in and other adjustment of the Conversion Price) shall thereafter be
applicable, as nearly as reasonably may be, in relation to any shares of stock
or other securities or property thereafter deliverable upon the conversion of
Preferred Stock. If this paragraph 3(xviii) applies, paragraphs 3(vi), 3(viii)
and 3(x) do not apply.
(xix) In any case in which this paragraph 3 shall require that an
adjustment as a result of any event becomes effective from and after a record
date, the Corporation may elect to defer until after the occurrence of such
event the issuance to the holder of any shares of Preferred Stock converted
after such record date and before the occurrence of such event of the additional
shares of Common Stock issuable upon such conversion over and above the shares
issuable on the basis of the
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Conversion Price in effect immediately prior to adjustment; provided, however,
that if such event shall not have occurred and authorization of such event shall
be rescinded by the Corporation, the Conversion Price shall be recomputed
immediately upon such rescission to the price that would have been in effect had
such event not been authorized, provided that such rescission is permitted by
and effective under applicable laws.
4. LIQUIDATION PREFERENCE. Upon any voluntary or involuntary
liquidation, dissolution or winding-up of the Corporation or reduction or
decrease in its capital stock resulting in a distribution of assets to the
holders of any class or series of the Corporation's capital stock, each holder
of shares of the Preferred Stock will be entitled to payment out of the assets
of the Corporation available for distribution of an amount equal to the greater
of (a) the Adjusted Liquidation Preference as of the date fixed for liquidation,
dissolution, winding-up or reduction or decrease in capital stock per share of
Preferred Stock held by such holder times the number of shares of Preferred
Stock held by such holder or (b) the amount that would have been paid to such
holder of the Preferred Stock with respect to Common Stock issuable upon
conversion of such holder's Preferred Stock had each share of such holder's
outstanding Preferred Stock been converted to Common Stock immediately prior to
the date of the liquidation, dissolution, winding-up or reduction or decrease in
capital stock (such sum, the "Total Liquidation Payment"), before any
distribution is made on any Junior Securities, including, without limitation,
Common Stock of the Corporation. After payment in full of the Total Liquidation
Payment to which holders of Preferred Stock are entitled, such holders will not
be entitled to any further participation in any distribution of assets of the
Corporation. If, upon any voluntary or involuntary liquidation, dissolution or
winding-up of the Corporation, the amounts payable with respect to the Preferred
Stock and all other Parity Securities are not paid in full, the holders of the
Preferred Stock and the Parity Securities will share equally and ratably in any
distribution of assets of the Corporation in proportion to the full liquidation
preference and accumulated and unpaid dividends, if any, to which each is
entitled. However, neither the voluntary sale, conveyance, exchange or transfer
(for cash, shares of stock, securities or other consideration) of all or
substantially all of the property or assets of the Corporation nor the
consolidation or merger of the Corporation with or into one or more Persons will
be deemed to be a voluntary or involuntary liquidation, dissolution or
winding-up of the Corporation or reduction or decrease in capital stock, unless
such sale, conveyance, exchange or transfer shall be in connection with a
liquidation, dissolution or winding-up of the business of the Corporation or
reduction or decrease in capital stock.
5. REDEMPTION.
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(i) MANDATORY OFFER OF REDEMPTION. Within 15 days following a
Change of Control Event, the Corporation shall give notice to the holder of the
Preferred Stock, describing in reasonable detail the material terms of the
transaction and offering to purchase all of such holder's shares of Preferred
Stock at a price per share in cash equal to 101% of the Adjusted Liquidation
Preference as of the repurchase date, which shall be no earlier than 30 days,
nor later than 60 days from the date such notice is mailed; PROVIDED, HOWEVER,
that if the Change of Control Event occurs prior to ______ __ , 2002 [third
anniversary of issuance], the Adjusted Liquidation Preference shall be deemed to
equal the Adjusted Liquidation Preference plus the dividends that would have
accrued on the shares of Preferred Stock (and assuming such dividends were paid
by delivery of shares of Preferred Stock of the same designation) had such
Preferred Stock remained outstanding until _________ __, 2002. The failure of
the holder to accept such offer prior to the repurchase date shall be deemed a
rejection of such offer. A "Change of Control Event" shall mean (A) the
acquisition by any person or group (within the meaning of Section 12(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934), of beneficial ownership,
direct or indirect, of securities of the Corporation representing 50% or more of
the combined voting power of the Corporation's then outstanding equity
securities, (B) (x) the acquisition by any person or group of beneficial
ownership, direct or indirect, of securities of the Corporation representing 20%
or more of the combined voting power of the Corporation's then outstanding
equity securities and (y) either (1) a representative or nominee of such person
or group shall be elected or appointed to the Board of Directors of the
Corporation without the support of at least 5/7 of the members of the Board of
Directors of the Corporation, provided that, if there is a vote of the
stockholders, the holders of the Preferred Stock shall have voted against such
election or (2) a person designated by the Investor (as defined in the
Securities Purchase Agreement dated as of August __, 1999 between the Investor
and the Corporation) pursuant to Section 4.5(e) of such Securities Purchase
Agreement shall not be elected to the Board of Directors of the Corporation as
provided in such Section or (C) the consolidation of the Company with, or the
merger of the Company with or into, another Person or the sale, assignment or
transfer of all or substantially all of the Company's assets to any Person, or
the consolidation of any Person with, or the merger of any Person with or into,
the Company, in any such event in a transaction in which the outstanding voting
capital stock of the Company is converted into or exchanged for cash, securities
or other property, provided that following such transaction the holders of
voting stock of the Company immediately prior to such transaction do not own
more than 50% of the voting stock of the company surviving such transaction or
to which such assets are transferred. Paragraph 5(i)(B) shall not be applicable
if the Investor is not entitled to make a designation pursuant to Section 4.5(e)
of the Securities Purchase Agreement. This
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paragraph 5(i) shall not apply to any Change of Control resulting from actions
by the Investor or any affiliate, transferee or person acting in concert
therewith.
(ii) OPTIONAL REDEMPTION. The Preferred Stock shall be subject to
redemption, at the option of the Corporation (an "Optional Redemption"), at any
time following ______ __, 2002 [third anniversary of issuance] and prior to
______ __, 2004 [fifth anniversary] at the "Optional Redemption Price" (as
defined below) if the average of the Closing Prices of the Common Stock has
exceeded $12.00 for sixty consecutive Trading Days following Preferred Stock
Issue Date. The Preferred Stock shall be redeemable at any time following the
fifth anniversary of the issuance of Preferred Stock at the Optional Redemption
Price. The "Optional Redemption Price" per share shall be the Adjusted
Liquidation Preference as of the Optional Redemption Date (as defined below).
(iii) NOTICE OF REDEMPTION. The Corporation shall give the holder of
Preferred Stock written notice of any Optional Redemption not less than 30 days
nor more than 45 days prior to the proposed redemption date, specifying such
redemption date (each, an "Optional Redemption Date"), the per share Optional
Redemption Price and the number of such holder's shares to be redeemed on such
date. Upon making an election to redeem shares pursuant to paragraph 5(ii)
hereof, the Corporation shall be obligated to consummate such redemption. Notice
of redemption having been given as aforesaid, the number of shares to be
redeemed as specified in such notice shall be so redeemed on the redemption date
specified. In case of redemption of less than all of the shares of Preferred
Stock at the time outstanding, the shares to be redeemed shall be selected pro
rata or by lot as determined by the Corporation in its sole discretion.
(iv) EFFECT OF REDEMPTION. On the date established for redemption
pursuant to this paragraph 5 hereof, all rights in respect of the shares of
Preferred Stock to be redeemed, except the right to receive the applicable
redemption price, plus accrued and unpaid dividends, if any (but only to the
extent such accrued and unpaid dividends have not been included in the
redemption price), to the date of redemption, shall cease and terminate (unless
default shall be made by the Corporation in the payment of the applicable
redemption price, plus accrued and unpaid dividends, if any, in which event such
rights shall be exercisable until such default is cured), and such shares shall
no longer be deemed to be outstanding, notwithstanding that any certificates
representing such shares shall not have been surrendered to the Corporation. All
shares of Preferred Stock redeemed pursuant to this paragraph 5 shall be retired
and shall be restored to the status of authorized and unissued shares of
preferred stock, without designation as to series or class, and may thereafter
be reissued, subject to compliance with the terms hereof, as shares of any
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series of preferred stock other than shares of Preferred Stock. No Preferred
Stock may be redeemed except with funds legally available for such purpose.
6. VOTING RIGHTS.
(i) The holder of the Preferred Stock shall vote along with the holders
of the shares of Common Stock as a single class, except as provided in paragraph
6(iii), below, with each share of Common Stock entitled to one vote and each
share of Preferred Stock entitled to one vote for each share of Common Stock
issuable upon conversion of such Preferred Stock as of the relevant record date.
(ii) The Corporation shall not, without the affirmative vote or consent
of the holders of at least 50% of the shares of Preferred Stock then outstanding
(with shares held by the Corporation not being considered to be outstanding for
this purpose) voting or consenting as the case may be, as one class:
(a) issue any Senior Securities or Parity Securities;
(b) issue any preferred stock which is not a Senior Security
or Parity Security and which has voting rights (except as required by
law) unless such preferred stock votes as a single class with the
Common Stock and the Preferred Stock;
(c) amend this Certificate of Designation in any manner that
adversely affects the specified rights, preferences, privileges or
voting rights of holders of Preferred Stock; or
(d) authorize the issuance of any additional shares of
Preferred Stock, other than as contemplated by the Securities Purchase
Agreement, dated as of _____ __, 1999 between ___ and the Corporation,
the Warrants contemplated thereby and this Certificate of Designation;
(iii) The Corporation in its sole discretion may without the vote or
consent of any holders of the Preferred Stock amend or supplement this
Certificate of Designation:
(a) to cure any ambiguity, defect or inconsistency, provided
such amendment or supplement is not adverse to the rights of the
holders of the Preferred Stock;
(b) to provide for uncertificated Preferred Stock in addition
to or
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in place of certificated Preferred Stock; or
(c) to make any change that would provide any additional
rights or benefits to the holders of the Preferred Stock or that does
not adversely affect the legal rights under this Certificate of
Designation of any such holder.
Except as set forth above, (x) the creation or authorization of any shares of
Junior Securities, Parity Securities or Senior Securities or the issuance of any
shares of Junior Securities or (y) the increase or decrease in the amount of
authorized capital stock of any class, including any preferred stock, shall not
require the consent of the holders of the Preferred Stock and shall not be
deemed to affect adversely the rights, preferences, privileges, special rights
or voting rights of holders of shares of Preferred Stock.
7. EXCLUSION OF OTHER RIGHTS. Except as may otherwise be required by
law, the shares of Preferred Stock shall not have any voting powers, preferences
and relative, participating, optional or other special rights, other than those
specifically set forth in this resolution (as such resolution may be amended
from time to time) and in the Certificate of Incorporation. The shares of
Preferred Stock shall have no preemptive or subscription rights.
8. HEADINGS OF SUBDIVISIONS. The headings of the various subdivisions
hereof are for convenience of reference only and shall not affect the
interpretation of any of the provisions hereof.
9. SEVERABILITY OF PROVISIONS. If any voting powers, preferences and
relative, participating, optional and other special rights of the Preferred
Stock and qualifications, limitations and restrictions thereof set forth in this
resolution (as such resolution may be amended from time to time) is invalid,
unlawful or incapable of being enforced by reason of any rule of law or public
policy, all other voting powers, preferences and relative, participating,
optional and other special rights of Preferred Stock and qualifications,
limitations and restrictions thereof set forth in this resolution (as so
amended) which can be given effect without the invalid, unlawful or
unenforceable voting powers, preferences and relative, participating, optional
or other special rights of Preferred Stock and qualifications, limitations and
restrictions thereof herein set forth.
10. RE-ISSUANCE OF PREFERRED STOCK. Shares of Preferred Stock that have
been issued and reacquired in any manner, including shares purchased or redeemed
or exchanged or converted, shall (upon compliance with any applicable provisions
of the laws of Delaware) have the status of authorized but unissued shares of
preferred
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stock of the Corporation undesignated as to series and may be designated or
re-designated and issued or reissued, as the case may be, as part of any series
of preferred stock of the Corporation, provided that any issuance of such shares
as Preferred Stock must be in compliance with the terms hereof.
11. MUTILATED OR MISSING PREFERRED STOCK CERTIFICATES. If any of the
Preferred Stock certificates shall be mutilated, lost, stolen or destroyed, the
Corporation shall issue, in exchange and in substitution for and upon
cancellation of the mutilated Preferred Stock certificate, or in lieu of and
substitution for the Preferred Stock certificate lost, stolen or destroyed, a
new Preferred Stock certificate of like tenor and representing an equivalent
amount of shares of Preferred Stock, but only upon receipt of evidence of such
loss, theft or destruction of such Preferred Stock certificate and indemnity, if
requested, satisfactory to the Corporation and the transfer agent (if other than
the Corporation).
12. CERTAIN DEFINITIONS. As used in this Certificate of Designation,
the following terms shall have the following meanings (with terms defined in the
singular having comparable meanings when used in the plural and vice versa),
unless the context otherwise requires:
"ADJUSTED LIQUIDATION PREFERENCE" means, with respect to each share of
Preferred Stock, the sum of (a) the Base Liquidation Preference per share of
Preferred Stock plus accrued and unpaid dividends thereon and (b) the result of
(i) the amount by which (x) 7.5 percent of the Excess Retained Earnings exceeds
(y) the aggregate amount of cash dividends paid pursuant to the final sentence
of paragraph 2(i) that are not in excess of the dividends paid pursuant to the
first sentence of paragraph 2(i), divided by (ii) the total number of shares of
Preferred Stock outstanding on the date (the "Calculation Date") of the event
giving rise to the calculation of the Adjusted Liquidation Preference
(including, without limitation, the redemption of the Preferred Stock or the
liquidation of the Corporation).
"BUSINESS DAY" means any day except a Saturday, a Sunday, or any day on
which banking institutions in New York, New York are required or authorized by
law or other governmental action to be closed.
"CLOSING PRICE" means, for each Trading Day, the last reported sale
price regular way on the Nasdaq National Market or, if the Common Stock is not
quoted on the Nasdaq National Market, the average of the closing bid and asked
prices in the over-the-counter market as furnished by any New York Stock
Exchange member firm selected from time to time by the corporation for that
purpose.
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"COMMON STOCK" means the Common Stock, par value $.01 per share, of the
Corporation.
"CONVERSION PRICE" shall initially mean $8.25 per share of Series A1
Stock and $9.00 per share of Series A2 Stock and thereafter shall be subject to
adjustment from time to time pursuant to the terms of paragraph 3 hereof.
"EXCESS RETAINED EARNINGS" means the excess, if any, of(i) retained
earnings as shown on the most recent quarterly or annual consolidated balance
sheet of the Corporation prior to the Calculation Date, over (ii) $75 million.
For purposes of this definition, retained earnings shall be computed ignoring
the effects of any acquisitions after the Preferred Stock Issue Date and
ignoring the Corporation's investment in ThingWorld.com LLC (including any
income therefrom or sale thereof).
"EXCHANGE ACT" means the Securities Exchange Act of 1934.
"PERSON" means any individual or corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.
"PREFERRED STOCK ISSUE DATE" means the date on which the first shares
of Preferred Stock are originally issued by the Corporation under this
Certificate of Designation.
"TRADING DAY" means any day on which the Nasdaq National Market or
other applicable stock exchange or market is open for business.
"TRANSFER AGENT" shall be Boston Equiserve unless and until a successor
is selected by the Corporation.
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EXHIBIT 4.1
THIS WARRANT AND THE SECURITIES TO BE ISSUED
UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY
STATE. NEITHER THIS WARRANT NOR ANY INTEREST HEREIN NOR THE
SECURITIES ISSUABLE UPON EXERCISE HEREOF NOR ANY INTEREST THEREIN MAY
BE OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO (I) AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS OR (II) AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES
LAWS, SUCH EXEMPTION TO BE EVIDENCED BY SUCH DOCUMENTATION AS THE
COMPANY MAY REASONABLY REQUEST.
No. of Shares of Series A2 Preferred Stock: Warrant No.
Dated: ______ __, 1999
WARRANT
To Purchase Shares of Series A2 Preferred Stock of
C, Inc.
THIS IS TO CERTIFY THAT ___________________________, (the
"Holder"), is entitled, at any time prior to _____ , 2004 (the "Expiration
Date"), to purchase from [C, Inc.] (the "Company"), 15,000 shares of Series A2
Senior Cumulative Participating Convertible Preferred Stock (the "Series A2
Preferred Stock") as described in the attached Certificate of Designation of the
Company (the "Certificate of Designation"), in whole or in part, at a purchase
price of $1,000 per share, all on the terms and conditions and pursuant to the
provisions hereinafter set forth.
1. DEFINITIONS
As used in this Warrant, the following terms have the
respective meanings set forth below:
"Business Day" shall mean any day that is not a Saturday or
Sunday or a day on
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which banks are required or permitted to be closed in the State of New York.
"Closing Price" shall have the meaning set forth in the
Certificate of Designation.
"Closing Date" shall mean the date of the Closing as such term
is defined in the Securities Purchase Agreement, dated as of August __, 1999,
between the Holder and the Company.
"Common Stock" shall have the meaning set forth in the
Certificate of Designation.
"Trading Price" shall mean the average of the Closing Prices
of the Common Stock for the 20 consecutive Trading Days ending on the day before
the day in question
"Warrant Price" shall mean an amount equal to (i) the number
of shares of Series A2 Preferred Stock being purchased upon exercise of this
Warrant pursuant to Section 2.1, multiplied by (ii) $1,000.
"Warrant Stock" shall mean the shares of Series A2 Preferred
Stock purchased by the Holder upon the exercise hereof.
2. EXERCISE OF WARRANT
2.1. MANNER OF EXERCISE. At any time or from time to time from
and after the Initial Closing Date and until 5:00 P.M., New York time, on the
Expiration Date, Holder may exercise this Warrant, on any Business Day, for all
or any part of the number of shares of Series A2 Preferred Stock purchasable
hereunder.
