<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1997
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
STREAM INTERNATIONAL HOLDINGS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 7379 364003866
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
----------------
275 DAN ROAD,
CANTON, MASSACHUSETTS 02021
(617) 575-6800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
STEPHEN D.R. MOORE
STREAM INTERNATIONAL HOLDINGS INC.
275 DAN ROAD
CANTON, MASSACHUSETTS 02021
(617) 575-6800
FAX (617) 575-6973
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE AND FAX
NUMBERS, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
----------------
COPIES TO:
MARK G. BORDEN, ESQ. EDWIN L. MILLER, JR., ESQ.
HALE AND DORR LLP TESTA, HURWITZ & THIBEAULT, LLP
60 STATE STREET 125 HIGH STREET
BOSTON, MASSACHUSETTS 02109 BOSTON, MASSACHUSETTS 02110
(617) 526-6000 (617) 248-7000
FAX (617) 526-5000 FAX (617) 248-7100
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date hereof.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED AMOUNT
AMOUNT MAXIMUM MAXIMUM OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SHARE (1) OFFERING PRICE(1) FEE
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par
value per share....... $ $150,000,000 $45,455
</TABLE>
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- -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(a) under the Securities Act of 1933,
as amended.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
APRIL 30, 1997
Shares
[Stream logo]
Common Stock
--------
Of the shares of Common Stock offered hereby, are being sold by
Stream International Inc. ("Stream" or the "Company") and are being sold by
R.R. Donnelley & Sons Company ("R.R. Donnelley"), certain of its affiliates and
certain other stockholders of the Company (collectively, the "Selling
Stockholders"). The Company will not receive any proceeds from the sale of the
shares by the Selling Stockholders. Prior to this offering, there has been no
public market for the Common Stock of the Company. It is currently estimated
that the initial public offering price will be between $ and $ per share.
See "Underwriting" for the factors to be considered in determining the initial
public offering price. Application has been made for quotation of the Common
Stock on the Nasdaq National Market under the symbol "STRM."
Upon completion of this offering, R.R. Donnelley and certain of its
affiliates will own up to 39.9% of the outstanding Common Stock of the Company
(approximately % if the Underwriters' over-allotment option is exercised in
full). See "Principal and Selling Stockholders."
--------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING AT PAGE 6.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO DISCOUNTS AND TO SELLING
PUBLIC COMMISSIONS COMPANY (1) STOCKHOLDERS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share........................ $ $ $ $
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Total (2)........................ $ $ $ $
</TABLE>
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- --------------------------------------------------------------------------------
(1) Before deducting expenses of the offering payable by the Company, estimated
at $ .
(2) R.R. Donnelley and certain of its affiliates have granted the Underwriters
a 30-day option to purchase up to additional shares of Common Stock
solely to cover over-allotments, if any. To the extent that the option is
exercised, the Underwriters will offer the additional shares at the Price
to Public shown above. If the option is exercised in full, the total Price
to Public, Underwriting Discounts and Commissions, Proceeds to Company and
Proceeds to Selling Stockholders will be $ , $ , $ and $ ,
respectively. See "Underwriting."
--------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject
to the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made at the
offices of Alex. Brown & Sons Incorporated, Baltimore, Maryland, on or about
, 1997.
Joint Lead Managers
Alex. Brown & Sons
INCORPORATED
Lehman Brothers
--------
J.P. Morgan & Co.
Salomon Brothers Inc
Smith Barney Inc.
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE>
[INSIDE COVER PAGE OF PROSPECTUS]
[LEFT PANEL]
TOP LEFT OF PANEL: PHOTOGRAPH OF A GLOBE SHOWING NORTH AMERICA
TOP RIGHT OF PANEL: "TECHNICAL SUPPORT SERVICES"
MIDDLE RIGHT OF PANEL: PARAGRAPH WRITTEN IN ORANGE LETTERING "STREAM
CURRENTLY HANDLES CALLS FROM MORE THAN 4,400 WORKSTATIONS IN TEN CALL CENTERS
IN THE UNITED STATES, GERMANY, FRANCE, THE UNITED KINGDOM AND THE
NETHERLANDS." PARAGRAPH WRITTEN IN BLUE LETTERING "STREAM HAS PURSUED A
STRATEGY OF GEOGRAPHIC EXPANSION, WITH FIVE CALL CENTERS IN EUROPE, A JOINT
VENTURE IN JAPAN AND SUPPORT CAPABILITIES IN ELEVEN LANGUAGES."
BOTTOM OF PANEL: GRAPHICAL IMAGE OF WORLD MAP INDICATING LOCATIONS OF STREAM
CALL CENTERS
[MIDDLE PANEL]
TOP CENTER: PARAGRAPH IN BLUE LETTERING "STREAM PROVIDES TECHNICAL SUPPORT
SERVICES VIA TELEPHONE, E-MAIL AND THE INTERNET PRIMARILY TO THE CUSTOMERS OF
SOFTWARE PUBLISHERS, HARDWARE MANUFACTURERS AND ONLINE SERVICE PROVIDERS."
TOP CENTER: "MARKET FOCUS AND CUSTOMER SERVICES"
MIDDLE UPPER LEFT OF PANEL: PHOTOGRAPH OF THE LEFT SIDE OF A COMPUTER
MONITOR
MIDDLE UPPER RIGHT OF PANEL: PHOTOGRAPH OF THE RIGHT SIDE OF A COMPUTER
MONITOR DISPLAYING A GRAPH
MIDDLE LOWER LEFT OF PANEL: PHOTOGRAPH OF COMPUTER HARDWARE
MIDDLE OF LOWER RIGHT OF PANEL: PHOTOGRAPH OF COMPUTER HARDWARE
BOTTOM OF PANEL: FOUR PARAGRAPHS ALIGNED SIDE-BY-SIDE ENTITLED: "SOFTWARE
PUBLISHER," "HARDWARE MANUFACTURER," "ONLINE SERVICE PROVIDER," AND "CORPORATE
HELP DESK. "THE FOLLOWING PARAGRAPH FOLLOWS THE HEADING: "SOFTWARE PUBLISHER,"
"STREAM SUPPORT SERVICES ADDRESS OPERATING ENVIRONMENTS, APPLICATIONS,
DATABASES, COMMUNICATION AND NETWORK TOOLS, AND SYSTEM TOOLS." THE FOLLOWING
PARAGRAPH FOLLOWS THE HEADING "HARDWARE MANUFACTURER:" STREAM PROVIDES SUPPORT
FOR A VARIETY OF HARDWARE PRODUCTS, INCLUDING PCS, PERIPHERALS, REMOTE ACCESS
SERVERS AND HANDHELD COMPUTERS, AS WELL AS THEIR ASSOCIATED SOFTWARE
APPLICATIONS. THE FOLLOWING PARAGRAPH FOLLOWS THE HEADING "ONLINE SERVICE
PROVIDER:" "STREAM SUPPORTS INTERNET AND INTRANET PRODUCTS THROUGH TELEPHONE
AND E-MAIL.THE FOLLOWING PARAGRAPH FOLLOWS THE HEADING "CORPORATE HELP DESK:"
"STREAM SUPPORTS LARGE CORPORATIONS THAT OUTSOURCE HARDWARE AND SOFTWARE HELP
DESK SUPPORT TO THIRD PARTIES."
[RIGHT PANEL]
TOP MIDDLE PANEL: PARAGRAPH IN BLUE LETTERING "STREAM IS A LEADING PROVIDER
OF OUTSOURCE TECHNICAL SUPPORT SERVICES. ITS SCALE OF OPERATIONS AND
INFRASTRUCTURE ALLOW IT TO IMPLEMENT SUPPORT FOR THE GROWING INFORMATION
TECHNOLOGY INDUSTRY."
RIGHT MIDDLE PANEL: "TECHNICAL SUPPORT SPECIALISTS"
LEFT CENTER OF PANEL: PHOTOGRAPH OF STREAM TRAINING SESSION IN PROGRESS AND
ORANGE INDICATOR WITH ORANGE LETTERING "ONGOING SERVICE AGENT TRAINING"
MIDDLE OF PANEL: PHOTOGRAPH OF STREAM SERVICE AGENT AT A WORKSTATION
HANDLING A TELEPHONE SUPPORT REQUEST AND ORANGE INDICATOR WITH ORANGE
LETTERING "WELL-TRAINED SERVICE PROFESSIONALS." PHOTOGRAPH OF COMPUTER MONITOR
AND PHOTOGRAPH OF MAN MONITORING COMPUTER EQUIPMENT WITH ORANGE INDICATOR AND
ORANGE LETTERING "FOCUS ON TECHNOLOGY AND TECHNICAL SUPPORT."
BOTTOM OF PANEL: ORANGE LETTERING "STREAM'S SERVICE AGENTS ANSWER QUESTIONS,
DIAGNOSE PROBLEMS AND RESOLVE TECHNICAL DIFFICULTIES, RANGING FROM SIMPLE
ERROR MESSAGES TO WIDE AREA NETWORK FAILURES."
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SUCH TRANSACTIONS MAY INCLUDE THE PURCHASE OF SHARES OF COMMON STOCK FOLLOWING
THE PRICING OF THE OFFERING TO COVER A SYNDICATE SHORT POSITION IN THE COMMON
STOCK OR FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE COMMON STOCK, AND THE
IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements and the notes thereto
appearing elsewhere in this Prospectus.
THE COMPANY
Stream is a leading worldwide provider of outsource technical support
services. The Company provides support services via the telephone, e-mail and
the Internet primarily to customers of leading software publishers, hardware
manufacturers and online service providers. The Company's service agents answer
questions, diagnose problems and resolve technical difficulties, ranging from
simple error messages to wide area network failures. The Company employs more
than 4,300 service agents, who resolve inquiries in 11 languages at ten call
centers located in the U.S., Germany, France, the U.K. and the Netherlands. By
focusing on technical support, a more complex activity than traditional
teleservices, Stream believes that it is able to differentiate itself from its
competitors and provide its clients with high quality service and a cost-
effective solution to their technical support needs.
Stream's clients include software publishers such as Microsoft, Netscape,
SunSoft and Symantec; hardware manufacturers such as Apple Computer and
Hewlett-Packard; and online service providers such as CompuServe, The Microsoft
Network and Sprint. The Company also provides support for companies in emerging
market segments such as online financial services and interactive video
services. In addition, the Company provides corporate help desk services to
major corporations, including Norell Services and Shell. The Company has
recently begun to offer its services directly to end users in the consumer/SOHO
market. Stream's corporate client base has grown from three clients in 1992 to
137 clients as of February 1, 1997, and the Company currently supports over 70
products for its top ten clients.
The Company's commitment to quality service has been critical to its ability
to establish and maintain client relationships. The Company has won numerous
awards for its services, including Software Support Professionals Association
Star Awards for Software Technical Assistance for the last four years and
EuroChannel's Innovator Award in 1996. The Company was also recently given
special recognition by Microsoft for Excellence in Client Satisfaction. The
Company's ability to provide high quality service is enhanced by its advanced
technologies and systems, including automatic call distributors, computer
telephony integration, call tracking software and relational database
information systems. In addition, Stream utilizes sophisticated in-house and
client database technology to capture and utilize information gathered from the
millions of support requests it receives annually. Because of the complex
nature of its services, Stream believes a key component of its success is its
ability to attract, retain and manage a well-trained and stable work force. The
Company employs experts in numerous products and platforms, ranging from
advanced programming languages such as C++, JAVA and VisualBasic to common
desktop applications.
Growing product complexity, shorter product life cycles and an increasing
number of products and multi-vendor computer and network configurations have
increased the demand for technical support services. At the same time, software
publishers, hardware manufacturers, online service providers and other
organizations are finding it increasingly difficult and expensive to service
all their needs in-house. Technical support is especially challenging to
undertake as a non-core function because of the need for ongoing
capital investment in specialized equipment, the attendant workforce management
challenge and the inherent need for scale. As a result, companies are
increasingly outsourcing these services to third-party providers as part of an
overall effort to focus internal resources on core competencies, improve
operating efficiencies and reduce costs. Dataquest estimates that outsource
technical support services provided by third parties to software publishers,
hardware manufacturers and online service providers totaled approximately $2
billion in 1996. In addition, corporations are increasingly seeking to
outsource their internal help desk functions. The Gartner Group predicts that
more than 40% of companies with internal help desks will outsource a portion of
this function by 1998, compared to 15% in 1995.
3
<PAGE>
The Company believes it is well-positioned to capitalize on the accelerating
trend toward outsourcing technical support services. Key elements of the
Company's growth strategy include: (i) expanding relationships with existing
clients as they develop new products and continue to outsource technical
support activity, (ii) establishing new client relationships, especially in the
corporate help desk market, (iii) capitalizing on the growth of technology-
enabled products as companies increasingly incorporate technology into products
and services and (iv) pursuing strategic alliances and acquisitions.
THE REORGANIZATION
The Company's outsource technical support business began in 1992 as a unit of
Corporate Software Incorporated ("CSI"), which sold and licensed software
products and services to major corporations (to be known as "Corporate Software
& Technology" or the "Corporate Software & Technology Business" after this
offering). CSI established its technical support business unit in response to
demands from key clients that were increasingly seeking to outsource technical
support. In December 1993, Software Holdings, Inc. ("SHI"), which was organized
by members of management of CSI, certain affiliates of Bain Capital, Inc.
("Bain") and certain other investors, purchased CSI from its public
stockholders. In 1995, CSI and the Global Software Services Division (to be
known as "Modus Media International" or the "MMI Business" after this offering)
of R.R. Donnelley combined to form the Stream family of companies (the "CSI-MMI
Merger"). Modus Media International is a leading provider of outsource
manufacturing services to major software publishers and OEMs.
Prior to the closing of this offering, the Company will effect a
reorganization (the "Reorganization") pursuant to which the Company will (i)
contribute to two wholly-owned subsidiaries (the "Spin-Off Subsidiaries") its
Corporate Software & Technology Business and MMI Business, (ii) contribute to
PLEX LLC ("PLEX"), a limited liability company wholly-owned by the Company, the
capital stock of the Spin-Off Subsidiaries and (iii) distribute to the
Company's stockholders all of the equity interests in PLEX (the "Spin-Off
Distribution"). Accordingly, upon consummation of the Reorganization, the only
business conducted by the Company will be the outsource technical support
business. The consummation of the Reorganization is a condition to the closing
of this offering. Purchasers of Common Stock in this offering will not receive
any part of the Spin-Off Distribution.
R.R. Donnelley and certain of its affiliates, who are Selling Stockholders in
this offering, own approximately % of the outstanding Common Stock of the
Company. Upon the closing of this offering, R.R. Donnelley and its affiliates
will own up to 39.9% of the outstanding Common Stock of the Company ( % if
the Underwriters' over-allotment option is exercised in full). R.R. Donnelley
has agreed that for a period of three years following the closing of this
offering it will not purchase any additional shares of Common Stock that would
result in it and its affiliates owning over 49.9% of the Company's outstanding
Common Stock. See "Certain Transactions" and "The Reorganization."
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company............. shares
Common Stock offered by the Selling Stockhold-
ers............................................ shares
Common Stock to be outstanding after the offer-
ing............................................ shares (1)
Use of proceeds................................. Repayment of certain indebtedness to
R.R. Donnelley, capital expenditures,
working capital, potential acquisitions
and general corporate purposes
Proposed Nasdaq National Market symbol.......... STRM
</TABLE>
- --------
(1) Excludes options to purchase shares of Common Stock outstanding as of
March 1, 1997. The Company plans upon the closing of this offering to grant
options to employees for approximately shares of Common Stock at an
exercise price equal to the initial public offering price.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1992 1993 1994 1995 1996
------ ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA (1):
Revenues............................ $2,842 $14,074 $37,388 $78,243 $155,498
Cost of services.................... 1,560 9,905 22,891 57,338 117,309
Selling, general and administrative
expenses........................... 872 3,661 10,646 23,994 39,110
Nonrecurring charges (2)............ -- -- -- -- 4,500
Income (loss) from operations....... 410 508 3,851 (3,089) (5,421)
Income (loss) from operations
excluding nonrecurring charges..... 410 508 3,851 (3,089) (921)
Net income (loss)................... 227 284 2,127 (2,272) (4,685)
Pro forma net income (loss) per com-
mon
share (3).......................... $ $ $ $ $
Pro forma weighted average common
shares outstanding (3).............
OPERATING DATA (AT PERIOD END):
Call centers........................ 1 5 6 10 11
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA (4) AS ADJUSTED (5)
------- ------------- ---------------
<S> <C> <C> <C>
BALANCE SHEET DATA (1):
Cash and cash equivalents............... $ 1,142 $ $
Working capital......................... 19,910
Total assets............................ 76,987
Long-term obligations, net of current
portion................................ 3,952
Total stockholders' equity.............. 52,663
</TABLE>
- --------
(1) Gives effect to the Reorganization. The historical consolidated financial
data may not be indicative of the Company's future performance and do not
necessarily reflect what the financial position and results of operations
of the Company would have been had the Company operated as a separate,
stand-alone entity during the periods covered.
(2) During the fiscal year ended December 31, 1996, the Company recorded a pre-
tax charge of $4.5 million associated with the consolidation of certain
European facilities, recruitment of certain members of management and
establishment of new compensation and benefit plans. See Note 5 of Notes to
Consolidated Financial Statements.
(3) Gives effect to (i) the automatic conversion of all outstanding shares of
Class B Common Stock into shares of Class A Common Stock, and the
reclassification of all shares of Class A Common Stock as Common Stock,
upon the closing of this offering, (ii) a one-for reverse stock split of
the Company's Common Stock effective prior to the closing of this offering
and (iii) the exercise in full of the Incentive Option described below.
(4) Reflects the Company's assumption of approximately $50 million of
indebtedness to R.R. Donnelley and the exercise in full of the Incentive
Option.
(5) Adjusted to give effect to the receipt and application by the Company of
the estimated net proceeds to the Company from the sale of shares in this
offering based upon an assumed initial public offering price of $ per
share. See "Use of Proceeds."
