Stipulation & Agreement Of Settlement

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK


- --------------------------------------------x BARRY HALLET, JR., On Behalf Of : Himself and All Others Similarly : Situated, :
:
Plaintiff, : Civil Action No.
:
-v- : 95 Civ. 8917 (JSM)
: LI & FUNG, LTD., LI & FUNG (B.V.I.) : LIMITED, LF INTERNATIONAL, INC., : PATRICK BRADY, GREGORY SHLOPAK, : JOSEPH BARTLETT, MICHAEL HSIEH : and CYRK, INC., :
:
Defendants. : - --------------------------------------------x


STIPULATION AND AGREEMENT OF SETTLEMENT


This stipulation and agreement of settlement dated as of April 7, 1998 (the "Stipulation") is submitted pursuant to Rule 23 of the Federal Rules of Civil Procedure. Subject to the approval of the Court, this Stipulation is entered into among Plaintiff Barry Hallett, Jr., and the Class as hereinafter defined, and defendants Cyrk, Inc. ("Cyrk"), and Gregory P. Shlopak ("Shlopak"), Chairman and Chief Executive Officer of Cyrk, Patrick O. Brady ("Brady"), President, Chief Operating Officer and Chief Financial Officer and a director of Cyrk, Joseph Bartlett ("Bartlett") a director of Cyrk, Michael T. Hsieh ("Hsieh") formerly a director of Cyrk, (collectively Shlopak, Brady, Bartlett and Hsieh are referred to as the "Officer and Director Defendants"), Li & Fung Limited, Li & Fung (B.V.I.) Limited, and LF International, Inc. (collectively "Li & Fung") (Cyrk, the Officer


2 and Director Defendants and Li & Fung are collectively referred to hereinafter as the "Defendants"), by and through their respective counsel.


WHEREAS:


A. The above-captioned action was filed in this Court on or about October 18, 1995, and is hereinafter referred to as the "Action".


B. The Action was brought as a class action under Rule 23 of the Federal Rules of Civil Procedure on behalf of a plaintiff class ("Class") consisting of all persons who purchased the common stock of Cyrk, Inc. between May 10, 1994 and May 1, 1995, inclusive (the "Class Period"), and who sustained damage as a result of such purchases.


C. The Complaint filed in the Action generally alleges, among other things, that Defendants issued false and misleading statements regarding the strength of Cyrk's relationship with its largest and most important customer, Philip Morris, Incorporated ("Philip Morris"), including the likelihood of Cyrk's large Philip Morris/Marlboro promotions continuing at high levels during 1995, the likelihood of Cyrk receiving new promotional contracts from other major brand name product sellers during 1995, its competitive position and advantages, and its future business and earnings prospects including that it would have during 1995, high revenues and earnings. The Complaint also alleges that during the Class Period the Defendants knew for several reasons that problems were afflicting Cyrk's business.


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D. The Complaint alleges further that these statements were each false and misleading when made. They allegedly inflated the price of Cyrk's stock to a Class Period high of $44.75 per share so that Cyrk's insiders, including Shlopak, Brady and Li & Fung, could sell large amounts of their Cyrk stock under SEC Rule 144 and in a registered secondary public offering of Cyrk stock on December 1, 1994 (the "Offering") all allegedly without disclosing material non-public adverse information.


E. The Complaint further alleges that Plaintiff and other class members purchased the common stock of Cyrk during the Class Period at prices artificially inflated as a result of the Defendants' dissemination of false and misleading statements regarding Cyrk in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder.


F. The Defendants filed motions to dismiss the Complaint for failure to state a claim, and Li & Fung Limited and Li & Fung (B.V.I.) Limited moved to dismiss for lack of jurisdiction. By Memorandum Opinion and Order, the Court denied the Defendants' motions. (Li & Fung Limited and Li & Fung (B.V.I.) Limited have continued to dispute this Court's exercise of personal jurisdiction over them; however, both entities agree to consent to this Court's exercise of jurisdiction over them for the limited purpose of considering and potentially approving and enforcing the Settlement set forth in this Stipulation, as set forth in paragraph 25 below.)


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G. Plaintiff sought certification of this Action as a class action. By Opinion and Order dated October 6, 1997, the Court certified this Action as a class action pursuant to Federal Rules of Civil Procedure 23(a) and 23(b)(3).