In order to exercise this Warrant, in whole or in part, Holder
shall deliver to the Company at its principal office at
_____________________________ (i) a written notice of Holder's election to
exercise this Warrant, which notice shall specify the number of shares of Series
A2 Preferred Stock to be purchased, (ii) payment of the Warrant Price (x) in
immediately available funds or (y) by the withholding from the shares of Warrant
Stock to be issued upon exercise that number of shares of Series A2 Preferred
Stock that, if converted as of the date of exercise, would be convertible into
shares of Common Stock with an aggregate Trading Price as of the date of
exercise equal to the Warrant Price and (iii) this Warrant. Such notice shall be
substantially in the form appearing at the end of this Warrant as Exhibit A,
duly executed by Holder. Upon receipt of the items specified in the second
preceding sentence, the Company shall execute or cause to be executed and
deliver or cause to be delivered to Holder a certificate or certificates
representing the aggregate number of full shares of Series A2 Preferred Stock
issuable upon such exercise, together with cash in lieu of any fraction of a
share, as hereinafter provided. The stock certificate or certificates so
delivered shall be in such denomination or denominations as Holder shall request
in the notice and shall be registered in the name of Holder. This Warrant shall
be deemed to have been exercised and such certificate or certificates shall be
deemed to have been issued, and Holder shall be deemed to have become a holder
of record of such shares for all purposes, as of the date the notice, together
with the Warrant Price and this
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Warrant, are received by the Company as described above. If this Warrant shall
have been exercised in part, the Company shall, at the time of delivery of
the certificate or certificates representing Warrant Stock, deliver to Holder
a new Warrant evidencing the right of Holder to purchase the unpurchased shares
of Series A2 Preferred Stock called for by this Warrant, which new Warrant
shall in all other respects be identical with this Warrant, or, at the request
of Holder, appropriate notation may be made on this Warrant and the same
returned to Holder.
2.2. SHARES TO BE VALIDLY ISSUED. All shares of Series A2
Preferred Stock issuable upon the exercise of this Warrant shall be validly
issued, fully paid and nonassessable. The Company shall be entitled to withhold
any amounts required to be withheld under applicable law from any amounts to be
paid to the Holder hereunder.
2.3 NO FRACTIONAL SHARES. The Company shall not be required to
issue fractions of shares upon the exercise of this Warrant. If any fraction of
a share would otherwise be issuable, the Company shall pay to the Holder an
amount in cash equal to such fraction multiplied by the Adjusted Liquidation
Preference (as defined in the Certificate of Designation).
3. ADJUSTMENTS
3.1 MERGER, CONSOLIDATION OR DISPOSITION OF ASSETS. In the
case of any consolidation of the Company or the merger of the Company with or
into any other entity or the sale or transfer of all or substantially all the
assets of the Company pursuant to which the Series A2 Preferred Stock is
converted into other securities, cash or assets, upon consummation of such
transaction, this Warrant shall automatically become exercisable for the kind
and amount of securities, cash or other assets receivable upon the
consolidation, merger, sale or transfer by a holder of the number of shares of
Series A2 Preferred Stock into which this Warrant might have been converted
immediately prior to such consolidation, merger, transfer or sale (assuming such
holder of Series A2 Preferred Stock failed to exercise any rights of election
and received per share the kind and amount of consideration receivable per share
by a plurality of non-electing shares). Appropriate adjustment (as determined by
the Board of Directors of the Company) shall be made in the application of the
provisions herein set forth with respect to the rights and interests thereafter
of the Holder, to the end that the provisions set forth herein shall thereafter
be applicable, as nearly as reasonably may be, in relation to any shares of
stock or other securities or property thereafter deliverable upon the exercise
of this Warrant.
3.2 ADJUSTMENTS TO COMMON STOCK. The Common Stock or other
consideration into which the Warrant Stock may be converted shall be subject to
the adjustments set forth in Section 3 of the Certificate of Designation as if
such Warrant Stock had been outstanding since the Preferred Stock Issue Date (as
defined in the Certificate of Designation). Notwithstanding the foregoing, no
single event shall give rise to more than one such adjustment or entitle the
Holder to a larger amount of Common Stock than such Holder would have received
had it exercised this Warrant immediately and converted the Warrant Stock
immediately following the time of the adjustment set forth in the immediately
preceding sentence or entitle the Holder to any dividends on the Common Stock
for any periods prior to conversion.
4. RIGHTS OF HOLDER
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4.1 NO IMPAIRMENT. The Company shall not by any action,
including, without limitation, amending its Certificate of Incorporation or
comparable governing instruments or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms of this Warrant, but will at all times in good faith assist in
the carrying out of all such terms and in the taking of all such actions as may
be necessary or appropriate to protect the rights of Holder against impairment.
Without limiting the generality of the foregoing, the Company will (a) take all
such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of Series A2
Preferred Stock upon the exercise of this Warrant and (b) obtain all such
authorizations, exemptions or consents from any public regulatory body having
jurisdiction thereof as may be necessary to enable the Company to perform its
obligations under this Warrant.
5. RESERVATION AND AUTHORIZATION OF SERIES A2 PREFERRED STOCK;
From and after the Initial Closing Date, the Company shall at
all times reserve and keep available for issue upon the exercise of Warrants
such number of its authorized but unissued shares of Series A2 Preferred Stock
as will be sufficient to permit the exercise in full of all outstanding
Warrants. All shares of Series A2 Preferred Stock which shall be so issuable,
when issued upon exercise of any Warrant and payment therefor in accordance with
the terms of such Warrant, shall be duly and validly issued and fully paid and
nonassessable, and not subject to preemptive rights.
6. TRANSFERABILITY; FORM OF WARRANTS
6.1 NO TRANSFER. None of the Warrant nor the Shares issuable
upon exercise hereof nor any interest therein may be offered, sold, transferred,
pledged, hypothecated or otherwise disposed of, except pursuant to (i) an
effective registration statement under the Securities Act and any applicable
state securities laws or (ii) an exemption from the registration requirements of
the Securities Act and any applicable state securities laws, such exemption to
be evidenced by such documentation as the Company may reasonably request,
including an opinion of counsel, in writing and addressed to the Company (which
counsel and opinion shall be reasonably satisfactory to the Company), that such
transfer is not in violation of the Securities Act and any applicable state
laws. The Company shall treat the Holder as the holder and owner hereof for all
purposes, unless the Company has been given notice to the contrary.
6.2. WARRANT REGISTER; OWNERSHIP OF WARRANT. The Company will
keep at its principal office a register in which the Company will provide for
the registration of Warrants and the registration of transfers of Warrants. The
Company may treat the person in whose name any Warrant is registered on such
register as the owner thereof for all other purposes, and the Company shall not
be affected by any notice to the contrary.
6.3. RESTRICTIVE LEGEND. Each certificate for Warrant Stock
shall be stamped or otherwise imprinted with the following legend:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
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OF 1933 (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY
STATE. NEITHER THIS SECURITY NOR ANY INTEREST HEREIN MAY BE
OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS OR (ii) AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS, SUCH EXEMPTION TO BE EVIDENCE BY SUCH
DOCUMENTATION AS THE ISSUER MAY REASONABLY REQUEST.
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution pursuant to a registration statement under the
Securities Act ) shall also bear such legend unless, the holder of such
certificate shall have delivered to the Company an opinion of counsel, in
writing and addressed to the Company (which counsel and opinion shall be
reasonably acceptable to the Company), that the securities represented thereby
need no longer be subject to restrictions on resale under the Securities Act or
any state securities laws.
6.3. REGISTRATION RIGHTS. The holder of Warrants and Warrant
Stock shall have the registration rights set forth in the Registration Rights
Agreement, dated as of ________ __, 1999 between the Holder and the Company.
7. LOSS OR MUTILATION
Upon receipt by the Company from any Holder of evidence
reasonably satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of this Warrant and indemnity reasonably satisfactory
to it, and in case of mutilation upon surrender and cancellation hereof, the
Company will execute and deliver in lieu hereof a new Warrant of like tenor to
such Holder; PROVIDED, in the case of mutilation, no indemnity shall be required
if this Warrant in identifiable form is surrendered to the Company for
cancellation.
8. MISCELLANEOUS
8.1. EXPIRATION. This Warrant shall expire and be of no
further force and effect on the Expiration Date.
8.2. NOTICE GENERALLY. Any notice, demand, request, consent,
approval, declaration, delivery or other communication hereunder to be made
pursuant to the provisions of this Warrant shall be sufficiently given or made
if in writing and either delivered in person with receipt acknowledged or sent
by registered or certified mail, return receipt requested, postage prepaid or by
a nationally recognized overnight courier or by telecopy and confirmed by
telecopy answerback, addressed as follows:
(a) If to the Holder, at its last known address appearing on
the books of the Company maintained for such purpose.
(b) If to the Company at
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[ ]
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration, delivery or other communication hereunder shall
be deemed to have been duly given or served (i) on the date on which personally
delivered, with receipt acknowledged, (ii) on the date on which telecopied and
confirmed by written or telephonic acknowledgment, (iii) on the date set forth
on the executed return receipt in the case of registered or certified mail or
(iv) on the next business day after the same shall have been deposited for
overnight delivery with a nationally recognized overnight courier, provided that
proof of receipt is received. Failure or delay in delivering copies of any
notice, demand, request, approval, declaration, delivery or other communication
to the Person designated above to receive a copy shall in no way adversely
affect the effectiveness of such notice, demand, request, approval, declaration,
delivery or other communication.
8.3. NO RIGHTS AS SHAREHOLDERS. This Warrant shall not entitle
the Holder to any rights as a shareholder of the Company.
8.4. SUCCESSORS AND ASSIGNS. Subject to the provisions of
Section 3.1, this Warrant and the rights evidenced hereby shall inure to the
benefit of and be binding upon the successors of the Company.
8.5. AMENDMENT. This Warrant may be modified or amended or the
provisions hereof waived only with the written consent of the Company and the
Holder.
8.6. SEVERABILITY. Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Warrant, provided that no such
severance shall be effective if it would change the economic costs or benefits
of this Warrant to the Company or the Holder.
8.7. HEADINGS. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
8.8. GOVERNING LAW. This Warrant shall be governed by the laws
of the State of Delaware, without regard to the provisions thereof relating to
conflict of laws.
6
<PAGE> 7
IN WITNESS WHEREOF, the Company has caused this Warrant to be
duly executed as of the date first above written.
Dated: , 1999
[C]
By: _______________________
Name:
Title:
Acknowledged and Agreed:
[Holder]
By:
Name:
Title:
7
<PAGE> 8
EXHIBIT A
EXERCISE FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably
exercises this Warrant for the purchase of _____ Shares of Series A2 Preferred
Stock of [C] and herewith makes payment therefor, all at the price and on the
terms and conditions specified in this Warrant and requests that certificates
for the shares of Series A2 Preferred Stock hereby purchased (and any securities
or other property issuable upon such exercise) be issued in the name of the
undersigned, if such shares of Series A2 Preferred Stock shall not include all
of the shares of Series A2 Preferred Stock issuable as provided in this Warrant,
that a new Warrant of like tenor and date for the balance of the shares of
Series A2 Preferred Stock issuable hereunder be delivered to the undersigned.
Check the following box in the case of a "cashless exercise" pursuant
to Section 2.1(ii)(y) [ ]
(Name of Registered Owner)
(Signature of Registered Owner)
(Street Address)
(City) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond with the name as
written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatsoever.
8
<PAGE> 1
Exhibit 4.2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated
as of ________ __, 1999, by and among OVERSEAS TOYS, L.P., a Delaware limited
partnership (the "Investor") and CYRK, INC., a Delaware corporation (the
"Company").
WHEREAS, the Investor and the Company are parties to that
certain Securities Purchase Agreement dated September 1, 1999 (the "Securities
Purchase Agreement"), whereby, among other things, the Company will issue to the
Investor an aggregate of 25,000 shares of Series A Senior Cumulative
Participating Convertible Preferred Stock of the Company (the "Series A
Preferred Stock"), and a warrant to purchase an additional 15,000 shares of
Series A Preferred Stock (the "Warrant"), pursuant to the terms and conditions
set forth in the Securities Purchase Agreement;
WHEREAS, pursuant to the covenants of the Company contained in
the Securities Purchase Agreement, and as a condition to the Investor's
obligation to consummate the closing of the transactions contemplated thereby,
the Company is entering into this registration rights agreement (this
"Agreement") with the Investor with respect to the Warrant and the shares of
Company common stock, $.01 par value per share ("Common Stock"), underlying all
of the shares of Series A Preferred Stock and the Warrant that are being
acquired by the Investor pursuant to the Securities Purchase Agreement;
NOW, THEREFORE, upon the premises and the mutual promises
contained herein and in the Securities Purchase Agreement, and for good and
valuable consideration, the receipt and adequacy of which are acknowledged, the
parties hereto agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the
following initially capitalized terms shall have the following meanings:
(a) "Affiliate" means, with respect to any person,
any other person who, directly or indirectly, is in control of, is controlled by
or is under common control with the former person.
(b) "Best Efforts" means the commercially reasonable
efforts that a prudent Person desirous of achieving a result would use in good
faith in similar circumstances to ensure that such result is achieved as
expeditiously as can reasonably be expected.
(c) "Holders" means the Investor or any Affiliate of
the Investor or any trustee for the account of the Investor and any "transferee"
(as such term is defined in Section 10(a) hereof) which is the record holder of
Registrable Securities.
(d) "Registrable Securities" means the Warrant and
the shares of
<PAGE> 2
Common Stock underlying all of the shares of Series A Preferred Stock and the
Warrant that are being acquired by the Investor pursuant to the Securities
Purchase Agreement (collectively, the "Acquired Securities"), any stock or other
securities into which or for which such Acquired Securities may hereafter be
changed, converted or exchanged, and any other securities issued to the Holders
of such Acquired Securities (or such securities into which or for which such
Acquired Securities are so changed, converted or exchanged) upon any
reclassification, share combination, share subdivision, share dividend, merger,
consolidation or similar transactions or events, PROVIDED that any such
securities shall cease to be Registrable Securities if (i) a registration
statement with respect to the sale of such securities shall have become
effective under the Securities Act (as defined below) and such securities shall
have been disposed of in accordance with the plan of distribution set forth in
such registration statement, (ii) such securities shall have been transferred
pursuant to Rule 144, or (iii) such securities are held by a Holder other than
the Investor, unless such Holder shall furnish the Company an opinion of
counsel, which opinion shall be reasonably satisfactory to the Company, to the
effect that all of such securities are not permitted to be distributed by such
Holder in one transaction pursuant to Rule 144.
(e) "Registration Expenses" means all reasonable
expenses in connection with any registration of securities pursuant to this
Agreement including, without limitation, the following: (i) SEC filing fees;
(ii) the fees, disbursements and expenses of the Company's counsel(s) and
accountants in connection with the registration of the Registrable Securities to
be disposed of under the Securities Act; (iii) all expenses in connection with
the preparation, printing and filing of the registration statement, any
preliminary prospectus or final prospectus and amendments and supplements
thereto and the mailing and delivering of copies thereof to any Holders,
underwriters and dealers and all expenses incidental to delivery of the
Registrable Securities; (iv) the cost of producing blue sky or legal investment
memoranda; (v) all expenses in connection with the qualification of the
Registrable Securities to be disposed of for offering and sale under state
securities laws, including the fees and disbursements of counsel for the
underwriters or Holders (provided that only the fees and disbursements of a
single counsel or firm for the Holders shall be included) in connection with
such qualification and in connection with any blue sky and legal investments
surveys; (vi) the filing fees incident to securing any required review by the
National Association of Securities Dealers, Inc. of the terms of the sale of the
Registrable Securities to be disposed of; (vii) transfer agents', depositories'
and registrars' fees and the fees of any other agent appointed in connection
with such offering; (viii) all security engraving and security printing
expenses; (ix) all fees and expenses payable in connection with the listing of
the Registrable Securities on each securities exchange or inter-dealer quotation
system on which a class of common equity securities of the Company is then
listed; (x) all reasonable out-of-pocket expenses of the Company incurred in
connection with road show presentations; (xi) courier, overnight delivery, word
processing, duplication, telephone and facsimile expenses of the Company; and
(xii) any one-time payment for directors and officers insurance directly related
to such offering, provided the insurer provides a separate statement for such
payment; PROVIDED that any underwriting discounts and commissions with respect
to the registration of any Registrable
<PAGE> 3
Securities shall not be included.
(f) "Rule 144" means Rule 144 promulgated under the
Securities Act, or any similar rule hereafter adopted.
(g) "SEC" means the United States Securities and
Exchange Commission.
(h) "Securities Act" means the Securities Act of
1933, as amended, or any successor statute.
2. DEMAND REGISTRATION.
(a) At any time, upon written notice from a Holder
requesting that the Company effect the registration under the Securities Act of
any or all of the Registrable Securities held by such Holder, which notice (a
"Demand Registration Notice") shall specify the intended method or methods of
disposition of such Registrable Securities, the Company shall use its Best
Efforts to effect, in the manner set forth in Section 5, the registration under
the Securities Act of such Registrable Securities for disposition in accordance
with the intended method or methods of disposition stated in such request,
PROVIDED that:
(i) if prior to receipt of a Demand
Registration Notice, the Company had commenced a financing plan and if
such financing plan is an underwritten offering, and, in the good-faith
business judgment of the Company's underwriter, a registration at the
time and on the terms requested would materially and adversely affect
or interfere with such financing plan of the Company or its
subsidiaries (a "Transaction Blackout"), the Company shall not be
required to effect a registration pursuant to this Section 2(a) until
the earliest of (A) the abandonment of such offering, (B) 90 days after
the termination of such offering, (C) the termination of any "hold
back" period obtained by the underwriter(s) of such offering from any
person in connection therewith or (D) 180 days after receipt by the
Holder requesting registration of the written notice from the Company
referred to above in this subsection (i);
(ii) if, while a registration request is
pending pursuant to this Section 2(a), the Company, with the prior
approval of a majority of the Company's Board of Directors, may delay
commencing to effect such registration until ninety (90) days after
receipt of notice of such request if the disinterested members of the
Board of Directors determine, in good faith, that the filing of a
registration statement at the time of such request would be materially
detrimental to the Company, provided that the Company shall not be
permitted to delay a requested registration in reliance on this clause
(ii) more than once in any 12-month period; and
(iii) the Company shall not be obligated to
file a registration statement relating to a registration request
pursuant to this Section 2(a): (A) within a
<PAGE> 4
period of six months after the effective date of any other registration
statement of the Company demanded pursuant to this Section 2(a); or (B)
if such registration request is for a number of Registrable Securities
that represent in the aggregate (on an as converted basis) less than
the lesser of: (x) one million (1,000,000) shares of Common Stock and
(y) the remaining number of shares of Common Stock owned by the
Investor and its Affiliates.