--------
Unless otherwise indicated, all information in this Prospectus assumes and
gives effect to: (i) the consummation of the Reorganization prior to the
closing of this offering, (ii) the automatic conversion of all outstanding
shares of Class B-V Common Stock and Class B-N Common Stock (collectively,
"Class B Common Stock") into shares of Class A Common Stock, and the
reclassification of all shares of Class A Common Stock as Common Stock, upon
the closing of this offering, (iii) a one-for- reverse stock split of the
Company's Common Stock effective prior to the closing of this offering, (iv)
the issuance by the Company prior to the closing of this offering of shares
of Common Stock to certain stockholders of the Company upon their exercise of
the Incentive Option granted to them in connection with the CSI-MMI Merger (the
"Incentive Option") and (v) no exercise of the Underwriters' over-allotment
option. See "Certain Transactions," "The Reorganization" and "Underwriting."
5
<PAGE>
RISK FACTORS
This Prospectus contains certain forward-looking statements that involve
substantial known and unknown risks and uncertainties. When used in this
Prospectus, the terms "anticipates," "expects," "estimates," "believes" and
similar terms as they relate to the Company or its management are intended to
identify such forward-looking statements. The Company's actual results,
performance or achievements may differ materially from those expressed or
implied by such forward-looking statements. In addition to the other
information presented in this Prospectus, the following factors should be
considered carefully in evaluating an investment in the shares of Common Stock
offered by this Prospectus.
Dependence on Key Clients. An aggregate of approximately 40%, 57% and 73% of
the Company's revenues in 1996, 1995 and 1994, respectively, were attributable
to Microsoft Corporation ("Microsoft"), including The Microsoft Network
("MSN"). In addition, approximately 13%, 12% and 12% of the Company's revenues
in 1996 were attributable to Hewlett-Packard Company, Incorporated ("Hewlett-
Packard"), Compaq Computer Corporation ("Compaq") and CompuServe Incorporated
("CompuServe"), respectively; the Company expects that its revenues from
certain of these clients will decline in 1997. The Company's ten largest
clients accounted for approximately 92% of the Company's revenues in 1996.
The Company's agreements with key clients have limited terms, typically one
year, and there can be no assurance that the Company's clients will renew or
extend their current agreements. In addition, the Company's clients typically
utilize additional technical support providers and retain broad discretion
over the ongoing allocation of support requests among such providers. The loss
of, or the failure to retain a significant amount of business with, any key
client could have a material adverse effect on the Company. In addition, many
of the Company's agreements with its key clients generate revenues based on
the number of support requests received by the Company or the time spent on
such requests. Consequently, the amount of revenues generated from a client is
generally dependent upon consumers' use of the client's products and the
support needs of such products. With respect to client agreements that provide
for pricing on a per-call basis, the Company's profitability may be adversely
affected if the Company receives fewer support requests than anticipated or
the time spent in resolving inquiries is greater than anticipated.
The Company's agreements with key clients provide that, in the event the
Company fails to meet specified performance criteria, the clients can
terminate the agreements on short notice. Any failure by the Company to meet
performance requirements or a cancellation of, or decrease in, the services
requested by a key client could have a material adverse effect on the Company.
In addition, the Company may be required to rapidly expand its operations to
meet the demands of its clients. Such rapid changes to the size of the
Company's operations and employee base could involve significant costs,
including costs associated with employee hiring and training, the purchase of
additional workstations, equipment and technology and the establishment of
additional call centers. Certain client agreements also provide that specified
information obtained by the Company as a result of support requests is the
property of the client, and therefore, upon the termination of any such client
relationship, the Company will be required to discontinue use of such
information. There can be no assurance that such contract terms will not have
a material adverse effect on the Company. See "Business--Clients."
History of Operating Losses. The Company has incurred operating losses in
each of the last two fiscal years. At December 31, 1996, the Company's
accumulated deficit was approximately $4.3 million. In order to achieve
profitability, the Company must continue to successfully market and sell its
support services to major clients, improve operating efficiencies and
otherwise manage costs, including costs associated with future growth. There
can be no assurance the Company will achieve profitability in 1997, if at all.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
Competition. The industry in which the Company competes is extremely
competitive and highly fragmented. The Company believes many of its clients
purchase technical support services primarily from
6
<PAGE>
a limited number of preferred vendors. The Company's competitors include
corporations that may possess greater resources, greater name recognition and
a more established client base than the Company. The Company believes its
principal competitors are currently National TechTeam, Inc. ("National
TechTeam"), SITEL Corporation ("SITEL"), Sykes Enterprises, Incorporated
("Sykes") and TeleTech Holdings, Inc. ("TeleTech"). In addition, the Company
competes with the internal technical support divisions of organizations that
provide technical support through in-house personnel. As a result of this
competition, client agreements may be subject to pricing pressure, and
competition for contracts for certain of the Company's services may take the
form of competitive bidding in response to requests for proposals. In
addition, clients may require vendors to provide services in multiple
locations and meet client volume and satisfaction thresholds. Such pricing
pressures and contract terms could have a material adverse effect on the
Company. There can be no assurance that the Company will be able to compete
effectively with existing or future competitors or in-house technical support
operations. See "Business--Competition."
Ability to Manage Growth. The Company has significantly expanded its
operations since it began providing outsource technical support services in
1992. Since 1992, the number of call centers has increased from one to ten,
and since 1994, the number of employees, including temporary and part-time
employees, of the Company has grown from approximately 1,300 to over 4,700.
This expansion has placed significant demands on the Company's operational,
administrative and financial resources, and any continued growth may place
additional significant strain on its resources. The Company's future
performance and profitability will depend in part on its ability to
successfully attract and retain qualified management personnel to manage the
growth and operations of the Company's business as well as its ability to hire
a significant number of additional service agents as required. In addition,
the Company anticipates that it will add workstation capacity in both the
United States and Europe in 1997. The failure to establish additional
workstations, call centers or other facilities as needed in a timely and cost-
effective manner could have a material adverse effect on the Company. There
can be no assurance that the Company will have sufficient resources or
otherwise be able to maintain its historic rate of growth. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business--Operations and Quality Assurance," "Business--Facilities,"
"Business--Employees" and "Management."
Ownership by R.R. Donnelley. R.R. Donnelley and certain of its affiliates,
who are Selling Stockholders in this offering, own approximately % of the
outstanding Common Stock of the Company. Upon the closing of this offering,
R.R. Donnelley and its affiliates will own up to 39.9% of the outstanding
Common Stock of the Company ( % if the Underwriters' over-allotment option
is exercised in full). As a result, R.R. Donnelley will have significant
influence over the outcome of corporate actions requiring stockholder
approval, including the election of directors of the Company. In addition,
upon the closing of this offering one member of the Board of Directors of the
Company will be designated by R.R. Donnelley. The significant ownership
interest of R.R. Donnelley may discourage certain types of transactions
involving an actual or potential change of control of the Company, including
transactions in which the holders of the Company's Common Stock might receive
a premium for their shares over the prevailing market price of the Common
Stock.
Risks Relating to the Reorganization. The Company has historically depended
on the businesses being transferred to the Spin-Off Subsidiaries and on R.R.
Donnelley for certain financial, tax, insurance, payroll, employee benefits,
information technology and other services. In connection with the
Reorganization, the Company will enter into agreements with the Spin-Off
Subsidiaries (collectively, the "Transitional Service Agreements") for the
continued provision after the Reorganization of certain services formerly
shared among such entities or provided by R.R. Donnelley. Pursuant to the
Transitional Service Agreements, the Company will receive from the Spin-Off
Subsidiaries certain financial, tax, insurance, payroll, employee benefits,
information technology and other services, and the Company will provide to the
Spin-Off Subsidiaries certain legal services, outsource technical support for
certain clients of the Spin-Off Subsidiaries and information technology
services. Each party to the Transitional Service Agreements is generally
prohibited from hiring the employees of the other party and from using or
disclosing the other
7
<PAGE>
party's confidential information other than in connection with the performance
of its obligations under such agreements.
The Transitional Service Agreements terminate on the one-year anniversary of
the closing of this offering, provided that the party receiving the services
may terminate the agreement with respect to some or all of such services upon
90 days' notice at any time after , 1997. After such termination, the
Company will be required to provide such services internally or find a third-
party provider of such services. There can be no assurance that the Company
will be able to secure the provision of such services on acceptable terms, and
the failure to do so could have a material adverse effect on the Company. The
Company's historical financial statements reflect an allocation of expenses in
connection with the services covered by the Transitional Service Agreements.
The Company has incurred, and anticipates incurring in the future, higher
payroll costs associated with the hiring of additional personnel and the
addition of certain officers, which costs were previously allocated in part to
the businesses being transferred to the Spin-Off Subsidiaries. In addition,
certain of the Company's services have been sold to corporate accounts on a
bundled basis with software provided by the businesses being contributed to
the Spin-Off Subsidiaries. There can be no assurance that the Company will not
encounter difficulties in achieving sales of such services through its own
sales agents and without being bundled with such software. In addition, the
Company's reputation and the goodwill associated with its name could be
materially adversely affected by the actions and reputation of the Spin-Off
Subsidiaries, the businesses of which, until the Reorganization, will operate
as units of Stream and, in some cases, under the "Stream" name.
The Spin-Off Subsidiaries are currently wholly owned by the Company.
Following the Reorganization approximately 48.0% of the outstanding capital
stock of each of the Spin-Off Subsidiaries will be indirectly owned (through
ownership interests in PLEX) by R.R. Donnelley and its affiliates. None of the
agreements to be entered into by the Company with the Spin-Off Subsidiaries
resulted from "arm's length" negotiations. In addition, the Company did not
retain separate counsel from that retained by the Spin-Off Subsidiaries in
negotiating such agreements. The Company believes, however, that the terms of
the Transitional Service Agreements are on a basis at least as favorable to
the Company as those that would have been obtained from third parties on an
arm's length basis and that they will be adequate to allow the Company to
continue its business as previously conducted on an independent basis. These
agreements may be modified in the future and additional arrangements may be
entered into between the Company, the Spin-Off Subsidiaries and R.R.
Donnelley. The Company intends that, insofar as a determination can
objectively be made, each future agreement or transaction between the Company
and any affiliated parties (including the Spin-Off Subsidiaries and R.R.
Donnelley) will be on terms at least as favorable to the Company as could be
obtained from unaffiliated parties for comparable services or arrangements.
In connection with the Reorganization, the Company will contribute to the
Spin-Off Subsidiaries its Corporate Software & Technology Business and MMI
Business and their related assets and liabilities. In addition, all of the
indebtedness of the Company to R.R. Donnelley prior to the Reorganization,
other than approximately $50 million, will be retained by PLEX, and R.R.
Donnelley will release the Company from such indebtedness retained by PLEX.
Each Spin-Off Subsidiary will indemnify the Company from and against the
respective liabilities assumed by it in the Reorganization, and R.R. Donnelley
will indemnify the Company for three years following this offering against any
such assumed liabilities not paid by such entities (up to an aggregate of $100
million). The Company will, however, generally remain contingently liable for
all such assumed liabilities. There can be no assurance that claims relating
to such liabilities will not be asserted against the Company or that, if any
such claim is successfully asserted, the Company will be able to collect any
indemnified amounts from the Spin-Off Subsidiaries or R.R. Donnelley. Any
failure to do so could have a material adverse effect on the Company.
Until the expiration of the applicable statutes of limitations, R.R.
Donnelley has agreed to indemnify the Company in respect of any tax payable by
the Company with respect to (i) any gain realized by the Company as a result
of the Reorganization or the Spin-Off Distribution, which is not intended to
be tax-
8
<PAGE>
free to the stockholders of the Company or to the Company, and (ii) any other
income tax liabilities of the Company relating to the Spin-Off Subsidiaries'
businesses, to the extent that such taxes and/or liabilities in the aggregate
exceed the value of the net operating loss carryforwards, if any, retained by
the Company. The Company will, however, remain contingently liable for all
such taxes and liabilities, and there can be no assurance any indemnified
amounts will be collected from R.R. Donnelley. See "The Reorganization."
Fluctuations in Quarterly Operating Results. The Company could experience
quarterly variations in revenues and operating income as a result of many
factors, including the introduction of new products, platforms, or
technologies by clients or potential clients, the introduction of new services
by the Company, actions taken by competitors, the timing of the establishment
or termination of client agreements, the allocation of support requests by
clients among various support providers, the timing of additional selling,
general and administrative expenses incurred to acquire and support new or
additional business and changes in the Company's revenue mix among its various
service offerings. For example, the Company's revenues in the fourth quarter
of fiscal 1995 and 1996 increased in part due to the seasonally higher volume
of calls attributable to its hardware manufacturer clients. Many of the
factors that could cause such variations are outside of the control of the
Company. In connection with certain contracts, the Company could incur costs
in periods prior to recognizing revenues under those contracts. The Company
must plan its operating expenditures based on revenue forecasts, and a revenue
shortfall below such forecasts in any quarter would likely adversely affect
the Company's operating results for that quarter. The Company's revenues may
be difficult to forecast because the Company's sales cycle is relatively long
and may depend on factors such as the size and scope of assignments, the
degree of penetration of clients' new products and general economic
conditions. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Attraction and Retention of Employees and Key Executives. The Company's
business involves the delivery of professional services and is highly labor-
intensive. The Company's growth and success depend largely upon its ability to
attract, develop, motivate and retain highly skilled technical employees. The
Company's industry is characterized by high personnel turnover. In addition,
qualified technical employees are in great demand and are likely to remain a
limited resource for the foreseeable future. There can be no assurance that
the Company will be able to attract and retain sufficient numbers of highly
skilled technical employees in the future. The inability to hire and retain
technical personnel could have a material adverse effect on the Company,
including its ability to secure client arrangements and meet client demands.
In addition, a significant portion of the Company's costs consist of wages to
hourly workers. An increase in hourly wages, costs of employee benefits or
employment taxes could have a material adverse effect on the Company. The
success of the Company is also partially dependent upon the efforts, direction
and guidance of its key executives. Other than Mr. Moore and Ms. Salerno, who
are expected to enter into employment agreements prior to the closing of this
offering, none of the Company's key executives are subject to employment
agreements, and the Company carries no key person life insurance. The loss of
any of the Company's key executives or its inability to attract and retain key
executives in the future could have a material adverse effect on the Company.
See "Business--Operations and Quality Assurance," "Business--Employees" and
"Management."
Risks Relating to International Operations. A portion of the Company's
operations are conducted outside the U.S., and the Company intends to further
expand its international operations. Currently, the Company operates five call
centers in Europe, has approximately 470 permanent and 60 temporary full-time
employees outside of the U.S., participates in a joint venture in Japan and
sells its services to clients in seven countries. In 1996, revenues from the
Company's services outside the U.S. totaled approximately $21 million,
representing 13% of the Company's total revenues. International revenues have
increased in absolute dollars and as a percentage of revenues in each year
since 1993, and the Company anticipates that international revenues will
continue to account for an increasing percentage of its total revenues.
The Company may encounter difficulties in marketing, selling and delivering
its services outside
9
<PAGE>
of the U.S. due to differences in cultures, languages and employment policies
and differing political, social and economic systems. The Company is subject
to risks associated with international operations and sales, including changes
in foreign regulatory requirements, devaluations of currency and fluctuations
in currency exchange rates, trade barriers and political and economic
instability. Such risks could have a material adverse effect on the Company.
See "Business--International Operations."
Dependence on Growth of Outsource Technical Support Services Market. The
Company derives all of its revenues from the sale of outsource technical
support services. Accordingly, the Company's business and growth depend in
large part on the industry trend toward outsourcing technical support
services, an increasing number of products requiring support and an increasing
demand for support services by corporations and individual end users. There
can be no assurance that these trends will continue, as organizations may
elect to perform such services in-house or the demand for support services may
not continue to increase. A significant change in the direction of these
trends could have a material adverse effect on the Company. See "Business--
Industry Background" and "Business--Competition."
Risk of Emergency Interruption of Call Center Operations. The Company's
business is highly dependent on its computer and telecommunications equipment
and software systems. The Company has taken precautions to protect itself and
its clients from events that could interrupt delivery of the Company's
services. These precautions include off-site storage of backup data, fire
protection, physical security systems and rerouting of telephone calls to one
or more of the Company's other call centers in the event of an emergency.
There can be no assurance, however, that natural disaster, human error,
equipment malfunction or inadequacy, or other event would not result in a
prolonged interruption in the Company's ability to provide support services to
its clients. The temporary or permanent loss of the Company's computer or
telephone equipment or systems, through casualty, operating malfunction or
otherwise, could have a material adverse effect on the Company. The Company's
property and business interruption insurance may not be adequate to compensate
the Company for all losses that it may incur. See "Business--Operations and
Quality Assurance" and "Business--Facilities."
Risks Associated with Rapidly Changing Technology. The Company's business is
highly dependent on its computer and telecommunications equipment and software
systems. The Company's failure to maintain the quality of its technological
capabilities or to respond effectively to technological changes could have a
material adverse effect on the Company. The Company's future success will also
be highly dependent on its ability to enhance existing services, service new
products and platforms and introduce new services to respond to changing
technological developments. There can be no assurance that the Company can
successfully develop and bring to market any new services in a timely manner,
that such services will be commercially successful or that competitors'
technologies or services will not render the Company's services noncompetitive
or obsolete. In addition, the Company is planning to implement a new workforce
management system in late 1997, which is designed to increase the utilization
of service agents through improved scheduling. There can be no assurance the
Company will be able to implement such system in a timely and cost-effective
manner, that the establishment of such system will not cause interruptions to
the Company's operations or that, once established, such system will be
effectively utilized. The introduction of new products or platforms by clients
or potential clients that require a lower level of expert technical support,
that require the Company to hire or train additional employees or implement
new systems or that are not supported by the Company and reduce the usage of
products supported by the Company could have a material adverse effect on the
Company. See "Business--Technology."
Intellectual Property Risks. The Company licenses third party software that
is important to its operations and the provision of its services, such as
Aspect Telecommunication Corporation's automatic call distribution system and
Scopus Technology, Inc.'s call tracking system. The inability of the Company
to continue to license such software on commercially reasonable terms could
have a material adverse effect on the Company. In addition, due to the nature
of the Company's business, while the Company has
10
<PAGE>
implemented numerous policies and procedures to safeguard the confidential
information of its clients, there can be no assurance that the Company will
not be subject to a claim that it improperly used or disclosed proprietary
client information. See "Business--Intellectual Property."
Antitakeover Provisions. The Company's Certificate of Incorporation, as in
effect upon the closing of this offering (the "Certificate of Incorporation"),
requires that any action required or permitted to be taken by stockholders of
the Company must be effected at a duly called annual or special meeting of
stockholders and requires reasonable advance notice by a stockholder of a
proposal or director nomination which such stockholder desires to present at
any annual or special meeting of stockholders. Special meetings of
stockholders may be called only by the Chairman of the Board of Directors, the
Chief Executive Officer or, if none, the President of the Company or by the
Board of Directors. The Certificate of Incorporation also provides for a
classified Board of Directors.