H. The Defendants filed answers, denying the allegations of Plaintiff's Complaint and asserting several defenses. The Defendants deny any wrongdoing of any nature and this Stipulation shall in no event be construed or deemed to be evidence of or an admission or concession on the part of any Defendant with respect to any claim or of any fault or liability or wrongdoing or damage whatsoever, or any infirmity in the defenses that Defendants have asserted. Defendants assert no claim that this action was brought in violation of Federal Rule of Civil Procedure 11 and recognize that the litigation is being voluntarily settled after advice of counsel, and that the terms of the settlement are fair, adequate and reasonable. This Stipulation shall not be construed or deemed to be a concession by Plaintiff of any infirmity in the claims asserted in the Action. The Defendants have concluded that further conduct of the litigation would be protracted, expensive and disruptive to their businesses and that it is desirable to fully and finally settle the litigation on the terms and conditions herein to avoid further expense, inconvenience and distraction of the litigation and to dispel any uncertainty occasioned thereby.


I. Plaintiff's Counsel have conducted an extensive investigation relating to the claims and the underlying events and


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transactions alleged in the Complaint. Document discovery has been obtained from Defendants and from third parties, numerous witnesses have been interviewed, and nine depositions were taken. Plaintiff's Counsel have analyzed the evidence adduced during pretrial discovery and have researched the applicable law with respect to the claims of Plaintiff and the Class against the Defendants and the potential defenses thereto.


J. Plaintiff, by his counsel, have conducted discussions and arms'-length negotiations with counsel for Defendants with respect to a compromise and settlement of the Action with a view to settling the issues in dispute and achieving the best relief possible consistent with the interests of the Class.


K. Based upon their investigation and pretrial discovery as set forth above, counsel for Plaintiff and the Class have concluded that the terms and conditions of this Stipulation are fair, reasonable and adequate to Plaintiff and the Class, and in their best interests, and have agreed to settle the claims raised in the Action pursuant to the terms and provisions of this Stipulation, after considering (a) the substantial benefits that Plaintiff and the members of the Class will receive from settlement of the Action, (b) the attendant risks of litigation, and (c) the desirability of permitting the Settlement to be consummated as provided by the terms of this Stipulation.


NOW THEREFORE, without any admission or concession on the part of Plaintiff of any lack of merit of the Action whatsoever, and without any admission or concession of any liability or


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wrongdoing or lack of merit in the defenses whatsoever by Defendants, it is hereby further STIPULATED AND AGREED, by and among the parties to this Stipulation, through their respective attorneys, subject to approval of the Court pursuant to Rule 23(e) of the Federal Rules of Civil Procedure, in consideration of the benefits flowing to the parties hereto from the Settlement, that all Settled Claims (as defined below) as against the Released Persons (as defined below) shall be compromised, settled, released and dismissed with prejudice, upon and subject to the following terms and conditions:


CERTAIN DEFINITIONS


1. As used in this Stipulation, the following terms shall have the following meanings:


a. "Authorized Claimant" means a Class Member who submits a timely and valid Proof of Claim form to the Claims Administrator.


b. "Claims Administrator" means the firm of Gilardi & Co. LLC, which shall administer the Settlement.


c. "Class" and "Class Members" means all persons who purchased the common stock of Cyrk during the period from May 10, 1994 through May 1, 1995, inclusive, and were damaged thereby. Excluded from the Class are the Defendants in this action, their immediate family members, and the directors, officers, subsidiaries and affiliates of Cyrk. Also excluded from the Class are any putative Class Members who exclude themselves by filing a request for exclusion in accordance with the requirements set forth in the


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7 Notice.


d. "Class Period" means the period of time from May 10, 1994 through May 1, 1995, inclusive.


e. "Defendants' Counsel" means the law firms of FRIEDMAN KAPLAN & SEILER LLP; CHOATE, HALL & STEWART; and HELLER, EHRMAN, WHITE & McAULIFFE.


f. "Effective Date of Settlement" or "Effective Date" means the date upon which the Settlement contemplated by this Stipulation shall become effective, as set forth in paragraph 21 below.


g. "Notice" means the Notice of Pendency of Class Action, Hearing On Proposed Settlement and Attorneys' Fee Petition, and Notice of Right to Share in Settlement Fund, which is to be sent to members of the Class in the form attached hereto as Exhibit 1 to Exhibit A.


h. "Order and Final Judgment" means the proposed order in the form attached hereto as Exhibit B.


i. "Order for Notice and Hearing" means the proposed order in the form attached hereto as Exhibit A.


j. "Plaintiff's Counsel" means counsel for Plaintiff and the Class, the law firms of KAPLAN, KILSHEIMER & FOX LLP; MILBERG WEISS BERSHAD HYNES & LERACH LLP; and BERMAN, DEVALERIO & PEASE LLP.