(b) Notwithstanding any other provision of this
Agreement to the contrary, a registration requested by a Holder pursuant to this
Section 2 shall not be deemed to have been effected (and, therefore, not
requested for purposes of Section 2(a)): (i) if it is withdrawn based upon
material adverse information relating to the Company; or (ii) if after it has
become effective such registration is interfered with by any stop order,
injunction or other order or requirement of the SEC or other governmental agency
or court for any reason other than a misrepresentation or an omission by such
Holder and, as a result thereof, less than 90% of the Registrable Securities
requested to be registered can be completely distributed in accordance with the
plan of distribution set forth in the related registration statement.
(c) In the event that any registration pursuant to
this Section 2 shall involve, in whole or in part, an underwritten offering, the
Holder initiating the demand pursuant to Section 2(a) shall have the right to
designate an underwriter as the sole lead managing underwriters of such
underwritten offering, subject to the Company's consent which shall not be
unreasonably withheld.
(d) Holders other than the Holder initiating the
demand pursuant to Section 2(a) shall have the right to include their shares of
Registrable Securities in any registration pursuant to Section 2(a); PROVIDED
that the Investor may exclude participation by other Holders in connection with
registrations pursuant to two demands (no two of which can be in consecutive
years). In connection with those registrations in which multiple Holders
participate, in the event such registration involves an underwritten offering
and the Holder initiating demand pursuant to Section 2(a) is advised in writing
(with a copy to the Company) by the lead managing underwriter designated by such
Holder pursuant to Section 2(c) that, in such firm's good-faith opinion,
marketing factors require a limitation on the number of shares to be
underwritten, the number of shares to be included in the underwriting and
registration shall be allocated PRO RATA among the Holders on the basis of the
shares of Registrable Securities held by each such Holder.
(e) The Company shall have the right to cause the
registration of additional securities for sale for the account of any person
(including the Company) in any registration of Registrable Securities requested
by a Holder pursuant to Section 2(a); provided that the Company shall not have
the right to cause the registration of such additional securities if such Holder
is advised in writing (with a copy to the Company) by the lead managing
underwriter designated by the Holder pursuant to Section 2(c) that, in such
firm's good-faith opinion, registration of such additional securities would
materially and adversely affect the
<PAGE> 5
offering and sale of the Registrable Securities then contemplated by such
Holder.
(f) In the event that any Demand Registration Notice
includes a request for registration of the Warrant (or any portion thereof), the
Company may elect, by written notice (the "Election Notice") to the Investor
given within five (5) business days of the Company's receipt of such Demand
Registration Notice, to purchase the Warrant (or such portion thereof) in lieu
of proceeding with the registration of the Warrant pursuant to this Section 2.
On the third (3rd) business day following the Company's delivery to such Holder
of the Election Notice, the Company shall pay to the Holder by wire transfer of
immediately available funds an amount equal to (i) the average of the Closing
Prices (as defined in the Warrant) of the Common Stock for the twenty (20)
consecutive Trading Days (as defined in the Certificate of Designation of the
Series A Preferred Stock) preceding the date of delivery of the Demand
Registration Notice, MULTIPLIED BY (ii) the total number of shares of Common
Stock that would be issuable upon conversion of the shares of Series A Preferred
Stock represented by the Warrant (or such portion thereof) LESS the number of
shares of Common Stock with an aggregate Trading Price (as defined in the
Warrant) as of the date of the Demand Registration Notice equal to the Warrant
Price (as defined in the Warrant) for the Warrant (or such portion thereof).
3. PIGGYBACK REGISTRATION. At any time if the Company proposes
to register any of its Common Stock or any other of its common equity securities
(collectively, "Other Securities") under the Securities Act (other than a
registration on Form S-4 or S-8 or any successor form thereto), whether or not
for sale for its own account, in a manner which would permit registration of
Registrable Securities for sale for cash to the public under the Securities Act,
it will each such time give prompt written notice to each Holder of its
intention to do so as soon as practicable but in any event at least ten (10)
business days prior to the anticipated filing date of the registration statement
relating to such registration. Such notice shall offer each such Holder the
opportunity to include in such registration statement such number of Registrable
Securities as each such Holder may request. Upon the written request (a
"Piggyback Registration Request") of any such Holder made within five (5)
business days after the receipt of the Company's notice (which request shall
specify the number of Registrable Securities intended to be disposed of and the
intended method of disposition thereof), the Company shall effect, in the manner
set forth in Section 5, in connection with the registration of the Other
Securities, the registration under the Securities Act of all Registrable
Securities which the Company has been so requested to register, to the extent
required to permit the disposition (in accordance with such intended methods
thereof) of the Registrable Securities so requested to be registered, PROVIDED
that:
(a) if, at any time after giving such written notice
of its intention to register any of its securities and prior to the effective
date of the registration statement filed in connection with such registration,
the Company shall determine for any reason not to register such securities, the
Company may, at its election, give written notice of such determination to each
holder of Registrable Securities and thereupon shall be relieved of its
obligation to
<PAGE> 6
register any Registrable Securities in connection with such registration (but
not from its obligation to pay the Registration Expenses in connection therewith
as provided in Section 4), without prejudice, however, to the rights of
Stockholders to request that such registration be effected as a registration
under Section 2;
(b) (i) if the registration referred to in the first
sentence of this Section 3 is to be an underwritten primary registration on
behalf of the Company, and the managing underwriter advises the Company in
writing that, in such firm's opinion, such offering would be materially and
adversely affected by the inclusion therein of the Registrable Securities
requested to be included therein, the Company shall include in such
registration: (1) first, all securities the Company proposes to sell for its own
account (the "Company Securities") and (2) second, up to the full amount of
securities (including Registrable Securities) in excess of the number or dollar
amount of the Company Securities, which, in the good-faith opinion of such
managing underwriter, can be so sold without materially and adversely affecting
such offering (and, if less than the full number of such securities, allocated
PRO RATA among the Holders and Other Holders (as defined below) of such
securities on the basis of the number of securities (including Registrable
Securities) requested to be included therein by each such Holder and Other
Holder) and (ii) if the registration referred to in the first sentence of this
Section 3 is to be an underwritten secondary registration on behalf of holders
of securities (other than Registrable Securities) of the Company (the "Other
Holders"), and the managing underwriter advises the Company in writing that in
their good-faith opinion such offering would be materially and adversely
affected by the inclusion therein of the Registrable Securities requested to be
included therein, the Company shall include in such registration: (1) first, all
securities that the Other Holder who made the initial demand for such
registration proposes to sell and (2) second, up to the full amount of
securities (including Registrable Securities) in excess of the number or dollar
amount of the securities set forth in the preceding clause (1), which, in the
good-faith opinion of such managing underwriter, can be so sold without
materially and adversely affecting such offering (and, if less than the full
number of such securities, allocated PRO RATA among the Holders and the
remaining Other Holders of such securities on the basis of the number of
securities (including Registrable Securities) requested to be included therein
by each Holder and each remaining Other Holder);
(c) the Company shall not be required to effect any
registration of Registrable Securities under this Section 3 incidental to the
registration of any of its securities in connection with mergers, acquisitions,
dividend reinvestment plans or stock option or other executive or employee
benefit or compensation plans; and
(d) no registration of Registrable Securities
effected under this Section 3 shall relieve the Company of its obligation to
effect a registration of Registrable Securities pursuant to Section 2 hereof.
(e) In the event that any Piggyback Registration
Request includes a request for registration of the Warrant (or any portion
thereof), the Company may elect, by
<PAGE> 7
written notice (the "Election Notice") to the Investor given within five (5)
business days of the Company's receipt of such Piggyback Registration Request,
to purchase the Warrant (or such portion thereof) in lieu of proceeding with the
registration of the Warrant pursuant to this Section 3. On the third (3rd)
business day following the Company's delivery to such Holder of the Election
Notice, the Company shall pay to the Holder by wire transfer of immediately
available funds an amount equal to (i) the average of the Closing Prices (as
defined in the Warrant) of the Common Stock for the twenty (20) consecutive
Trading Days (as defined in the Certificate of Designation of the Series A
Preferred Stock) preceding the date of delivery of the Piggyback Registration
Request, MULTIPLIED BY (ii) the total number of shares of Common Stock that
would be issuable upon conversion of the shares of Series A Preferred Stock
represented by the Warrant (or such portion thereof) LESS the number of shares
of Common Stock with an aggregate Trading Price (as defined in the Warrant) as
of the date of the Piggyback Registration Request equal to the Warrant Price (as
defined in the Warrant) for the Warrant (or such portion thereof).
4. EXPENSES. The Company agrees to pay all Registration
Expenses with respect to an offering pursuant to Section 2 and Section 3 hereof.
5. REGISTRATION AND QUALIFICATION.
(a) If and whenever the Company is required to use
its Best Efforts to effect the registration of any Registrable Securities under
the Securities Act as provided in Section 2 or 3 hereof, the Company shall:
(i) prepare and file a registration
statement under the Securities Act relating to the Registrable
Securities to be offered as soon as practicable, but in no event later
than 30 days (60 days if the applicable registration form is other than
Form S-3) after the date notice is given, and use its Best Efforts to
cause the same to become effective as promptly as practicable;
(ii) prepare and file with the SEC such
amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to (x) keep
such registration statement effective until the earlier of such time as
all of such Registrable Securities have been disposed of in accordance
with the intended methods of disposition by the Holder or Holders
thereof set forth in such registration statement or the expiration of
nine months after such registration statement becomes effective and (y)
comply with the provisions of the Securities Act;
(iii) furnish to the Holders and to any
underwriter of such Registrable Securities such number of conformed
copies of such registration statement and of each such amendment and
supplement thereto (in each case including all exhibits), such number
of copies of the prospectus included in such registration
<PAGE> 8
statement (including each preliminary prospectus and any summary
prospectus), in conformity with the requirements of the Securities Act,
and such other documents, as the Holders or such underwriter may
reasonably request in order to facilitate the public sale of the
Registrable Securities, and a copy of any and all transmittal letters
or other correspondence to, or received from, the SEC or any other
governmental agency or self-regulatory body or other body having
jurisdiction (including any domestic or foreign securities exchange)
relating to such offering;
(iv) unless the exemption from state
regulation of securities offerings under Section 18 of the Securities
Act applies, use its Best Efforts to register or qualify all
Registrable Securities covered by such registration statement under the
securities or blue sky laws of such jurisdictions as the Holders or any
underwriter of such Registrable Securities shall request, and use its
Best Efforts to obtain all appropriate registrations, permits and
consents required in connection therewith, and do any and all other
acts and things which may be necessary or advisable to enable the
Holders or any such underwriter to consummate the disposition in such
jurisdictions of its Registrable Securities covered by such
registration statement;
(v) furnish to each Holder selling
Registrable Securities by means of such registration (each a "Selling
Holder"), at such Selling Holder's request, a signed counterpart,
addressed to such Selling Holder, of (x) an opinion of counsel for the
Company, dated the effective date of such registration statement (or,
if such registration includes an underwritten public offering, dated
the date of the closing under the underwriting agreement speaking both
as of the effective date of the registration statement and the date of
the closing under the underwriting agreement) and (y) a "cold comfort"
letter dated the effective date of such registration statement (and, if
such registration statement includes an underwritten public offering,
dated the date of the closing under the underwriting agreement) signed
by the independent public accountants who have certified the Company's
financial statements included in such registration statement, covering
substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of
such accountants' letter, with respect to events subsequent to the date
of such financial statements, as are customarily covered in opinions of
issuer's counsel and in accountants' letters delivered to underwriters
in underwritten public offerings of securities and, in the case of the
accountants' letter, such other financial matters, as such Selling
Holder may reasonably request;
(vi) immediately notify the Selling Holders
in writing (x) at any time when a prospectus relating to a registration
pursuant to Section 2 or 3 hereof is required to be delivered under the
Securities Act of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the
<PAGE> 9
circumstances under which they were made, not misleading, and (y) of
any request by the SEC or any other regulatory body or other body
having jurisdiction for any amendment of or supplement to any
registration statement or other document relating to such offering, and
in either such case (x) or (y) at the request of the Selling Holders,
subject to Section 4 hereof, prepare and furnish to the Selling Holders
a reasonable number of copies of a supplement to or an amendment of
such prospectus as may be necessary so that, as thereafter delivered to
the purchasers of such Registrable Securities, such prospectus shall
not include an untrue statement of material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they are
made, not misleading;
(vii) otherwise use its Best Efforts to
comply with all applicable rules and regulations of the SEC, and make
available to its securities holders, as soon as reasonably practicable,
an earnings statement covering the period of at least twelve (12)
months, but not more than eighteen (18) months, beginning with the
first month of the first fiscal quarter after the effective date of
such registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act;
(viii) use its Best Efforts to list such
Registrable Securities on each securities exchange on which shares of
Common Stock of the Company are then listed (including NASDAQ), if such
securities are not already so listed and if such listing is then
permitted under the rules of such exchange, and, if necessary, provide
a transfer agent and registrar for such Registrable Securities not
later than the effective date of such registration statement, with all
expenses in connection therewith to be paid in accordance with Section
4 hereof; and
(ix) furnish unlegended certificates
representing ownership of the Registrable Securities being sold in such
denominations as shall be requested by the Selling Holders or the
underwriters with expenses therewith to be paid in accordance with
Section 4 hereof.
(b) The Holder of Registrable Securities on whose
behalf Registrable Securities are to be distributed by one or more underwriters
shall be parties to any underwriting agreements relating to the distribution of
such Registrable Securities and the representations and warranties by, and the
other agreements on the part of, the Company to and from the benefit of such
underwriters, shall also be made to and for the benefit of such Holders of
Registrable Securities.
6. UNDERWRITING, DUE DILIGENCE.
(a) If requested by the underwriters for any
underwritten offering of Registrable Securities pursuant to a registration
requested under this Agreement, the Company
<PAGE> 10
shall enter into an underwriting agreement with such underwriters for such
offering, such agreement to contain such representations and warranties by the
Company and such other terms and provisions as are customarily contained in
underwriting agreements with respect to secondary distributions, including,
without limitation, indemnities and contribution substantially to the effect and
to the extent provided in Section 7 hereof and the provision of opinions of
counsel and accountants' letters to the effect and to the extent provided in
Section 5(a)(v) hereof. The Selling Holders on whose behalf the Registrable
Securities are to be distributed by such underwriters shall be parties to any
such underwriting agreement and the representations and warranties by, and the
other agreements on the part of, the Company to and for the benefit of such
underwriters, shall also be made to and for the benefit of such Selling Holders.
Such underwriting agreement shall also contain such representations and
warranties by the Selling Holders on whose behalf the Registrable Securities are
to be distributed as are customarily contained in underwriting agreements with
respect to secondary distributions. Selling Holders may require that any
additional securities included in an offering proposed by a Holder be included
on the same terms and conditions as the Registrable Securities that are included
therein.
(b) In the event that any registration pursuant to
Section 3 shall involve, in whole or in part, an underwritten offering, the
Company may require the Registrable Securities requested to be registered
pursuant to Section 3 to be included in such underwriting on the same terms and
conditions as shall be applicable to the other securities being sold through
underwriters under such registration. If requested by the underwriters for such
underwritten offering, the Selling Holders on whose behalf the Registrable
Securities are to be distributed shall enter into an underwriting agreement with
such underwriters, such agreement to contain such representations and warranties
by the Selling Holders and such other terms and provisions as are customarily
contained in underwriting agreements with respect to secondary distributions,
including, without limitation, indemnities and contribution substantially to the
effect and to the extent provided in Section 7 hereof. Such underwriting
agreement shall also contain such representations and warranties by the Company
and such other person or entity for whose account securities are being sold in
such offering as are customarily contained in underwriting agreements with
respect to secondary distributions.
(c) In connection with the preparation and filing of
each registration statement registering Registrable Securities under the
Securities Act, the Company shall give the Holders of such Registrable
Securities and the underwriters, if any, and their respective counsel and
accountants, such reasonable and customary access to its books and records and
such opportunities to discuss the business of the Company with its officers and
the independent public accountants who have certified the Company's financial
statements as shall be necessary, in the opinion of such Holder and such
underwriters or their respective counsel, to conduct a reasonable investigation
within the meaning of the Securities Act.