The authorized but unissued capital stock of the Company includes 1,000,000
shares of preferred stock. The Board of Directors is authorized without
further action by the stockholders to provide for the issuance of such
preferred stock in one or more series and to fix the designations,
preferences, powers and relative, participating, optional or other rights and
restrictions thereof. Accordingly, the Company may issue a series of preferred
stock in the future that will have preference over the Common Stock with
respect to the payment of dividends and upon liquidation, dissolution or
winding-up or that could otherwise adversely affect holders of the Common
Stock or discourage or make difficult any attempt to obtain control of the
Company. Also, Section 203 of the Delaware General Corporation Law, as amended
from time to time (the "DGCL"), which is applicable to the Company following
this offering, prohibits certain business combinations with certain
stockholders for a period of three years after they acquire 15% or more of the
outstanding voting stock of a corporation. The Company has exempted R.R.
Donnelley and its affiliates (and direct transferees who acquire up to a 25%
equity interest in the Company) from this restriction. These provisions, and
other provisions of the Certificate of Incorporation, the Company's By-laws
and the DGCL, may have the effect of deterring hostile takeovers or delaying
or preventing changes in control or changes in management of the Company,
including transactions in which stockholders might otherwise receive a premium
for their shares over then-current market prices. In addition, these
provisions may limit the ability of stockholders to approve transactions that
they may deem to be in their best interests. See "Description of Capital
Stock--Preferred Stock" and "Description of Capital Stock--Delaware Law and
Certain Charter and By-Law Provisions."
Shares Eligible for Future Sale. Sales of a substantial number of shares of
the Company's Common Stock in the public market after this offering, or the
perception that such sales could occur, could adversely affect the market
price of the shares of the Company's Common Stock. Of the shares of Common
Stock to be outstanding upon completion of this offering, the shares
offered hereby will be freely tradeable without restriction. All of the
remaining shares of Common Stock are "restricted securities" as that term
is defined in Rule 144 promulgated under the Securities Act of 1933, as
amended (the "Act"). Of these restricted securities, approximately shares
that are not subject to the lock-up agreements described below will become
eligible for sale in the public market immediately after this offering
pursuant to Rule 144(k) under the Act and approximately shares which are
not subject to such lock-up agreements will become eligible for sale in the
public market 90 days following the date of this Prospectus pursuant to Rule
144 or Rule 701 under the Act. Taking into consideration the effect of lock-up
agreements entered into by all officers and directors and certain stockholders
of the Company, an additional shares will become eligible for sale in the
public market upon expiration of the lock-up agreements 180 days after the
date of this Prospectus, subject to the provisions of Rules 144 and 701. In
addition, shares of Common Stock subject to outstanding options and not
subject to lock-up agreements will become eligible for public sale 90 days
after the date of this Prospectus. The Company intends to file a Registration
Statement on Form S-8 enabling option holders to sell shares for
11
<PAGE>
which options are exercisable and which do not qualify for an exemption under
Rule 701 under the Act. The holders of approximately shares of Common
Stock to be outstanding upon the closing of this offering are entitled to
certain rights with respect to registration of such shares for sale to the
public beginning 181 days after the closing of this offering. See
"Management--Compensation of Directors," "Management--Executive Compensation,"
"Management--Employee Benefit Plans," "Description of Capital Stock" and
"Shares Eligible for Future Sale."
No Prior Market; Potential Volatility of Stock Price. Prior to this
offering, there has been no public market for the Common Stock of the Company,
and there can be no assurance that an active public market will develop or be
sustained after this offering. The initial public offering price will be
determined by negotiations between the Company, R.R. Donnelley and the
Representatives of the Underwriters. See "Underwriting" for a discussion of
the factors to be considered in determining the initial public offering price.
The market price of the Common Stock may be volatile and may be significantly
affected by factors such as actual or anticipated fluctuations in the
Company's operating results, announcements of new services by the Company or
its competitors, developments with respect to conditions and trends in the
technical support industry, governmental regulation, changes in estimates by
securities analysts of the Company's future financial performance, general
market conditions and other factors. In addition, the stock market has from
time to time experienced significant price and volume fluctuations that have
adversely affected the market prices of securities of companies for reasons
unrelated or disproportionate to their operating performance. These broad
market fluctuations may adversely affect the market price of the Common Stock.
In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
instituted against such a company. Such litigation could result in substantial
costs and a diversion of management's attention and resources, which would
have a material adverse effect on the Company.
Dilution; Potential Need for Additional Financing. Purchasers of shares of
Common Stock in this offering will experience an immediate and substantial
dilution in the net tangible book value of the Common Stock from the initial
public offering price. Additional dilution is likely to occur upon exercise of
outstanding options. In addition, the Company could in the future require
additional financing. There can be no assurance such financing would be
available on acceptable terms, if at all, and any future equity financing
could cause additional dilution to stockholders of the Company. See "Dilution"
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
12
<PAGE>
THE COMPANY
The Company was incorporated in Delaware in February 1995 and changed its
name to "Stream International Holdings Inc." in February 1996. Prior to and
after the Reorganization, the Company's outsource technical support business
has been and will be operated as a subsidiary of Stream International Holdings
Inc. The only business conducted by the Company after the Reorganization will
be the outsource technical support business. In connection with the
Reorganization, Stream International Holdings Inc. will change its name to
"Stream International Inc." Unless the context otherwise requires, references
in this Prospectus to "Stream" or the "Company" refer to Stream International
Holdings Inc. and its subsidiaries after giving effect to the foregoing name
change and the Reorganization, and references to the "Parent Company" refer to
Stream International Holdings Inc. prior to the Reorganization. The Company's
executive offices are located at 275 Dan Road, Canton, Massachusetts 02021,
and its telephone number is (617) 575-6800.
"Stream" is a service mark of the Company. All other service marks,
trademarks and trade names used in this Prospectus are the property of their
respective owners.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common
Stock offered by the Company hereby are estimated to be $ after deducting
the underwriting discounts and commissions and estimated offering expenses
payable by the Company and assuming an initial public offering price of $
per share. The Company will not receive any proceeds from the sale of shares
by the Selling Stockholders in this offering.
The Company currently plans to use the net proceeds of this offering (i) to
repay approximately $50 million of indebtedness to R.R. Donnelley assumed by
the Company in connection with the Reorganization and (ii) to fund capital
expenditures primarily for the expansion of operations. For information
regarding the loans from R.R. Donnelley to be assumed by the Company, see
"Certain Transactions" and "The Reorganization." Any remaining net proceeds of
this offering are expected to be used for working capital and general
corporate purposes. A portion of the proceeds of this offering may also be
used to fund potential acquisitions, although the Company is currently not a
party to any commitments or negotiations with respect to any such transaction.
Pending application of the proceeds of this offering, the Company intends to
invest the net proceeds of this offering in short-term, investment-grade,
interest-bearing instruments.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain earnings, if any, to finance
the operations and development of the business and does not anticipate paying
cash dividends in the foreseeable future. Payment of future dividends, if any,
will be at the discretion of the Company's Board of Directors after taking
into account various factors, including the Company's financial condition,
operating results, current and anticipated cash needs and plans for expansion.
In addition, any bank credit facility entered into by the Company may contain
certain restrictions on the payment of cash dividends.
13
<PAGE>
CAPITALIZATION
The following table sets forth as of December 31, 1996 (i) the actual
capitalization of the Company, (ii) the capitalization of the Company giving
pro forma effect to the conversion of Class B Common Stock into shares of
Class A Common Stock and the reclassification of all shares of Class A Common
Stock as Common Stock, the assumption of approximately $50 million in
indebtedness to R.R. Donnelley and the exercise in full of the Incentive
Option prior to or upon the closing of this offering and (iii) such pro forma
capitalization of the Company as adjusted to reflect the receipt and
application by the Company of the estimated net proceeds to the Company from
the sale of shares in this offering based upon an assumed initial public
offering price of $ per share. See "Use of Proceeds." This table should be
read in conjunction with the Company's Consolidated Financial Statements and
the Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term obligations........................... $ 2,112 $ $
======= ===== =====
Long-term obligations, net of current portion.... $ 3,952 $ $
------- ----- -----
Stockholders' equity (1):
Net Parent Company investment.................. 52,584
Preferred Stock, $.01 par value; 1,000,000
shares authorized, no shares issued or
outstanding pro forma and pro forma as
adjusted...................................... --
------- ----- -----
Common Stock, $.01 par value; shares
authorized, shares issued and outstanding
pro forma, shares issued and outstanding
pro forma as adjusted......................... --
------- ----- -----
Additional paid-in capital..................... --
Cumulative translation adjustments ............ 79
------- ----- -----
Total stockholders' equity..................... 52,663
------- ----- -----
Total capitalization........................... $56,615 $ $
======= ===== =====
</TABLE>
- --------
(1) Excludes shares of Common Stock reserved for issuance pursuant to the
Company's stock plans, under which options to purchase shares were
outstanding at March 1, 1997. See "Management--Compensation of
Directors," "Management--Executive Compensation" and "Management--
Employee Benefit Plans."
14
<PAGE>
DILUTION
The net tangible book value of the Company as of December 31, 1996, giving
pro forma effect to the Reorganization and the assumption by the Company, in
connection with the Reorganization, of approximately $50 million of
indebtedness to R.R. Donnelley, was $ . Net tangible book value per share
represents the amount of the Company's total tangible assets reduced by the
amount of its total liabilities and divided by the total number of shares of
Common Stock outstanding, giving pro forma effect to the conversion of all
shares of Class B Common Stock into Class A Common Stock and the
reclassification of Class A Common Stock as Common Stock, the one-for-
reverse stock split of the Common Stock and the exercise of the Incentive
Option, in each case prior to or upon the closing of this offering. Without
taking into account any other changes in such net tangible book value after
December 31, 1996, other than to give effect to the receipt and application by
the Company of the net proceeds from the sale of the shares of Common Stock
offered hereby by the Company at an assumed initial public offering price of
$ per share after deducting the underwriting discounts and commissions and
estimated offering expenses, the pro forma net tangible book value of the
Company as of December 31, 1996 would have been $ or $ per share. This
represents an immediate increase in pro forma net tangible book value of $
per share to existing stockholders and an immediate dilution in pro forma net
tangible book value of $ per share to purchasers of Common Stock in this
offering, as illustrated in the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share....................... $
Pro forma net tangible book value per share at December 31, 1996.... $
Increase per share attributable to new investors....................
----
Pro forma net tangible book value per share after the offering........
----
Dilution per share to new investors................................... $
====
</TABLE>
The following table summarizes, on a pro forma basis as set forth above, as
of December 31, 1996, the number of shares of Common Stock purchased from the
Company, the total consideration paid to the Company and the average price paid
per share by the existing stockholders and by the investors purchasing shares
of Common Stock offered hereby (at an assumed initial public offering price of
$ per share):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ------------------------
AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------- --------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders... (1) % $ % $
New investors........... (2) $
------- --------- --------- ----------
Total................... 100.0% $ 100.0%
======= ========= ========= ==========
</TABLE>
- --------
(1) Sales by the Selling Stockholders in this offering will cause the number of
shares held by existing stockholders to be reduced to shares or % of
the total number of shares of Common Stock outstanding after this offering,
and will increase the number of shares held by new investors to or %
of the total number of shares of Common Stock outstanding after this
offering. See "Principal and Selling Stockholders."
(2) Before deducting the underwriting discounts and commissions and estimated
offering expenses.
As of December 31, 1996 there were shares of Common Stock issuable upon
the exercise of outstanding options at a weighted average exercise price of $
per share. The issuance of shares upon exercise of these options is not
reflected in the preceding tables. If all of the options outstanding as of
December 31, 1996 were exercised in full, the dilution per share to purchasers
of Common Stock in this offering would be $ . Such exercises would increase
the number of shares held by existing stockholders to shares, or % of the
total number of shares of Common Stock to be outstanding after this offering,
and would (i) decrease the number of shares held by the purchasers of Common
Stock in this offering to % of the total number of shares of Common Stock to
be outstanding after this offering, (ii) increase the total consideration paid
to the Company by existing stockholders to $ , or % of the total
consideration paid to the Company, and (iii) increase the average price per
share paid by existing stockholders to $ .
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The selected consolidated financial data presented below as of December 31,
1995 and 1996, and for each of the three years in the period ended December
31, 1996, are derived from the Company's Consolidated Financial Statements,
included elsewhere in this Prospectus, and have been audited by Arthur
Andersen LLP, independent public accountants. The selected consolidated
financial data presented below as of December 31, 1993 and 1994 and for each
of the two years in the period ended December 31, 1993 are derived from
internal company records and are unaudited. The historical consolidated
financial data give effect to the Reorganization and exclude the results of
the Spin-Off Subsidiaries, may not be indicative of the Company's future
performance and do not necessarily reflect what the financial position and
results of operations of the Company would have been had the Company operated
as a separate, stand-alone entity during the periods covered. See
"Consolidated Financial Statements." These data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Consolidated Financial Statements and related Notes
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1992 1993 1994 1995 1996
------ ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE AND
OPERATING DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................... $2,842 $14,074 $37,388 $78,243 $155,498
Operating expenses:
Cost of services................. 1,560 9,905 22,891 57,338 117,309
Selling, general and
administrative expenses......... 872 3,661 10,646 23,994 39,110
Nonrecurring charges (1)......... -- -- -- -- 4,500
------ ------- ------- ------- --------
Income (loss) from operations...... 410 508 3,851 (3,089) (5,421)
Interest expense................... -- -- -- -- 188
Provision (benefit) for income
taxes............................. 183 224 1,724 (817) (924)
------ ------- ------- ------- --------
Net income (loss).................. $ 227 $ 284 $ 2,127 $(2,272) $ (4,685)
====== ======= ======= ======= ========
Pro forma net income (loss) per
common share (2)..................
Pro forma weighted average common
shares outstanding (2)............
OPERATING DATA (AT PERIOD END):
Call centers....................... 1 5 6 10 11
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1993 1994 1995 1996
------ ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA (3):
Cash and cash equivalents..................... $ 2 $ 162 $ 21 $ 1,142
Working capital .............................. 34 3,469 13,350 19,910
Total assets.................................. 7,559 20,593 53,598 76,987
Long-term obligations, net of current portion. 938 2,505 1,734 3,952
Total stockholders' equity.................... 3,198 12,603 40,964 52,663
</TABLE>
- --------
(1) During the fiscal year ended December 31, 1996, the Company recorded a
pre-tax charge of $4.5 million associated with the consolidation of
certain European facilities, recruiting certain members of management and
establishing new compensation and benefit plans. Excluding such charges,
operating income (loss), net income (loss) and pro forma net income (loss)
per common share would have been $(921), $(1,385) and $ , respectively.
See Note 5 of Notes to Consolidated Financial Statements.
(2) Gives effect to (i) the automatic conversion of all outstanding shares of
Class B Common Stock into shares of Class A Common Stock, and the
reclassification of all shares of Class A Common Stock as Common Stock,
upon the closing of this offering, (ii) a one-for- reverse stock split
of the Company's Common Stock effective prior to the closing of this
offering and (iii) the exercise in full of the Incentive Option prior to
the closing of this offering.
(3) Balance sheet data is not available for 1992 since the Company was treated
as a cost center of CSI.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company's outsource support business began in 1992 as a unit of CSI,
which sold and licensed software products and services to major corporations.
CSI began providing technical support in the mid-1980s as part of a bundled
product offering. In response to demands from key clients that were seeking to
outsource technical support, CSI established a separate business unit to
provide such support. In 1995, CSI and the Outsource Manufacturing Services
Division of R.R. Donnelley combined to form the Stream family of companies,
consisting of the Company's outsource technical support business, the MMI
Business and the Corporate Software & Technology Business. Prior to the
closing of this offering, the Company will spin-off the MMI Business and
Corporate Software & Technology Business to its stockholders. See "The
Reorganization."
From its inception, the Company's primary strategic focus has been to grow
revenues and increase market share. The Company has made significant
investments in its infrastructure, including investments in call centers,
workstations, divisional and corporate personnel, management and systems. In
late 1996, the Company implemented a number of initiatives designed to improve
profitability, particularly with respect to its cost of services. These
included aligning management compensation plans with profitability targets,
reorganizing call center supervisor and management structures to improve
efficiency and eliminating an employee home computer reimbursement plan.
Future initiatives that the Company plans to undertake include the
implementation of a new workforce management system in late 1997, which is
designed to increase the utilization of service agents through improved
scheduling. In 1997, the Company plans to open one new call center and has
closed one small call center in the U.S. The Company also plans to consolidate
two of its call centers into one new center in Europe during the remainder of
1997.
The Company's European operations, which began in 1994, are less mature than
its U.S. operations and have incurred operating losses since inception. The
Company is reorganizing certain of its European operations and recorded a
restructuring charge of $3.0 million in 1996 in connection with this
reorganization. The Company will record an additional charge of approximately
$1.0 million in the first quarter of 1997 in connection with this
reorganization.
The Company seeks to develop long term relationships with its clients and
expects that a substantial portion of its revenue growth will be generated by
existing clients. In 1996, revenues from existing clients (companies that were
clients of the Company in both 1995 and 1996) increased approximately 85%. The
Company's revenues are recognized as services are rendered. These services are
generally billed on a per-minute, per-incident, per-call or per-agent basis.
In connection with the Reorganization, the Company will enter into
agreements pursuant to which it will obtain certain transitional services from
the Spin-Off Subsidiaries and provide certain transitional services to the
Spin-Off Subsidiaries. See "The Reorganization."
17
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth statement of operations data as a percentage
of revenues for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Revenues......................................... 100.0% 100.0% 100.0%
Operating expenses:
Cost of services............................... 61.2 73.3 75.4
Selling, general and administrative expenses... 28.5 30.7 25.2
Nonrecurring charges........................... -- -- 2.9
------- ------- -------
Income (loss) from operations.................... 10.3 (4.0) (3.5)
Interest expense................................. -- -- 0.1
Provision (benefit) for income taxes............. 4.6 (1.1) (0.6)
------- ------- -------
Net income (loss)................................ 5.7% (2.9)% (3.0)%
======= ======= =======
</TABLE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE YEAR ENDED DECEMBER 31, 1995
Revenues. Revenues increased $77.3 million, or 98.9%, to $155.5 million in
1996 from $78.2 million in 1995. This increase consisted of $66.4 million of
revenues from existing clients and $10.9 million of revenues from new clients.