k. "Publication Notice" means the Summary Notice Of Pendency Of Class Action, Proposed Settlement And Settlement Hearing for publication in the form attached as Exhibit 3 to


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Exhibit A.


l. "Released Persons" means any and all of the Defendants, their past or present subsidiaries, parents, affiliates, successors, predecessors, and insurers, and each of their present or former officers, directors, shareholders, employees, attorneys, advisors, investment advisors, underwriters, investment bankers, and accountants, and any person, firm, trust, corporation, officer, director or other individual or entity in which any Defendant has a controlling interest or which is related to or affiliated with any of the Defendants, and the legal representatives, agents, heirs, estates, successors in interest, or assigns of the Defendants.


m. "Settled Claims" means all claims, including both known claims and Unknown Claims, demands, rights, liabilities and causes of action of every nature and description whatsoever, whether in contract, tort, equity or otherwise, whether or not concealed or hidden, asserted or that might have been asserted, including without limitation, claims for negligence, gross negligence, indemnification, breach of duty of care and/or breach of duty of loyalty, fraud, breach of fiduciary duty, or violations of any state or federal statutes, rules or regulations (including, without limitation, under any insider trading prohibition, or any antifraud provision of the Securities Act of 1933, the Securities Exchange Act of 1934, or similar provisions of any state statute, regulation or common law provision of any state) by any Class Member against the Released Persons (i) that arise out of, now or


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hereafter, or relate, directly or indirectly, to the purchase or sale of Cyrk common stock by any Class Member during the Class Period and (a) the Company's Offering of Cyrk common stock in December 1994, or (b) the Company's public disclosures during the Class Period, or (c) this Stipulation And Agreement Of Settlement (except for actions to enforce compliance with the terms hereof), or (d) any matters, transactions or occurrences referred to in the Complaint or this Stipulation, or (ii) that are, were or could have been alleged in any court or forum by Plaintiff or any Class Member, either directly, indirectly, representatively or in any other capacity, based upon, relating to, or arising from the facts which were, or could have been, alleged in the Complaint and relating, directly or indirectly, to the purchase or sale of Cyrk common stock during the Class Period, or (iii) that arise out of, now or hereafter, or relate, directly or indirectly, to the sale of any Cyrk stock during the Class Period by any Defendant.


n. "Settlement" means the settlement contemplated by this Stipulation.


o. "Unknown Claims" means any Settled Claims which Plaintiff or any Class Member does not know or suspect to exist in his, her or its favor at the time of the release of the Released Persons which if known by him, her or it might have affected his, her or its decision not to object to this settlement. With respect to any and all Settled Claims the parties stipulate and agree that, upon the Effective Date of the Settlement, Plaintiff shall expressly and the Class Members shall be deemed to have, and by


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10 operation of the Order and Final Judgment shall have, expressly waived and relinquished, to the fullest extent permitted by law, the provisions, rights and benefits of ss. 1542 of the California Civil Code, or any law of any state or territory of the United States, or principle of common law, which is similar, comparable or equivalent to ss. 1542 of the California Civil Code, which provides:


A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor.


Plaintiff and the members of the Class may hereafter discover facts in addition to or different from those which he, she or it now knows or believes to be true with respect to the subject matter of the Settled Claims but the release herein provided shall expressly include all such Unknown Claims.


SCOPE AND EFFECT OF SETTLEMENT


2. The obligations incurred pursuant to this Stipulation shall be in full and final disposition of the Action and any and all Settled Claims as against all Released Persons.


3. a. Upon the Effective Date of this Settlement, Plaintiff and members of the Class on behalf of themselves, their heirs, executors, administrators, successors and assigns, and any persons they represent, shall, with respect to each and every Settled Claim release and forever discharge, and shall forever be enjoined from prosecuting any Settled Claims against any of the Released Persons.


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b. Upon the Effective Date of this Settlement, the Settling Defendants, on behalf of themselves and the Released Persons, shall release and forever discharge any claims, rights, causes of action or liabilities for contribution, indemnification, damages or costs against any other of the Settling Defendants arising out of or related to the Settled Claims as actually resolved, released and extinguished by the Settlement of this Action; provided, however, that this paragraph 3.b. shall have no effect whatsoever on any rights held by any Settling Defendant or Released Person (including rights to contribution or indemnification from any other of the Settling Defendants) with respect to any other claims or causes of action that may be brought against them for which such rights exist in their favor in the absence of this paragraph 3.b.; and provided further, however, that this paragraph 3.b. shall have no effect whatsoever on any rights held by any Settling Defendant or Released Person (including rights to contribution or indemnification from any other of the Settling Defendants) with respect to claims, if any, brought against any Settling Defendant or Released Person by any Class Member who requests exclusion or who challenges the validity of this Settlement in any proceeding; and, provided further, however, that this paragraph 3.b. shall have no effect whatsoever on any rights or claims against Cyrk, to the extent such rights or claims may exist for the payment of expenses (including attorneys' fees but excluding amounts paid in settlement of the Action) actually and reasonably incurred by any Settling Defendant who is an officer or


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12 director of Cyrk in connection with the defense of this Action.