7. INDEMNIFICATION AND CONTRIBUTION.
<PAGE> 11
(a) In the case of each offering of Registrable
Securities made pursuant to this Agreement, the Company agrees to indemnify and
hold harmless each Holder, its officers and directors, each underwriter of
Registrable Securities so offered and each person, if any, who controls any of
the foregoing persons within the meaning of the Securities Act, from and against
any and all claims, liabilities, losses, damages, expenses and judgments, joint
or several, to which they or any of them may become subject, under the
Securities Act or otherwise, including any amount paid in settlement of any
litigation commenced or threatened, and shall promptly reimburse them, as and
when incurred, for any reasonable legal or other expenses incurred by them in
connection with investigating any claims and defending any actions, insofar as
such losses, claims, damages, liabilities or actions shall arise out of, or
shall be based upon, any untrue statement or alleged untrue statement of a
material fact contained in the registration statement (or in any preliminary or
final prospectus included therein) or any amendment thereof or supplement
thereto, or in any document incorporated by reference therein, or any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading; PROVIDED,
HOWEVER, that the Company shall not be liable to a particular Holder in any such
case to the extent that any such loss, claim, damage, liability or action arises
out of, or is based upon, any untrue statement or alleged untrue statement, or
any omission, if such statement or omission shall have been made in reliance
upon and in conformity with information relating to such Holder furnished to the
Company in writing by or on behalf of such Holder specifically for use in the
preparation of the registration statement (or in any preliminary or final
prospectus included therein) or any amendment thereof or supplement thereto.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of a Holder and shall survive the transfer of
such securities. The foregoing indemnity agreement is in addition to any
liability which the Company may otherwise have to each Holder, its officers and
directors, underwriters of the Registrable Securities or any controlling person
of the foregoing; PROVIDED, FURTHER, that, as to any underwriter or any person
controlling any underwriter, this indemnity does not apply to any loss,
liability, claim, damage or expense arising out of or based upon any untrue
statement or alleged untrue statement or omission or alleged omission in any
preliminary prospectus if a copy of a prospectus was not sent or given by or on
behalf of an underwriter to such person asserting such loss, claim, damage,
liability or action at or prior to the written confirmation of the sale of the
Registrable Securities as required by the Securities Act and such untrue
statement or omission had been corrected in such prospectus.
(b) In the case of each offering made pursuant to
this Agreement, each Holder of Registrable Securities included in such offering,
by exercising its registration rights hereunder, agrees to indemnify and hold
harmless the Company, its officers and directors and each person, if any, who
controls any of the foregoing within the meaning of the Securities Act (and if
requested by the underwriters, each underwriter who participates in the offering
and each person, if any, who controls any such underwriter within the meaning of
the Securities Act), from and against any and all claims, liabilities, losses,
damages, expenses and judgments, joint or several, to which they or any of them
may become subject under the Securities Act or otherwise, including any amount
paid in settlement of any litigation
<PAGE> 12
commenced or threatened, and shall promptly reimburse them, as and when
incurred, for any legal or other expenses incurred by them in connection with
investigating any claims and defending any actions, insofar as any such losses,
claims, damages, liabilities or actions shall arise out of, or shall be based
upon, any untrue statement or alleged untrue statement of a material fact
contained in the registration statement (or in any preliminary or final
prospectus included therein) or any amendment thereof or supplement thereto, or
any omission or alleged omission to state therein a material fact relating to
the Holder required to be stated therein or necessary to make the statements
therein not misleading, but in each case only to the extent that such untrue
statement of a material fact contained in, or such material fact relating to the
Holder is omitted from, information relating to such Holder furnished in writing
to the Company by or on behalf of such Holder specifically for use in the
preparation of such registration statement (or in any preliminary or final
prospectus included therein). The foregoing indemnity is in addition to any
liability which such Holder may otherwise have to the Company, or any of its
directors, offices or controlling persons; PROVIDED, HOWEVER, that, as to any
underwriter or any person controlling any underwriter, this indemnity does not
apply to any loss, liability, claim, damage or expense wising out of or based
upon any untrue statement or alleged untrue statement or omission or alleged
omission in any preliminary prospectus if a copy of a prospectus was not sent to
given by or on behalf of an underwriter to such person asserting such loss,
claim damage, liability or action at or prior to the written confirmation of the
sale of the Registrable Securities as required by the Securities Act and such
untrue statement or omission had been corrected in such prospectus; and
PROVIDED, FURTHER, that in no event shall any such Holder be liable for any
amount in excess of the net proceeds received from the sale of the Registrable
Securities by such Holder in the subject offering.
(c) PROCEDURE FOR INDEMNIFICATION. Each party
indemnified under paragraph (a) or (b) of this Section 7 shall, promptly after
receipt of notice of any claim or the commencement of any action against such
indemnified party in respect of which indemnity may be sought, notify the
indemnifying party in writing of the claim or the commencement thereof; PROVIDED
that the failure to notify the indemnifying party shall not relieve it from any
liability which it may have to an indemnified party on account of the indemnity
agreement contained in paragraph (a) or (b) of this Section 7, except to the
extent the indemnifying party was prejudiced by such failure, and in no event
shall relieve the indemnifying party from any other liability which it may have
to such indemnified party. If any such claim or action shall be brought against
an indemnified party, and it shall notify the indemnifying party thereof, the
indemnifying party shall be entitled to participate therein, and, to the extent
that it wishes, jointly with any other similarly notified indemnifying party, to
assume the defense thereof with counsel reasonably satisfactory to the
indemnified party. After notice from the indemnifying party to the indemnified
party of its election to assume the defense of such claim or action, the
indemnifying party shall not be liable to the indemnified party under this
Section 7 for any legal or other expenses subsequently incurred by the
indemnified party in connection with the defense thereof other than reasonable
costs of investigation; provided that each indemnified party, its officers and
directors, if any, and each person, if any, who controls such indemnified party
within the meaning of the Securities Act, shall have the right to employ
separate counsel
<PAGE> 13
reasonably approved by the indemnifying party to represent them if the named
parties to any action (including any impleaded parties) include both such
indemnified party and an indemnifying party or an affiliate of an indemnifying
party, and such indemnified party shall have been advised by counsel either (i)
that there may be one or more legal defenses available to such indemnified party
that are different from or additional to those available to such indemnifying
party or such affiliate or (ii) a conflict may exist between such indemnified
party and such indemnifying party or such affiliate, and in that event the fees
and expenses of one such separate counsel for all such indemnified parties shall
be paid by the indemnifying party. An indemnified party will not enter into any
settlement agreement which is not approved by the indemnifying party, such
approval not to be unreasonably withheld. The indemnifying party may not agree
to any settlement of any such claim or action which provides for any remedy or
relief other than monetary damages for which the indemnifying party shall be
responsible hereunder, without the prior written consent of the indemnified
party, which consent shall not be unreasonably withheld. In any action hereunder
as to which the indemnifying party has assumed the defense thereof with counsel
reasonably satisfactory to the indemnified party, the indemnified party shall
continue to be entitled to participate in the defense thereof, with counsel of
its own choice, but, except as set forth above, the indemnifying party shall not
be obligated hereunder to reimburse the indemnified party for the costs thereof.
In all instances, the indemnified party shall cooperate fully with the
indemnifying party or its counsel in the defense of each claim or action.
If the indemnification provided for in this Section 7 shall
for any reason be unavailable to an indemnified party in respect of any loss,
claim, damage or liability, or any action in respect thereof, referred to
herein, then each indemnifying party shall, in lieu of indemnifying such
indemnified party, contribute to the amount paid or payable by such indemnified
party as a result of such loss, claim, damage or liability, or action in respect
thereof, in such proportion as shall be appropriate to reflect the relative
fault of the indemnifying party on the one hand and the indemnified party on the
other with respect to the statements or omissions which resulted in such loss,
claim, damage or liability, or action in respect thereof, as well as any other
relevant equitable considerations. The relative fault shall be determined by
reference to whether the untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the indemnifying party on the one hand or the indemnified party on
the other, the intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such statement or omission,
but not by reference to any indemnified party's stock ownership in the Company.
In no event, however, shall a Holder be required to contribute in excess of the
amount of the net proceeds received by such Holder in connection with the sale
of Registrable Securities in the offering which is the subject of such loss,
claim, damage or liability. The amount paid or payable by an indemnified party
as a result of the loss, claim, damage or liability, or action in respect
thereof, referred to above in this paragraph shall be deemed to include, for
purposes of this paragraph, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claims. No person guilty of fraudulent misrepresentation (within the
meaning of
<PAGE> 14
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
8. RULE 144. The Company shall take such measures and file
such information, documents and reports as shall be required by the SEC as a
condition to the availability of Rule 144.
9. HOLDBACK.
(a) Each Holder agrees if so required by the managing
underwriter, not to sell, make any short sale of, loan, grant any option for the
purchase of, effect any public sale or distribution of or otherwise dispose of
any securities of the Company, during the 30 days prior to and the 90 days after
any underwritten registration pursuant to Section 2 or 3 hereof has become
effective (or such shorter period as may be required by the underwriter), except
as part of such underwritten registration. The Company may legend and may impose
stop transfer instructions on any certificate evidencing Registrable Securities
relating to the restrictions provided for in this Section 9.
(b) The Company agrees, if so required by the
managing underwriter, not to sell, make any short sale of, loan, grant any
option for the purchase of (other than pursuant to employee benefit plans),
effect any public sale or distribution of or otherwise dispose of its equity
securities or securities convertible into or exchangeable or exercisable for any
such securities during the 30 days prior to and the 90 days after any
underwritten registration pursuant to Section 2 or 3 hereof has become
effective, except as part of such underwritten registration and except pursuant
to registrations on Form S-4, S-8 or any successor or similar forms thereto.
10. TRANSFER OF REGISTRATION RIGHTS.
(a) A Holder may transfer all or any portion of its
rights under this Agreement to any transferee of Registrable Securities (each, a
"transferee"). The Holder making such transfer shall promptly notify the Company
in writing stating the name and address of any transferee and identifying the
amount of Registrable Securities with respect to which the rights under this
Agreement are being transferred and the nature of the rights so transferred. In
connection with any such transfer, the term "Holder" as used in this Agreement
shall, where appropriate to assign the rights and obligations of a Holder
hereunder to such direct transferee, be deemed to refer to the transferee holder
of such Registrable Securities.
(b) After any such transfer, the Holder making such
transfer shall retain its rights under this Agreement with respect to all other
Registrable Securities still owned by such Holder.
<PAGE> 15
(c) Upon the request of the Holder making such
transfer, the Company shall execute a Registration Rights Agreement with such
transferee or a proposed transferee substantially similar to this Agreement.
11. MISCELLANEOUS.
(a) INJUNCTIONS. Each party acknowledges and agrees
that irreparable damage would occur in the event that any of the provisions of
this Agreement was not performed in accordance with its specific terms or was
otherwise breached. Therefore, each party shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement and to
enforce specifically the terms and provisions hereof in any court having
jurisdiction, such remedy being in addition to any other remedy to which such
party may be entitled at law or in equity.
(b) SEVERABILITY. If any term or provision of this
Agreement shall be held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms and provisions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated, and each of the parties shall use its Best Efforts to find and
employ an alternative means to achieve the same or substantially the same result
as that contemplated by such term or provision.
(c) FURTHER ASSURANCES. Subject to the specific terms
of this Agreement, each of the parties hereto shall make, execute, acknowledge
and deliver such other instruments and documents, and take all such other
actions, as may be reasonably required in order to effectuate the purposes of
this Agreement and to consummate the transactions contemplated hereby.
(d) WAIVERS, ETC. No failure or delay on the part of
either party (or the intended third-party beneficiaries referred to herein) in
exercising any power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power preclude
any other or further exercise thereof or the exercise of any other right or
power. No modification or waiver of any provision of this Agreement nor consent
to any departure therefrom shall in any event be effective unless the same shall
be in writing and signed by an authorized officer of each of the parties, and
then such waiver or consent shall be effective only in the specific instance and
for the purpose for which given.
(e) ENTIRE AGREEMENT. This Agreement contains the
entire understanding of the parties with respect to its subject matter. This
Agreement supersedes all prior agreements and understandings between the
parties, whether written or oral, with respect to the subject matter hereof. The
paragraph headings contained in this Agreement are for reference purposes only,
and shall not affect in any manner the meaning or interpretation of this
Agreement.
<PAGE> 16
(f) COUNTERPARTS. For the convenience of the parties,
this Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original but all of which together shall be one and the
same instrument.
(g) AMENDMENT. This Agreement may be amended only by
a written instrument duly executed by an authorized officer of the Company and
an authorized partner of the Investor.
(h) NOTICES. All notices, requests, claims, demands
and other communications under this Agreement shall be in writing and shall be
deemed given when received if delivered personally, on the next business day if
sent by overnight courier for next business day delivery (providing proof of
delivery), when confirmation is received, if sent by facsimile or in 5 business
days if sent by U.S. registered or certified mail, postage prepaid (return
receipt requested) to the other parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
(a) if to Investor, to:
The Yucaipa Companies
10000 Santa Monica Blvd., 5th Floor
Los Angeles, California 90067
Attn: Robert Bermingham
Facsimile: 310-789-7201
with a copy to:
Munger, Tolles & Olson LLP
355 South Grand Avenue, 35th Floor
Los Angeles, California 90071-1560
Attn: Judith T. Kitano
Facsimile: 213-687-3702
(b) if to the Company, to:
Cyrk, Inc.
3 Pond Road
Gloucester, Massachusetts 01930
Attn:
Facsimile:
<PAGE> 17
with a copy to:
Choate, Hall & Stewart
Exchange Place
53 State Street
Boston, Massachusetts 02109
Attn: Cameron Read
Facsimile: 617-248-4000
(i) GOVERNING LAW. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of Delaware
regardless of the laws that might otherwise govern under applicable principles
of conflicts of laws thereof.
(j) TERM. This Agreement shall remain in full force
and effect until there are no Registrable Securities outstanding or until
terminated by the mutual agreement of the Company and the Investor.
(k) ASSIGNMENT. Except as provided herein, the
parties may not assign their rights under this Agreement and the Company may not
delegate its obligations under this Agreement.
(l) PRIORITY OF RIGHTS. The Company agrees that it
shall not grant any registration rights to any third party unless such rights
are expressly made subject to the rights of the Holders in a manner consistent
with this Agreement. The Company also agrees that it shall not grant any Holder
any registration rights which are senior to or take priority over the
registration rights granted to all Holders under this Agreement
(m) CONSTRUCTION. In entering into this Agreement,
each party represents and warrants that such party does so freely and
voluntarily, after having had the opportunity to meet and confer with such
party's respective attorneys regarding the contents and legal effect of this
Agreement. Each party represents and warrants that such party has full power and
authority to enter into and execute this Agreement. Every covenant, term, and
provision of this Agreement shall be construed simply according to its fair
meaning and not strictly for or against any party. In the event any claim is
made by any party relating to any conflict, omission, or ambiguity in this
Agreement, no presumption or burden of proof or persuasion shall be implied by
virtue of the fact that this Agreement was prepared by or at the request of a
particular party or such party's counsel.
IN WITNESS WHEREOF, the Investor and the Company have caused
this Agreement to be duly executed by their authorized representative as of the
date first above written.
OVERSEAS TOYS, L.P.
<PAGE> 18
By:______________________________________
Name:____________________________________
Title:___________________________________
CYRK, INC.,
By:______________________________________
Name:____________________________________
Title:___________________________________
<PAGE> 1
Exhibit 10.1
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT (this "Agreement") is made and
entered into as of _________ __, 1999 by and between THE YUCAIPA COMPANIES, a
California general partnership ("Yucaipa") and CYRK, INC., a Delaware
corporation (the "Company").
W I T N E S S E T H:
WHEREAS, CYRK and Overseas Toys, L.P., an affiliate of
Yucaipa, have entered into that certain Securities Purchase Agreement dated as
of September 1, 1999 providing for the investment by Overseas Toys, L.P.
in securities of the Company;
WHEREAS, in connection therewith CYRK desires to have access
to the management services of Yucaipa; and
WHEREAS, Yucaipa has the ability to provide certain general
business and financial consultation and advice and management services to CYRK
in connection with the operation of its business;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants of the parties hereto and other good and valuable consideration
paid and received by each of the parties to this Agreement, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
SECTION 1. ENGAGEMENT
CYRK hereby engages Yucaipa as an independent contractor and
consultant to provide general business consultation and advice and management
services to CYRK and its subsidiaries in connection with the operation of their
businesses.
SECTION 2. MANAGEMENT SERVICES.
Yucaipa, through its partners, affiliates and/or its or their
employees, shall provide CYRK with consultation and advice, when and as
reasonably requested by CYRK, in such fields as operations, planning and
development, budgeting, accounting, general business management and such other
fields as Yucaipa may offer from time to time. All partners and employees of
Yucaipa or any of its affiliates entitled to receive any fees payable hereunder
who serve CYRK or any of its subsidiaries as an officer, director or employee
shall do so without charge during the term of this Agreement, except for (a) the
fees and expenses provided for herein, (b) customary fees (or reimbursement or
expenses) payable to members of the Board of Directors, in their capacity as
such, provided that payment of such fees to such partners or employees of
Yucaipa is approved by a majority of the disinterested members of the Board of
Directors or (c) any other
<PAGE> 2
agreement or arrangement approved by a majority of the disinterested members of
the Board of Directors.
SECTION 3. MANAGEMENT FEES.
Commencing on the date hereof (the "Effective Date"), CYRK
shall pay to Yucaipa an annual management fee, in consideration of the services
rendered by Yucaipa pursuant to Section 2 above, equal to $500,000, payable in
12 equal installments in advance on the first day of each month and past due on
the fifteenth day of each such month; provided that such fee will be payable in
advance on the Effective Date for the partial fiscal period beginning on the
Effective Date and ending on the last day of the current fiscal period.
SECTION 4. OTHER CONSULTING SERVICES.
CYRK and its subsidiaries (or any one of them) shall retain or
employ Yucaipa as a financial advisor and/or consultant in connection with any
acquisition or disposition transaction by CYRK or any of its subsidiaries, other
than a sale of all of the outstanding capital stock of, or all or substantially
all of the assets of CYRK. The parties expressly agree that the services
contemplated by this Section 4 shall not include financial advisory or
consulting services in connection with debt or equity financings. If any
retention of Yucaipa by CYRK or any of its subsidiaries pursuant to this Section
4 is made pursuant to a retention or engagement agreement containing terms
varying from or in addition to the terms contained in this Agreement, such
agreement shall be reasonably acceptable to a majority of the members of the
Board of Directors of CYRK, as the case may be, that are neither affiliates of
Yucaipa nor designated or nominated to such Board of Directors by Yucaipa or any
of its affiliates.