International revenues increased $13.0 million, or 166.7%, to $20.8 million in
1996 from $7.8 million in 1995. The Company increased its capacity through the
opening of a call center in North America in the fourth quarter of 1995 and
two call centers in Europe in 1996. The Company closed one call center in
Europe in 1996.
Cost of Services. Cost of services includes primarily labor wages and
benefits and communications expenses directly related to technical support
activities. Cost of services increased $60.0 million, or 104.7%, to $117.3 in
1996 from $57.3 in 1995. As a percentage of revenues, cost of services
increased to 75.4% in 1996 from 73.3% in 1995. This increase was due in part
to the addition of service agents and other employees associated with the
expansion of call center capacity in Europe. The European call centers were
not fully utilized throughout the year, and as a result, cost of services were
incurred without a commensurate increase in revenues.
Selling, General and Administrative ("SG&A") Expenses. SG&A expenses include
all other costs associated with supporting the Company's business including
management, sales and marketing, facilities cost, depreciation and human
resource management. SG&A expenses increased $15.1 million, or 62.9%, to $39.1
million in 1996 from $24.0 million in 1995. As a percentage of revenues, these
expenses decreased to 25.2% in 1996 from 30.7% in 1995. This decrease was due
primarily to the leveraging of these expenses over a larger revenue base.
Nonrecurring Charges. During the fiscal year ended December 31, 1996, the
Company recorded a pre-tax charge of $4.5 million associated with the
consolidation of certain European locations, recruitment of certain members of
management and establishment of new compensation and benefit plans. See Note 5
of Notes to Consolidated Financial Statements.
Income (Loss) from Operations. Loss from operations increased $2.3 million
to $5.4 million in 1996 from $3.1 million in 1995, as the result of the
foregoing factors. Excluding the nonrecurring charge recorded in 1996, loss
from operations in 1996 was $0.9 million.
Net Income (Loss). Net loss increased to $4.7 million in 1996 from $2.3
million in 1995. The Company recorded a tax benefit of $0.9 million in 1996 as
compared to $0.8 million in 1995. Excluding the nonrecurring charge incurred
in 1996, the net loss was $1.4 million.
18
<PAGE>
YEAR ENDED DECEMBER 31, 1995 COMPARED TO THE YEAR ENDED DECEMBER 31, 1994
Revenues. Revenues increased $40.8 million, or 109.1%, to $78.2 million in
1995 from $37.4 million in 1994. This increase consisted of $26.7 million of
revenues from existing clients and $14.1 million of revenues from new clients.
International revenues increased $5.4 million, or 225.0%, to $7.8 million in
1995 from $2.4 million in 1994. The Company increased its capacity through the
opening of a call center in North America in the fourth quarter of 1994 and
three call centers in North America and two in Europe in 1995. The Company
closed one call center in Europe in 1995.
Cost of Services. Cost of services increased $34.4 million, or 150.2%, to
$57.3 million in 1995 from $22.9 million in 1994. As a percentage of revenues,
cost of services increased to 73.3% in 1995 from 61.2% in 1994. This increase
was due primarily to the addition of service agents and call center management
associated with the expansion of call center capacity in both domestic and
European operations. The new call centers were not fully utilized throughout
the year, and as a result, cost of services were incurred without a
commensurate increase in revenues.
SG&A Expenses. SG&A expenses increased $13.4 million, or 126.4%, to $24.0
million in 1995 from $10.6 million in 1994. As a percentage of revenues, these
expenses increased to 30.7% in 1995 from 28.5% in 1994. This increase was due
primarily to increased expenses incurred following the CSI-MMI Merger and
costs associated with the addition of two new call centers in the second half
of 1995.
Income (Loss) from Operations. Loss from operations increased $7.0 million
to a loss of $3.1 million in 1995 from income of $3.9 million in 1994, as the
result of the foregoing factors.
Net Income (Loss). Net loss increased to $2.3 million in 1995 from net
income of $2.1 million in 1994. The Company recorded a tax benefit of $0.8
million in 1995 as compared to a tax provision of $1.7 million in 1994.
QUARTERLY RESULTS AND SEASONALITY
The following table sets forth certain unaudited financial data of the
Company for each of the quarters in 1995 and 1996. This information has been
derived from unaudited financial statements that, in the opinion of
management, reflect all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of such quarterly information.
The operating results for any quarter are not necessarily indicative of
results to be expected for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1995 1995 1995 1995
--------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues............................. $13,215 $14,423 $20,258 $30,347
Operating expenses:
Cost of services................... 8,297 10,344 15,692 23,005
Selling, general and administrative
expenses.......................... 4,049 4,743 6,356 8,846
Nonrecurring charges............... -- -- -- --
------- ------- ------- -------
Income (loss) from operations........ 869 (664) (1,790) (1,504)
Interest expense..................... -- -- -- --
Net income (loss).................... $ 422 $ (479) $(1,162) $(1,053)
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1996 1996 1996 1996
--------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues............................. $33,729 $37,154 $38,516 $46,099
Operating expenses:
Cost of services................... 26,841 27,102 29,637 33,729
Selling, general and administrative
expenses.......................... 8,204 9,411 10,035 11,460
Nonrecurring charges............... -- -- -- 4,500
------- ------- ------- -------
Income (loss) from operations........ (1,316) 641 (1,156) (3,590)
Interest expense..................... 51 49 45 43
Net income (loss).................... $ (969) $ 370 $ (890) $(3,196)
======= ======= ======= =======
</TABLE>
19
<PAGE>
The Company's revenues in the fourth quarter of 1995 and 1996 increased in
part due to the seasonally higher volume of calls attributable to its hardware
manufacturer clients. The Company expects that increased revenues from
software publishers and online service providers will lessen this seasonal
effect in future periods.
The Company could experience quarterly variations in revenues and operating
income as a result of many factors, including the introduction of new
products, platforms or technologies by clients or potential clients, the
introduction of new services by the Company, actions taken by competitors, the
timing of the establishment or termination of client agreements, the
allocation of support requests by clients among various support providers, the
timing of additional selling, general and administrative expenses incurred to
acquire and support new or additional business and changes in the Company's
revenue mix among its various service offerings. Many of the factors that
could cause such variations are outside of the control of the Company. In
connection with certain contracts, the Company could incur costs in periods
prior to recognizing revenues under those contracts. The Company must plan its
operating expenditures based on revenue forecasts, and a revenue shortfall
below such forecasts in any quarter would likely adversely affect the
Company's operating results for that quarter. The Company's revenues may be
difficult to forecast because the Company's sales cycle is relatively long and
may depend on factors such as the size and scope of assignments, the degree of
penetration of clients' new products and general economic conditions.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has been operated as a division, and since the
CSI-MMI Merger in 1995 its primary source of liquidity has been investments
from the Parent Company. The Company expects to seek to establish a bank line
of credit for up to $30 million following the closing of this offering.
Net cash provided by operating activities increased $6.7 million to $1.4
million in 1996 compared to a use of $5.3 million in 1995. This increase was
the result of an increase of $7.3 million in net income before depreciation
and other non-cash charges to $11.5 million in 1996, excluding a nonrecurring
charge of $4.5 million, compared to $4.2 million in 1995, offset somewhat by
changes in working capital. Net cash used in investing activities decreased
$4.4 million to $19.7 million in 1996 compared to $24.1 million in 1995,
principally due to less rapid expansion of call center facilities. In 1996,
the Company opened two new call centers while closing one call center in
Europe. In 1995, the Company opened three new call centers in North America
and two new call centers in Europe while closing one call center in Europe.
Net cash provided by financing decreased $9.9 million to $19.3 million in 1996
compared to $29.2 million in 1995. These amounts represent primarily transfers
from the Parent Company. The decrease was the result of lower cash
requirements necessary to fund the Company's expansion.
Net cash used by operating activities increased $5.4 million to a use of
$5.3 million in 1995 compared to cash provided by operating activities of $0.1
million in 1994. The increase in cash used by operating activities was the
result of a decrease of $0.2 million in net income before depreciation and
other non-cash charges to $4.2 million in 1995 from $4.4 million in 1994, as
well as changes in working capital associated with the Company's growth. Net
cash used in investing activities increased by $18.0 million in 1995 to $24.1
million compared to $6.1 million in 1994, principally due to the Company's
accelerated expansion in call center facilities. In 1995, the Company opened
three new call centers in North America and two new call centers in Europe
while closing one in Europe. Net cash provided by financing increased $23.1
million to $29.2 million in fiscal 1995 compared to $6.1 million in 1994.
These amounts represent primarily transfers from the Parent Company necessary
to fund the Company's expansion.
20
<PAGE>
Capital expenditures were $20.0 million, $24.1 million and $7.7 million in
1996, 1995 and 1994, respectively. Historically, capital expenditures have
been, and future expenditures are anticipated to be, primarily for facilities
and equipment to support expansion of the Company's operations and additions
to the Company's call and data management systems. The Company plans to make
capital expenditures of approximately $20 million in 1997, of which
approximately $2.5 million has been incurred through March 31, 1997.
The Company believes that funds generated from operations, the net proceeds
of this offering, and credit expected to be available under a bank facility
will be sufficient to finance its current operations, planned capital
expenditures and internal growth for at least 12 months. However, if the
Company were to make any significant acquisitions for cash, it may be
necessary to obtain additional debt or equity financing.
21
<PAGE>
BUSINESS
Stream is a leading worldwide provider of outsource technical support
services. The Company provides support services via the telephone, e-mail and
the Internet primarily to customers of leading software publishers, hardware
manufacturers and online service providers. The Company's service agents
answer questions, diagnose problems and resolve technical difficulties,
ranging from simple error messages to wide area network failures. The Company
employs more than 4,300 service agents, who resolve inquiries in 11 languages
at ten call centers located in the U.S., Germany, France, the U.K. and the
Netherlands. By focusing on technical support, a more complex activity than
traditional teleservices, Stream believes that it is able to differentiate
itself from its competitors and provide its clients with high quality service
and a cost-effective solution to their technical support needs.
Stream's clients include software publishers such as Microsoft, Netscape,
SunSoft and Symantec; hardware manufacturers such as Apple Computer and
Hewlett-Packard; and online service providers such as CompuServe, The
Microsoft Network ("MSN") and Sprint. The Company also provides support for
companies in emerging market segments such as online financial services and
interactive video services. In addition, the Company provides corporate help
desk services to major corporations, including Norell Services and Shell. The
Company has recently begun to offer its services directly to end users in the
consumer/small office/home office ("SOHO") market. Stream's corporate client
base has grown from three clients in 1992 to 137 clients as of February 1,
1997, and the Company currently supports over 70 products for its top ten
clients.
INDUSTRY BACKGROUND
Information technology continues to proliferate due in part to increased
usage of computers and peripherals, growth in the mobile workforce, increased
international demand and popularization of the Internet. With growing product
complexity, shorter product life cycles and an increasing number of products
and multi-vendor computer and network configurations, users need greater
levels of assistance to more effectively utilize their technology. As a
result, the demand for technical support services via the telephone, e-mail
and the Internet is increasing.
As the volume and complexity of technical support increases, software
publishers, hardware manufacturers, online service providers and other
organizations are finding it increasingly difficult and expensive to service
all their support needs in-house. It is estimated that one in six employees of
software publishers performs technical support functions, up from one in
twelve employees in 1989, and that the cost of technical support now amounts
to approximately 4% and 8% of the revenues of hardware manufacturers and
software publishers, respectively. In addition, technical support is
especially challenging to undertake as a non-core function because of the need
for ongoing capital investment in specialized equipment, the attendant
workforce management challenge and the inherent need for scale. As a result,
companies are increasingly outsourcing technical support services to third-
party technical support providers as part of an overall effort to focus
internal resources on core competencies, improve operating efficiencies and
reduce costs. Through the development of sophisticated computer and
telecommunications technologies, including advanced call management, call
tracking, and database management systems, these outsource providers have
increased the efficiency and effectiveness of their technical support
programs.
Outsource technical support services have three primary components: (i)
managing product support for technology vendors, including software
publishers, hardware manufacturers and online service providers; (ii)
providing help desk services to large corporations; and (iii) providing
support services directly to consumers. New applications for technical support
services are expected to develop as technology is increasingly used in
consumer products and services, such as online banking and personal digital
systems. Dataquest estimates that outsource technical support services
provided by third parties to software publishers, hardware manufacturers and
online service providers totaled approximately $2 billion
22
<PAGE>
in 1996. In addition, corporations are increasingly seeking to outsource their
internal help desk functions. The Gartner Group predicts that more than 40% of
companies with internal help desks will outsource a portion of this function
by 1998, compared to 15% in 1995.
BUSINESS STRATEGY
Stream believes that it is well-positioned to capitalize on the accelerating
trend toward outsourcing technical support services. Key elements of the
Company's business strategy include the following:
Leverage Leading Market Position. The Company believes that it has developed
a scale of operations and technical support expertise that differentiate it
from its competitors. The Company's expertise, reputation and position as a
leading worldwide provider of outsource technical support services have helped
it build a client base that includes many leading information technology
providers. The Company believes it is involved in most major support proposal
requests, from both established information technology companies and companies
developing emerging technology applications. The Company believes that its
scale of operations and infrastructure enable it to implement effectively and
in a timely manner large support programs for new products and clients. The
Company plans to leverage its reputation, scale and expertise to continue to
effectively service its existing clients as well as attract new clients.
Focus on Technical Support Services. By focusing on technical support, a
more complex activity than traditional teleservices, Stream believes that it
is able to differentiate itself from its competitors and provide its clients
with high quality service and a cost-effective solution to their technical
support needs. Currently, the Company's clients include principally software
publishers, hardware manufacturers, online service providers and, to a lesser
extent, major corporations outsourcing corporate help desk functions. As new
uses for technology continue to develop, such as online banking and personal
digital systems, the Company expects to leverage its technical support
expertise to expand its client base and service offerings.
Emphasize Quality Service. Stream's commitment to quality service is
critical to its clients and has contributed to the Company's reputation as a
preferred vendor of technical support services. Accordingly, the Company
encourages its clients to include quality assurance procedures and performance
requirements in their agreements with the Company. The Company has won
numerous awards for its services, including Software Support Professionals
Association Star Awards for Software Technical Assistance for the last four
years and EuroChannel's Innovator Award in 1996. Stream was also recently
given special recognition by Microsoft for Excellence in Client Satisfaction.
Utilize Sophisticated Technology Infrastructure. The Company utilizes
sophisticated telecommunications and computer technology, open systems
architecture and knowledgebase management, which enable it to offer high
quality technical support. Through the use of this advanced technology,
support requests and related information are relayed seamlessly between Stream
and its clients, allowing for a connection that is transparent to the end
user. Stream's use of an open architecture-based system allows the Company to
add new capacity and technology as needed. The Company also uses sophisticated
in-house and client database technology to capture and utilize information
gathered from the millions of support requests it receives annually.
Expand Multinational Presence. The Company believes that the trend toward
outsourcing technical support occurring in the U.S. is also occurring in
international markets. In addition, Stream believes that many companies,
including certain of its existing clients, are seeking large and sophisticated
technical support providers with international support capabilities. To
address these opportunities, Stream has expanded geographically, with five
call centers in Europe, the establishment of a joint venture in Japan with
Fujitsu Limited ("Fujitsu") and support capabilities in 11 languages. In order
to better serve its clients, Stream has grown its call center network
internally, rather than through acquisitions, which has
23
<PAGE>
enabled the Company to maintain its quality standards and use compatible
technology throughout its network of call centers.
Maintain Excellence in Human Resource Management. Because of the complex
nature of its services, Stream devotes significant resources to attract,
retain and manage a well-trained and stable work force. The Company located
its initial call centers in metropolitan areas near colleges and universities
in order to have access to a large number of skilled employees. Over two-
thirds of the Company's 4,300 service agents are permanent full-time
employees, and the Company employs experts in numerous products and platforms,
ranging from advanced programming languages such as C++, JAVA and VisualBasic
to common desktop applications.
GROWTH STRATEGY
Stream's objective is to expand and enhance its position as a leading
provider of outsource technical support services via the telephone, e-mail and
the Internet. Key elements of the Company's growth strategy include the
following:
Expand Relationships with Existing Clients. Stream believes there is a
significant opportunity to increase sales to its core client base of software
publishers, hardware manufacturers and online service providers as these
clients increasingly outsource technical support activities. To date, a large
portion of the Company's growth has been attributable to increased sales to
existing clients. For example, revenues from companies that were clients of
the Company in both 1995 and 1996 increased approximately 85% in 1996. The
Company targets opportunities to increase the size of its current technical
support programs and also seeks to support additional products on behalf of
its clients. For example, since 1992 the number of products supported by the
Company for a large software publisher has increased from three to 25. In
addition, during 1996 the number of products supported for a large hardware
manufacturer increased from one to eight.
Establish New Client Relationships. The Company seeks to establish new
client relationships, particularly in emerging segments of the information
technology market. For example, the Company began supporting Netscape's
Internet browser in 1994. The Company believes there are also opportunities to
add new clients in the corporate help desk market as a result of the
continuing trend of large corporations to outsource their internal technical
support activities. Stream believes its reputation for quality service and
existing support capabilities provide it with the opportunity to become a
preferred provider of these services. In addition, the Company believes that
it will benefit from any future growth in the consumer/SOHO market. As a
result of its efforts to diversify its client base, Stream has increased its
number of corporate clients from three clients in 1992 to 137 as of February
1, 1997.
Capitalize on Growth of Technology-Enabled Products. The Company believes
that advances in information technology will create opportunities to sell new
services to existing clients and to serve emerging client segments. In
particular, Stream believes that companies in all industries will increasingly
incorporate information technology into their products and services and
consequently will need to provide technical support services for new
applications, including online banking and interactive video services such as
the digital satellite system.
Pursue Strategic Alliances and Acquisitions. While the Company's growth to
date has been through the internal establishment of additional call centers,
the Company may in the future selectively pursue strategic alliances and
acquisitions that extend its presence into new markets or industries, expand
its client base, add new services or expand its operations. In particular, the
Company believes there will be domestic and international acquisition
opportunities as the industry consolidates. The Company may also seek to
establish additional strategic alliances, such as the Company's joint venture
with Fujitsu that gives the Company a presence in Japan.
