<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________to__________________________________
Commission file number: 0-21878
CYRK,INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-3081657
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3 POND ROAD
GLOUCESTER, MASSACHUSETTS 01930
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (978) 283-5800
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
<S> <C>
Common Stock, $0.01 The Nasdaq Stock Market
par value per share
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
At February 29, 2000, the aggregate market value of voting stock held by
non-affiliates of the registrant was $130,572,508.
At February 29, 2000, 15,786,247 shares of the registrant's common stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE REGISTRANT'S PROXY STATEMENT TO BE FILED PURSUANT TO SECTION
14(a) OF THE SECURITIES EXCHANGE ACT OF 1934 IN CONNECTION WITH THE REGISTRANT'S
2000 ANNUAL MEETING OF STOCKHOLDERS HAVE BEEN INCORPORATED BY REFERENCE IN PART
III OF THIS REPORT.
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PART I
ITEM 1. BUSINESS.
GENERAL DEVELOPMENT OF THE BUSINESS
Cyrk, Inc. (Referred to herein as "Cyrk" or "the Company") is a full-service
promotional marketing company, specializing in the design and development of
high-impact promotional products and programs. Cyrk was founded in 1976 and is a
Delaware corporation. When founded, Cyrk was engaged primarily in the design,
manufacture and sale of custom screen-printed sports apparel and accessories.
Cyrk also provided private label apparel and accessories to a wide variety of
established brands. The Company also developed its own "Cyrk" brand of apparel
that was sold to sports and specialty retailers and resort-destination shops.
Since its inception, Cyrk has broadened its product design and manufacturing
expertise to include a focus on the promotional products business, and has made
a number of acquisitions of promotion product companies to further develop this
focus. These acquisitions have enabled Cyrk to grow its Corporate Promotions
Group ("CPG"), the Company's division that provides promotional products and
programs for corporate and trade promotions. Through acquisition, the Company
also expanded its capabilities in the consumer promotions arena, with a
specialty in kid and family marketing. With its growth, Cyrk has developed
its international production and worldwide sourcing capabilities. The Company
now also provides a wide range of promotional marketing services to support its
corporate clients and complement its product capabilities.
Cyrk's promotional products and services are sold to consumer products and
services companies seeking to promote their brand names and corporate identities
and to build brand loyalty. Cyrk custom designs unique, high-impact products in
a broad spectrum of categories including apparel and accessories, hard goods,
toys and electronics, in materials ranging from fabrics and plastics to metals
and paper. In addition to providing products and services to companies, Cyrk
also sells promotional products directly to consumers through licensing
arrangements with its clients seeking to promote their brand names and build
brand loyalty. Cyrk's customers include McDonald's(R)(1) Corporation
("McDonald's") (for its Happy Meal(R)(1) promotions, among others), Philip
Morris Incorporated ("Philip Morris"), The Coca-Cola(R)(2) Company,
("Coke"(R)(2)) and other companies with recognized brands. The programs
developed and managed by Cyrk typically reward the consumer with promotional
products that are distributed upon redemption of proofs of purchase or as gifts
with the purchase of other products. Cyrk believes that its comprehensive
marketing services, which address all aspects of a customer's promotional
products program, and its expertise in design, manufacturing and sourcing, have
allowed Cyrk to successfully execute large, worldwide high-impact promotional
programs.
Additionally, through Cyrk's relationship with Ty Inc. ("Ty"), Cyrk designed,
developed, manufactured and distributed to the retail marketplace the Beanie
Babies(R)(3) Official Club(TM)(4) kits and other Beanie Babies licensed
products.
Cyrk recently expanded its capabilities to include Internet business-to-business
brand marketing. Cyrk's comprehensive e-commerce solutions include Internet and
intranet electronic malls, point-based loyalty systems, electronic catalogs,
online promotional marketing programs and Web design.
ACQUISITIONS
In November 1996, Cyrk acquired Marketing Incentives, Inc. ("MI"), a Norwood,
Massachusetts-based company engaged in the sale of advertising specialty and
promotional products. This acquisition was Cyrk's first step in its strategic
plan to grow its CPG division which provides trade catalogs and promotional
products to corporate clients used primarily in business-to-business
promotions.
(1) MCDONALD'S AND HAPPY MEAL are registered trademarks of McDonald's
Corporation.
(2) COCA-COLA AND COKE are registered trademarks of The Coca-Cola Company.
(3) BEANIE BABIES is a registered trademark of Ty Inc.
(4) BEANIE BABIES OFFICIAL CLUB is a trademark of Ty Inc.
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In 1997 Cyrk made two key acquisitions. On April 7, 1997, Cyrk acquired Tonkin,
Inc. ("Tonkin"), a then twenty-five year old, privately held promotional
products company which currently employs approximately 400 employees primarily
in its Monroe, Washington headquarters. Tonkin develops and implements corporate
identity programs for major domestic and international clients including
Caterpillar(R)(5), Inc., Enterprise Rent-A-Car Company and Mars, Incorporated.
On June 9, 1997, Cyrk acquired Simon Marketing, Inc. ("Simon"), a then
twenty-one year old privately held Los Angeles-based marketing and promotion
agency which currently employs approximately 520 people in the United States,
Asia and Europe. Simon provides marketing programs, promotional products and
packaging to clients which include McDonald's, Chevron Products Company
("Chevron"), a division of Chevron U.S.A. Inc. and Toys "R" Us, Inc. ("Toys "R"
Us"). Simon's dominant, long-standing relationship with McDonald's has produced
premiums and promotions which include Happy Meal premiums, national games and
other promotions.
1998 RESTRUCTURING
As a result of its 1998 corporate restructuring, Cyrk consolidated certain
operating facilities, discontinued its private label and Cyrk brand business,
divested its investment in an apparel joint venture and eliminated approximately
450 positions or 28% of its worldwide work force. The majority of the eliminated
positions affected the screen printing and embroidery business in Gloucester,
Massachusetts. The restructuring was fully executed by the end of 1998.
1999 YUCAIPA INVESTMENT
In November 1999, The Yucaipa Companies ("Yucaipa"), a Los Angeles-based
investment firm, invested $25 million into Cyrk in exchange for 25,000 shares of
a new series A convertible preferred stock and a warrant to purchase an
additional 15,000 shares of a new series A convertible preferred stock. The
proceeds of the investment will be used to fund Cyrk's internal growth and
strategic investment and acquisition efforts. In connection with the investment,
which was approved by Cyrk's stockholders, Cyrk's board of directors was
increased to seven and three designees of Yucaipa, including Cyrk's Chairman,
Ronald W. Burkle, were elected to Cyrk's board. In addition, effective as of the
closing of this investment, Patrick D. Brady and Allan I. Brown were each
elected Co-Chief Executive Officer and Co-President of Cyrk.
PRODUCTS AND SERVICES
Promotional Product Programs. Cyrk provides product-driven High-Impact
Promotional Programs(TM)(6) ("HIPP"(TM)(6)) to its customers. The goal of a
High-Impact Promotional Program is to enhance corporate identity, develop brand
awareness, and build customer or employee loyalty. Cyrk has achieved this goal
for many of its customers and continues to develop and manage promotions that
generate tremendous growth for customer brands and further develop customer and
employee loyalty.
Most of the promotional products used in a HIPP are (1) distributed to consumers
in connection with the sale of another product, (2) issued upon redemption of
coupons evidencing the purchase of other products, (3) sold in conjunction with
the sale of another product or (4) sold as a complement to other products.
Promotional products are also frequently provided to retailers that carry the
brand name products to reward or incentivise sales efforts and foster goodwill
towards employees.
The advertising and marketing campaigns of many companies include the
promotional product concept within the design of their overall corporate
development. Increasing numbers of companies are seeking to leverage and enhance
the value of their brands by demanding promotional products that are superior in
quality and design, distinctive, contemporary, integrated with their other
products and marketing efforts, and immediately identifiable with their primary
product brands and services. Together, Cyrk and its customers recognize that
promotional programs are a vital component of a successful marketing strategy.
Increasingly, companies are turning to outside professionals to provide
the expertise required in complex areas outside their core businesses, such as
the design of custom promotional products, and the development and
implementation of promotional programs. Cyrk believes that because of its
ability to provide integrated services including product and program design;
loyalty and direct marketing services; licensing;
(5) CATERPILLAR is a registered trademark of Caterpillar, Inc.
(6) HIGH-IMPACT PROMOTIONAL PROGRAM AND HIPP are trademarks of Cyrk, Inc.
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market research; direct manufacturing, sourcing and program fulfillment; its
unique creative approach; and its collection of proprietary apparel and
accessories, it is able to provide highly superior promotional products that
become integral components of an effective, high-impact promotional program.
The promotional products industry is fragmented, consisting of designers, buying
agents, jobbers, manufacturers, importers and distribution companies.
Consequently, a company implementing a large promotional product program
generally must deal with multiple vendors. In addition, there are often numerous
intermediaries between such a company and the manufacturer of the promotional
products. As a result, a company may have only limited control over the design,
quality and delivery of the products. This lack of control over manufacturing
sources coupled with the use of multiple vendors may produce inefficiencies and
result in promotional products that are inconsistent with the company's other
products and brand image. Cyrk's promotional products and services are designed
to address these inefficiencies in the market and to provide a comprehensive,
professional program to major companies seeking to leverage their brand.
Many of Cyrk's large-scale consumer promotions include custom product which were
conceived, designed and produced by Cyrk's Custom Product and Licensing Group
("CP&L"). CP&L has successfully custom designed and developed proprietary
product including toys, apparel and accessories for successful consumer
promotional programs including the Marlboro Gear and Marlboro Unlimited(R)(7)
promotions.
Under its licensing arrangement with Coke, Cyrk has been granted a license to
use certain of Coke's trademarks, symbols and designs in connection with the
manufacture, sale and distribution of certain merchandise. In 1999, under its
license arrangement with Ty, Cyrk developed and marketed licensed Beanie Babies
products to consumers. Effective January 1, 2000, the Company is a strategic
marketing agent for Ty and will provide Ty advisory, design, development and/or
creative services on a project by project basis.
Cyrk, through its CPG division, provides a comprehensive range of services to
its corporate clients. These services include the creation and implementation of
off-line and on-line brand identity programs, paper and Web-based catalogs,
special events marketing, sales incentives and employee recognition programs,
safety and service awards, sports sponsorship programs and more. These
promotional programs typically incorporate a wide variety of promotional
products bearing the customer's company name or logo. These products are varying
in type, value and appeal and may include T-shirts, fleece pullovers, sports
bags, caps, watches and a variety of other products and apparel items.
Through its Simon subsidiary, the Company provides agency services and
integrated marketing solutions including loyalty marketing, licensing,
strategic and calendar planning, game design and execution, premium development
and production management. Simon is one of the largest creators, developers and
procurers of promotional print packaging, contests, games, sweepstakes and toys
in the world. In addition to providing its products and services to McDonald's,
Simon's customer base includes Chevron and Toys "R" Us.
Design, Merchandising and Product Development. Cyrk believes that one of its
most important competitive advantages is the strong design and merchandising
capability that it has developed over the last 24 years. Cyrk maintains a staff
of graphic designers and product designers who not only design product and
catalogs, but also perform trends analysis that enables them to provide
direction as to the most effective types of products to include in a promotional
program. Cyrk's design team also designs an exclusive, proprietary collection of
apparel, accessories and luggage for use in corporate brand identity programs.
Cyrk's extensive design capability enables Cyrk to furnish customers with
product samples and prototypes quickly. In addition, the merchandising
experience of Cyrk's designers allows them to assemble integrated collections of
custom products for its customers. Finally, Cyrk's designers work closely with
the production staff and understand production methods which allows Cyrk's
designs to move efficiently from the design to the production stage.
Internet Capabilities. Cyrk recognized an opportunity to extend its promotional
success to the Internet, and in February 2000 announced its intentions to create
an Internet subsidiary to service the changing needs of its customers. Cyrk
possesses technological expertise in the e-commerce area that includes Internet
and intranet electronic malls, point-based loyalty systems, electronic catalogs,
online promotional marketing programs and Web design.
(7) Marlboro Unlimited is a registered trademark of Philip Morris Incorporated.
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Manufacturing and Sourcing. The quality and timely delivery of Cyrk's products
depend on Cyrk's ability to control the manufacturing process. Cyrk seeks to
maintain such control by maintaining a physical presence in the Far East to
oversee the offshore manufacturing of Cyrk's products by independent Asian
factories. Cyrk's Asian operations perform a variety of services for Cyrk, such
as selecting manufacturers, communicating product specifications and quality
control standards, monitoring the manufacturing process, performing on-site
quality control inspections, transferring letters of credit and coordinating
export clearance and shipping.
Cyrk has no long-term contracts with manufacturing sources and often competes
with other companies for production facilities and import quota capacity. In
addition, certain Asian manufacturers require that a letter of credit be posted
at the time a purchase order is placed. Cyrk believes that its policy of
outsourcing a substantial portion of its manufacturing requirements allows it to
achieve increased production flexibility while reducing Cyrk's capital
expenditures and costs of maintaining a substantial production work force.
Cyrk's business is subject to risks normally associated with conducting business
abroad, such as foreign government regulations, political unrest, disruptions or
delays in shipments, fluctuations in foreign currency exchange rates and changes
in the economic conditions in the countries in which Cyrk's manufacturing
sources are located. If any such factors were to render the conduct of business
in a particular country undesirable or impractical, or if Cyrk's current foreign
manufacturing sources were to cease doing business with Cyrk for any reason,
Cyrk's business and operating results could be adversely affected. Cyrk's
business is also subject to the risks associated with the imposition of
additional trade restrictions related to imported products, including quotas,
duties, taxes and other charges or restrictions.
Fulfillment Services. Cyrk offers worldwide warehouse fulfillment services and
fulfillment consulting services to its promotional product customers.
Fulfillment is the process by which promotional products are distributed, often
through a product catalog. Cyrk charges separately for its fulfillment services
but derives substantially all of its revenue from the sale of products. Cyrk's
knowledgeable supply chain management, business-to-business e-commerce systems
and tracking systems and warehouses ensure a timely and coordinated execution of
a program.
SIGNIFICANT CUSTOMER RELATIONSHIPS
In recent years, Cyrk's business has been concentrated with McDonald's, Philip
Morris, Ty and, until 1998, with the Pepsi-Cola Company ("Pepsi"). Cyrk's
business with promotional customer clients such as McDonalds and Philip Morris
(as well as its other promotional product customers) is based upon purchase
orders placed by the customers. McDonald's, along with certain other customers,
order a fixed quantity of product to be delivered by an agreed date. While these
orders may be canceled prior to delivery of the product, the customer is
responsible for any costs associated with the canceled order. Philip Morris and
certain other customers place purchase orders from time to time during the
course of a promotion. These promotional product customers are not committed to
making a minimum number of purchases. For all promotional product customers, the
actual purchases depend upon a number of factors including, without limitation,
the duration of the promotion and expected consumer redemption rates.
Consequently, Cyrk's level of net sales is difficult to predict accurately and
may fluctuate greatly from quarter to quarter.
Cyrk conducts its business with McDonald's through its subsidiary, Simon. Simon
designs and implements marketing promotions for McDonald's, which include games,
sweepstakes, premiums, events, contests, coupon offers, sports marketing,
licensing and promotional retail items. Simon's net sales from its business with
McDonald's consist of a combination of sales of promotional products and various
service fees. In September 1999, the Company agreed with McDonald's that the
Company would no longer provide administrative services in connection with
McDonald's promotional programs in Europe effective January 1, 2000. As a result
of this action, the Company's total sales will decline by approximately 15% from
current levels. The net profit contributed by the fees for these services has
historically not been material to the overall results of operations. Therefore,
the Company believes that the absence of these sales will have no material
adverse effect on the Company's profitability. Net sales to McDonald's accounted
for 61%, 57% and 36% of Cyrk's consolidated net sales in fiscal 1999, 1998 and
1997, respectively.
Philip Morris accounted for 9%, 11% and 16% of Cyrk's consolidated net sales in
1999, 1998 and 1997, respectively. A substantial majority of those sales relate
to Marlboro Unlimited promotions. The United States Food and Drug Administration
("FDA") issued final regulations with respect to promotional programs relating
to tobacco products which could have a material adverse effect on Cyrk's
business with Philip Morris and on its results of operations. In addition, on
November 23, 1998, certain tobacco companies, including Philip Morris, entered
into a settlement
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agreement with 46 states and five U.S. territories that, among other things,
prohibits the use of brand names by the tobacco companies in connection with
their marketing, distribution, licensing and sales of apparel and other
merchandise. The settlement could have a material adverse effect on Cyrk's
business with Philip Morris and on its results of operations. For a description
of the FDA regulations and the tobacco settlement, and their potential impact on
Cyrk's business with Philip Morris, please refer to Cyrk's Amended Cautionary
Statement for Purposes of the "Safe Harbor" Provisions of the Private Securities
Litigation Reform Act of 1995.
Through its licensing arrangements with Ty, Cyrk developed and marketed licensed
Beanie Babies products in 1998 and 1999. Sales of Beanie Babies related products
accounted for approximately 11% and 7% of Cyrk's consolidated net sales for 1999
and 1998, respectively. Effective January 1, 2000, the Company is a strategic
marketing agent for Ty and will provide Ty advisory, design, development and/or
creative services on a project by project basis. Given that the Company is
providing these services on a project by project basis, the Company's future
revenues and earnings associated with the Ty relationship are difficult to
predict. The Company, however, expects sales of Ty related products in 2000 to
be significantly less than the 1999 volume, and that such sales will be heavily
weighted to the latter half of the year.
Pepsi accounted for 21% of Cyrk's consolidated net sales in 1997. Cyrk's
agreements with Pepsi were terminated in December 1997.
BUSINESS DEVELOPMENT AND ACCOUNT MANAGEMENT
Cyrk has approximately 260 employees working on the Company's business
development efforts, selling the Company's promotional products and services and
providing account management services. These efforts include identifying
potential new customers and their promotional needs, making sales presentations
and soliciting orders. The business development efforts also include identifying
and developing new business opportunities with existing customers, managing
client relationships and monitoring the progress of customer programs. These
efforts focus on companies seeking to promote their brand names and corporate
identities and to build brand loyalty through promotional product advertising.
Members of senior management are also actively involved in the business
development and sales efforts.
International sales accounted for approximately 38%, 36% and 27% of Cyrk's
consolidated net sales in 1999, 1998 and 1997, respectively. International sales
are currently made through Cyrk's account representatives in the United States
as well as through Cyrk's German, United Kingdom and Hong Kong subsidiaries.
COMPETITION
The promotional products industry is highly fragmented and competitive, and some
of Cyrk's competitors have substantially greater financial and other resources
than Cyrk. Cyrk's promotional products and services compete with the services of
in-house advertising, promotional products and purchasing departments and with
designers and vendors of single or multiple product lines. The promotional
product services of Cyrk also compete for advertising dollars with other media
such as television, radio, newspapers, magazines and billboards. Entry into the
promotional product industry is not difficult and new competitors are
continually commencing operations.
The primary methods of competition are creativity in product design, quality and
style of products, prompt delivery, customer service, price, financial strength,
and an ability to provide a full range of innovative Web-based marketing
services. Cyrk believes that it currently competes favorably in each of the
foregoing areas and that its ability to provide a full range of integrated
services gives it a competitive advantage.
BACKLOG
At December 31, 1999, Cyrk had written purchase orders for $312.1 million as
compared to $247.6 million at December 31, 1998. Cyrk's purchase orders are
generally subject to cancellation with limited penalty and are also subject to
agreements with certain customers that limit gross margin levels. Therefore,
Cyrk cautions that the backlog amounts may not necessarily be indicative of
future revenues or earnings.
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TESTING AND QUALITY CONTROL
Cyrk bears the risk of non-conforming goods sold to its customers and, in the
case of outsourced products, generally has recourse against the manufacturer.
Because many products are sourced in Asia, Cyrk relies primarily on monitoring
and inspection activities to ensure quality control rather than on any remedies
it may have for defective goods.
Cyrk, through independent laboratories, performs extensive tests to ensure that
materials and fabrics meet all applicable United States and foreign safety and
quality standards, including flammability and child safety laws. In some cases
additional tests are performed by or on behalf of Cyrk's customers.
IMPORTS AND IMPORT RESTRICTIONS
A substantial amount of net sales of Cyrk in 1999 was attributable to products
manufactured in Asia. The importation of such products is subject to the
constraints imposed by bilateral agreements between the United States and
substantially all of the countries from which Cyrk imports goods. These
agreements impose quotas that limit the quantity of certain types of goods,
including textile products imported by Cyrk, which can be imported into the
United States from those countries. Such agreements also allow the United States
to impose, under certain conditions, restraints on the importation of categories
of merchandise that, under the terms of the agreements, are not subject to
specified limits.
Cyrk's continued ability to source products that it imports may be adversely
affected by additional bilateral and multilateral agreements, unilateral trade
restrictions, significant decreases in import quotas, the disruption of trade
from exporting countries as a result of political instability or the imposition
of additional duties, taxes and other charges or restrictions on imports.
Products imported by Cyrk from China currently receive the same preferential
tariff treatment accorded goods from countries granted "most favored nation"
status. However, the renewal of China's most favored nation treatment has been a
contentious political issue for several years and there can be no assurance that
such status will be continued. If China were to lose its "most favored nation"
status, goods imported from China will be subject to significantly higher duty
rates which would increase the cost of goods from China. In 1999, a substantial
amount of Cyrk's net sales were from products manufactured in China.
EMPLOYEES
At December 31, 1999, Cyrk had approximately 1,425 full-time employees. Cyrk's
work force is not unionized and Cyrk believes that its relations with its
employees are good.
ITEM 2. PROPERTIES.
In 1999, Cyrk leased its principal executive and certain sales and
administrative offices in Gloucester, Massachusetts. At December 31, 1999, Cyrk
occupied approximately 71,100 square feet under leases that expire in April 2000
and have an annual base rent of approximately $583,000. All of the Gloucester
facilities are owned by a trust of which Gregory P. Shlopak is both a trustee
and beneficiary. Mr. Shlopak is one of Cyrk's founders and is a former Chief
Executive Officer and former member of its Board of Directors. Cyrk will
relocate from its Gloucester facilities in 2000 to offices in Wakefield,
Massachusetts. Cyrk will occupy approximately 47,900 square feet under a lease
with an unrelated party that expires in March 2005 and will have an annual base
rent of approximately $623,000.
Cyrk also leases approximately 120,000 square feet of warehouse space in
Danvers, Massachusetts under the terms of a lease which expires in December 2011
and has an annual base rent of approximately $460,000. Cyrk uses the warehouse
for inventory storage and to perform fulfillment services for certain of its
customers. This facility is owned by a trust of which Mr. Shlopak and Patrick D.
Brady, Cyrk's Co-Chief Executive Officer and Co-President, are both trustees and
beneficiaries.
Related to its Simon operations, Cyrk leases an aggregate of approximately
122,000 square feet of office space in Los Angeles, Chicago and Atlanta pursuant
to leases which expire in December 2000 through November 2006. The annual base
rent of these leases is approximately $2,517,000.
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Cyrk leases approximately 132,000 square feet of warehouse, production and
office space in Monroe, Washington attributable to its Tonkin operations
pursuant to a lease which expires in September 2007. The annual base rent of
this lease is approximately $623,000. In addition to this facility, Tonkin
leases approximately 22,000 square feet of office and warehouse space in Peoria,
Illinois under a lease that expires in December 2003.
Additionally, Cyrk leases approximately 20,800 square feet of warehouse and
office space in Norwood, Massachusetts which is used for certain of its
advertising specialty operations, pursuant to a lease which expires in July
2001. Cyrk also leases approximately 12,000 square feet of office space in New
York City, pursuant to a lease which expires in July 2001 and leases
approximately 52,500 square feet of additional office space in various US
cities.
In addition to its domestic lease facilities, Cyrk leases a total of
approximately 60,500 square feet of European office and warehouse space in
Frankfurt, London, Munich and Paris, and, leases an aggregate of approximately
56,300 square feet of Asian office and warehouse space in Hong Kong, Korea,
Taiwan and Tokyo under leases which expire in April 2000 through December 2007.
For a summary of Cyrk's minimum rental commitments under all noncancelable
operating leases as of December 31, 1999, see notes to the consolidated
financial statements.
ITEM 3. LEGAL PROCEEDINGS.
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On November 10, 1999, Cyrk held a Special Meeting in lieu of Annual Meeting of
Stockholders. Following are the matters considered at the meeting. For
additional information related to these matters, reference is made to the
Company's Report on Form 8-K and its proxy statement filed on Schedule 14A with
the Securities and Exchange Commission, dated September 1, 1999 and October 12,
1999, respectively.
1. The approval of the issuance of 25,000 shares of series A
senior cumulative participating convertible preferred stock
and a warrant to purchase 15,000 shares of series A senior
cumulative participating convertible preferred stock to
Yucaipa. The results of the voting were as follows:
<TABLE>
<CAPTION>
For Against Votes Withheld Broker Non-Votes
--- ------- -------------- ----------------
<S> <C> <C> <C>
9,926,650 1,093,020 39,460 2,817,050
</TABLE>
2. The election of six directors to serve for terms of either
one, two or three years. The results of the voting were as
follows:
<TABLE>
<CAPTION>
Nominee For Votes Withheld Broker Non-Votes
------- ---- --------------- ----------------
<S> <C> <C> <C>
Patrick D. Brady 12,913,962 962,218 0
Allan I. Brown 12,915,046 961,134 0
Ronald W. Burkle 12,914,393 961,787 0
George G. Golleher 12,913,993 962,187 0
Joseph Anthony Kouba 12,913,793 962,387 0
Richard Wolpert 12,913,858 962,322 0
</TABLE>
3. The approval and ratification of an amendment to Cyrk's 1993
Employee Stock Purchase Plan to increase the number of shares
of common stock available under the plan from 300,000 to
600,000. The results of the voting were as follows:
<TABLE>
<CAPTION>
For Against Abstain Broker Non-Votes
--- ------- ------- ----------------
<S> <C> <C> <C>
13,263,442 489,893 46,666 76,179
</TABLE>
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4. The ratification of the appointment of PricewaterhouseCoopers
LLP as Cyrk's independent auditors for the 1999 fiscal year.
The results of the voting were as follows:
<TABLE>
<CAPTION>
For Against Abstain Broker Non-Votes
--- ------- ------- ----------------
<S> <C> <C> <C>
13,808,056 20,886 46,558 680
</TABLE>
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EXECUTIVE OFFICERS OF THE REGISTRANT
The following are the names, ages, positions with Cyrk and a brief description
of the business experience during the last five years of the executive officers
of Cyrk, all of whom serve until they resign or are removed from such offices by
the Board of Directors:
<TABLE>
<S> <C>
PATRICK D. BRADY (44): Co-Chief Executive Officer and Co-President. Mr. Brady is a founder of Cyrk and has
served as one of its directors since its incorporation in 1990. Mr. Brady served as the
Treasurer of Cyrk from May 1990 until May 1993, and has also served as Cyrk's Chief
Operating Officer from May 1993 until November 1999 and its Chief Financial Officer from
May 1993 to September 1994. Mr. Brady was elected President in May 1993 and Chief
Executive Officer in December 1998. In November 1999, he was elected Co-Chief Executive
Officer and Co-President.
ALLAN I. BROWN (59): Co-Chief Executive Officer and Co-President. Mr. Brown has been the Chief Executive
Officer of our Simon Marketing, Inc. subsidiary since 1975. In November 1999, he was
elected Co-Chief Executive Officer and Co-President and to Cyrk's Board of Directors
TERRY B. ANGSTADT (46): Executive Vice President. Mr. Angstadt has served in various management positions at
Cyrk since January 1992. Mr. Angstadt was elected an Executive Vice President of Cyrk
in May 1993.
TED L. AXELROD (44): Executive Vice President. Mr. Axelrod joined Cyrk in July 1995 to direct Cyrk's
corporate strategy and development efforts. He was elected an Executive Vice President
of Cyrk in September 1997. From August 1987 to July 1995, he held various positions
including Managing Director and Head of Mergers and Acquisitions of BNY Associates,
Incorporated, an investment banking subsidiary of The Bank of New York Company, Inc.
(formerly BNE Associates, Inc., a subsidiary of The Bank of New England, N.A.).
DOMINIC F. MAMMOLA (44): Executive Vice President and Chief Financial Officer. Mr. Mammola was elected an
Executive Vice President of Cyrk in September 1997. He has served as Vice President and
Chief Financial Officer of Cyrk since September 1994.
</TABLE>
10
<PAGE> 11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's stock is traded on The Nasdaq Stock Market under the symbol CYRK.
The following table presents, for the periods indicated, the high and low sales
prices of the Company's common stock as reported by The Nasdaq Stock Market's
National Market.
<TABLE>
<CAPTION>
1999 1998
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter $8.00 $ 5.38 $17.25 $9.50
Second Quarter 6.88 6.00 20.38 10.06
Third Quarter 5.88 4.63 13.25 6.75
Fourth Quarter 12.00 6.44 10.25 6.50
</TABLE>
As of February 29, 2000, the Company had approximately 338 holders of record
(representing approximately 4,400 beneficial owners) of its common stock. The
last reported sale price of the Company's common stock on February 29, 2000 was
$9.69.
The Company has never paid cash dividends, other than stockholder distributions
of Subchapter S earnings during 1993 and 1992, and none are contemplated in the
foreseeable future (other than the dividends required to be paid by the Company
pursuant to the terms of its redeemable preferred stock - see notes to
consolidated financial statements) as the Company currently intends to retain
its earnings to finance future growth. In addition, the Company's ability to pay
cash dividends is limited pursuant to the terms of its credit facilities.
11
<PAGE> 12
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
SELECTED INCOME For the Years Ended December 31,
STATEMENT DATA: 1999 1998 1997(3) 1996 1995
---- ---- ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net sales $988,844 $757,853 $558,623 $250,901 $135,842
Net income (loss) 11,136 (1) (3,016) (2) 3,236 438 (2,338)
Earnings (loss) per
common share - basic 0.70 (1) (0.20) (2) 0.26 0.04 (0.22)
Earnings (loss) per
common share - diluted 0.67 (1) (0.20) (2) 0.25 0.04 (0.22)
</TABLE>
<TABLE>
<CAPTION>
SELECTED BALANCE December 31,
SHEET DATA: 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Working capital $110,823 $ 87,517 $ 61,314 $100,565 $106,188
Total assets 369,148 337,341 313,845 190,239 137,598
Long-term obligations 9,156 12,099 9,611 -- --
Redeemable preferred
stock 20,553 -- -- -- --
Stockholders' equity 190,524 177,655 160,353 124,347 123,600
</TABLE>
(1) Includes $1,675 of pre-tax nonrecurring charges. See notes to
consolidated financial statements.
(2) Includes $15,288 of pre-tax restructuring and nonrecurring charges. See
notes to consolidated financial statements.
(3) Includes the results of operations of acquired companies from the
acquisition dates.
12
<PAGE> 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
From time to time, the Company may provide forward-looking information such as
forecasts of expected future performance or statements about the Company's plans
and objectives, including certain information provided below. These
forward-looking statements are based largely on the Company's expectations and
are subject to a number of risks and uncertainties, certain of which are beyond
the Company's control. The Company wishes to caution readers that actual results
may differ materially from those expressed in any forward-looking statements
made by, or on behalf of, the Company as a result of factors described in the
Company's Amended Cautionary Statement for Purposes of the "Safe Harbor"
Provisions of the Private Securities Litigation Reform Act of 1995, filed as
Exhibit 99.1 to the Company's first quarter 1999 Report on Form 10-Q which is
incorporated herein by reference.
GENERAL
The Company is a full-service promotional marketing company, specializing in the
design and development of high-impact promotional products and programs. The
majority of the Company's revenue is derived from the sale of products to
consumer product companies seeking to promote their brand and build customer
loyalty as well as products sold to consumers under certain license agreements.
The Company's business is heavily concentrated with McDonald's Corporation
("McDonald's") and Philip Morris Incorporated ("Philip Morris"), as well as
sales associated with its license arrangement with Ty Inc. ("Ty"), the world's
largest manufacturer and marketer of plush toys (sold under the name Beanie
Babies). Net sales to McDonald's and Philip Morris accounted for 61% and 9%, 57%
and 11% and 36% and 16% of total net sales in 1999, 1998 and 1997, respectively.
Sales of Beanie Babies related products accounted for 11% and 7% of total net
sales in 1999 and 1998, respectively. Sales to Pepsi-Cola Company ("Pepsi")
accounted for 21% of 1997 net sales. The Company's agreements with Pepsi were
terminated in December 1997.
The Company's business with McDonald's and Philip Morris (as well as other
promotional customers) is based upon purchase orders placed from time to time
during the course of promotions. There are no written agreements which commit
them to make a certain level of purchases. The actual level of purchases depends
on a number of factors, including the duration of the promotion and consumer
redemption rates. Consequently, the Company's level of net sales is difficult to
predict accurately and can fluctuate greatly from quarter to quarter. The
Company expects that a significant percentage of its net sales in 2000 will be
to McDonald's and Philip Morris.
Philip Morris solicits competitive bids for its promotional programs. The
Company's profit margin depends, to a great extent, on its competitive position
when bidding and its ability to manage its costs after being awarded bids.
Increased competition is expected to continue and may adversely impact the
Company's profit margin on Philip Morris promotions in the future. Beginning
July 1, 1999, a settlement agreement among 46 states and certain tobacco
companies, including Philip Morris, prohibits the use of brand names by tobacco
companies in connection with promotional programs relating to tobacco products.
The settlement agreement, however, does not prohibit the use of Philip Morris's
corporate name in promotional programs. Due to the restrictions on the use of
brand names, and the other limitations imposed by the settlement agreement on
the tobacco industry, the settlement agreement could have a material adverse
effect on the Company's business with Philip Morris and on its results of
operations.
In September 1999, the Company agreed with McDonald's that the Company would no
longer provide administrative services in connection with McDonald's promotional
programs in Europe effective January 1, 2000. The fees for these services have
historically not been material to the overall results of operations. As a result
of this action, the Company's total sales will decline by approximately 15% from
current levels. However, because the agreement with McDonald's related to these
services did not provide for significant gross margin on associated sales, the
Company believes that the absence of these sales will have no material adverse
effect on the Company's profitability.
13
<PAGE> 14
In December 1997, the Company entered into a license agreement ("the Agreement")
with Ty which granted the Company the exclusive right to develop and market
licensed Beanie Babies products in connection with the Beanie Babies Official
Club, a consumer membership kit. In May 1999, the parties mutually agreed to
modify the Agreement and to enter into a new arrangement in which the Company's
rights in connection with the Beanie Babies Official Club are non-exclusive in
order to enable Ty to market and distribute Beanie Babies products in connection
with the Club and in cooperation with the Company commencing in July 1999. Under
the new arrangement which extended through the end of 1999, the Company would
provide creative and sourcing services for Ty in collaboration with Ty. In 1999,
the Company's seasonal pattern of sales and earnings, including a loss in the
first quarter, and significant revenues and profitability in the second half of
the year, was primarily attributed to the sale of Ty Beanie Babies product.
Effective January 1, 2000, the Company is a strategic marketing agent for Ty and
will provide Ty advisory, design, development and/or creative services on a
project by project basis. Given that the Company is providing these services on
a project by project basis, the Company's future revenues and earnings
associated with the Ty relationship are difficult to predict. The Company,
however, expects sales of Ty related products in 2000 to be substantially less
than the 1999 volume, and that such sales will be heavily weighted to the latter
half of the year.
As a result of timing associated with potential Ty activity and consistent with
the seasonal nature of other client promotional activity, the Company announced
in February 2000 that it would incur an operating loss in the first quarter of
2000.
At December 31, 1999, the Company had written purchase orders for $312.1 million
as compared to $247.6 million at December 31, 1998. The Company's purchase
orders are generally subject to cancellation with limited penalty and are also
subject to agreements with certain customers that limit gross margin levels.
Therefore, the Company cautions that the backlog amounts may not necessarily be
indicative of future revenues or earnings.
EQUITY INVESTMENT
In November 1999, The Yucaipa Companies ("Yucaipa"), a Los Angeles-based
investment firm, invested $25 million in the Company in exchange for convertible
preferred stock and a warrant to purchase an additional $15 million of
convertible preferred stock. Under the terms of the investment, which was
approved at a Special Meeting of Stockholders held on November 10, 1999,
Yucaipa, through an affiliate, purchased 25,000 shares of a new series of
Company convertible preferred stock (initially convertible into 3,030,303 shares
of Company common stock) and received a warrant to purchase an additional 15,000
shares of a new series of Company convertible preferred stock (initially
convertible into 1,666,666 shares of Company common stock). The net proceeds
($20.6 million) from this transaction will be used for general corporate
purposes and to fund the Company's growth and strategic investment and
acquisition efforts.
As of November 10, 1999, assuming conversion of all of the convertible preferred
stock, Yucaipa would own approximately 16% of the then outstanding common
shares. Assuming the preceding conversion, and assuming the exercise of the
warrant and the conversion of the preferred stock issuable upon its exercise,
Yucaipa would own a total of approximately 23% of the then outstanding common
shares making it the Company's largest shareholder.
In connection with this transaction, Ronald W. Burkle, managing partner of
Yucaipa, was appointed chairman of Cyrk's Board of Directors, Patrick D. Brady
and Allan I. Brown were named Co-Chief Executive Officers and Co-Presidents of
Cyrk, and Mr. Brown was named to Cyrk's Board of Directors. In addition to Mr.
Burkle, Yucaipa is entitled to nominate two individuals to a seven-person Cyrk
Board of Directors. Additionally, the Company will pay Yucaipa an annual
management fee of $500,000 for a five-year term for which Yucaipa will provide
general business consultation and advice and management services. See notes to
consolidated financial statements.
For additional information related to this transaction, reference is made to the
Company's Report on Form 8-K and its proxy statement filed on Schedule 14A with
the Securities and Exchange Commission, dated September 1, 1999 and October 12,
1999, respectively.
14
<PAGE> 15
1998 CORPORATE RESTRUCTURING
As a result of its 1998 corporate restructuring, the Company recorded a 1998
charge to operations of $11.8 million for asset write-downs, employee
termination costs, lease cancellations and other related exit costs associated
with the restructuring. The restructuring plan was fully executed by the end of
1998. See notes to consolidated financial statements.
RESULTS OF OPERATIONS
1999 Compared to 1998
Net sales increased $231.0 million, or 30%, to $988.8 million in 1999 from
$757.9 million in 1998. The increase in net sales was primarily attributable to
revenues associated with McDonald's, Beanie Babies related products and Philip
Morris.
Gross profit increased $34.5 million, or 25%, to $172.3 million in 1999 from
$137.9 million in 1998. As a percentage of net sales, gross profit decreased to
17.4% in 1999 from 18.2% in 1998. The decrease in the gross margin percentage
was primarily the result of a higher concentration of sales volume associated
with certain promotional programs that are subject to agreements with certain
customers that limit gross margin levels.
As a percentage of net sales, selling, general and administrative expenses
excluding nonrecurring charges totaled 15.7% in 1999 as compared to 17.9% in
1998. Selling, general and administrative expenses totaled $155.0 million in
1999 as compared to $135.5 million in 1998. The Company's increased spending was
attributable to an increase in the commissions paid to field sales
representatives associated with sales increases generated from the Company's
premium incentives and licensed product businesses, as well as to increased
client management and support costs.
The Company recorded a 1999 nonrecurring pre-tax charge to operations of $1.7
million associated with the settlement of previously issued incentive stock
options in a subsidiary which were issued to principals of a previously acquired
company. The settlement was reached to facilitate the integration of the
acquired company into other operations within the Company's CPG division.
Restructuring and nonrecurring charges totaled $15.3 million in 1998. In
connection with its February 1998 announcement to restructure worldwide
operations, the Company recorded a restructuring charge of $11.8 million
attributable to asset write-downs, employee termination costs, lease
cancellations and other related exit costs. In addition, the Company recorded a
$2.3 million nonrecurring charge associated with a December 1998 severance
agreement between the Company and its former chief executive officer, and also
recorded a $1.1 million nonrecurring charge associated with the Company's plan
to relocate its corporate facilities. See notes to consolidated financial
statements.
Other income of $2.8 million in 1999 and $7.1 million in 1998 represents the
gains realized on the sale of an investment. See notes to consolidated financial
statements.
For an analysis of the change in the effective tax rates from 1997 to 1999 and a
discussion of the valuation allowance recorded by the Company, see notes to
consolidated financial statements.
1998 Compared to 1997
Net sales increased $199.2 million, or 36%, to $757.9 million in 1998 from
$558.6 million in 1997. The increase in net sales was primarily attributable to
revenues associated with Simon and Tonkin, which was partially offset by the
decrease in sales associated with the termination of the Pepsi agreements.
Promotional product sales accounted for substantially all of the Company's
revenue in 1998 as compared to $523.6 million in 1997. Net sales related to the
Company's private label and Cyrk brand business in 1998 were minimal as compared
to $35.0 million in 1997 which reflects the Company's restructuring strategy to
focus on its core business in the promotional marketing industry.
15
<PAGE> 16
Gross profit increased $34.8 million, or 34%, to $137.9 million in 1998 from
$103.1 million in 1997. As a percentage of net sales, gross profit decreased to
18.2% in 1998 from 18.5% in 1997. This decrease was primarily the result of a
concentration of sales volume and lower margins associated with the large
promotional programs, which was partially offset by cost and operational
improvements associated with the restructuring announced in February 1998, as
well as the effect of a more favorable product sales mix in the second half of
1998.
Selling, general and administrative expenses totaled $135.5 million in 1998 as
compared to $94.0 million in 1997. As a percentage of net sales, selling,
general and administrative costs totaled 17.9% as compared to 16.8% in 1997. The
Company's increased spending was primarily attributable to its expanded global
sales and operations associated with its 1997 acquisitions.
Restructuring and nonrecurring charges totaled $15.3 million in 1998. In
connection with its February 1998 announcement to restructure worldwide
operations, the Company recorded a restructuring charge of $11.8 million
attributable to asset write-downs, employee termination costs, lease
cancellations and other related exit costs. In addition, the Company recorded a
$2.3 million nonrecurring charge associated with a December 1998 severance
agreement between the Company and its former chief executive officer, and also
recorded a $1.1 million nonrecurring charge associated with the Company's plan
to relocate its corporate facilities. See notes to consolidated financial
statements.
Interest income increased in 1998 over 1997 primarily as a result of a higher
level of short-term investments of excess cash.
Interest expense increased in 1998 over 1997 as a result of increased borrowings
associated with financing inventory purchases.
Other income of $7.1 million in 1998 represents the gain realized on the sale of
an investment. See notes to consolidated financial statements.
Equity in loss of affiliates of $.4 million in 1998 and $1.4 million in 1997
represents the Company's proportionate share of investments being accounted for
under the equity method. $.2 million and $.8 million of the equity in loss of
affiliates in 1998 and 1997, respectively, related to the Company's investment
in an apparel joint venture which was liquidated as part of the restructuring
plan.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at December 31, 1999 was $110.8 million compared to $87.5
million at December 31, 1998. Net cash provided by operating activities during
1999 was $31.1 million, due principally to net income and depreciation and
amortization of $20.1 million and an increase in accrued expenses of $15.7
million.
Net cash used in investing activities was $16.9 million, which was primarily
attributable to $12.5 million in investments made by the Company in 1999 and
$5.5 million of purchases of property and equipment. In 1998, net cash provided
by investing activities was $5.3 million, which was primarily attributable to
$10.8 million in proceeds from the sale of investments which was partially
offset by $5.3 million of purchases of property and equipment.
The Company is evaluating the implementation of an enterprise resource planning
("ERP") system. If approved, the Company anticipates that its year 2000
purchases of property and equipment will be substantially higher than the 1999
levels. The cost of the ERP system will be driven by the scope and timing of the
implementation which remains subject to final review and approval.
In February 2000, the Company announced its plan to transfer its e-business
operations into a wholly-owned subsidiary, along with the Internet related
equity investments the Company has made in various companies. Throughout 2000,
the Company expects to make additional Internet related equity investments as
the Company expands its overall e-business initiatives.