SECTION 5. OTHER CONSULTING FEES
CYRK shall pay to Yucaipa a cash fee for providing any
financial advisory or consulting services pursuant to Section 4 above in
connection with the acquisition or disposition transactions specified therein,
equal to one percent (1.0%) of the amount or value of all cash and noncash
consideration actually paid or received (including assumed indebtedness) by CYRK
or any of its subsidiaries, as the case may be, in connection therewith.
SECTION 6. REIMBURSEMENT OF EXPENSES.
CYRK shall reimburse Yucaipa for all of its reasonable
out-of-pocket costs and expenses incurred in connection with the performance of
its obligations under this Agreement. Yucaipa shall bill CYRK for the amount of
all such expenses monthly, and shall provide CYRK with a reasonable itemization
of such expenses. Notwithstanding the foregoing, the aggregate amount of such
costs and expenses for which Yucaipa may be reimbursed in connection with the
rendering of management services under Section 2 hereof shall not exceed
$500,000 in any fiscal year of CYRK (which maximum amount shall be prorated for
the period beginning on the
<PAGE> 3
Effective Date and ending on the last day of CYRK's current fiscal year). In
addition to the foregoing, CYRK shall reimburse Yucaipa for all of its
reasonable out-of-pocket costs and expenses incurred in connection with the
rendering by Yucaipa of financial advisory or consulting services to CYRK and/or
its subsidiaries, in connection with any acquisition or disposition transaction,
or debt or equity financing, whether or not Yucaipa is obligated to render such
services or has a right to be paid any fee relating thereto under Sections 4 or
5 of this Agreement.
SECTION 7. TERM OF AGREEMENT.
The term of this Agreement shall be for a period of five (5)
years commencing on the Effective Date; provided, however, that the term shall
be automatically renewed annually for a term of five (5) years on ___________ of
each year, unless at least ninety (90) days prior notice is given by either
party electing not to so renew this Agreement, in which event the term of this
Agreement shall end at date that is five (5) years after the later of the date
of this Agreement or date of the last renewal hereof.
SECTION 8. TERMINATION.
8.1 TERMINATION AT WILL. CYRK may terminate this Agreement at
any time by giving Yucaipa at least ninety (90) days written notice of such
termination.
8.2 TERMINATION FOR CAUSE.
(a) CYRK or Yucaipa may terminate this Agreement if
the other party shall fail to reasonably perform any material covenant,
agreement, term or provision of this Agreement to be kept, observed or performed
by it and such failure shall continue for a period of sixty (60) days after
written notice from the other party, which notice shall describe the alleged
failure with particularity. Notwithstanding the foregoing, any failure or
alleged failure of CYRK, or Yucaipa to perform any material covenant, agreement,
term or provision of this Agreement shall not constitute cause for termination
of this Agreement if the same shall be occasioned by or result from force
majeure, directly or indirectly
(b) Yucaipa may terminate this Agreement if CYRK
shall fail to make any payment due to Yucaipa hereunder, if such payment is not
made in full within twenty (20) days after written notice of such failure.
8.3 TERMINATION FOR CHANGE OF CONTROL. This Agreement may be
terminated, at the election of Yucaipa or CYRK, if during the term hereof there
shall have been a change in control of CYRK, which for purposes of this
Agreement shall be deemed to have occurred upon any of the following events: (a)
the acquisition after the Effective Date, in one or more transactions, of
"beneficial ownership" (within the meaning of Rule 13d-3(a)(1) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) by any person
<PAGE> 4
(other than Yucaipa or any of its partners or affiliates) or any group of
persons (excluding any group which includes Yucaipa or say of its partners or
affiliates) who constitute a group (within the meaning of Section 13(d)(3) of
the Exchange Act) of any securities of CYRK such that, as a result of such
acquisition, such person or group beneficially owns (within the meaning of Rule
13d-3(a)(1) under the Exchange Act) 51% or more of CYRK's then outstanding
voting securities entitled to vote on a regular basis for a majority of the
Board of Directors of CYRK; (b) the sale of all or substantially all of the
assets of CYRK (including, without limitation, by way of merger, consolidation,
lease or transfer) in a transaction where CYRK or the beneficial owners of
common stock of CYRK do not receive (i) voting securities representing a
majority of the voting power entitled to vote on a regular basis for the Board
of Directors of the acquiring entity or of an affiliate which controls the
acquiring entity, or (ii) securities representing a majority of the equity
interest in the acquiring entity or of an affiliate which controls the acquiring
entity, if other than a corporation; or (c) at any time the Continuing Directors
(as defined below) do not constitute a majority of the Board of Directors of
CYRK (or, if applicable, a successor corporation to the Company). For purposes
of this Section 8.3, "Continuing Directors" shall mean, as of any date of
determination, any member of the Board of Directors who (i) was a member of the
Board of Directors on ________________ or (ii) was nominated for election or
elected to the Board of Directors with the approval of a majority of the
Continuing Directors who were members of the Board of Directors at the time of
such nomination of election.
8.4 PAYMENTS UPON TERMINATION.
(a) In the event of any termination pursuant to
Section 8.1, Section 8.2(a) (if by Yucaipa) or Section 8.2(b) hereof, CYRK shall
pay to Yucaipa an amount equal to the total management fees that would have been
earned by Yucaipa under Section 3 hereof during the remaining term of this
Agreement as if the Agreement has not been terminated.
(b) In the event of any termination pursuant to
Section 8.2(a) by CYRK, Yucaipa promptly shall refund to CYRK a prorated portion
of the management fee received by it under Section 3 for the period in which
such termination occurs.
(c) In the event of any termination pursuant to
Section 8.3, CYRK shall pay to Yucaipa an amount equal to the total management
fees that would have been earned by Yucaipa under Section 3 hereof during the
remaining term of this Agreement, as if the Agreement had not been terminated;
provided that a discount rate of 10% shall be applied in valuing, for purposes
of such payment, the management fees otherwise payable during such period.
(d) Such amount, if any, which shall be due Yucaipa
pursuant to this Section 8.4 in the event of any such termination shall be due
and payable to Yucaipa, in full, as of the date of such termination. The parties
intend that should the foregoing payments be determined to constitute liquidated
damages, such payments shall in all events be deemed reasonable.
<PAGE> 5
SECTION 9. NOTICES.
9.1 MANNER OF NOTICE. All notices, statements or other
documents which any party shall be required or shall desire to give to the
others hereunder shall be in writing and shall be given by the parties hereto
only as follows: (a) by personal delivery, (b) by addressing it as indicated
below, and by depositing it certified mail, postage prepaid, in the U.S. mail,
first class, (c) by addressing it as indicated below, and by delivering it
charges prepaid to a reputable overnight delivery service (e.g., Federal
Express) or (d) by telecopier.
9.2 DELIVERY OF NOTICE; ADDRESS. If so delivered, mailed,
couriered or telecopied, each such notice, statement or other document shall,
except as herein expressly provided, be conclusively deemed to have been given
when personally delivered, or on the third business day after the date of
mailing, or on the first business day after the date of delivery to a reputable
overnight delivery service, or when confirmation is received when sent by
telecopier, as the case may be. The addresses of the parties shall be those of
which the other parties actually receives written notice pursuant to this
Section 9 and until further notice are:
If to Yucaipa: The Yucaipa Companies
10000 Santa Monica Boulevard
Fifth Floor
Los Angeles, CA 90067
Attention: Bob Bermingham
Facsimile: 310-789-7201
If to CYRK: CYRK, Inc.
3 Pond Road
Gloucester, Massachusetts 01930
Attention: President
Facsimile: 978-281-2088
SECTION 10. MISCELLANEOUS.
10.1 ENTIRE AGREEMENT; AMENDMENTS. This Agreement contains all
of the terms and conditions agreed upon by the parties hereto in connection with
the subject matter hereof. This Agreement may not be amended, modified or
changed except by written instrument signed by all of the parties hereto.
10.2 ASSIGNMENT; SUCCESSORS. This Agreement shall not be
assigned and is not assignable by any party without the prior written consent of
each of the other parties hereto; provided, however, that Yucaipa may assign,
without the prior consent of CYRK or the Company, its rights and obligations
under this Agreement to any of its affiliates controlled by
<PAGE> 6
Ronald Burkle, and provided further, that Yucaipa may assign the right to
receive any payment hereunder to any other person or entity. Subject to the
preceding sentence, this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective permitted successors and assigns.
10.3 CAPTIONS. All captions and headings are inserted for the
convenience of the parties, and shall not be used in any way to modify, limit,
construe or otherwise affect this Agreement.
10.4 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal domestic laws of the State of
Delaware, without reference to the choice of law principles thereof.
10.5 ATTORNEYS' FEES. If any legal action is brought
concerning any matter relating to this Agreement, or by reason of any breach of
any covenant, condition or agreement referred to herein, the prevailing party
shall be entitled to have and recover from the other party to the action all
costs and expenses of suit, including attorneys' fees.
10.6 SEVERABILITY. If any term, provision or condition of this
Agreement is determined by a court or other judicial or administrative tribunal
to be illegal, void or otherwise ineffective or not in accordance with public
policy, the remainder of this Agreement shall not be affected thereby and shall
remain in full force and effect.
10.7 INTERPRETATION. In the event of a dispute hereunder, this
Agreement shall be interpreted in accordance with its fair meaning and shall not
be interpreted for or against any party hereto on the ground that such party
drafted or caused to be drafted this Agreement or any part hereof.
10.8 INDEMNITY. The parties to this Agreement shall indemnify
and hold one another and their respective officers, directors, employees and
agents, harmless from any and all loss, cost, liability and damage (including
attorneys' fees) arising out of or connected with, or claimed to arise out of or
be connected with, any act performed or omitted to be performed under this
Agreement, provided such act or omission was taken in good faith, and in the
event of criminal proceedings, that the indemnitee had no reasonable cause to
believe his conduct was unlawful. An adverse judgment or plea of nolo contendere
shall not, of itself, create a presumption that the indemnitee did not act in
good faith or that he had reasonable cause to believe his conduct was unlawful.
Expenses incurred in defending a civil or criminal action shall be paid by the
indemnitor upon receipt of an undertaking by or on behalf of the indemnitee to
repay such amount if it be later shown that such person was not entitled to
indemnification.
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IN WITNESS WHEREOF, the parties hereto have caused this
Management Agreement to be duly executed as of the date first above written.
THE YUCAIPA COMPANIES
By: __________________________
Name:_________________________
Title: _______________________
CYRK, INC.
By: __________________________
Name:_________________________
Title: _______________________
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
__________, 1999, by and between Allan Brown (hereinafter referred to as
"Executive"), Cyrk, Inc., a Delaware corporation (the "Corporation"), and Simon
Marketing, Inc., a Delaware corporation ("SM"), with reference to the following
facts:
A. Pursuant to an Employment Agreement dated as of May 7, 1997 (the
"Prior Agreement"), Executive has been employed by SM.
B. SM is a wholly-owned subsidiary of the Corporation.
C. Executive remains a person whose skills, experience and training are
required by the Corporation and SM. Executive, the Corporation, and SM wish to
terminate the Prior Agreement, and to enter into a new agreement whereby
Executive will serve as Co-Chief Executive Officer and Co-President of the
Corporation on the terms and conditions hereinafter set forth.
D. In order to induce Executive to accept such employment, SM has
agreed to guarantee the obligations of the Corporation hereunder.
NOW THEREFORE, the parties hereto, intending to be legally bound, do
hereby agree as follows:
1. EMPLOYMENT
1.1 POSITION AND DUTIES
The Corporation hereby employs Executive, and Executive accepts such
employment, as Co-Chief Executive Officer and Co-President of the Corporation
upon the terms and provisions set forth in this Agreement. Executive shall
report only to the Board of Directors of the Corporation (the "Board") through
the Chairman of the Board, and, subject to the directions of the Board, acting
through the Chairman of the Board, shall have full general supervision,
direction and control of all aspects of the business, officers and employees of
the Corporation and its subsidiaries (including SM) that are customary for the
Chief Executive Officer of a public company like the Corporation, except for
such duties and responsibilities allocated by the Board (acting through its
Chairman) to the other Co-Chief Executive Officer. All officers and employees of
the Corporation and its subsidiaries (including SM) shall report directly or
indirectly to Executive or to the Co-Chief Executive Officer as the Board may
from time to time determine. The Corporation shall employ two administrative
assistants and a driver to assist Executive on substantially the same basis on
which such administrative assistants and driver were employed by SM immediately
before the date of this Agreement. Executive shall devote his full working time
and effort to the business and affairs of the Corporation and its subsidiaries
and will act in accordance with the policies and directions of the Board, acting
through its Chairman. Executive may
<PAGE> 2
participate in other business activities and act as a director of any profit or
nonprofit corporation, so long as such activity is not competitive with the
business of the Corporation and its subsidiaries in any material respect and
does not materially detract from the performance of his duties as a full time
executive of the Corporation. The Prior Agreement is hereby terminated effective
as of the day before the date of the closing under that certain Securities
Purchase Agreement of even date herewith by and between Overseas Toys, L.P. and
Cyrk, Inc. (the "Closing").
1.2 BOARD OF THE CORPORATION; ADDITIONAL DUTIES
So long as Executive is employed by the Corporation, Executive
shall serve as a director of SM, and of such subsidiaries of the Corporation as
the Board may designate, shall be nominated for election as a director of the
Corporation at each meeting of the shareholders of the Corporation at which
directors are elected (unless such nomination is unnecessary because Executive
is serving as a director and his term is not expiring), and Executive shall
perform additional duties for the Corporation and its subsidiaries (including
SM) as the Board may reasonably request. In the event of the termination of
Executive's employment for any reason, Executive agrees to resign as a director
of the Company and of any or all subsidiaries of the Company upon the request of
the Board, acting through its Chairman.
1.3 CONSULTING
During the Consulting Term (as defined below), Executive shall
make himself available from time to time as the Corporation and its subsidiaries
(including SM) may reasonably request to consult with the Corporation and its
subsidiaries (including SM) with regard to their business; provided, however,
that (a) Executive shall not be required to be available more than 20 hours per
month, or for more than two hours in any period of 24 consecutive hours, (b)
Executive shall not be required to be available except on reasonable advance
notice, and (c) Executive shall not be required to travel outside of a fifty
(50) mile radius from his residence.
2. TERM
Executive's employment under this Agreement shall commence on the date
of the Closing, and shall continue for a period of three (3) years, or five (5)
years if Executive gives a notice of extension before the expiration of thirty
(30) months from the date hereof, unless in either case sooner terminated as
hereinafter provided (the "Term"). This Agreement shall not become effective
before the Closing, or if the Closing does not occur. The "Consulting Term"
shall commence on the expiration or earlier termination of the Term and shall
continue for five (5) years thereafter, unless sooner terminated by the giving
of thirty (30) days' written notice of termination by Executive to the
Corporation, which Executive may give at any time after the second anniversary
of the commencement of the Consulting Term.
3. COMPENSATION
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3.1 SALARY
As compensation for the services to be performed by Executive
during the Term of this Agreement, the Corporation shall pay Executive a salary
of $750,000 per year during the Term, payable in accordance with the
Corporation's practices in effect from time to time, but not less often than
biweekly.
3.2 BONUSES
Upon execution of this Agreement, Executive shall receive a
cash bonus of $2,250,000 (the "Signing Bonus"). If for any reason or for no
reason, other than as set forth in Sections 6.4 or 6.6, Executive's employment
with the Corporation and all of its subsidiaries is terminated by either
Executive or the Corporation prior to the fifth anniversary of the Closing
(including, without limitation, if Executive does not extend the Term to five
years as set forth in Section 2), then within thirty (30) days of any such
termination, Executive (or his estate if the termination is on account of
Executive's death) shall repay to the Corporation the portion of the Signing
Bonus attributable to any portion of such five-year period remaining after the
termination of Executive's employment, determined by prorating the Signing Bonus
over the five-year period, with the proration over any period of less than a
full calendar year being made on a daily basis of a 365 day year. Executive
shall not be obligated to repay any portion of the Signing Bonus in the event of
his termination of employment as described in Sections 6.4 or 6.6. Executive
shall be entitled to participate in any bonus pool or discretionary bonus
arrangement of the Corporation or its subsidiaries (including SM) at a level
commensurate with his position as Co-Chief Executive Officer and Co-President of
the Corporation; provided, however, that nothing in this Section 3.2 shall be
deemed to require the Corporation to pay equal bonuses to the two Co-Chief
Executive Officers or Co-Presidents. Such bonuses shall be based on reasonable
criteria pertaining to the Corporation's performance. For each fiscal year of
the Corporation, Executive shall receive a bonus of at least 2.133% of his
annual salary for each percentage point by which the Corporation's actual EBITDA
for such fiscal year exceeds 85% of the Corporation's projected or targeted
EBITDA for such fiscal year as determined by the Board; provided, however, that
this sentence shall not obligate the Corporation to pay Executive a bonus for
any fiscal year greater than 32% of Executive's salary for such fiscal year.
3.3 BENEFITS
Executive shall be entitled to participate in all pension
plans, profit sharing plans, life, medical, dental, disability or other
insurance plans or policies or other similar plans or benefits the Corporation
or its subsidiaries (including SM) may provide generally for their senior
executives or for employees of the Corporation or its subsidiaries (including
SM) generally from time to time in effect during the Term, but as to medical and
dental insurance plans, with terms no less favorable to Executive than provided
to Executive by the SM immediately preceding the date of this Agreement. During
the Consulting Term, the Corporation and its subsidiaries (including SM) will
continue to provide Executive with group life, health and disability insurance
coverage at their expense. During the Term, the
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<PAGE> 4
Corporation shall reimburse Executive for medical and health-related expenses
not covered or reimbursed by insurance (including, but not limited to, services
recommended by a physician) in the same manner as was SM's practice immediately
before the date of this Agreement. The Corporation shall at all times during the
Term and during the Consulting Term pay for and maintain for the benefit of
Executive and his designees the policies of split dollar life insurance in
effect immediately before the date of this Agreement (the "Split Dollar
Policies"). If for any reason any of such policies shall terminate or not be
renewed, the Corporation will use its best reasonable commercial efforts to
secure replacement policies providing comparable coverage. Executive, or his
designee, shall be the owner of the policies for all purposes, subject to
whatever rights the Corporation may have to a return of its premiums under
certain circumstances. The Corporation shall continue to pay the premiums on
such policies after the termination of the Consulting Term so long as Executive
is willing to provide consulting services to the Corporation after the
expiration of the Consulting Term on the same basis as the senior executives of
the Corporation and Executive continues to be bound by the provisions of Section
8 of this Agreement. Executive shall be reimbursed for his reasonable estate
planning, legal representation and advice, tax planning and return preparation
and accounting fees and related expenses. (All of the benefits referred to in
this Section 3.3 are collectively referred to as "Additional Benefits.")