24
<PAGE>
SERVICES
The Company provides telephone-based and electronic support services to end
users of hardware and software products and online services. Assistance is
delivered through direct interaction with end users and corporate help desk
personnel. Services include resolution of problems relating to the
configuration and set-up, installation and interoperability of different
products, and the level of support requests ranges from simple error messages
to complex wide area network failures. These services cover a broad set of
technologies, including operating environments, applications, databases,
communication and network products, systems tools, development environments
and Internet/intranet products. The Company provides support for multiple
stages of a product's life cycle, including alpha and beta support, initial
release, upgrade introduction and sunset product support.
The Company's technical support services are provided 24 hours a day, seven
days a week, primarily through telephone dialogues with Company service
agents. Technical support is also offered through online connections and e-
mail. In response to the growing demand for electronic support, the Company
anticipates that it will expand its electronic support offerings and, in 1997,
offer support via its site on the World Wide Web.
The Company offers the following technical support packages:
Custom Outsource Support. Stream provides custom outsource support services
to large clients with substantial support demands. The Company tailors these
programs to meet the needs of a specific client and will typically provide a
dedicated team of service agents, interface with the client's systems and
adhere to the client's queue times and other service requirements. Clients
that use custom outsource support generally commit to purchase a minimum
support request volume. While custom outsource support typically involves
support of multiple client products under various agreements that often
contain initial terms of one year, the Company's overall relationships with
its custom outsource support clients tend to be longer-term in nature. The
Company negotiates each custom outsource support agreement individually.
Pricing is typically on a per-minute, per-incident, per-call or, for certain
low-volume applications, per-agent basis. Custom outsource support accounted
for a substantial majority of the Company's revenues in 1996.
Multi-Client Support. Multi-client support is offered primarily to clients
whose call volume does not warrant custom outsource support and to corporate
help desk clients. Multi-client support is "cross-queued" so that a single
service agent is trained to handle products of multiple clients. This permits
small and medium-sized companies and corporate help desk clients to utilize
the Company's expertise and infrastructure on a more cost-effective basis. As
with custom outsource support, the Company negotiates each multi-client
support contract individually, and pricing is typically on a per-minute, per-
incident, per call or per-agent basis.
Individual End User Support. End user support services are offered through
packages of telephone support sold directly to end users. In 1997, the Company
plans to launch its Internet-based electronic support service, which will
provide end users with a variety of ways to obtain answers to technical
support questions on the World Wide Web, including Web responses and online
chat. Individual end user support services are currently priced on a per-
incident basis depending on response time and service level.
CLIENTS
The Company's clients include leading software publishers, hardware
manufacturers, online service providers and Fortune 1000 corporations. In
1996, each of Microsoft (including MSN), Hewlett Packard, Compaq and
CompuServe accounted for over 10% of the Company's revenues. The Company's ten
largest clients accounted for approximately 92% of the Company's revenues in
1996. See "Risk Factors--Dependence on Key Clients." The Company sells its
technical support services to four client segments:
25
<PAGE>
Information Technology Companies. A substantial majority of the Company's
revenues to date have been derived from support services provided to
information technology companies. The Company believes there is a significant
opportunity to increase sales to this core client base as these clients
increasingly outsource technical support activities. The Company's information
technology clients include software publishers such as Microsoft, Netscape,
SunSoft and Symantec; hardware manufacturers such as Apple Computer and
Hewlett-Packard; and online service providers such as CompuServe, MSN and
Sprint. The Company also provides support for companies in emerging market
segments such as online financial services and interactive video services.
Corporate Help Desks. A segment targeted by the Company for future growth is
the corporate help desk support market. Currently, only a small percentage of
the Company's revenues are generated from large corporations that outsource
hardware and software help desks to third parties or use third party providers
to augment their internal support staff. The Company plans to increase its
focus on this market with targeted marketing programs and a variety of pricing
options. The Company's corporate help desk clients include Norell Services and
Shell.
Individual End Users. An additional segment targeted by the Company for
growth is the consumer/SOHO market. In order to reduce costs, the Company
believes hardware manufacturers and software publishers will over time begin
to shift a portion of their increasing support burden directly to individual
end users. Although these end users are expected to continue to represent a
small percentage of the Company's business, the Company believes the aggregate
number of support requests from individual end users will increase. The
Company intends to market support services to individual end users through
VARs, systems integrators, retail establishments and direct-to-consumer
programs.
Other. Along with continued focus on its traditional client base, the
Company intends to pursue new areas of technical assistance for specific
vendors in other technology-enabled industry segments, including financial
services, consumer electronics, entertainment products, cable television,
insurance and health care.
Microsoft Relationship
Stream has been providing technical support for Microsoft, the Company's
largest client, since 1992. While revenues from Microsoft have increased each
year since 1992, the Microsoft relationship accounted for approximately 40% of
the Company's total revenues in 1996 as compared to 57% in 1995 and 73% in
1994. The Company's relationship with Microsoft is multi-faceted and includes
support for many of Microsoft's desktop and language products and MSN. The
primary Microsoft agreement, which relates to support of desktop and language
products, continues to be subject to periodic renewal by Microsoft, and the
current term will expire on September 1, 1997 unless renewed by Microsoft.
OPERATIONS AND QUALITY ASSURANCE
Call Center Operations
End users of the Company's services dial a technical support number, which
is often listed in the product manual, and are connected by the client, or in
some cases directly, to an appropriate Stream service agent. The service agent
answers the call and in many cases simultaneously receives on his or her
computer screen information regarding the caller. The service agent may
collect supplemental information from the caller such as location, company,
product or other information relevant for client billing. The service agent is
specially trained in the applicable product and acts as a transparent
extension of the client in answering questions, diagnosing problems and
resolving technical difficulties. Using a variety of tools, including linked
workstations that give each service agent access to common databases of
acquired knowledge, peer support and proprietary materials, the agent resolves
the support request. Following the
26
<PAGE>
resolution of the call, the agent will typically log information regarding the
call into the Company's call tracking system.
Every service agent is equipped with one or more personal computers with
relevant desktop application software releases. Call centers are outfitted
with software libraries where agents can test new versions of a client's
product or view client product demonstrations. Agents use advanced labs and
mini-labs equipped with hardware, software and network configurations that
enable them to replicate the clients' systems when diagnosing problems. The
Company's call centers contain emergency protection, including power backup in
the event of electrical failure, call routing through alternative offices of
its long distance telecommunications carriers, backup servers and files,
halon-protected computer rooms, sprinkler systems and 24-hour security. Call
centers in the U.S. are connected through multiple fiber optic voice/data T1
and T3 circuits provided by third parties to form an integrated and redundant
wide area network, allowing rerouting of telephone calls to other call centers
in the event of a local telecommunications failure. The Company also maintains
tape backups and offsite storage to assure the integrity of its reporting
systems and databases. See "Risk Factors--Risk of Emergency Interruption of
Call Center Operations."
Quality Assurance
The Company monitors and measures the quality and accuracy of its end user
interactions through quality assurance procedures that are currently
implemented at each call center and, in some cases, by its clients. The
Company continuously monitors call pickup time, length of call queue and other
support request information. This data is used for both internal and client
reporting. Stream and its clients also track client satisfaction using surveys
and periodic call monitoring. This monitoring allows the Company to measure
service levels and resource commitments. In addition, mandatory coaching by
consultants, managers, mentors and peers helps teach new ways to approach
technical problems and provides constructive feedback, and employees are
incented to meet internal quality goals. The Company encourages its clients to
include quality assurance procedures and performance requirements in their
agreements with the Company. Accordingly, many of the Company's client
agreements contain provisions defining specific levels of service performance
and satisfaction.
The Company's commitment to quality service has been critical to its ability
to establish and maintain client relationships. The Company has won numerous
awards for its services, including Software Support Professionals Association
Star Awards for Software Technical Assistance for the last four years and
EuroChannel's Innovator Award in 1996. The Company was also recently given
special recognition by Microsoft for Excellence in Client Satisfaction. The
Company intends to supplement its quality assurance procedures through the
establishment in 1997 of a central quality assurance department, which the
Company believes will further increase the efficiency and effectiveness of the
quality assurance process.
Personnel and Training
Because of the complex nature of its services, Stream devotes significant
resources to attract, retain and manage a well-trained and stable work force.
The Company located its initial call centers in metropolitan areas near
colleges and universities in order to have access to a large number of skilled
employees. Over two-thirds of the Company's 4,300 service agents are permanent
full-time employees. Service agents receive two to four weeks of initial
training before interacting with end users plus a minimum of one to three
weeks per year of on-going training. The Company employs experts in numerous
products and platforms, ranging from advanced programming languages such as
C++, JAVA and VisualBasic to common desktop applications. The Company has an
established career path for its service agents, who over time gain more
responsibility and a broader, more sophisticated product portfolio. See "Risk
Factors--Attraction and Retention of Employees and Key Executives."
27
<PAGE>
FACILITIES
The Company currently maintains ten call centers in the U.S. and abroad,
ranging in size from approximately 14,400 to 150,000 square feet. The
following table sets forth certain information as of February 28, 1997 with
respect to each call center:
<TABLE>
<CAPTION>
APPROXIMATE
NUMBER OF
FULL-TIME APPROXIMATE
APPROXIMATE LEASE SERVICE NUMBER OF
SITE LOCATION SQUARE FOOTAGE EXPIRATION DATE AGENTS (1) WORKSTATIONS
- ------------- -------------- --------------- ----------- ------------
<S> <C> <C> <C> <C>
U.S. Centers
Beaverton, Oregon
(Gemini Facility).... 22,600 3/31/99 268 234
Beaverton, Oregon
(Murray Facility).... 89,000 9/30/00 823 721
Canton, Massachusetts. 99,900 1/31/00 573 745
Dallas, Texas (LBJ Fa-
cility).............. 97,900 10/31/00 794 718
Dallas, Texas (Trinity
Facility)............ 150,000 9/30/01 1,338 1,188
Westwood, Massachu-
setts (2)............ N/A N/A 105 155
International Centers
Amsterdam, the Nether-
lands (3)............ 19,800 12/31/99 231 220
Apeldoorn, the Nether-
lands (3)............ 15,300 N/A 30 50
Munich, Germany....... 15,500 10/15/06 86 100
Londonderry, Northern
Ireland (4).......... 30,000 N/A 47 250
Velizy, France........ 14,400 11/15/04 74 95
------- ----- -----
Total............... 554,400 4,369 4,476
</TABLE>
- --------
(1) Includes full-time temporary service agents.
(2) This facility has been shared among various Stream business units. In
March 1997, the Company relocated employees at this facility to its
Canton, Massachusetts facility.
(3) In 1997, the Company plans to consolidate these facilities into a new
approximately 50,400 square foot facility in the Netherlands.
(4) A written lease is presently being negotiated between the landlord of this
facility and the Company.
The Company's multiple time-zone operations permit flexible service
scheduling and more efficient telecommunications management, as work loads can
be shifted from one geographic area to another to aid call handling during
peak periods. The telecommunications and computing networks of each site are
linked, allowing certain cross-site information sharing.
In addition to the consolidation of two call centers in the Netherlands into
a new larger facility, the Company anticipates that it will open at least one
new call center in the U.S. in 1997. See "Risk Factors--Ability to Manage
Growth." New site locations are selected based on access to a well-educated
and technically proficient labor market and on labor and infrastructure costs.
Additionally, in order to minimize start-up costs associated with a new
center, the Company attempts to identify sites where local, state or federal
land or training grants are available. The Company plans to limit the size of
new call centers to 80,000 square feet, which translates into a maximum of
approximately 700 service agent workstations. The Company may also seek to
establish multiple site support locations within certain defined geographic
areas, allowing for improved "fault-tolerance" and disaster recovery
management. This will help ensure consistent service levels across the
Company's sites in case of emergency, an important ingredient for client
support excellence.
28
<PAGE>
TECHNOLOGY
Stream believes that the effective integration of sophisticated
telecommunications and computer technology is essential to providing rapid,
cost-effective deployment of its technical support services. The Company's
call centers use advanced automatic call distributor systems and a variety of
commercially available and proprietary software to provide effective client
service. The Company's call centers are connected by a worldwide frame relay
network for routing data. In addition, the Company uses a combination of
public (virtual private networks) and private voice facilities to interconnect
its call centers. These worldwide data and voice facilities provide
sophisticated and reliable routing capabilities that enable both data and
voice traffic to be routed around network and facilities failures. Stream's
advanced client/server architecture is closely integrated with its
telecommunications systems and allows (i) rapid deployment of software for
technical support activities, (ii) a high degree of flexibility for modifying
network architecture when required to support client needs and (iii) knowledge
capture and analysis for support service improvement. The Company believes
these systems provide a competitive advantage in retaining existing clients
and attracting new business. As of February 28, 1997, the Company had
approximately 40 employees dedicated to information systems management and
maintenance.
To provide support for its clients in a timely and cost-effective manner,
Stream also relies on its extensive in-house knowledgebase as well as the
knowledgebases of its clients. The data acquired from many of the millions of
support requests received annually by the Company are captured, processed and
added to the client's database or, in some cases, into the Company's in-house
database. Using linked workstations, many service agents have access to these
common databases of acquired knowledge, often allowing support requests to be
solved quickly without additional research. In this way, Stream's service
agents do not have to continually "reinvent the wheel," which the Company
believes affords a higher level of client satisfaction and increased
productivity. See "Risk Factors--Dependence on Key Clients" and "Risk
Factors--Risks Associated with Rapidly Changing Technology."
INTERNATIONAL OPERATIONS
The Company believes that the trend toward outsourcing technical support
occurring in the U.S. is also occurring in international markets. In addition,
Stream believes that many companies, including certain of its existing
clients, are seeking large and sophisticated technical support providers with
international support capabilities. To address these opportunities, Stream has
expanded geographically, with five call centers in Europe, the establishment
of a joint venture in Japan with Fujitsu and support capabilities in 11
languages. As of February 28, 1997, the Company had approximately 470
permanent and 60 temporary full-time employees located outside of the U.S. and
sold its services to clients in seven countries. In order to better serve its
clients, Stream has grown its call center network internally, rather than
through acquisitions, which has enabled the Company to maintain its quality
standards and use compatible technology throughout its network of call
centers.
The Company has entered into a Joint Venture Agreement with Fujitsu pursuant
to which Stream and Fujitsu have become joint owners of a Japanese corporation
that sells and licenses software products and provides computer consulting and
support services. The joint venture licenses certain technology and know-how
from Stream and gives Stream a presence in Japan.
In 1996, revenues from the Company's services outside the U.S. totaled
approximately $21 million, representing 13% of the Company's total revenues.
International revenues have increased in absolute dollars and as a percentage
of revenues in each year since 1993, and the Company anticipates that
international revenues will continue to account for an increasing percentage
of its total revenues. The Company may encounter difficulties in marketing,
selling and delivering its services outside of the U.S. due to differences in
cultures, languages and labor and employment policies and differing political,
social and economic systems, and the Company is subject to risks associated
with international operations and sales. See "Risk Factors--Risks Relating to
International Operations."
29
<PAGE>
SALES AND MARKETING
The Company's sales objective is to develop long-term relationships with
existing and potential clients to become the preferred supplier of their
technical support requirements. As a result of the Company's expertise and
reputation, the Company's client base includes leading information technology
providers, and the Company believes it is involved in most major support
proposal requests, both from established information technology companies and
companies developing emerging technology applications. The Company sells its
services through a direct sales organization, including new business account
managers dedicated to accounts according to client segment. Account managers
are assigned to a limited number of accounts in order to develop a complete
understanding of each client's particular needs and to form strong client
relationships. Account managers are also encouraged to sell additional
services offered by the Company. Both custom outsource support services and
multi-client support services are sold through dedicated new business account
managers, and corporate help desk services are sold through telesales agents.
In 1997, the Company plans to offer Internet-based electronic support via its
site on the World Wide Web.
Stream invests significant resources during the development of a client
relationship to understand the client's technical support processes, systems
and requirements. The Company assesses the client's needs and goals and, with
input from the client, develops a technical support solution. As part of its
marketing efforts, the Company invites potential and existing clients to visit
its call centers, where the Company can demonstrate its sophisticated
telecommunications and call tracking technology, its quality assurance
procedures and the specialized knowledge of its service agents. The Company
may also emphasize its ability to rapidly accommodate a new client or a
significant increase in business from an existing client through its linked
telecommunications and computing networks and its ability to establish new
call centers in under three months.
In addition to the Vice President, Sales, as of February 28, 1997 the
Company employed five sales account managers responsible for new accounts as
well as three business unit directors and three product managers who are
responsible for maintaining existing client relationships on a day-to-day
basis. The Company plans to add additional sales personnel as necessary to
obtain new information technology clients, better sell additional services to
existing clients and address emerging market segments such as corporate help
desks and companies outside the technology industry offering information
technology products and services.
COMPETITION
The industry in which the Company competes is extremely competitive and
highly fragmented. The Company believes many of its clients purchase technical
support services primarily from a limited number of preferred vendors. The
Company's competitors include corporations that may possess greater resources,
greater name recognition and a more established client base than the Company.
The Company believes its principal competitors are currently National
TechTeam, SITEL, Sykes and TeleTech. In addition, the Company competes with
organizations that provide technical support through in-house personnel. As a
result of this competition, client agreements may be subject to pricing
pressure, and competition for contracts for certain of the Company's services
may take the form of competitive bidding in response to requests for
proposals. In addition, clients may require vendors to provide services in
multiple locations and meet client volume and satisfaction thresholds. Such
pricing pressures and contract terms could have a material adverse effect on
the Company.
The Company believes that the principal competitive factors in the technical
support services industry are pricing structure, reputation for quality,
ability to support a wide range of products from a variety of suppliers, wide
geographic coverage and the capability to deliver tailored client solutions.
While the Company believes it competes favorably based on these factors, there
can be no assurance that the Company will be able to compete effectively with
existing or future competitors or in-house technical support operations. See
"Risk Factors--Competition" and "Risk Factors--Dependence on Growth of
Outsource Technical Support Services Market."
