-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QnguLmmkDBiFAxlSN1ER2s0vSvKxOCzG/0UwCcU8n+iuZR8U/uSKdvVE3HHPvFFl rZaI4qAeoc5c3MWywn8ZEQ== <SEC-DOCUMENT>0000950135-00-001701.txt : 20000329 <SEC-HEADER>0000950135-00-001701.hdr.sgml : 20000329 ACCESSION NUMBER: 0000950135-00-001701 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CYRK INC CENTRAL INDEX KEY: 0000864264 STANDARD INDUSTRIAL CLASSIFICATION: APPAREL & OTHER FINISHED PRODS OF FABRICS & SIMILAR MATERIAL [2300] IRS NUMBER: 043081657 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-21878 FILM NUMBER: 581615 BUSINESS ADDRESS: STREET 1: 3 POND RD CITY: GLOUCESTER STATE: MA ZIP: 01930 BUSINESS PHONE: 5082835800 MAIL ADDRESS: STREET 1: 3 POND RD CITY: GLOCESTER STATE: MA ZIP: 01930 FORMER COMPANY: FORMER CONFORMED NAME: CYRK INTERNATIONAL INC DATE OF NAME CHANGE: 19930521 </SEC-HEADER> <DOCUMENT> <TYPE>10-K <SEQUENCE>1 <DESCRIPTION>CYRK INC. <TEXT> <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. <PAGE> 2 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. 2 <PAGE> 3 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. 3 <PAGE> 4 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. 4 <PAGE> 5 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 5 <PAGE> 6 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. 6 <PAGE> 7 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. 7 <PAGE> 8 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> 8 <PAGE> 9 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> 9 <PAGE> 10 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 </TEXT> </DOCUMENT> <DOCUMENT> <TYPE>EX-3.3 <SEQUENCE>2 <DESCRIPTION>CERTIFICATE OF DESIGNATION <TEXT> <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 </TEXT> </DOCUMENT> <DOCUMENT> <TYPE>EX-10.16 <SEQUENCE>3 <DESCRIPTION>REGISTRATION RIGHTS AGREEMENT <TEXT> <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 4 <PAGE> 5 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: 5 <PAGE> 6 (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 6 <PAGE> 7 (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; 7 <PAGE> 8 (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 8 <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. 9 <PAGE> 10 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. 10 <PAGE> 11 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, 11 <PAGE> 12 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 12 <PAGE> 13 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 13 <PAGE> 14 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. 14 <PAGE> 15 (c) Upon the request of the Holder making such transfer, the Company shall execute a Registration Rights Agreement with such transferee or a proposed transferee substantially similar to this Agreement. 11. MISCELLANEOUS. (a) Injunctions. Each party acknowledges and agrees that irreparable damage would occur in the event that any of the provisions of this Agreement was not performed in accordance with its specific terms or was otherwise breached. Therefore, each party shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof in any court having jurisdiction, such remedy being in addition to any other remedy to which such party may be entitled at law or in equity. (b) Severability. If any term or provision of this Agreement shall be held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms and provisions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and each of the parties shall use its Best Efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term or provision. (c) Further Assurances. Subject to the specific terms of this Agreement, each of the parties hereto shall make, execute, acknowledge and deliver such other instruments and documents, and take all such other actions, as may be reasonably required in order to effectuate the purposes of this Agreement and to consummate the transactions contemplated hereby. (d) Waivers, etc. No failure or delay on the part of either party (or the intended third-party beneficiaries referred to herein) in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power preclude any other or further exercise thereof or the exercise of any other right or power. No modification or waiver of any provision of this Agreement nor consent to any departure therefrom shall in any event be effective unless the same shall be in writing and signed by an authorized officer of each of the parties, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. (e) Entire Agreement. This Agreement contains the entire understanding of the parties with respect to its subject matter. This Agreement supersedes all prior agreements and understandings between the parties, whether written or oral, with respect to the subject matter hereof. The paragraph headings contained in this Agreement are for reference purposes only, and shall not affect in any manner the meaning or interpretation of this Agreement. 