1
Exhibit 99.3
------------
AMENDED CAUTIONARY STATEMENT FOR PURPOSES
OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
From time to time, Cyrk, Inc. (the "Company") may provide forward-looking
information such as forecasts of expected future performance or statements about
the Company's plans and objectives. This information may be contained in filings
with the Securities and Exchange Commission, press releases or oral statements
by the officers of the Company. The Company desires to take advantage of the
"Safe Harbor" provisions of the Private Securities Litigation Reform Act of 1995
and is including this Exhibit 99.3 in its Form 10-K in order to do so.
The Company wishes to caution readers that the following important factors,
among others, in some cases have affected, and in the future could affect, the
Company's actual results and could cause the Company's actual consolidated
results for the Company's current quarter and beyond to differ materially from
those expressed in any forward-looking statements made by, or on behalf of, the
Company.
DEPENDENCE ON PRINCIPAL CUSTOMERS
In recent years, the Company's business has been heavily dependent on purchases
of promotional products by certain key customers including, but not limited to,
Philip Morris Incorporated ("Philip Morris") and the Pepsi-Cola Company
("Pepsi"). Additionally, the business of the Company's recently acquired
subsidiary, Simon Marketing, Inc. ("Simon"), is heavily dependent on purchases
of promotional products and services by McDonald's Corporation or its
franchisees ("McDonald's") for which it receives an annual fee. The loss of any
of these customers or a significant reduction in their level of purchases from
the Company without an offsetting increase in purchases by new or other existing
customers would have a material adverse effect on the Company's business and
results of operations. The Company's agreements with Pepsi were terminated in
December of 1997 and the Company expects the volume of its business with Pepsi,
in the future, to be minimal in comparison to that of 1996 and 1997.
LIMITED CUSTOMER COMMITMENTS
As is generally the case with its other promotional product customers, the
Company's agreements with Philip Morris and McDonald's do not require them to
make a certain level of purchases. Instead, purchase commitments are represented
by purchase orders placed by the customers from time to time during the course
of a promotion. The actual level of purchases by Philip Morris and McDonald's
(and other promotional products customers) depends on a number of factors,
including the duration of the promotion and consumer redemption rates. Purchase
orders are generally subject to cancellation with limited penalty. Consequently,
the Company's level of net sales is difficult to predict accurately and can
fluctuate greatly from quarter to quarter.
COMPETITION
Philip Morris and certain other customers seek competitive bids for their
promotional programs. The Company's profit margin depends, to a great extent, on
its competitive position when bidding and its ability to continually lower its
product costs after being awarded bids. Competition is expected to increase and
thus adversely impact the Company's profit margin in the future.
INTEGRATION OF NEW SUBSIDIARIES
The successful integration of the operations of the Company's new subsidiaries,
Simon, which was acquired on June 9, 1997, and Tonkin, Inc. ("Tonkin"), which
was acquired on April 7, 1997, with those of the Company will require, among
other things, the coordination of the respective product and promotional
offerings of the Company, Simon and Tonkin related sales, marketing, development
and administrative activities. There can be no assurance that the
2
Company will not encounter unexpected difficulties in such integration or that
the expected benefits of the business combination will be realized. Any
unexpected delays or costs incurred in such integration could have a materially
adverse effect upon the Company.
EFFECT OF INDUSTRY CONDITIONS FACING THE COMPANY'S CUSTOMERS
The Company's business is heavily dependent on the promotional budgets of its
customers, which in turn are influenced by industry conditions and other
factors. Accordingly, industry conditions faced by Philip Morris in particular
and conditions in the tobacco industry in general are expected to impact the
Company's business. There can be no assurance that these conditions will not
lead to a reduction in advertising and promotional spending by Philip Morris, or
that Philip Morris will not change its advertising and promotional strategy in a
manner that reduces the use of promotional programs such as the Marlboro
Adventure Team, Country Store and Unlimited promotions. A significant reduction
in spending by Philip Morris on promotional product programs would have a
material adverse effect on the Company's business and results of operations.
The United States Food and Drug Administration (the "FDA") has issued final
regulations with respect to promotional programs relating to tobacco products.
Such regulations, among other things, ban (i) gifts based on proof of purchase
of tobacco products or redeemable coupons, (ii) the use of tobacco brand names
or any other indices of tobacco brand identification on non-tobacco products
(e.g. T-shirts, hats, other clothing, gym bags and trinkets) and (iii)
brand-name sponsorship of sporting events, concerts and other events. These
regulations became effective on August 28, 1997, except for the ban on
brand-name sponsorship, which becomes effective August 28, 1998. In April 1997,
a federal district court in North Carolina ruled that the FDA did not have the
authority to restrict the use of tobacco brand identification on promotional
items and struck down this section of the regulations. This decision has been
appealed to the Fourth Circuit and, if it is overturned, these regulations could
have a material and adverse effect on the Company's sales to Philip Morris,
which in turn will have a material adverse effect on the Company's business and
results of operations.