30
<PAGE>
INTELLECTUAL PROPERTY
The Company relies upon a combination of contractual provisions and trade
secret laws to protect the proprietary information used in connection with its
support services. The Company attempts to protect its trade secrets and other
proprietary information through agreements with employees, consultants and
clients. The Company does not hold any patents and does not have any patent
applications pending. There can be no assurance that the steps taken by the
Company to protect its proprietary rights will be adequate to deter
misappropriation of its proprietary rights or third party development of
comparable proprietary technology. The Company also licenses third party
software that is important to its operations and the provision of its
services, such as Aspect Telecommunication Corporation's automatic call
distribution system and Scopus Technology, Inc.'s call tracking system. The
inability of the Company to continue to license such software on commercially
reasonable terms could have a material adverse effect on the Company. In
addition, due to the nature of the Company's business, while the Company has
implemented numerous policies and procedures to safeguard the confidential
information of its clients, there can be no assurance that the Company will
not be subject to a claim that it improperly used or disclosed proprietary
client information. See "Risk Factors--Intellectual Property Risks."
EMPLOYEES
As of February 28, 1997, the Company had approximately 3,407 permanent full-
time employees, consisting of 3,065 service agents, 330 management,
administration and finance personnel and 12 sales and marketing personnel. As
of such date, the Company also had approximately 1,304 temporary and 53 part-
time service agents. The Company's employees are not represented by any labor
union, and the Company believes its relationship with its employees is good.
See "Risk Factors--Attraction and Retention of Employees and Key Executives."
31
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND OTHER KEY EMPLOYEES
POST-REORGANIZATION. The executive officers, directors and key employees of
the Company effective upon the consummation of the Reorganization and the
closing of this offering and their ages as of December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS AND DIRECTORS AGE POSITION
- -------------------------------- --- --------
<S> <C> <C>
Stephen D.R. Moore.................. 45 Chief Executive Officer and Chairman of the Board
Judith G. Salerno................... 43 President, Chief Operating Officer and Director
Director
Director
Director
Director
Director
OTHER KEY EMPLOYEES
- -------------------
Alicia T. Brophey................... 49 Vice President, General Counsel and Corporate
Secretary
Robert M. Johnson................... 38 Vice President, Marketing and Business
Development
Lloyd R. Linnell.................... 43 Vice President, Information Technology, and Chief
Information Officer
Julie M. Schoenfeld................. 39 Vice President, Sales
Joseph P. Texeira................... 39 Corporate Controller
</TABLE>
- --------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Mr. Moore will serve as Chief Executive Officer and Chairman of the Board of
the Company upon the closing of this offering. He has served as Chief
Executive Officer of the Parent Company's outsource technical support business
unit since 1996, President and Chief Operating Officer and a Director of the
Parent Company since 1996 and Co-President of the Parent Company from 1995 to
1996. Mr. Moore was President of CSI from 1992 to 1995, and Vice President of
European Operations of CSI from 1989 to 1992. From 1986 to 1989, Mr. Moore
served as Managing Director of Softsel Computer Products, Inc., a U.K.-based
distributor.
Ms. Salerno will serve as President and Chief Operating Officer and a
Director of the Company upon the closing of this offering. She has served as
President and Chief Operating Officer of the Parent Company's outsource
technical support business unit since 1996. Ms. Salerno served as the Parent
Company's Senior Vice President, Service Operations, from 1995 to 1996, Vice
President, Support Services, of CSI from 1993 to 1995 and Director, Support
Services, of CSI from 1990 to 1993. Ms. Salerno has also held management
positions with Ashton-Tate, SoftBridge Microsystems Corporation, G.E. Software
International and Chase Econometrics/Interactive Data Corp.
Ms. Brophey will serve as Vice President, General Counsel and Corporate
Secretary of the Company upon the closing of this offering. She served as Vice
President and General Counsel of CSI from 1994 to 1995 and has served as Vice
President and General Counsel of the Parent Company since 1995. From 1986 to
1994, Ms. Brophey served as Corporate Counsel of Wang Laboratories, Inc.
Mr. Johnson will serve as Vice President, Marketing and Business
Development, of the Company upon the closing of this offering. He has served
as Vice President, Marketing and Business Development, of the Parent Company
since 1996. From 1992 to 1996, Mr. Johnson served as Director and Principal
Analyst of Software Services Research at Dataquest. He was also previously
employed by Computer Associates International and CSI as Manager, Service
Marketing.
32
<PAGE>
Mr. Linnell will serve as Vice President, Information Technology, and Chief
Information Officer of the Company upon the closing of this offering. He has
served as Vice President, Information Technology, of the Parent Company since
1996. From 1991 to 1995, Mr. Linnell held various positions at U.S. West
Technologies Division, most recently as Vice President, Billing and Corporate
Data. He was also previously employed by Bell Communications Research, Inc.
and Bell Telephone Laboratories, Inc.
Ms. Schoenfeld will serve as Vice President, Sales, of the Company upon the
closing of this offering. She has served as Vice President, Sales, of the
Parent Company since 1995. From 1994 to 1995, she managed the corporate end
user help desk business unit of CSI. Ms. Schoenfeld was Regional Sales
Director for Interbase Database Products at Borland International from 1989 to
1993 and was also previously employed by Avant-Garde Computing, Inc., Hewlett-
Packard and Procter & Gamble Company Inc.
Mr. Texeira will serve as the Corporate Controller of the Company upon the
closing of this offering. He has served as Director, Finance for Support
Services, of the Parent Company since 1996. From 1988 to 1995, Mr. Texeira
held various positions at New England Business Service, Inc., most recently as
Controller, Computer Forms and Software Division. He was previously employed
by Deloitte & Touche LLP.
Each officer serves at the discretion of the Board of Directors. There are
no family relationships among any of the directors and executive officers of
the Company.
PRE-REORGANIZATION. The executive officers and directors of the Parent
Company prior to the consummation of the Reorganization and the closing of
this offering and their ages as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Terence M. Leahy.......... 41 Chief Executive Officer and Director
Gene S. Morphis........... 48 Senior Vice President and Chief Financial Officer
Morton H. Rosenthal....... 43 Chairman of the Board of Directors
Stephen J. Baumgartner.... 46 Director
Cheryl A. Francis......... 43 Director
Morton H. Meyerson........ 58 Director
Stephen D.R. Moore........ 45 Director
Mark E. Nunnelly.......... 38 Director
Robert F. White........... 42 Director
</TABLE>
Mr. Leahy has served as Chief Executive Officer and a Director of the Parent
Company since 1996. He served as the Co-President of the Parent Company from
1995 to 1996. Prior to the CSI-MMI Merger, Mr. Leahy was employed by R.R.
Donnelley, including as the President of the MMI Business from 1994 to 1995,
as the Operations President, Americas, of the Documentation Services Group
from 1993 to 1994 and as the Senior Vice President and Director of Software
Sales, of the Documentation Services Group from 1990 to 1993.
Mr. Morphis has served as the Senior Vice President and Chief Financial
Officer of the Parent Company since 1995. He served as Chief Financial Officer
of CVS, a chain drugstore retailer, from 1992 to 1995. Mr. Morphis held
various positions at American Woodmark from 1989 to 1992, at Curtis Mathis
from 1987 to 1988 and at Zale Corp. from 1980 to 1987.
Mr. Rosenthal has served as Chairman of the Board of Directors of the Parent
Company since 1995 and served as Chief Executive Officer in 1995. He was a
founder of CSI and served as its Chairman and Chief Executive Officer.
33
<PAGE>
Mr. Baumgartner has served as a Director of the Parent Company since 1996.
He has been an officer of R.R. Donnelley since 1993, serving as Executive Vice
President and Sector President, Global Commercial Print Sector, since 1996,
Executive Vice President and Chief Administrative Officer from 1995 to 1996
and Senior Vice President, Human Resources, Compensation and Benefits, from
1993 to 1995. Prior to joining R.R. Donnelley he was employed by FRC
Management, Inc., a real estate development company, from 1991 to 1993.
Ms. Francis has served as a Director of the Parent Company since 1995. She
has served as Executive Vice President and Chief Financial Officer of R.R.
Donnelley since 1995. Previously, she served as Treasurer of FMC Corporation,
a diversified manufacturing company, from 1993 to 1995 and as Adjunct Faculty
Member, University of Chicago Graduate School of Business, from 1991 to 1993.
Mr. Meyerson has served as a Director of the Parent Company since 1995. He
has served as Chairman of the Board of Directors of Perot Systems Corp., an
outsourcing technical services and consulting company, since 1992. Mr.
Meyerson serves on the Board of Directors of Crescent Real Estate Equities,
Co. and Ensco International Incorporated.
Mr. Moore's business experience is discussed above.
Mr. Nunnelly has served as a Director of the Parent Company since 1995. Mr.
Nunnelley has been a Managing Director of Bain Capital, Inc. since 1992, and a
General Partner of Bain Venture Capital since 1990. Prior to joining Bain
Venture Capital, Mr. Nunnelly was a Partner at Bain & Company, where he
managed several relationships in the manufacturing sector, and he also was
employed by Procter & Gamble Company Inc. in product management. He is a
Director of several companies, including Dade International Inc.
Mr. White has served as a Director of the Parent Company since 1995. Mr.
White has been a Managing Director of Bain Capital, Inc. since 1993, and a
General Partner of Bain Venture Capital since 1987. Prior to joining Bain
Venture Capital, Mr. White was a Manager at Bain & Company and a Senior
Accountant with Price Waterhouse LLP. He is a Director of Brookstone, Inc.
BOARD CLASSES AND COMMITTEES
The Board of Directors will be divided into three classes, each of whose
members serve for a staggered three-year term. The Board will be comprised of
Class I Directors ( , and ), Class II Directors ( , and
), and Class III Directors ( , , and ). At each annual
meeting of stockholders, a class of directors is elected for a three-year term
to succeed the directors of the same class whose terms are then expiring. The
terms of the Class I Directors, Class II Directors and Class III Directors
will expire upon the election and qualification of successor directors at the
annual meeting of stockholders held following the end of calendar years 1997,
1998 and 1999, respectively.
The Board of Directors will appoint a Compensation Committee, which will
establish and approve salaries and incentive compensation for certain senior
officers and employees and administer and grant stock options pursuant to the
Company's stock option plans. The Board of Directors will also appoint an
Audit Committee, which will review the results and scope of the audit and
other services provided by the Company's independent public accountants.
COMPENSATION OF DIRECTORS
Members of the Board of Directors may be paid for attendance at Board or
committee meetings and will be reimbursed for travel expenses.
34
<PAGE>
In 1997, the Company adopted the 1997 Director Stock Option Plan (the
"Director Plan"). Under the terms of the Director Plan, options to purchase
shares of Common Stock will be granted to each non-employee director upon
the closing of this offering at the closing price of the Common Stock on the
Nasdaq National Market on the date of the closing. Thereafter, options to
purchase shares of Common Stock will be granted to each new non-employee
director upon his or her initial election to the Board of Directors. Annual
options to purchase shares of Common Stock will be granted to each non-
employee director on the date of each annual meeting of stockholders. The
options will vest in four equal annual installments beginning on the first
anniversary of the date of grant; provided that the exercisability of these
options will be accelerated upon the occurrence of an Acquisition Event (as
defined in the Director Plan). A total of shares of Common Stock may be
issued upon the exercise of stock options granted under the Director Plan. The
exercise price of options granted under the Director Plan will equal the
closing price of the Common Stock on the date of grant.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Company's Compensation Committee upon the closing of this
offering will be . See "Certain Transactions."
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth the compensation
earned by the Company in the fiscal year ended December 31, 1996 by the
Company's Chief Executive Officer and its one other executive officer whose
total annual salary and bonus exceeded $100,000 in fiscal 1996 (the Chief
Executive Officer and such other executive officer are hereinafter referred to
as the "Named Executive Officers"):
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------- ------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION (1) SALARY BONUS OPTIONS (2) COMPENSATION
- ------------------------------- ------------------- ------------ ------------
<S> <C> <C> <C> <C>
Stephen D.R. Moore.............. $372,561 $187,501 -- $ --
Chief Executive Officer
Judith G. Salerno............... 227,147 81,440 6,500 (3)
President and Chief Operating
Officer
</TABLE>
- --------
(1) Excludes Messrs. Rory J. Cowan, Terence M. Leahy, Gene S. Morphis and
Morton H. Rosenthal, who were executive officers of the Parent Company in
1996, but whose compensation is not included in the historical financial
statements of the Company. See "Executive Officers, Directors and Other
Key Employees--Pre-Reorganization."
(2) The share number below has been adjusted to reflect the reverse stock
split of the Common Stock to be effected prior to the closing of this
offering.
(3) Includes a $2,250 matching contribution made by the Company on behalf of
Ms. Salerno pursuant to the Company's 401(k) Plan and $4,250 in life
insurance premiums payed on behalf of Ms. Salerno. Does not include $7,251
cash value on life insurance policy.
35
<PAGE>
Option Grants in Last Fiscal Year. The following table sets forth certain
information concerning grants of stock options for Common Stock made during
fiscal 1996 to each of the Named Executive Officers:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS (2)
-----------------------------------------------
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL
NUMBER OF PERCENT RATES OF STOCK
SHARES OF TOTAL PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE FOR OPTION TERM (4)(6)
OPTIONS TO EMPLOYEES IN PRICE PER EXPIRATION --------------------------
NAME (1) GRANTED FISCAL YEAR (3) SHARE (4) DATE (5) 5% 10%
- -------- ---------- --------------- --------- ---------- -- ---
<S> <C> <C> <C> <C> <C> <C>
Stephen D.R. Moore -- -- -- -- -- --
Judith G. Salerno $ $ $
$ $ $
</TABLE>
- --------
(1) Excludes Messrs. Cowan, Leahy, Morphis and Rosenthal, who were executive
officers of the Parent Company in 1996, but whose compensation is not
included in the historical financial statements of the Company. See
"Executive Officers, Directors and Other Key Employees--Pre-
Reorganization."
(2) These stock options are exercisable in eight equal semi-annual
installments commencing on the date of grant.
(3) Represents percentage of total options granted to employees of the Parent
Company in fiscal 1996.
(4) These numbers have been adjusted to reflect the Spin-Off Distribution, as
described below.
(5) The expiration date of an option is the tenth anniversary of the date on
which the option was originally granted.
(6) The amounts shown in this table represent hypothetical gains that could be
achieved for the respective options if exercised at the end of the option
term. These gains are based on assumed rates of stock appreciation of 5%
and 10%, compounded annually from the date the respective options were
granted to their expiration date. The gains shown are net of the option
exercise price, but do not include deductions for taxes or other expenses
associated with the exercise. Actual gains, if any, on stock option
exercises will depend on the future performance of the Common Stock, the
optionholders' continued employment through the option period, and the
date on which the options are exercised.
In connection with the Reorganization, the Company will adjust the exercise
prices of all outstanding employee options to reflect the Spin-Off
Distribution and will grant to each optionee new options ("New Options") for a
number of equity units in PLEX equal to the number of shares covered by his or
her option to purchase Common Stock of the Company (the "Original Option").
The exercise prices of both options will, in the aggregate, equal the exercise
price of the Original Option, and the exercise price of each option will be
determined based on the relative values of the MMI Business, the Corporate
Software & Technology Business and the Company's outsource technical support
business, as determined by the Board of Directors of the Parent Company prior
to the closing of this offering. The allocation of such options is intended to
preserve in the options the amount of gain inherent in the Original Option
prior to the Reorganization. Employees of the Company after the Reorganization
will therefore retain their Original Options, with an adjusted exercise price,
and will receive New Options to purchase equity units in PLEX. Such New
Options, which will have vesting schedules equivalent to that of the Original
Option, will continue to vest as long as the optionee is employed by the
Company. Similarly, all employees of the Parent Company who become employees
of one of the Spin-Off Subsidiaries after the Reorganization will retain their
Original Options for shares of Common Stock of the Company, with an adjusted
exercise price, and receive New Options in PLEX, and will continue to vest
with respect to all of such options as long as they remain in the employ of
the particular Spin-Off Subsidiary to which they are assigned in the
Reorganization. As a result of the foregoing, Mr. Moore and Ms. Salerno and
will receive options to purchase and equity units in PLEX,
respectively.
36
<PAGE>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values. The following table sets forth certain information concerning each
stock option exercise during fiscal 1996 by each of the Named Executive
Officers and the number and value of unexercised options held by each of the
Named Executive Officers on December 31, 1996:
<TABLE>
<CAPTION>
NUMBER OF SHARES
NUMBER UNDERLYING VALUE OF UNEXERCISED
OF SHARES OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
ACQUIRED VALUE YEAR-END FISCAL YEAR-END (2)
NAME (1) ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- -------- ----------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Stephen D.R. Moore...... -- -- / /
Judith G. Salerno....... -- -- / /
</TABLE>
- --------
(1) Excludes Messrs. Cowan, Leahy, Morphis and Rosenthal, who were executive
officers of the Parent Company in 1996, but whose compensation is not
included in the historical financial statements of the Company. See
"Executive Officers, Directors and Other Key Employees--Pre-
Reorganization."
(2) Based on the fair market value of the Common Stock as of December 17, 1996
($ per share), as determined by the Board of Directors, less the option
exercise price, multiplied by the number of shares underlying the options.
Based on a fair market value of $ (the midpoint of the range set forth
on the cover page of this Prospectus), the value of the exercisable and
unexercisable options held as of December 31, 1996 by Mr. Moore would have
been $ and $ , respectively, and the value of the exercisable and
unexercisable options held by Ms. Salerno would have been $ and $ ,
respectively.
Other Arrangements
The Company expects to enter into employment agreements with Mr. Moore and
Ms. Salerno prior to the closing of this offering. In addition, the Company
and each of Mr. Moore and Ms. Salerno have entered into a management retention
agreement pursuant to which such person will receive severance payments equal
to two times his or her annual base salary plus bonus, and certain other
benefits, if he or she is terminated without cause or resigns for good reason
following a change of control of the Company, and pursuant to which his or her
unvested options will accelerate in the event of a change in control. The
Reorganization may constitute a change in control under these agreements.
EMPLOYEE BENEFIT PLANS
1997 Stock Incentive Plan. The Company's 1997 Stock Incentive Plan (the
"1997 Incentive Plan") was adopted by the Company in 1997. The 1997
Incentive Plan provides for the grant of stock-based awards to employees,
officers and directors of, and consultants or advisors to, the Company and its
subsidiaries. Under the 1997 Incentive Plan, the Company may grant options
that are intended to qualify as incentive stock options ("incentive stock
options") within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), options not intended to qualify as incentive
stock options ("non-statutory options"), restricted stock and other stock-
based awards. Incentive stock options may be granted only to employees of the
Company. A total of shares of Common Stock may be issued upon the exercise
of options or other awards granted under the 1997 Incentive Plan. The maximum
number of shares with respect to which awards may be granted to any employee
under the 1997 Incentive Plan shall not exceed shares of Common Stock
during any calendar year.