3.4 STOCK OPTIONS
Executive shall be considered for grants of options to acquire
shares of the Corporation's common stock, SARS, phantom stock rights and any
similar option or securities compensation, at a level commensurate with
Executive's position as Co-Chief Executive Officer and Co-President of the
Corporation, when and as such grants are considered for other executives or
employees of the Corporation or its subsidiaries (including SM), but any grant
is wholly at the discretion of the Board or appropriate Board committee.
3.5 PERIODIC REVIEW
The Corporation shall review Executive's salary, stock
options, and other benefits then being provided to Executive not less frequently
than annually and may, but shall not be obligated to, increase Executive's
salary.
3.6 REIMBURSEMENTS
Executive shall be promptly reimbursed by the Corporation for
all amounts reasonably expended by Executive in the course of performing duties
for the Corporation, including without limitation, reasonable expenses for
travel, entertainment, parking, automobile and driver, business meetings,
professional dues, club memberships, and credit cards, all in accordance with
policies set by the Board from time to time, subject to the following:
(a) Executive shall be entitled to first class
travel, meals and lodging;
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<PAGE> 5
(b) The Corporation shall reimburse Executive for the
travel expenses of a travelling companion, who may be a family member of
Executive, and, if a family member of Executive, whose travel, meals and hotel
accommodations may be the same as those of Executive; and
(c) The Corporation shall reimburse Executive for the
travel expenses of Executive's wife, minor children and caregiver travelling
with Executive on a business trip which extends, or which is expected to extend,
for more than seven (7) days, whose travel, meals and hotel accommodations may
be the same as those of Executive.
During the Term, Executive shall be entitled to the use of a Jaguar XJR
or equivalent automobile on the same terms and conditions as the then-current
practice of the Corporation and its subsidiaries (including SM) for their senior
executives.
3.7 DEDUCTIONS
There shall be deducted from Executive's gross compensation
appropriate amounts for standard employee deductions (e.g. , income tax
withholding, social security and state disability insurance) and any other
amounts authorized for deduction by Executive.
3.8 LOCATION
Executive's office shall be in Century City, California. In
the event that SM relocates its headquarters from Century City, California,
Executive shall in no event be required to move his residence from Los Angeles,
California, nor perform his duties outside of Century City, and shall be allowed
to function as Co-Chief Executive Officer and Co-President of the Corporation
from an appropriate and satisfactory office, and with an appropriate and
satisfactory staff, provided to him in Century City. Executive will not be
required to increase his travel beyond that currently undertaken by him and
Executive shall at all times determine whether and when to travel on business
trips.
4. VACATION
Executive shall be entitled to not less than four (4) weeks of paid
vacation for each twelve (12) month period of employment which shall accrue on a
pro rata basis from the date of this Agreement. Subject to the foregoing minimum
vacation, Executive shall be entitled to paid vacation, holidays and leave time
in accordance with the plans, policies, programs and practices in effect
generally with respect to other senior employees of the Corporation and its
subsidiaries (including SM).
5. INDEMNIFICATION
The Corporation, and its subsidiaries (including SM) shall, to the
maximum extent permitted by law, jointly and severally indemnify and hold
Executive harmless from and against any expenses, including reasonable
attorney's fees, judgements, fines, settlements and other amounts actually and
reasonably incurred in connection with any proceeding arising out of, or related
to, Executive's employment by the Corporation or by its
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<PAGE> 6
subsidiaries (including SM). The Corporation and its subsidiaries (including SM)
shall advance to Executive any reasonable expenses, including reasonable
attorneys' fees and costs of settlement, reasonably incurred in defending any
such proceeding to the maximum extent permitted by law. The Corporation and its
subsidiaries (including SM) shall cause Executive to be covered under directors
and officers liability insurance policies in reasonable amounts in accordance
with past practice.
6. TERMINATION OF EMPLOYMENT
Employment shall terminate upon the occurrence of any of the following
events:
6.1 EXPIRATION OF TERM
Upon the expiration of the Term as specified in Section 2.
6.2 MUTUAL AGREEMENT
Whenever the Corporation and Executive mutually agree in
writing to termination.
6.3 TERMINATION FOR CAUSE
At any time by the Corporation for cause. For purposes of this
Agreement, "cause" shall mean and be limited to (a) Executive's conviction by,
or entry of a plea of guilty in, a court of competent jurisdiction for a felony
involving moral turpitude or harm to the business or reputation of the
Corporation, and such conviction or guilty plea becoming final and
non-appealable; and (b) material breach of duty or this Agreement by the
Executive or his habitual neglect of such duty to perform his duties under this
Agreement, in each case after reasonable written notice and a reasonable
opportunity (of not less than thirty (30) days) to cure. Executive may not be
terminated for cause unless and until the Board has made such determination and
such determination has been confirmed after hearing by an independent arbitrator
as provided in Section 12.1; provided, however, that the Corporation may suspend
Executive's duties and authority hereunder with pay pending the outcome of such
arbitration.
6.4 TERMINATION WITHOUT CAUSE
The Corporation shall have the right to terminate Executive's
employment with the Corporation without cause at any time, but in the event of
any such termination, Executive shall be paid a lump sum payment equal to the
present value of all "Compensation" for the greater of the unexpired portion of
the Term, or one (1) year. For this purpose, the term "Compensation" shall mean
(a) salary at the rate in effect on the date of termination, and (b) the average
of the bonuses (but not the Signing Bonus) which Executive received with respect
to the two (2) fiscal years of the Corporation preceding the fiscal year in
which the termination occurs, with the bonus Executive received with respect to
any short or partial fiscal year being annualized on the basis of a twelve-month
year. The present value of Executive's Compensation shall be determined by
discounting each element
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<PAGE> 7
of Compensation from the date it would otherwise have been paid had this
Agreement not been terminated until the date Executive receives the lump-sum
payment under this Section 6.4 at a discount rate equal to the applicable
federal rate (as defined in Section 1274(d) of the Internal Revenue Code)
compounded semi-annually. Executive shall not be required to seek other
employment or otherwise to mitigate his damages in the event of his discharge
without cause. Executive shall have the right to "gross up" protection against
any golden parachute excise tax under Section 4999 of the Internal Revenue Code.
In addition, the Corporation shall continue to pay the premiums on the Split
Dollar Policies for the balance of the Term and thereafter as provided in
Section 3.3, and shall, at its expense, continue to provide Executive with
coverage under all life, medical, dental, disability or other insurance plans or
policies contemplated by Section 3.3 for the balance of the Term and for the
Consulting Term, notwithstanding such termination. Executive acknowledges that
payment of the foregoing amounts by the Corporation shall release the
Corporation and its subsidiaries, and their respective officers, directors and
affiliates from any further obligations or liability to Executive arising from
termination of Executive's employment.
6.5 DEATH/DISABILITY
For the purposes of this Agreement, disability shall mean the
absence of Executive performing Executive's duties with the Corporation or its
subsidiaries (including SM) on a full time basis for one hundred eighty (180)
days in any period of twelve (12) consecutive months, as a result of incapacity
due to mental or physical illness which is determined to be total and permanent
by a physician selected by the Corporation or its insurers and reasonably
acceptable to Executive or Executive's legal representative. If Executive shall
become disabled, Executive's employment may be terminated by written notice to
Executive, in which event Executive shall be entitled to receive disability
insurance payments under policies maintained by the Corporation providing annual
payments on terms no less favorable to Executive than those currently applicable
to the chief executive officer and chief operating officer of the Corporation
and its subsidiaries (including SM), or as increased from time to time, and
continuation of medical and dental insurance, and payment of the premiums on his
Split Dollar Policies through age 66. In addition, the Corporation shall, at its
expense, continue to provide Executive with coverage under all other life,
medical, dental, or other insurance plans or policies contemplated by Section
3.3 for the Consulting Term, notwithstanding such termination of Executive's
employment. If Executive dies during the Term, the Corporation shall pay to
Executive's estate (or such other person as Executive may designate in writing
during his lifetime to the Corporation with the written consent of his spouse),
Executive's salary and pro-rated Bonus through the date of death.
6.6 BY EXECUTIVE FOR GOOD REASON
Executive shall have the right to terminate his employment
with the Corporation at any time for good reason. For purposes of this
Agreement, "good reason" shall mean and be limited to (a) any material
diminution, on a cumulative basis, of Executive's duties, authority or position
with the Corporation as specified in Section 1, or (b) a material breach by the
Corporation of a material obligation of the Corporation under this
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Agreement, which such material breach is not cured within thirty (30) days
written notice by Executive to the Corporation. Upon any termination of
employment by Executive for good reason, Executive shall be entitled to receive
the lump sum payment provided in Section 6.4 hereof within five (5) days after
Executive gives notice of termination hereunder, and the other benefits provided
in Section 6.4, as though the Corporation had terminated Executive's employment
without cause. Executive's termination for good reason shall not be effective
until confirmed after hearing by an independent arbitrator as provided in
Section 12.1.
7. CHANGE OF CONTROL
If the Corporation adopts any policy or enters into an agreement during
the Term providing severance benefits and termination rights to any executive
officer, or acceleration of options to acquire shares of its common stock, SARS,
phantom stock rights and any similar option or securities compensation, on a
change of control of the Corporation, then Executive shall be granted
termination and acceleration rights and benefits as least as favorable as those
granted to any such executive officer.
8. NON-COMPETE AND NO SOLICITATION
8.1 NON-COMPETITION. During the Term and the Consulting Term, the
Executive will not directly or indirectly, as a consultant to, or employee,
officer, director, stockholder (except as a holder of less than 5% of the
outstanding stock of any publicly traded corporation), partner or other owner of
or participant in any business entity other than the Corporation and its
subsidiaries (including SM), engage in or assist any other person or entity to
engage in any business which competes with any business in which the Corporation
or its subsidiaries (including SM) or any of their affiliates is engaging or is
preparing to engage at the time of termination of the Executive's employment,
anywhere in the United States or anywhere else in the world where the
Corporation or its subsidiaries (including SM) or any of their affiliates do
business.
8.2 NON-SOLICITATION. The Executive acknowledges that he has had and
will have extensive contacts with employees, customers and suppliers of the
Corporation and its subsidiaries (including SM). Accordingly, the Executive
covenants and agrees that, during the Term and the Consulting Term, he will not,
without the written consent of the Corporation (i) solicit the services of any
of the employees of the Corporation or its subsidiaries (including SM), who were
employed by the Corporation or its subsidiaries (including SM) within the one
(1) year period immediately prior to the termination of the Executive's
employment with the Corporation, (ii) provide services to, or solicit, divert or
take away, or attempt to divert or take away from the Corporation or its
subsidiaries (including SM) the business of any person or entity who was a
customer, or who had been actively solicited by the Corporation or its
subsidiaries (including SM) to become a customer, of the Corporation, or its
subsidiaries (including SM) within the one (1) year period immediately prior to
the termination of the Executive's employment with the Corporation, or (iii)
solicit, divert or take away, or attempt to divert or take away, from the
Corporation or its subsidiaries (including SM) the business of any person or
entity who was a supplier of the Corporation or its subsidiaries (including SM)
within the one (1) year
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<PAGE> 9
period immediately prior to the termination of the Executive's employment with
the Corporation.
8.3 REMEDIES. Without limiting the remedies available to the
Corporation, the Executive acknowledges that his talents and services are
special and unique, and that a breach of any of the covenants contained in
Section 8.1 or Section 8.2 could result in irreparable injury to the Corporation
for which there might be no adequate remedy at law, and that, in the event of
such a breach of threat thereof, the Corporation shall be entitled to obtain a
temporary restraining order and/or a preliminary injunction and a permanent
injunction restraining him from engaging in any activities prohibited by Section
8.1 or in Section 8.2 or such other equitable relief as may be required to
enforce specifically any of the covenants of Section 8.1 or Section 8.2. The
provisions of Section 8.1 and the provisions of Section 8.2 shall survive the
termination of this Agreement and shall continue thereafter in full force and
effect in accordance with the terms of Section 8.1 and 8.2.
9. CONFIDENTIALITY
9.1 The Executive will not at any time, directly or indirectly,
disclose or divulge, except as required in connection with the performance of
his duties for the Corporation, and except to legal counsel or as required or
requested by any governmental agency or pursuant to legal process, any
Confidential Information (as hereinafter defined) acquired by him during or in
connection with his employment by the Corporation. As used herein "Confidential
Information" means all trade secrets of the Corporation and its subsidiaries
(including SM), including information of others that the Corporation and its
subsidiaries (including SM) have agreed to keep confidential; provided, that
Confidential Information shall not include any information that has entered or
enters the public domain through no fault of the Executive or which the
Executive is required to disclose by legal process or to defend himself in a
legal proceeding.
9.2 The Executive shall make no use whatsoever, directly or indirectly,
of any Confidential Information, except as required in connection with the
performance of his duties for the Corporation or its subsidiaries (including
SM). Nothing herein is intended to preclude Executive after termination of his
employment with the Corporation from being employed in a similar capacity by
others or for his own account and from using the business techniques, marketing
skills and contacts and relationships which Executive possesses.
9.3 After the termination of the Executive's employment with the
Corporation, upon the Corporation's request, the Executive shall immediately
deliver to the Corporation all Confidential Information (including all copies)
in his possession.
9.4 All copyrightable work by the Executive produced primarily during
business hours or relating to the Corporation's businesses, which is produced
during the Term, is intended to be "work made for hire" as defined in Section
101 of the Copyright Act of 1976, and shall be the property of the Corporation.
If the copyright to any such copyrightable work is not the property of the
Corporation by operation of law, the Executive will, without further
consideration, assign to the Corporation all right, title and interest in such
copyrightable work and will assist the Corporation and its nominees in every
way, at the Corporation's
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expense, to secure, maintain and defend for the Corporation's benefit copyrights
and any extensions and renewals thereof on any and all such work, including
translations thereof in any and all countries, such work to be and to remain the
property of the Corporation whether copyrighted or not.
10. GUARANTEE BY SUBSIDIARIES (INCLUDING SM)
SM hereby unconditionally guarantees the due and timely performance by
the Corporation of all of its obligations hereunder. If for any reason the
Corporation fails to perform such obligations, SM shall, upon notice thereof
from Executive, perform such obligations and Executive may proceed directly
against the Corporation or SM in the event of any breach of this Agreement by
the Corporation. The Corporation shall cause each new subsidiary which it
organizes to guarantee unconditionally the due and timely performance by the
Corporation of all of its obligations hereunder as soon as practicable after its
formation.
11. LOAN TO EXECUTIVE
11.1 EXECUTIVE LOAN
The parties to this Agreement hereby acknowledge that the
Corporation has made a loan to Executive secured by certain shares of the common
stock of the Corporation owned by Executive, which such loan has an outstanding
balance as of the date of this Agreement of $575,000. The parties to this
Agreement agree that such loan shall be extended until the expiration of the
Term of this Agreement on the same terms and conditions as were in effect as of
the date of this Agreement. The parties to this Agreement further agree that
such loan shall be forgiven on the expiration of the Term of this Agreement, or
on the earlier termination of this Agreement pursuant to Sections 6.4, 6.5 or
6.6.
11.2 LINE OF CREDIT
Upon request from Executive, the Corporation will make
available to Executive a revolving line of credit (the "Line of Credit") of up
to $2,000,000. The Line of Credit (i) shall bear interest at the applicable
federal rate and be payable at maturity, (ii) may be drawn upon up through and
including the date of the annual meeting of the shareholders of the Corporation
in 2001 at which directors are elected, provided that Executive shall not be
entitled to draw on the Line of Credit after (A) the date of termination as to
Executive of the Voting Agreement of even date herewith by and among Overseas
Toys, L.P., Executive and other stockholders of the Corporation listed on the
signature page thereof, or (B) the effective date of Executive's termination of
employment by the Corporation for "cause" under Section 6.3 or of Executive's
voluntary termination of his employment without "good reason," as defined in
Section 6.6, (iii) will provide that amounts borrowed and repaid may
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be reborrowed, (iv) will be due and payable six months after the earliest
applicable date specified in clause (ii) of this sentence (including subclauses
(A) and (B) thereof), and (v) will otherwise be on commercially reasonable terms
and conditions. The Line of Credit will be full recourse and will be secured by
a pledge of the minimum number of shares of common stock of the Corporation
owned by Executive required to be pledged under applicable Federal margin
requirements to secure the Line of Credit (or, if Federal margin requirements
are not applicable to the Line of Credit, the minimum number of shares which
would be required to be pledged to secure the Line of Credit if such Federal
margin requirements were applicable).