Net cash provided by financing activities in 1999 was $10.1 million which was
primarily attributable to $20.6 million of net proceeds received from an equity
investment in the Company (see notes to consolidated financial statements) which
was partially offset by $8.0 million of repayments of short-term borrowings. In
1998, net cash provided by financing activities was $9.5 million, which was
primarily attributable to $11.6 million of proceeds from the issuance of common
stock. In February 1998, the Company issued 975,610 shares of its common stock
and a warrant to purchase
16
<PAGE> 17
up to 100,000 shares of its common stock in a private placement, resulting in
net proceeds of approximately $10.0 million which is being used for general
corporate purposes.
Since inception, the Company has financed its working capital and capital
expenditure requirements through cash generated from operations, public and
private sales of common and preferred stock, bank borrowings and capital
equipment leases. Such cash requirements for 1999 were provided principally by
operating and financing activities.
The Company currently has available several worldwide bank letters of credit and
revolving credit facilities which expire at various dates beginning in June
2000. The Company's primary domestic line of credit, amounting to $50 million,
expires in July 2000. As of December 31, 1999, based on the borrowing base
formulas prescribed by these credit facilities, the Company's borrowing capacity
was $107.5 million, of which $8.4 million of short-term borrowings and $20.0
million in letters of credit were outstanding. In addition, bank guarantees
totaling $2.3 million were outstanding at December 31, 1999. Borrowings under
these facilities are collateralized by all assets of the Company.
Management believes that the Company's existing cash position and credit
facilities combined with internally generated cash flow will satisfy its
liquidity and capital needs through the end of 2000. Consistent with its
announcement of an expected first quarter operating loss, the Company
anticipates the majority of its internal cash flow will be derived in the second
half of 2000. The Company's ability to generate internal cash flow is highly
dependent upon its continued relationships with McDonald's, Philip Morris and
Ty. Any material adverse change from the Company's revenues and related
contribution attributable to its major business relationships could adversely
affect the Company's cash position and capital availability.
IMPACT OF THE YEAR 2000 ISSUE
General
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Computer programs that
have date-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. The Company completed a comprehensive Year 2000
Compliance Program which is summarized below and has not experienced any systems
or operational disruptions associated with the Year 2000 issue.
State of Readiness
To manage its Year 2000 program, the Company divided its efforts into three
program areas--Information Technology (computer hardware, software and
electronic data interchange (EDI) interfaces), Physical Plant (manufacturing
equipment and facilities) and Extended Enterprise (suppliers and customers). For
each of these program areas, the Company used a four-step approach: Ownership
(creating awareness, assigning tasks); Inventory (listing items to be assessed
for Year 2000 readiness); Assessment (prioritizing the inventoried items,
assessing their Year 2000 readiness, planning corrective actions, making initial
contingency plans); and, Corrective Action Deployment (implementing corrective
actions, verifying implementation, finalizing and executing contingency plans).
The Company completed the four-step approach for the Year 2000 readiness for all
three program areas by December 1999.
Costs to Address Year 2000 Issues
The costs associated with becoming Year 2000 compliant totaled approximately $.3
million.
Risks of Year 2000 Issues and Contingency Plans
Although the Company has not encountered any significant Year 2000 issues to
date, the Company has business continuity plans and has created an
infrastructure for the identification, communication and resolution of issues
that may arise. The Company's contingency planning process is intended to
mitigate worst-case business disruptions.
17
<PAGE> 18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants 25
Consolidated Balance Sheets as of December 31, 1999 and 1998 26
Consolidated Statements of Operations for the years ended December 31, 1999, 1998 and 1997 27
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1999, 1998
and 1997 28
Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997 29
Notes to Consolidated Financial Statements 30-41
Schedule II: Valuation and Qualifying Accounts 42
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
NONE
18
<PAGE> 19
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this item regarding the Company's directors is
included in the Company's Proxy Statement to be filed pursuant to Schedule 14A
in connection with the Company's 2000 Annual Meeting of Stockholders under the
section captioned "Election of Directors" and is incorporated herein by
reference thereto. Information regarding the Company's executive officers is set
forth in Part I hereof, above, under the caption "Executive Officers of the
Registrant" and is incorporated herein by reference thereto.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is included in the Company's Proxy
Statement to be filed pursuant to Schedule 14A in connection with the Company's
2000 Annual Meeting of Stockholders under the sections captioned "Directors'
Compensation" and "Executive Compensation" and is incorporated herein by
reference thereto.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is included in the Company's Proxy
Statement to be filed pursuant to Schedule 14A in connection with the Company's
2000 Annual Meeting of Stockholders under the section captioned "Security
Ownership of Certain Beneficial Owners and Management" and is incorporated
herein by reference thereto.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is included in the Company's Proxy
Statement to be filed pursuant to Schedule 14A in connection with the Company's
2000 Annual Meeting of Stockholders under the sections captioned "Certain
Relationships and Related Transactions" and "Indebtedness of Management" and is
incorporated herein by reference thereto.
19
<PAGE> 20
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) DOCUMENTS FILED AS PART OF THIS REPORT.
1. FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of December 31, 1999
and 1998
Consolidated Statements of Operations for the years
ended December 31, 1999, 1998 and 1997
Consolidated Statements of Stockholders' Equity for
the years ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the years
ended December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
2. FINANCIAL STATEMENT SCHEDULES FOR THE FISCAL YEARS
ENDED DECEMBER 31, 1999, 1998 AND 1997:
Schedule II: Valuation and Qualifying Accounts.
All other schedules for which provision is made in the
applicable accounting regulations of the Securities
and Exchange Commission are not required under the
related instructions or are inapplicable, and
therefore have been omitted.
20
<PAGE> 21
3. EXHIBITS
EXHIBIT NO. DESCRIPTION
2.1 (11) Securities Purchase Agreement dated September 1, 1999,
between the Registrant and Overseas Toys, L.P.
3.1 (4) Restated Certificate of Incorporation of the Registrant
3.2 (2) Amended and Restated By-laws of the Registrant
3.3 Certificate of Designation for Series A Senior Cumulative
Participating Convertible Preferred Stock, filed herewith
4.1 (2) Specimen certificate representing Common Stock
10.1 (3)(13) 1993 Employee Stock Purchase Plan, as amended
10.2 (3)(4) 1993 Omnibus Stock Plan, as amended
10.3 (4) Lease dated as of April 19, 1989, between Gregory P.
Shlopak and Paul M. Butman, Jr., as Trustees of PG Realty
Trust, and Cyrk, Inc.
10.3.1 (9) Lease extension agreement dated March 16, 1999 by and
between Gregory P. Shlopak and Paul M. Butman, Jr., as
Trustees of PG Realty Trust and Cyrk, Inc.
10.3.2 (12) Lease extension agreement dated July 29, 1999 by and
between Gregory P. Shlopak and Paul M. Butman, Jr., as
Trustees of PG Realty Trust and Cyrk, Inc.
10.3.3 (12) Lease extension agreement dated July 29, 1999 by and
between Gregory P. Shlopak and Paul M. Butman, Jr., as
Trustees of PG Realty Trust and Cyrk, Inc.
10.3.4 (12) Lease extension agreement dated July 29, 1999 by and
between Gregory P. Shlopak and Paul M. Butman, Jr., as
Trustees of PG Realty Trust and Cyrk, Inc.
10.4 (12) Credit Agreement dated as of July 29, 1999 among Cyrk,
Inc., as Borrower, The Lenders Listed Herein, as Lenders,
Wells Fargo Bank, National Association, as Issuing Lender, and
Wells Fargo HSBC Trade Bank, N.A., as Administrative Agent
10.5 (1) Tax Allocation and Indemnity Agreement dated July 6, 1993,
among Cyrk, Inc., the Registrant, Gregory P. Shlopak and
Patrick D. Brady
10.6 (2)(3) Restricted Stock Purchase Agreement dated May 10, 1993,
between the Registrant and Terry B. Angstadt
10.7 (3)(5) Life Insurance Agreement dated as of November 15, 1994 by and
between the Registrant and Patrick D. Brady as Trustee under a
declaration of trust dated November 7, 1994 between Gregory P.
Shlopak and Patrick D. Brady, Trustee, entitled "The Shlopak
Family 1994 Irrevocable Insurance Trust"
10.7.1 (3)(5) Assignments of Life Insurance policies as Collateral,
each dated November 15, 1994
10.8 (3)(5) Life Insurance Agreement dated as of November 15, 1994
by and between the Registrant and Patrick D. Brady as Trustee
under a declaration of trust dated November 7, 1994 between
Gregory P. Shlopak and Patrick D. Brady, Trustee, entitled
"The Gregory P. Shlopak 1994 Irrevocable Insurance Trust"
10.8.1 (3)(5) Assignments of Life Insurance policies as Collateral,
each dated November 15, 1994
10.9 (3)(5) Life Insurance Agreement dated as of November 15, 1994 by and
between the Registrant and Walter E. Moxham, Jr. as Trustee
under a declaration of trust dated November 7, 1994 between
Patrick D. Brady and Walter E. Moxham, Jr., Trustee, entitled
"The Patrick D. Brady 1994 Irrevocable Insurance Trust"
10.9.1 (3)(5) Assignments of Life Insurance policies as Collateral,
each dated November 15, 1994
10.10 (3)(6) 1997 Acquisition Stock Plan
10.11 (7) Securities Purchase Agreement dated February 12, 1998 by
and between Cyrk, Inc. and Ty Warner
10.12 (8) Severance Agreement between Cyrk, Inc. and Gregory P.
Shlopak
10.13 (3)(9) Change of Control Agreement between Cyrk, Inc. and
Terry B. Angstadt dated November 2, 1997
10.14 (3)(9) Severance Agreement between Cyrk, Inc. and Ted L.
Axelrod dated November 20, 1998
10.15 (3)(9) Severance Agreement between Cyrk, Inc. and Dominic F.
Mammola dated November 20, 1998
10.15.1 (3)(9) Amendment No. 1 to Severance Agreement between Cyrk,
Inc. and Dominic F. Mammola dated March 29, 1999
10.16 Registration Rights Agreement between Cyrk, Inc. and Overseas
Toys, L.P., filed herewith
10.17 Management Agreement between Cyrk, Inc. and The Yucaipa
Companies, filed herewith
21
<PAGE> 22
10.18 (3)(11) Employment Agreement between Cyrk, Inc. and Allan
Brown, dated September 1, 1999
10.19 (3)(11) Employment Agreement between Cyrk, Inc. and Patrick
Brady, dated September 1, 1999
10.20 Lease agreement dated as of July 29, 1999, between TIAA
Realty, Inc. and Cyrk, Inc., filed herewith
10.21 (3) Life Insurance Agreement dated as of September 29, 1997 by
and between Simon Marketing, Inc. and Frederic N. Gaines,
Trustee of the Allan I. Brown Insurance Trust, under
Declaration of Trust dated September 29, 1997, filed herewith
21.1 List of Subsidiaries, filed herewith
23.1 Consent of PricewaterhouseCoopers LLP - Independent
Accountants, filed herewith
27.98 Restated Financial Data Schedule, filed herewith
27.99 Financial Data Schedule, filed herewith
99.1 (10) Amended Cautionary Statement for Purposes of the "Safe
Harbor" Provisions of the Private Securities Litigation Reform
Act of 1995
99.2 (3) (11) Termination Agreement among Cyrk, Inc., Patrick
Brady, Allan Brown, Gregory Shlopak, Eric Stanton, and Eric
Stanton Self-Declaration of Revocable Trust
- ------------------------------------
(1) Filed as an exhibit to the Registrant's Registration Statement on Form
S-1 (Registration No. 33-75320) or an amendment thereto and
incorporated herein by reference.
(2) Filed as an exhibit to the Registrant's Registration Statement on Form
S-1 (Registration No. 33-63118) or an amendment thereto and
incorporated herein by reference.
(3) Management contract or compensatory plan or arrangement.
(4) Filed as an exhibit to the Annual Report on Form 10-K for the year
ended December 31, 1994 and incorporated herein by reference.
(5) Filed as an exhibit to the Registrant's Registration Statement on Form
10-Q dated March 31, 1995 and incorporated herein by reference.
(6) Filed as an exhibit to the Registrant's Registration Statement on Form
S-8 (Registration No. 333-45655) and incorporated herein by reference.
(7) Filed as an exhibit to the Annual Report on Form 10-K for the year
ended December 31, 1997 and incorporated herein by reference.
(8) Filed as an exhibit to the Registrant's Report on Form 8-K dated
December 31, 1998 and incorporated herein by reference.
(9) Filed as an exhibit to the Annual Report on Form 10-K for the year
ended December 31, 1998 and incorporated herein by reference.
(10) Filed as an exhibit to the Registrant's Registration Statement on Form
10-Q dated March 31, 1999 and incorporated herein by reference.
(11) Filed as an exhibit to the Registrant's Report on Form 8-K dated
September 1, 1999 and incorporated herein by reference.
(12) Filed as an exhibit to the Registrant's Registration Statement on Form
10-Q dated September 30, 1999 and incorporated herein by reference.
(13) Filed as an exhibit to the Registrant's Registration Statement on Form
S-8 dated February 1, 2000 and incorporated herein by reference.
22
<PAGE> 23
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed during the last quarter of the fiscal
year ended December 31, 1999.
23
<PAGE> 24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CYRK, INC.
Date: March 27, 2000 By: /s/Dominic F. Mammola
----------------------
Dominic F. Mammola
Executive Vice President and Chief Financial
Officer (principal financial and accounting
officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/Ronald W. Burkle Chairman March 27, 2000
- ------------------
RONALD W. BURKLE
/s/Patrick D. Brady Co-Chief Executive Officer March 27, 2000
- ------------------- Co-President
PATRICK D. BRADY (Co-principal executive officer)
/s/Allan I. Brown Co-Chief Executive Officer March 27, 2000
- ----------------- Co-President
ALLAN I. BROWN (Co-principal executive officer)
/s/Joseph W. Bartlett Director March 27, 2000
- ---------------------
JOSEPH W. BARTLETT
/s/J. Anthony Kouba Director March 27, 2000
- -------------------
J. ANTHONY KOUBA
/s/George G. Golleher Director March 27, 2000
- ---------------------
GEORGE G. GOLLEHER
</TABLE>
24
<PAGE> 25
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Cyrk, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity and cash flows
present fairly, in all material respects, the financial position of Cyrk, Inc.
and its subsidiaries at December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with accounting principles generally accepted
in the United States. In addition, in our opinion, the financial statement
schedule listed in the accompanying index presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. These financial statements and
schedule are the responsibility of the Company's management; our responsibility
is to express an opinion on these financial statements and schedule based on our
audits. We conducted our audits of these statements in accordance with auditing
standards generally accepted in the United States, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and schedule are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and schedule, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement and schedule presentation. We believe that our audits
provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 4, 2000
25
<PAGE> 26
CYRK, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1999 1998
---- ----
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 99,698 $ 75,819
Investment 2,423 2,944
Accounts receivable:
Trade, less allowance for doubtful accounts of $4,243
at December 31, 1999 and $2,682 at December 31, 1998 91,782 87,372
Officers, stockholders and related parties 3,121 204
Inventories 45,193 51,250
Prepaid expenses and other current assets 7,056 7,227
Deferred and refundable income taxes 10,465 9,813
--------- ---------
Total current assets 259,738 234,629
Property and equipment, net 13,140 13,285
Excess of cost over net assets acquired, net 73,961 82,771
Investments 12,500 --
Deferred income taxes 1,778 --
Other assets 8,031 6,656
--------- ---------
$ 369,148 $ 337,341
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 8,888 $ 16,929
Accounts payable:
Trade 41,795 43,907
Affiliates -- 2,043
Accrued expenses and other current liabilities 97,278 83,280
Deferred income taxes 954 --
Accrued restructuring expenses -- 953
--------- ---------
Total current liabilities 148,915 147,112
Long-term obligations 9,156 12,099
Deferred income taxes -- 475
--------- ---------
Total liabilities 158,071 159,686
--------- ---------
Commitments and contingencies
Mandatorily redeemable preferred stock, Series A1 senior cumulative
participating convertible, $.01 par value, 25,000 shares issued
and outstanding, stated at redemption value of $1,000 per share ($25,000),
net of issuance costs 20,553 --
Stockholders' equity:
Preferred stock, $.01 par value; 1,000,000 shares authorized; 25,000 Series
A1 issued -- --
Common stock, $.01 par value; 50,000,000 shares authorized;
15,740,850 shares issued and outstanding at December 31, 1999 and
15,453,058 shares issued and outstanding at December 31, 1998 157 155
Additional paid-in capital 141,482 138,784
Retained earnings 48,587 37,593
Accumulated other comprehensive income (loss):
Unrealized gain on investment 1,336 1,442
Cumulative translation adjustment (1,038) (319)
--------- ---------
Total stockholders' equity 190,524 177,655
--------- ---------
$ 369,148 $ 337,341
========= =========
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
26
<PAGE> 27
CYRK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net sales $ 988,844 $ 757,853 $ 558,623
Cost of sales:
Related parties -- 9,211 10,094
Other 816,507 610,758 445,434
--------- --------- ---------
816,507 619,969 455,528
--------- --------- ---------
Gross profit 172,337 137,884 103,095
--------- --------- ---------
Selling, general and administrative expenses:
Goodwill amortization 3,568 3,324 2,226
Related parties 1,002 1,264 1,198
Other 150,425 130,863 90,529
Nonrecurring charges 1,675 15,288 --
--------- --------- ---------
156,670 150,739 93,953
--------- --------- ---------
Operating income (loss) 15,667 (12,855) 9,142
Interest income (3,232) (3,569) (2,413)
Interest expense 2,115 2,579 2,102
Equity in loss of affiliates -- 418 1,363
Other income (2,752) (7,100) --
--------- --------- ---------
Income (loss) before income taxes 19,536 (5,183) 8,090
Income tax provision (benefit) 8,400 (2,167) 4,854
--------- --------- ---------
Net income (loss) 11,136 (3,016) 3,236
Preferred stock dividends 142 -- --
--------- --------- ---------
Net income (loss) available to common stockholders $ 10,994 $ (3,016) $ 3,236
========= ========= =========
Earnings (loss) per common share - basic $ 0.70 $ (0.20) $ 0.26
========= ========= =========
Earnings (loss) per common share - diluted $ 0.67 $ (0.20) $ 0.25
========= ========= =========
Weighted average shares outstanding - basic 15,624 14,962 12,592
========= ========= =========
Weighted average shares outstanding - diluted 16,631 14,962 13,025
========= ========= =========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
27
<PAGE> 28
CYRK, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
Accumulated
Common Additional Other Total
Stock Paid-in Retained Comprehensive Comprehensive Stockholders'
($.01 Par Value) Capital Earnings Income (Loss) Income (Loss) Equity
---------------- ---------- -------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $ 108 $ 87,402 $ 37,373 $ (536) $ 124,347
Comprehensive income:
Net income 3,236 $ 3,236 3,236
--------
Other comprehensive income,
net of income taxes:
Net unrealized gains on
available-for-sale securities 56 56
Translation adjustment 247 247
--------
Other comprehensive income 303 303
--------
Comprehensive income $ 3,539
========
Issuance of shares under
employee stock option
and stock purchase plans 1 466 467
Issuance of shares for
businesses acquired 28 31,972 32,000
----- -------- -------- --------- ---------
Balance, December 31, 1997 137 119,840 40,609 (233) 160,353
Comprehensive loss:
Net loss (3,016) $ (3,016) (3,016)
--------
Other comprehensive income
(loss), net of income taxes:
Net unrealized gains on
available-for-sale securities 1,442 1,442
Translation adjustment (86) (86)
--------
Other comprehensive income 1,356 1,356
--------
Comprehensive loss $ (1,660)
========
Issuance of shares under
employee stock option
and stock purchase plans,
net of tax benefit 2 1,609 1,611
Issuance of shares for
businesses acquired 6 7,345 7,351
Issuance of shares for
private placement 10 9,990 10,000
---- -------- -------- --------- ---------
Balance, December 31, 1998 155 138,784 37,593 1,123 177,655
Comprehensive income:
Net income 11,136 $ 11,136 11,136
--------
Other comprehensive loss,
net of income taxes:
Net unrealized loss on
available-for-sale securities (106) (106)
Translation adjustment (719) (719)
--------
Other comprehensive loss (825) (825)
--------
Comprehensive income $ 10,311
========
Dividends on preferred stock (142) (142)
Stock compensation 775 775
Issuance of shares under
employee stock option
and stock purchase plans 1 512 513
Issuance of shares for
businesses acquired 1 1,411 1,412
----- ---------- -------- --------- ---------
Balance, December 31, 1999 $ 157 $ 141,482 $ 48,587 $ 298 $ 190,524
===== ========== ======== ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
28
<PAGE> 29
CYRK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 11,136 $ (3,016) $ 3,236
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 8,988 8,988 6,438
Write-down of leasehold improvements -- 1,143 --
(Gain) loss on sale of property and equipment 130 (244) (32)
Realized (gain) loss on sale of investments (2,752) (7,100) 32
Provision for doubtful accounts 2,578 1,485 390
Deferred income taxes 2,575 1,286 (772)
Equity in loss of affiliates -- 418 1,363
Tax benefit from stock option plans -- 56 --
Non-cash restructuring charges 854 8,555 --
Stock compensation 775 -- --
Increase (decrease) in cash from changes
in working capital items, net of acquisitions:
Accounts receivable (10,033) 6,382 17,972
Inventories 5,161 (6,050) 20,272
Prepaid expenses and other current assets 161 3,417 (2,616)
Refundable income taxes -- (1,232) --
Accounts payable (4,199) (11,925) (11,841)
Accrued expenses and other current liabilities 15,738 16,263 (2,893)
-------- -------- ---------
Net cash provided by operating activities 31,112 18,426 31,549
-------- -------- ---------
Cash flows from investing activities:
Purchase of property and equipment (5,461) (5,254) (6,028)
Proceeds from sale of property and equipment 45 928 243
Acquisitions, net of cash acquired * -- -- (16,581)
Repayments from (advances to) affiliates, net -- 1,556 (6,511)
Purchase of investments (12,500) -- (3,815)
Proceeds from sale of investments 3,086 10,759 6,259
Additional consideration related to acquisitions (730) (1,624) (1,577)
Other, net (1,375) (1,038) 110
-------- -------- ---------
Net cash provided by (used in) investing activities (16,935) 5,327 (27,900)
-------- -------- ---------
Cash flows from financing activities:
Repayments of short-term borrowings, net (8,041) (3,897) (5,365)
Proceeds from (repayments of) long-term obligations (2,943) 1,888 (333)
Proceeds from issuance of preferred stock, net 20,553 -- --
Proceeds from issuance of common stock 513 11,554 467
-------- -------- ---------
Net cash provided by (used in) financing activities 10,082 9,545 (5,231)
-------- -------- ---------
Effect of exchange rate changes on cash (380) 8 (129)
-------- -------- ---------
Net increase (decrease) in cash and cash equivalents 23,879 33,306 (1,711)
Cash and cash equivalents, beginning of year 75,819 42,513 44,224
-------- -------- ---------
Cash and cash equivalents, end of year $ 99,698 $ 75,819 $ 42,513
======== ======== =========
* Details of acquisitions:
Fair value of assets acquired $ -- $ -- $ 104,257
Cost in excess of net assets of companies acquired, net -- -- 73,162
Liabilities assumed -- -- (107,069)
Stock issued -- -- (32,000)
-------- -------- ---------
Cash paid -- -- 38,350
Less: cash acquired -- -- (21,769)
-------- -------- ---------
Net cash paid for acquisitions $ -- $ -- $ 16,581
======== ======== =========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 1,981 $ 2,301 $ 2,214
======== ======== =========
Income taxes $ 6,026 $ 2,863 $ 4,075
======== ======== =========
Supplemental non-cash investing activities:
Issuance of additional stock related to acquisitions $ 1,412 $ 7,351 $ --
======== ======== =========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
29
<PAGE> 30
CYRK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
1. Nature of Business
Cyrk, Inc. is a full-service promotional marketing company, specializing in the
design and development of high-impact promotional products and programs.
2. Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Cyrk,
Inc. and its subsidiaries (the "Company"). All material intercompany accounts
and transactions have been eliminated in consolidation.
Revenue Recognition
Sales are generally recognized when products are shipped or services are
provided to customers. Sales of certain imported goods are recognized at the
time shipments are received at the customer's designated location. Deferred
revenue includes deposits related to merchandise for which the Company has
received payment but for which title and risk of loss have not passed.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Concentration of Credit Risk
The Company places its cash in what it believes to be credit-worthy financial
institutions. However, cash balances exceed FDIC insured levels at various times
during the year. In addition, the Company has significant receivables from
certain customers (see Note 18).
Financial Instruments
The carrying amounts of cash equivalents, investments, short-term borrowings and
long-term obligations approximate their fair values.
Cash Equivalents
Cash equivalents consist of short-term, highly liquid investments which have
original maturities at date of purchase to the Company of three months or less.
Investments
Investments are stated at fair value. Current investments are designated as
available-for-sale in accordance with the provisions of Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities", and as such unrealized gains and losses are reported in a
separate component of stockholders' equity. Long-term investments, for which
there are no readily available market values, are carried at the lower of
estimated fair value or cost.
30
<PAGE> 31
Inventories
Inventories are valued at the lower of cost (specific identification, first-in,
first-out and average methods) or market.
Property and Equipment
Property and equipment are stated at cost and are depreciated primarily using
the straight-line method over the estimated useful lives of the assets or over
the terms of the related leases, if such periods are shorter. The estimated
useful lives range from two to seven years for machinery and equipment and three
to ten years for furniture and fixtures. The cost and accumulated depreciation
for property and equipment sold, retired or otherwise disposed of are relieved
from the accounts, and resulting gains or losses are reflected in income.
Excess of Cost Over Net Assets Acquired, Net
The excess of cost over the net assets acquired ("goodwill") is being amortized
on a straight-line basis over a period of fifteen to thirty years. Accumulated
amortization amounted to $8,694 at December 31, 1999 and $5,126 at December 31,
1998.
Impairment of Long-Lived Assets
Periodically, the Company assesses, based on undiscounted cash flows, if there
has been a permanent impairment in the carrying value of its long-lived assets
and, if so, the amount of any such impairment by comparing anticipated
undiscounted future operating income with the carrying value of the related
long-lived assets. In performing this analysis, management considers such
factors as current results, trends and future prospects, in addition to other
economic factors.
Income Taxes
The Company determines deferred taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), which
requires that deferred tax assets and liabilities be computed based on the
difference between the financial statement and income tax bases of assets and
liabilities using the enacted marginal tax rate. Deferred income tax expenses or
credits are based on the changes in the asset or liability from period to
period.
Foreign Currency Translation
The Company translates financial statements denominated in foreign currency by
translating balance sheet accounts at the balance sheet date exchange rate and
income statement accounts at the average monthly rates of exchange. Translation
gains and losses are recorded in stockholders' equity, and transaction gains and
losses are reflected in income.
Earnings (Loss) per Common Share
Earnings (loss) per common share have been determined in accordance with the
provisions of Statement of Financial Accounting Standards No. 128, "Earnings per
Share" ("SFAS 128").
Reclassifications
Certain prior year amounts have been reclassified to conform with the current
year presentation.
31
<PAGE> 32
3. Acquisitions
On June 9, 1997, the Company acquired Simon Marketing, Inc. ("Simon"), a Los
Angeles-based global marketing and promotion agency and provider of custom
promotional products, for $57,950, composed of $33,450 in cash and $24,500 in
shares of the Company's common stock of which $28,350 in cash and $20,000 in
shares of the Company's common stock (1,840,138 shares) was paid at the closing
with an additional $5,100 payable in cash and $4,500 payable in shares of the
Company's common stock within four years of the closing. As a result of
achieving certain performance targets, the purchase price was increased in 1998
by an additional $5,000 in shares of the Company's common stock (475,908
shares). A deferred tax asset was provided for with a valuation allowance at the
time of the acquisition. The tax benefit from adjusting the valuation allowance
of the acquired deferred assets was recorded as a $6,941 reduction of goodwill
by the Company in 1999. During 1998, additions to excess of cost over net assets
acquired were recorded for the settlement of preacquisition contingencies
amounting to $3,500. The acquisition has been accounted for as a purchase and,
accordingly, the results of operations of Simon have been included in the
consolidated financial statements from the date of the acquisition. The excess
of cost over the fair value of net assets acquired ($54,821, as adjusted) is
being amortized on a straight-line basis over thirty years.
On April 7, 1997, the Company acquired Tonkin, Inc. ("Tonkin"), a Washington
corporation which provides custom promotional programs and licensed promotional
products for an aggregate purchase price of $22,000 of which $12,000 was paid in
shares of the Company's common stock (1,007,345 shares) and $10,000 in cash. In
1998, the purchase price was increased by an additional $1,800 ($900 in cash,
$300 in Company common stock and $600 which will be paid in cash or Company
common stock at the election of the Company in April 2000) as a result of Tonkin
achieving certain performance targets. The acquisition has been accounted for as
a purchase and, accordingly, the results of operations of Tonkin have been
included in the consolidated financial statements from the date of the
acquisition. The excess of cost over the fair value of net assets acquired
($21,295, as adjusted) is being amortized on a straight-line basis over twenty
years.
4. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31,
1999 1998
---- ----
<S> <C> <C>
Raw materials $10,181 $13,622
Work in process 14,887 9,034
Finished goods 20,125 28,594
------- -------
$45,193 $51,250
======= =======
</TABLE>
5. Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
1999 1998
---- ----
<S> <C> <C>
Machinery and equipment $22,139 $19,302
Furniture and fixtures 7,209 6,628
Leasehold improvements 6,205 5,184
----- -----
35,553 31,114
Less - accumulated depreciation and amortization (22,413) (17,829)
------- -------
$13,140 $13,285
======= =======
</TABLE>
Depreciation and amortization expense on property and equipment totaled $5,420,
$5,664 and $4,212 in 1999, 1998 and 1997, respectively.
32
<PAGE> 33
6. Investments
Current
In April 1998, the Company exchanged its then 50% interest (with a net book
value of $2,589) in Grant & Partners Limited Partnership ("GPLP"), a
Boston-based firm specializing in improving the returns on marketing
investments, in return for GPLP's rights, title and interest to 1,150,000 shares
of common stock of GPLP's Exchange Applications ("EXAP"), a company specializing
in software that helps businesses raise profits by targeting marketing
campaigns. In December 1998, EXAP completed its initial public offering and the
Company sold 1,000,000 shares of its EXAP holdings and realized a gain on the
sale of this stock of $7,100. The Company sold an additional 106,630 shares in
1999 and realized a gain on the sale of $2,752. As of December 31, 1999 and
1998, the shares of EXAP stock owned by the Company are stated at fair value of
$2,423 and $2,944, respectively. The Company sold its remaining shares in
January 2000 and received proceeds of $3,378.
Long-term
These investments represent the Company's investment in a variety of
privately-held companies which are being accounted for under the cost method.
7. Borrowings
The Company maintains worldwide credit facilities with several banks which
provide the Company with approximately $107,490 in total short-term borrowing
capacity which consists of (i) the Company's $50,000 primary domestic line of
credit, (ii) several additional domestic lines of credit which aggregate $38,130
and (iii) a foreign line of credit in the amount of $19,360. As of December 31,
1999, the Company had approximately $76,761 available under these bank
facilities. The total outstanding short-term borrowings at December 31, 1999 and
1998 were $8,888 and $16,929, respectively.
In July 1999, the Company secured a revised facility with the bank for its
primary domestic line of credit. Pursuant to the provisions of its primary
domestic line of credit, the Company has commitments for letter of credit
borrowings through July 2000 of up to an aggregate amount of $50,000 for the
purpose of financing the importation of various products from Asia and for
issuing standby letters of credit. Borrowings under the facility bear interest
at the lesser of the bank's prime rate (8.5% at December 31, 1999) or LIBOR plus
1.75% (7.63% at December 31, 1999), and are collateralized by all of the assets
of the Company. The revised facility contains certain net income, working
capital and debt to net worth covenants. At December 31, 1999, the Company's
borrowing capacity under this facility was $50,000, of which $5,174 in letters
of credit were outstanding. The letters of credit expire at various dates
through February 2001. The facility provides for a commitment fee of $125 per
annum.
In addition to the facility described above, other domestic credit facilities
provide for borrowings of up to an aggregate amount of $38,130 for working
capital requirements subject to borrowing base formulas. These credit lines,
which expire at various dates beginning in June 2000, bear interest at the
bank's prime rate (8.5% at December 31, 1999) or LIBOR plus 1.75% (8.24% at
December 31, 1999), and contain certain working capital, tangible net worth,
debt to net worth and cash flow covenants. The Company was in violation of the
cash flow covenant on one of its facilities at December 31, 1999 and has
received a waiver from the lender. At December 31, 1999, $8,397 of short-term
borrowings and $1,584 of letters of credit were outstanding under these
facilities.
The Company has a $17,058 (Deutsche Marks 33,129) working capital line of credit
for certain of its European subsidiaries. At December 31, 1999, there were
$13,199 (Deutsche Marks 25,635) of letters of credit outstanding under this
credit facility and no short-term borrowings outstanding. The Company also has
bank guarantees in the amounts of $1,989 (British Pounds 1,200) and $313
(Belgian Francs 12,500) to cover future duties and customs in the United
Kingdom. Bank guarantees totaling $2,302 were outstanding at December 31, 1999.
The weighted average interest rate on short-term borrowings was 8.24% and 7.54%
at December 31, 1999 and 1998, respectively.
In addition to the above facilities, one of the Company's domestic subsidiaries
has a $2,000 long-term promissory note payable to a bank. The note bears
interest at a fixed rate of 7.8% per annum and matures in June 2003. At December
31, 1999, $1,467 of this note was outstanding, of which $365 was included in
short-term borrowings and $1,102 was included in long-term obligations. Payments
of the long-term portion of this obligation will be made ratably over the
remaining term of the note.
33
<PAGE> 34
8. Lease Commitments
The Company leases warehouse, production and administrative facilities and
certain machinery and equipment, furniture and fixtures, and motor vehicles
under noncancelable operating leases expiring at various dates through December
2011 (see Note 17). The approximate minimum rental commitments under all
noncancelable leases as of December 31, 1999, were as follows:
<TABLE>
<S> <C>
2000 $ 8,866
2001 6,646
2002 4,983
2003 4,060
2004 3,388
Thereafter 9,361
-------
Total minimum lease payments $37,304
=======
</TABLE>
Rental expense for all operating leases was $11,286, $11,719 and $7,208 for the
years ended December 31, 1999, 1998 and 1997, respectively. Rent is charged to
operations on a straight-line basis for certain leases.
9. Income Taxes
The components of the provision (benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $3,710 $(2,818) $3,192
State 1,074 (2,100) 1,227
Foreign 1,041 1,465 1,207
------ ------- ------
5,825 (3,453) 5,626
------ ------- ------
Deferred:
Federal 2,226 1,298 ( 681)
State 349 ( 12) ( 91)
------ ------- ------
2,575 1,286 ( 772)
------ ------- ------
$8,400 $(2,167) $4,854
====== ======= ======
</TABLE>
As required by SFAS 109, the Company annually evaluates the positive and
negative evidence bearing upon the realizability of its deferred tax assets. The
Company has considered the recent and historical results of operations and
concluded, in accordance with the applicable accounting methods, that it is more
likely than not that a certain portion of the deferred tax assets will not be
realizable. To the extent that an asset will not be realizable, a valuation
allowance is established. The tax effects of temporary differences giving rise
to deferred tax assets and liabilities as of December 31, are as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Deferred tax assets
Receivable reserves $ 1,329 $ 890
Inventory capitalization and reserves 2,760 2,874
Other asset reserves 2,297 4,796
Deferred compensation 2,778 2,323
Foreign tax credits 3,141 4,298
Net operating losses 451 1,593
Depreciation 739 --
Valuation allowance (1,252) (8,193)
------ ------
$12,243 $8,581
======= ======
Deferred tax liabilities $ 954 $ 475
======= ======
</TABLE>
34
<PAGE> 35
As of December 31, 1999, the Company had $11,459 of state net operating loss
carryforwards available to offset future taxable income. These loss
carryforwards may be utilized through 2003. As of December 31, 1999, the Company
has foreign tax credit carryforwards of $3,141 that will begin to expire in
2001.
The deferred tax assets consist partly of net operating losses, foreign tax
credits and other deferred assets acquired in connection with the Simon
acquisition. A substantial portion of these deferred assets was provided for
with a valuation allowance at the time of the acquisition. The tax benefit from
adjusting the valuation allowance of the acquired deferred assets is recorded as
a reduction of goodwill. The reduction in goodwill for the year ended December
31, 1999 was $6,941.
The following is a reconciliation of the statutory federal income tax rate to
the actual effective income tax rate:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Federal tax (benefit) rate 35% (34)% 34%
Increase (decrease) in taxes resulting from:
State income taxes, net of federal benefit 5 (27) 9
Effect of foreign tax rates and non-utilization
of losses (1) (6) ( 7) 19
Goodwill 5 19 7
Foreign tax credit -- -- (12)
Meals and entertainment 1 4 1
Other, net 3 3 2
-- --- ---
Effective tax (benefit) rate 43% (42)% 60%
== === ===
</TABLE>
(1) 1999 and 1998 include utilization of prior year foreign losses.
10. Accrued Expenses and Other Current Liabilities
At December 31, 1999 and 1998, accrued expenses and other current liabilities
consisted of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Inventory purchases $38,663 $13,778
Accrued payroll and related and
deferred compensation 15,142 13,466
Royalties 12,281 8,571
Deferred revenue 11,578 16,609
Other 19,614 30,856
------- -------
$97,278 $83,280
======= =======
</TABLE>
11. Nonrecurring Charges
A summary of the nonrecurring charges for the years ended December 31, 1999 and
1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Settlement charge $1,675 $ --
Restructuring charge -- 11,813
Severance expense -- 2,332
Write-down of long-lived assets -- 1,143
------ -------
$1,675 $15,288
====== =======
</TABLE>
35
<PAGE> 36
Settlement Charge
The Company recorded a 1999 nonrecurring pre-tax charge to operations of $1,675
associated with the settlement of previously issued incentive stock options in a
subsidiary which were issued to principals of a previously acquired company. The
settlement was reached to facilitate the integration of the acquired company
into other operations within one of the Company's divisions.
Restructuring Charge
As a result of its 1998 corporate restructuring, the Company recorded a
nonrecurring pre-tax charge to operations of $11,813 for asset write-downs,
employee termination costs, lease cancellations and other related exit costs
associated with the restructuring. The restructuring charge had the effect of
reducing 1998 after tax earnings by $6,875 or $0.46 per share. The restructuring
plan was fully executed by the end of 1998.
A summary of activity in the restructuring accrual is as follows:
<TABLE>
<S> <C>
Balance at January 1, 1998 $ --
Restructuring provision 15,486
Employee termination costs
and other cash payments (2,305)
Non-cash asset write-downs (8,555)
Accrual reversal (3,673)
-------
Balance at December 31, 1998 953
Miscellaneous cash payments (99)
Non-cash asset write-downs (854)
-------
Balance at December 31, 1999 $ --
=======
</TABLE>
Severance Expense
Effective December 31, 1998, Gregory P. Shlopak, former chief executive officer,
resigned from the Company. Pursuant to an agreement entered into with Mr.
Shlopak, the Company recorded a 1998 pre-tax charge to operations of $2,332. The
agreement provides for payments and benefits to Mr. Shlopak payable over a three
year period.
Write-down of Long-lived Assets
In connection with the Company's plan to relocate from its Gloucester,
Massachusetts facilities, the Company recorded a 1998 pre-tax charge to
operations of $1,143. This charge represented the estimated net book value of
leasehold improvements at the anticipated abandonment date.
12. Redeemable Preferred Stock
In November 1999, The Yucaipa Companies ("Yucaipa"), a Los Angeles-based
investment firm, invested $25,000 in the Company in exchange for preferred stock
and a warrant to purchase additional preferred stock. Under the terms of the
investment, which was approved at a Special Meeting of Stockholders on November
10, 1999, the Company issued 25,000 shares of a newly authorized senior
cumulative participating convertible preferred stock ("preferred stock") to
Yucaipa for $25,000. Yucaipa is entitled, at their option, to convert each share
of preferred stock into common stock equal to the sum of $1,000 per share plus
all accrued and unpaid dividends, divided by $8.25 (3,030,303 shares as of
November 10, 1999 and 3,047,431 shares as of December 31, 1999).
In connection with the issuance of the preferred stock, the Company also issued
a warrant to purchase 15,000 shares of a newly authorized series of preferred
stock at a purchase price of $15,000. Each share of this series of preferred
stock issued upon exercise of the warrant is convertible, at Yucaipa's option,
into common stock equal to the sum of $1,000 per share plus all accrued and
unpaid dividends, divided by $9.00 (1,666,666 shares as of November 10, 1999 and
December 31, 1999). The warrant expires on November 10, 2004.
Assuming conversion of all of the convertible preferred stock, Yucaipa would own
approximately 16% of the then outstanding common shares at November 10, 1999 and
December 31, 1999, respectively. Assuming the preceding conversion, and assuming
the exercise of the warrant and the conversion of the preferred stock issuable
upon its exercise, Yucaipa would own a total of approximately 23% of the then
36
<PAGE> 37
outstanding common shares at November 10, 1999 and December 31, 1999,
respectively, making it the Company's largest shareholder.
Yucaipa has voting rights equivalent to the number of shares of common stock
into which their preferred stock is convertible on the relevant record date.
Also, Yucaipa is entitled to receive a quarterly dividend equal to 4% of the
base liquidation preference of $1,000 per share outstanding, payable in cash or
in-kind at the Company's option.
In the event of liquidation, dissolution or winding up of the affairs of the
Company, Yucaipa, as holder's of the preferred stock, will be entitled to
receive the redemption price of $1,000 per share plus all accrued dividends plus
(1) (a) 7.5% of the amount that the Company's retained earnings exceeds $75,000
less (b) the aggregate amount of any cash dividends paid on common stock which
are not in excess of the amount of dividends paid on the preferred stock,
divided by (2) the total number of preferred shares outstanding as of such date
(the "adjusted liquidation preference"), before any payment is made to other
stockholders.
The Company may redeem all or a portion of the preferred stock at a price equal
to the adjusted liquidation preference of each share, if the average closing
prices of the Company's common stock have exceeded $12.00 for sixty consecutive
trading days on or after November 10, 2002, or, any time on or after November
10, 2004. The preferred stock is subject to mandatory redemption if a change in
control of the Company occurs.
In connection with this transaction, the managing partner of Yucaipa was
appointed chairman of the Company's board of directors and Yucaipa is entitled
to nominate two additional individuals to a seven-person board. Additionally,
the Company will pay Yucaipa an annual management fee of $500 for a five-year
term for which Yucaipa will provide general business consultation and advice and
management services.
13. Stock Plans
At December 31, 1999, the Company had three stock-based compensation plans,
which are described below. The Company adopted the disclosure provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123") and has applied APB Opinion 25 and related
Interpretations in accounting for its plans. Accordingly, no compensation cost
has been recognized related to such plans. Had compensation cost for the
Company's 1999, 1998 and 1997 grants for stock-based compensation plans been
determined consistent with SFAS 123, the Company's net income (loss) and
earnings (loss) per common share would have been reduced (increased) to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net income (loss) - as reported $11,136 $(3,016) $3,236
Net income (loss) - pro forma 9,159 (6,395) 1,828
Earnings (loss) per common share - basic - as reported 0.70 (0.20) 0.26
Earnings (loss) per common share - diluted - as reported 0.67 (0.20) 0.25
Earnings (loss) per common share - basic - pro forma 0.58 (0.43) 0.15
Earnings (loss) per common share - diluted - pro forma 0.55 (0.43) 0.14
</TABLE>
1993 Omnibus Stock Plan
Under its 1993 Omnibus Stock Plan (the "Omnibus Plan"), as amended in May 1997,
the Company has reserved up to 3,000,000 shares of its common stock for issuance
pursuant to the grant of incentive stock options, nonqualified stock options or
restricted stock. The Omnibus Plan is administered by the Compensation Committee
of the Board of Directors. Subject to the provisions of the Omnibus Plan, the
Compensation Committee has the authority to select the optionees or restricted
stock recipients and determine the terms of the options or restricted stock
granted, including: (i) the number of shares; (ii) the exercise period (which
may not exceed ten years); (iii) the exercise or purchase price (which in the
case of an incentive stock option cannot be less than the market price of the
common stock on the date of grant); (iv) the type and duration of options or
restrictions, limitations on transfer and other restrictions; and (v) the time,
manner and form of payment. Generally, an option is not transferable by the
option holder except by will or by the laws of descent and distribution. Also,
generally, no incentive stock option may be exercised more than 60 days
following termination of employment. However, in the event that termination is
due to death or disability, the option is exercisable for a maximum of 180 days
after such termination. Options granted under this plan generally become
exercisable in three equal installments commencing on the first anniversary of
the date of grant.