The 1997 Incentive Plan is administered by the Board of Directors and the
Compensation Committee. Subject to the provisions of the 1997 Incentive Plan,
the Board of Directors and the Compensation Committee each has the authority
to select the persons to whom awards are granted and determine the terms of
each award, including the number of shares of Common Stock subject to the
award.
Payment of the exercise price of an award may be made in cash, shares of
Common Stock, a combination of cash or stock or by any other method approved
by the Board or Compensation Committee, consistent with Section 422 of the
Code and Rule 16b-3 ("Rule 16b-3") under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"). Unless otherwise permitted by the Company,
awards are not assignable or transferable except by will or the laws of
descent and distribution.
37
<PAGE>
The Board of Directors or Compensation Committee may, in its sole
discretion, include additional provisions in any award granted or made under
the 1997 Incentive Plan, including, without limitation, restrictions on
transfer, repurchase rights, commitments to pay cash bonuses, to make, arrange
for or guaranty loans or to transfer other property to optionees upon exercise
of options, or such other provisions as shall be determined by the Board of
Directors or Compensation Committee, so long as not inconsistent with the 1997
Incentive Plan or applicable law. The Board or Compensation Committee may
also, in its sole discretion, accelerate or extend the date or dates on which
all or any particular option or options granted under the 1997 Incentive Plan
may be exercised.
The Company plans to grant, upon the closing of this offering, options to
employees to purchase up to approximately shares of Common Stock under the
1997 Incentive Plan, at an exercise price equal to the initial public offering
price.
1997 Employee Stock Purchase Plan. The Company's 1997 Employee Stock
Purchase Plan (the "Purchase Plan") was adopted by the Company in 1997
and becomes effective upon the closing of this offering. The Purchase Plan
authorizes the issuance of up to a total of shares of Common Stock to
participating employees.
All employees of the Company, including directors of the Company who are
employees, and all employees of any participating subsidiaries whose customary
employment is more than 20 hours per week and for more than five months in any
calendar year are eligible to participate in the Purchase Plan. Employees who
would immediately after the grant own 5% or more of the total combined voting
power or value of the stock of the Company or any subsidiary are not eligible
to participate. As of , 1997, the Company had approximately employees
eligible to participate in the Purchase Plan.
On the first day of a designated payroll deduction period (the "Offering
Period"), the Company will grant to each eligible employee who has elected to
participate in the Purchase Plan an option to purchase shares of Common Stock
as follows: the employee may authorize an amount at a rate of 2%, 4%, 6%, 8%
or 10% to be deducted by the Company from the employee's pay during the
Offering Period. On the last day of the Offering Period, the employee is
deemed to have exercised the option, at the option exercise price, to the
extent of accumulated payroll deductions. Under the terms of the Purchase
Plan, the option price is an amount equal to 85% of the fair market value per
share of the Common Stock on either the first day or the last day of the
Offering Period, whichever is lower. In no event may an employee purchase in
any one Offering Period a number of shares which is more than 15% of the
employee's annualized base pay for the prior six month period divided by 85%
of the market value of a share of Common Stock on the commencement date of the
Offering Period. The Board of Directors may, in its discretion, choose an
Offering Period of 12 months or less for each of the offerings and choose a
different Offering Period for each offering.
If an employee is not a participant on the last day of the Offering Period,
such employee is not entitled to exercise any option, and the amount of such
employee's accumulated payroll deductions will be refunded. An employee's
rights under the Purchase Plan terminate upon voluntary withdrawal from the
Purchase Plan at any time, or when such employee ceases to be employed for any
reason, except that upon termination of employment because of death, the
employee's beneficiary has certain rights to elect to exercise the option to
purchase the shares with the accumulated payroll deductions in the
participant's account.
1995 Stock Option Plans. In connection with the CSI-MMI Merger, the Parent
Company adopted the 1995 Stock Option Plan (the "1995 Plan"), covering
shares of Common Stock, the 1995 Replacement Stock Option Plan, covering
shares of Common Stock (the "1995 Replacement Plan"), and the 1995 California
Stock Option Plan (the "1995 California Plan"), covering shares of Common
Stock. As of , 1997, options for a total of shares of Common Stock
were outstanding under these plans. After the Reorganization, no further
options will be granted under these plans.
38
<PAGE>
The 1995 Plan, 1995 Replacement Plan and 1995 California Plan (collectively,
the "1995 Plans") provide for the grant of options to employees, officers and
directors of, and consultants or advisors to, the Parent Company and its
subsidiaries. Under the 1995 Plans, the Parent Company may grant options that
are intended to qualify as incentive stock options and non-statutory options.
Payment of the exercise price of an option may be made in cash, shares of
Common Stock, a combination of cash or stock or by delivery of an
unconditional undertaking by a broker to pay the exercise price upon
settlement of a sale of the option shares. Options are not assignable or
transferable except by will or the laws of descent and distribution.
Savings and Retirement Program. In July 1995, the Company adopted a Savings
and Retirement Program (the "401(k) Plan"), a tax-qualified plan covering all
of its employees, into which the plan of CSI and a portion of the plan of R.R.
Donnelley were previously merged. Each employee may elect to reduce his or her
current compensation by up to 15%, subject to the statutory limit (a maximum
of $9,500 in 1996), and have the amount of the reduction contributed to the
401(k) Plan. The Plan provides that the Company shall make matching
contributions equal to fifty percent (50%) of the employee's contributions to
the 401(k) Plan, not to exceed 3% of the employee's annual compensation. The
401(k) Plan also provides that the Company may, as determined from time to
time by the Board of Directors, provide (i) a discretionary cash contribution,
which will be allocated based on the proportion of the employee's compensation
for the plan year to the aggregate compensation for the plan year for all
eligible employees, and (ii) a profit based contribution, which will be
allocated to those employees working in an operating division that has met its
profitability goals for the year. All employee contributions to the 401(k)
Plan are fully vested at all times and all Company contributions to the 401(k)
Plan vest at a rate of twenty-five (25%) a year over a period of four years.
Upon termination of employment, a participant may elect a lump sum
distribution or payments in cash in annual installments not to exceed ten (10)
years. The Company may amend certain provisions of the 401(k) Plan in
connection with the Reorganization.
39
<PAGE>
CERTAIN TRANSACTIONS
CSI-MMI Merger
In December 1993, Software Holdings, Inc. ("SHI"), which was organized by
members of management of CSI (including Messrs. Moore and Rosenthal), certain
affiliates of Bain Capital, Inc. ("Bain") and certain other investors,
purchased CSI from its public stockholders. In April 1995, CSI and the MMI
Business of R.R. Donnelley were combined in a transaction pursuant to which
SHI, which owned all of the outstanding capital stock of CSI, merged with a
wholly-owned subsidiary of the Parent Company, to which R.R. Donnelley had
contributed the MMI Business (the "CSI-MMI Merger"). As a result of the CSI-
MMI Merger, R.R. Donnelley acquired all of the outstanding shares of Class A
Common Stock of the Parent Company, then representing approximately 80% of the
outstanding capital stock of the Parent Company, and the former stockholders
of SHI acquired all of the outstanding shares of Class B-V and Class B-N
Common Stock (collectively, "Class B Common Stock") of the Parent Company,
then representing approximately 20% of the outstanding capital stock of the
Parent Company. In connection with the CSI-MMI Merger, the stockholders of SHI
received cash distributions totaling approximately $27 million, including
approximately $12.3 million distributed to certain affiliates of Bain, $4.2
million to Mr. Rosenthal and $165,000 to Mr. Moore. In addition, as part of
the CSI-MMI Merger, the Parent Company granted to the former stockholders and
optionees of SHI (the "SHI Stockholders"), on a pro rata basis, an option (the
"Incentive Option") to acquire, for $.01 per share, a number of shares of
Common Stock of the Parent Company representing, after exercise, up to 5% of
the then outstanding capital stock of the Parent Company (on a fully-diluted
basis including shares issued in any public offering) to the extent that the
value of the Parent Company exceeded certain levels upon either a public
offering or acquisition of the Parent Company occurring prior to June 30,
1997. As a result of an amendment to the Incentive Option entered into in
connection with this offering, the Incentive Option will become exercisable
and be exercised as to shares prior to the closing of this offering, and
all share data in this Prospectus gives effect to the issuance of such shares.
Pursuant to the Restated Certificate of Incorporation of the Parent Company,
as in effect upon the closing of the CSI-MMI Merger, R.R. Donnelley had
certain rights to call all of the outstanding shares of Class B Common Stock
for purchase during specified periods at prices based on a formula, and the
holders of Class B Common Stock had the right to put their shares of Class B
Common Stock to R.R. Donnelley during specified periods at prices based on a
formula. The Restated Certificate of Incorporation also contained certain
rights of first refusal restricting the transfer of shares of Class B Common
Stock; certain rights of holders of Class B Common Stock to participate in
transfers of shares by R.R. Donnelley; certain rights of R.R. Donnelley to
require that holders of Class B Common Stock participate in a sale of shares
to a third party; and certain covenants requiring the approval of the
directors elected by R.R. Donnelley and/or the holders of Class B Common Stock
for specified corporate actions. All of these provisions will terminate upon
the closing of this offering.
In connection with the CSI-MMI Merger, the Parent Company assumed an
incentive plan of SHI (the "TARSAP Plan") pursuant to which the Parent Company
deposited shares of its Common Stock into an escrow account for
distribution either to certain members of management of CSI upon payment of an
exercise price of $ per share or to the Class B Common stockholders,
depending upon the values realized upon any sale of shares of Common Stock of
the Parent Company by the principal stockholders of the Parent Company. As a
result of an amendment to the TARSAP Plan entered into in connection with this
offering, prior to the closing of this offering such members of management
will receive (upon payment of the exercise price) of the shares held in
such escrow account (including shares to Mr. Rosenthal and shares to
Mr. Moore) and such account shall be terminated. The remaining shares will be
distributed to the holders of Class B Common Stock of the Parent Company
(including shares to Mr. Rosenthal and shares to Mr. Moore) on a pro
rata basis. All share data in this Prospectus gives effect to the exercise of
such options upon the closing of this offering and the distribution of the
remaining shares to the holders of Class B Common Stock of the Parent Company
in accordance with the TARSAP Plan.
40
<PAGE>
Pursuant to the terms of the CSI-MMI Merger, the holders of Class B Common
Stock, voting as a group, and R.R. Donnelley were each entitled to elect three
members of the Parent Company's Board of Directors, and together they were
entitled to elect up to two independent directors. Prior to the
Reorganization, the members of the Board elected by the holders of Class B
Common Stock are Mr. Moore, Mr. Nunnelly and Mr. White and the members elected
by R.R. Donnelley are Mr. Baumgartner, Ms. Francis and Mr. Leahy. The
arrangements with respect to the election of directors will terminate upon the
closing of this offering.
Relationship with R.R. Donnelley
In connection with the CSI-MMI Merger, in April 1995 the Parent Company and
R.R. Donnelley entered into various agreements and subleases pursuant to which
the Parent Company purchased certain services from R.R. Donnelley. The amount
paid by the Parent Company to R.R. Donnelley pursuant to these agreements was
$4.1 million and $3.4 million in 1995 and 1996, respectively. In addition, the
Parent Company shares certain facilities with R.R. Donnelley. See "The
Reorganization" for information concerning the continuation of certain of
these arrangements after the closing of this offering.
Since April 1995, the Parent Company has borrowed an aggregate of
approximately $ million from R.R. Donnelley. These loans bear interest at
the LIBOR rate at the time of borrowing plus 35 basis points per annum.
Approximately $50 million of such loans will be assumed by the Company in
connection with the Reorganization. The remaining amount of these loans will
be retained by PLEX, and R.R. Donnelley will release the Company from the
obligation to pay the amount retained by PLEX.
The Company has engaged R.R. Donnelley to provide the financial printing
services in connection with this offering. The Company believes that the cost
of such services is comparable to the cost that the Company would incur if
obtaining such printing services from an unrelated party. See "Risk Factors--
Ownership by R.R. Donnelley."
Other
In April 1995, the Parent Company and Bain entered into a management
services agreement pursuant to which Bain agreed to provide to the Parent
Company general executive and management services at a cost to the Parent
Company of $350,000 per year. This arrangement terminated as of July 1996. In
addition, in connection with the CSI-MMI Merger the Parent Company paid to
Bain a fee of $1.5 million.
In September 1995, the Parent Company sold and shares of Common Stock
to Terence M. Leahy, then the Co-President of the Parent Company, and Rory J.
Cowan, then the Chairman of the Board of the Company, respectively, at a
purchase price of per share. In June 1996, the Parent Company sold
shares of Common Stock to an affiliate of Morton H. Meyerson, a director of
the Parent Company, at a purchase price of per share.
In August 1994 and April 1996, Mr. Moore received loans from the Company in
the amounts of $100,000 and $150,000, respectively, relating to certain tax
obligations in connection with his exercise of options and the payment of
income taxes. The loans bear interest at the rates of 5.8% and 7.34%,
respectively, and are due on April 21, 2000. The full principal amount of
these loans is currently outstanding.
Messrs. Cowan, Leahy, Morphis and Rosenthal, each of whom is or was a
director or executive officer of the Parent Company prior to the
Reorganization, have entered into various employment and other agreements with
the Parent Company. Such agreements are being assigned to or assumed by the
Spin-Off Subsidiaries in connection with the Reorganization and are not
reflected in the historical financial statements of the Company.
41
<PAGE>
THE REORGANIZATION
Prior to the closing of this offering, the Company will effect the
Reorganization pursuant to which the Company will (i) contribute to the Spin-
Off Subsidiaries its Corporate Software & Technology and MMI Businesses, (ii)
contribute to PLEX the capital stock of the Spin-Off Subsidiaries and (iii)
distribute to the Company's stockholders all of the equity interests in PLEX.
Accordingly, upon consummation of the Reorganization, the only business
conducted by the Company will be the outsource technical support business. The
consummation of the Reorganization is a condition to the closing of this
offering. Purchasers of Common Stock in this offering will not receive any
part of the Spin-Off Distribution.
R.R. Donnelley and certain of its affiliates, who are Selling Stockholders
in this offering, own approximately % of the outstanding Common Stock of the
Company. Upon the closing of this offering, R.R. Donnelley and its affiliates
will own up to 39.9% of the outstanding Common Stock of the Company ( % if the
Underwriters' over-allotment option is exercised in full). Following the
Reorganization, R.R. Donnelley and its affiliates will also indirectly own
(through ownership interests in PLEX) approximately 48.0% of the outstanding
capital stock of each of the Spin-Off Subsidiaries. R.R. Donnelley has agreed
that for a period of three years following the closing of this offering it
will not purchase any additional shares of Common Stock that would result in
it and its affiliates owning over 49.9% of the Company's outstanding Common
Stock.
In connection with the Reorganization and prior to the closing of this
offering, the Company will enter into the following arrangements with the
Spin-Off Subsidiaries, PLEX and R.R. Donnelley:
Contribution Agreements. The Company will enter into a Contribution
Agreement with each of the Spin-Off Subsidiaries and PLEX (collectively, the
"Contribution Agreements") providing for the contribution of the Corporate
Software & Technology Business to one Spin-Off Subsidiary (the "Corporate
Software & Technology Subsidiary") and the MMI Business to the other Spin-Off
Subsidiary (the "MMI Subsidiary"), including the assets and liabilities of
such respective businesses, and the contribution of the capital stock of the
Spin-Off Subsidiaries to PLEX. The Contribution Agreements contain general
indemnities between the Company and the Spin-Off Subsidiaries and the
procedures by which indemnification may be claimed. The Contribution
Agreements provide for, on the one hand, each of the Spin-Off Subsidiaries to
indemnify the Company against any losses, liabilities or damages (including
attorneys' fees) incurred in connection with any of the liabilities to be
assumed by such Spin-Off Subsidiary pursuant to the Contribution Agreements
and, on the other hand, the Company to similarly indemnify the Spin-Off
Subsidiaries in respect of any liabilities retained by the Company. In
addition, in the event the Spin-Off Subsidiaries fail to provide the required
indemnification and a claim for payment is made within three years of the date
of this offering, R.R. Donnelley has agreed to provide such indemnification to
the Company, up to an aggregate indemnity of $100 million. The Company will
generally remain contingently liable for all liabilities assumed by the Spin-
Off Subsidiaries. There can be no assurance that claims relating to such
liabilities will not be asserted against the Company or that, if any such
claim is successfully asserted, that the Company will be able to collect any
indemnified amounts from the Spin-Off Subsidiaries or R.R. Donnelley. Any
failure to do so could have a material adverse effect on the Company.
In connection with the Reorganization, PLEX will retain its obligation to
repay the total amount, other than approximately $50 million, of the loans
from R.R. Donnelley to the Parent Company, and R.R. Donnelley will release the
Company from such amounts retained by PLEX. The Company currently plans to use
approximately $50 million of the net proceeds from this offering to repay in
full the amount of the loans from R.R. Donnelley that it will assume.
Transitional Service Agreements. The Company has historically depended on
the businesses being transferred to the Spin-Off Subsidiaries and on R.R.
Donnelley for certain financial, tax, insurance, payroll, employee benefits,
information technology and other services. In connection with the
Reorganization, the
42
<PAGE>
Company will enter into agreements with the Spin-Off Subsidiaries
(collectively, the "Transitional Service Agreements") for the continued
provision after the Reorganization of certain services formerly shared among
such entities or provided by R.R. Donnelley. Pursuant to the Transitional
Service Agreements, the Company will receive from the Spin-Off Subsidiaries
certain financial, tax, insurance, payroll, employee benefits, information
technology and other services, and the Company will provide to the Spin-Off
Subsidiaries certain legal services, outsource technical support for certain
clients of the Spin-Off Subsidiaries and information technology services. The
Company estimates that annual payments under the Transitional Service
Agreements will total approximately $2.0 million from the Company to the Spin-
Off Subsidiaries and approximately $1.0 million to the Company from the Spin-
Off Subsidiaries. Each party to the Transitional Service Agreements is
generally prohibited from hiring the employees of the other party and from
using or disclosing the other party's confidential information other than in
connection with the performance of its obligations under such agreements.