THE SETTLEMENT CONSIDERATION


4. On or before April 7, 1998, Defendants shall pay or cause to be paid by wire transfer, or by other mutually agreed method of delivery (provided that such funds shall be available for investment by the Escrow Agents on April 7, 1998), into escrow on behalf of Plaintiff and the Class $13,650,000 (the "Settlement Amount"), each Defendant or insurer of a Defendant having a several, but not joint, obligation to deposit into the escrow the amount that that Defendant and their insurers have agreed among themselves separately to fund. If Defendants fail to deposit all of the Settlement Amount as contemplated by this paragraph 4, then Plaintiff's Counsel shall have the option to terminate the Settlement as their sole and exclusive remedy; provided however, that if Plaintiff's Counsel elects to exercise this option, all money deposited into the escrow shall be returned to the Defendant or insurer who deposited it, together with any interest earned thereon, within 10 days of such exercise by Plaintiff's Counsel. The Settlement Amount and any interest earned thereon shall be the Gross Settlement Fund.


5. The Gross Settlement Fund, net of any Taxes (as defined below) on the income thereof, shall be used to pay (i) the Notice and Administration Costs referred to in paragraph 7 hereof, (ii) the attorneys' fee and expense award referred to in paragraph 8 hereof, (iii) the remaining administration expenses referred to in paragraph 9 hereof. The balance of the Gross Settlement Fund


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after the above payments shall be the Net Settlement Fund which shall be distributed to the Authorized Claimants as provided in paragraphs 10-12 hereof. Any sums required to be held in escrow hereunder prior to the Effective Date shall be held by Kaplan, Kilsheimer & Fox LLP and Milberg Weiss Bershad Hynes & Lerach LLP as Escrow Agents for the Settlement Fund. All funds held by the Escrow Agents shall be deemed to be IN CUSTODIA LEGIS of the Court and shall remain subject to the jurisdiction of the Court until such time as the funds shall be distributed or returned to Defendants pursuant to this Stipulation and/or further order of the Court. The Escrow Agent shall invest any funds in excess of $100,000 in United States Government obligations with a maturity of 180 days or less, and shall collect and reinvest all interest accrued thereon. Any funds held in escrow in an amount of less than $100,000 may be held in an interest bearing bank account insured by the FDIC. The Plaintiff, the Defendants, and their counsel shall not bear any risk related to the investment of any funds held hereunder. The parties hereto agree that the Settlement Fund is intended to be a Qualified Settlement Fund within the meaning of Treasury Regulation ss. 1.468B-1 and that the Escrow Agent as administrator of the Settlement Fund within the meaning of Treasury Regulation ss.1.468B-2(k)(3), shall be responsible for filing tax returns for the Settlement Fund and paying from the Settlement Fund any Taxes owed with respect to the Settlement Fund. Counsel for Defendants agree to provide promptly to the Escrow Agent the statement described in Treasury Regulation ss. 1.468B-3(e).


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a. All (i) taxes on the income of the Settlement Fund, and (ii) expenses and costs incurred in connection with the taxation of the Settlement Fund (including, without limitation, expenses of tax attorneys and accountants) (collectively "Taxes") shall be paid out of the Settlement Fund, shall be considered to be a cost of administration of the settlement and shall be timely paid by the Escrow Agent without prior Order of the Court.


(I) ADMINISTRATION


6. The Claims Administrator shall administer the Settlement under Plaintiff's Counsel's supervision and subject to the jurisdiction of the Court. Except as stated in paragraph 12 hereof, Defendants shall have no responsibility for the administration of the Settlement and shall have no liability to the Class in connection with such administration. Defendants' Counsel shall cooperate in the administration of the Settlement to the extent reasonably necessary to effectuate its terms, including providing all information from their transfer records concerning the identity of Class Members and their transactions.