37
<PAGE> 38
1997 Acquisition Stock Plan
The 1997 Acquisition Stock Plan (the "1997 Plan") is intended to provide
incentives in connection with the acquisitions of other businesses by the
Company. The 1997 Plan is identical in all material respects to the Omnibus
Plan, except that the number of shares available for issuance under the 1997
Plan is 1,000,000 shares.
The fair value of each option grant under the above plans was estimated using
the Black-Scholes option pricing model with the following weighted average
assumptions for 1999, 1998 and 1997, respectively: expected dividend yield of
zero % for all years; expected life of 4.4 years for 1999, 4.5 years for 1998
and 3.5 years for 1997; expected volatility of 63% for 1999, 65% for 1998 and
52% for 1997; and, a risk-free interest rate of 5.2% for 1999, 5.6% for 1998 and
6.5% for 1997.
The following summarizes the status of the Company's stock options as of
December 31, 1999, 1998 and 1997 and changes during the year ended on those
dates:
<TABLE>
<CAPTION>
1999 1998 1997
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 2,175,927 $11.35 2,343,762 $11.31 975,255 $11.47
Granted 462,651 5.67 317,750 10.98 1,433,600 11.24
Exercised -- -- (97,717) 10.53 (9,386) 10.00
Canceled (316,457) 11.68 (387,868) 11.05 (55,707) 12.49
--------- --------- --------
Outstanding at end of year 2,322,121 10.17 2,175,927 11.35 2,343,762 11.31
========= ========= =========
Options exercisable at year-end 1,390,761 11.26 1,057,031 11.30 563,788 11.23
========= ========= =========
Options available for future grant 1,459,475 1,605,669 1,535,551
========= ========= =========
Weighted average fair value of
options granted during the year $3.12 $5.97 $4.69
===== ===== =====
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
------ ----------- ---- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$ 5.25 - $ 7.56 413,251 9.2 years $ 5.44 -- $ --
8.00 - 12.00 1,532,000 7.0 10.58 1,064,384 10.56
12.25 - 18.13 371,370 5.8 13.46 320,877 13.31
23.25 - 28.75 5,500 4.3 28.25 5,500 28.25
--------- ---------
$5.25 - $28.75 2,322,121 7.2 10.17 1,390,761 11.26
========= =========
</TABLE>
Employee Stock Purchase Plan
Pursuant to its 1993 Employee Stock Purchase Plan (the "Stock Purchase Plan"),
as amended in November 1999, the Company is authorized to issue up to an
aggregate of 600,000 shares of its common stock to substantially all full-time
employees electing to participate in the Stock Purchase Plan. Eligible employees
may contribute, through payroll withholdings or lump sum cash payment, up to 10%
of their base compensation during six-month participation periods beginning in
January and July of each year. At the end of each participation period, the
accumulated deductions are applied toward the purchase of Company common stock
at a price equal to 85% of the market price at the beginning or end of the
participation period, whichever is lower. Employee purchases amounted to 88,132
shares in 1999, 61,349 shares in 1998 and 40,293 shares in 1997 at prices
ranging from $5.05 to $9.67 per share. At December 31, 1999, 328,903 shares were
available for future purchases. The fair value of the employees' purchase rights
was estimated using the
38
<PAGE> 39
Black-Scholes option pricing model with the following weighted average
assumptions for 1999, 1998 and 1997, respectively: expected dividend yield of
zero % for all years; expected life of six months for all years; expected
volatility of 63% for 1999, 65% for 1998 and 52% for 1997; and, a risk-free
interest rate of 4.8%, 5.4% and 5.4% for 1999, 1998 and 1997, respectively. The
weighted average fair value of those purchase rights per share granted in 1999,
1998 and 1997 was $1.91, $2.97 and $3.14, respectively.
Common Stock Purchase Warrants
In February 1998, the Company issued 975,610 shares of its common stock and a
warrant to purchase up to 100,000 shares of its common stock in a private
placement, resulting in net proceeds of approximately $10,000 which will be used
for general corporate purposes. The warrant is exercisable at any time from the
grant date of February 12, 1998 to February 12, 2003 at an exercise price of
$10.25 per share, which represented the fair market value on the grant date.
Additionally, in June 1998, the Company issued a warrant to purchase 200,000
shares of the Company's common stock as part of settling a preacquisition
contingency of Simon. The warrant is exercisable at any time from the grant date
of June 30, 1998 to July 31, 2002 at an exercise price of $11.00 per share,
which represented the fair market value on the grant date.
14. Comprehensive Income
The Company's comprehensive income consists of net income (loss), foreign
currency translation adjustments and unrealized holding gains (losses) on
available-for-sale securities, and is presented in the Consolidated Statements
of Stockholders' Equity.
Components of other comprehensive income (loss) consist of the following:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Change in unrealized gains
and losses on investments $(189) $2,477 $140
Foreign currency translation
adjustments (719) (86) 247
Income tax benefit (expense) related to
unrealized gains and losses on investments 83 (1,035) (84)
----- ------ ----
Other comprehensive income (loss) $(825) $1,356 $303
====== ====== ====
</TABLE>
15. Profit-Sharing Retirement Plan
The Company has a qualified profit-sharing plan under Section 401(k) of the
Internal Revenue Code that is available to substantially all employees. Under
this plan the Company matches one-half of employee contributions up to six
percent of eligible payroll. Employees are immediately fully vested for their
contributions and vest in the Company contribution ratably over a three-year
period. The Company's contribution expense for the years ended December 31,
1999, 1998 and 1997 was $1,101, $988 and $709, respectively.
16. Litigation
On or about February 15, 1997, Montague Corporation ("Montague") filed an action
in Middlesex Superior Court, Commonwealth of Massachusetts, Montague Corporation
v. Cyrk, Inc. (Civil Action No. 97-00888) ("Montague action"), alleging a breach
of a May 17, 1995 Exclusive Distribution Agreement naming the Company as the
exclusive USA distributor for the sale of Montague bicycles in connection with
promotional programs. On March 10, 1999, the Company and Montague entered into a
Settlement and Joint Venture Agreement ("Settlement"), terminating the Montague
action and establishing a joint venture to sell corporate logoed bicycles for
use in various corporate sales programs and promotions. Under the terms of the
Settlement, the Company may be obligated to pay Montague up to $900 in cash if
the joint venture does not achieve certain financial results within three years
from the Settlement date.
The Company is also involved in other litigation and various legal matters which
have arisen in the ordinary course of business. The Company does not believe
that the resolution of the above described litigation matters or the ultimate
resolution of any other currently pending litigation or other legal matters will
have a material adverse effect on its financial condition, results of operations
or net cash flows.
39
<PAGE> 40
17. Related Party Transactions
The Company leases a portion of its sales and administrative offices under a
ten-year operating lease agreement expiring April 30, 2000 from a real estate
trust of which a former director of the Company is a trustee and beneficiary.
The agreement provides for annual rent of $354 and for the payment by the
Company of all utilities, taxes, insurance and repairs. The Company does not
intend on renewing this lease.
The Company leases administrative offices and warehouse facilities under a
three-year operating lease agreement expiring April 30, 2000 from a real estate
trust of which a former director of the Company is a trustee and beneficiary.
The agreement provides for annual rent of $171 and for the payment by the
Company of all utilities, taxes, insurance and repairs. The Company does not
intend on renewing this lease.
The Company leases warehouse facilities under a fifteen-year operating lease
agreement which expires December 31, 2011 from a limited liability company which
is jointly owned by an officer and a former director of the Company. The
agreement provides for annual rent of $462 and for the payment by the Company of
all utilities, taxes, insurance and repairs.
A former director of the Company is chairman of the executive committee of a
corporation which supplies certain promotional products to the Company.
Purchases from this corporation amounted to $9,027 and $9,904 for the years
ended December 31, 1998 and 1997, respectively. The amount due to this
corporation was $2,043 at December 31, 1998.
18. Segments and Related Information
The Company operates in one industry: the promotional marketing industry. The
Company's business in this industry encompasses the design, development and
marketing of high-impact promotional products and programs.
A significant percentage of the Company's sales is attributable to a small
number of customers. In addition, a significant portion of trade accounts
receivable relates to these customers. The following summarizes the
concentration of sales and trade receivables for customers with sales in excess
of 10% of total sales for any of the years ended December 31, 1999, 1998 and
1997, respectively:
<TABLE>
<CAPTION>
% of Sales % of Trade Receivables
---------- ----------------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Company A 9 11 16 6 9 12
Company B 61 57 36 35 32 40
Company C -- 1 21 -- -- 15
</TABLE>
The Company conducts its promotional marketing business on a global basis. The
following summarizes the Company's net sales for the years ended December 31,
1999, 1998 and 1997, respectively, by geographic area:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
United States $608,613 $482,200 $408,764
United Kingdom 153,976 60,524 37,758
Germany 111,231 35,351 21,270
Other foreign 115,024 179,778 90,831
-------- -------- --------
Consolidated $988,844 $757,853 $558,623
======== ======== ========
</TABLE>
The following summarizes the Company's long-lived assets as of December 31,
1999, 1998 and 1997, respectively, by geographic area:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
United States $104,073 $ 99,611 $106,677
Foreign 3,559 3,101 2,327
-------- -------- --------
Consolidated $107,632 $102,712 $109,004
======== ======== ========
</TABLE>
40
<PAGE> 41
Geographic areas for net sales are based on customer locations. Long-lived
assets include property and equipment, excess of cost over net assets acquired
and other non-current assets.
19. Earnings Per Share Disclosure
The following is a reconciliation of the numerators and denominators of the
basic and diluted EPS computation for "income (loss) available to common
stockholders" and other related disclosures required by SFAS 128:
<TABLE>
<CAPTION>
For the Years Ended December 31,
1999 1998 1997
-------------------------------------- ------------------------------------- ------------------------------------
Income Shares Per Share Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- -------- ----------- ------------- -------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS:
Income (loss)
available to
common
stockholders $10,994 15,624,366 $0.70 $(3,016) 14,962,362 $(0.20) $3,236 12,592,333 $0.26
===== ====== =====
Preferred stock
dividends 142 -- --
Effect of Dilutive
Securities:
Common stock
equivalents 95,444 -- 95,835
Convertible
preferred
stock 428,195 -- --
Contingently and
non-contingently
issuable shares
related to
acquired
companies 483,402 -- 336,406
------ ---------- ------- ---------- ------ -------
Diluted EPS:
Income (loss)
available to
common
stockholders
and
assumed
conversions $11,136 16,631,407 $0.67 $(3,016) 14,962,362 $(0.20) $3,236 13,024,574 $0.25
======= ========== ===== ======= ========== ====== ====== ========== =====
</TABLE>
For the year ended December 31, 1998, 695,317 of common stock equivalents were
not included in the computation of diluted EPS because to do so would have been
antidilutive.
20. Quarterly Results of Operations (Unaudited)
The following is a tabulation of the quarterly results of operations for the
years ended December 31, 1999 and 1998, respectively:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
1999
Net sales $159,077 $313,523 $258,823 $257,421
Gross profit 29,754 39,696 51,376 51,511
Net income (loss) (3,223) 2,483 7,761 4,115
Earnings (loss) per common share - basic (0.21) 0.16 0.49 0.25
Earnings (loss) per common share - diluted (0.21) 0.15 0.48 0.23
1998
Net sales $169,142 $212,609 $163,669 $212,433
Gross profit 30,308 31,799 32,570 43,207
Net income (loss) (9,851) (415) (245) 7,495
Earnings (loss) per common share - basic (0.69) (0.03) (0.02) 0.49
Earnings (loss) per common share - diluted (0.69) (0.03) (0.02) 0.46
</TABLE>
41
<PAGE> 42
CYRK, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
CHARGED TO DEDUCTIONS
ACCOUNTS RECEIVABLE, BALANCE AT COSTS AND (CHARGED AGAINST BALANCE AT
ALLOWANCE FOR BEGINNING EXPENSES OTHER ACCOUNTS END
DOUBTFUL ACCOUNTS OF PERIOD (BAD DEBT EXPENSES) ADDITIONS RECEIVABLE) OF PERIOD
- ----------------- ---------- ------------------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
1999 $2,682 $2,578 $ -- $1,017 $4,243
1998 3,801 1,485 -- 2,604 2,682
1997 3,191 390 358(1) 138 3,801
</TABLE>
(1) Represents addition to reserve as a result of acquired companies.
<TABLE>
<CAPTION>
DEFERRED INCOME ADDITIONS
TAX ASSET BALANCE AT CHARGED TO BALANCE AT
VALUATION BEGINNING COSTS AND OTHER END
ALLOWANCE OF PERIOD EXPENSES ADDITIONS DEDUCTIONS OF PERIOD
- ---------- ---------- -------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C>
1999 $8,193 $ -- $ -- $6,941(3) $1,252
1998 8,193 -- -- -- 8,193
1997 -- -- 8,193(2) -- 8,193
</TABLE>
(2) Represents addition to reserve as a result of an acquisition.
(3) Represents the tax benefit from adjusting the valuation allowance of the
acquired deferred assets.
42
<PAGE> 43
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
2.1 (11) Securities Purchase Agreement dated September 1, 1999,
between the Registrant and Overseas Toys, L.P.
3.1 (4) Restated Certificate of Incorporation of the
Registrant
3.2 (2) Amended and Restated By-laws of the Registrant
3.3 Certificate of Designation for Series A Senior
Cumulative Participating Convertible Preferred Stock,
filed herewith
4.1 (2) Specimen certificate representing Common Stock
10.1 (3)(13) 1993 Employee Stock Purchase Plan, as amended
10.2 (3)(4) 1993 Omnibus Stock Plan, as amended
10.3 (4) Lease dated as of April 19, 1989, between Gregory P.
Shlopak and Paul M. Butman, Jr., as Trustees of PG
Realty Trust, and Cyrk, Inc.
10.3.1 (9) Lease extension agreement dated March 16, 1999 by and
between Gregory P. Shlopak and Paul M. Butman, Jr.,
as Trustees of PG Realty Trust and Cyrk, Inc.
10.3.2 (12) Lease extension agreement dated July 29, 1999 by and
between Gregory P. Shlopak and Paul M. Butman, Jr.,
as Trustees of PG Realty Trust and Cyrk, Inc.
10.3.3 (12) Lease extension agreement dated July 29, 1999 by and
between Gregory P. Shlopak and Paul M. Butman, Jr.,
as Trustees of PG Realty Trust and Cyrk, Inc.
10.3.4 (12) Lease extension agreement dated July 29, 1999 by and
between Gregory P. Shlopak and Paul M. Butman, Jr.,
as Trustees of PG Realty Trust and Cyrk, Inc.
10.4 (12) Credit Agreement dated as of July 29, 1999 among Cyrk,
Inc., as Borrower, The Lenders Listed Herein, as
Lenders, Wells Fargo Bank, National Association, as
Issuing Lender, and Wells Fargo HSBC Trade Bank,
N.A., as Administrative Agent
10.5 (1) Tax Allocation and Indemnity Agreement dated July 6,
1993, among Cyrk, Inc., the Registrant, Gregory P.
Shlopak and Patrick D. Brady
10.6 (2)(3) Restricted Stock Purchase Agreement dated May 10,
1993, between the Registrant and Terry B. Angstadt
10.7 (3)(5) Life Insurance Agreement dated as of November 15, 1994
by and between the Registrant and Patrick D. Brady as
Trustee under a declaration of trust dated November 7,
1994 between Gregory P. Shlopak and Patrick D. Brady,
Trustee, entitled "The Shlopak Family 1994 Irrevocable
Insurance Trust"
10.7.1 (3)(5) Assignments of Life Insurance policies as Collateral,
each dated November 15, 1994
10.8 (3)(5) Life Insurance Agreement dated as of November 15, 1994
by and between the Registrant and Patrick D. Brady
as Trustee under a declaration of trust dated November
7, 1994 between Gregory P. Shlopak and Patrick D.
Brady, Trustee, entitled "The Gregory P. Shlopak 1994
Irrevocable Insurance Trust"
10.8.1 (3)(5) Assignments of Life Insurance policies as Collateral,
each dated November 15, 1994
10.9 (3)(5) Life Insurance Agreement dated as of November 15, 1994
by and between the Registrant and Walter E. Moxham,
Jr. as Trustee under a declaration of trust dated
November 7, 1994 between Patrick D. Brady and Walter
E. Moxham, Jr., Trustee, entitled "The Patrick D.
Brady 1994 Irrevocable Insurance Trust"
10.9.1 (3)(5) Assignments of Life Insurance policies as Collateral,
each dated November 15, 1994
10.10 (3)(6) 1997 Acquisition Stock Plan
10.11 (7) Securities Purchase Agreement dated February 12, 1998
by and between Cyrk, Inc. and Ty Warner
10.12 (8) Severance Agreement between Cyrk, Inc. and Gregory P.
Shlopak
10.13 (3)(9) Change of Control Agreement between Cyrk, Inc. and
Terry B. Angstadt dated November 2, 1997
10.14 (3)(9) Severance Agreement between Cyrk, Inc. and Ted L.
Axelrod dated November 20, 1998
10.15 (3)(9) Severance Agreement between Cyrk, Inc. and Dominic F.
Mammola dated November 20, 1998
10.15.1 (3)(9) Amendment No. 1 to Severance Agreement between Cyrk,
Inc. and Dominic F. Mammola dated March 29, 1999
10.16 Registration Rights Agreement between Cyrk, Inc. and
Overseas Toys, L.P., filed herewith
10.17 Management Agreement between Cyrk, Inc. and The
Yucaipa Companies, filed herewith
43
<PAGE> 44
10.18 (3)(11) Employment Agreement between Cyrk, Inc. and Allan
Brown, dated September 1, 1999
10.19 (3)(11) Employment Agreement between Cyrk, Inc. and Patrick
Brady, dated September 1, 1999
10.20 Lease agreement dated as of July 29, 1999, between
TIAA Realty, Inc. and Cyrk, Inc., filed herewith
10.21 (3) Life Insurance Agreement dated as of September 29,
1997 by and between Simon Marketing, Inc. and Frederic
N. Gaines, Trustee of the Allan I. Brown Insurance
Trust, under Declaration of Trust dated September 29,
1997, filed herewith
21.1 List of Subsidiaries, filed herewith
23.1 Consent of PricewaterhouseCoopers LLP - Independent
Accountants, filed herewith
27.98 Restated Financial Data Schedule, filed herewith
27.99 Financial Data Schedule, filed herewith
99.1 (10) Amended Cautionary Statement for Purposes of the "Safe
Harbor" Provisions of the Private Securities
Litigation Reform Act of 1995
99.2 (3) (11) Termination Agreement among Cyrk, Inc., Patrick Brady,
Allan Brown, Gregory Shlopak, Eric Stanton, and
Eric Stanton Self-Declaration of Revocable Trust
- ------------------------------------
(1) Filed as an exhibit to the Registrant's Registration Statement
on Form S-1 (Registration No. 33-75320) or an amendment
thereto and incorporated herein by reference.
(2) Filed as an exhibit to the Registrant's Registration Statement
on Form S-1 (Registration No. 33-63118) or an amendment
thereto and incorporated herein by reference.
(3) Management contract or compensatory plan or arrangement.
(4) Filed as an exhibit to the Annual Report on Form 10-K for the
year ended December 31, 1994 and incorporated herein by
reference.
(5) Filed as an exhibit to the Registrant's Registration Statement
on Form 10-Q dated March 31, 1995 and incorporated herein by
reference.
(6) Filed as an exhibit to the Registrant's Registration Statement
on Form S-8 (Registration No. 333-45655) and incorporated
herein by reference.
(7) Filed as an exhibit to the Annual Report on Form 10-K for the
year ended December 31, 1997 and incorporated herein by
reference.
(8) Filed as an exhibit to the Registrant's Report on Form 8-K
dated December 31, 1998 and incorporated herein by reference.
(9) Filed as an exhibit to the Annual Report on Form 10-K for the
year ended December 31, 1998 and incorporated herein by
reference.
(10) Filed as an exhibit to the Registrant's Registration Statement
on Form 10-Q dated March 31, 1999 and incorporated herein by
reference.
(11) Filed as an exhibit to the Registrant's Report on Form 8-K
dated September 1, 1999 and incorporated herein by reference.
(12) Filed as an exhibit to the Registrant's Registration Statement
on Form 10-Q dated September 30, 1999 and incorporated herein
by reference.
(13) Filed as an exhibit to the Registrant's Registration Statement
on Form S-8 dated February 1, 2000 and incorporated herein by
reference.
44
<PAGE> 1
Exhibit 3.3
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
CYRK, INC.
------------------------
PURSUANT TO SECTION 151 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
------------------------
Cyrk, 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 August 31, 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
<PAGE> 2
share (the "Base Liquidation Preference") which shall be designated as Series A
Senior Cumulative Participating Convertible Preferred Stock (the "Preferred
Stock") 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 November 10, 1999 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 November 10, 1999 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 November 10, 1999 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
<PAGE> 3
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
February 10, May 10, August 10 and November 10, commencing on February 10, 2000
(each a "Dividend Payment Date"), to the holders of record as of the next
preceding January 31, April 30, July 31 and October 31, (each, a "Record Date")
whether or 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
<PAGE> 4
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.
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
<PAGE> 5
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 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
<PAGE> 6
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, 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
<PAGE> 7
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 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
<PAGE> 8
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
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
<PAGE> 9
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 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
<PAGE> 10
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
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.
<PAGE> 11
(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
adjustment in the Conversion Price pursuant to paragraph 3(vii), 3(ix) or 3(x)
above;
<PAGE> 12
(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 convertible 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
<PAGE> 13
Common Stock issuable upon such conversion over and above the shares issuable on
the basis of the 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,
<PAGE> 14
dissolution or winding-up of the business of the Corporation or reduction or
decrease in capital stock.
5. Redemption.
(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 November 10, 2002, 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 November 10, 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 September 1, 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
<PAGE> 15
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 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 November 10, 2002 and prior to November 10, 2004 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
<PAGE> 16
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 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,
<PAGE> 17
dated as of September 1, 1999 between Overseas Toys, L.P. 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 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.
<PAGE> 18
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 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
<PAGE> 19
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.
"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,
<PAGE> 20
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.
<PAGE> 21
IN WITNESS WHEREOF, this Certificate of Designation has been signed by
the President of the Corporation and attested to by its Secretary this 10th day
of November, 1999.
By: /s/ Patrick D. Brady
-------------------------
Patrick D. Brady,
President
Attest:
/s/ Patricia J. Landgren
- --------------------------
Patricia J. Landgren,
Secretary
<PAGE> 1
Exhibit 10.16
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated
as of November 10, 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.
<PAGE> 2
(d) "Registrable Securities" means the Warrant and the
shares of 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;
2
<PAGE> 3
provided that any underwriting discounts and commissions with respect to the
registration of any Registrable 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
3
<PAGE> 4
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 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
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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 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:
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(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 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
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(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 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;
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(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 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
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<PAGE> 9
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 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.
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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 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.
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7. INDEMNIFICATION AND CONTRIBUTION.
(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,
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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 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
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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
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
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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 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.
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(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.
15
<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:
16
<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.
17
<PAGE> 18
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.
By: OA3, L.L.C., its General Partner
--------------------------------------
By: Robert Bermingham
Its: Secretary
CYRK, INC.,
By: /s/ Patrick D. Brady
Name: Patrick D. Brady
Title: Chief Executive Officer and President
18
<PAGE> 1
Exhibit 10.17
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT (this "Agreement") is made and entered into
as of November 10, 1999 by and between THE YUCAIPA COMPANIES LLC, a Delaware
limited liability company ("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
<PAGE> 2
of the Board of Directors or (c) any other 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
<PAGE> 3
$500,000 in any fiscal year of CYRK (which maximum amount shall be prorated for
the period beginning on the 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 November 10th 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
<PAGE> 4
person (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 November 10, 1999 (following the Special Meeting of Cyrk's
Stockholders on such date) 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
<PAGE> 5
determined to constitute liquidated damages, such payments shall in all events
be deemed reasonable.
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
<PAGE> 6
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 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.
<PAGE> 7
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 LLC
By: /s/ Robert Bermingham
-------------------------------
Name: Robert Bermingham
Title: Vice President & Secretary
CYRK, INC.
By: /s/ Patrick D. Brady
-------------------------------
Name: Patrick D. Brady
Title: Chief Executive Officer
and President
<PAGE> 1
Exhibit 10.20
STANDARD LEASE
101 Edgewater Drive
Wakefield, MA
LANDLORD: TIAA Realty, Inc.
TENANT: Cyrk, Inc.
PREMISES: Suites 200, 180 and 115 comprised of (i) approximately 38,129 rentable
square feet of space located on the second (2nd) floor, (ii)
approximately 6,579 rentable square feet of space on the first (1st)
floor and (iii) 3,201 rentable square feet of space also located on
the first (1st) floor, all situated in the Building known as 101
Edgewater Drive, Wakefield, MA and (the "Building") more particularly
described in Exhibit A to this Lease
DATED: As of July 29, 1999
<PAGE> 2
FIRST AMENDMENT TO LEASE
This First Amendment to Lease is dated as of this 27 day of December,
1999 by and between TIAA Realty, Inc. (the "Landlord") and Cyrk, Inc. (the
"Tenant").
WHEREAS, Landlord and Tenant are the Landlord and Tenant respectively
under and pursuant to that certain standard Lease Agreement dated as of July 29,
1999;
WHEREAS, as a result of certain delays of the Tenant in executing the
Lease and providing the Landlord with Tenant's Plans, the Landlord and Tenant
have agreed, subject to entering into this First Amendment, to amend the Lease
to call for a Commencement Date of March 1, 2000, notwithstanding that
Landlord's Work may not be performed or completed on or before March 1, 2000.
NOW, THEREFORE, the Landlord and the Tenant, each intending to be
legally bound, hereby agree as follows:
1. Commencement Date. Notwithstanding anything contained in the Lease
including, without limitation, Section 4.1 of the Lease to the contrary, the
Commencement Date under the Lease is hereby agreed to be March 1, 2000
notwithstanding whether or not the Landlord's Work, the Elevator Up-grade or the
Lobby Renovation Work may or may not be completed on or before March 1, 2000.
Tenant hereby agrees to commence payment of Basic Rent, Escalation Charges and
other sums and charges payable under the Lease on March 1, 2000 regardless of
whether or not Landlord's Work, the Elevator Up-grade or the Lobby Renovation
Work is completed or the Premises is then "ready for occupancy".
2. Preparation of the Premises. Article IV of the Lease is hereby
amended in the following respects:
(a) The first sentence of Section 4.1 is hereby deleted and the
following sentences are hereby inserted in its place and
stead:
"The Commencement Date shall be March 1, 2000 notwithstanding
that Landlord's Work will not be substantially completed on
such date. As used in this Lease, the term "Construction
Completion Date" shall mean August 1, 2000".
(b) The definition of the term "Tenant Plan Delivery Date" set
forth in Section 4.2 shall be amended to be "March 29, 2000".
(c) The definition of the term "Outside Plan Date" as set forth in
Section 4.2 shall be deemed amended to be "April 29, 2000".
(d) Section 4.2(e) of the Lease is hereby deleted and the
following new Section 4.2(e) shall be inserted in its place
and stead:
"(e) If the Substantial Completion Date has not
occurred by the Construction Completion Date (as it
may be extended pursuant to Section 4.4) then,
beginning on the day immediately following the
Construction
<PAGE> 3
Completion Date (as such date may be extended
pursuant to Section 4.4), Basic Rent and Escalation
Charges otherwise payable under this Lease shall
abate day for day thereafter until the date that the
Premises is "ready for occupancy" to the extent
required by Section 4.2(b) above, on which date the
abatement of Basic Rent and Escalation Charges set
forth herein shall terminate; and such right of
abatement of Basic Rent and Escalation Charges shall
be Tenant's sole and exclusive remedy at law and in
equity for Landlord's failure so to complete
Landlord's Work within such time. In the event that
Tenant shall occupy all or any portion of the
Premises for the Permitted Use (as opposed to entry
of the Premises for the purpose of "Early Entry" as
defined in Section 4.1 above) during such period of
abatement, the abatement of Basic Rent and Escalation
Charges provided herein shall be appropriately
adjusted given the nature and extent of Tenant's use
of the Premises during such period."
3. Generally. Except as herein modified, all the terms, covenants,
provisions and agreements contained in the Lease remain in full force and effect
and are hereby ratified and affirmed. Capitalized terms used herein and not
otherwise defined herein shall have the meanings ascribed to them in the Lease.
Witness our hands and seals on the day and year first above written.
LANDLORD:
TIAA Realty, Inc., a Delaware
corporation, as Landlord
By: Teachers Insurance and Annuity Association of
America, a New York corporation
Its: Authorized Representative
DATED: 12/27/99 By: /s/ Alan E. Lang
---------------------------------------------
Alan E. Lang
Its: Director
TENANT:
Cyrk, Inc.
DATED: 12/22/99 By /s/ Patrick D. Brady
---------------------------------------------
Its: President
-2-
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE CAPTION
I. BASIC LEASE PROVISIONS
1.1 Introduction
1.2 Basic Data
1.3 Additional Definitions
II. PREMISES AND APPURTENANT RIGHTS
2.1 Lease of Premises
2.2 Appurtenant Rights and Reservations
III. BASIC RENT
3.1 Payment
IV. COMMENCEMENT AND CONDITION
4.1 Commencement Date
4.2 Preparation of the Premises
4.3 Conclusiveness of Landlord's Performance
4.4 Tenant's Delays
V. USE OF PREMISES
5.1 Permitted Use
5.2 Installation and Alterations by Tenant
VI. ASSIGNMENT AND SUBLETTING
6.1 Prohibition
VII. RESPONSIBILITY FOR REPAIRS AND CONDITIONS
OF PREMISES; SERVICES TO BE FURNISHED BY LANDLORD
7.1 Landlord Repairs
7.2 Tenant's Agreement
7.3 Floor Load - Heavy Machinery
7.4 Building Services
7.5 Electricity
7.6 Interruption of Essential Services
VIII. REAL ESTATE TAXES
8.1 Payments on Account of Real
Estate Taxes
8.2 Abatement
8.3 Alternate Taxes
IX. OPERATING EXPENSES
9.1 Definitions
9.2 Tenant's Payments
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
X. INDEMNITY AND PUBLIC LIABILITY INSURANCE
10.1 Tenant's Indemnity
10.2 Public Liability Insurance
10.3 Tenant's Risk
10.4 Injury Caused by Third Parties
10.5 Landlord's Indemnity
XI. LANDLORD'S ACCESS TO PREMISES
11.1 Landlord's Rights
XII. FIRE, EMINENT DOMAIN, ETC.
12.1 Abatement of Rent
12.2 Right of Termination
12.3 Restoration; Tenant's Right of Termination
12.4 Award
12.5 Condemnation
XIII. DEFAULT
13.1 Tenant's Default
13.2 Landlord's Default
XIV. MISCELLANEOUS PROVISIONS
14.1 Extra Hazardous Use
14.2 Waiver
14.3 Covenant of Quiet Enjoyment
14.4 Landlord's Liability
14.5 Notice to Mortgagee or Ground Lessor
14.6 Assignment of Rents and Transfer of Title
14.7 Rules and Regulations
14.8 Additional Charges
14.9 Invalidity of Particular Provisions
14.10 Provisions Binding, Etc.
14.11 Recording
14.12 Notices
14.13 When Lease Becomes Binding
14.14 Paragraph Headings
14.15 Rights of Mortgagee or Ground Lessor
14.16 Status Report
14.17 Security Deposit/Letter of Credit
14.18 Remedying Defaults
14.19 Holding Over
14.20 Waiver of Subrogation
14.21 Surrender of Premises
14.22 Intentionally Omitted
14.23 Brokerage
14.24 Special Taxation Provisions
14.25 Hazardous Materials
14.26 Governing Law
14.27 Options to Extend
14.28 Right of First Offer
14.29 Satellite Business Terminal System
14.30 Elevator Upgrade
14.31 Lobby Upgrade
</TABLE>
<PAGE> 6
L E A S E
Preamble
THIS INSTRUMENT IS A LEASE, dated as of July __, 1999 in which the Landlord and
the Tenant are the parties hereinafter named, and which relates to space located
in that certain building known and numbered as 101 Edgewater Drive, Wakefield,
Massachusetts (the "Building"). The parties to this instrument hereby agree with
each other as follows:
ARTICLE I
BASIC LEASE PROVISIONS
1.1 INTRODUCTION. The following terms and provisions set forth basic data
and, where appropriate, constitute definitions of the terms hereinafter
listed:
1.2 BASIC DATA.
LANDLORD: TIAA Realty, Inc.
LANDLORD'S ORIGINAL ADDRESS:
c/o Leggat McCall Properties, LLC
500 Edgewater Drive
Wakefield, MA 01880
Attn: Property Manager: 101 Edgewater Drive,
Wakefield, MA
TENANT: Cyrk, Inc.
TENANT'S ORIGINAL ADDRESS: Three Pond Road
Gloucester, MA 02930
Attn: Trish Landgren, Esq.
GUARANTOR: N/A
BASIC RENT:
<TABLE>
<CAPTION>
LEASE YEAR BASIC RENT MONTHLY PAYMENT
---------- ---------- ---------------
<S> <C> <C>
1 $946,202.75 $78,850.23
2 $958,180.00 $79,848.33
3 $970,157.25 $80,846.44
4 $982,134.50 $81,844.54
5 $994,111.75 $82,842,65
</TABLE>
<PAGE> 7
BASE TAXES: Taxes for the calendar Year January 1, 2000 through and
including December 31, 2000, as the same may be abated.
BASE OPERATING EXPENSES: Operating Expenses for the calendar year
ending December 31, 2000, adjusted in accordance with Section 14.27
with respect to each Extension Period.
BASE UTILITY EXPENSES: Utility Expenses for the calendar year ending
December 31, 2000, adjusted in accordance with Section 14.27 with
respect to each Extension Period.
PREMISES RENTABLE AREA: Agreed to be approximately 47,909 rentable
square feet.
PERMITTED USES: General Office and as ancillary thereto, to the extent
permitted by applicable laws, storage of non-flammable, non-hazardous
materials in furtherance of the business of the Original Tenant named
in this Lease.
ESCALATION FACTOR: 64.45%, as computed in accordance with the
Escalation Factor Computation.
INITIAL TERM: Five (5) years commencing on the Commencement Date and
expiring at the close of the day immediately preceding the fifth (5th)
anniversary of the Commencement Date, except that if the Commencement
Date shall be other than the first day of a calendar month, the
expiration of the Initial Term shall be at the close of the day on the
last day of the calendar month on which such anniversary date shall
fall.
SECURITY DEPOSIT: Initially, $242,539.32 in the form of a Letter of
Credit subject to and in accordance with the provisions of Section
14.17 of this Lease.
1.3 ADDITIONAL DEFINITIONS.
MANAGER: Leggat McCall Properties, LLC or such other managing
representative designated by Landlord as the Manager from time to time.
BUILDING RENTABLE AREA: Agreed to be approximately 74,332 rentable
square feet.
BUSINESS DAYS: All days except Saturday, Sunday, New Year's Day,
Washington's Birthday, Patriot's Day, Memorial Day, Independence Day,
Labor Day, Columbus Day, Veterans' Day, Thanksgiving Day, Christmas Day
(and the following day when any such day occurs on Sunday).
COMMENCEMENT DATE: As defined in Section 4.1.
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<PAGE> 8
DEFAULT OF TENANT: As defined in Section 13.1.
ESCALATION CHARGES: The amounts prescribed in Sections 8.1 and 9.2.
ESCALATION FACTOR COMPUTATION: Premises Rentable Area divided by the
Building Rentable Area.
FORCE MAJEURE: Collectively and individually, strike or other labor
trouble, fire or other casualty, governmental preemption of priorities
or other controls in connection with a national or other public
emergency or shortages of, or inability to obtain, fuel, supplies or
labor resulting therefrom, or any other cause, whether similar or
dissimilar, beyond Landlord's reasonable control.
INITIAL PUBLIC LIABILITY INSURANCE: $1,000,000 (per occurrence) primary
liability and $5,000,000 (per occurrence) excess liability (combined
single limit) for bodily injury, death and property damage, such
policies to be written with companies approved by Landlord and having a
Best's Insurance Rating of A- or better with a Financial Rating of X.
LAND PARCEL: The parcel of land upon which the Building is located, as
more particularly described in Exhibit A-1.
LEASE YEAR OR LEASE YEAR: Each consecutive 12 calendar month period
immediately following the Commencement Date, but if the Commencement
Date shall fall on other than the first day of a calendar month, then
such term shall mean each consecutive twelve calendar month period
commencing with the first day of the first full calendar month
following the calendar month in which the Commencement Date occurs,
however, the first lease year shall include any partial month between
the Commencement Date and the first day of the first full calendar
month immediately following the Commencement Date.
OFFICE PARK: The land with the buildings and improvements thereon
situated in Wakefield, Massachusetts and known as Edgewater Office
Park.
OPERATING EXPENSES: As set forth in Section 9. 1.
OPERATING YEAR: As defined in Section 9.1.
PREMISES: The portions of the first and second floors of the Building
comprised of the aggregate of approximately 47,909 rentable square feet
and shown on Exhibit A annexed hereto.
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<PAGE> 9
PROPERTY: The Building and the Land Parcel on which it is located
(including parking areas, loading areas, driveways, landscaped areas
and adjacent sidewalks).
TAX YEAR: As defined in Section 8.1.
TAXES: As determined in accordance with Section 8. 1.
TENANTS REMOVABLE PROPERTY: As defined in Section 5.2.
TERM OF THIS LEASE: The Initial Term and any extension thereof in
accordance with the provisions hereof.
UTILITY EXPENSES: As defined in Section 9.1.
EXHIBITS: The following Exhibits are annexed to this Lease and
incorporated herein by this reference:
Exhibit A - Plan showing Premises
Exhibit A-1 Land Parcel
Exhibit B - Tenant Plan Requirements
Exhibit C - Rules and Regulations
Exhibit D - List of Approved General Contractors
Exhibit E - Operating Expenses
Exhibit F - Cleaning Services
ARTICLE II
PREMISES AND APPURTENANT RIGHTS.
2.1 LEASE OF PREMISES. Landlord hereby demises and leases to Tenant for the
Term of this Lease and upon the terms and conditions hereinafter set
forth, and Tenant hereby accepts from Landlord, the Premises.
2.2 APPURTENANT RIGHTS AND RESERVATIONS. (a) Tenant shall have, as
appurtenant to the Premises, the non-exclusive right to use, and permit
its invitees to use in common with others and subject to the rights of
others from time to time entitled thereto, (i) public or common
lobbies, hallways, elevators, (ii) common walkways necessary for access
to the Building, (iii) parking spaces and roadways located in the
parking areas located on the Land Parcel and the parcel of land known
as Lot 54 as shown on that certain Plan entitled "Subdivision Plan of
Land in Wakefield, Mass" (Scale 1" = 200") dated March 11, 1985
(revised March 28, 1985) prepared by Hayes Engineering, Inc. and filed
with the Middlesex (South) Registry District of the Land Court as Plan
No. 27190W with Certificate of Title No. 172727 (the "Adjacent Parcel")
such plan being described in that certain Grant of Easements filed in
the Middlesex (South) Registry District
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<PAGE> 10
of the Land Court as Document Number 725575 as the "Subdivision Plan",
and if the portion of the Premises on any floor includes less than the
entire floor, the common toilets, corridors and elevator lobby of such
floor; but Tenant shall have no other appurtenant rights and all such
rights shall always be subject to reasonable and uniformly applied
rules and regulations from time to time established by Landlord
pursuant to Section 14.7 and to the right of Landlord to designate and
change from time to time areas and facilities so to be used; provided
that such designations or changes do not materially and adversely
interfere with Tenant's access to the Property and the Premises or
Tenant's right to use or enjoy the Premises. As long as the Land Parcel
and the Adjacent Parcel are owned and controlled by Landlord, or a
subsidiary of Landlord or any entity that is owned or controlled by
Landlord or controls Landlord and, subject to actions of public or
governmental authority Landlord represents and warrants to Tenant that
there is and will be during the Term of this Lease an aggregate of at
least 579 parking spaces located on the Land Parcel and the Adjacent
Parcel.
(b) Excepted and excluded from the Premises are the ceiling, floor,
perimeter walls and exterior windows, except the inner surfaces
thereof, but the entry doors (and related glass and finish work) to the
Premises are a part thereof; and Tenant agrees that Landlord shall have
the right to place in the Premises (but in such manner as to reduce to
a minimum interference with Tenant's use of the Premises) interior
storm windows, subcontrol devices (by way of illustration, an electric
sub panel, etc.), utility lines, pipes, equipment and the like, in,
over and upon the Premises provided that the same do not materially and
adversely interfere with the operation of Tenant's business. Tenant
shall install and maintain, as Landlord may require, proper access
panels in any hung ceilings or walls as may be installed by Tenant in
the Premises to afford access to any facilities above the ceiling or
within or behind the walls.
(c) Subject to all other applicable provisions of this Lease, Tenant
shall have as appurtenant to the Premises, the right of access to the
Building roof to the extent necessary for purposes of (i) performing
its obligations and exercising its rights pursuant to Section 14.29 or
(ii) the repair, installation and maintenance of HVAC equipment in
accordance with Tenant's rights and obligations under this Lease.
Tenant shall be responsible for any damage to the roof of the Building
and shall advise Landlord in advance of any entry upon the roof.
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<PAGE> 11
ARTICLE III
BASIC RENT
3.1 PAYMENT. (a) Tenant agrees to pay to Landlord, or as directed by
Landlord, commencing on the Commencement Date without offset,
abatement, deduction or demand, the Basic Rent plus Landlord's
estimated amounts for Escalation Charges. Such Basic Rent plus
Landlord's estimated amounts for Escalation Charges shall be payable in
equal monthly installments, in advance, on the first day of each and
every calendar month during the Term of this Lease, at Landlord's
Original Address, or at such other place as Landlord shall from time to
time designate by notice to Tenant, in lawful money of the United
States. In the event that any installment of Basic Rent or Escalation
Charges is not paid within five (5) days after the due date thereof on
any two (2) occasions during any twelve (12) calendar month period then
beginning with the third (3rd) such occasion during such 12 calendar
month period and thereafter at any time that any installation of Basic
Rent or Escalation Charges is not paid when due, Tenant shall pay, in
addition to any other additional charges due under this Lease, an
administrative fee equal to 5% of the overdue payment.
(b) Basic Rent and Escalation Charges for any partial month shall be
pro-rated on a daily basis, and if the first day on which Tenant must
pay Basic Rent and Escalation Charges shall be other than the first day
of a calendar month, the first payment which Tenant shall make to
Landlord shall be equal to a proportionate part of the monthly
installment of Basic Rent for the partial month from the first day on
which Tenant must pay Basic Rent and Escalation Charges to the last day
of the month in which such day occurs, plus the installment of Basic
Rent and Escalation Charges for the succeeding calendar month.