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 </TEXT> </DOCUMENT> <DOCUMENT> <TYPE>EX-10.17 <SEQUENCE>4 <DESCRIPTION>MANAGEMENT AGREEMENT W/YUCAIPA COMPANIES <TEXT> <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 </TEXT> </DOCUMENT> <DOCUMENT> <TYPE>EX-10.20 <SEQUENCE>5 <DESCRIPTION>LEASE AGREEMENT <TEXT> <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. - 2 - <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. - 3 - <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 - 4 - <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. - 5 - <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 - 6 - <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"). - 7 - <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 - 8 - <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; - 9 - <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. - 10 - <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: - 11 - <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. - 12 - <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 - 13 - <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. - 14 - <PAGE> 20 (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 - 15 - <PAGE> 21 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 - 16 - <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 - 17 - <PAGE> 23 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. - 18 - <PAGE> 24 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 -19- <PAGE> 25 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 -20- <PAGE> 26 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 -21- <PAGE> 27 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 -22- <PAGE> 28 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 -23- <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 -24- <PAGE> 30 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, -25- <PAGE> 31 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 -26- <PAGE> 32 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 -27- <PAGE> 33 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 -28- <PAGE> 34 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 -29- <PAGE> 35 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 -30- <PAGE> 36 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 -31- <PAGE> 37 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 -32- <PAGE> 38 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. -33- <PAGE> 39 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 -34- <PAGE> 40 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 -35- <PAGE> 41 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 -36- <PAGE> 42 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 -37- <PAGE> 43 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 -38- <PAGE> 44 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. -39- <PAGE> 45 (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. -40- <PAGE> 46 (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, -41- <PAGE> 47 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 -42- <PAGE> 48 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 -43- <PAGE> 49 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 -44- <PAGE> 50 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, -45- <PAGE> 51 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). -46- <PAGE> 52 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 -47- <PAGE> 53 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. -48- <PAGE> 54 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 -49- <PAGE> 55 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 -50- <PAGE> 56 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. -51- <PAGE> 57 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. -52- <PAGE> 58 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, -53- <PAGE> 59 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 -54- <PAGE> 60 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 -55- <PAGE> 61 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) -56- <PAGE> 62 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 -57- <PAGE> 63 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 -58- <PAGE> 64 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 -59- <PAGE> 65 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. -60- <PAGE> 66 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 -61- <PAGE> 67 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. -62- <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. </TEXT> </DOCUMENT> <DOCUMENT> <TYPE>EX-10.21 <SEQUENCE>6 <DESCRIPTION>LIFE INSURANCE AGREEMENT <TEXT> <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 </TEXT> </DOCUMENT> <DOCUMENT> <TYPE>EX-21.1 <SEQUENCE>7 <DESCRIPTION>LIST OF SUBSIDIARIES <TEXT> <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> </TEXT> </DOCUMENT> <DOCUMENT> <TYPE>EX-23.1 <SEQUENCE>8 <DESCRIPTION>CONSENT OF PRICEWATERHOUSECOOPERS LLP <TEXT> <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 </TEXT> </DOCUMENT> <DOCUMENT> <TYPE>EX-27.98 <SEQUENCE>9 <DESCRIPTION>FINANCIAL DATA SCHEDULE RESTATED <TEXT> <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 <PREFERRED-MANDATORY> 0 <PREFERRED> 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> </TEXT> </DOCUMENT> <DOCUMENT> <TYPE>EX-27.99 <SEQUENCE>10 <DESCRIPTION>FINANCIAL DATA SCHEDULE <TEXT> <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 <PREFERRED-MANDATORY> 20,553 <PREFERRED> 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> </TEXT> </DOCUMENT> </SEC-DOCUMENT> -----END PRIVACY-ENHANCED MESSAGE-----