12. MISCELLANEOUS
12.1 ARBITRATION
Except for equitable relief as provided in Section 8.3 and
provisional relief by a court pending arbitration, arbitration in accordance
with the then most applicable rules of the American Arbitration Association
shall be the exclusive remedy for resolving any dispute or controversy between
the parties, including, but not limited to, any dispute of any nature between
the parties as well as any dispute regarding the termination of Executive's
employment, or the application, interpretation or validity of this Agreement. If
the parties are unable to agree upon an arbitrator, they shall select a single
arbitrator from a list of nine arbitrators designated by the office of the
American Arbitration Association having responsibility for Century City,
California, all of whom shall be retired judges who are actively involved in
hearing private employment cases or who are members of the American Arbitration
Association's employment panel. If the parties are unable to agree upon an
arbitrator from the list, they shall each strike names alternatively from the
list, with the first to strike being determined by lot. The remaining name on
the list shall be the arbitrator. The Corporation shall initially bear the fees
and expenses of the arbitrator and all other expenses of the arbitration other
than any filing fees required of claimants by the American Arbitration
Association. Each party shall be responsible for the payment of his, her or its
attorney's fees and the costs associated with the preparation and presentation
of his, her or its case; provided, however, the arbitrator may, to the extent
permitted by law, award attorneys fees, costs and expenses to the prevailing
party. Judgment may be entered on the award of the arbitrator in any court
having jurisdiction. Unless mutually agreed otherwise by the parties, any
arbitration shall be conducted in Century City, California. The arbitrator shall
be empowered to grant only such relief as would be available in a court of law.
The arbitrator shall, upon an appropriate motion, dismiss any claim without an
evidentiary hearing if the party bringing the motion establishes that he or she,
or it would be entitled to summary judgement if the matter had been pursued in
court litigation. In the event of any conflict between this Section 12.1 and the
rules of the American Arbitration Association, the provisions of this Section
12.1 shall be determinative. The arbitrator shall render an award and written
opinion, and the award shall be final and binding upon the parties. If any of
the provisions of the Agreement are determined to be unlawful or otherwise
unenforceable, in whole or in part, such determination shall not affect the
validity of the remainder of this Agreement, and this Agreement shall be
reformed to the extent necessary to carry out its provisions to the greatest
extent possible and to insure that the resolution of all conflicts
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between the parties, including those arising out of statutory claims, shall be
resolved by neutral, binding arbitration. If a court should find that this
arbitration provision is not absolutely binding, then the parties intend any
arbitration decision and award to be fully admissible in evidence in any
subsequent action, given great weight by any finder of fact, and treated as
determinative to the maximum extent permitted by law.
12.2 NO THIRD-PARTY BENEFICIARIES
This Agreement shall not confer any rights or remedies upon
any person other than the parties and their respective successors and permitted
assigns.
12.3 ENTIRE AGREEMENT
This Agreement (including the documents referred to herein)
constitutes the entire agreement between the parties and supersedes any prior
understandings, agreements, or representations between the parties, written or
oral, to the extent they have related in any way to the subject matter hereof.
12.4 SUCCESSION AND ASSIGNMENT
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 his or its rights,
interests, or obligations hereunder without the prior written approval of the
Corporation and Executive; provided, however, that the Corporation may (i)
assign any or all of its rights and interests hereunder to one or more of its
affiliates, (ii) designate one or more of its affiliates to perform its
obligations hereunder (in any or all of which cases the Corporation nonetheless
shall remain responsible for the performance of all of its obligations
hereunder); and (iii) assign its rights and interests hereunder to any entity
into which the Corporation may be merged or which may succeed to substantially
all of its assets or business.
12.5 COUNTERPARTS
This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original but all of which together will
constitute one and the same instrument.
12.6 HEADINGS
The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this agreement.
12.7 NOTICES
All notices, requests, demands, claims, and other
communications required or permitted 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
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is sent by registered or certified mail, return receipt requested, postage
prepaid, and addressed to the intended recipient as set forth below:
IF TO CORPORATION:
CYRK, INC.
3 Pond Road
Gloucester, Massachusetts 01930
Attn: Chief Financial Officer
with copy to:
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, New York 10019
Attn. Richard D. Pritz
and
Choate, Hall & Stewart
Exchange Place
53 State Street
Boston, Massachusetts 02109
Attn. Cameron Read
IF TO EXECUTIVE:
ALLAN BROWN
29020 Cliffside Drive
Malibu, CA 90265
with copy to:
Irell & Manella LLP
1800 Avenue of the Stars, Suite 900
Los Angeles, CA 90067-4276
Attn: Martin N. Gelfand, Esq.
Any party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail) , but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving notice in the
manner herein set forth.
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12.8 GOVERNING LAW
This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of California without giving
effect to any choice or conflict of law provision or rule (whether of the State
of California or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of California.
12.9 AMENDMENTS AND WAIVERS
No amendment of any provision of this Agreement shall be valid
unless the same shall be in writing and signed by Corporation and Executive. No
waiver by any party of any default, misrepresentation, or breach of warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to any
prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence.
12.10 SEVERABILITY
Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity
or enforceability of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any other situation or
in any other jurisdiction.
[Next page is signature page]
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IN WITNESS THEREOF, the parties hereto have executed this Agreement as
of the date first above written.
"THE CORPORATION"
CYRK, INC.
By: ____________________________
Its: ____________________________
"SM"
SIMON MARKETING, INC.
By: ____________________________
Its: ____________________________
"EXECUTIVE"
--------------------------------
Allan Brown
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Exhibit 10.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
September 1, 1999, by and between Patrick Brady (hereinafter referred to as
"Executive"), and Cyrk, Inc., a Delaware corporation (the "Corporation"), with
reference to the following facts:
A. Executive has been employed by the Corporation since 1989, and has
served as its Chief Executive Officer since December 31, 1998.
B. Executive remains a person whose skills, experience and training are
required by the Corporation. Executive and the Corporation wish to enter into an
employment agreement whereby Executive will serve as Co-Chief Executive Officer
and Co-President of the Corporation on the terms and conditions hereinafter set
forth.
NOW THEREFORE, the parties hereto, intending to be legally bound, do
hereby agree as follows:
1. EMPLOYMENT
1.1 POSITION AND DUTIES
The Corporation hereby employs Executive, and Executive accepts such
employment, as Co-Chief Executive Officer and Co-President of the Corporation
upon the terms and provisions set forth in this Agreement. Executive shall
report only to the Board of Directors of the Corporation (the "Board") through
the Chairman of the Board, and, subject to the directions of the Board, acting
through the Chairman of the Board, shall have full general supervision,
direction and control of all aspects of the business, officers and employees of
the Corporation and its subsidiaries that are customary for the Chief Executive
Officer of a public company like the Corporation, except for such duties and
responsibilities allocated by the Board (acting through its Chairman) to the
other Co-Chief Executive Officer. All officers and employees of the Corporation
and its subsidiaries shall report directly or indirectly to Executive or to the
other Co-Chief Executive Officer as the Board may from time to time determine.
The Corporation shall employ two administrative assistants to assist Executive
on substantially the same basis on which such administrative assistants were
employed by the Corporation immediately before the date of this Agreement.
Executive shall devote his full working time and effort to the business and
affairs of the Corporation and its subsidiaries and will act in accordance with
the policies and directions of the Board, acting through its Chairman. Executive
may participate in other business activities and act as a director of any profit
or nonprofit corporation, so long as such activity is not competitive with the
business of the Corporation and its subsidiaries in any material respect and
does not materially detract from the performance of his duties as a full time
executive of the Corporation.
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1.2 BOARD OF THE CORPORATION; ADDITIONAL DUTIES
So long as Executive is employed by the Corporation, the
Corporation shall nominate and recommend Executive for election to the Board,
Executive shall serve as a director of such subsidiaries of the Corporation as
the Board may designate, and Executive shall perform additional duties for the
Corporation and its subsidiaries as the Board may reasonably request. In the
event of the termination of Executive's employment for any reason, Executive
agrees to resign as a director of the Company and of any or all subsidiaries of
the Company upon the request of the Board, acting through its Chairman.
2. TERM
Executive's employment under this Agreement shall commence on the date
of closing under the Securities Purchase Agreement of even date herewith by and
between Overseas Toys, L.P. and Cyrk, Inc. (the "Closing"), and shall continue
for a period of three (3) years unless sooner terminated as hereinafter provided
(the "Term"). This Agreement shall not be effective prior to the Closing or if
the Closing does not occur.
3. COMPENSATION
3.1 SALARY
As compensation for the services to be performed by Executive
during the Term of this Agreement, the Corporation shall pay Executive a salary
of $600,000 per year during the Term, payable in accordance with the
Corporation's practices in effect from time to time, but not less often than
biweekly.
3.2 BONUSES
Executive shall be entitled to participate in any bonus pool
or discretionary bonus arrangement of the Corporation or its subsidiaries at a
level commensurate with his position as Co-Chief Executive Officer and
Co-President of the Corporation; provided, however, that nothing contained in
this Section 3.2 shall require that the Corporation pay the same bonus to
Executive and the other Co-Chief Executive Officer and Co-President. Any bonus
paid to Executive pursuant to this Section 3.2 shall be based on reasonable
criteria pertaining to the Corporation's performance subject to the provisions
of the following sentence. For each full fiscal year of the Corporation during
the Term, Executive shall receive a bonus of $26,666.66 for each percentage
point (PRO RATED for partial percentage points) by which the Corporation's
actual EBITDA for such fiscal year exceeds 85% of the Corporation's projected or
targeted EBITDA for such fiscal year as determined by the Board, up to a maximum
bonus of $400,000 if the Corporation's actual EBITDA for such fiscal year meets
or exceeds the Corporation's projected or targeted EBITDA for such fiscal year
as determined by the Board; provided, however, that Executive shall receive an
additional bonus of $80,000 if the Corporation's actual EBITDA for such fiscal
year equals or exceeds 115% of the Corporation's projected or targeted EBITDA
for such fiscal year as determined by the Board; provided
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further, however, that with respect to partial fiscal years during the Term
(i.e., from the date hereof until December 31, 1999 and from January 1, 2002
until the third anniversary of the date hereof), Executive shall receive a PRO
RATED portion of the bonus otherwise payable to Executive in accordance with
this sentence (i.e., (A) the amount of the bonus Executive would have received
with respect to the full fiscal year containing such partial fiscal year if the
Term had included the full fiscal year, multiplied by (B) the number of days
elapsed in such partial fiscal year, and divided by (C) 365) if the
Corporation's actual EBITDA for the full fiscal year containing such partial
fiscal year exceeds 85% of the Corporation's projected or targeted EBITDA for
such fiscal year as determined by the Board. If the Corporation's actual EBITDA
for any fiscal year during the Term does not exceed 85% of the Corporation's
projected or targeted EBITDA for such fiscal year as determined by the Board,
then the payment of any bonus to Executive for such fiscal year shall be subject
to the sole discretion of the Board.
3.3 BENEFITS
Executive shall be entitled to participate in all pension
plans, profit sharing plans, life, medical, dental, disability or other
insurance plans or policies or other similar plans or benefits the Corporation
or its subsidiaries may provide generally for their senior executives or for
employees of the Corporation or its subsidiaries generally from time to time in
effect during the Term, but as to medical and dental insurance plans, with terms
no less favorable to Executive than provided to Executive by the Corporation
immediately preceding the date of this Agreement. Subject to the last sentence
of Section 3.6 hereof, during the Term, the Corporation shall reimburse
Executive for medical and health-related expenses not covered or reimbursed by
insurance (including, but not limited to, services recommended by a physician)
in the same manner as was the Corporation's practice immediately before the date
of this Agreement. The Corporation shall at all times, unless Executive's
employment is terminated by the Corporation for cause in accordance with the
provisions of Section 6.3 or by Executive without "good reason" as defined in
Section 6.6, pay for and maintain for the benefit of Executive and his designees
the policies of split dollar life insurance in effect immediately before the
date of this Agreement (the "Split Dollar Policies"); provided, however, that
the ten remaining annual premium payments shall not exceed $80,000 per annum;
and provided further, however, that the Corporation may substitute such Split
Dollar Policies for similar policies of split dollar life insurance as long as
such substitution does not subject Executive to higher tax payments than
Executive currently is obligated to make with respect to the Split Dollar
Policies (unless the Corporation reimburses Executive on a "gross up" basis for
the difference in such tax payments). If for any reason any of such policies
shall terminate or not be renewed, the Corporation will use its best reasonable
commercial efforts to secure replacement policies providing comparable coverage.
Executive, or his designee, shall be the owner of the policies for all purposes,
subject to whatever rights the Corporation may have to a return of its premiums
under certain circumstances.
3.4 STOCK OPTIONS
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Executive shall be considered for grants of options to acquire shares
of the Corporation's common stock, SARS, phantom stock rights and any similar
option or securities compensation, at a level commensurate with Executive's
position as Co-Chief Executive Officer and Co-President of the Corporation, when
and as such grants are considered for other executives or employees of the
Corporation or its subsidiaries, but any grant is wholly at the discretion of
the Board or appropriate Board committee.
3.5 PERIODIC REVIEW
The Corporation shall review Executive's salary, stock options
and other benefits then being provided to Executive not less frequently than
annually and may, but shall not be obligated to, increase Executive's salary.
3.6 REIMBURSEMENTS
Executive shall be promptly reimbursed by the Corporation for
all amounts reasonably expended by Executive in the course of performing duties
for the Corporation, including without limitation, reasonable expenses for
travel, entertainment, automobile, parking, business meetings, professional
dues, club memberships, and credit cards, all in accordance with policies set by
the Board from time to time, provided that Executive shall be entitled to first
class travel, meals and lodging when traveling in the course of performing his
duties for the Corporation. During the Term, Executive shall be entitled to the
use of a Jaguar XJR or equivalent automobile on the same terms and conditions as
the then-current practice of the Corporation and its subsidiaries for their
senior executives. Executive shall be reimbursed for his reasonable estate
planning, legal representation and advice, tax planning and return preparation
and accounting fees and related expenses; provided that the maximum aggregate
reimbursement to Executive pursuant to this sentence, PLUS the aggregate amount
of any reimbursements to Executive pursuant to the second sentence of Section
3.3, shall not exceed $100,000 per year.
3.7 DEDUCTIONS
There shall be deducted from Executive's gross compensation
appropriate amounts for standard employee deductions (e.g., income tax
withholding, social security and state disability insurance) and any other
amounts authorized for deduction by Executive.
3.8 LOCATION
The Corporation's two primary places of business are in the
vicinities of Boston, Massachusetts and Los Angeles, California, and Executive
shall perform his primary duties at either or both of such locations as the
Board, acting through its Chairman, shall reasonably determine. In the event
that the Corporation relocates its headquarters to a location other than one
within the Boston or Los Angeles areas, Executive shall in no event be required
to move his residence to a location other than one within the Boston or Los
Angeles areas, nor perform his duties outside of Boston and Los Angeles, and
shall be allowed to function as Co-Chief Executive Officer and
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Co-President of the Corporation from an appropriate and satisfactory office, and
with an appropriate and satisfactory staff, provided to him in either Boston or
Los Angeles as determined by the Board.
4. VACATION
Executive shall be entitled to not less than four (4) weeks of paid
vacation for each twelve (12) month period of employment which shall accrue on a
pro rata basis from the date of this Agreement. Subject to the foregoing minimum
vacation, Executive shall be entitled to paid vacation, holidays and leave time
in accordance with the plans, policies, programs and practices in effect
generally with respect to other senior employees of the Corporation and its
subsidiaries
5. INDEMNIFICATION
The Corporation, and its subsidiaries shall, to the maximum extent
permitted by law, jointly and severally indemnify and hold Executive harmless
from and against any expenses, including reasonable attorney's fees, judgements,
fines, settlements and other amounts actually and reasonably incurred in
connection with any proceeding arising out of, or related to, Executive's
employment by the Corporation or by its subsidiaries. The Corporation and its
subsidiaries shall advance to Executive any reasonable expenses, including
reasonable attorneys' fees and costs of settlement, reasonably incurred in
defending any such proceeding to the maximum extent permitted by law. The
Corporation and its subsidiaries shall cause Executive to be covered under
directors and officers liability insurance policies in reasonable amounts in
accordance with past practice.
6. TERMINATION OF EMPLOYMENT
Employment shall terminate upon the occurrence of any of the following
events:
6.1 EXPIRATION OF TERM
Upon the expiration of the Term as specified in Section 2.
6.2 MUTUAL AGREEMENT
Whenever the Corporation and Executive mutually agree in
writing to termination.
6.3 TERMINATION FOR CAUSE
At any time by the Corporation for cause. For purposes of this
Agreement, "cause" shall mean and be limited to (a) Executive's conviction by,
or entry of a plea of guilty in, a court of competent jurisdiction for a felony
involving moral turpitude or harm to the business or reputation of the
Corporation, and such conviction or guilty plea becoming final and
non-appealable; and (b) material breach of duty or this Agreement by Executive
or his habitual neglect of such duty to perform his duties under
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this Agreement, in each case after reasonable written notice and a reasonable
opportunity (of not less than thirty (30) days) to cure. Executive may not be
terminated for cause unless and until the Board has made such determination and
such determination has been confirmed after hearing by an independent arbitrator
as provided in Section 12.1; provided, however, that the Corporation may suspend
Executive's duties and authority hereunder with pay pending the outcome of such
arbitration.
6.4 TERMINATION WITHOUT CAUSE
The Corporation shall have the right to terminate Executive's
employment with the Corporation without cause at any time, but in the event of
any such termination, Executive shall be paid a lump sum payment equal to the
present value of all "Compensation" for the unexpired portion of the Term plus
an additional two (2) years. For this purpose, the term "Compensation" shall
mean (a) salary at the rate in effect on the date of termination, and (b) the
average of the bonuses which Executive received with respect to the two (2)
fiscal years of the Corporation preceding the fiscal year in which the
termination occurs, with the bonus Executive received with respect to any short
or partial fiscal year being annualized on the basis of a twelve-month year. The
present value of Executive's Compensation shall be determined by discounting
each element of Compensation from the date it would otherwise have been paid had
this Agreement not been terminated until the date Executive receives the
lump-sum payment under this Section 6.4 at a discount rate equal to the
applicable federal rate (as defined in Section 1274(d) of the Internal Revenue
Code) compounded semi-annually. Executive shall not be required to seek other
employment or otherwise to mitigate his damages in the event of his discharge
without cause. Executive shall have the right to "gross up" protection against
any golden parachute excise tax under Section 4999 of the Internal Revenue Code.