ARTICLE IV
COMMENCEMENT AND CONDITION
4.1 COMMENCEMENT DATE. The Commencement Date shall be the last to occur of
(i) March 1, 2000 (the "Construction Completion Date") or (ii) the day
following the Substantial Completion Date (as defined in Section
4.2(b). Notwithstanding the foregoing, if Tenant's personnel shall
occupy all or any part of the Premises for the conduct of its business
(as opposed to mere installation of telecommunications, equipment or
furnishings as and to the extent permitted hereunder) prior to the
Commencement Date, such date shall
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<PAGE> 12
for all purposes of this Lease be the Commencement Date.
Notwithstanding the foregoing to the contrary, entry by Tenant for
purposes of Early Entry pursuant to the next grammatical paragraph of
this Section 4.1 shall not, in and of itself, result in the occurrence
of the Commencement Date. It is agreed and understood that the
Commencement Date shall occur upon the date determined in accordance
with the foregoing provisions of this Section 4.1 notwithstanding that
the "Elevator Up-grade" and the Lobby Renovation Work (as those terms
are defined in Section 14.30 and 14.31 hereof respectively) may or may
not be completed on or before the Commencement Date with respect to the
Premises. Tenant shall execute a certificate written certificate
confirming the Commencement Date as it is determined in accordance with
the provisions of this Section 4.1 within ten (10) days of written
demand by Landlord.
At such time and to the extent that Landlord shall reasonably determine
that Landlord's Work (as said term is hereafter defined) has progressed
to the point that entry by Tenant or Tenant's contractors will not
materially interfere with the performance and completion of Landlord's
Work, Landlord shall permit Tenant, Tenant's employees and Tenant's
contractors and vendors to enter the Premises prior to the Commencement
Date ("Early Entry") in order to (a) perform installations of
telecommunications, voice and data systems, furniture and other
equipment and (b) test and commence to operate computer and
telecommunications equipment and systems in the computer room in order
to facilitate smooth transition of Tenant's business between the
Premises and Tenant's current premises in Gloucester, MA. Such Early
Entry shall be upon and subject to all of the terms, covenants and
provisions of this Lease notwithstanding that the Commencement Date
shall not then have occurred.
4.2 PREPARATION OF THE PREMISES. (a) It is agreed and understood that
Tenant shall be responsible for developing detailed plans,
specifications and construction documents reflecting the improvements
desired by Tenant in the Premises and necessary and sufficient to
obtain a Building Permit from the Town of Wakefield and to enable
Landlord to complete Landlord's Work containing, without limitation,
the plans, construction documents, details and information specified in
Exhibit B ("Tenant's Plans"). Tenant shall engage Elkus Manfredfi
Architects Ltd. as the architect for purposes of preparing Tenant's
Plans (the "Architect"). As proposed Tenant's Plans are being
developed, Tenant shall consult with Landlord's construction manager in
order to permit Landlord's construction manager to provide assistance
and guidance in connection with the development of Tenant's Plans. In
any and all events, Tenant shall cause final and complete Tenant's
Plans to be delivered to Landlord on or before November 29, 1999 (the
"Tenant Plan Delivery Date").
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<PAGE> 13
Upon receipt of a complete set of Tenant's Plans from Tenant, Landlord
shall have a period of seven (7) Business Days to review Tenant's
Plans. Such review and approval shall take place in the time and manner
hereinafter specified. Landlord shall not unreasonably withhold its
approval of Tenant's Plans.
If Landlord shall approve Tenant's Plans, Landlord shall thereafter
commence the Bid Process (as hereafter defined). In the event Landlord
shall not approve of Tenant's Plans (or any aspect thereof), Landlord
shall provide Tenant with written notice (written notice by facsimile
or overnight courier shall be sufficient) of the specific aspects of
Tenant's Plans of which, as so submitted, Landlord does not approve (a
"Rejection Notice") within seven (7) Business Days after Landlord's
receipt of such complete Tenant's Plans.
Upon receipt of a Rejection Notice, Tenant shall thereafter revise
Tenant's Plans in the manner required by the Rejection Notice and shall
deliver revised Tenant's Plans to Landlord on or before the date which
is seven (7) Business Days after Tenant's receipt of such Rejection
Notice. Landlord shall again have five (5) Business Days after receipt
of such revised Tenant's Plans within which to review and approve (or
reject) Tenant's Plans. In any and all events, Landlord and Tenant
shall agree on Final Tenant's Plans on or before December 29, 1999 (the
"Outside Plan Date"). Landlord shall not be required to approve any
alteration, improvement, work or materials called for in Tenant's Plans
which (i) is not approved by Landlord's architect or (ii) does not
comply with any of the Requirements as defined in Article VII
including, without limitation, any and all applicable laws, ordinances
or building codes or (iii) does not meet Landlord's minimum standards
for the Building as determined by Landlord in Landlord's sole but
reasonable judgment or (iv) do not call for work or improvements
sufficient to bring the Premises into compliance with all applicable
Requirements (as defined in Section 7.2) or (v) pertain to the Lobby
Area which is to be renovated pursuant to Section 14.31 hereof. Tenant
shall be responsible for the content of Tenant's Plans and shall insure
that the same call for work and improvements which are designed in
compliance with and which, when performed, shall bring the Premises
into compliance with all applicable Requirements. Landlord's approval
of Tenant's Plans shall not be deemed or construed as a representation
or warranty by Landlord or Landlord's construction manager that the
work and improvements called for therein are in compliance with the
Requirements.
Upon approval of Tenant's Plans by Landlord, Landlord shall promptly
apply for all licenses, permits and approvals necessary to perform
Landlord's Work and Landlord shall also
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<PAGE> 14
forward the approved Tenant's Plans to the general contractors set
forth in Exhibit D (such bidding process being the "Bid Process").
Subject to the rights of Landlord under this Lease with respect to the
selection and designation of the general contractor, Landlord shall
consult with Tenant in connection with completing the Bid Process and
shall share information relative the bids submitted by the various
contractors with Tenant.
After completion of the Bid Process, Landlord will arrange for a
meeting between the Architect, Landlord's Construction Manager, Tenant
and the lowest qualified responsible bidder, wherein the contractors
bid and the scope of work called for therein shall be reviewed. Such
meeting shall take place within two (2) Business Days after completion
of the Bid Process.
After such meeting, Landlord shall select the lowest qualified
responsible bid submitted by one of the contractors and shall designate
and enter into a construction contract with such bidder as the general
contractor for purposes of performing Landlord's Work. Landlord shall
provide Tenant with a copy of the construction contract as executed.
Upon completion of the Bid Process and Landlord's designation of and
entry into the construction contract with the general contractor as
aforesaid, Landlord shall exercise all reasonable efforts to promptly
complete the work necessary to prepare the Premises for Tenant's
occupancy pursuant to the Tenant's Plans ("Landlord's Work"), but
Tenant shall have no claims against Landlord for failure to timely
complete such Landlord's Work except the right to terminate this Lease
in accordance with the provisions of Section 4.2(e). It is agreed and
understood that notwithstanding anything contained in the Tenant's
Plans to the contrary, Landlord's Work shall not include any aspect of
the Elevator Up-Grade or the Lobby Renovation Work contemplated in
Section 14.30 and Section 14.31 respectively, unless expressly agreed
to by Landlord in writing.
Landlord shall cause Landlord's Construction Manager to oversee the
performance of Landlord's Work and shall use good faith efforts to
ensure that such work is performed in a good and workmanlike manner in
compliance with Tenant's Plans as approved by Landlord and Tenant.
Landlord's construction manager shall:
1. review all of Tenant's architectural plans and shall provide
feedback to Tenant on the Landlord's behalf;
2. coordinate the Bid Process;
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<PAGE> 15
3. review all bids in conjunction with Tenant and Tenant's
architect;
4. organize and coordinate a weekly construction meeting;
5. insure that all change orders are appropriately approved;
6. oversee the punch-list process;
7. pay all approved and appropriate general contractor invoices
(provided that Tenant has timely paid Tenant's Share to the
extent that all or any portion of Tenant's Share is then due
and payable);
8. coordinate with Tenant's specialty vendors such as furniture,
data and telecommunications contractors.
Tenant hereby acknowledges that Landlord's construction manager is
Landlord's representative and is charged with representation of the
Landlord.
Landlord has agreed to provide Tenant with an allowance and shall pay
up to $20.00 per square foot contained in the Premises Rentable Area
(the "Allowance") toward the Total Cost of Landlord's Work (as
hereafter defined).
To the extent that the Total Cost of Landlord's Work exceeds the
Allowance (such excess of the Total Cost of Landlord's Work over the
Allowance being "Tenant's Share"), Tenant shall pay the Landlord the
Tenant's Share as an additional charge under this Lease as hereafter
set forth in Section 4.2(d). Tenant shall, if requested by Landlord,
execute a work letter confirming such excess costs and Tenant's Share
prior to the time Landlord shall be required to commence Landlord's
Work. To the extent shown on and required by Tenant's Plans, Landlord
shall perform Landlord's Work in compliance with the Requirements.
Landlord shall require that all payments of the Allowance and the funds
representing Tenant's Share shall be paid to the general contractor
only upon submission of Standard AIA Requisition Forms (a
"Requisition") and approval thereof by the Architect as Landlord's Work
progresses (copies of such Requisition Forms shall promptly be provided
to Tenant's Construction Representatives, as hereafter defined, and the
Architect). The approval of the Architect shall not be unreasonably
withheld or delayed. All such payments shall be subject to a retainage
which shall not be released until such time as Landlord's Work is
substantially complete and all punch-list work is completed as mutually
consented to by Landlord, Tenant and the Architect, which consent the
parties hereby agree shall not be unreasonably withheld or delayed.
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<PAGE> 16
(b) The Premises shall be deemed "ready for occupancy" on the first
Business Day (the "Substantial Completion Date") after (a) Landlord's
Work has been completed except for items of work (and, if applicable,
adjustment of equipment and fixtures) which can be completed after
occupancy has been taken without causing undue interference with
Tenant's use of the Premises (i.e., so called "punch list" items), and
Tenant shall afford Landlord access to the Premises for such purposes
and (b) Landlord has obtained a certificate of occupancy permitting
Tenant to occupy the Premises (such certificate may be a temporary
certificate provided that Landlord has substantially completed
Landlord's Work and a permanent certificate is not issued due to work,
alterations, improvements or installations which are being performed by
Tenant's contractors or vendors).
(c) As used herein, the term "Total Cost of Landlord's Work" shall mean the
aggregate cost of (1) obtaining all licenses, permits and governmental
approvals and performing and/or providing all work, labor, materials,
supplies, demolition work, alterations and improvements including,
without limitation, general conditions, overhead, profit and other
costs and fees payable to the designated general contractor in
connection with performing and completing Landlord's Work and (2)
Tenant's architectural and engineering fees sustained in connection
with the development review and revision of Tenant's plans. The Total
Cost of Landlord's Work shall not include (i) any construction
management fees or expenses payable to the Landlord's construction
manager, (ii) the cost of bringing the electrical capacity/service to
the Premises up to ten watts per square foot excluding HVAC service and
(iii) the cost of upgrading the HVAC service to the Premises to provide
one (1) ton of HVAC service/capacity (including diffusers duct work and
controls) as necessary for each 350 square feet of Premises Rentable
Area as of the Commencement Date. It is agreed and understood that
Landlord shall bear the cost of performing the work described in
Sections 4.2(c)(i), 4.2(c)(ii) and 4.2(c)(iii) all at Landlord's sole
cost and expense.
(d) Tenant's Share shall be payable as an additional charge under this
Lease within two (2) Business Days after receipt of written demand (a
"Tenant's Share Request") from Landlord to Tenant's Construction
Representatives which shall be accompanied by the Requisition then
pertaining to the payment of Tenant's Share signed by the Architect. As
used herein, the term "Tenant's Construction Representatives" shall
mean Mr. Dominic F. Mammola and Mr. Paul Griffin each having an address
at c/o Cyrk, Inc., 3 Pond Road, Gloucester, MA 01930. Payments of
Tenant's Share shall be paid by wire transfer to the following account:
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<PAGE> 17
Account Name: Leggat McCall Properties, LLC
101 Edgewater Drive Capital Account
Bank Name: Fleet Bank
28 State Street
Boston, MA 02109
ABA#: 011 000 138
Account #: 9411958556
In addition to and without limitation of any other right or remedy of
Landlord with respect to Tenant's failure to timely pay Tenant's Share
as and when due under this Lease, in the event that all or any portion
of Tenant's Share is not paid in full within two (2) Business Days
after receipt of a Tenant's Share Request (which may be given via fax
transmission or overnight courier), Tenant shall pay Landlord as an
additional charge under this Lease an administrative fee equal to 10%
of the overdue payment.
In any and all events, Tenant shall pay Tenant's Share to Landlord
prior to Tenant taking occupancy of the Premises. Landlord shall be
entitled to retain 50% of any portion of the Allowance not needed to
complete Landlord's Work in the Premises. Although Tenant's Share is
payable to Landlord as and when provided in this section 4.2(d),
Landlord shall not disburse funds representing Tenant's Share to the
general contractor unless and until Landlord has fully advanced the
Allowance (inclusive of the required retainage, which Landlord shall
continue to hold as aforesaid). In addition to and without limitation
of any other right or remedy of Landlord provided in this Lease,
Landlord shall have the same rights and remedies against Tenant for
Tenant's failure to timely pay Tenant's Share as and when due as
Landlord has against Tenant for failure to pay Basic Rent when due.
(e) If the Substantial Completion Date has not occurred by the
Construction Completion Date (as it may be extended pursuant to Section
4.4), Tenant shall have the right to terminate this Lease by giving
notice to Landlord, not later than thirty (30) days after the
Construction Completion Date (as so extended), of Tenant's desire so to
do; and this Lease shall cease and come to an end without further
liability or obligation on the part of either party one hundred twenty
(120) days after the giving of such notice, unless, within such 120-day
period, Landlord substantially completes Landlord's Work to the extent
required by Section 4.2(b) above, which substantial completion shall
void Tenant's election to terminate; and such right of termination
shall be Tenant's sole and exclusive remedy at law or in equity for
Landlord's failure so to complete such Work within such time.
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<PAGE> 18
4.3 CONCLUSIVENESS OF LANDLORD'S PERFORMANCE. Prior to commencing occupancy
of the Premises, Tenant and Tenant's architect shall coordinate with
Landlord's construction manager to create a punch-list of outstanding
aspects of Landlord's Work. Unless Tenant shall have given Landlord
written notice by the end of the sixth (6th) full calendar month after
the Commencement Date of specific respects in which Landlord has not
performed Landlord's Work in compliance with the Tenant's Plans, Tenant
shall have no claim that Landlord has failed to perform any of
Landlord's Work except for (a) defects in workmanship and materials
which were not reasonably susceptible of discovery at the time of
creation of the punchlist or within the six (6) calendar month period
described above and of which Tenant shall give Landlord written notice
within such six (6) month period and (b) defects in HVAC equipment
installed by Landlord or originally installed in the Premises by
Landlord and serving the Premises and of which Tenant shall have given
Landlord written notice within one (1) year after the Commencement
Date. Except for Landlord's Work and as otherwise expressly provided in
this Lease, the Premises are being leased in their condition, "as is"
without warranty or representation by Landlord. Tenant acknowledges
that it has inspected the Premises, the common areas of the Building
and the Property and, except for Landlord's Work, the Elevator Up-grade
(as defined in Section 14.30) and the Lobby Renovation Work (as defined
in Section 14.31), has found the same to be satisfactory.
Nothing contained herein shall be deemed or construed to affect or
limit any rights or claims Tenant may have, if any, against Landlord's
general contractor. To the extent assignable, Landlord shall assign
(without recourse to Landlord), its warranties given to Landlord in
connection with Landlord's Work to Tenant. Upon such assignment
Landlord shall be entirely freed and released from any responsibility
or liability with respect to any matter covered by such warranties as
so assigned to Tenant.
Further, nothing contained in this Section 4.3 shall be deemed or
construed to limit Landlord's repair and maintenance obligations
pursuant to Section 7.1 of this Lease.
Upon the written request of Tenant, within one (1) year after
completion of Landlord's Work and provided that Tenant has paid
Tenant's Share in full to Landlord, Tenant shall have the right to
review and audit Landlord's records pertaining to the Total Cost of
Landlord's Work, the funding and payment of the Allowance and Tenant's
Share and all payments made to the General Contractor by Landlord in
connection with Landlord's Work. Landlord represents and warrants that
neither Landlord, Landlord's construction manager nor any of their
respective agents, servants or
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<PAGE> 19
employees shall accept or receive any consideration or "kick-backs"
from the general contractor or subcontractors that are hired to perform
Landlord's Work or any other entity engaged in designing or building
out the Premises.
4.4 TENANT'S DELAYS. (a) If the Substantial Completion Date shall be
delayed as the result of:
(i) any request by Tenant that Landlord delay in the
commencement or completion of Landlord's Work for any reason; or
(ii) failure of Tenant to deliver complete Tenant's Plans to
Landlord on or before the Tenant Plan Delivery Date or failure by
Tenant to timely deliver revised Tenant's Plans to Landlord as and when
required by this Article IV or any change in Tenant's Plans requested
by Tenant and approved by Landlord; or
(iii) failure of Landlord and Tenant to agree on the form of
Tenant's Plans on or before the Outside Plan Date or any failure of
Tenant to pay all or any portion of the Tenant's Share as and when due
and payable under this Article IV; or
(iv) any reasonably necessary displacement of any of
Landlord's Work from its place in Landlord's construction schedule
resulting from any of the causes for delay referred to in clauses (i),
(ii) or (iii) of this paragraph and the fitting of such Work back into
the schedule;
then, in any such event, Tenant shall, from time to time and within ten
(10) days after demand therefor, pay to Landlord for each day the
Substantial Completion Date is delayed by reason of the delays referred
to in clauses (i), (ii), (iii) and (iv) above, an amount equal to one
day of Basic Rent (pro-rated on a daily basis) for each such day of
delay. Provided, however, that the daily payment of Basic Rent called
for by the immediately preceding sentence shall not apply with respect
to the first ten (10) days of Tenant's Delay.
(b) Intentionally Omitted.
(c) The delays referred to in paragraph (a) are herein referred to
collectively and individually as "Tenant's Delay". It is agreed and
understood that the Tenant's Plans shall not include alterations or
improvements to the common areas of the Building pursuant to Sections
14.30 and 14.31 and accordingly, failure to agree upon plans and
specifications with respect to the matters contemplated in Section
14.30 and Section 14.31 shall not constitute a Tenant's Delay.
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(d) If, as a result of Tenant's Delay, the Substantial Completion Date
is delayed in the aggregate for more than sixty (60) days, Landlord may
(but shall not be required to), by written notice to Tenant within ten
(10) days after expiration of such sixty (60) day period, terminate
this Lease by giving written notice of such termination to Tenant and
thereupon this Lease shall terminate without further liability or
obligation on the part of either party, except that Tenant shall pay to
Landlord the cost theretofore incurred by Landlord in performing
Landlord's Work, plus an amount equal to Landlord's out-of-pocket
expenses incurred in connection with this Lease, including, without
limitation, brokerage and legal fees, together with any amount required
to be paid pursuant to paragraph (a) through the effective termination
date.
(e) The Construction Completion Date shall automatically be extended
for the period of any delays caused by Tenant's Delay or Force Majeure.
ARTICLE V
USE OF PREMISES
5.1 PERMITTED USE. (a) Tenant agrees that the Premises shall be used and
occupied by Tenant only for Permitted Uses.
(b) Tenant agrees to conform to the following provisions during the
Term of this Lease:
(i) Tenant shall cause all freight to be delivered to or
removed from the Building and the Premises in accordance with
reasonable rules and regulations established and uniformly applied by
Landlord therefor;
(ii) Except as otherwise expressly permitted by this Lease,
Tenant will not place on the exterior of the Premises (including both
interior and exterior surfaces of doors and interior surfaces of
windows) or on any part of the Building outside the Premises, any
signs, symbol, advertisements or the like visible to public view
outside of the Premises with the exception of identity signage in
Tenant's entrance area which may be visible in the main lobby of the
Building. Landlord will not unreasonably withhold consent for such
interior signs or signs or lettering on the entry doors to the Premises
provided such signs conform to building standards adopted by Landlord
and Tenant has first submitted a sketch of the sign to Landlord for its
approval.
Landlord shall install, at Landlord's sole cost and expense, Tenant's
name on signage on the main Building
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directory as well as on Edgewater Office Park's existing directory sign
at the entrance to Edgewater Office Park.
In addition, provided that and so long as Tenant is occupying the
entire Premises, Tenant shall have the right, at Tenant's sole cost and
expense, to place Tenant's logo on the tombstone sign at the entrance
to the Building. The size and location of Tenant's logo on such
tombstone sign shall be subject to Landlord's approval, which approval
will not be unreasonably withheld or delayed.
Any and all signs installed by or on behalf of Tenant shall be removed
by Tenant upon expiration or earlier termination of the Term of the
Lease (repairing any damage to the Property or any portion thereof
caused by such installation). Tenant shall also maintain and repair any
such signage in good condition at all times during the Term of this
Lease.
(iii) Tenant shall not perform any act or carry on any
practice which may injure the Premises, or any other part of the
Building, or cause offensive odors or loud noise or constitute a
nuisance or menace to any other tenant or tenants or other persons in
the Building;
(iv) Tenant shall, at its sole cost and expense: (x) in its
use of the Premises, the Building or the Land under the Lease, comply
with the requirements of all applicable governmental laws, rules and
regulations including, without limitation, the Americans with
Disabilities Act of 1990, as amended (the "ADA") and (y) pay for and
perform any work necessary to bring the Premises into compliance with
the ADA which work is required due to the Tenant's use of the Premises.
Nothing contained in this clause (iv) shall be deemed or construed to
require Tenant to perform alterations to the elevator in order to bring
the same into compliance with the ADA; and
(v) Tenant shall occupy the Premises for the Permitted Uses
and for no other purposes.
5.2 INSTALLATION AND ALTERATIONS BY TENANT. (a) Tenant shall make no
alterations, additions (including, for the purposes hereof,
wall-to-wall carpeting), or improvements in or to the Premises in
excess of $10,000.00 without Landlord's prior written consent, which
consent shall not be unreasonably withheld or delayed with respect to
non-mechanical, non-structural or non-electrical changes, alterations
or improvements. Any such alterations, additions or improvements shall
(i) be in accordance with complete plans and specifications prepared by
Tenant and consented to in advance by Landlord, which consent shall
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<PAGE> 22
not be unreasonably withheld or delayed with respect to non-mechanical,
non-structural or non-electrical changes, alterations or improvements;
(ii) be performed in a good and workmanlike manner and in compliance
with all applicable laws; (iii) be performed and completed in the
manner required in Section 5.2(d) hereof; (iv) be made at Tenant's sole
expense and at such times as Landlord may from time to time designate;
and (v) become a part of the Premises and the property of Landlord. It
is agreed and understood that Landlord shall have the right to review
and approve all changes to any plans which Landlord shall have approved
pursuant to this Section 5.2(a), which approval shall not be
unreasonably withheld or delayed. Landlord may condition its consent to
any alteration, modification or improvement made by or at the request
of Tenant after the Commencement Date upon a requirement that Tenant,
at its sole cost and expense, remove same upon expiration or earlier
termination of the Term of this Lease returning the Premises to its
condition prior to the making or installation thereof (including the
repair of any damage resulting from the installation or removal
thereof).
It is also agreed and understood that Landlord shall not be deemed to
be unreasonable in denying its consent to alterations, additions and
improvements to the Premises which affect "Base Building Systems" (as
said term is hereafter defined).
As used herein, the term "Base Building Systems" shall mean (i) any
mechanical, electrical or plumbing system or component of the Building
(including the Premises) (ii) the exterior of the Building (iii) the
Building HVAC distribution system (iii) any fire safety
prevention/suppression system and (iv) any structural element or
component of the Building.
(b) All articles of personal property and all business fixtures,
machinery and equipment and furniture owned or installed by Tenant
solely at its expense in the Premises ("Tenant's Removable Property")
shall remain the property of Tenant and may be removed by Tenant at any
time prior to the expiration of this Lease, provided that Tenant, at
its expense, shall repair any damage to the Building caused by such
removal.
(c) Notice is hereby given that Landlord shall not be liable for any
labor or materials furnished or to be furnished to Tenant upon credit,
and that no mechanic's or other lien for any such labor or materials
shall attach to or affect the reversion or other estate or interest of
Landlord in and to the Premises. Whenever and as often as any
mechanic's lien shall have been filed against the Premises based upon
any act or interest of Tenant or of
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anyone claiming through Tenant, Tenant shall forthwith take such
actions by bonding, deposit or payment as will remove or satisfy the
lien.
(d) All of the Tenant's alterations, additions and installation of
furnishings shall be coordinated with any work being performed by
Landlord and in such manner as to maintain harmonious labor relations
and not damage the Property or interfere with Building construction or
operation and, except for installation of furnishings, shall be
performed by contractors or workmen first approved by Landlord. Except
for work by Landlord's general contractor, Tenant before its work is
started shall: secure all licenses and permits necessary therefor and
deliver copies thereof to Landlord; deliver to Landlord a statement of
the names of all its contractors and subcontractors and the estimated
cost of all labor and material to be furnished by them; and cause each
contractor to carry workmen's compensation insurance in statutory
amounts covering all the contractor's and subcontractor's employees and
comprehensive public liability insurance and property damage insurance
with such limits as Landlord may reasonably require but in no event
less than the Initial Public Liability Insurance specified in Section
1.3 of this Lease as the same may be increased from time to time in
accordance with the provisions of Article X of this Lease (all such
insurance to be written in companies approved by Landlord and insuring
Landlord, Manager and Tenant as well as the contractors), and to
deliver to Landlord certificates of all such insurance. Tenant agrees
to pay promptly when due the entire cost of any work done on the
Premises by Tenant, its agents, employees, or independent contractors,
and not to cause or permit any liens for labor or materials performed
or furnished in connection therewith to attach to the Premises or the
Property and immediately to discharge or bond off in an amount
sufficient to cover the lien with respect to any such liens which may
so attach and, at the request of Landlord to deliver to Landlord
security satisfactory to Landlord against liens arising out of the
furnishing of such labor and material. Upon completion of any work done
on the Premises by Tenant, its agents, employees, or independent
contractors, Tenant shall promptly deliver to Landlord (i) original
lien releases and waivers executed by each contractor, subcontractor,
supplier, materialmen, architect, engineer or other party which
furnished labor, materials or other services in connection with such
work and pursuant to which all liens, claims and other rights of such
party with respect to labor, material or services furnished in
connection with such work are unconditionally released and waived and
(ii) copies of any certificate(s) of occupancy relating to the Premises
issued by the Town of Wakefield.
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EXHIBIT 10.20
ARTICLE VI
ASSIGNMENT AND SUBLETTING
6.1 PROHIBITION. (a) Tenant covenants and agrees that whether
voluntarily, involuntarily, by operation of law or otherwise,
neither this Lease nor the term and estate hereby granted, nor
any interest herein or therein, will be assigned, mortgaged,
pledged, encumbered or otherwise transferred and that neither the
Premises nor any part thereof will be encumbered in any manner by
reason of any act or omission on the part of Tenant, or used or
occupied, by anyone other than Tenant, or for any use or purpose
other than a Permitted Use, or be sublet (which term, without
limitation, shall include granting of concessions, licenses and
the like) in whole or in part, or be offered or advertised for
assignment or subletting without Landlord's prior written
consent, which consent, subject to all other applicable
provisions of this Article VI, including, without limitation,
Landlord's rights pursuant to Section 6.1(c) and 6.1(d) hereof,
shall not be unreasonably withheld, conditioned or delayed.
Tenant shall reimburse Landlord for all reasonable costs and
expenses sustained or incurred by Landlord (not to exceed
$2,000.00 per event) in connection with any assignment or
subletting.
(b) The provisions of paragraph (a) of this Section shall apply
to a transfer (by one or more transfers) of a majority of the
stock or partnership interests, or other evidences of ownership
of Tenant as if such transfer were an assignment of this Lease;
but such provisions shall not apply to transactions with an
entity into or with which Tenant is merged or consolidated or to
which substantially all of Tenant's assets are transferred or to
any entity (an "Affiliate of Tenant") which controls or is
controlled by Tenant or is under common control with Tenant,
provided that in any of such events Tenant seeks to assign or
sublet to a party meeting the following criteria: (i) the
successor to Tenant in the case of a merger, consolidation or
transfer of all or substantially all of the assets of Tenant, has
a net worth computed in accordance with generally accepted
accounting principles at least equal to the net worth of Tenant
immediately prior to such merger, consolidation or transfer, (ii)
to the extent applicable under clause (i) hereof, proof
satisfactory to Landlord of such net worth shall have been
delivered to Landlord at least 10 days prior to the effective
date of any such transaction, and (iii) the assignee or
sublessee, in all such cases, including transactions involving an
Affiliate of Tenant agrees directly with Landlord, by written
instrument in form satisfactory to Landlord, to be bound
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by all the obligations of Tenant hereunder including, without
limitation, the covenant against further assignment or
subletting. It is agreed and understood that the Take Back Option
set forth in Section 6.1(d) hereof shall not apply to
transactions described and permitted pursuant to this Section
6.1(b).
(c) If this Lease be assigned, or if the Premises or any part
thereof be sublet or occupied by anyone other than Tenant,
Landlord may, at any time and from time to time, collect rent and
other charges from the assignee, subtenant or occupant, and apply
the net amount collected to the rent and other charges herein
reserved, but no such assignment, subletting, occupancy,
collection or modification of any provisions of this Lease shall
be deemed a waiver of this covenant, or the acceptance of the
assignee, subtenant or occupant as a tenant or a release of the
original named Tenant from the further performance by the
original named Tenant hereunder. No assignment or subletting
hereunder shall relieve Tenant from its obligations hereunder and
Tenant shall remain fully and primarily liable therefor. No
assignment or subletting, or occupancy shall affect Permitted
Uses. Any subletting shall expire as of the day immediately
preceding the date of expiration of the Term of this Lease.
(d) In connection with any assignment or subletting, Tenant shall
first submit to Landlord in writing: (i) the name of the proposed
assignee or subtenant, (ii) such information as to its financial
responsibility and standing as Landlord may reasonably require
(except that Landlord need not be provided with such financial
information where the applicable transfer involves an Affiliate
of Tenant), and (iii) all terms and provisions upon which the
proposed assignment or subletting is to be made. Upon receipt
from Tenant of such request and information, the Landlord shall
have an option (sometimes hereinafter referred to as the "option"
or "Take Back Option") to be exercised in writing within Ten (10)
Business Days after its receipt from Tenant of such request and
information, if the request is to assign the Lease or to sublet
all of the Premises, to cancel or terminate this Lease, or, if
the request is to sublet a portion, of the Premises only, to
cancel and terminate this Lease with respect to such portion, in
each case, as of the date set forth in Landlord's notice of
exercise of such option, which shall be not less than fifteen
(15) nor more than sixty (60) days following the giving of such
notice; in the event Landlord shall exercise such option, Tenant
shall surrender possession of the entire Premises, or the portion
which is the subject of the option, as the case may be, on the
date set forth in such notice in accordance with the provisions
of this Lease relating to surrender of Premises at the expiration
of the Term. If
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this Lease shall be cancelled as to a portion of the Premises
only, Basic Rent and Escalation Charges shall thereafter be
abated proportionately according to the ratio the number of
square feet of the portion of the space surrendered bears to the
size of the Premises. As additional rent, Tenant shall reimburse
Landlord promptly for reasonable legal and other expenses
incurred by Landlord (not to exceed $2,000.00 per event) in
connection with any request by Tenant for consent to assignment
or subletting.
If Landlord shall not exercise its option pursuant to the
foregoing provisions, Landlord will not unreasonably delay or
withhold its consent to the assignment or subletting to the party
referred to upon all the terms and provisions set forth in
Tenant's notice to Landlord, provided that the terms and
provisions of such assignment or subletting shall specifically
make applicable to the assignee or sublessee all of the
provisions of this Article VI of the Lease so that Landlord shall
have against the assignee or sublessee all rights with respect to
any further assignment or subletting which are set forth in
Article VI of the Lease as amended hereby except that no such
assignee or sublessee shall have any right to further assign or
sublet the Premises. Further, in any case where Landlord consents
to an assignment or a subletting, Landlord shall be entitled to
receive 50% of all Subleasing Overages (as said term is
hereinafter defined). As used herein, the term "Subleasing
Overages" shall mean, for each period in question, all amounts
received by Tenant in excess of Basic Rent and Escalation Charges
and other items of additional rent reserved under this Lease
attributable to the space sublet (including, without limitation,
all lump sum payments made in connection therewith).
Any such assignment or subletting shall nevertheless be subject
to all the terms and provisions of Article VI and no assignment
shall be binding upon Landlord or any of Landlord's mortgagees,
unless Tenant shall deliver to Landlord an instrument in
recordable form which contains a covenant of assumption by the
assignee running to Landlord and all persons claiming by, through
or under Landlord. The failure or refusal of the assignee to
execute such instrument of assumption shall not release or
discharge the assignee from its liability as Tenant hereunder. In
addition, Tenant shall furnish to Landlord a conformed copy of
any sublease effected under terms of this Article VI. In no event
shall the Tenant hereunder be released from its liability under
this Lease.
Landlord shall not be deemed unreasonable in refusing to approve
a sublease wherein the proposed subtenant is a tenant of any
building in the Office Park and Landlord has
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space of comparable size and utility as the space proposed to be
sublet available for leasing in the Office Park.
ARTICLE VII
RESPONSIBILITY FOR REPAIRS AND CONDITIONS OF PREMISES;
SERVICES TO BE FURNISHED BY LANDLORD
7.1 LANDLORD REPAIRS. (a) Except as otherwise provided in this Lease,
Landlord agrees to keep in good order, condition and repair the
parking areas, roof of the Building, public or common areas of
the Property, exterior walls (including exterior glass) and
structure and foundation of the Building (including plumbing,
HVAC, mechanical and electrical systems installed by Landlord but
excluding any systems installed specifically for Tenant's benefit
or serving the Premises exclusively), all insofar as they affect
the Premises, except that Landlord shall in no event be
responsible to Tenant for (i) the condition of glass in the
Premises or for the doors (or related glass and finish work)
leading to the Premises, or (ii) for any special or supplemental
HVAC equipment installed within the Premises to serve Tenant's
special computer room and equipment needs or (iii) for any
condition in the Premises or the Building caused by any act or
neglect of Tenant, its agents, employees, invitees or contractors
(reasonable wear and tear excepted). Landlord shall not be
responsible to make any improvements or repairs to the Building
other than as expressly provided in this Section 7.1 provided,
unless expressly provided otherwise in this Lease. All costs and
expenses incurred by Landlord in performing its obligations under
this Section 7.1 shall be included in Operating Expenses (as said
term is hereafter defined) unless otherwise and to the extent
expressly excluded from Operating Expenses pursuant to Exhibit E.
(b) Landlord shall never be liable for any failure to make
repairs which Landlord has undertaken to make under the
provisions of this Section 7.1 or elsewhere in this Lease, unless
Tenant has given notice to Landlord of the need to make such
repairs, and Landlord has failed to commence to make such repairs
within a reasonable time but in no event later than thirty (30)
days after receipt of such notice, or fails to proceed with
reasonable diligence to complete such repairs once commenced.
(c) Any services which Landlord is required to furnish pursuant
to the provisions of this Lease may, at Landlord's option be
furnished from time to time, in whole or in part, by employees of
Landlord or by the Manager of the Property or by one or more
third persons. Landlord shall cause the paved portions of the
Property to be kept
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reasonably free and clear of snow, ice and refuse and shall cause
the landscaped areas of the Property to be maintained in a
reasonably attractive appearance.
7.2 TENANT'S AGREEMENT. (a) Tenant will keep neat and clean and
maintain in reasonably good order, condition and repair the
Premises and every part thereof, excepting only those repairs for
which Landlord is responsible under the terms of this Lease,
reasonable wear and tear of the Premises, and damage by fire or
other casualty and as a consequence of the exercise of the power
of eminent domain and those repairs caused by the Landlord's
negligence or Landlord's default under the terms of this Lease;
and shall surrender the Premises, at the end of the Term, in such
condition, ordinary wear and tear and damage by fire or other
casualty excepted. Without limitation, Tenant shall continually
during the Term of this Lease maintain the Premises in accordance
with all laws, codes and ordinances from time to time in effect
and all directions, rules and regulations of the proper officers
of governmental agencies having jurisdiction and shall, at
Tenant's own expense, obtain all permits, licenses and the like
required by applicable law except that Landlord shall be required
to obtain all licenses, permits and approvals necessary to
perform and complete Landlord's Work. Notwithstanding the
foregoing or the provisions of Article XII, Tenant shall be
responsible for the cost of repairs which may be necessary by
reason of damage to the Building caused by any wrongful act or
the negligent acts or omissions of Tenant or its agents,
employees, contractors or invitees (including any damage by fire
or any other casualty arising therefrom). Tenant shall be
responsible for the payment of all charges (whether billed
directly to Tenant by the applicable utility or submetered and
billed to Tenant by Landlord) for electricity, HVAC, gas and
other utilities used or consumed in the Premises in accordance
with the provisions of this Lease. Without limitation of the
foregoing, Tenant shall not do or perform, and shall not permit
its agents, servants, employees, contractors or invitees to do or
perform any act or thing in or upon the Property or the Office
Park which will invalidate or be in conflict with the certificate
of occupancy for the Premises or the Building or violate any
statute, law, rule, by-law or ordinance of any governmental
entity having jurisdiction over the Property (the
"Requirements"). Tenant shall, at Tenant's sole cost and
expenses, take all action, including the making of any
improvements or alterations to the Premises necessary to comply
with all Requirements (including, but not limited to the
Americans With Disabilities Act of 1990 (the "ADA"), as modified
and supplemented from time to time) which shall, with respect to
the Premises or with respect to any abatement of nuisance, impose
any violation, order or duty upon Landlord or Tenant arising
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<PAGE> 29
from, or in connection with the Premises, Tenant's occupancy, use
or manner of use of the Premises (including, without limitation,
any occupancy, use or manner of use that constitutes a "place of
public accommodation" under the ADA), or any installations in the
Premises, or required by reason of a breach of any of Tenant's
covenants or agreements under this Lease, whether or not such
Requirements shall now be in effect or hereafter enacted or
issued, and whether or not any work required shall be ordinary or
extraordinary or foreseen or unforeseen at the date hereof.
Nothing contained in this Section 7.2(a) shall be deemed or
construed to require Tenant to make alterations or improvements
to the common areas of the Building including the elevator and
main entry lobby doors necessary to bring the same into
compliance with the ADA.
(b) If repairs are required to be made by Tenant pursuant to the
terms hereof, Landlord may demand that Tenant make the same
forthwith, and if Tenant refuses or neglects to commence such
repairs and complete the same with reasonable dispatch after such
demand, Landlord may (but shall not be required to do so) make or
cause such repairs to be made (the provisions of Section 14.18
being applicable to the costs thereof) and shall not be
responsible to Tenant for any loss or damage that may accrue to
Tenant's stock or business by reason thereof. Notwithstanding the
foregoing, Landlord may elect to take action hereunder
immediately and without notice to Tenant if Landlord reasonably
believes an emergency to exist.
7.3 FLOOR LOAD - HEAVY MACHINERY. (a) Tenant shall not place a load
upon any floor in the Premises exceeding the floor load per
square foot of area which such floor was designed to carry and
which is allowed by law. Landlord reserves the right to prescribe
the weight and position of all business machines and mechanical
equipment, including safes, which shall be placed so as to
distribute the weight. Business machines and mechanical equipment
shall be placed and maintained by Tenant at Tenant's expense in
settings sufficient, in Landlord's judgment, to absorb and
prevent vibration, noise and annoyance. Tenant shall not move any
safe, heavy machinery or heavy equipment into or out of the
Building without Landlord's prior consent, which consent may
include a requirement to provide insurance, naming Landlord as an
insured, in such amounts as Landlord may deem reasonable.
(b) If such safe, machinery or equipment requires special
handling, Tenant agrees to employ only persons holding a Master
Rigger's License to do such work, and that all work in connection
therewith shall comply with applicable laws and regulations. Any
such moving shall be at the sole risk and hazard of Tenant, and
Tenant will exonerate, indemnify
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and save Landlord harmless against and from any liability, loss,
injury, claim or suit resulting directly or indirectly from such
moving unless such loss liability, injury, claim or suit is
caused by the negligence or default of Landlord or Landlord's
representatives, contractors or employees.
7.4 BUILDING SERVICES. (a) Landlord shall also provide:
(i) Cold water (at temperatures supplied by the Town of
Wakefield) and reasonably hot water for drinking, lavatory and
toilet purposes. If Tenant uses water for any purpose other than
for ordinary lavatory and drinking purposes, Landlord may assess
a reasonable charge for the additional water so used, or install
a water meter and thereby measure Tenant's water consumption for
all purposes. In the latter event, Tenant shall pay the cost of
the meter and the cost of installation thereof including,
without limitation, any related charges incurred by Landlord in
connection with providing and installing the same. Tenant, at
Tenant's sole cost and expense, shall keep such meter and
related equipment in good working order and repair. Tenant
agrees to pay for water consumed, as shown on such meter,
together with the sewer charge based on such meter charges, as
and when bills are rendered, and in default in making such
payment Landlord may pay such charges and collect the same from
Tenant as an additional charge.
(ii) Access to the Premises twenty-four hours per day, subject
to reasonable security restrictions and restrictions based on
emergency conditions and all other applicable provisions of this
Lease.
(iii) Cleaning Services described in Exhibit F as and to the
extent required by Exhibit F.
(b) Landlord reserves the right to curtail, suspend, interrupt
and/or stop the supply of water, sewage, electrical current,
cleaning, and other services, and to curtail, suspend, interrupt
and/or stop use of entrances and/or lobbies serving access to the
Building, without thereby incurring any liability to Tenant, when
necessary by reason of accident or emergency, or for repairs,
alterations, replacements or improvements in the judgment of
Landlord desirable or necessary, or when prevented from supplying
such services or use by strikes, lockouts, difficulty in
obtaining materials, accidents or any other cause beyond
Landlord's control, or by laws, orders or inability, by exercise
of reasonable diligence, to obtain electricity, water, gas,
steam, coal, oil or other suitable fuel or power. Except as
otherwise expressly provided in Section 7.6 of this Lease, no
diminution or abatement of rent or other compensation, nor any
direct,
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indirect or consequential damages shall or will be claimed by
Tenant as a result of, nor shall this Lease or any of the
obligations of Tenant be affected or reduced by reason of, any
such interruption, curtailment, suspension or stoppage in the
furnishing of the foregoing services or use, irrespective of the
cause thereof. Failure or omission on the part of Landlord to
furnish any of the foregoing services or use shall not be
construed as an eviction of Tenant, actual or constructive, nor
(except as expressly provided in Section 7.6 of this Lease)
entitle Tenant to an abatement of rent, nor to render the
Landlord liable in damages, nor release Tenant from prompt
fulfillment of any of its covenants under this Lease.
Notwithstanding the foregoing, to the extent within its
reasonable control in exercising its rights pursuant to this
paragraph (b), Landlord shall use good faith efforts to (i) avoid
unreasonable interference with Tenant's use of the Premises (ii)
provide Tenant reasonable advance oral or written notice of the
proposed stoppage (except in the case of emergency when advance
notice shall not be necessary) and (iii) promptly restore any
service and utility curtailed or suspended.
(c) In no event shall Landlord be required to provide any
cafeteria or food service operation in the Building or Office
Park.