7. Prior to the Effective Date, Plaintiff's Counsel may expend from the Settlement Amount, without further approval from the Defendants or the Court, up to the sum of $100,000.00 to pay the reasonable costs and expenses associated with the administration of the Settlement, including without limitation, the costs of identifying members of the Class and effecting mail Notice and Publication Notice. Such amounts shall include, without limitation, the actual costs of publication, printing and mailing


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the Notice, reimbursements to nominee owners for forwarding notice to their beneficial owners, and the administrative expenses incurred and fees charged by the Claims Administrator in connection with providing notice and processing the claims filed.


(II) ATTORNEYS' FEES AND EXPENSES


8. Plaintiff's Counsel will apply to the Court for an award from the Gross Settlement Fund of attorneys' fees not to exceed one-third (33-1/3%) of the Gross Settlement Fund and reimbursement of expenses. The application for attorneys fees and for reimbursement of expenses shall be considered by the Court separate and apart from the approval of the Settlement and is not a condition of the Settlement. Such attorneys' fee and expenses as are awarded by the Court shall be paid from the Gross Settlement Fund to Plaintiff's Counsel immediately upon award, notwithstanding the existence of any timely filed objections thereto, or potential for appeal therefrom, or collateral attack on the settlement or any part thereof, subject to Plaintiff's Counsel's obligation to make appropriate refunds or repayments to the Settlement Fund plus accrued interest, if and when, as a result of any appeal and/or further proceedings on remand, or successful collateral attack, the fee or cost award is reduced or reversed. Provided, however, that in the event that the Stipulation and the Settlement set forth herein does not become Effective for any reason, or the Judgment or the Order making the fee and expense award is reversed or modified on appeal, and in the event that the fee and expense award has been paid to any extent, then Plaintiff's Counsel shall within five (5)


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business days from the event which precludes the Effective Date from occurring or such reversal or modification, refund to the Gross Settlement Fund the fees, expenses, costs and interest previously paid to them from the Gross Settlement Fund, including accrued interest on any such amount at the average rate earned on the Gross Settlement Fund from the time of withdrawal until the date of refund. Each such Plaintiff's Counsel's law firm, as a condition of receiving such fees and expense, on behalf of itself and each partner and/or shareholder of it, shall be jointly and severally responsible to refund the fees, expenses, costs and interest as set forth above, and each Plaintiff's Counsel's law firm agrees that the law firm and its partners and/or shareholders are subject to the jurisdiction of the Court for the purpose of enforcing this paragraph 8 of the Stipulation. Without limitation, each such law firm and its partners and/or shareholders agree that the Court may, upon application of Defendants, summarily issue orders, including but not limited to, judgments and attachment orders, and may make appropriate findings of or sanctions for contempt, against them or any of them should such law firm fail timely to repay fees and expenses pursuant to this paragraph 8 of the Stipulation.


(III) ADMINISTRATION EXPENSES


9. Plaintiff's Counsel will apply to the Court, on notice to Defendants' Counsel, for an order (the "Class Distribution Order") approving the Claims Administrator's administrative determinations concerning the acceptance and


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17 rejection of the claims filed herein and approving the fees and expenses of the Claims Administrator, and, if the Effective Date has occurred, directing payment of the Net Settlement Fund to Authorized Claimants.


(IV) DISTRIBUTION TO AUTHORIZED CLAIMANTS


10. The Claims Administrator shall determine each Authorized Claimant's PRO RATA share of the "Net Settlement Fund" (the Gross Settlement Amount including interest net of Taxes and less all approved costs fees and expenses) based upon each Authorized Claimant's Recognized Claim as defined in the Plan of Allocation set forth in the Notice, or such other Plan of Allocation as is ultimately proposed by Plaintiff's Counsel and approved by the Court. Approval of the Plan of Allocation provided in the Notice annexed hereto is not a condition of this Settlement.


ADMINISTRATION OF THE SETTLEMENT


11. Any member of the Class who does not file a valid Proof of Claim will not be entitled to receive any of the proceeds from the Net Settlement Amount but will otherwise be bound by all of the terms of this Stipulation and the Settlement, including the terms of the Judgment to be entered in the Action and the releases provided for herein, and will be barred from bringing any action against the Released Persons concerning the Settled Claims.


12. Plaintiff's Counsel shall be responsible for supervising the administration of the Settlement and disbursement of the Net Settlement Fund by the Claims Administrator. Except for their obligation to pay the Settlement Amount, and to cooperate in the


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18 production of information with respect to the identification of class members from the company's shareholder transfer records, as provided herein, Defendants shall have no liability, obligation or responsibility for the administration of the Settlement or disbursement of the Gross or Net Settlement Fund. Plaintiff's Counsel shall have the right, but not the obligation, to waive what they deem ...