In addition, the Corporation shall continue to pay the premiums on the Split
Dollar Policies (or any policies substituted therefor in accordance with the
provisions of Section 3.3), and shall, at its expense, continue to provide
Executive with coverage under all life, medical, dental, disability or other
insurance plans or policies contemplated by Section 3.3 for the balance of the
Term, notwithstanding such termination. Executive acknowledges that payment of
the foregoing amounts by the Corporation shall release the Corporation and its
subsidiaries, and their respective officers, directors and affiliates from any
further obligations or liability to Executive arising from termination of
Executive's employment.
6.5 DEATH/DISABILITY
For the purposes of this Agreement, disability shall mean the
absence of Executive performing Executive's duties with the Corporation or its
subsidiaries on a full time basis for one hundred eighty (180) days in any
period of twelve (12) consecutive months, as a result of incapacity due to
mental or physical illness which is determined to be total and permanent by a
physician selected by the Corporation or its insurers and reasonably acceptable
to Executive or Executive's legal representative. If Executive shall become
disabled, Executive's employment may be terminated by written notice to
Executive, in which event Executive shall be entitled to receive disability
insurance
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payments under policies maintained by the Corporation providing annual payments
on terms no less favorable to Executive than those currently applicable to the
chief executive officer and chief operating officer of the Corporation and its
subsidiaries, or as increased from time to time, and continuation of medical and
dental insurance, and payment of the premiums on his Split Dollar Policies
through age 66. If Executive dies during the Term, the Corporation shall pay to
Executive's estate (or such other person as Executive may designate in writing
during his lifetime to the Corporation with the written consent of his spouse),
Executive's salary and pro-rated Bonus through the date of death.
6.6 BY EXECUTIVE FOR GOOD REASON
Executive shall have the right to terminate his employment
with the Corporation at any time for good reason. For purposes of this
Agreement, "good reason" shall mean and be limited to (a) any material
diminution, on a cumulative basis, of Executive's duties, authority or position
with the Corporation as specified in Section 1, or (b) a material breach by the
Corporation of a material obligation of the Corporation under this Agreement,
which such material breach is not cured within thirty (30) days written notice
by Executive to the Corporation. Upon any termination of employment by Executive
for good reason, Executive shall be entitled to receive the lump sum payment
provided in Section 6.4 hereof within five (5) days after Executive gives notice
of termination hereunder, and the other benefits provided in Section 6.4, as
though the Corporation had terminated Executive's employment without cause.
Executive's termination for good reason shall not be effective until confirmed
after hearing by an independent arbitrator as provided in Section 12.1.
7. CHANGE OF CONTROL
If the Corporation adopts any policy or enters into an agreement during
the Term providing severance benefits and termination rights to any executive
officer, or acceleration of options to acquire shares of its common stock, SARS,
phantom stock rights and any similar option or securities compensation, on a
change of control of the Corporation, then Executive shall be granted
termination and acceleration rights and benefits as least as favorable as those
granted to any such executive officer.
8. NON-COMPETE AND NO SOLICITATION
8.1 NON-COMPETITION. During the Term Executive will not directly or
indirectly, as a consultant to, or employee, officer, director, stockholder
(except as a holder of less than 5% of the outstanding stock of any publicly
traded corporation), partner or other owner of or participant in any business
entity other than the Corporation and its subsidiaries, engage in or assist any
other person or entity to engage in any business which competes with any
business in which the Corporation or its subsidiaries or any of their affiliates
is engaging or is preparing to engage at the time of termination of Executive's
employment, anywhere in the United States or anywhere else in the world where
the Corporation or its subsidiaries or any of their affiliates do business.
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8.2 NON-SOLICITATION. Executive acknowledges that he has had and will
have extensive contacts with employees, customers and suppliers of the
Corporation and its subsidiaries. Accordingly, Executive covenants and agrees
that, during the Term and for an additional two (2) years thereafter, he will
not, without the written consent of the Corporation (i) solicit the services of
any of the employees of the Corporation or its subsidiaries, who were employed
by the Corporation or its subsidiaries within the one (1) year period
immediately prior to the termination of Executive's employment with the
Corporation, (ii) provide services to, or solicit, divert or take away, or
attempt to divert or take away from the Corporation or its subsidiaries the
business of any person or entity who was a customer, or who had been actively
solicited by the Corporation or its subsidiaries to become a customer, of the
Corporation, or its subsidiaries within the one (1) year period immediately
prior to the termination of Executive's employment with the Corporation, or
(iii) solicit, divert or take away, or attempt to divert or take away, from the
Corporation or its subsidiaries the business of any person or entity who was a
supplier of the Corporation or its subsidiaries within the one (1) year period
immediately prior to the termination of Executive's employment with the
Corporation.
8.3 REMEDIES. Without limiting the remedies available to the
Corporation, Executive acknowledges that his talents and services are special
and unique, and that a breach of any of the covenants contained in Section 8.1
or Section 8.2 could result in irreparable injury to the Corporation for which
there might be no adequate remedy at law, and that, in the event of such a
breach of threat thereof, the Corporation shall be entitled to obtain a
temporary restraining order and/or a preliminary injunction and a permanent
injunction restraining him from engaging in any activities prohibited by Section
8.1 or in Section 8.2 or such other equitable relief as may be required to
enforce specifically any of the covenants of Section 8.1 or Section 8.2. The
provisions of Section 8.1 and the provisions of Section 8.2 shall survive the
termination of this Agreement and shall continue thereafter in full force and
effect in accordance with the terms of Section 8.1 and 8.2.
9. CONFIDENTIALITY
9.1 Executive will not at any time, directly or indirectly, disclose or
divulge, except as required in connection with the performance of his duties for
the Corporation, and except to legal counsel or as required or requested by any
governmental agency or pursuant to legal process, any Confidential Information
(as hereinafter defined) acquired by him during or in connection with his
employment by the Corporation. As used herein "Confidential Information" means
all trade secrets of the Corporation and its subsidiaries, including information
of others that the Corporation and its subsidiaries have agreed to keep
confidential; provided, that Confidential Information shall not include any
information that has entered or enters the public domain through no fault of
Executive or which Executive is required to disclose by legal process or to
defend himself in a legal proceeding.
9.2 Executive shall make no use whatsoever, directly or indirectly, of
any Confidential Information, except as required in connection with the
performance of his
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duties for the Corporation or its subsidiaries. Nothing herein is intended to
preclude Executive after termination of his employment with the Corporation from
being employed in a similar capacity by others or for his own account and from
using the business techniques, marketing skills and contacts and relationships
which Executive possesses.
9.3 After the termination of Executive's employment with the
Corporation, upon the Corporation's request, Executive shall immediately deliver
to the Corporation all Confidential Information (including all copies) in his
possession.
9.4 All copyrightable work by Executive produced primarily during
business hours or relating to the Corporation's businesses, which is produced
during the Term, is intended to be "work made for hire" as defined in Section
101 of the Copyright Act of 1976, and shall be the property of the Corporation.
If the copyright to any such copyrightable work is not the property of the
Corporation by operation of law, Executive will, without further consideration,
assign to the Corporation all right, title and interest in such copyrightable
work and will assist the Corporation and its nominees in every way, at the
Corporation's expense, to secure, maintain and defend for the Corporation's
benefit copyrights and any extensions and renewals thereof on any and all such
work, including translations thereof in any and all countries, such work to be
and to remain the property of the Corporation whether copyrighted or not.
10. GUARANTEE BY SUBSIDIARIES
The Corporation hereby unconditionally guarantees the due and timely
performance of all of its obligations hereunder. If for any reason the
Corporation fails to perform such obligations, the Corporation's subsidiaries
shall, upon notice thereof from Executive, perform such obligations and
Executive may proceed directly against the Corporation or its subsidiaries in
the event of any breach of this Agreement by the Corporation. The Corporation
shall cause each new subsidiary which it organizes to guarantee unconditionally
the due and timely performance by the Corporation of all of its obligations
hereunder as soon as practicable after its formation.
11. LOAN TO EXECUTIVE
11.1 EXECUTIVE LOAN
The parties to this Agreement hereby acknowledge that the
Corporation has made a loan to Executive secured by certain shares of the common
stock of the Corporation owned by Executive, which such loan has an outstanding
balance as of the date of this Agreement of $78,525. The parties to this
Agreement agree that such loan shall be extended until the expiration of the
Term of this Agreement on the same terms and conditions as were in effect as of
the date of this Agreement. The parties to this Agreement further agree that
such loan shall be forgiven on the expiration of the Term of this Agreement, or
on the earlier termination of this Agreement pursuant to Sections 6.4, 6.5 or
6.6.
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11.2 LINE OF CREDIT
Upon request from Executive, the Corporation will make
available to Executive a revolving line of credit (the "Line of Credit") of up
to $2,000,000. The Line of Credit (i) shall bear interest at the applicable
federal rate and be payable at maturity, (ii) may be drawn upon up through the
date of the annual meeting of the shareholders of the Corporation in 2001 at
which directors are elected, provided that Executive shall not be entitled to
draw on the Line of Credit after (A) the date of termination as to Executive of
the Voting Agreement of even date herewith by and among Overseas Toys, L.P.,
Executive, and other stockholders of the Corporation listed on the signature
page thereof, or (B) the date of Executive's termination of employment by the
Corporation for "cause" under Section 6.3 or of Executive's voluntarily
termination of his employment without "good reason," as defined in Section 6.6,
(iii) will provide that amounts borrowed and repaid may be reborrowed, (iv) will
be due and payable six months after the earliest applicable date specified in
clause (ii) (including subclauses (A) and (B) thereof) of this sentence, and (v)
will otherwise be on commercially reasonable terms and conditions. The Line of
Credit will be full recourse and will be secured by a pledge of the minimum
number of shares of common stock of the Corporation owned by Executive required
to be pledged under applicable Federal margin requirements to secure the Line of
Credit (or, if Federal margin requirements are not applicable to the Line of
Credit, the minimum number of shares which would be required to be pledged to
secure the Line of Credit if such Federal margin requirements were applicable).
12. MISCELLANEOUS
12.1 ARBITRATION
Except for equitable relief as provided in Section 8.3 and
provisional relief by a court pending arbitration, arbitration in accordance
with the then most applicable rules of the American Arbitration Association
shall be the exclusive remedy for resolving any dispute or controversy between
the parties, including, but not limited to, any dispute of any nature between
the parties as well as any dispute regarding the termination of Executive's
employment, or the application, interpretation or validity of this Agreement. If
the parties are unable to agree upon an arbitrator, they shall select a single
arbitrator from a list of nine arbitrators designated by the office of the
American Arbitration Association having responsibility for Century City,
California, all of whom shall be retired judges who are actively involved in
hearing private employment cases or who are members of the American Arbitration
Association's employment panel. If the parties are unable to agree upon an
arbitrator from the list, they shall each strike names alternatively from the
list, with the first to strike being determined by lot. The remaining name on
the list shall be the arbitrator. The Corporation shall initially bear the fees
and expenses of the arbitrator and all other expenses of the arbitration other
than any filing fees required of claimants by the American Arbitration
Association. Each party shall be responsible for the payment of his, her or its
attorney's fees and the costs associated with the preparation and presentation
of his, her or its case; provided, however, the arbitrator may, to the extent
permitted by law, award attorneys fees, costs and expenses to the
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<PAGE> 11
prevailing party. Judgment may be entered on the award of the arbitrator in any
court having jurisdiction. Unless mutually agreed otherwise by the parties, any
arbitration shall be conducted in Century City, California. The arbitrator shall
be empowered to grant only such relief as would be available in a court of law.
The arbitrator shall, upon an appropriate motion, dismiss any claim without an
evidentiary hearing if the party bringing the motion establishes that he or she,
or it would be entitled to summary judgement if the matter had been pursued in
court litigation. In the event of any conflict between this Section 12.1 and the
rules of the American Arbitration Association, the provisions of this Section
12.1 shall be determinative. The arbitrator shall render an award and written
opinion, and the award shall be final and binding upon the parties. If any of
the provisions of the Agreement are determined to be unlawful or otherwise
unenforceable, in whole or in part, such determination shall not affect the
validity of the remainder of this Agreement, and this Agreement shall be
reformed to the extent necessary to carry out its provisions to the greatest
extent possible and to insure that the resolution of all conflicts between the
parties, including those arising out of statutory claims, shall be resolved by
neutral, binding arbitration. If a court should find that this arbitration
provision is not absolutely binding, then the parties intend any arbitration
decision and award to be fully admissible in evidence in any subsequent action,
given great weight by any finder of fact, and treated as determinative to the
maximum extent permitted by law.
12.2 NO THIRD-PARTY BENEFICIARIES
This Agreement shall not confer any rights or remedies upon
any person other than the parties and their respective successors and permitted
assigns.
12.3 ENTIRE AGREEMENT
This Agreement (including the documents referred to herein)
constitutes the entire agreement between the parties and supersedes any prior
understandings, agreements, or representations between the parties, written or
oral, to the extent they have related in any way to the subject matter hereof.
12.4 SUCCESSION AND ASSIGNMENT
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 his or its rights,
interests, or obligations hereunder without the prior written approval of the
Corporation and Executive; provided, however, that the Corporation may (i)
assign any or all of its rights and interests hereunder to one or more of its
affiliates, (ii) designate one or more of its affiliates to perform its
obligations hereunder (in any or all of which cases the Corporation nonetheless
shall remain responsible for the performance of all of its obligations
hereunder); and (iii) assign its rights and interests hereunder to any entity
into which the Corporation may be merged or which may succeed to substantially
all of its assets or business.
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12.5 COUNTERPARTS
This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original but all of which together will
constitute one and the same instrument.
12.6 HEADINGS
The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this agreement.
12.7 NOTICES
All notices, requests, demands, claims, and other
communications required or permitted 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:
IF TO CORPORATION:
CYRK, INC.
3 Pond Road
Gloucester, Massachusetts 01930
Attn: Chief Financial Officer
with copy to:
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, New York 10019
Attn: Richard D. Pritz
and:
Choate, Hall & Stewart
Exchange Place
53 State Street
Boston, Massachusetts 02109
Attn: Cameron Read
IF TO EXECUTIVE:
Patrick Brady
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<PAGE> 13
71 Eastern Point Blvd.
Gloucester, MA 01930
with copy to:
Stroock & Stroock & Lavan LLP
100 Federal Street
Boston, MA 02110-1813
Attn: Jeffery S. Laventhal
Any party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving notice in the
manner herein set forth.
12.8 GOVERNING LAW
This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of California without giving
effect to any choice or conflict of law provision or rule (whether of the State
of California or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of California.
12.9 AMENDMENTS AND WAIVERS
No amendment of any provision of this Agreement shall be valid
unless the same shall be in writing and signed by Corporation and Executive. No
waiver by any party of any default, misrepresentation, or breach of warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to any
prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence.
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<PAGE> 14
12.10 SEVERABILITY
Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity
or enforceability of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any other situation or
in any other jurisdiction.
IN WITNESS THEREOF, the parties hereto have executed this Agreement as
of the date first above written.
"THE CORPORATION"
CYRK, INC.
By: ____________________________
Its: ____________________________
"EXECUTIVE"
--------------------------------
Patrick Brady
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<PAGE> 1
EXHIBIT 99.1
TERMINATION AGREEMENT
This Termination Agreement is entered into as of September 1, 1999 by
and among Cyrk, Inc., a Delaware corporation (the "COMPANY"), Patrick Brady,
Allan Brown, Gregory Shlopak, Eric Stanton and Eric Stanton Self-Declaration of
Revocable Trust (each a "STOCKHOLDER", and collectively the "STOCKHOLDERS").
INTRODUCTION
The Company and the Stockholders are parties to a Shareholders
Agreement, dated June 9, 1997, as amended on July 21, 1997, and attached hereto
as EXHIBIT A (the "SHAREHOLDERS AGREEMENT"). The Company and each of the
Stockholders wish to terminate the Shareholders Agreement in its entirety
pursuant to the terms and conditions set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
SECTION 1. TERMINATION. As of the closing (the "CLOSING") of the
transactions contemplated by the Securities Purchase Agreement between the
Company and Overseas Toys, L.P. (the "INVESTOR"), dated the date hereof (the
"SECURITIES PURCHASE AGREEMENT"), the Shareholders Agreement shall be terminated
in its entirety, and shall be of no further force and effect. For the avoidance
of doubt, Eric Stanton hereby acknowledges and agrees that at the Closing any
right he had to be named to the Board of Directors of the Company (the "BOARD")
pursuant to his Consulting Agreement with SMI Merger and the Company, dated May
7, 1997 (the "CONSULTING AGREEMENT"), or otherwise shall be terminated in its
entirety and shall be of no further force and effect. In addition, Eric Stanton
also acknowledges and agrees that he shall not exercise any right to be named to
the Board pursuant to the Shareholders Agreement, the Consulting Agreement or
otherwise from the date hereof until the termination of the Securities Purchase
Agreement.
SECTION 2. CONFLICTS. If there arises any conflict among any provision
of the Shareholders Agreement and/or this Agreement, on the one hand, and any
provision in the Voting Agreement entered into as of the date hereof among the
Stockholders and the Investors (the "VOTING AGREEMENT"), on the other hand, then
such provisions or provisions in the Voting Agreement, as the case may be, shall
prevail.
SECTION 3. GOVERNING LAW. This agreement shall be governed by and
construed in accordance with the laws of the state of Delaware, without regard
to its choice of law principles.
<PAGE> 2
SECTION 4. COUNTERPARTS. This agreement may be executed in multiple
counterparts, and counterparts by facsimile, each of which shall be deemed an
original, but all of which when taken together shall constitute one and the same
instrument.
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<PAGE> 3
IN WITNESS WHEREOF, the parties have signed this Agreement as of the
date first above written.
CYRK, INC.
_______________________ By:__________________________
Patrick Brady Patrick Brady, President, Chief
Executive Officer and Chief Operating
Officer
_______________________
Allan Brown THE ERIC STANTON SELF-
DECLARATION OF REVOCABLE
TRUST
_______________________ By:__________________________
Gregory Shlopak Eric Stanton, as Trustee
_______________________
Eric Stanton
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<PAGE> 4
EXHIBIT A
(See Attached).
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