7.5 ELECTRICITY. (a) The electrical service for the lights and
outlets in the Premises shall be 10 watts per square foot of
Premises Rentable Area (the "Electric Capacity") and shall be
made available to Tenant at the Premises. Tenant acknowledges and
agrees that there is a sub-meter or separate electrical meter in
the Premises for the purpose of measuring Tenant's use and
consumption of electricity in the Premises, and Tenant shall make
direct payment to the applicable utility for any costs, expenses
and charges for electricity relating to the Premises. Landlord
shall permit existing wires, pipes, risers, conduits and other
electrical equipment to be used for the purpose of providing
electrical service to the Premises. Tenant covenants and agrees
that its electrical usage and consumption will not
disproportionately "siphon off" electrical service necessary for
other tenants of the Building and that its total connected load
will not exceed the maximum load from time to time permitted by
applicable governmental regulations nor the Electrical Capacity
as defined above. Landlord shall not in any way be liable or
responsible to Tenant for any loss or damage or expense which
Tenant may sustain or incur if, during the Term of this Lease,
either the quantity or character of electric current is changed
or electric current is no longer available or suitable for
Tenant's requirements due to a factor or cause beyond Landlord's
control. Tenant shall purchase and install all lamps, tubes,
bulbs, starters and
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ballasts. Tenant shall pay all charges for electricity, HVAC and
other utilities used or consumed in the Premises. Tenant shall
bear the cost of repair and maintenance of any electric or gas
meter serving the Premises.
(b) In order to insure that the foregoing requirements are not
exceeded and to avert possible adverse affect on the Building's
electrical system, Tenant shall not, without Landlord's prior
consent (after completion or Landlord's Work as shown on Tenant's
Plans), connect any fixtures, appliances or equipment to the
Building's electrical distribution system which operates on a
voltage in excess of 120 volts nominal or which exceeds the
Electric Capacity (as defined above). If Landlord shall consent
to the connection of any such fixtures, appliances or equipment,
all additional risers or other electrical facilities or equipment
required therefor shall be provided by Landlord and the cost
thereof shall be paid by tenant upon Landlord's demand as
Additional Rent. From time to time during the Term of this Lease,
Landlord shall have the right to have an electrical consultant
selected by Landlord make a survey of Tenant's electric usage,
the result of which shall be conclusive and binding upon Landlord
and Tenant. In the event that such survey shows that Tenant has
exceeded the requirements set forth in paragraph (a), in addition
to any other rights Landlord may have hereunder, Tenant shall,
upon demand, reimburse Landlord for the costs of such survey.
To the extent not now available to the Premises, Landlord shall,
at Landlord's expense, provide one (1) ton of HVAC service
capacity (including ductwork, controls and diffusers where
necessary) for each 350 square feet of Premises Rentable Area as
of the Commencement Date.
7.6 INTERRUPTION OF ESSENTIAL SERVICES. Notwithstanding anything
contained in this Lease to the contrary, if (a) an interruption
or curtailment, suspension or stoppage of an Essential Service
(as said term is hereinafter defined) shall occur (any such
interruption of an Essential Service being hereinafter referred
to as a "Service Interruption"), and (b) such Service
Interruption occurs or continues as a result of the Landlord's
negligent acts or omissions and (c) such Service Interruption
continues for more than five (5) Business Days after Landlord
shall have received notice thereof from Tenant and (d) as a
result of such Service Interruption, the conduct of Tenant's
normal operations in the Premises are materially and adversely
affected, then there shall be an abatement of one day's Basic
Rent and Escalation Charges otherwise payable hereunder for each
day during which such Service Interruption continues beyond such
five (5) Business Day period; provided, further, however, that if
any part of the Premises is reasonably useable for Tenant's
operations
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or if Tenant conducts all or any part of its operations
notwithstanding such Service Interruption, then the amount of
each daily abatement of Basic Rent and Escalation Charges
otherwise payable hereunder shall only be proportionate to the
nature and extent of the interruption of Tenant's normal
operations. The rights granted under this paragraph shall be (i)
personal to the original Tenant named in this Lease and shall
terminate upon any assignment of the Lease or any subletting of
all or any portion of the Premises outstanding at any one time
and (ii) not be binding upon any mortgagee who shall take title
to the Property by foreclosure or deed in lieu of foreclosure or
any purchaser at foreclosure. For purposes hereof, the term
"Essential Services" shall mean the following services: access to
the Premises, telephone service, heating, air-conditioning,
water, sewer, and electricity but only if, as and to the extent
that Landlord is required to provide such service to Tenant under
this Lease. Any abatement of Basic Rent and additional rent under
this paragraph shall apply only with respect to Basic Rent
allocable to the period after each of the conditions set forth in
subsections (a) through (d) hereof shall have been satisfied and
only during such times as each of such conditions shall exist and
be continuing.
ARTICLE VIII
REAL ESTATE TAXES
8.1 PAYMENTS ON ACCOUNT OF REAL ESTATE TAXES. (a) For the purposes of
this Article, the term "Tax Year" shall mean each twelve-month
period commencing on January 1 and each twelve-month period
thereafter commencing during the Term of this Lease; and the term
"Taxes" shall mean all real estate taxes, special assessments and
betterment assessments assessed with respect to the Property for
any Tax Year.
(b) In the event that during any Tax Year after the Tax Year in
which Base Taxes are determined, Taxes shall be greater than Base
Taxes, Tenant shall pay to Landlord, as an Escalation Charge, an
amount equal to (i) the excess of Taxes over Base Taxes for each
Tax Year (or partial Tax Year) falling within the Term of this
Lease, multiplied by (ii) the Escalation Factor, such amount to
be apportioned for any fraction of a Tax Year in which the
Commencement Date falls or the Term of this Lease ends.
(c) Estimated payments by Tenant on account of Taxes shall be
made monthly and at the time and in the fashion herein provided
for the payment of Basic Rent. The monthly amount so to be paid
to Landlord shall be sufficient to
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provide Landlord by the time real estate tax payments are from
time to time due a sum equal to Tenant's required payments, as
reasonably estimated by Landlord from time to time, on account of
Taxes for the then current Tax Year. Once established, the
Landlord may change the monthly estimated amount not more than
once in any Tax Year. Promptly after receipt by Landlord of bills
for such Taxes, Landlord shall advise Tenant of the amount
thereof and the computation of Tenant's payment on account
thereof. If estimated payments theretofore made by Tenant for the
Tax Year covered by such bills exceed the required payments on
account thereof for such Year, Landlord shall credit the amount
of overpayment against subsequent obligations of Tenant on
account of Taxes (or refund such overpayment if the Term of this
Lease has ended and Tenant has no further obligation to
Landlord); but if the required payments on account thereof for
such Tax Year are greater than estimated payments theretofore
made on account thereof for such Tax Year, Tenant shall make
payment to Landlord within 30 days after being so advised by
Landlord. Landlord shall have the same rights and remedies for
the non-payment by Tenant of any payments due on account of Taxes
as Landlord has hereunder for the failure of Tenant to pay Basic
Rent. The obligations of Tenant pursuant to this Article VIII
shall survive expiration or earlier termination of the Term of
this Lease.
8.2 ABATEMENT. If Landlord shall receive any tax refund or
reimbursement of Taxes or sum in lieu thereof with respect to any
Tax Year which is not due to vacancies in the Building, then out
of any balance remaining thereof after deducting Landlord's
expenses reasonably incurred in obtaining such refund, Landlord
shall, provided there does not then exist a Default of Tenant,
credit an amount equal to such refund or reimbursement or sum in
lieu thereof (exclusive of any interest) multiplied by the
Escalation Factor against the obligations of Tenant next falling
due under this Article VIII; provided, that in no event shall
Tenant be entitled to receive a credit equal to more than the
payments made by Tenant on account of Taxes for such Year
pursuant to paragraph (b) of Section 8.1 or to receive any
payments or abatements of Basic Rent if Taxes for any Tax Year
are less than Base Taxes or if Base Taxes are abated.
8.3 ALTERNATE TAXES. (a) If some method or type of taxation shall
replace the current method of assessment of real estate taxes in
whole or in part, or the type thereof, or if additional types of
taxes are imposed upon the Property or Landlord relating to the
Property, Tenant agrees that Tenant shall pay a proportionate
share of the same as an additional charge computed in a fashion
consistent with the method of computation herein provided, to the
end that
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Tenant's share thereof shall be, to the maximum extent
practicable, comparable to that which Tenant would bear under the
foregoing provisions.
(b) If a tax (other than Federal or State net income tax) is
assessed on account of the rents or other charges payable by
Tenant to Landlord under this Lease, Tenant agrees to pay the
same as an additional charge within ten (10) days after billing
therefor, unless applicable law prohibits the payment of such tax
by Tenant.
ARTICLE IX
OPERATING EXPENSES
9.1 DEFINITIONS. For the purposes of this Article, the following
terms shall have the following respective meanings:
(i) Operating Year: Each calendar year (January 1 through
December 31) in which any part of the Term of this Lease shall
fall.
(ii) Operating Expenses: The aggregate costs or expenses
reasonably incurred by Landlord with respect to the operation,
administration, insuring, cleaning, repair, maintenance and
management of the Property (but specifically excluding Utility
Expenses) all as set forth in Exhibit E annexed hereto, provided
that, if during any portion of the Operating Year for which
Operating Expenses are being computed, less than all of Building
Rentable Area was occupied by tenants or if Landlord is not
supplying all tenants with the services being supplied hereunder,
actual Operating Expenses incurred shall be reasonably
extrapolated by Landlord on an item by item basis to the
estimated Operating Expenses that would have been incurred if the
Building were fully occupied for such Year and such services were
being supplied to all tenants, and such extrapolated amount
shall, for the purposes hereof, be deemed to be the Operating
Expenses for such Year.
(iii) Utility Expenses: The aggregate costs or expenses
reasonably incurred by Landlord with respect to supplying
electricity (other than electricity supplied to those portions of
the Building leased to tenants), oil, steam, gas, water and sewer
and other utilities supplied to the Property and not paid for
directly by tenants, provided that, if during any portion of the
Operating Year for which Utility Expenses are being computed,
less than all Building Rentable Area was occupied by tenants or
if Landlord is not supplying all tenants with the
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utilities being supplied hereunder, actual utility expenses
incurred shall be reasonably extrapolated by Landlord on an
item-by-item basis to the estimated Utility Expenses that would
have been incurred if the Building were fully occupied for such
Year and such utilities were being supplied to all tenants, and
such extrapolated amount shall, for the purposes hereof, be
deemed to be the Utility Expenses for such Year.
9.2 TENANT'S PAYMENTS. (a) In the event that during any Operating
Year after the Operating Year in which Base Operating Expenses
are established, Operating Expenses shall exceed Base Operating
Expenses, Tenant shall pay to Landlord, as an Escalation Charge,
an amount equal to (i) the excess of Operating Expenses over Base
Operating Expenses for each Operating Year (or partial Operating
Year) falling within the Term of this Lease multiplied by (ii)
the Escalation Factor, such amount to be apportioned for any
partial Operating Year in which the Commencement Date falls or
the Term of this Lease ends. Landlord shall not recover more than
100% of its increases in Operating Expenses pursuant to this
Section 9.2(a)
(b) In the event that during any Operating Year after the
Operating Year in which Base Utility Expenses are determined,
Utility Expenses shall exceed Base Utility Expenses, Tenant shall
pay to Landlord, as an Escalation Charge, an amount equal to (i)
the excess of Utility Expenses over Base Utility Expenses for
each Operating Year (or partial Operating Year) falling within
the Term of this Lease multiplied by (ii) the Escalation Factor,
such amount to be apportioned for any partial Operating Year in
which the Commencement Date falls or the Term of this Lease ends.
Landlord shall not recover more than 100% of its increases in
Utility Expenses pursuant to this Section 9.2(b).
(c) Estimated payments by Tenant on account of Operating Expenses
and Utility Expenses shall be made monthly and at the time and in
the fashion herein provided for the payment of Basic Rent. The
monthly amount so to be paid to Landlord shall be sufficient to
provide Landlord by the end of each Operating Year a sum equal to
Tenant's required payments, as reasonably estimated by Landlord
from time to time during each Operating Year, on account of
Operating Expenses and Utility Expenses for such Operating Year.
Once established, the Landlord may change the monthly estimated
amount not more than once in any Operating Year. After the end of
each Operating Year, Landlord shall submit to Tenant a reasonably
detailed accounting of Operating Expenses and Utility Expenses
for such Operating Year, and Landlord shall certify to the
accuracy thereof. If estimated payments theretofore made for such
Operating Year by Tenant exceed Tenant's required
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payment on account thereof for such Operating Year, according to
such statement, Landlord shall credit the amount of overpayment
against subsequent obligations of Tenant with respect to
Operating Expenses and Utility Expenses (or refund such
overpayment if the Term of this Lease has ended and Tenant has no
further obligation to Landlord), but, if the required payments on
account thereof for such Operating Year are greater than the
estimated payments (if any) theretofore made on account thereof
for such Operating Year, Tenant shall make payment to Landlord
within thirty (30) days after being so advised by Landlord.
Landlord shall have the same rights and remedies for the
nonpayment by Tenant of any payments due on account of Operating
Expenses and Utility Expenses as Landlord has hereunder for the
failure of Tenant to pay Basic Rent. The obligations of Tenant
under this Article IX shall survive expiration or earlier
termination of the Term of this Lease. Landlord shall maintain
its books and records in accordance with generally accepted
accounting principles.
(d) Provided that Tenant shall have first paid all amounts due
and payable by Tenant pursuant to this Article IX and upon the
written request of Tenant (but not more than once with respect to
any Operating Year), Tenant shall be permitted to inspect
Landlord's books and records pertaining to Operating Expenses
applicable to the Property for such Operating Year. Such
inspection shall take place at a mutually agreeable time at the
location where such books and records are kept by the Manager in
the ordinary course. Tenant shall keep the results of any such
inspection strictly confidential and shall not be permitted to
use any third party to perform such audit or inspection, other
than an independent firm of certified public accountants (A)
reasonably acceptable to Landlord, (B) which is not compensated
on a contingency fee basis or in any other manner which is
dependent upon the results of such audit or inspection (and
Tenant shall deliver the fee agreement or other similar evidence
of such fee arrangement to Landlord upon request), and (C) which
agrees with Landlord in writing to maintain the results of such
audit or inspection confidential. Tenant may not conduct an
inspection or have an audit performed more than once for and with
respect to any Operating Year. Failure of Tenant to provide
Landlord with a written request to review such books and records
within 90 days after receipt of a final statement pursuant to
this Article IX with respect to each respective Operating Year
shall be deemed a waiver of Tenant's rights hereunder with
respect to such Operating Year. In the event that any such audit
or inspection reveals a discrepancy or overstatement of a
particular line item of Operating Expense then Tenant shall be
permitted to review Landlord's records with respect to such line
item
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for the two (2) immediately preceding Operating Years (but only
as to the applicable line item and not others).
ARTICLE X
INDEMNITY AND PUBLIC LIABILITY INSURANCE
10.1 TENANT'S INDEMNITY. To the maximum extent this agreement may be
made effective according to law, Tenant agrees to defend,
indemnify and save harmless Landlord and the Manager and their
respective officers, directors and shareholders, from and against
all claims, loss, liability, costs and damages of whatever nature
caused by the following: (i) any accident, injury, death or
damage whatsoever to any person, or to the property of any
person, occurring in the Premises; (ii) any accident, injury,
death or damage occurring outside of the Premises but on the
Property, where such accident, damage or injury results from an
act or omission on the part of Tenant or Tenant's agents,
servants, independent contractors, or any other person acting
under Tenant; or (iii) with the conduct or management of the
Premises or of any business therein, or any thing or work
whatsoever done, or any condition created (other than by
Landlord) in or about the Premises; and, in any case, occurring
after the date of this Lease, until the end of the Term of this
Lease, and thereafter so long as Tenant is in occupancy of the
Premises. This indemnity and hold harmless agreement shall
include indemnity against all costs, expenses and liabilities
incurred in, or in connection with, any such claim or proceeding
brought thereon, and the defense thereof, including, without
limitation, reasonable attorneys' fees and costs at both the
trial and appellate levels. Notwithstanding the above to the
contrary, Tenant shall not be required to defend, indemnify or
save harmless the above parties in the event that and to the
extent that such claim, loss, liability or cost arose as the
result of the negligence or default of the respective party
seeking indemnification. The provisions of this Section 10.1
shall survive the expiration or any earlier termination of this
Lease.
10.2 PUBLIC LIABILITY INSURANCE. Tenant agrees to maintain in full
force from the date upon which Tenant first enters the Premises
for any reason, throughout the Term of this Lease, and thereafter
so long as Tenant is in occupancy of any part of the Premises, a
policy of general liability and property damage insurance
(including broad form contractual liability, independent
contractor's hazard and completed operations coverage) under
which Landlord, Manager and any mortgagee from time to time
holding a mortgage on the Property are named as additional
insureds.
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Each such policy shall be non-cancellable and non-amendable with
respect to Landlord, Manager and Landlord's said designees
without thirty (30) days' prior notice to Landlord and shall be
in at least the amounts of the Initial Public Liability Insurance
specified in Section 1.3 or such greater amounts as Landlord
shall from time to time request, and a certificate thereof shall
be delivered to Landlord.
10.3 TENANT'S RISK. To the maximum extent this agreement may be made
effective according to law, Tenant agrees to use and occupy the
Premises and to use such other portions of the Property as Tenant
is herein given the right to use at Tenant's own risk; and
Landlord shall have no responsibility or liability for any loss
of or damage to Tenant's Removable Property or for any
inconvenience, annoyance, interruption or injury to business
arising from Landlord's making any repairs or changes which
Landlord is permitted by this Lease or required by law to make in
or to any portion of the Premises or other sections of the
Property, or in or to the fixtures, equipment or appurtenances
thereof. Tenant shall carry "all-risk" property insurance on a
"replacement cost" basis (including so-called improvements and
betterments), and provide a waiver of subrogation as required in
Section 14.20. Nothing contained in this Section 10.3 shall be
deemed or construed to exculpate Landlord from its own negligence
or the negligence of Landlord's representatives, servants or
employees. The provisions of this Section 10.3 shall be
applicable from and after the execution of this Lease and until
the end of the Term of this Lease, and during such further period
as Tenant may use or be in occupancy of any part of the Premises
or of the Building.
10.4 INJURY CAUSED BY THIRD PARTIES. To the maximum extent this
agreement may be made effective according to law, Tenant agrees
that Landlord shall not be responsible or liable to Tenant, or to
those claiming by, through or under Tenant, for any loss or
damage that may be occasioned by or through the acts or omissions
of persons occupying adjoining premises or any part of the
premises adjacent to or connecting with the Premises or any part
of the Property or otherwise. The provisions of this Section 10.4
shall survive the expiration or any earlier termination of this
Lease.
10.5 LANDLORD'S INDEMNITY. Subject to all other applicable provisions
of this Lease including, without limitation, Section 14.20
(Waiver of Subrogation) and Section 14.4 (Landlord's Liability),
Landlord hereby agrees to indemnify, defend and hold harmless
Tenant and it's officers, directors and shareholders against any
claims, loss, damages or liability for injury to person,
including
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death, or damage to property, caused by the intentional
misconduct or gross negligence of Landlord or the Manager or
their respective employees, agents, servants or contractors, and
from any costs relating thereto (including, without limitation,
attorneys' fees). Notwithstanding the foregoing to the contrary,
Landlord shall not be required to defend, indemnify or save
harmless the above parties in the event that and to the extent
that such claim, loss, liability or cost arose as the result of
the negligence or default of the respective party seeking
indemnification.
ARTICLE XI
LANDLORD'S ACCESS TO PREMISES
11.1 LANDLORD'S RIGHTS. Landlord shall upon reasonable advance oral or
written notice to Tenant (except in the case of an emergency
where no notice shall be required) have the right to enter the
Premises at all reasonable hours for the purpose of inspecting or
making repairs to the same, and Landlord shall also have the
right to make access available at all reasonable hours to
prospective or existing mortgagees, purchasers or tenants of any
part of the Property. In exercising its rights hereunder,
Landlord shall use good faith efforts to avoid unreasonable
interference with Tenant's use of the Premises.
ARTICLE XII
FIRE, EMINENT DOMAIN, ETC.
12.1 ABATEMENT OF RENT. If the Premises or the means of access to the
Property or the parking areas should be damaged by fire or
casualty, Basic Rent and Escalation Charges payable by Tenant
shall abate proportionately for the period in which, by reason of
such damage, there is material interference with Tenant's use of
the Premises, having regard to the extent to which Tenant may be
required to discontinue Tenant's use of all or a portion of the
Premises, but such abatement or reduction shall end if and when
Landlord shall have substantially restored the Premises
(excluding any alterations, additions or improvements made by
Tenant pursuant to Section 5.2, Tenant's trade fixtures and
Tenant's Removable Property) to the condition in which they were
prior to such damage. If the Premises shall be affected by any
exercise of the power of eminent domain, Basic Rent and
Escalation Charges payable by Tenant shall be justly and
equitably abated and reduced according to the nature and extent
of the loss of use thereof suffered by Tenant. In no event shall
Landlord have any liability for damages to Tenant for
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inconvenience, annoyance, or interruption of business arising
from such fire, casualty or eminent domain.
12.2 RIGHT OF TERMINATION. If the Premises or the access to the
Property or the parking areas are damaged by fire or casualty,
Landlord shall cause an independent contractor designated by
Landlord to make a written estimate (the "Estimate") of the
amount of time normally required in the ordinary course to
perform and substantially complete the restoration of the damage
in question and a copy of the Estimate shall be provided to
Landlord and Tenant within forty five (45) days after the
casualty. If the Premises or the Building are substantially
damaged by fire or casualty (the term "substantially damaged"
meaning damage of such a character that the same cannot,
according to the Estimate, reasonably be expected to be repaired
within ninety (90) days from the time the repair work would
commence), or if any part of the Building or Property is taken by
any exercise of the right of eminent domain, then Landlord shall
have the right to terminate this Lease (even if Landlord's entire
interest in the Premises may have been divested) by giving notice
of Landlord's election so to do within sixty (60) days after the
occurrence of such casualty or the effective date of such taking
(either such 60 day period being hereafter the "Notice Period"),
whereupon this Lease shall terminate sixty (60) days after the
date of such notice with the same force and effect as if such
date were the date originally established as the expiration date
hereof.
12.3 RESTORATION; TENANT'S RIGHT OF TERMINATION. (a) If the estimated
amount of time required to perform and substantially complete
such restoration in the ordinary course as set forth in the
Estimate exceeds one hundred eighty (180) days from the time
repair work would commence, then Tenant shall have the right to
terminate this Lease effective as of the date of Tenant's
Termination Notice, such right to be exercised, if at all, by
written notice (a "Tenant's Termination Notice") to Landlord
within ten (10) days after Tenant's receipt of the Estimate.
Failure of Tenant to exercise such right within the time and
manner herein provided, time being of the essence, shall
constitute a waiver of such right by Tenant, time being of the
essence. Any termination of this Lease by Tenant pursuant to this
Section 12.3(a) shall have the same force and effect as if such
date were the date of termination originally established as the
date of expiration of the Term of this Lease.
(b) If the Premises or the access to the Property or the
parking areas are damaged by fire or casualty and if this Lease
shall not be terminated pursuant to Section 12.2, 12.3(a) or
12.5, Landlord shall thereafter use due diligence to restore the
Premises to its proper condition
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as required by Section 12.1. Landlord's obligation to restore
shall be limited to the net amount of insurance proceeds actually
made available to the Landlord for the purpose of restoration
plus the amount of any deductible carried by Landlord and
provided, further, that Landlord shall have no obligation to
restore the Premises or the Building as and to the extent the
same cannot be lawfully restored under then applicable zoning and
building laws. If, for any reason, restoration of the Premises to
the condition required by this Lease shall not be substantially
completed as aforesaid within the one hundred eighty (180) day
period set forth in 12.3(a) hereof (which 180 day period shall be
extended due to Force Majeure or any reason beyond the control of
Landlord), Tenant shall have the right to terminate this Lease by
giving notice to Landlord thereof within (30) days after the
expiration of such period (as so extended). Upon the giving of
such notice, this Lease shall (effective as of a date set forth
in such notice which date shall not be sooner than 30 nor later
than 60 days after the giving of such notice) cease and come to
an end without further liability or obligation on the part of
either party. If at any time Landlord shall determine that the
proceeds of insurance or condemnation awards to be available to
Landlord for restoration are or will be insufficient for
restoration of the Premises to the condition required by this
Lease and in the event Landlord shall not elect, in its sole
discretion, to advance the additional monies necessary to
complete such restoration, then Landlord shall provide Tenant
written notice of such insufficiency and upon receipt of such
notice, Tenant shall have the right to terminate this Lease by
written notice to Landlord not later than thirty (30) days after
Tenant's receipt of such written notice from Landlord, time being
of the essence. Such rights of termination set forth in this
Section 12.3 shall be Tenant's sole and exclusive remedy at law
or in equity for Landlord's failure to complete such restoration.
12.4 AWARD. Landlord shall have and hereby reserves and excepts, and
Tenant hereby grants and assigns to Landlord, all rights to
recover for damages to the Property and the leasehold interest
hereby created, and to compensation accrued or hereafter to
accrue by reason of such taking, damage or destruction, and by
way of confirming the foregoing, Tenant hereby grants and
assigns, and covenants with Landlord to grant and assign to
Landlord, all rights to such damages or compensation. Nothing
contained herein shall be construed to prevent Tenant from, at
its sole cost and expense, prosecuting a separate condemnation
proceeding with respect to a claim for the value of any of
Tenant's Removable Property installed in the Premises by Tenant
at Tenant's expense or Tenant's furniture, fixtures and equipment
and for relocation expenses, provided that
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such action shall not affect the amount of compensation otherwise
recoverable by Landlord from the taking authority.
12.5 CONDEMNATION. Notwithstanding the foregoing provisions of this
Article XII to the contrary, if (a) all or any material portion
of the Premises is permanently taken by exercise of the power of
eminent domain or (b) the means of access to and from the
Premises or if more than 15% of the parking areas on the Property
are permanently taken by exercise of the power of eminent domain
and Landlord is not able to provide Tenant with a substantially
similar and reasonable means of access to and egress from the
Premises or parking spaces, then, Landlord and Tenant shall each
have the right to terminate this Lease effective as of the date
(the "Termination Date") that Tenant is required to vacate such
portion (or all of the Premises) or cease using such means of
access or egress or parking areas, by giving the other party
written notice of such termination within thirty (30) days of
receipt of the final notice of such taking, time being of the
essence. In the event of such termination, this Lease and the
rights and obligations of the parties hereunder shall cease and
terminate as of the Termination Date as if such date were the
date set forth in this Lease for expiration of the Term of this
Lease. Such right of termination, together with Tenant's rights
pursuant to Section 12.1 and Section 12.4, shall be Tenant's sole
and exclusive rights with respect to damage or loss due to
condemnation.
ARTICLE XIII
DEFAULT
13.1 TENANT'S DEFAULT. (a) If at any time subsequent to the date of
this Lease any one or more of the following events (herein
referred to as a "Default of Tenant") shall happen:
(i) Tenant shall fail to pay the Basic Rent, Escalation Charges
or other sums payable as additional charges hereunder when due
and such failure shall continue for more than ten (10) days after
Tenant's receipt of written notice from Landlord to Tenant; or
(ii) Tenant shall neglect or fail to perform or observe any
other covenant herein contained on Tenant's part to be performed
or observed, or Tenant shall desert or abandon the Premises or
the Premises shall become, or appear to have become vacant
(regardless whether the keys shall have been surrendered or the
rent and all other sums due shall have been paid), and Tenant
shall fail to remedy the same within thirty (30) days after
receipt of
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written notice to Tenant specifying such neglect or failure, or
if such failure is of such a nature that Tenant cannot reasonably
remedy the same within such thirty (30) day period, Tenant shall
fail to commence promptly to remedy the same and to prosecute
such remedy to completion with diligence and continuity; or
(iii) Tenant's leasehold interest in the Premises shall be
taken on execution or by other process of law directed against
Tenant; or
(iv) Tenant shall make an assignment for the benefit of
creditors or shall file a voluntary petition in bankruptcy or
shall be adjudicated bankrupt or insolvent, or shall file any
petition or answer seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar
relief for itself under any present or future Federal, State or
other statute, law or regulation for the relief of debtors, or
shall seek or consent to or acquiesce in the appointment of any
trustee, receiver or liquidator of Tenant or of all or any
substantial part of its properties, or shall admit in writing
its inability to pay its debts generally as they become due
unless such assignment, petition, answer, consent, acquiescence
or admission is dismissed or withdrawn within ninety (90) days;
or
(v) A petition shall be filed against Tenant in bankruptcy or
under any other law seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution, or similar
relief under any present or future Federal, State or other
statute, law or regulation and shall remain undismissed or
unstayed for an aggregate of ninety (90) days (whether or not
consecutive), or if any debtor in possession (whether or not
Tenant) trustee, receiver or liquidator of Tenant or of all or
any substantial part of its properties or of the Premises shall
be appointed without the consent or acquiescence of Tenant and
such appointment shall remain unvacated or unstayed for an
aggregate of sixty (60) days (whether or not consecutive);
then in any such case (1) if such Default of Tenant shall occur
prior to the Commencement Date, this Lease shall ipso facto, and
without further act on the part of Landlord, terminate, and (2)
if such Default of Tenant shall occur after the Commencement
Date, Landlord may terminate this Lease by notice to Tenant, and
thereupon this Lease shall come to an end as fully and completely
as if such date were the date herein originally fixed for the
expiration of the Term of this Lease, and Tenant will then quit
and surrender the Premises to Landlord, but Tenant shall remain
liable as hereinafter provided.
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(b) If this Lease shall be terminated as provided in this
Article, or if any execution or attachment shall be issued
against Tenant or any of Tenant's property whereupon the Premises
shall be taken or occupied by someone other than Tenant, then
Landlord may, without notice, re-enter the Premises by summary
proceedings or any other means permitted by law (and as and to
the extent permitted by law) or upon obtaining a judgment for
possession and execution from a court of competent jurisdiction
remove and dispossess Tenant and all other persons and any and
all property from the same, as if this Lease had not been made.
(c) In the event of any termination, Tenant shall pay the Basic
Rent, Escalation Charges and other sums payable hereunder up to
the time of such termination, and thereafter Tenant, until the
end of what would have been the Term of this Lease in the absence
of such termination, and whether or not the Premises shall have
been relet, shall be liable to Landlord for, and shall pay to
Landlord, as liquidated current damages, the Basic Rent,
Escalation Charges and other reasonable sums which would be
payable hereunder if such termination had not occurred, less the
net proceeds, if any, of any reletting of the Premises, after
deducting all reasonable expenses in connection with such
reletting, including, without limitation, all repossession costs,
brokerage commissions, legal expenses, attorneys' fees,
advertising, expenses of employees, alteration costs and expenses
of preparation for such reletting. Tenant shall pay such current
damages to Landlord monthly on the days which the Basic Rent
would have been payable hereunder if this Lease had not been
terminated.
(d) At any time after such termination, whether or not Landlord
shall have collected any such current damages, as liquidated
final damages and in lieu of all such current damages beyond the
date of such demand, at Landlord's election Tenant shall pay to
Landlord an amount equal to the excess (discounted to present
value using a discount factor reasonably determined by Landlord
in its sole but reasonable judgment), if any, of the Basic Rent,
Escalation Charges and other sums as hereinbefore provided which
would be payable hereunder from the date of such demand (assuming
that, for the purposes of this paragraph, annual payments by
Tenant on account of Taxes, Utility Expenses and Operating
Expenses would be the same as the payments required for the
immediately preceding Operating or Tax Year) for what would be
the then unexpired Term of this Lease if the same had remained in
effect, over the then fair net rental value of the Premises for
the same period.
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(e) In the case of any Default by Tenant, re-entry, expiration
and dispossession by summary proceeding or otherwise, Landlord
(i) shall, subject to the provisions of Section 13.1(i) hereafter
set forth, use reasonable efforts to re-let the Premises or any
part or parts thereof, either in the name of Landlord or
otherwise, for a term or terms which may at Landlord's option be
equal to or less than or exceed the period which would otherwise
have constituted the balance of the Term of this Lease and may
grant concessions or free rent to the extent that Landlord
considers advisable and necessary to re-let the same and (ii) may
make such reasonable alterations, repairs and decorations in the
Premises as Landlord in its sole judgment considers advisable and
necessary for the purpose of reletting the Premises; and the
making of such alterations, repairs and decorations shall not
operate or be construed to release Tenant from liability
hereunder as aforesaid. Tenant hereby expressly waives any and
all rights of redemption granted by or under any present or
future laws in the event of Tenant being evicted or dispossessed,
or in the event of Landlord obtaining possession of the Premises,
by reason of the violation by Tenant of any of the covenants and
conditions of this Lease.
(f) Intentionally Omitted.
(g) The specified remedies to which Landlord may resort hereunder
are not intended to be exclusive of any remedies or means of
redress to which Landlord may at any time be entitled to
lawfully, and Landlord may invoke any remedy (including the
remedy of specific performance) allowed at law or in equity as if
specific remedies were not herein provided for.
(h) All costs and expenses incurred by or on behalf of Landlord
(including, without limitation, attorneys' fees and expenses) in
enforcing its rights hereunder or occasioned by any Default of
Tenant shall be paid by Tenant.
(i) Subject to the conditions and limitations hereafter set
forth, Landlord agrees to use reasonable efforts to relet the
Premises after Tenant vacates the Premises in the event that the
Lease is terminated by Landlord as the result of a Default of
Tenant hereunder. Marketing of Tenant's Premises in a manner
similar to the manner in which Landlord markets other premises
within Landlord's control in the Building shall be deemed to have
satisfied Landlord's obligation to use "reasonable efforts". In
no event shall Landlord be required to (a) solicit or entertain
negotiations with any other prospective tenants for the Premises
until Landlord obtains full and complete possession of the
Premises including, without limitation,
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the final and unappealable legal right to relet the Premises free
of any claim of Tenant, (b) relet the Premises before leasing
other vacant space in the Building or any other building in the
Office Park owned by Landlord, (c) lease the Premises for a
rental or upon terms less than the current fair market rental and
terms then prevailing for similar office space in the Building,
or (d) enter into a lease with any proposed tenant that does not
have, in Landlord's reasonable opinion, sufficient financial
resources or operating experience to operate the Premises in a
first-class manner.
13.2 LANDLORD'S DEFAULT. Landlord shall in no event be in default of
the performance of any of Landlord's obligations hereunder unless
and until Landlord shall have (a) unreasonably failed to commence
to perform such obligation within a reasonable period of time
(but in no event more than thirty (30) days) after notice by
Tenant to Landlord specifying wherein Landlord has failed to
perform any such obligations or (b) failed to diligently complete
the performance of such obligations once commenced.
ARTICLE XIV
MISCELLANEOUS PROVISIONS
14.1 EXTRA HAZARDOUS USE. Tenant covenants and agrees that Tenant will
not do or permit anything to be done in or upon the Premises, or
bring in anything or keep anything therein, which shall increase
the rate of property or liability insurance on the Premises or of
the Building above the standard rate applicable to premises being
occupied for Permitted Uses; and Tenant further agrees that, in
the event that Tenant shall do any of the foregoing, Tenant will
promptly pay to Landlord, on demand, any such increase resulting
therefrom, which shall be due and payable as an additional charge
hereunder.
14.2 WAIVER. (a) Failure on the part of Landlord or Tenant to complain
of any action or non-action on the part of the other, no matter
how long the same may continue, shall never be a waiver by Tenant
or Landlord, respectively, of any of the other's rights
hereunder. Further, no waiver at any time of any of the
provisions hereof by Landlord or Tenant shall be construed as a
waiver of any of the other provisions hereof, and a waiver at any
time of any of the provisions hereof shall not be construed as a
waiver at any subsequent time of the same provisions. The consent
or approval of Landlord or Tenant to or of any action by the
other requiring such consent or approval shall not be construed
to waive or render unnecessary Landlord's or
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Tenant's consent or approval to or of any subsequent similar act
by the other.
(b) No payment by Tenant, or acceptance by Landlord, of a lesser
amount than shall be due from Tenant to Landlord shall be treated
otherwise than as a payment on account of the earliest
installment of any payment due from Tenant under the provisions
hereof. The acceptance by Landlord of a check for a lesser amount
with an endorsement or statement thereon, or upon any letter
accompanying such check, that such lesser amount is payment in
full, shall be given no effect, and Landlord may accept such
check without prejudice to any other rights or remedies which
Landlord may have against Tenant.
14.3 COVENANT OF QUIET ENJOYMENT. Tenant, subject to the terms and
provisions of this Lease, on payment of the Basic Rent and
Escalation Charges and observing, keeping and performing all of
the other terms and provisions of this Lease on Tenant's part to
be observed, kept and performed, shall lawfully, peaceably and
quietly have, hold, occupy and enjoy the Premises during the term
hereof, without hindrance or ejection by any persons lawfully
claiming under Landlord to have title to the Premises superior to
Tenant; the foregoing covenant of quiet enjoyment is in lieu of
any other covenant, express or implied.
14.4 LANDLORD'S LIABILITY. (a) Tenant specifically agrees to look
solely to Landlord's then interest in the Property at the time
owned, for recovery of any judgment from Landlord; it being
specifically agreed that neither Landlord (original or successor)
nor any of its assets, agents, servants, employees, directors,
shareholders, officers, trustees and beneficiaries shall ever be
personally liable for any such judgment, or for the payment of
any monetary obligation to Tenant. The provision contained in the
foregoing sentence is not intended to, and shall not, limit any
right that Tenant might otherwise have to obtain injunctive
relief or other equitable relief against Landlord or Landlord's
successors in interest, or to take any action not involving the
personal liability of Landlord (original or successor) to respond
in monetary damages from Landlord's assets other than Landlord's
equity interest in the Property.
(b) With respect to any services or utilities to be furnished by
Landlord to Tenant, Landlord shall in no event be liable for
failure to furnish the same when prevented from doing so by Force
Majeure, strike, lockout, breakdown, accident, order or
regulation of or by any governmental authority, or failure of
supply, or inability by the exercise of reasonable diligence to
obtain supplies, parts or employees necessary to furnish such
services, or because of war or other emergency, or for any cause
beyond Landlord's reasonable control, or for any
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cause beyond Landlord's reasonable control, or for any cause due
to any act or neglect of Tenant or Tenant's servants, agents,
employees, licensees or any person claiming by, through or under
Tenant; nor shall any such failure give rise to any claim in
Tenant's favor that Tenant has been evicted, either
constructively or actually, partially or wholly.
(c) Except as provided in Section 14.19, in no event shall
Landlord or Tenant ever be liable to the other for any loss of
business or any other indirect or consequential damages.
(d) With respect to any repairs or restoration which are required
or permitted to be made by Landlord, the same may be made during
normal business hours provided that Landlord shall, to the extent
within its reasonable control, use good faith efforts to avoid
unreasonable interference with Tenant's use of the Premises.
14.5 NOTICE TO MORTGAGEE OR GROUND LESSOR. After receiving notice from
any person, firm or other entity that it holds a mortgage or a
ground lease which includes the Premises, no notice from Tenant
to Landlord alleging any default by Landlord shall be effective
unless and until a copy of the same is given to such holder or
ground lessor (provided Tenant shall have been furnished with the
name and address of such holder or ground lessor), and the curing
of any of Landlord's defaults by such holder or ground lessor
shall be treated as performance by Landlord. Landlord hereby
warrants and represents to Tenant that as of the date of
execution and delivery of this Lease by Landlord, there is no
mortgage or ground lease with respect to Landlord's interest in
the Property which is superior to this Lease.
Nothing contained herein shall be deemed or construed to mean
that Landlord is precluded from placing mortgages or ground
leases on the Property in the future (subject to Section 14.15
hereof).
14.6 ASSIGNMENT OF RENTS AND TRANSFER OF TITLE. (a) With reference to
any assignment by Landlord of Landlord's interest in this Lease,
or the rents payable hereunder, conditional in nature or
otherwise, which assignment is made to the holder of a mortgage
on property which includes the Premises, Tenant agrees that the
execution thereof by Landlord, and the acceptance thereof by the
holder of such mortgage, shall never be treated as an assumption
by such holder of any of the obligations of Landlord hereunder
unless such holder shall, by notice sent to Tenant, specifically
otherwise elect and that, except as aforesaid, such holder shall
be treated as having assumed Landlord's obligations hereunder
only upon
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foreclosure of such holder's mortgage and the taking of
possession of the Premises.
(b) In no event shall the acquisition of Landlord's interest in
the Property by a purchaser which, simultaneously therewith,
leases Landlord's entire interest in the Property back to the
seller thereof be treated as an assumption by operation of law or
otherwise, of Landlord's obligations hereunder, but Tenant shall
look solely to such seller-lessee, and its successors from time
to time in title, for performance of Landlord's obligations
hereunder. For all purposes, such seller-lessee, and its
successors in title, shall be the Landlord hereunder unless and
until Landlord's position shall have been assumed by such
purchaser-lessor.
(c) Except as provided in paragraph (b) of this Section, in the
event of any transfer of title to the Property by Landlord, the
transferring Landlord shall thereafter be entirely freed and
relieved from the performance and observance of all covenants and
obligations hereunder which are to be performed or observed from
and after (but not before) the date of such transfer.
14.7 RULES AND REGULATIONS. Tenant shall abide by rules and
regulations set forth in Exhibit C attached hereto and those
rules and regulations from time to time established by Landlord,
it being agreed that such rules and regulations will be
established and applied by Landlord in a non-discriminatory
fashion, such that all rules and regulations shall be generally
applicable to other tenants of the Building of similar nature to
the Tenant named herein. Landlord agrees to use reasonable
efforts to insure that any such rules and regulations are
uniformly enforced, but Landlord shall not be liable to Tenant
for violation of the same by any other tenant or occupant of the
Building, or persons having business with them. In the event that
there shall be any conflict between such rules and regulations
and the provisions of this Lease, the provisions of this Lease
shall control.
14.8 ADDITIONAL CHARGES. If Tenant shall fail to pay when due any sums
under this Lease designated or payable as an additional charge,
Landlord shall have the same rights and remedies as Landlord has
hereunder for failure to pay Basic Rent.
14.9 INVALIDITY OF PARTICULAR PROVISIONS. If any term or provision of
this Lease, or the application thereof to any person or
circumstance shall, to any extent, be invalid or unenforceable,
the remainder of this Lease, or the application of such term or
provision to persons or circumstances other than those as to
which it is held invalid or unenforceable, shall not be affected
thereby,
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and each term and provision of this Lease shall be valid and be
enforced to the fullest extent permitted by Law.
14.10 PROVISIONS BINDING, ETC. Except as herein otherwise provided, the
terms hereof shall be binding upon and shall inure to the benefit
of the successors and assigns, respectively, of Landlord and
Tenant and, if Tenant shall be an individual, upon and to his
heirs, executors, administrators, successors and assigns. The
reference contained to successors and assigns of Tenant is not
intended to constitute a consent to assignment by Tenant, but has
reference only to those instances in which Landlord may later
give consent to a particular assignment as required by those
provisions of Article VI hereof.
14.11 RECORDING. Tenant agrees not to record this Lease, but each party
hereto agrees, on the request of the other, to execute a
so-called notice of lease in form recordable and complying with
applicable law and reasonably satisfactory to Landlord's
attorneys. In no event shall such document set forth the rent or
other charges payable by Tenant under this Lease; and any such
document shall expressly state that it is executed pursuant to
the provisions contained in this Lease, and is not intended to
vary the terms and conditions of this Lease.
14.12 NOTICES. Whenever, by the terms of this Lease, notices, consents
or approvals shall or may by given either to Landlord or to
Tenant, such notices, consents or approvals shall be in writing
and shall be sent by (i) nationally recognized overnight delivery
service with signature required on delivery or (ii) registered or
certified mail, return receipt requested, postage prepaid:
If intended for Landlord, addressed to Landlord at:
Landlord's Original Address
Attn: Property Manager
101 Edgewater Drive
Wakefield, MA
with a copy to:
Mr. Nicholas E. Stolatis, Director, Asset Management
Teachers Insurance and Annuity Association of America
as Asset Manager on behalf of TIAA Realty, Inc.
730 Third Avenue
New York, New York 10017
(or to such other address as may from time to time hereafter be
designated by Landlord by like notice).
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If intended for Tenant, addressed to Tenant at Tenant's Original
Address until the Commencement Date and thereafter to the
Premises Attn: Corporate Counsel (or to such other address or
addresses as may from time to time hereafter be designated by
Tenant by like notice.)