Recently, certain tobacco companies, including Philip Morris, have been
negotiating with the state attorneys general and public health advocates to
settle pending and future litigation against these companies. The settlement
which is currently proposed would include a ban on promotional programs relating
to tobacco products. Even if the FDA regulations are not upheld, if such a
settlement is reached, it could have a material and adverse effect on the
Company's sales to Philip Morris, which in turn could have a material adverse
effect on the Company's business and results of operations.
PROMOTIONAL PRODUCT DEMAND
The Company's business is driven by spending by companies to promote their
corporate identities and brand name products. If the demand for brand name
products diminishes or if the companies decrease their use of promotional
product programs to promote their corporate identities and brands, the Company's
business could be materially and adversely affected. In addition, the Company's
relationship with certain of its promotional products customers has been limited
to the sourcing of products being offered or sold by the customer in connection
with a single promotional program. There can be no assurance that such customers
will continue to use the Company to source products for future promotional
programs.
DEPENDENCE ON FOREIGN MANUFACTURING
The majority of the Company's net sales in recent years were attributable to
products manufactured by subcontractors located in Asia. The Company has no
long-term contracts with these manufacturing sources and often competes with
other companies for production facilities and import quota capacity. In
addition, certain Asian manufactures require that a letter of credit be posted
at the time a purchase order is placed. There can be no assurance that the
Company will continue to have the necessary credit facilities for the purpose of
posting such letters of credit. The Company's business is subject to the 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 economic conditions in
countries in which the Company'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 the Company's current foreign manufacturing
sources were to cease doing business with the Company for any reason, the
Company's business and operating results could be adversely affected.
3
IMPORTS AND IMPORT RESTRICTIONS
The importation of products manufactured in Asia is subject to the constraints
imposed by bilateral agreements between the United States and substantially all
of the countries from which the Company imports goods. These agreements impose
quotas that limit the quantity of certain types of goods, including textile
products imported by the Company, 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.
The Company'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 the Company 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. Any such increase could have a material adverse effect on the Company's
business.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on several key personnel, including Gregory P. Shlopak,
Chairman of the Board and Chief Executive Officer, Patrick D. Brady, President
and Chief Operating Officer and Allan Brown, Chief Executive Officer of Simon.
The loss of the services of any one of them could have a material adverse effect
on the Company. Neither Mr. Shlopak nor Mr. Brady is subject to an employment
contract with the Company. The Company's continued success is also dependent
upon its ability to retain and attract skilled design, marketing and management
personnel.
ACQUISITIONS AND STRATEGIC ALLIANCES
The Company expects to make acquisitions of other businesses which are
complementary to the Company's business or to enter into strategic alliances
with such businesses. There can be no assurance that such strategic alliances,
or any future acquisition or strategic alliance, will be completed or, if
completed, will result in long-term benefits to the Company. Further, if the
Company is not successful in its acquisition or strategic alliance endeavors,
the Company's operating results in the future may be adversely affected.
LITIGATION
A lack of success, or associated costs, in defending pending and potential
litigation involving the Company could adversely affect the Company's operating
results. Specifically, the Company has been named as a defendant in a putative
class action filed on October 18, 1995 in the United States District Court for
the Southern District of New York (BARRY HALLET, JR. V. LI & FUNG ET AL., Docket
No. 95 Civ. 8917) in which the plaintiff alleges that, in violation of the
securities laws, the Company and its officers made false and misleading
statements concerning the Company's stock. On March 4, 1998, the parties to this
litigation reached an agreement in principle to settle this case, although this
agreement is subject to the preparation of definitive settlement documents
mutually agreeable to the parties and preliminary and final approval, after
notice to class members, by the Federal District Court. Additionally, Simon is a
party to litigation in the United States District Court for the Central District
of California (SIMON V. PROMOTIONAL CONCEPT GROUP, INC., Case No. SA-CV 93-156
AHS (EEx)), whereby Simon filed a complaint on February 11, 1993 alleging
Promotional Concept Group, Inc. ("PCG") materially breached a contract between
Simon and PCG dated January 27, 1992 ("Contract"), under which Simon and PCG
engaged in a program designed to sell video cassette movies to supermarkets.
PCG, in turn, filed a counterclaim against Simon alleging, among other things,
wrongful termination and breach of the Contract. Simon and Interpublic Group
Inc., a corporate affiliate of PCG negotiating on behalf of itself and PCG, has
engaged in settlement discussions with Simon. At this time no acceptable
settlement proposal has emerged and the Company is unable to express an opinion
as to the outcome of either the settlement discussion or the litigation. If the
matter is not settled, trial will be to the court sitting without a jury, and is
currently set for July 21, 1998.