All such notices shall be effective when delivered if sent by
overnight courier and if by registered or certified mail, when
delivered or upon the first date of attempted delivery by the
postal service, if delivery is rejected or not accepted.
14.13 WHEN LEASE BECOMES BINDING. The submission of this document for
examination and negotiation does not constitute an offer to
lease, or a reservation of, or option for, the Premises, and this
document shall become effective and binding only upon the
execution and delivery hereof by both Landlord and Tenant. All
negotiations, considerations, representations and understandings
between Landlord and Tenant are incorporated herein and this
Lease expressly supersedes any proposals or other written
documents relating hereto. This Lease may be modified or altered
only by written agreement between Landlord and Tenant, and no act
or omission of any employee or agent of Landlord shall alter,
change or modify any of the provisions hereof.
14.14 PARAGRAPH HEADINGS. The paragraph headings throughout this
instrument are for convenience and reference only, and the words
contained therein shall in no way be held to explain, modify,
amplify or aid in the interpretation, construction, or meaning of
the provisions of this Lease.
14.15 RIGHTS OF MORTGAGEE OR GROUND LESSOR. This Lease shall be
subordinate to any mortgage or ground lease from time to time
encumbering the Premises, whether executed and delivered prior to
or subsequent to the date of this Lease, if the holder of such
mortgage or ground lease shall so elect. If this Lease is
subordinate to any mortgage or ground lease and the holder
thereof (or successor) shall succeed to the interest of Landlord,
at the election of such holder (or successor) Tenant shall attorn
to such holder and this Lease shall continue in full force and
effect between such holder (or successor) and Tenant. Tenant
agrees to execute such reasonable instruments of subordination,
non-disturbance and attornment in confirmation of the foregoing
agreement as such holder may reasonably request.
Notwithstanding anything to the contrary contained in this
Section 14.15 or in Section 14.6 of this Lease, Tenant shall not
be required to subordinate this Lease to any mortgage or the lien
of any mortgage or sale and a leaseback, nor shall the
subordination provided herein be
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self-operative unless the holder of such mortgage or the Lessor
under such ground lease, as the case may be, shall enter into an
Agreement with Tenant, recordable in form, to the effect that, in
the event of foreclosure of, or similar action taken under, such
mortgage or ground lease, Tenant's possession of the Premises
under this Lease shall not be terminated or disturbed by such
mortgage holder or ground lessor or anyone claiming under such
mortgage holder or a ground lessor, as the case may be, so long
as Tenant shall not be in default under this Lease. The form of
any such Agreement shall be the form usually and customarily
required by any such mortgagee or ground lessor so long as such
mortgagee or ground lessor complies with the requirements of this
Section 14.15.
14.16 STATUS REPORT. Recognizing that both parties may find it
necessary to establish to third parties, such as accountants,
prospective purchasers, banks, mortgagees, ground lessors, or the
like, the then current status of performance hereunder, either
party, on the request of the other made from time to time, will
promptly furnish to Landlord, or the holder of any mortgage or
ground lease encumbering the Premises, or to Tenant, as the case
may be, a statement of the status of any reasonable matter
pertaining to this Lease, including, without limitation,
acknowledgment that (or the extent to which) each party is in
compliance with its obligations under the terms of this Lease.
14.17 SECURITY DEPOSIT/LETTER OF CREDIT. Tenant shall deposit with
Landlord a Letter of Credit in the amount and form hereafter
described (the "Letter of Credit") to be held and, as applicable,
presented and drawn upon and the proceeds thereof retained and
applied by Landlord as security for the faithful payment,
performance and observance by Tenant of the terms, covenants,
provisions, conditions and agreements of Tenant under and
pursuant to this Lease. It is agreed and understood that in the
event of the occurrence of a Default of Tenant, Landlord may
present for payment and draw upon the Letter of Credit and
Landlord may use, apply or retain the whole or any part of the
amounts available to be drawn under the Letter of Credit to the
extent required for the payment of any Basic Rent, Escalation
Charges, additional rent or any other sum which Landlord may
expend or be entitled to the payment of by reason of any Default
of Tenant or any failure of tenant to pay, perform or observe any
term, covenant, condition or provision of this Lease, including
without limitation, any late charges, interest payments or any
damages or deficiency in the re-letting of the Premises whether
said damages or deficiency occurred before or after summary
proceedings or other re-entry by Landlord.
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If Landlord shall present, draw upon and apply or retain all or
any portion of the amounts evidenced by the Letter of Credit,
Tenant shall immediately replenish and reinstate the amount
available to be drawn under the Letter of Credit or cause a
substitute Letter of Credit in the form and amount required by
this Lease to be re-issued so that at all times during the Term
of this Lease, Landlord shall be entitled to draw upon the entire
dollar amount of the Letter of Credit in the amounts from time to
time required hereunder notwithstanding any prior presentation
and draw thereon.
The Letter of Credit must at all times be an "irrevocable clean"
commercial Letter of Credit in the amount required by this Lease
and payable through a bank or other financial institution having
and maintaining an office at which draws may occur in New York
City, New York, acceptable to Landlord in Landlord's sole
discretion. In addition, the Letter of Credit shall be payable
solely to the benefit of the Landlord from time to time under
this Lease and shall be automatically renewable and, upon the
direction of Landlord, transferable to and payable for the
benefit of any successor Landlord under the Lease. The Letter of
Credit (or substitutes thereof consistent with the terms hereof)
shall be and remain presentable and payable for the time period
beginning on the date of this Lease through and including the
date which is the last to occur of (i) the date which is 60 days
after the last day of the Term of this Lease or (ii) the date
which is 60 days after the date of delivery of the entire
Premises to Landlord in accordance with the terms and provisions
of this Lease or (iii) 60 days after the last of Tenant's
monetary obligations to Landlord under this Lease have been
satisfied in full. Tenant shall bear all costs and expenses in
connection with procuring the Letter of Credit and maintaining it
in full force and effect for the time periods required hereunder.
In the event of a sale or other transfer of the Building, Tenant
shall, at its sole cost and expense, cause the Letter of Credit,
in the form required hereunder, to be issued to and for the
benefit of such transferee or purchaser, as designated by
Landlord.
The Landlord from time to time under this Lease, shall be
entitled to receive 60 days prior written notice of any
cancellation of the Letter of Credit for any reason and the
Letter of Credit shall not be cancellable unless and until
Landlord shall have received such sixty (60) day advance written
notice. Upon (i) receiving notice of cancellation of the Letter
of Credit or (ii) failure of Tenant to deliver to Landlord a
substitute Letter of Credit on or before the date which is 30
days prior to any renewal date and whether or not Tenant shall
then be in default in the payment, performance or observance of
any term, covenant or provision of this Lease, Landlord shall be
entitled to
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present, draw upon and retain the entire amount of the Letter of
Credit and upon so doing, Landlord shall be entitled to hold,
apply and retain the proceeds of such payment as if it were a
cash security deposit under this Lease to be applied against
Defaults of Tenant from time to time arising under this Lease.
It is agreed and understood that any failure of Tenant to
perform, observe or comply with any term of provision contained
in this Section 14.17 to be performed or observed by Tenant shall
entitle Landlord to the same rights and remedies under this
Lease, as a failure by Tenant to pay Basic Rent as and when same
shall be due and payable.
Initially, the amount of the Letter of Credit shall be in the
amount stated in Section 1.2 hereof. Thereafter, beginning as of
the first day of the fourth lease year and provided that no
Default of Tenant shall exist and be continuing, the amount of
the Letter of Credit shall be reduced to $161,692.88.
14.18 REMEDYING DEFAULTS. Landlord shall have the right, (but shall not
be required) upon not less than thirty (30) days notice to Tenant
and opportunity to cure within such thirty (30) day period
(except in the case of emergency when no advance notice nor
opportunity to cure shall be required), to pay such sums or to do
any act which requires the expenditure of monies which may be
necessary or appropriate by reason of the failure or neglect of
Tenant to perform any of the provisions of this Lease, and in the
event of the exercise of such right by Landlord, Tenant agrees to
pay to Landlord forthwith upon demand all such sums, together
with interest thereon at a rate equal to 3% over the prime rate
in effect from time to time at BankBoston or such other banking
institution in Boston, MA as designated from time to time by
Landlord (but in no event greater than the maximum rate of
interest permitted by law), as an additional charge. Any payment
of Basic Rent, Escalation Charges or other sums payable hereunder
not paid when due shall, at the option of Landlord, bear interest
at a rate equal to 3% over the prime rate in effect from time to
time at BankBoston (but in no event greater than the maximum rate
of interest permitted by law) from the due date thereof and shall
be payable forthwith on demand by Landlord, as an additional
charge.
14.19 HOLDING OVER. Any holding over by Tenant after the expiration or
earlier termination of the Term of this Lease shall be treated as
a daily tenancy at sufferance at a rate equal to the then fair
rental value of the Premises but in no event less than 150% of
the sum of (i) Basic Rent and (ii) Escalation Charges in effect
on the expiration or termination date. Tenant shall also pay to
Landlord all damages, direct and/or indirect (including
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any loss of a tenant or rental income), sustained by reason of
any such holding over. Otherwise, such holding over shall be on
the terms and conditions set forth in this Lease as far as
applicable. The Landlord may, but shall not be required to, and
only on written notice to Tenant after the expiration of the Term
hereof, elect to treat such holding over as an extension of the
Term of this Lease for a period of up to one (1) year, as
designated by Landlord, such extension to be on the terms and
conditions set forth in this Section 14.19.
14.20 WAIVER OF SUBROGATION. Landlord and Tenant mutually agree that
any property damage insurance carried by either shall provide for
the waiver by the insurance carrier of any right of subrogation
against the other, and they further mutually agree that, with
respect to any damage to property, the loss from which is covered
by insurance then being carried by them, respectively, the one
carrying such insurance and suffering such loss releases the
other of and from any and all claims with respect to such loss to
the extent of the insurance proceeds paid with respect thereto.
14.21 SURRENDER OF PREMISES. Upon the expiration or earlier termination
of the Term of this Lease, Tenant shall peaceably quit and
surrender to Landlord the Premises in neat and clean condition
and in good order, condition and repair, together with all
alterations, additions and improvements which may have been made
or installed in, on or to the Premises prior to or during the
Term of this Lease, excepting only ordinary wear and use and
damage by fire or other casualty for which, under other
provisions of this Lease, Tenant has no responsibility of repair
and restoration. Tenant shall remove all of Tenant's Removable
Property and telecommunications cabling and, to the extent
specified by Landlord at the time Landlord grants its consent to
the making and installation thereof, all alterations and
additions made by Tenant and all partitions wholly within the
Premises made by Tenant after the Commencement Date and any
aspect of Landlord's Work with respect to which Landlord requires
removal by notice to Tenant at the time of approval of Tenant's
Plans; and shall repair any damage to the Premises or the
Building caused by such removal. Any Tenant's Removable Property
which shall remain in the Building or on the Premises after the
expiration or termination of the Term of this Lease shall be
deemed conclusively to have been abandoned, and either may be
retained by Landlord as its property or may be disposed of in
such manner as Landlord may see fit, at Tenant's sole cost and
expense.
14.22 SUBSTITUTE SPACE. Intentionally Omitted.
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14.23 BROKERAGE. Tenant warrants and represents that Tenant has dealt
with no broker in connection with the consummation of this Lease
other than Leggat McCall Properties LLC (the "Broker") and, in
the event of any brokerage claims against Landlord predicated
upon prior dealings with Tenant, Tenant agrees to defend the same
and indemnify Landlord against any such claim (except any claim
by the Broker which shall be paid by Landlord pursuant to its
specific agreements with Broker).
Landlord warrants and represents that Landlord has dealt with no
broker in connection with the consummation of this Lease other
than Leggat McCall Properties LLC (the "Broker") and, in the
event of any brokerage claims against Tenant predicated upon
prior dealings with Landlord, Landlord agrees to defend the same
and indemnify Landlord against any such claim.
14.24 SPECIAL TAXATION PROVISIONS. Landlord shall have the right at any
time and from time to time, to unilaterally amend the provisions
of this Lease if Landlord is advised by its Counsel that all or
any portion of the monies paid by Tenant to Landlord hereunder
are, or may be deemed to be, unrelated business income within the
meaning of the United States Internal Revenue Code, or any
regulation issued thereunder, and Tenant agrees that it will
execute all documents or instruments necessary to effect such
amendment or amendments, provided that no such amendment shall
result in Tenant having to pay in the aggregate more money on
account of its occupancy of the demised premises under the
provisions of this Lease as so amended and provided further, that
no such amendment or amendments shall result in Tenant receiving
under the provisions of this Lease less services than it is
entitled to receive nor services of a lesser quality. Anything
contained in the foregoing provisions of this Lease (including,
without limitation, Article VI hereof) to the contrary
notwithstanding, neither Tenant nor any other person having an
interest in the possession, use, occupancy or utilization of the
Premises, shall enter into any lease, sublease, license,
concession or other agreement for use, occupancy, utilization of
space in the Premises which provides for rental or other payment
for such use, occupancy or utilization of space, in whole or in
part, on the net income or profits derived by any person from the
Premises leased, used, occupied or utilized (other than an amount
based on a fixed percentage or percentage of receipts for sales)
and any such recorded lease, sublease, license, concession or
other agreement shall be absolutely void and ineffective as a
conveyance of any right or interest in the possession, use,
occupancy or utilization of any part of the Premises.
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14.25 HAZARDOUS MATERIALS. (a) Tenant shall not (either with or without
negligence) cause or permit the escape, disposal, release or
threat of release of any biologically or chemically active or
other Hazardous Materials (as said term is hereafter defined) on,
in, upon or under the Property or the Premises. Tenant shall not
allow the generation, storage, use or disposal of such Hazardous
Materials in any manner not sanctioned by law or by the highest
standards prevailing in the industry for the generation, storage,
use and disposal of such Hazardous Materials, nor allow to be
brought into the Property any such Hazardous Materials except for
use in the ordinary course of Tenant's business, and then only
after written notice is given to Landlord of the identity of such
Hazardous Materials. If any governmental agency shall ever
require testing to ascertain whether or not there has been any
release of Hazardous Materials, then the reasonable costs thereof
shall be reimbursed by Tenant to Landlord upon demand as
additional charges but only if such requirement is the result of
the acts or omissions of Tenant. In addition, Tenant shall
execute reasonable affidavits, representations and the like, from
time to time, at Landlord's reasonable request concerning
Tenant's best knowledge and belief regarding the presence of
Hazardous Materials on the Premises.
The Tenant shall, at its own expense, remove, clean up, remedy
and dispose of (in compliance with all applicable laws, rules and
regulations) all Hazardous Materials generated or released by the
Tenant or its officers, directors, employees, contractors,
servants or agents during the Term of this Lease (or during such
term as the Tenant is in occupancy or possession of any part of
the Premises, the Building or the Property) at or from the
Premises, the Building or the Property in compliance with all
Environmental Laws (as said term is hereafter defined) and
further, shall remove, clean up, remedy and dispose of all
Hazardous Materials located at, upon, under, within or in the
Premises, the Building or the Property generated by or resulting
from Tenant's operations, activities or processes during the term
of this Lease (or such other periods of time as the Tenant may be
in occupancy or in possession of the Premises or any portion of
the Property or Building), in compliance with all Environmental
Laws. In performing its obligations hereunder, the Tenant shall
use best efforts to avoid interference with the use and enjoyment
of the Building and the Property by other tenants and occupants
thereof. The provisions hereof shall survive expiration or
termination of this Lease.
The Tenant shall indemnify, defend and save harmless the
Landlord, the Manager and their respective officers, directors
and shareholders from and against all loss, costs, damages,
claims, proceedings, demands, liabilities,
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penalties, fines and expenses, including without limitation,
reasonable fees and costs for attorneys' fees, consultants' fees,
litigation costs and clean-up costs asserted against or incurred
by the Landlord, the Manager or their respective officers,
directors and shareholders, at any time caused by (i) any release
or threat of release of any Hazardous Materials at, in, upon,
under or from the Premises, the Building or the Property where
such release or threat of release caused by the acts or omissions
of the Tenant or its agents, servants, employees or contractors
or (ii) any violation or of any Environmental Laws governing
Hazardous Materials where such violation is caused by the acts or
omissions of the Tenant or its agents, servants, employees or
contractors. The indemnities set forth in this Section shall
survive expiration or termination of this Lease.
In addition to the requirements set forth above, the Tenant
shall, within ten (10) days of receipt, provide to the Landlord
copies of any inspection or other reports, correspondence,
documentation, orders, citations, notices, directives, or suits
from or by any governmental authority or insurer regarding
non-compliance with or potential or actual violation of
Environmental Laws. Subject to the requirements of Section 11.1
hereof, the Landlord hereby expressly reserves the right to enter
the Premises and all other portions of the Building and the
Property at reasonable times in order to perform inspections and
testing of the air, soil and groundwater for the presence or
existence of Hazardous Materials.
It is agreed and understood that in the event that Hazardous
Materials are discovered on the Premises during the course of
performance of Landlord's Work, then, unless such Hazardous
Material is present due to the acts of Tenant or Tenant's agents,
employees or contractors, (i) the Landlord shall remove same to
the extent required by law at Landlord's sole expense and (ii)
any delays in the Substantial Completion Date and the
Construction Completion Date shall not be deemed to be the result
of Tenant's Delay for purposes of Section 4.4 of this Lease.
As used herein, the term "Hazardous Materials" shall mean and
include, without limitation, any material or substance which is
(i) petroleum, (ii) asbestos, (iii) designated as a "hazardous
substance" pursuant to Section 311 of the Federal Water Pollution
Control Act, 33 U.S.C. SS 1251 et seq. (33 U.S.C. SS 1321) or
listed in SS 307 of the Federal Water Pollution Control Act (33
U.S.C. SS 1317), (iv) defined as a "hazardous waste" pursuant to
Section 1004 of the Resource Conservation and Recovery Act, 42
U.S.C. SS 6901 et seq. (42 U.S.C. SS 6903), (v) defined as a
"hazardous substance" pursuant to Section 101 of the
Comprehensive Environmental Response, Compensation, and
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Liability Act, 42 U.S.C. SS 9601 et seq. (42 U.S.C. SS 9601), as
amended and regulations promulgated thereunder, or (vi) defined
as "oil" or a "hazardous waste", a "hazardous substance", a
"hazardous material" or a "toxic material" under any other law,
rule or regulation applicable to the Property, including, without
limitation, Chapter 21E of the Massachusetts General Laws, as
amended and the regulations promulgated thereunder. As used
herein, the term "Environmental Laws" shall mean, without
limitation, each and every law, rule, order, statute or
regulation described above in this Section, together with (i) any
amendments thereto, or regulations promulgated thereunder and
(ii) any other laws pertaining to the protection of the
environment or governing the use, release, storage, generation or
disposal of Hazardous Materials, whether now existing or
hereafter enacted or promulgated.
(b) In the event that (i) Hazardous Materials are discovered on
the Premises and (ii) the presence or existence of such Hazardous
Materials is not the result of the acts or omissions of Tenant or
Tenant's agents, servants, employees or contractors (iii) as the
direct result of the presence of such Hazardous Materials, a
governmental authority either determining that the Premises are
unsafe and untenantable or ordering that Tenant cease operating
its business and vacate all or any portion of the Premises (an
"Order") and (iv) Tenant shall have provided Landlord with
written notice of the Determination or Order, then Basic Rent and
Escalation Charges payable by Tenant shall abate proportionately
for the period in which, by reason of the presence or existence
of such Hazardous Materials and such Order, there is substantial
interference with Tenant's use of the Premises, having regard to
the extent to which Tenant may be required to discontinue
Tenant's use of all or a portion of the Premises, but such
abatement or reduction shall end if and when Landlord shall have
completed the Remediation (as hereafter defined). Upon
satisfaction of the conditions specified in (i)-(iv) hereof, in
no event shall Landlord have any liability for damages to Tenant
for inconvenience, annoyance, or interruption of business arising
from the presence or existence of such Hazardous Materials.
Upon receipt of the written notice required by the first
paragraph of this Section 14.25(b), Landlord shall thereafter use
due diligence to promptly remove, abate, remediate or clean-up
such Hazardous Materials to the extent required by applicable law
and the requirements of governmental agencies of competent
jurisdiction to the extent that Tenant shall be permitted to
re-enter the portion of the Premises which is the subject of the
Order (the "Remediation"). If, for any reason, such Remediation
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shall not be substantially completed within 240 days from the
date of Landlord's receipt of written notice of the Order from
Tenant (which period may be extended for such periods of time as
Landlord is prevented from proceeding with or completing such
Remediation for any cause beyond Landlord's reasonable control),
Tenant shall have the right to terminate this Lease by giving
notice to Landlord thereof within thirty (30) days after the
expiration of such period (as so extended). Upon the giving of
such notice, this Lease shall cease and come to an end without
further liability or obligation on the part of either party
unless, within such 30-day period, Landlord substantially
completes such Remediation. Such right of termination shall be
Tenant's sole and exclusive remedy at law or in equity for
Landlord's failure so to complete such Remediation.
14.26 GOVERNING LAW. This Lease shall be governed exclusively by the
provisions hereof and by the laws of the Commonwealth of
Massachusetts, as the same may from time to time exist.
14.27 OPTIONS TO EXTEND. (a) On or before the date which is not less
than fourteen (14) full calendar months prior to expiration of
(a) the Initial Term in the case of Tenant's option with respect
to the First Extension Period (as hereafter defined) and (b) as
applicable, the First Extension Period in the case of Tenant's
option with respect to the Second Extension Period (as hereafter
defined). Tenant shall have the right to provide Landlord with a
written request (a "Rent Request") requesting that Landlord
provide Tenant with written notice (a "Rent Designation") of the
Basic Rent Landlord projects to be the Basic Rent for the
Premises during the applicable Extension Period for which a Rent
Request is made. Landlord shall provide its Rent Designation to
Tenant within 21 days after its receipt of the Rent Request from
Tenant. Tenant's right to request a Rent Designation from
Landlord is merely for purposes of discussion and information
only and neither Landlord nor Tenant shall be bound in any manner
thereby. The mere act of Tenant giving Landlord a Rent Request
and Landlord providing a Rent Designation shall create no
liability or obligation on the part of Landlord or Tenant with
respect to any Extension Period and Landlord and Tenant shall
only be bound with respect to any Extension Period if Tenant
shall timely and properly exercise its option with respect to the
applicable Extension Period as hereafter set forth.
(b) Whether or not Tenant shall give Landlord a Rent Request
pursuant to the foregoing provisions of Section 14.27(a), Tenant
shall nevertheless have the right and option, which said option
and right shall not be severed from this Lease or separately
assigned, mortgaged or transferred, to extend the Initial Term
for two (2)
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additional consecutive periods of five (5) years each
(hereinafter respectively referred to as the "First Extension
Period" and the "Second Extension Period" and sometimes
generically as an "Extension Period"), provided that (a) Tenant
shall give Landlord notice (an "Option Notice") of Tenant's
exercise of each such option at least twelve full calendar months
prior to the expiration of (i) the Initial Term in the case of
the option with respect to the First Extension Period and (ii)
the First Extension Period in the case of the option with respect
to the Second Extension Period and (b) no Default of Tenant
(after expiration of applicable notice and cure periods, if any)
shall exist at the time of giving each applicable notice (c) the
original Tenant named in this Lease (or an assignee or sublessee
permitted in accordance with the provisions of Section 6.1(b) of
this Lease) is itself occupying the entire Premises both at the
time of giving the applicable notice and at the time of
commencement of each respective Extension Period and (d) Tenant
shall fail to give Landlord a Revocation Notice (as hereafter
defined) within ten (10) days after the Tenant's receipt of the
determination of Fair Market Rental Value as hereafter provided
(if Fair Market Rental Value for the applicable Extension is
determined by the appraisal process hereafter described). Except
for the amount of Basic Rent (which is to be determined as
hereinafter provided), all the terms, covenants, conditions,
provisions and agreements in the Lease contained shall be
applicable to the additional periods through which the Term of
this Lease shall be extended as aforesaid, except that (a) there
shall be no further options to extend the Term of this Lease
beyond the Second Extension Period, no Elevator Up-Grade, no
Lobby Renovation Work or Lobby Allowance nor shall Landlord be
obligated to make or pay for any improvements to the Premises nor
pay any Allowance or any inducement payments of any kind or
nature and (b) Base Taxes, Base Operating Expenses and Base
Utility Expenses shall be adjusted as hereafter set forth. If
Tenant shall give an Option Notice of its exercise of an option
to extend in the manner and within the time period provided
aforesaid and provided that Tenant shall not thereafter give
Landlord a Revocation Notice within the time and manner herein
specified, the Term of this Lease shall be extended without the
requirement of any further attention on the part of either
Landlord or Tenant. Landlord hereby reserves the right,
exercisable by Landlord in its sole discretion, to waive (in
writing) any condition precedent set forth in clauses (b) or (c)
above.
Upon the written request of Landlord, Tenant shall enter into an
amendment of this Lease reflecting the extension of the Term of
this Lease and the Basic Rent payable by Tenant during the
Extension Period. Base Taxes for each respective Extension Period
shall be the Taxes for the Tax
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Year in which the first day of the applicable Extension Period
shall fall. Likewise, the Base Operating Expenses and Base
Utility Expenses for each respective Extension Period shall be
the Operating Expenses and Utility Expenses, respectively for the
Operating Year in which the first day of the applicable Extension
Period shall fall.
If Tenant shall fail to exercise any such option as aforesaid as
and when specified herein, Tenant shall have no right to extend
the Term of this Lease, time being of the essence of the
foregoing provisions. Failure of Tenant to timely exercise its
option with respect to the First Extension Period shall terminate
Tenant's rights with respect to the option for the Second
Extension Period unless waived in writing by Landlord (in
Landlord's discretion). Any termination of this Lease Agreement
shall terminate the rights hereby granted Tenant.
The Basic Rent payable for each twelve (12) month period during
each Extension Period shall be the Fair Market Rental Value (as
said term is hereinafter defined) calculated in each case as of
commencement of the applicable Extension Period but in no event
less than the Basic Rent per annum plus Escalation Charges
payable for and with respect to the 12 calendar month period
immediately preceding commencement of the applicable Extension
Period.
Dispute as to Fair Market Value. Landlord shall initially
designate the Fair Market Rental Value and shall furnish data in
support of such designation by written notice to Tenant within
thirty (30) days after receipt of Tenant's Option Notice
exercising the option for the applicable Extension Period. Such
designation by Landlord need not be in the amount specified in
any Rent Designation previously given by Landlord pursuant to
Section 14.27(a) above and shall be determined by Landlord in
Landlord's sole and absolute discretion. If Tenant disagrees with
Landlord's designation of the Fair Market Rental Value, Tenant
shall have the right, by written notice (a "Call for Rent
Determination") given to Landlord within ten (10) days after
Tenant has been notified of Landlord's designation pursuant to
this paragraph, to submit such Fair Market Rental Value to be
determined as follows: The Landlord and Tenant shall each appoint
a Qualified Officer (as said term is hereinafter defined) and
shall designate the Qualified Officer so appointed by notice to
the other party within 15 days after the Tenant's Call for Rent
Determination. The two Qualified Officers so appointed shall meet
within ten (10) days after both Qualified Officers are designated
in an attempt to agree upon the Fair Market Rental Value for the
applicable Extension Period and if, within fifteen (15) days
after both Qualified Officers are designated, the two Qualified
Officers do not agree upon the Fair Market Rental
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Value, then each Qualified Officer shall, not later than thirty
(30) days after both Qualified Officers have been designated,
deliver a written report (the "Individual Rent Report") to both
the Landlord and Tenant setting forth the Fair Market Rental
Value as determined by each Qualified Officer. The two Qualified
Officers shall promptly appoint a third Qualified Officer and
shall designate such third Qualified Officer by notice to
Landlord and Tenant within ten (10) days after delivery of their
Individual Rent Reports. The cost and expenses of each Qualified
Officer appointed separately by Tenant and Landlord shall be
borne by the party who appointed the Qualified Officer. The cost
and expenses of the third Qualified Officer shall be shared
equally by Tenant and Landlord. The third Qualified Officer shall
designate and select one of the designations of the Fair Market
Rental Value set forth in the Individual Rent Report submitted by
one of the two Qualified Officers designated by Landlord and
Tenant as the Fair Market Rental Value. The Fair Market Rental
Value of the subject space determined in accordance with the
provisions of this Section shall be binding and conclusive on
Tenant and Landlord. IN ANY AND ALL EVENTS, THE FAIR MARKET
RENTAL VALUE SHALL BE DETERMINED NO LATER THAN THE DATE WHICH IS
SEVEN FULL CALENDAR MONTHS PRIOR TO THE FIRST DAY OF THE
APPLICABLE EXTENSION PERIOD FOR WHICH IT IS BEING DETERMINED.
Upon determination of the Fair Market Rental Value as aforesaid
(unless such determination shall be made by mutual agreement of
Landlord and Tenant outside of the Qualified Officer process
described above), Tenant shall have a period of ten (10) days
within which to give Landlord written notice of its revocation of
its Option Notice with respect to the applicable Extension Period
(such written notice of revocation being a "Revocation Notice"),
time being of the essence. In the event that Tenant shall fail or
neglect to give Landlord a Revocation Notice within the time and
manner specified above, Tenant shall be deemed to have accepted
the determination of Fair Market Rental value as determined as
set forth above and the Term of this Lease shall be extended to
include the applicable Extension Period at the Basic Rent so
determined as the Fair Market Rental Value.
In the event that Tenant shall give Landlord a Revocation Notice
within the time and manner hereinabove set forth, time being of
the essence, then, Tenant shall be deemed to have revoked its
Option Notice and the Term of this Lease shall not be extended to
include the applicable Extension Period for which it was given
but the Term of this Lease shall be temporarily extended for an
additional period of nine (9) full calendar months (the "Short
Term Extension") beginning as of the day immediately following
the last day of (a) the Initial Term (in the case of a Revocation
Notice
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with respect to an Option Notice for the First Extension Period)
or (b) the last day of the First Extension Period (in the case of
a Revocation Notice with respect to an Option Notice for the
Second Extension Period).
Basic Rent per rentable square foot per annum payable during the
Short Term Extension shall be at an annual rate equal to the sum
of (i) the Basic Rent per square foot per annum payable during
the last twelve months, as applicable, of (a) the Initial Term
(in the case of a Short Term Extension resulting from a
Revocation Notice relating to the First Extension Period) and (b)
the First Extension Period (in the case of a Short Term Extension
resulting from a Revocation Notice relating to the Second
Extension Period plus (ii) $1.00 per rentable square foot (for
example, if the Basic Rent for such 12 month period were $23.00
per rentable square foot per annum, the Basic Rent payable during
the subject Short Term Extension would be $24.00 ($23.00 + $1.00
= $24.00). Except for the amount of Basic Rent which shall be as
set forth above, all of the terms and provisions of the Lease
shall apply during the Short Term Extension, except that there
shall be no option to extend beyond the last day of the Short
Term Extension. Accordingly, the provisions of Section 14.19 of
this Lease shall apply to any holding over beyond expiration of
the Short Term Extension as if the last day of the Short Term
Extension were the last day of the Term of this Lease.
As used herein, the term "Qualified Officer" shall mean any
disinterested and independent person (i) who is a senior officer
of a major nationally recognized leasing brokerage firm having an
office in the Boston Metro Area(ii) who has not less than ten
(10) years experience in (a) leasing office space in the
Edgewater Office Park or other similar first class suburban
office parks in the suburban Boston Office Market or (b)
appraising and valuing properties of the general location, type
and character as the Building in other similar first class office
parks in the suburban Boston Office Market. Notwithstanding the
foregoing, the Landlord may not designate its then leasing broker
as the "Qualified Officer" to be designated by Landlord. If
either party shall fail to appoint its Qualified Officer within
the period specified above (such party referred to hereinafter as
the "Failing Party"), the other party may serve notice on the
Failing Party requiring the Failing Party to appoint its
Qualified Officer within ten (10) days of the giving of such
notice and if the Failing Party shall not respond by appointment
of its Qualified Officer within said ten (10) day period, then
the Qualified Officer appointed by the other party shall be the
sole Qualified Officer whose determination of Fair Market Rental
Value shall be binding and conclusive upon Tenant and Landlord.
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14.28 RIGHT OF FIRST OFFER. In the event that during the Initial Term or
any applicable Extension Period, all or any portion of the
Building shall become "available for leasing" (as hereafter
defined) and provided that no Default of Tenant shall exist and be
continuing then, prior to leasing such space to a third party,
Landlord shall first offer (the "Offer") to lease all of the such
available space to Tenant upon terms and conditions specified by
Landlord in the Offer. The Term of this Lease as it relates to
such space set forth in the Offer shall be for a period equal to
the then unexpired balance of the Term of this Lease (inclusive of
any Extension Periods).
If (a) within ten (10) Business Days after Landlord provides the
Offer to Tenant, Tenant does not unconditionally accept the Offer
as to all of such space described in the Offer in writing or (b)
if Tenant accepts the Offer as aforesaid but does not execute and
deliver a final fully executed Amendment to this Lease Agreement
in form and substance satisfactory to Landlord and Tenant within
thirty (30) days after acceptance of the Offer as aforesaid,
Landlord shall be free to rent all or any part of such space to
any party upon terms and conditions determined by Landlord in its
sole discretion, and Tenant's Right of First Offer shall
terminate as to all of the space described in such Offer (but
only as to the space described in such Offer).
As used herein, the term "available for leasing" shall mean that
Landlord has determined that such space is or will become vacant
as and when determined by Landlord in Landlord's sole discretion
and (a) no other tenant of the Building has any rights of first
offer or expansion rights or other rights of any kind with
respect to such space and/or (b) the then existing tenant in such
space shall (i) not exercise its option to extend or renew its
lease or (ii) fail to negotiate an extension or renewal of its
lease absent a right of extension or renewal in its Lease or any
failure to timely exercise an option or right that existed in its
lease.
In no event shall Landlord provide Tenant with an Offer more than
twelve (12) months prior to the date Landlord anticipates that
such space shall become vacant.
14.29 SATELLITE BUSINESS TERMINAL SYSTEM. (a) To the extent permitted
by and subject to all applicable laws, rules, ordinances and
codes of the Town of Wakefield and any other local, state or
federal agency having jurisdiction and the provisions of this
Section 14.29, Landlord will not unreasonably withhold or delay
its consent to the installation of one Satellite Dish Antenna
System on the roof of the Building comprised of one (1) Satellite
Dish with related components necessary to connect the same to
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the Premises (the "Satellite System"). If Landlord consents to
the installation of the Satellite System, Tenant shall, prior to
commencing to install the Satellite System, comply with the
provisions of Section 5.2 hereof and all such work shall be
performed subject to and in compliance with the provisions of
Section 5.2 of this Lease except that notwithstanding anything
contained in Section 5.2 to the contrary, Tenant shall first
submit to Landlord detailed plans and specifications and such
other information as to the Satellite System as Landlord shall
require regardless of whether or not any permit or governmental
approval is required for the installation of the same. Such
Satellite System shall be used solely by Tenant in the course and
conduct of its business for the Permitted Use and Tenant shall
not grant others the right to use same nor shall Tenant use such
Satellite System to provide voice or data telecommunications
network service to Tenant's customers or clients. Tenant shall be
responsible for all costs and expenses associated with the
installation, maintenance and repair of said Satellite System and
the condition of the area of the roof on which it is installed.
All work relating to the Satellite System shall, at Tenant's
expense, be coordinated with Landlord's roofing contractor so as
not to affect any warranty for the Building's roof. The location
of any such Satellite System and the manner of its attachment to
the roof shall be subject to the approval of Landlord which shall
not be unreasonably withheld or delayed. Without limitation of
any other right of Landlord hereunder, Landlord may condition its
consent to installation of the Satellite System upon a
requirement that Tenant "Screen" the dish (and component parts to
be located on the roof) from public view as reasonably required
by Landlord in its sole discretion. Upon expiration or earlier
termination of the Lease, Tenant shall remove such Satellite
System together with any appurtenant equipment from the Building
and repair any damage to the roof and/or the Building caused by
the installation and/or removal of such Satellite System. Tenant
hereby acknowledges and agrees that Landlord makes no
representation or warranty as to whether or not installation of a
rooftop Satellite System is permitted in accordance with
applicable laws of the Town of Wakefield and/or any other state,
local or federal agency. Tenant hereby acknowledges and agrees
that responsibility for compliance of law with respect to the
installation, maintenance and operation of such Satellite System
shall be the sole and exclusive responsibility of the Tenant.
Notwithstanding anything to the contrary in this Lease, Tenant
shall be solely responsible for any damages or the cost of any
repairs to or replacements of the Building or the roof resulting
from the installation, removal or maintenance of the Satellite
System.
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<PAGE> 68
(b) Tenant shall, at Tenant's sole cost and expense, defend,
indemnify, save and hold harmless Landlord and the Manager and
their respective licensees, servants, agents, employees, members,
shareholders, officers, directors, partners, affiliated entities
and contractors, from and against any loss, damage, claim of
damage, liability or expense, (including attorney fees) to or for
any person or property, whether based on contract, tort,
negligence or otherwise, arising directly or indirectly out of or
in connection with the Satellite System or the operation, use,
repair and maintenance thereof, whatever the cause or in any
litigation or other proceedings by or against Tenant or Landlord,
or any person, and/or entity described above in this Section (b)
with respect to the Satellite System unless said loss, damage,
claim of damage, liability or expense is caused by Landlord or
Landlord's representatives, employees or contractors.
(c) Tenant shall bear the cost of any damage to the Building,
Property and/or the roof of the Building, or any increase in the
Operating Expenses or Real Estate Taxes that may be incurred or
assessed against the Property as a result of the installation of
the Satellite System.
(d) Tenant's installation, maintenance and operation of the
Satellite System as defined herein shall not interfere with
Landlord's operation of the Building, cause radio or television
interference to any tenant of the Building, or cause signal
interference to any communication equipment operating on the
Property or in the Office Park. In the event any such
interference is caused by Tenant, Tenant shall, at its own
expense, provide and install any filter, isolators and other
equipment necessary to eliminate such interference or if unable
to eliminate such interference, Tenant shall remove the Satellite
System from the Property and cease operation of the Satellite
System.
(e) Tenant will be responsible for all marking and lighting
requirements of the Federal Aviation Administration ("FAA") or
the Federal Communications Commissions ("FCC") specifically
associated with the construction, maintenance, or operation of
the Satellite System on the Property. Tenant shall indemnify and
hold Landlord and the Manager and their respective agents,
servants, employees, contractors, officers, directors,
shareholders, members and partners harmless from and against any
fines or other liabilities caused by Tenant's failure to comply
with such requirements unless said loss, damage, claim of damage,
liability or expense is caused by Landlord or Landlord's
representatives, employees or contractors. Should Tenant be cited
by either the FCC or FAA because the Satellite System is not in
compliance and should Tenant fail to cure the conditions of
noncompliance within the time frame allowed by the citing agency,
Landlord upon notice to
-63-
<PAGE> 69
Tenant may proceed to cure the conditions of noncompliance at the
sole cost and expense of Tenant.
(f) To the extent that Landlord shall determine in its sole but
reasonable judgment that the roof of the Building does not have
sufficient space or area for the Satellite System or if
installation of the Satellite System and related wiring and
facilities will result in interference with the Landlords ability
to provide services to other tenants or occupants of the Property
or the Office Park, Landlord shall have the right to deny its
consent to the installation of the Satellite System or cause
Tenant (at Tenant's sole cost and expense) to remove the
Satellite System and related wiring and facilities from the
Building.
14.30 ELEVATOR UPGRADE. Upon execution and delivery of this Lease,
Landlord shall commence its planned elevator upgrade (the
"Elevator Up-grade"). The nature and scope of the Elevator
Upgrade shall be as determined by Landlord in its sole and
absolute discretion. Landlord shall not be required to expend
more than $7,000.00 in connection with the Elevator Up-grade and
the scope of such work shall be determined by Landlord in its
sole and absolute discretion. The Commencement Date shall not be
delayed due to Landlord's failure to complete the Elevator
Up-grade on or before the Commencement Date. For purposes of
calculating the amount to be expended by Landlord pursuant to
this Section 14.30 the cost of such Elevator Up-Grade shall be
deemed to include all costs and expenses of every kind and nature
sustained or incurred by Landlord in connection with the Elevator
Up-Grade including, without limitation, the cost of design,
labor, work, materials, fees, licenses, permits and governmental
approvals necessary to complete the Elevator Up-Grade.
14.31 LOBBY UPGRADE. Tenant has expressed a desire to Landlord to have
the Building lobby renovated areas and common areas further
renovated. Landlord and Tenant have not agreed on the scope and
content of such work. Landlord has agreed to expend up to
$100,000.00 (the "Lobby Allowance") toward the cost of lobby
renovations to be performed by Landlord and approved by Landlord
in Landlord's sole and absolute discretion (the "Lobby
Renovations"). It is agreed and understood that Landlord shall
have the right to approve any Lobby Renovations requested by
Tenant in its sole and absolute discretion (the "Lobby Renovation
Work"). Landlord's failure to consent or agree to any Lobby
Renovation shall have no affect on the validity of this Lease.
Notwithstanding the foregoing, Landlord may condition its consent
to any Lobby Renovation Work upon a condition that Tenant restore
such area to its condition prior to the performance of such Lobby
Renovation Work. As and to the extent that Landlord shall, in its
sole and absolute discretion, approve Lobby Renovation Work and
-64-
<PAGE> 70
there are not sufficient funds remaining in the Lobby Allowance
in order to perform same, Landlord shall not be required to
perform same unless and until Tenant shall deposit with Landlord
amounts sufficient to fully reimburse Landlord for the cost of
such Lobby Renovation Work to the extent that the cost of such
Lobby Renovation Work would exceed the amount of any dollars
remaining from the Lobby Allowance. The Landlord shall use good
faith efforts to promptly complete Lobby Renovation Work once
mutually agreeable plans and specifications are agreed to by
Landlord and Tenant and such Lobby Renovation Work may occur
after the Commencement Date and shall not delay the occurrence of
the Commencement Date in the event that they are not completed
prior to the Commencement Date. Any portion of the Lobby
Allowance not used to perform Lobby Renovation Work shall be
applied toward the Total Cost of Landlord's Work pursuant to
Section 4.3 (any then remaining balance of the Lobby Allowance
not so applied shall be retained by Landlord). Landlord may
condition its approval to any Lobby Renovation Work (or any
portion thereof) upon a requirement that Tenant, at Tenant's sole
cost and expense, remove same upon expiration or earlier
termination of the Term of this Lease repairing any damage to the
Building and restoring the lobby areas so disturbed to their
condition prior to the performance of the Lobby Renovation Work.
For purposes of this Section 14.31, the cost of Lobby Renovation
Work shall be deemed to include all costs and expenses of every
kind and nature sustained or incurred by Landlord in connection
with the planning, design and completion of the Lobby Renovation
Work including, without limitation, architectural and engineering
fees and the cost of all labor, work, materials, fees, licenses,
permits and governmental approvals needed to design, plan and
perform the Lobby Renovation Work.
-65-
<PAGE> 71
IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be
duly executed, under seal, by persons hereunto duly authorized, in multiple
copies, each to be considered an original hereof, as of the date first set forth
above.
TENANT:
Cyrk, Inc.
Dated: 12/14/99 By: /s/ Patrick D. Brady
------------------- -------------------------------------------
Its: CO CEO & PRESIDENT
------------------------------------------
LANDLORD:
TIAA REALTY, INC., a Delaware
corporation, as Landlord
By: Teachers Insurance and Annuity
Association of America,
a New York corporation
Its: Authorized Representative
By: /s/ Alan E. Lang
-------------------------------------------
Alan E. Lang
Its: Director
-66-
<PAGE> 72
FIRST AMENDMENT TO LEASE
This First Amendment to Lease is dated as of this ____ day of December,
1999 by and between TIAA Realty, Inc. (the "Landlord") and Cyrk, Inc. (the
"Tenant").
WHEREAS, Landlord and Tenant are the Landlord and Tenant respectively
under and pursuant to that certain standard Lease Agreement dated as of July 29,
1999;
WHEREAS, as a result of certain delays of the Tenant in executing the
Lease and providing the Landlord with Tenant's Plans, the Landlord and Tenant
have agreed, subject to entering into this First Amendment, to amend the Lease
to call for a Commencement Date of March 1, 2000, notwithstanding that
Landlord's Work may not be performed or completed on or before March 1, 2000.
NOW, THEREFORE, the Landlord and the Tenant, each intending to be
legally bound, hereby agree as follows:
1. Commencement Date. Notwithstanding anything contained in the Lease
including, without limitation, Section 4.1 of the Lease to the contrary, the
Commencement Date under the Lease is hereby agreed to be March 1, 2000
notwithstanding whether or not the Landlord's Work, the Elevator Up-grade or the
Lobby Renovation Work may or may not be completed on or before March 1, 2000.
Tenant hereby agrees to commence payment of Basic Rent, Escalation Charges and
other sums and charges payable under the Lease on March 1, 2000 regardless of
whether or not Landlord's Work, the Elevator Up-grade or the Lobby Renovation
Work is completed or the Premises is then "ready for occupancy".
2. Preparation of the Premises. Article IV of the Lease is hereby
amended in the following respects:
(a) The first sentence of Section 4.1 is hereby deleted and the
following sentences are hereby inserted in its place and
stead:
"The Commencement Date shall be March 1, 2000 notwithstanding
that Landlord's Work will not be substantially completed on
such date. As used in this Lease, the term "Construction
Completion Date" shall mean August 1, 2000".
(b) The definition of the term "Tenant Plan Delivery Date" set
forth in Section 4.2 shall be amended to be "March 29, 2000".
(c) The definition of the term "Outside Plan Date" as set forth in
Section 4.2 shall be deemed amended to be "April 29, 2000".
(d) Section 4.2(e) of the Lease is hereby deleted and the
following new Section 4.2(e) shall be inserted in its place
and stead:
"(e) If the Substantial Completion Date has not
occurred by the Construction Completion Date (as it
may be extended pursuant to Section 4.4) then,
beginning on the day immediately following the
Construction Completion Date (as such date may be
extended pursuant to Section 4.4), Basic Rent and
Escalation Charges otherwise payable under this Lease
shall abate day for day thereafter until the date
that the Premises is "ready for occupancy" to the
extent required by Section 4.2(b) above, on which
date the abatement of Basic Rent and Escalation
Charges set forth herein shall terminate; and such
right of abatement of Basic Rent and Escalation
<PAGE> 73
Charges shall be Tenant's sole and exclusive remedy
at law and in equity for Landlord's failure so to
complete Landlord's Work within such time. In the
event that Tenant shall occupy all or any portion of
the Premises for the Permitted Use (as opposed to
entry of the Premises for the purpose of "Early
Entry" as defined in Section 4.1 above) during such
period of abatement, the abatement of Basic Rent and
Escalation Charges provided herein shall be
appropriately adjusted given the nature and extent of
Tenant's use of the Premises during such period."
3. Generally. Except as herein modified, all the terms, covenants,
provisions and agreements contained in the Lease remain in full force and effect
and are hereby ratified and affirmed. Capitalized terms used herein and not
otherwise defined herein shall have the meanings ascribed to them in the Lease.
Witness our hands and seals on the day and year first above written.
LANDLORD:
TIAA Realty, Inc., a Delaware
corporation, as Landlord
By: Teachers Insurance and Annuity
Association of America, a
New York corporation
Its: Authorized Representative
DATED: By:
--------------------------- -----------------------------------------
Alan E. Lang
Its: Director
TENANT:
Cyrk, Inc.
DATED: By:
--------------------------- -----------------------------------------
Its:
----------------------------------------
<PAGE> 74
Exhibit A
Page 1 of 2
[GRAPHIC - FLOORPLAN]
<PAGE> 75
Exhibit A
Page 2 of 2
[GRAPHIC - FLOORPLAN]
<PAGE> 76
EXHIBIT A-1
That certain Parcel of Land in Wakefield, Middlesex County, Massachusetts shown
as Lot 55 on a Plan entitled "Subdivision Plan of Land in Wakefield, MA" (Scale
1 in. = 200 feet) dated March 11, 1985 (Revised March 28, 1985) by Hayes
Engineering, Inc. filed with the Land Registration Office as Plan 27190W.
<PAGE> 77
EXHIBIT B
Tenant Plan Requirements
Attached to and made part of Lease
dated as of July __, 1999
1. Dimensional floor plan indicating location of partitions and doors (details
required of partition and door types).
2. Location of standard electrical convenience outlets and telephone outlets.
3. Location and specification of special electrical outlets; e.g. copiers,
computers, etc.
4. Reflected ceiling plan showing layout of standard ceiling and lighting
fixtures. Partitions to be shown lightly with switches located indicating
fixtures to be controlled.
5. Locations and details of special ceiling conditions, lighting fixtures,
speakers, diffusers, sprinkler heads, etc.
6. Location and specifications of floor covering, paint or paneling with paint
colors referenced to standard color system.
7. Finish schedule plan indicating wall covering, paint, or paneling with paint
colors referenced to standard color system.
8. Details and specifications of special millwork, glass partitions, rolling
doors and grilles, blackboards, shelves, etc.
9. Hardware schedule indicating door number keyed to plan, size, hardware
required including butts, latchsets or locksets, closures, stops, and any
special items such as thresholds, soundproofing, etc. Keying schedule is
required.
10. Locations and verified dimensions of all built-in equipment (file cabinets,
lockers, plan files, etc.).
11. All necessary mechanical, plumbing and electrical and sprinkler drawings to
complete the Premises in accordance with Tenant's Plans and tie same into
Building systems.
12. All drawings to be uniform size (36" x 48") and shall incorporate the
standard project electrical and plumbing symbols and be at a scale of 1/8" = 1"
or larger.
<PAGE> 78
13. Location and details of special floor areas whose loading exceeds any of the
following:
50 pounds per square foot live load
20 pounds per square foot partition load
TOTAL = 70 pounds per square foot
14. Location of any special soundproofing requirements.
15. Existence of any extraordinary HVAC requirements necessitating perforation
of structural members.
16. Location and details of any interior stairs, blended deck or other special
requirements affecting the structure.
17. Any necessary increase in the design loads for the building electrical
system and air conditioning system.
18. Indicate the location and identity and electrical requirements of any
equipment exceeding the electrical service allowed pursuant to Section 7.5(b).
<PAGE> 79
EXHIBIT C
RULES AND REGULATIONS
1. The sidewalks, paved and/or landscaped areas shall not be obstructed
or encumbered by Tenant or used for any purpose other than ingress and egress to
and from the demised premises.
2. Except as otherwise expressly permitted by this Lease, no sign,
advertisement, notice or other lettering shall be exhibited, inscribed, painted
or affixed by Tenant on any part of the demised premises or Building so as to be
visible from outside the demised premises without the prior written consent of
Landlord, which will not be unreasonably withheld or delayed. In the event of
any violation of this paragraph, Landlord may remove same without any liability,
and may charge the expense incurred in such removal to Tenant, as additional
rent.
3. No awnings, curtains, blinds, shades, screens or other projections
shall be attached to or hung in, or used in connection with, any window of the
demised premises or any outside wall of the Building without the prior written
consent of Landlord, which will not be unreasonably withheld or delayed so long
as said so long as said awning or other item conforms to similar items installed
in or upon other portions of the Building. Such awnings, curtains, blinds,
shades, screens or other projections must be of a quality, type, design and
color, and attached in the manner, approved by Landlord, which approval shall
not be unreasonably withheld or delayed. If any portion of the demised premises
which is not used for office purposes shall have windows, such windows shall be
equipped with curtains, blinds or shades approved by Landlord, and said
curtains, blinds or shades shall be kept closed at all times.
4. The water and wash closets and other plumbing fixtures shall not be
used for any purposes other than those for which they were designed and
constructed, and no sweepings, rubbish, rags, acids, chemicals, process water,
cooling water or like substances shall be deposited therein. Said plumbing
fixtures and the plumbing system of the Building shall be used only for
discharge of so-called sanitary waste. All damage resulting from any misuse of
said fixtures and/or plumbing system by Tenant or anyone claiming under Tenant
shall be borne by Tenant.
5. Tenant must, upon the termination of its tenancy, return to Landlord
all locks, cylinders and keys to the demised premises and any offices therein.
6. Tenant shall, at Tenant's expense, provide artificial light and
electric current for the employees of Landlord and/or Landlord's contractors
while making repairs or alterations in the demised premises, except during the
initial performance of Landlord's Work.
<PAGE> 80
7. Tenant shall not make, or permit to be made, any unseemly or
disturbing odors or noises or disturb or interfere with occupants of the
Building or those having business with them, whether by use of any musical
instrument, radio, machine, or in any other way.
8. Canvassing, soliciting, and peddling in the Building are prohibited
and Tenant shall cooperate to prevent the same.
9. Tenant shall keep the demised premises free at all time of pests,
rodents and other vermin, and Tenant shall keep all trash and rubbish stored in
containers.
10. Landlord reserves the right to rescind, alter, waive and/or
establish any reasonable rules and regulations of uniform application to all
tenants which, in its judgment, are necessary, desirable or proper for its best
interests and the best interests of the occupants of the Building.
12. The access roads, driveways, entrances and exits shall not be
obstructed or encumbered by Tenant or used for any purpose other than ingress
and egress.
<PAGE> 81
EXHIBIT D
APPROVED GENERAL CONTRACTORS
1. J. CALLAN CONTRACTORS
2. INTEGRATED BUILDERS
3. STRUCTURETONE
4. TURNER, SPD
5. SHAWMUT DESIGN
6. ROGAN CONSTRUCTION
<PAGE> 82
EXHIBIT E
(ITEMS INCLUDED IN BUILDING/
UTILITY COSTS AND OPERATING EXPENSES)
A. Without limitation, Building Energy/Utility Costs shall include:
Costs for electricity, fuel, oil, gas, steam, water and sewer use
charges and other utilities supplied to the Property and not paid for
directly by tenants. Building Energy/Utility Costs shall not include
Tenant Electricity Expenses paid directly by Tenants.
B. Without limitation, Operating Expenses shall include:
1. All reasonable expenses incurred by Landlord or Landlord's
representatives which shall be directly related to employment
of personnel, including amounts incurred for wages, salaries
and other compensation for services, payroll, social security,
unemployment and similar taxes, workmen's compensation
insurance, disability benefits, pensions, hospitalization,
retirement plans and group insurance, uniforms and working
clothes and the cleaning thereof, and reasonable expenses
imposed on Landlord or Landlord's agents in connection with
the operation, repair, maintenance, cleaning, management and
protection of the Property, and its mechanical systems
including, without limitation, day and night supervisors,
property manager, accountants, bookkeepers, janitors,
carpenters, engineers, mechanics, electricians and plumbers
and personnel engaged in supervision of any of the persons
mentioned above: provided that, if any such employee is also
employed on other property of Landlord, such compensation
shall be suitably allocated by Landlord among the Property and
such other properties.
2. The cost of services, materials and supplies furnished or used
in the operation, repair, maintenance, cleaning, management
and protection of the Property including, without limitation,
fees and assessments, if any, imposed upon Landlord, or
charged to the Property, by any governmental agency or
authority or other duly authorized private or public entity on
account of public safety services, transit, housing, police,
fire, sanitation or other services or purported benefits.
3. The cost of replacements for tools and other similar equipment
used in the repair, maintenance, cleaning and protection of
the Property, provided that, in the case of any such equipment
used jointly on other property of
<PAGE> 83
Landlord, such costs shall be allocated by Landlord among the
Property and such other properties.
4. Premiums for insurance against damage or loss to the Building
from such hazards as shall from time to time be generally
required by institutional mortgagees in the Boston area for
similar properties, including, but not by way of limitation,
insurance covering loss of rent attributable to any such
hazards, and public liability insurance.
5. Where the Property is managed by Landlord or an affiliate of
Landlord, a sum equal to the amounts customarily charged by
management firms in the Boston area for similar properties,
but in no event more than six percent (6%) of gross annual
income, whether or not actually paid, or where managed by
other than Landlord or an affiliate thereof, the amounts
accrued for management, together with, in either case, amounts
accrued for legal and other professional fees relating to the
Property, but excluding such fees and commissions paid in
connection with services rendered for securing or renewing
leases and for matters not related to the normal
administration and operation of the Building.
6. If, during the Term of this Lease, Landlord shall make a
capital expenditure (a) with the express or intended purpose
of reducing Operating Expenses or making the Building operate
more efficiently (regardless of whether or not such reductions
or efficiencies are actually realized) or (b) for the purpose
of complying with any applicable Requirements not in effect as
of the Commencement Date and in either case, the total cost of
which shall not be properly includable in Operating Expenses
for the Operating Year in which it was made, there shall
nevertheless be included in such Operating Expenses for the
Operating Year in which it was made and in Operating Expenses
for each succeeding Operating Year, an annual charge-off of
such capital expenditure. The annual charge-off shall be
determined by dividing the original capital expenditure plus
an interest factor, reasonably determined by Landlord, as
being the interest rate then being charged for long-term
mortgages, by institutional lenders on like properties within
the locality in which the Building is located, by the number
of years of useful life of the capital expenditure, and the
useful life shall be determined reasonably by Landlord in
accordance with generally accepted accounting principles and
practices in effect at the time of making such expenditure.
Notwithstanding, the foregoing, to the contrary, a capital
expenditure resulting from (a) repaving of the parking areas
or (b) structural improvements or repairs to the Building
shall be excluded from Operating Expenses. Without limitation
of any other provision of
<PAGE> 84
this paragraph 6 "Structural Repairs or Improvements" shall
not be deemed to include repairs or improvements to the
Building Roof which shall be included in Operating Expenses on
an annual charge-off basis as set forth above.
7. Betterment assessments provided the same are apportioned
equally over the longest period permitted by law.
8. Amounts paid to independent contractors for services,
materials and supplies furnished for the operation, repair,
maintenance, cleaning and protection of the Property.
<PAGE> 85
EXHIBIT F
(Cleaning Specifications)
A. Premises
Daily on Business Days except Saturdays:
1. Empty all waste receptacles and ash trays and remove
waste material from the Premises.
2. Sweep and dust mop all uncarpeted areas using a
dust-treated mop.
3. Vacuum all rugs and carpeted areas.
4. Hand dust and wipe clean with treated cloths all
horizontal surfaces including furniture, office
equipment, window sills, door ledges, chair rails and
counter tops, within normal reach.
5. Wash clean all water fountains.
6. Upon completion of cleaning, all lights will be
turned off and doors locked, leaving the Premises in
an orderly condition.
7. Tenant entry door glass.
8. Interior restrooms.
Quarterly:
Render high dusting not reached in daily cleaning to include:
1. Dusting all pictures, frames, charts, graphs and
similar wall hangings.
2. Dusting all vertical surfaces, such as walls,
partitions, doors and ducts.
3. Dusting of all pipes, ducts and high moldings.
B. LAVATORIES:
Daily on Business Days except Saturdays:
1. Sweep and damp mop floors.
2. Clean all mirrors, powder shelves, dispensers and
receptacles, bright work, flushometers, pipes and
toilet seat hinges.
<PAGE> 86
3. Wash both sides of all toilet seats.
4. Wash all basins, bowls and urinals.
5. Dust and clean all powder room fixtures.
6. Empty and clean paper towel and sanitary disposal
receptacles.
7. Remove waste paper and refuse.
8. Refill tissue holders, soap dispensers, towel
dispensers, vending sanitary dispensers, material to
be furnished by Landlord.
9. A sanitizing solution will be used in all lavatory
cleaning.
Monthly:
1. Machine scrub lavatory floors.
2. Wash all partitions and tile walls in lavatories.
C. MAIN LOBBY, ELEVATORS, BUILDING EXTERIOR AND CORRIDORS
Daily on Business Days except Saturdays:
1. Sweep and wash all floors.
2. Wash all rubber mats.
3. Clean elevators, wash or vacuum floors, wipe down
walls and doors.
4. Spot clean any metal work inside lobby.
5. Spot clean any metal work surrounding building
entrance doors.
Monthly:
All resilient tile floors in public areas to be treated
equivalent to spray buffing.
<PAGE> 87
D. WINDOW CLEANING: Windows of exterior walls will be washed on the outside once
every six months and on the inside once every six months, weather permitting.
E. Tenant requiring services in excess of thos described above shall request
same through Landlord, at Tenant's expense.
<PAGE> 1
Exhibit 10.21
SPLIT-DOLLAR INSURANCE AGREEMENT
This Plan is adopted by agreement between the Company and the Owner:
DEFINITIONS
A. "Company" is SIMON MARKETING, INC. a California corporation of Los
Angeles, California.
B. "Insured" is ALLAN IRWIN BROWN.
C. "Insurer" is METROPOLITAN LIFE INSURANCE COMPANY.
D. "Owner" is FREDERIC N. GAINES, Trustee of The Allan I. Brown Insurance
Trust, under Declaration of Trust dated September 29, 1997.
E. "Policy" refers to the following policy on the life of the Insured
issued by the Insurer, together with any supplementary contracts issued by the
Insurer in conjunction therewith:
Metropolitan Life Insurance Company Policy No. 983 990 506 UV
F. "Premium Advance" is the amount equal to the cumulative total of the
Company's share of the premiums paid on the Policy.
RECITALS
A. The Owner is the owner of the Policy, and the Insured is a valued
employee of the Company. The Company wishes to continue this employment
relationship and, as an inducement thereto, is willing to assist the Owner in
the payment of premiums on the Policy as an additional form of compensation to
the Insured as its employee.
B. In exchange for such premium assistance, the Company shall have the
right to designate and change direct and contingent beneficiaries of the lesser
of an amount of the death proceeds equal to (a) the cash value of the Policy as
of the date to which premiums have been paid or (b) the premiums paid by the
Company to the Insurer.
C. This Plan is intended to qualify as a life insurance employee benefit
plan as described in Revenue Ruling 64-328.
<PAGE> 2
AGREEMENT
NOW THEREFORE, for value received, it is agreed:
1. PREMIUM PAYMENTS.
(a) All premiums on the Policy shall be paid by the Company as they
become due.
(b) Dividends on the Policy shall be applied as elected by the Owner.
2. RIGHTS OF PARTIES.
(a) The Owner shall be the sole and exclusive owner of the Policy.
This includes all rights of "owner" under the terms of the Policy including, but
not limited to, the right to designate beneficiaries, select settlement and
dividend options, borrow on the security of the Policy and to surrender the
Policy, except that the Owner shall not have the rights specified in subsection
2. (b) below. All such rights, except those specified in subsection 2. (b)
below, may be exercised by the Owner without the Company's consent.
(b) The Company shall have the right to designate and change the
beneficiaries of and assign the proceeds of the lesser of an amount of the death
proceeds equal to (a) the cash value of the Policy as of the date to which
premiums have been paid or (b) the premiums paid by the Company to the Insurer.
3. ASSIGNMENT
(a) The Owner shall have the right to assign any part or all of the
Owners' retained interest in the Policy and this Plan to any person, entity or
trust by execution of a written assignment delivered to the Insurer.
(b) The Company shall have the right to assign any part or all of the
Company's interest in the Policy and this Plan to any person, entity or trust by
execution of a written assignment delivered to the Owner and to the Insurer.
4. TERMINATION OF PLAN. This Plan shall terminate on the first to occur
of the following:
(a) Surrender of the Policy by the Owner, who has the sole and
exclusive right of surrender.
2
<PAGE> 3
(b) Delivery by either party hereto to the other of written notice of
termination.
(c) Termination of the Insured's employment with the Company for any
reason whatsoever other than the Employee's death.
5. THE INSURER. The Insurer shall be bound only by the provisions of and
endorsements on the Policy, and any payments made or action taken by it in
accordance therewith shall fully discharge it from all claims, suits and demands
of all persons whatsoever. It shall in no way be bound by or be deemed to have
notice of the provisions of this Plan.
6. AMENDMENT OF PLAN. The Owner and the Company may mutually agree to
amend this Plan and such amendment shall be in writing signed by the Owner and
the Company.
7. SPECIAL PROVISIONS. The following provisions are a part of this Plan
and are intended to meet the requirements of the Employee Retirement Income
Security Act of 1974:
(a) The named fiduciary shall be the secretary of the Company.
(b) The funding policy under this Plan is that all premiums on the
Policy be remitted to the Insurer when due.
(c) Direct payment by the Insurer is the basis of payment of benefits
under this Plan, with those benefits in turn being based on the payment of
premiums as provided in the Plan.
(d) For claims procedure purposes, the "Claims Manager" shall be the
secretary of the Company, as existing from time to time.
(i) If for any reason a claim for benefits Under this Plan is
denied by the Company, the Claims Manager shall deliver to the claimant a
written explanation setting forth the specific reasons for the denial, pertinent
references to the Plan section on which the denial is based, such other data as
may be pertinent and information on the procedures to be followed by the
claimant in obtaining review of his or her claim, all written in a manner
calculated to be understood by the claimant. For this purpose:
(A) The claimant's claim shall be deemed fried when
presented orally or in writing to the Claims Manager.
3
<PAGE> 4
(B) The Claims Manager's explanation shall be in writing
delivered to the claimant within ninety (90) days of the date the claim is
filed.
(ii) The claimant shall have sixty (60) days following his or her
receipt of the denial of the claim to file with the Claims Manager a written
request for review of the denial. For such review, the claimant or his or her
representative may submit pertinent documents and written issues and comments.
(iii) The Claims Manager shall decide the issue on review and
furnish the claimant with a copy within sixty (60) days of receipt of the
claimant's request for review of his or her claim. The decision on review shall
be in writing and shall include specific reasons for the decision, written in a
manner calculated to be understood by the claimant, as well as specific
references to the pertinent Plan provisions on which the decision is based. If a
copy of the decision is not so furnished to the claimant within sixty (60) days,
the claim shall be deemed denied on review.
THIS AGREEMENT is executed on February 4, 1998 at Los Angeles, California.
In the presence of
COMPANY
/s/ illegible signature By: /s/ Richard Lamishaw
- ----------------------------------- -------------------------------
CFO
OWNER
The Allan I. Brown Irrevocable
Trust
/s/ illegible signature By: /s/ Frederic N. Gaines
- ----------------------------------- -------------------------------
Frederic N. Gaines
Trustee
4
<PAGE> 5
ENDORSEMENT
Insured: ALAN I. BROWN
Re: Metropolitan Life Insurance Co. Policy No. 983 990 506 UV
Supplementing and amending the above policy, the undersigned owner of the
policy requests and directs that:
1. The Owner of the policy will be FREDERIC N. GAINES, Trustee of The
Allan I. Brown Insurance Trust, under Declaration of Trust dated September 29,
1997. The Owner alone may exercise all policy rights, except that the Owner will
not have the rights specified in Section 2. below.
Said Owner designates The Allan I. Brown Insurance Trust, under
Declaration of Trust dated September 29, 1997, or its successors as the direct
beneficiary of the excess proceeds over the lesser of (a) the cash value of the
Policy as of the date to which premiums have been paid or (b) the premiums paid
by SIMON MARKETING, INC. (hereinafter referred to as "Company") to the Insurance
Company for the policy.
The Insurance Company will have the right to rely on any statement
signed by said Owner setting forth the amount referred to above, and any
decisions made by the Insurance Company in reliance upon such statement will be
conclusive and will fully protect the Insurance Company.
2. The Company will have the right to designate and change the
beneficiaries of and assign the proceeds of the lesser of an amount equal to (a)
the cash value of the Policy as of the date to which premiums have been paid or
(b) the premiums paid by the Company to the Insurer. The provisions of this
Section 2. shall not limit the rights of the Owner as specified in Section 1.
above.
Unless otherwise designated, the Company designates itself or its
successors as the direct beneficiary of the proceeds specified in this Section
2.
3. All prior designations of beneficiaries of death proceeds are revoked.
4. Any collateral assignment made by the Owner will be deducted only from
the proceeds payable under Section 1. above.
5. Any assignment of proceeds specified in Section 2. above will be
limited to death proceeds only.
<PAGE> 6
6. Any indebtedness on the policy will first be deducted from the
proceeds payable under Section 1. above.
7. The exercise by the Owner of the right to surrender the policy or to
change the Insured(s) will terminate the rights of the Company specified in
Section 2. above.
8. The policy fights specified in Sections 1. and 2. above may be
exercised by the respective parties specified in Sections 1. and 2. above or
the. irrespective successors or transferees.
9. If no beneficiaries named in Sections 1. and 2. above are in existence
when the Insureds die, payment will be made to the Owner of each portion, or
that Owner's successors or assigns.
10. Each Owner of the proceeds specified in Sections 1. and 2. above will
have the right to exercise the conversion privilege if applicable to such
portion and will be the Owner of any new policy issued in lieu of such benefit.
Dated: ______________________
In the presence of
COMPANY
______________________________ By: /s/ Richard Lamishaw
--------------------------
CFO
OWNER
The Allan I. Brown Irrevocable
Trust
/s/ illegible signature By: /s/ Frederic N. Gaines
- ------------------------------ --------------------------
Frederic N. Gaines
Trustee
Recorded and Filed at the Office of Metropolitan
The company assumes no obligations at to the validity and sufficiency of
this agreement and does not pass upon its legality
on MAR 20, 1998 /s/ Louis J. Ragusa
----------------
Louis J. Ragusa
Vice-President and Secretary
2
<PAGE> 7
METLIFE
----------------------------------------------------------------------
METROPOLITAN LIFE
INSURANCE COMPANY
A Mutual Company Incorporated in New York State
----------------------------------------------------------------------
Metropolitan Life Insurance Company will pay the amount of insurance and
provide the other benefits of this policy according to its provisions.
/s/ Louis J. Ragusa /s/ Robert H. Benmosche
Louis J. Ragusa Robert H. Benmosche
Vice President and Secretary President and Chief Operating Officer
Insured ALLAN I BR0WN
Specified
Face Amount $6,500,000 AS OF MAR. 9, 1998
of Insurance
Policy Number 983 990 506 UV
Plan Flexible Premium Variable Life
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
Life insurance payable if the insured dies before the Final Date of Policy.
Cash Value, if any, less any policy loan and loan interest, payable on the
Final Date.
Adjustable death benefit.
Premiums payable while the insured is alive and before the Final Date of
Policy.
Premiums must be sufficient to keep the policy in force.
Not eligible for dividends.
THE CASH VALUE IN EACH INVESTMENT DIVISION OF THE SEPARATE ACCOUNT IS BASED ON
THE INVESTMENT EXPERIENCE OF THAT INVESTMENT DIVISION AND MAY INCREASE .OR
DECREASE DAILY. IT IS NOT GUARANTEED AS TO DOLLAR AMOUNT. SEE THE SEPARATE
ACCOUNT PROVISION ON PAGE 10.
THE CASH VALUE IN THE FIXED ACCOUNT WILL BE CREDITED WITH INTEREST AT A
GUARANTEED RATE SHOWN ON PAGE 3.1. WE MAY CREDIT ADDITIONAL INTEREST IN EXCESS
OF THE GUARANTEED RATE. SEE THE FIXED ACCOUNT PROVISION ON PAGE 9.
THE AMOUNT OR THE DURATION OF THE DEATH BENEFIT; OR BOTH, MAY BE VARIABLE OR
FIXED AS DESCRIBED IN THIS POLICY.
RIGHT TO EXAMINE POLICY-PLEASE READ THIS POLICY. YOU MAY RETURN IT TO US OR TO
THE REPRESENTATIVE THROUGH WHOM YOU BOUGHT IT AT ANY TIME BEFORE THE LATER OF
THE DATE WE RECEIVE YOUR SIGNED DELIVERY RECEIPT AND 10 DAYS FROM THE DATE THE
POLICY WAS DELIVERED TO YOU. IF YOU RETURN THIS POLICY WITHIN THIS PERIOD, THE
POLICY WILL BE VOID FROM THE BEGINNING. WE WILL REFUND ANY PREMIUM PAID. DURING
THAT PERIOD, THE NET PREMIUM PAYMENTS ALLOCATED TO THE SEPARATE ACCOUNT WILL BE
INVESTED IN THE MONEY MARKET PORTFOLIO. AT THE END OF THAT PERIOD, THE NET
PREMIUM WILL BE INVESTED IN THE SEPARATE ACCOUNT AS DESIGNATED.
See Table of Contents and Company address on the back cover.
READ THIS POLICY CAREFULLY. This policy is a legal contract between the policy
owner and Metropolitan Life Insurance Company.
1
<PAGE> 8
METROPOLITAN LIFE INSURANCE COMPANY
POLICY SPECIFICATIONS
<TABLE>
<CAPTION>
<S> <C>
DATE OF POLICY ................................................ MARCH 9, 1998
INSURED'S AGE AND SEX ......................................... 57 MALE
FINAL DATE OF POLICY .......................................... POLICY ANNIVERSARY AT AGE 95
DEATH BENEFIT ................................................. OPTION C (SEE PAGE 7)
OWNER ......................................................... SEE APPLICATION
BENEFICIARY AND
CONTINGENT BENEFICIARY ........................................ SEE APPLICATION
POLICY CLASSIFICATION ......................................... TABLE 05 NON-SMOKER
</TABLE>
INSURED ALLAN I BROWN
SPECIFIED
FACE AMOUNT OF
INSURANCE ...... $6,500,000 AS OF MARCH 9, 1998 POLICY NUMBER 983990506UV C
PLAN ........... FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
WITH TERM INSURANCE RIDER PROVIDING
TOTAL INSURANCE AMOUNT ................. $6,500,000.
THIS POLICY PROVIDES LIFE INSURANCE COVERAGE UNTIL THE FINAL DATE IF
SUFFICIENT PREMIUMS ARE PAID. THE PLANNED PREMIUM SHOWN BELOW MAY NEED TO
BE INCREASED TO KEEP THIS POLICY AND COVERAGE IN FORCE.
PLANNED PREMIUM OF $449,664.00 -- PAYABLE ANNUALLY
(TOTAL PREMIUM FOR LIFE INSURANCE BENEFIT. ANY SUPPLEMENTAL RATING AND ANY
ADDITIONAL BENEFITS LISTED BELOW)
ADDITIONAL BENEFITS
YEARLY RENEWABLE TERM RIDER AMOUNT: $0
INSURANCE RIDER RIDER PERCENT: 0% FIXED AT ISSUE
REFUND OF SALES CHARGE RIDER BENEFIT PERIOD: 3 YEARS
3
<PAGE> 9
POLICY SPECIFICATIONS (CONTINUED)
GUARANTEED INTEREST RATE FOR FIXED ACCOUNT .................... 4.0% A YEAR
.32737% A MONTH
.01075% A DAY
MINIMUM TOTAL INSURANCE AMOUNT: .......... $100,000 DURING FIRST 5 POLICY YEARS;
$ 50,000 AFTER 5TH POLICY YEAR
EXPENSES:
EXPENSE CHARGE IN POLICY YEARS 1 - 10:
NOT MORE THAN 13.5% (INCLUDING A SALES LOAD OF
NOT MORE THAN 9.0%) OF GROSS PREMIUMS RECEIVED
UP TO THE TARGET PREMIUM IN ANY POLICY YEAR
PLUS
NOT MORE THAN 3.5% (INCLUDING A SALES LOAD OF
NOT MORE THAN 0.0%) OF GROSS PREMIUM RECEIVED
OVER THE TARGET PREMIUM IN ANY POLICY YEAR
EXPENSE CHARGE IN POLICY YEARS 11 AND LATER:
NOT MORE THAN 7.5% (INCLUDING A SALES LOAD OF
NOT MORE THAN 3.0%) OF GROSS PREMIUMS RECEIVED
UP TO THE TARGET PREMIUM IN ANY POLICY YEAR
PLUS
NOT MORE THAN 3.5% (INCLUDING A SALES LOAD OF
NOT MORE THAN 0.0%) OF GROSS PREMIUM RECEIVED
OVER THE TARGET PREMIUM IN ANY POLICY YEAR
TARGET PREMIUM: $525,135.00
MAXIMUM UNDERWRITING CHARGE FOR
INCREASES IN SPECIFIED FACE AMOUNT ................................ $3.00/$1,000
MAXIMUM MORTALITY AND EXPENSE RISK CHARGE .......................... 0.9% A YEAR
.002454% A DAY
APPLIED TO
A PORTION OF THE CASH VALUE
EQUAL TO
THE CASH VALUE IN THE SEPARATE ACCOUNT
3.1
<PAGE> 10
TABLE OF GUARANTEED MAXIMUM RATES FOR EACH $1,000 OF TERM INSURANCE
(SEE "COST OF TERM INSURANCE" PROVISION ON PAGE 8).
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Age Monthly Rate* Age Monthly Rate* Age Monthly Rate*
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
20 0.324 45 0.847 70 7.108
21 0.324 46 0.918 71 7.420
22 0.323 47 0.989 72 7.783
23 0.316 48 1.069 73 8.197
24 0.314 49 1.151 74 8.656
25 0.306 50 1.249 75 9.151
26 0.304 51 1.357 76 9.675
27 0.304 52 1.476 77 10.221
28 0.305 53 1.612 78 10.796
29 0.306 54 1.764 79 11.419
30 0.314 55 1.926 80 12.114
31 0.523 56 2.096 81 12.905
32 0.334 57 2.276 82 13.811
33 O.351 58 2.464 83 14.830
34 0.368 59 2.671 84 15.946
35 0.388 60 2.899 85 17.140
36 0.415 61 3.160 86 18.401
37 0.449 62 3.464 87 19.728
38 0.484 63 3.806 88 21.123
39 0.522 64 4.183 89 22.601
40 0.568 65 4.589 90 24.189
41 0.619 66 5.020 91 25.940
42 0.673 67 5.472 92 27.932
43 0.727 68 5.958 93 30.367
44 0.784 69 6.497 94 33.713
- ---------------------------------------------------------------------------------------------
</TABLE>
* If there is a supplemental rating for the life insurance benefit, as shown on
page 3, the monthly deduction for such supplemental rating must be added to the
monthly rate determined from this table.
4
<PAGE> 11
DESCRIPTION OF INVESTMENT DIVISIONS IN THE SEPARATE ACCOUNT
THE ASSETS IN EACH INVESTMENT DIVISION OF METROPOLITAN LIFE SEPARATE ACCOUNT UL
(SEPARATE ACCOUNT) ARE INVESTED IN SHARES OF A DESIGNATED INVESTMENT COMPANY
PORTFOLIO. EACH PORTFOLIO REPRESENTS A DIFFERENT CLASS (OR SERIES) OF SHARES
ISSUED BY METROPOLITAN SERIES FUND, INC.
DIVISION 1- STATE STREET RESEARCH GROWTH PORTFOLIO-The investment objective
of this portfolio is to achieve long-term growth of capital and
income, and moderate current income, by investing primarily in
common stocks that are believed to be of good quality or to have
good growth potential or which are considered to be undervalued
based on historical investment standards.
DIVISION 2- STATE STREET RESEARCH INCOME PORTFOLIO-The investment objective
of this portfolio is to achieve the highest possible total
return, by combining current income with capital gains,
consistent with prudent investment risk and the preservation of
capital, by investing primarily in fixed-income, high-quality
debt securities.
DIVISION 3- METLIFE MONEY MARKET PORTFOLIO-The investment objective of this
portfolio is to achieve the highest possible current income
consistent with the preservation of capital and maintenance of
liquidity, by investing primarily in short-term money market
instruments.
DIVISION 4- STATE STREET RESEARCH DIVERSIFIED PORTFOLIO-The investment
objective of this portfolio is to achieve a high total return
while attempting to limit investment risk and preserve capital by
investing in equity securities, fixed-income debt securities, or
short-term money market instruments, or any combination thereof,
at the discretion of State Street Research.
DIVISION 5- STATE STREET RESEARCH AGGRESSIVE GROWTH PORTFOLIO-The investment
objective of this portfolio is to achieve maximum capital
appreciation by investing primarily in common stocks (and equity
and debt securities convertible into or carrying the right to
acquire common stocks) of emerging growth companies, undervalued
securities or special situations.
DIVISION 6- GFM INTERNATIONAL STOCK PORTFOLIO-The investment objective of
this portfolio is to achieve long-term growth of capital by
investing primarily in common stocks and equity-related
securities of non-United States companies.
DIVISION 7- METLIFE STOCK INDEX PORTFOLIO- The investment objective of this
portfolio is to equal the performance of the Standard & Poor's
500 Composite Stock Price Index (adjusted to assume reinvestment
of dividends) by investing in the common stock of companies which
are included in the index.
DIVISION 8- LOOMIS SAYLES HIGH YIELD BOND PORTFOLIO-The investment objective
of this portfolio is to achieve high total investment return
through a combination of current income and capital appreciation.
The Portfolio will normally invest at least 65% of its assets in
fixed income securities of below investment grade quality.
DIVISION 9- JANUS MID CAP PORTFOLIO- The investment objective of this
portfolio is to provide long-term growth of capital, It pursues
this objective by investing primarily in securities issued by
medium sized companies.
DIVISION 10- T. ROWE PRICE SMALL CAP GROWTH PORTFOLIO- The investment
objective of this portfolio is to achieve long-term capital
growth by investing in small growth companies.
DIVISION 11- SCUDDER GLOBAL EQUITY PORTFOLIO- The investment objective of this
portfolio is to achieve long-term growth of capital through a
diversified portfolio of marketable securities, primarily equity
securities, including common stocks, preferred stocks and debt
securities convertible into common stocks. The Portfolio invests
on a worldwide basis in equity securities of companies which are
incorporated in the U.S. or in foreign countries. It also may
invest in the debt securities of U.S. and foreign issuers. Income
is an incidental consideration.
INVESTMENT RETURNS WILL REFLECT FLUCTUATIONS IN THE MARKET VALUE OF SECURITIES.
PLEASE REFER TO THE CURRENT PROSPECTUS FOR METROPOLITAN SERIES FUND, INC. FOR A
COMPLETE DESCRIPTION OF THE FUND AND THE CURRENTLY AVAILABLE DESIGNATED
PORTFOLIOS.
5
<PAGE> 12
DESCRIPTION OF INVESTMENT DIVISIONS IN THE SEPARATE ACCOUNT
THE ASSETS IN EACH INVESTMENT DIVISION OF METROPOLITAN LIFE SEPARATE ACCOUNT UL
(SEPARATE ACCOUNT) ARE INVESTED IN SHARES OF A DESIGNATED INVESTMENT COMPANY
PORTFOLIO. EACH PORTFOLIO REPRESENTS A DIFFERENT CLASS (OR SERIES) OF SHARES
ISSUED BY METROPOLITAN SERIES FUND, INC.
DIVISION 1- GROWTH PORTFOLIO-The investment objective of this portfolio is to
achieve long-term growth of capital and income, and moderate
current income, by investing primarily in common stocks that are
believed to be of good quality or to have good growth potential
or which are considered to be undervalued based on historical
investment standards.
DIVISION 2- INCOME PORTFOLIO-The investment objective of this portfolio is to
achieve the highest possible total return, by combining current
income with capital gains, consistent with prudent investment
risk and the preservation of capital, by investing primarily in
fixed-income, high-quality debt securities.
DIVISION 3- MONEY MARKET PORTFOLIO-The investment objective of this portfolio
is to achieve the highest possible current income consistent with
the preservation of capital and maintenance of liquidity, by
investing primarily in short-term money market instruments.
DIVISION 4- DIVERSIFIED PORTFOLIO-The investment objective of this portfolio
is to achieve a high total return while attempting to limit
investment risk and preserve capital by investing in equity
securities, fixed-income debt securities, or short-term money
market instruments, or any combination thereof, at the discretion
of State Street Research.
DIVISION 5- AGGRESSIVE GROWTH PORTFOLIO-The investment objective of this
portfolio is to achieve maximum capital appreciation by investing
primarily in common stocks (and equity and debt securities
convertible into or carrying the right to acquire common stocks)
of emerging growth companies, undervalued securities or special
situations.
DIVISION 6- INTERNATIONAL STOCK PORTFOLIO-The investment objective of this
portfolio is to achieve long-term growth of capital by investing
primarily in common stocks and equity-related securities of
non-United States companies.
DIVISION 7- STOCK INDEX PORTFOLIO-The investment objective of this portfolio
is to equal the performance of the Standard and Poor's 500
Composite Stock Price Index (adjusted to assume reinvestment of
the dividends) by investing in the common stock of companies
which are included in the index.
INVESTMENT RETURNS WILL REFLECT FLUCTUATIONS IN THE MARKET VALUE OF SECURITIES.
PLEASE REFER TO THE CURRENT PROSPECTUS FOR METROPOLITAN SERIES FUND, INC. FOR A
COMPLETE DESCRIPTION OF THE FUND AND THE CURRENTLY AVAILABLE DESIGNATED
PORTFOLIOS.
5
<PAGE> 13
DEFINITIONS
This policy provides life insurance through flexible premium payments. Net
premiums are credited at your option to either a fixed interest account ("Fixed
Account") or a multifunded separate account ("Separate Account") or both.
Interest will be credited to the Cash Value in the Fixed Account. The Cash Value
in the Separate Account will vary with investment experience. The cost of
insurance and other charges will be deducted each month proportionately from the
Fixed Account and the Separate Account.
"You" and "your" refer to the owner of this policy.
"We", "us" and "our" refer to Metropolitan Life Insurance Company.
The "insured" named on page 3 is the person at whose death .the insurance
proceeds will be payable.
The "Specified Face Amount of Insurance" as of the Date of Policy is shown on
page 3. A new page 3 will be issued to show any change in the Specified Face
Amount of Insurance that has occurred at your request.
The "Date of Policy" is shown on page 3.
The "Final Date of Policy" is the policy anniversary on which the insured is age
95. If the insured is then living and you do not ask us to continue this policy,
we will pay you the Cash Surrender Value at the Final Date. Policy years and
months are measured from the Date of Policy. For example, if the Date of Policy
is May 5, 1993, the first policy month ends June 4, 1993 and the first policy
year ends May 4, 1994. Similarly, the first monthly anniversary is June 5, 1993,
and the first policy anniversary is May 5, 1994.
The "Designated Office" is our Executive Office at One Madison Avenue, New York,
N.Y. 10010. We may, by written notice, name other offices within the United
States to serve as Designated Offices.
The "Investment Start Date" is the date the first premium is applied to the
Fixed Account and/or Separate Account. It is the later of: (1)the Date of
Policy; and (2) the date we receive the first premium at our Designated Office.
"Issue Age" is the age of the insured shown on Page 3.
"Fixed Account" is the account under the policy to which we will add the
payments that you allocate to the Fixed Account. The Fixed Account is part of
our general account.
"Separate Account" is Metropolitan Life Separate Account UL, the account under
this policy to which we will add the payments that you allocate to any of the
Investment Divisions in the Separate Account.
"Policy Loan Account" is the account to which we will transfer the amount of any
policy loan from the Fixed and Separate Accounts.
"Cash Value" is the sum of: (a) the value in the Fixed Account"; (b) the value
in each investment division of the Separate Account; and (c) the value in the
Policy Loan Account.
"Cash Surrender Value" is the Cash Value less any policy loan and loan interest.
The "Adjusted Premiums" are added to the Specified Face Amount of Insurance to
compute the Option C Death Benefit. The Adjusted Premiums are initially equal to
zero and are increased by premiums and decreased by withdrawals, as they occur.
The Adjusted Premiums will never be less than zero.
To make this policy clear and easy to read, we have left out many
cross-references and conditional statements. Therefore, the provisions of the
policy must be read as a whole. For example, our payment of the
insurance-proceeds (see page 7) depends upon the payment of sufficient premiums
(see page 14).
To exercise your rights, you should follow the procedures stated in the policy.
if you want to request a payment, change the allocations of net premiums and/or
Cash Value, adjust the death benefit, change a beneficiary, change an address or
request any other action by us, you should do so on the forms prepared for each
purpose. You can get these forms from our Designated Office.
6
<PAGE> 14
PAYMENT WHEN INSURED DIES
INSURANCE PROCEEDS
If the insured dies before the Final Date of Policy, and while the policy is in
force, an amount of money, called the insurance proceeds, will be paid to the
beneficiary. The insurance proceeds are the sum of:
* The death benefit described below
PLUS
* Any insurance on the insured's life that may be provided by riders to
this policy
MINUS
* Any policy loan and loan interest
MINUS
* Any due and unpaid monthly deductions accruing during a grace period.
We will pay the insurance proceeds to the beneficiary after we receive proof of
death and a proper written claim.
DEATH BENEFIT
The death benefit under this policy will be either 1, 2 or 3 below, whichever is
chosen and is in effect at the time of death, but in no event less than the
minimum death benefit.
1. OPTION A: The Specified Face Amount of Insurance.
2. OPTION B: The Specified Face Amount of Insurance.
PLUS
The Cash Value on the date of death.
3. OPTION C: The Specified Face Amount of Insurance.
PLUS
The Adjusted Premiums.
See the Full and Partial Cash Withdrawal provision for the effect of a partial
withdrawal on the death benefit.
MINIMUM DEATH BENEFIT
In no event will the death benefit be less than the amounts described below:
<TABLE>
<CAPTION>
MINIMUM DEATH BENEFIT
AGE ON DATE AS A PERCENTAGE OF THE
OF DEATH CASH VALUE
<S> <C>
40 or younger 250%
41-45 243-215
46-50 209-185
51-55 178-150
56-60 146-130
61-65 128-120
66-7O 119-115
71-75 113-105
76-90 105
91-95 104-100
96 and over 100
</TABLE>
The minimum death benefit percentage will decrease uniformly within the age
ranges shown.
DEATH BENEFIT ADJUSTMENT
At any time after the first policy year, while this policy is in force, you may
change the death benefit option or change (either increase or decrease) the
Specified Face Amount of Insurance, subject to the following:
7
<PAGE> 15
PAYMENT WHEN INSURED DIES (CONTINUED)
1. In the event of a change in the death benefit option, we will change
the Specified Face Amount of Insurance as needed.
2. The Specified Face Amount of Insurance may not be reduced to less than
the $100,000 during the first 5 policy years or to less than $50,000
after the 5th policy year.
3. For any change which would increase the death benefit, we may require
evidence satisfactory to us of insurability of the insured. Any
increased death benefit may be subject to the underwriting charge
shown on page 3.1. This charge is included in the monthly deduction
which coincides with or next follows the date the increase takes
effect.
4. No change in the death benefit will take effect unless the Cash
Surrender Value after the change is sufficient to keep this policy in
force for at least 2 months. Subject to this condition, a request for
a change in the death benefit will take effect on the monthly
anniversary which coincides with or next follows: (a) if evidence of
insurability is required, the date we approve the request; or, (b) if
not, the date of the request.
5. We will issue a new page 3 for this policy showing the change. We may
require that you send us this policy to make the change.
MONTHLY DEDUCTION
The deduction for any policy month is the sum of the following amounts,
determined on each monthly anniversary:
- The monthly cost of term insurance;
- The monthly mortality and expense risk charges;
- The monthly cost of any benefits provided by rider;
- For any month in which your request results in an increase in the
Specified Face Amount, the underwriting charge, as shown on page 3.1.
The monthly deduction (excluding the monthly mortality and expense risk charges)
will be charged proportionately to the Fixed Account and each Investment
Division of the Separate Account. The monthly mortality and expense risk charges
will be charged proportionately to values in each Investment Division of the
Separate Account.
COST OF TERM INSURANCE
Under all death benefit options, the amount of the term insurance for any policy
month is equal to:
- The death benefit divided by one plus the monthly guaranteed interest
rate shown on page 3.1;
MINUS
- The Cash Value.
The Cash Value used in this calculation is the Cash Value before the deduction
for the monthly cost of term insurance and for any disability waiver benefit,
but after the deduction for riders and any other charges.
The cost of term insurance for any policy month is equal to the amount of term
insurance multiplied by the monthly term insurance rate. After the Final Date
the cost of term insurance is zero. Monthly term insurance rates will be set by
us from lime to time, based on the insured's age, sex, and underwriting class.
But these rates will never be more than the maximum rates shown in the table on
page 4. Any changes in mortality charges will not recoup past losses. Any
adjustments in policy cost factors will be by class and based on changes in such
factors as mortality, persistency and expenses.
8
<PAGE> 16
FIXED ACCOUNT
VALUE
The value of the Fixed Account on the Investment Start Date is equal to:
1. The portion of the initial net premium which has been paid and
allocated to the Fixed Account;
MINUS
2. The portion of any monthly deductions charged to the Fixed Account.
The value of the Fixed Account on any day after the Investment Start Date is
equal to
1. The value on the preceding day, with interest on such values at the
current applicable rates.
PLUS
2. Any portion of net premium paid and allocated to the Fixed Account on
that day;
PLUS
3. Any amount transferred to the Fixed Account on that day;
MINUS
4. Any amount transferred from the Fixed Account on that day;
MINUS
5. Any cash withdrawal made from the Fixed Account on that day;
MINUS
6. The portion of any transfer charge allocated to the value of the Fixed
Account;
MINUS, IF THAT DAY IS A MONTHLY ANNIVERSARY,
7. The portion of the monthly deduction which is charged to the Fixed
Account, to cover the policy month which starts on that day.
INTEREST RATE
The guaranteed interest rate for the Fixed Account is shown on page 3.1.
We may declare rates of interest in excess of the guaranteed rate on amounts in
the Fixed Account at any time, subject to the following conditions: the rate of
excess interest on any net premiums paid during a month of the year will not
change until the first day of the same month in the following year. We also may
credit different rates of excess interest to premium payments made in different
months of the year and different rates of excess interest at the end of each
twelve-month period for Cash Value related to premiums received in a given
month of each prior year. Transfers made into the Fixed Account will be treated
as new premium payments for these purposes.
We will credit the guaranteed and any excess interest on every Valuation Date.
Once credited, that interest will be guaranteed and will become part of the
value in the Fixed Account from which monthly deductions are made. The monthly
deduction will be charged against the most recent premiums paid (and transfers
made) and interest credited.
9
<PAGE> 17
SEPARATE ACCOUNT
Separate Account UL is an investment account established and maintained by us,
separate from our general account or other separate investment accounts. It is
used for flexible premium variable life insurance policies, and if permitted by
law, may be used for other policies or contracts as well.
We own the assets in the Separate Account. Assets equal to the reserves and
other liabilities of the Separate Account will not be charged with liabilities
that arise from any other business we conduct. We may from time to time transfer
to our general account assets in excess of such reserves and liabilities.
Income and realized and unrealized gains or losses from assets, in the Separate
Account are credited to or charged against the Separate Account without regard
to our other income, gains or losses.
The Separate Account will be valued at the end of each Valuation Period.
A "Valuation Date" is each day on which there is enough trading in a portfolio's
securities that the current value of its shares could be materially affected. In
general, Valuation Dates will be days when the New York Stock Exchange is open
for trading. We reserve the right, on 30 days notice, to change the basis for
such Valuation Date, as long as the basis is not inconsistent with applicable
laws.
A "Valuation Period" is the period between successive Valuation Dates starting
at 4:00 P.M. New York City time, on each Valuation Date and ending at 4:00 P.M.,
New York City time, on the next Valuation Date. We reserve the right, on 30 days
notices to change the basis for such Valuation Period, as long as the basis is
not inconsistent with applicable laws.
INVESTMENT DIVISIONS
The "Investment Divisions" are part of the Separate Account. Each division holds
a separate class (or series) of stock of a designated investment company or
companies. Each class of stock represents a separate portfolio in an investment
company.
The Investment Divisions available on the Date of Policy are described on Page
5. We may from time to time make other Investment Divisions available to you. We
will provide you with written notice of all material details including
investment objectives and all charges.
OUR RIGHT TO MAKE CHANGES
We reserve the right to make certain changes if, in our judgment, they would
best serve the interests of the owners of policies such as this one, or would be
appropriate in carrying out the purposes of such policies. Any changes will be
made only to the extent and in the manner permitted by applicable laws. Also,
when required by law, we will obtain your approval of the changes and the
approval of any appropriate regulatory authority.
Example of the changes we may make include: .
- To operate the Separate Account in any form permitted under the
Investment Company Act of 1940, or in any other form permitted by law.
- To take any action necessary to comply with or obtain and continue any
exemptions from the Investment Company Act of 1940.
- To transfer any assets in an Investment Division to another Investment
Division, or to one or more separate accounts, or to our general
account, or. add, combine, or remove Investment Divisions in the
Separate Account.
- To substitute, for the investment company shares held in any
Investment Division, the shares of another class of the investment
company or the shares of another investment company or any other
investment permitted by law.
- To change the way we assess charges, but without increasing the
aggregate amount charged to the Fixed Account and any currently
available investment division of the Separate Account or available
portfolios of the fund.
10
<PAGE> 18
SEPARATE ACCOUNT (CONTINUED)
- To make any other necessary technical changes in this policy in order
to conform with any action this provision permits us to take.
If any of these changes result in a material change in the underlying
investments of an Investment Division in the Separate Account, we will notify
you of such change. If you have funds allocated to that division, you may then
make a new choice of Investment Divisions.
VALUE
The value of the Separate Account is the sum of the Cash Values in each of the
Investment Divisions.
The value in each Investment Division of the Separate Account on the Investment
Start Date is equal to:
1. The portion of the initial net premium which has been paid and is
allocated to the Investment Division;
MINUS
2. The portion of any monthly deductions charged to the Investment
Division.
The Cash Value in each Investment Division on subsequent Valuation Dates is
equal to:
1. The Cash Value in the Investment Division on the preceding Valuation
Date;
PLUS
2. Any increase due to the investment result in the Investment Division
of the Separate Account;
PLUS
3. Any net premium payments received during the current Valuation Period
which are allocated to the Investment Division;
PLUS
4. Any net amounts transferred to the Investment Division during the
current Valuation Period;
MINUS
5. Any decrease due to the investment result in the Investment Division
of the Separate Account;
MINUS
6. Any amounts transferred from the Investment Division during the
current Valuation Period;
MINUS
7. Any cash withdrawal from the Investment Division during the current
Valuation Period;
MINUS
8. The portion of any transfer charge allocated to the value in the
Investment Division;
MINUS, IF A MONTHLY ANNIVERSARY OCCURS DURING THE CURRENT VALUATION PERIOD,
9. The portion of the monthly deduction charged to the Investment
Division during the current Valuation Period to cover the policy month
which starts on that day.
11
<PAGE> 19
OWNER'S RIGHT TO CHANGE ALLOCATION
You can change the allocation of future net premiums among the Fixed Account
and/or the Investment Divisions of the Separate Account. You must allocate at
least 10% of net premiums to each alternative you choose. Percentages must be in
whole numbers. (For example, 33 1/3% may not be chosen.) You must notify us in
writing of a change in the allocation percentages. The change will take effect
immediately upon receipt at our Designated Office.
You may also change the allocation of the Cash Value. To do this, you may
transfer amounts among the alternatives at any time. A transfer charge of $25
will be deducted from the Cash Value from which amounts are transferred
proportionately among the Fixed Account and the Investment Divisions of the
Separate Account when each transfer is effected. However, no charge will be
assessed for transfers from policy loans and loan repayments. In addition,
during the first 24 policy months, no charge will be assessed for a complete
transfer of all amounts in the Investment Divisions of the Separate Account to
the Fixed Account. Transfers must be in either dollar amounts or a percentage in
whole numbers. The minimum amount that may be transferred is $50, or, if less,
the entire value in an Investment Division of the Separate Account or the entire
value in the Fixed Account. The maximum amount that may be transferred from the
Fixed Account in any policy year is the greater of $50 or 25% of the largest
amount in the Fixed Account over the last four policy years. The change will
take effect on the date we receive written notice from you at our Designated
Office.
EXCHANGE PRIVILEGE
During the first 24 months following the Date of Policy, the policy owner may
transfer the entire amount in the Separate Account to the Fixed Account and
allocate all future net premiums to the Fixed Account. This will serve as an
exchange of the policy for the equivalent of a flexible premium fixed benefit
life insurance policy. There will be no charge for this transfer.
PAYMENTS DURING INSURED'S LIFETIME
PAYMENT ON FINAL DATE OF POLICY
If the insured is alive on the Final Date of Policy, and you do not ask us in
writing to continue the policy, we will pay you the Cash Surrender Value.
Coverage under this policy will then end.
You may ask us in writing to continue this policy after the Final Date. If you
do, the death benefit will be equal to the Cash Value. The insurance proceeds
will equal the death benefit minus any outstanding policy loan and loan
interest.
FULL AND PARTIAL CASH WITHDRAWAL
We will pay you all or part of the Cash Surrender Value after we receive your
request at our Designated Office. The Cash Surrender Value will be determined
as of the date we receive your request. If you request and are paid the full
Cash Surrender Value, this policy and all our obligations under it will end. We
may require surrender of this policy before we pay you the full Cash Surrender
Value.
Each partial withdrawal of Cash Value must be at least $250. When a partial
withdrawal is made, we will reduce the Cash Value by the amount of the partial
withdrawal. The reduction in Cash Value will be allocated proportionately among
the value of the Fixed Account and each Investment Division of the Separate
Account.
The maximum amount that may be withdrawn from the Fixed Account in any policy
year is the greater of $50 or 25% of the largest amount in the Fixed Account
over the last four policy years.
If Option A is in effect, we will reduce the Specified Face Amount of Insurance
by the amount of the partial withdrawal. If Option C is in effect, and a partial
withdrawal results in the Adjusted Premiums becoming negative, the Adjusted
Premiums will equal zero, and the Specified Face Amount of Insurance will be
adjusted by this negative amount. A new page 3 will then be issued. We may
require that you send us this policy to make this change. Partial cash
withdrawals will not affect the Specified Face Amount of Insurance if Option B
is in effect.
If you request a partial withdrawal which would reduce the Cash Value to less
than $500, we will treat it as a request for a full cash withdrawal.
12
<PAGE> 20
PAYMENTS DURING INSURED'S LIFETIME (CONTINUED)
POLICY LOAN
You may also get cash from us by taking a policy loan. If there is an existing
loan you can increase it. The maximum amount available for a new or increased
loan will be the greater of the Cash Surrender Value less 2 monthly deductions
or 75% of the Cash Surrender Value. The smallest amount you can borrow at any
one time is $250. The loan will be allocated proportionately among the Fixed
Account and the Investment Divisions of the Separate Account.
When a loan is made, the Cash Value in each Investment Division of the Separate
Account equal to the portion of the policy loan allocated to each Investment
Division will be transferred to a Policy Loan Account within the general
account. Cash Value in the Fixed Account equal to that portion of the policy
loan allocated to that Account will also be transferred to the Policy Loan
Account.
Amounts in the Policy Loan Account will be credited with interest at a rate we
set but never less than the guaranteed rate shown on page 3.1. Interest credited
to the amounts in the Policy Loan Account will be allocated at least once a year
among the Fixed Account and the Investment Divisions of the Separate Account in
the same proportions as net premiums are then being allocated.
LOAN INTEREST
The rate of interest we set for a policy year may not be more than the higher
of:
(1) The Published Monthly Average for the calendar month ending 2 months
before the start of the policy year; and
(2) The Guaranteed Interest Rate plus no more than 1.0%
The Published Monthly Average means:
(3) Moody's Composite Bond Yield Average - Monthly Average Corporates, as
published by Moody's Investor Service, Inc. or any successor to that
service; or
(4) If that average is no longer published, a substantially similar
average, established by regulation issued by the insurance
supervisory official of the state in which this policy is delivered.
If the maximum limit for a policy year is at least 1/2% higher than the rate set
for the prior policy year, we may increase the rate to no more than that limit.
If the maximum limit for a policy year is at least 1/2% lower than the rate set
for the prior policy year, we will reduce the rate to at least that limit.
The loan interest rate will never be more than the maximum allowed by law and
will not change more than once a year and any change will occur on the
anniversary of the Date of Policy,
We will notify you of the loan interest rate when you make a loan. We will also
give you advance written notice of an increase in the loan interest rate of an
outstanding loan.
Interest is charged daily and is due at the end of each policy year. Interest
not paid within 31 days after it is due will be added to the loan principal. It
will be added as of the due date and will bear interest at the same rate as the
rest of the loan. It will be deducted proportionately from the value of the
Fixed Account and each Investment Division of the Separate Account and will be
transferred -to the Policy Loan Account. The amount transferred will be treated
as an increased loan
LOAN REPAYMENT
You may repay all or part (but not less than $25.00) of a policy loan at any
time while the insured is alive and this policy is in force. If any payment you
make to us is intended as a loan payment, rather than a premium payment, you
must tell us this when you make the payment. Otherwise, it will be treated as a
premium payment. Loan repayments will be allocated in the same manner as net
premium payments, except any amount borrowed from the Fixed Account will be
repaid to the Fixed Account first.
Failure to repay a policy loan or to pay ban interest will not terminate this
policy unless the Cash Surrender Value is insufficient to pay the monthly
deduction due on a monthly anniversary. In that case, the Grace Period provision
will apply (see page 14).
13
<PAGE> 21
PAYMENTS DURING INSURED'S LIFETIME (CONTINUED)
DEFERMENT
We reserve the right to defer calculation and payment of benefits in the
following circumstances.
1. If your policy is in force with a Cash Value in the Separate Account,
it will generally not be practical for us to determine the investment
experience of the Separate Account during any period when the New York
Stock Exchange is closed for trading (except for customary weekend and
holiday closings), or when the Securities and Exchange Commission
restricts trading or determines that an emergency exists. In such a
case and with respect to the Separate Account, we reserve the right to
defer: (a) determination, application, or payment of a cash
withdrawal value; (b) determination of policy loans except for a loan
to pay a premium to us; (c) a change in the allocation among the
Investment Divisions of the Separate Account; and (d) payment of the
death benefit.
2. If your policy is in force with a Cash Value in the Fixed Account, we
may defer paying a cash withdrawal value from the Fixed Account for up
to 6 months from the date we receive a request for payment. If we
delay for 30 days or more, interest will be paid at a rate not less
than the guaranteed rate shown on page 3.1 or at a rate required by
law; if greater.
3. We may delay making a loan from the Fixed Account, except for a loan
to pay a premium to us, for up to 6 months from the date you request
the loan.
PREMIUMS
PREMIUM PAYMENTS
Premiums are to be paid at our Designated Office. No insurance will take effect
before the first premium is paid. Other premiums may be paid at any time while
the policy is in force and before the Final Date of Policy in any amount subject
to the limits described below.
We will send premium notices, if requested in writing, according to the planned
premium shown on page 3. After the first, you may skip planned premium payments
or change their frequency and amount if the Cash Surrender Value is large enough
to keep your policy in force.
The planned premium is your self-determined level amount premium planned to be
paid at fixed intervals over a specified period of time. You are not required to
follow this schedule after the first premium payment. Payment of the planned
premium will not guarantee that this policy remains in force. Instead, the
duration of the policy depends on the policy's Cash Value.
LIMITS
The first premium may not be less than the planned premium shown on page 3. Each
premium payment after the first must be at least $100.
We may increase these minimum premium limits. No increase will take effect until
90 days after notice is sent.
The total premium paid in a policy year may not exceed the maximum we set for
that year. When we set the maximum for total premiums paid in a policy year, we
will take account of requirements in federal legislation. We will return to you
any premium paid in a policy year which exceeds the maximum.
GRACE PERIOD
If the Cash Surrender Value on any monthly anniversary is less than the monthly
deduction for that month, there will be a grace period of 61 days after that
anniversary to pay an amount that will cover two monthly deductions. We will
send you a notice at the start of the grace period. We will also send a notice
to any assignee on our records.
If we do not receive a sufficient amount by the end of the grace period, your
policy will end without value.
If the insured dies during the grace period, we will pay the insurance proceeds
minus any overdue monthly deduction.
14
<PAGE> 22
PREMIUMS (CONTINUED)
REINSTATEMENT
If the grace period has ended and you have not paid the required premium and
have not surrendered your policy for its Cash Surrender Value, you may reinstate
this policy while the insured is alive if you.
1. Ask for reinstatement within 3 years after the end of the grace
period;
2. Provide evidence of insurability satisfactory to us;
3. Pay a sufficient amount to keep this policy in force for at least 2
months after the date of reinstatement.
Any policy loan and interest due when the policy ends will be canceled. The
effective date of the reinstated policy will be the date we approve the
reinstatement application.
OWNERSHIP AND BENEFICIARY
OWNER
As owner, you may exercise all rights under your policy while the insured is
alive. You have the right to designate another entity to exercise your rights
with our consent. You may name a contingent owner who would become the owner if
you should die before the insured.
CHANGE OF OWNERSHIP
You may name a new owner at any time. If a new owner is named, any earlier
choice of a contingent owner, beneficiary, contingent beneficiary or optional
payment plan will be canceled, unless you specify otherwise.
BENEFICIARY
The beneficiary is the entity or entities and/or person or persons designated
by the policy owner to receive insurance proceeds upon the death of the insured.
You may name a contingent beneficiary to become the beneficiary if all the
beneficiaries cease to exist while the insured is alive. If no beneficiary or
contingent beneficiary exists when the insured dies, the owner (or the owner's
estate, if applicable) will be the beneficiary. While the insured is alive, the
owner may change any beneficiary or contingent beneficiary. If more than one
beneficiary exists when the insured dies, we will pay them in equal shares,
unless you have chosen otherwise.
HOW TO CHANGE THE OWNER OR THE BENEFICIARY
You may change the owner, contingent owner, beneficiary or contingent
beneficiary of this policy by written notice or assignment of the policy. No
change is binding on us until it is recorded at our Designated Office. Once
recorded, the change binds us as of the date you signed it. The change will not
apply to any payment made by us before we recorded your request. We may require
that you send us this policy to make the change.
COLLATERAL ASSIGNMENT
Your policy may be assigned as collateral. All rights under the policy will be
transferred to the extent of the assignee's interest. We are not bound by any
assignment or release thereof unless and until it is in writing and is recorded
at our Designated Office. We are not responsible for the validity of any
assignment.
EXCLUSION
SUICIDE
The insurance proceeds will not be paid if the insured commits suicide, while
sane or insane, within 2 years from the Date of Policy. Instead, we will pay the
beneficiary an amount equal to all premiums paid, without interest, less any
policy loan and loan interest and less any partial cash withdrawals. If the
insured commits suicide, while sane or insane, more than 2 years after the Date
of Policy but within 2 years from the effective date of any increase in the
death benefit, our liability with respect to such increase will be limited to
its cost.
15
<PAGE> 23
GENERAL PROVISIONS
THE CONTRACT
This policy includes any riders and, with the application attached at issue, and
any application added after issue, makes up the entire contract. All statements
in the application will be representations and not warranties. No statement will
be used to contest the policy unless it appears in the application.
LIMITATION ON REPRESENTATIVE'S OR OTHER PERSON'S AUTHORITY
No representative or other person except our President, a Vice-President, or the
Secretary may (a) make or change any contract of insurance; or (b) make any
binding promises about benefits; or (c) change or waive any of the terms of this
policy. Any change or waiver is valid only if made in writing and signed by our
President, Vice- President, or Secretary.
INCONTESTABILITY
We will not contest the validity of your policy after it has been in force
during the insured's lifetime for 2 years from the Date of Policy. We will not
contest the validity of any increase in the death benefit after such increase
has been in force during the insured's lifetime for 2 years from its effective
date.
AGE AND SEX
If the insured's age or sex on the Date of Policy is not correct., as shown on
page 3, we will adjust the benefits under this policy. If the insured dies
before a correction is made, the adjusted benefits will be the amounts bought by
the monthly deduction just before the date of death, based on the correct age
and sex. Otherwise we will recompute the value of the Cash Value by taking out
the monthly cost of term insurance for the life of the policy, using the level
of benefits bought by the monthly deduct ion just before we learned the correct
age and sex.
NONPARTICIPATION
This policy is not eligible for dividends; it does not participate in any
distribution of our surplus.
COMPUTATION OF VALUES
The Fixed Account Cash Value is computed using a guaranteed minimum interest
rate shown on page 3.1 .This value and the maximum term insurance rates shown on
page 4 are based on the 1980 Commissioners Standard Ordinary Mortality (sex
distinct) Table.
For substandard policy classifications, these values and rates are based on a
modified version of the 1980 CSO Mortality Table that reflects our mortality
experience.
We have filed a detailed statement of the method of computation with the
insurance supervisory official of the state in which this policy is delivered.
The values under this policy are equal to or greater than those required by the
law of that state.
ANNUAL REPORT
Each year we will send you a report showing the current death benefit, the Cash
Value and any outstanding policy loans for this policy.
It will also show the amount and type of credits to and deductions from the Cash
Value during the past policy year.
The report will also include any other information required by state laws and
regulations.
ILLUSTRATION OF FUTURE BENEFITS
At any time, we will provide an illustration of the future benefits and values
under your policy. You must ask in writing for this illustration. The first
illustration in any policy year will be furnished free of charge. Any subsequent
request in that policy year will be subject to a service fee set by us.
16
<PAGE> 24
METHODS OF PAYMENT
Unless otherwise requested, we may pay the insurance proceeds when the insured
dies, or the Cash Surrender Value on surrender or on the Final Date of the
policy, in one sum, or by placing the amount in an account that earns interest.
The payee will have immediate access to all or part of the account. If
requested, we will apply the amount under one or more of the following payment
plans:
OPTION 1.
Interest Income - The amount applied will earn interest which will be paid
monthly. Withdrawals of at least $500 each may be made at any time by written
request.
OPTION 2.
Installment Income for a Stated Period - Monthly installment payments will be
made so that the amount applied, with interest, will be paid over the period
chosen (from 1 to 30 years).
OPTION 2A.
Installment Income of a Stated Amount - Monthly installment payments of a chosen
amount will be made until the entire amount applied, with interest, is paid.
OPTION 3.
Single Life Income - Guaranteed Payment Period - Monthly payments will be made
during the lifetime of the payee with a chosen guaranteed payment period of 10,
15 or 20 years.
OPTION 3A.
Single Life Income - Guaranteed Return - Monthly payments will be made during
the lifetime of the payee. If the payee dies before the total amount applied
under this plan has been paid, the remainder will be paid in one sum as a death
benefit.
OPTION 4.
Joint and Survivor Life Income - Monthly payments will be made jointly to two
persons during their lifetime and will continue during the remaining lifetime of
the survivor. A total payment period of 10 years is guaranteed.
OTHER FREQUENCIES AND PLANS
Instead of monthly payments, you may choose to have payments made quarterly,
semiannually or annually. Other payment plans may be arranged with us.
CHOICE OF PAYMENT PLANS
A choice of a payment plan for insurance proceeds made by you in writing and
recorded by us while the insured is alive will take effect when the insured
dies. All other choices of payment plans will take effect when recorded by us or
later, if requested. When a payment plan starts, we will issue a contract which
will describe the terms of the plan. We may require that you send us this
policy. We may also require proof of the payee's age.
Payment plans may be chosen: (1) by you during the lifetime of the insured; or
(2) by the beneficiary within one year after the insured died and before any
payments have been made, if no choice was in effect on the date of death.
A choice of a payment plan will not take effect unless each payment under the
plan would be at least $.50.
LIMITATIONS
If the payee is not a natural person, the choice of a payment plan will be
subject to our approval. An assignment for a loan will modify a prior choice of
payment plan. The amount due the assignee will be payable in one sum and the
balance will be applied under the payment plan.
Payments may not be assigned and, to the extent permitted by law, will not be
subject to the claims of creditors.
PAYMENT PLAN RATES
Amounts applied under the interest income and installment payment plans will
earn interest at a rate we set from time to time.
Life income plan payments will be based on a rate set by us and in effect on the
date the insurance proceeds or cash value become payable.
17
<PAGE> 25
METHODS OF PAYMENT (CONTINUED)
MINIMUM PAYMENTS UNDER PAYMENT PLANS - Monthly payments under options 2, 3, 3A
and 4 for each $1,000 applied will not be less than the amounts shown in the
following Tables.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
OPTION 2. Installment Income for a Stated Period
Monthly Payments for each $1,000 applied
- -------------------------------------------------------------------------------------
Minimum Amount Minimum Amount Minimum Amount
Years of Each Monthly Years of Each Monthly Years of Each Monthly
Chosen Payment Chosen Payment Chosen Payment
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 $84.47 11 $8.86 21 $5.32
2 42.86 12 8.24 22 5.15
3 28.99 13 7.71 23 4.99
4 22.06 14 7.26 24 4.84
5 17.91 15 6.87 25 4.71
6 15.14 16 6.53 26 4.59
7 13.16 17 6.23 27 4.47
8 11.68 18 5.96 28 4.37
9 10.53 19 5.73 29 4.27
10 9.61 20 5.51 30 4.18
- -------------------------------------------------------------------------------------
To determine the minimum amount for quarterly payment, multiply the above
monthly payment by 2.99; for semiannual by 5.96; and for annual 11.84.
- -------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
OPTION 3. Single Life Income - Guaranteed Payment Period OPTION 3A.
Minimum Amount of each Monthly Payment for each $1,000 Applied Single Life Income -
- ----------------------------------------------------------------------------- Guaranteed Return
Guaranteed Payment Period Minimum Amount of each
------------------------------------------------------------------- Monthly Payment for each
Payee's 10 years 15 years 20 years $1,000 Applied
Age ----------------------------------------------------------------------------------------------
Male Female Male Female Male Female Male Female
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
50 $4.29 $3.94 $4.23 $3.91 $4.15 $3.86 $4.11 $3.82
55 4.72 4.29 4.62 4.23 4.47 4.15 4.47 4.11
60 5.29 4.73 5.09 4.62 4.79 4.47 4.92 4.47
65 6.02 5.29 5.60 5.09 5.09 4.81 5.48 4.93
70 6.86 6.02 6.08 5.63 5.32 5.13 6.18 5.53
75 7.71 6.92 6.46 6.16 5.44 5.36 7.05 6.32
80 8.48 7.89 6.70 6.55 5.49 5.47 8.15 7.36
85 and over 9.07 8.74 6.82 6.77 5.51 5.50 9.54 8.70
- --------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
OPTION 4. Joint and Survivor Income - Guaranteed Period for 10 years
Minimum Amount of each Monthly Payment for each $1,000 Applied
- --------------------------------------------------------------------------
Age of One Male and Two Two
Both Payees One Female Males Females
- --------------------------------------------------------------------------
<S> <C> <C> <C>
50 $3.64 $3.79 $3.54
55 3.93 4.11 3.80
60 4.30 4.55 4.13
65 4.80 5.13 4.57
70 5.47 5.90 5.17
75 6.33 6.80 6.00
- --------------------------------------------------------------------------
</TABLE>
On request, we will provide additional information about amounts of minimum
payments.
18
<PAGE> 26
METROPOLITAN LIFE INSURANCE COMPANY
ENDORSEMENT
1. The following replaces the last paragraph of the provision entitled COST OF
TERM INSURANCE:
The cost of term insurance for any policy month is equal to the amount
of term insurance multiplied by the monthly term insurance rate. After
the Final Date the cost of term insurance is zero. Monthly term
insurance rates will be set by us from time to time, based on the
insured's age and underwriting class. But these rates will never be
more than the maximum rates shown in the table on page 4. Any change
in mortality charges will not recoup past losses. Any adjustments in
policy cost factors will be by class and based on changes in such
factors as mortality, persistency and expense.
2. The following replaces the provision entitled AGE AND SEX:
AGE - If the insured's age on the Date of Policy is not correct as
shown on page 3, we will adjust the benefits under this policy. If
the insured dies before the correction is made, the adjusted benefits
will be the amounts bought by the monthly deduction just before the
date of death, based on the correct age. Otherwise, we will recompute
the value of the Cash Value by taking out the monthly cost of term
insurance for the life of the policy, using the level of benefits
bought by the monthly deductions just before we learned the correct
age.
3. The following replaces the first paragraph of the provision entitled
COMPUTATION OF VALUES:
COMPUTATION OF VALUES - The Fixed Account Cash Value is computed using
the guaranteed minimum interest rate shown on page 3.1. This value and
the maximum term insurance rates shown on page 4 are based on the 1980
Commissioner's Standard Ordinary Mortality Table B.
(continued on reverse side)
<PAGE> 27
ENDORSEMENT (CONTINUED)
4. The following replaces the tables for Option 3 and Option 4 under the
Heading MINIMUM PAYMENTS UNDER PAYMENT PLAN:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
OPTION 3. Single Life Income- OPTION 3A.
Guaranteed Payment Period Single Life Income-
Minimum Amount of each Monthly Guaranteed Return
Payment for each $1,000 Applied Minimum Amount of each
--------------------------------------------------------- Monthly Payment for each
Guaranteed Payment Period $1,000 Applied
- ------------------------------------------------------------------------------------------------------
Payee's
Age 10 years 15 years 20 years
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
50 $ 4.12 $ 4.08 $ 4.02 $ 3.97
55 4.51 4.44 4.32 4.29
60 5.02 4.87 4.65 4.70
65 5.67 5.36 4.97 5.21
70 6.46 5.88 5.24 5.85
75 7.34 6.33 5.41 6.68
80 8.21 6.64 5.48 7.75
85 and over 8.92 6.80 5.51 9.12
- ------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
OPTION 4. Joint and Survivor Life Income-
Guaranteed Period of 10 years
- ----------------------------------------------------------------------
Age of Minimum Amount of each Monthly
Both Payees Payment for each $1,000 Applied
- ----------------------------------------------------------------------
<S> <C>
50 $3.64
55 3.93
60 4.30
65 4.80
70 5.47
75 6.33
- ----------------------------------------------------------------------
</TABLE>
On request, we will provide additional information about amounts of minimum
payments.
/s/ Louis J. Ragusa
Louis J. Ragusa
Vice President and Secretary
<PAGE> 28
Metropolitan Life Insurance Company
ENDORSEMENT
1. This endorsement replaces the MINIMUM DEATH BENEFIT provision found on page
7 of this policy.
2. Notwithstanding any other provision, the death benefit shall never be less
than (a) divided by (b), where
(a) - the Cash Value immediately before the death of the insured, and
(b) - the net single premium immediately before the death Of the insured
(computed on the basis of the 1980 CSO Mortality Table and on the
basis of interest at the greater of an annual effective rate of 4%
or the rate or rates guaranteed on issuance of this contract and as
otherwise required under section 7702 of the Internal Revenue Code)
for one dollar of death benefit.
3. Therefore, although the death benefit will be based on the death benefit
option in effect at the time of death, the death benefit will never be less
than an amount determined under paragraph 2 above. Generally, this means
that the death benefit will never be less than the Cash Value multiplied by
the minimum death benefit factor from the table on the reverse of this
endorsement.
/s/ Louis J. Ragusa
Louis J. Ragusa
Vice President and Secretary
<PAGE> 29
TABLE OF MINIMUM DEATH BENEFIT FACTORS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Age on Factors Age on Factors
Date of ------------------------------------------------- Date of ----------------------------------------
Death Male Female Unisex Death Male Female Unisex
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
20 6.6164 7.8790 6.8329 58 2.0452 2.3617 2.1030
21 6.4251 7.6272 6.6326 59 1.9925 2.2951 2.0481
22 6.2375 7.3828 6.4358 60 1.9420 2.2305 1.9955
23 6.0525 7.1454 6.2422 61 1.8935 2.1679 1.9448
24 5.8703 6.9142 6.0518 62 1.8472 2.1075 1.8963
25 5.6905 6.6903 5.8648 63 1.8029 2.0494 1.8499
26 5.5133 6.4729 5.6812 64 1.7607 1.9939 1.8056
27 5.3393 6.2621 5.5012 65 1.7204 1.9407 1.7634
28 5.1696 6.0577 5.3251 66 1.6821 1.8899 1.7231
29 5.0035 5.8596 5.1536 67 1.6455 1.8410 1.6846
30 4,8414 5.6676 4.9865 68 1.6105 1.7940 1.6478
31 4.6843 5.4819 4.8242 69 1.5770 1.7486 1.6124
32 4.5317 5.3022 4.6668 70 1.5450 1.7047 1.5785
33 4.3838 5.1282 4.5145 71 1.5144 1.6623 1.5460
34 4.2411 4.9598 4.3672 72 1.4853 1.6218 1.5151
35 4.1029 4.7971 4.2246 73 1.4578 1.5831 1.4858
36 3.9695 4.6402 4.0871 74 1.4320 1.5466 1.4582
37 3.8410 4.4889 3.9548 75 1.4077 1.5121 1.4321
38 3.7173 4.3433 3.8272 76 1.3849 1.4796 1.4076
39 3.5983 4.2038 3.7045 77 1.3634 1.4489 1.3845
40 3,4837 4.0698 3.5867 78 1.3431 1.4198 1.3625
41 3.3737 3.9412 3.4735 79 1.3237 1.3921 1.3415
42 3.2680 3.8178 3.3649 80 1.3051 1.3658 1.3214
43 3.1666 3.6993 3.2604 81 1,2873 1.3409 1.302?
44 3.0690 3.5853 3.1601 82 1.2703 1.3172 1.2837
45 2.9753 3.4755 3.0635 63 1.2542 1.2950 1.2662
46 2.8852 3.3697 2.9707 84 1.2390 1.2741 1.2497
47 2.7986 3.2677 2.8815 85 1.2247 1.2544 1.2340
48 2.7153 3.1694 2.7956 86 1.2110 1.2358 1.2190
49 2.6351 3.0746 2.7130 87 1.1977 1.2180 1.2045
50 2.5581 2.9831 2.6335 88 1.1846 1.2007 1.1902
51 2.4839 2.8950 2.5571 89 1.1712 1.1835 1.1756
52 2.4128 2.8101 2.4837 90 1.1571 1.1660 1.1603
53 2.3447 2.7284 2.4132 91 1.1415 1.1475 1.1437
54 2.2794 2.6498 2.3458 92 1.1235 1.1272 1.1249
55 2.2170 2.5740 2.2812 93 1.1019 1.1038 1.1026
56 2.1572 2.5009 2.2194 94 1.0746 1.0754 1.0749
57 2.1000 2.4302 2.1600
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 30
METROPOLITAN LIFE INSURANCE COMPANY
REFUND OF SALES CHARGE RIDER
If you request full surrender of your policy at any time during the Benefit
Period, in addition to any Cash Surrender Value, we will pay an amount equal to
any sales load deducted within 365 days prior to the date we receive your
request for full surrender at our Designed Office.
The Benefit Period is shown on page 3. It begins on the Date of Policy and
continues for the number of years shown.
Signed for Metropolitan Life Insurance Company.
/s/ Louis J. Ragusa
Louis J. Ragusa
Vice President and Secretary
<PAGE> 31
METROPOLITAN LIFE INSURANCE COMPANY
ENDORSEMENT
This endorsement is a part of the policy to which it is attached.
You may cancel this policy at any time. In order to cancel the policy, we must
receive the policy and a written request signed by you for payment of the
policy's cash value or cash surrender value. The request must show the policy
number and the name of the Insured(s). The request must be signed by any other
owner, assignee, irrevocable beneficiary and any other person having a legal
interest in the policy.
We may need other information before we pay you the policy's cash value or cash
surrender value. For example, we may be required to ask you for federal and
state income tax withholding information.
/s/ Louis J. Ragusa
Louis J. Ragusa
Vice President and Secretary
<PAGE> 1
EXHIBIT 21.1
CYRK, INC. SUBSIDIARIES
<TABLE>
<CAPTION>
Name of Subsidiary Jurisdiction of Incorporation Ownership
- ------------------ ----------------------------- ---------
<S> <C> <C>
Cyrk Europe Limited United Kingdom 100% owned by Cyrk, Inc.
Super Premium Limited British Virgin Islands 100% owned by Cyrk, Inc.
Cyrk Far East, Inc. British Virgin Islands 100% owned by Cyrk, Inc.
Cyrk (H.K.) Limited Hong Kong 100% owned by Cyrk Far East, Inc.
Cyrk Marketing Services, Inc. Canada 100% owned by Cyrk, Inc.
Cyrk Acquisition Corp. Delaware 100% owned by Cyrk, Inc.
CXDATA, Inc. Delaware 100% owned by Cyrk, Inc.
Global Sourcing and Risk
Group, Inc. Delaware 100% owned by Cyrk, Inc.
Cyrk/Tonkin Europe LTD United Kingdom 100% owned by Cyrk, Inc.
Tonkin, Inc. Delaware 100% owned by Cyrk, Inc.
Cyrk CPG Corp. Delaware 100% owned by Cyrk, Inc.
Creative Premium
Manufacturing, Inc. Delaware 100% owned by Cyrk CPG Corp.
Loyalty Management, Inc. Delaware 100% owned by Cyrk, Inc.
NewModel, Inc. Delaware 100% owned by Cyrk, Inc.
Simon Marketing, Inc. Delaware 100% owned by Cyrk, Inc.
Simon Marketing (Hong Kong)
Limited Hong Kong 100% owned by Simon Marketing, Inc.
Simon Ventures, Inc. California 100% owned by Simon Marketing, Inc.
Simon Marketing Consulting
(Canada) Limited Canada 100% owned by Simon Ventures, Inc.
Simon Marketing International
GmbH Germany 100% owned by Simon Ventures International LTD
Simon Marketing International
Limited United Kingdom 100% owned by Simon Marketing
International GmbH
Simon Marketing International
Services Limited United Kingdom 100% owned by Simon Ventures International
LTD
Simon Marketing East Limited Hong Kong 100% owned by Simon Marketing (H.K.) LTD
Simon Ventures International United Kingdom 100% owned by Simon Ventures, Inc.
Limited
</TABLE>
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements of Cyrk, Inc. and subsidiaries on Form S-3 (File Nos. 333-64501 and
333-56863) and Form S-8 (File Nos. 333-45655, 33-89534 and 33-75194) of our
report dated February 4, 2000 relating to the audit of the consolidated
financial statements and the financial statement schedule of Cyrk, Inc. and
subsidiaries as of December 31, 1999 and 1998 and for the three years ended
December 31, 1999, 1998 and 1997, which report is included in this Annual Report
on Form 10-K.
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 27, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 75,819
<SECURITIES> 2,944
<RECEIVABLES> 90,054
<ALLOWANCES> 2,682
<INVENTORY> 51,250
<CURRENT-ASSETS> 234,629
<PP&E> 31,114
<DEPRECIATION> 17,829
<TOTAL-ASSETS> 337,341
<CURRENT-LIABILITIES> 147,112
<BONDS> 0
0
0
<COMMON> 155
<OTHER-SE> 177,500
<TOTAL-LIABILITY-AND-EQUITY> 337,341
<SALES> 757,853
<TOTAL-REVENUES> 757,853
<CGS> 619,969
<TOTAL-COSTS> 619,969
<OTHER-EXPENSES> 418
<LOSS-PROVISION> 1,485
<INTEREST-EXPENSE> 2,579
<INCOME-PRETAX> (5,183)
<INCOME-TAX> (2,167)
<INCOME-CONTINUING> (3,016)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,016)
<EPS-BASIC> (0.20)
<EPS-DILUTED> (0.20)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 99,698
<SECURITIES> 2,423
<RECEIVABLES> 96,025
<ALLOWANCES> 4,243
<INVENTORY> 45,193
<CURRENT-ASSETS> 259,738
<PP&E> 35,553
<DEPRECIATION> 22,413
<TOTAL-ASSETS> 369,148
<CURRENT-LIABILITIES> 148,915
<BONDS> 0
20,553
0
<COMMON> 157
<OTHER-SE> 190,367
<TOTAL-LIABILITY-AND-EQUITY> 369,148
<SALES> 988,844
<TOTAL-REVENUES> 988,844
<CGS> 816,507
<TOTAL-COSTS> 816,507
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,578
<INTEREST-EXPENSE> 2,115
<INCOME-PRETAX> 19,536
<INCOME-TAX> 8,400
<INCOME-CONTINUING> 11,136
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,136
<EPS-BASIC> .70
<EPS-DILUTED> .67
</TABLE>