The Transitional Service Agreements generally terminate on the one-year
anniversary of the closing of this offering, provided that the party receiving
the services may terminate the agreement with respect to some or all of such
services upon 90 days' notice at any time after , 1997. After such
termination, the Company will be required to provide the services it is
receiving under such agreements internally or find a third-party provider of
such services. There can be no assurance that the Company will be able to
secure the provision of such services on acceptable terms, and the failure to
do so could have a material adverse effect on the Company. The Company's
historical financial statements reflect an allocation of expenses in
connection with the services covered by the Transitional Service Agreements.
Tax Sharing Agreement. The Company and the Spin-Off Subsidiaries will enter
into a tax sharing agreement (the "Tax Sharing Agreement") that will define
the parties' rights and obligations with respect to filing of returns,
payments, deficiencies and refunds of federal, state and other income or
franchise taxes relating to the Parent Company's business for tax years prior
to and including the year in which the Reorganization occurs. In general, with
respect to periods ending on or before the last day of the taxable year in
which the Reorganization occurs, is responsible for (i) filing
consolidated state and federal tax returns for the Stream affiliated group and
(ii) paying the taxes relating to such returns. The Company and the Spin-Off
Subsidiaries have agreed to cooperate with each other and to share information
in preparing such tax returns and in dealing with other tax matters.
Until the expiration of the applicable statutes of limitations, R.R.
Donnelley has agreed to indemnify the Company in respect of any tax payable by
the Company with respect to (i) any gain realized by the Company as a result
of the Reorganization or the Spin-Off Distribution, which is not intended to
be tax-free to the stockholders of the Company or to the Company, and (ii) any
other income tax liabilities of the Company relating to the Spin-Off
Subsidiaries' businesses, after taking into account the net operating loss
carryforwards and other tax attributes of the Company. The Company will,
however, remain contingently liable for all such taxes and liabilities, and
there can be no assurance any indemnified amounts will be collected from R.R.
Donnelley.
Subcontracts. The Company and the Corporate Software & Technology Subsidiary
will enter into subcontracts pursuant to which the Company will provide
support services to several customer clients of the Corporate Software &
Technology Subsidiary and the Corporate Software & Technology Subsidiary will
provide certain services in connection with the Company's joint venture with
Fujitsu. The Company and the Spin-Off Subsidiaries may also enter into
additional subcontracts relating to bundled products and services.
Subleases. The Company will enter into subleases pursuant to which the
Company will sublease call center space in Apeldoorn from the MMI Subsidiary
and will sublease space in Amsterdam to R.R. Donnelley.
43
<PAGE>
Legal Proceedings. The Company is subject to certain legal proceedings
relating to businesses other than the outsource technical support business.
In connection with the transaction pursuant to which SHI acquired CSI for a
cash payment of $15.00 per share to the public stockholders of CSI, the State
of Wisconsin Investment Board and certain other former holders of an aggregate
of 605,180 shares of Common Stock of CSI (and 136,750 shares that the Parent
Company contends have not properly perfected their appraisal rights) are
currently parties to an appraisal proceeding under Delaware law against CSI.
Certain of the shares subject to this proceeding have subsequently been
redeemed by the Parent Company for $15.00 per share, and the holders thereof
are expected to be removed as parties. While the Company will remain the named
defendant in such proceeding and remain contingently liable for the outcome,
in connection with the Reorganization, the Company will assign this potential
liability to the Corporate Software & Technology Subsidiary, which will agree
to defend such proceeding and indemnify the Company for any costs and damages
incurred as a result thereof.
In February 1997, The Learning Company ("TLC") commenced legal proceedings
against the Parent Company seeking an unspecified amount of damages in
connection with the business relationship between TLC and the MMI Business.
This proceeding is in the early stages of discovery. The Parent Company has
denied all liability under TLC's complaint and has counterclaimed for an
amount in excess of $26 million which it claims TLC owes to the Parent
Company. While the Company will remain the named defendant in such proceeding
and contingently liable for the outcome, in connection with the
Reorganization, the Company will assign this potential liability (as well as
any recovery on its counterclaim) to the MMI Subsidiary, which will agree to
defend such proceeding and indemnify the Company for any costs and damages
incurred as a result thereof.
Pursuant to the Contribution Agreements, any liability relating to these
legal proceedings will be transferred to the Spin-Off Subsidiaries and will be
subject to the indemnification obligations of the Spin-Off Subsidiaries and
R.R. Donnelley that are described above. See "Risk Factors--Ownership by R.R.
Donnelley," "Risk Factors--Risks Relating to the Reorganization," "Certain
Transactions" and "Principal and Selling Stockholders."
44
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of March 1, 1997, and as
adjusted to reflect the sale of the shares of Common Stock offered hereby, by
(i) each person or entity known to the Company to own beneficially more than
5% of the Company's Common Stock, (ii) each of the Company's directors before
and after the Reorganization, (iii) each of the Named Executive Officers, (iv)
all directors and executive officers after the Reorganization as a group, (v)
the Parent Company's Chief Financial Officer and (vi) the other selling
stockholders.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR OWNED AFTER
TO OFFERING (1) OFFERING (1)
NAME AND ADDRESS OF --------------------- SHARES ------------------------
BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
------------------- --------- ---------- ------- --------- ----------
<S> <C> <C> <C> <C> <C>
5% STOCKHOLDERS
R.R. Donnelley & Sons (3) (3) (3)
Company (2) ..........
77 West Wacker Drive
Chicago, Illinois
60601
Bain Capital Funds (4).
c/o Bain Capital, Inc.
Two Copley Place
Boston, Massachusetts
02116
DIRECTORS AND NAMED EX-
ECUTIVE OFFICERS
Stephen D.R. Moore (5).
Judith G. Salerno (6)..
Terence M. Leahy (7)...
Morton H. Rosenthal
(8)...................
Gene S. Morphis (9)....
Steven J. Baumgartner..
Cheryl A. Francis......
Morton H. Meyerson
(10)..................
Mark E. Nunnelly (11)..
Robert F. White (12)...
All directors and
executive officers
after the
Reorganization as a
group
( persons) (13).......
</TABLE>
OTHER SELLING STOCKHOLDERS
- --------
*Less than 1%
45
<PAGE>
(1) Each stockholder possesses sole voting and investment power with respect
to the shares listed, except as otherwise noted. Amounts shown in the
above table and the following notes include shares issuable within the 60-
day period following March 1, 1997 pursuant to the exercise of options.
All share amounts give effect to (i) the issuance of shares of Common
Stock upon exercise of the Incentive Option and (ii) the distribution of
shares of Common Stock pursuant to the TARSAP Plan. See "Certain
Transactions."
(2) Includes shares of Common Stock held by R.R. Donnelley & Sons
Company, shares of Common Stock held by R.R. Donnelley International,
Inc. and shares of Common Stock held by R.R. Donnelley Norwest Inc.
(3) R.R. Donnelley has granted to the Underwriters a 30-day option to purchase
up to additional shares of Common Stock solely to cover over-
allotments, if any. This table assumes no exercise of such over-allotment
option.
(4) Includes shares of Common Stock held by Bain Capital Fund IV L.P.,
shares of Common Stock held by Bain Capital Fund IV-B L.P.,
shares of Common Stock held by Information Partners Capital Fund L.P.,
shares of Common Stock held by BCIP Associates and shares of
Common Stock held by BCIP Trust Associates. Bain Capital, Inc. exercises
investment and voting power with respect to each of these funds.
(5) Includes shares subject to outstanding stock options that are
exercisable within the 60-day period following March 1, 1997 and
shares of Common Stock held by Mr. Moore's minor children. Mr. Moore has
investment and voting power over the shares held by his children but
disclaims beneficial ownership of such shares.
(6) Includes shares subject to outstanding stock options that are
exercisable within the 60-day period following March 1, 1997.
(7) Includes shares subject to outstanding stock options that are
exercisable within the 60-day period following March 1, 1997.
(8) Includes shares subject to outstanding stock options that are
exercisable within the 60-day period following March 1, 1997.
(9) Includes shares subject to outstanding stock options that are
exercisable within the 60-day period following March 1, 1997.
(10) Includes shares of Common Stock held by Big Bend Investments, L.P.,
a limited partnership, of which Mr. Meyerson is a general and limited
partner.
(11) Includes the shares described in Note (4) above, over which Mr. Nunnelly
shares voting and investment power. Mr. Nunnelly disclaims beneficial
ownership of such shares.
(12) Includes the shares described in Note (4) above, over which Mr. White
shares voting and investment power. Mr. White disclaims beneficial
ownership of such shares.
(13) Includes an aggregate of shares issuable upon the exercise of
outstanding options exercisable within the 60-day period following March
1, 1997. Does not include shares of Common Stock which all executive
officers and directors have the right to acquire upon the exercise of
outstanding options not exercisable within the 60-day period following
March 1, 1997.
46
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Effective upon the closing of this offering, the Company's Amended and
Restated Certificate of Incorporation (the "Certificate of Incorporation")
will authorize the issuance of up to 84,675,000 shares of Common Stock, $.01
par value per share, and 1,000,000 shares of Preferred Stock, $.01 par value
per share. The following summary describes the Company's capital stock as in
effect upon the closing of this offering, after giving effect to the
conversion of all outstanding shares of Class B Common Stock into Class A
Common Stock, the reclassification of the Class A Common Stock as Common Stock
and the filing of the Certificate of Incorporation reflecting such
reclassification.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefor, subject to any preferential dividend rights
of outstanding Preferred Stock. Upon the liquidation, dissolution or winding
up of the Company, the holders of Common Stock are entitled to receive ratably
the net assets of the Company available after the payment of all debts and
other liabilities and subject to the prior rights of any outstanding Preferred
Stock. Holders of Common Stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of Common Stock are, and the shares
offered by the Company in this offering will be, when issued and paid for,
fully paid and nonassessable. The rights, preferences and privileges of
holders of Common Stock are subject to, and may be adversely affected by, the
rights of the holders of shares of any series of Preferred Stock which the
Company may designate and issue in the future.
PREFERRED STOCK
Under the terms of the Certificate of Incorporation, the Board of Directors
is authorized, subject to any limitations prescribed by law, without
stockholder approval, to issue shares of Preferred Stock in one or more
series. Each such series of Preferred Stock shall have such rights,
preferences, privileges and restrictions, including voting rights, dividend
rights, conversion rights, redemption privileges and liquidation preferences,
as shall be determined by the Board of Directors. The purpose of authorizing
the Board of Directors to issue Preferred Stock and determine its rights and
preferences is to eliminate delays associated with a stockholder vote on
specific issuances. The issuance of Preferred Stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third party
to acquire, or of discouraging a third party from acquiring, a majority of the
outstanding voting stock of the Company. The Company has no present plans to
issue any shares of Preferred Stock. See "Risk Factors--Antitakeover
Provisions."
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law (the "DGCL"). Section 203 prohibits a publicly-held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. A "business
combination" includes mergers, asset sales and other transactions resulting in
a financial benefit to the interested stockholder. Subject to certain
exceptions, an "interested stockholder" is a person who, together with
affiliates and associates, owns, or within three years did own, 15% or more of
the corporation's voting stock. The Company has exempted R.R. Donnelley and
its affiliates (and direct transferees who acquire up to a 25% equity interest
in the Company) from this restriction.
The Company has agreed that if it adopts any stockholders' rights plan
within three years after the closing of this offering, it will exempt from the
plan R.R. Donnelley and its affiliates (and direct transferees who acquire up
to a 25% equity interest in the Company).
47
<PAGE>
The Certificate of Incorporation provides for the division of the Board of
Directors into three classes as nearly equal in size as possible with
staggered three-year terms. Under the Certificate of Incorporation, any
vacancy on the Board of Directors, however occurring, including a vacancy
resulting from an enlargement of the Board, may only be filled by vote of a
majority of the directors then in office. The classification of the Board of
Directors and the limitations on the removal of directors and filling of
vacancies could have the effect of making it more difficult for a third party
to acquire, or of discouraging a third party from acquiring, control of the
Company. See "Management."
The Certification of Incorporation also provides that after the closing of
this offering, any action required or permitted to be taken by the
stockholders of the Company at an annual meeting or special meeting of
stockholders may only be taken if it is properly brought before such meeting
and may not be taken by written action in lieu of a meeting. The Certificate
of Incorporation further provides that special meetings of the stockholders
may only be called by the Chairman of the Board of Directors, the Chief
Executive Officer or, if none, the President of the Company or by the Board of
Directors. Under the Company's Amended and Restated By-Laws to be effective
upon the closing of this offering (the "By-Laws"), in order for any matter to
be considered "properly brought" before a meeting, a stockholder must comply
with certain requirements regarding advance notice to the Company. The
foregoing provisions could have the effect of delaying until the next
stockholders' meeting stockholder actions which are favored by the holders of
a majority of the outstanding voting stock of the Company. These provisions
may also discourage another person or entity from making a tender offer for
the Company's Common Stock, because such person or entity, even if it acquired
a majority of the outstanding voting stock of the Company, would be able to
take action as a stockholder (such as electing new directors or approving a
merger) only at a duly called stockholders' meeting, and not by written
consent. See "Risk Factors--Antitakeover Provisions."
The DGCL provides generally that the affirmative vote of a majority of the
shares entitled to vote on any matter is required to amend a corporation's
certificate of incorporation or by-laws, unless a corporation's certificate of
incorporation or by-laws, as the case may be, requires a greater percentage.
The Certificate of Incorporation and the By-Laws require the affirmative vote
of the holders of at least two-thirds of the shares of capital stock of the
Company issued and outstanding and entitled to vote to amend or repeal any of
the provisions described in the prior two paragraphs.
The Certificate of Incorporation contains certain provisions permitted under
the DGCL relating to the liability of directors. The provisions eliminate a
director's liability for monetary damages for a breach of fiduciary duty,
except in certain circumstances involving wrongful acts, such as the breach of
a director's duty of loyalty or acts or omissions which involve intentional
misconduct or a knowing violation of law. Further, the Certificate of
Incorporation contains provisions to indemnify the Company's directors and
officers to the fullest extent permitted by the DGCL. The Company believes
that these provisions will assist the Company in attracting and retaining
qualified individuals to serve as directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Boston Equiserve
L.P.
48
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have shares of
Common Stock outstanding (assuming no exercise of outstanding options other
than the Incentive Option). Of these shares, the shares ( shares if
the over-allotment option is exercised in full) to be sold in this offering
will be freely tradeable by persons other than "affiliates" of the Company (as
defined in Rule 144 under the Act, "Affiliates") without restriction or
further registration under the Act. All of the remaining shares of Common
Stock outstanding will be "restricted securities" (the "Restricted
Securities") within the meaning of Rule 144 under the Act and may not be sold
in the absence of registration under the Act, unless an exemption from
registration is available.
SALES OF RESTRICTED SECURITIES
Of the Restricted Securities, approximately shares of Common Stock will
be eligible for sale in the public market immediately after this offering
pursuant to Rule 144(k); of these, approximately shares are subject to
Lock-up Agreements (as described below). Approximately additional
Restricted Securities not subject to Lock-up Agreements will become eligible
for sale in the public market in accordance with Rule 144 or Rule 701 under
the Act beginning 90 days after the date of this Prospectus. Following the
expiration of or release from the Lock-up Agreements, approximately
additional Restricted Securities will become eligible for immediate sale,
subject, generally, to compliance with Rule 144 or Rule 701. The remainder of
the Restricted Securities held by existing stockholders (including those
subject to Lock-up Agreements) will become eligible for sale at various times
over a period of less than two years.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an Affiliate, who has beneficially
owned Restricted Securities for at least one year is entitled to sell, within
any three-month period, a number of such shares that does not exceed the
greater of (i) one percent of the then outstanding shares of Common Stock
(approximately shares immediately after this offering) or (ii) the
average weekly trading volume in the Common Stock in the over-the-counter
market during the four calendar weeks preceding the date on which notice of
such sale is filed, provided certain requirements concerning availability of
public information, manner of sale and notice of sale are satisfied. In
addition, Affiliates must comply with the restrictions and requirements of
Rule 144, other than the one-year holding period requirement, in order to sell
shares of Common Stock which are not Restricted Securities. Under Rule 144(k),
a person who is not an Affiliate and has not been an Affiliate for at least
three months prior to the sale and who has beneficially owned Restricted
Securities for at least two years may resell such shares without compliance
with the foregoing requirements. In meeting the one and two year holding
periods described above, a holder of Restricted Securities can include the
holding periods of a prior owner who was not an Affiliate.
OPTIONS
Rule 701 provides that Restricted Securities which were acquired under the
Company's stock plans may be resold by persons, other than Affiliates,
beginning 90 days after the date of this Prospectus, subject only to the
manner of sale provisions of Rule 144, and by Affiliates under Rule 144
without compliance with its one-year minimum holding period, subject to
certain limitations. Rule 701 also provides that the shares of Common Stock
acquired on the exercise of currently outstanding options issued under the
Company's stock plans may be resold by persons, other than Affiliates,
beginning 90 days after the date of this Prospectus, subject only to the
manner of sale provisions of Rule 144, and by Affiliates under Rule 144
without compliance with its one-year minimum holding period, subject to
certain limitations. shares of Common Stock which may be acquired upon
the exercise of outstanding stock options exercisable within 90 days of the
date of this Prospectus may be eligible for resale under Rule 701 beginning 90
days after the date of this Prospectus; of these shares are subject to
Lock-up Agreements.
49
<PAGE>
The Company intends to file one or more registration statements on Form S-8
under the Act to register all shares of Common Stock subject to outstanding
stock options and Common Stock otherwise issuable pursuant to the Company's
various stock plans that do not qualify for an exemption under Rule 701 from
the registration requirements of the Act. Such registration statements are
expected to become effective upon filing. Shares covered by these registration
statements will thereupon be eligible for sale in the public markets to the
extent applicable.
LOCK-UP AGREEMENTS
Subject to certain limited exceptions, the Company's executive officers and
directors, the Selling Stockholders and certain other stockholders, who in
aggregate hold shares of Common Stock and options to purchase shares
of Common Stock within 90 days of the date of this Prospectus, have agreed,
pursuant to Lock-up Agreements, not to sell or otherwise dispose of, directly
or indirectly, any shares of Common Stock (or any security convertible into or
exchangeable or exercisable for Common Stock) without the prior written
consent of Alex. Brown & Sons Incorporated and Lehman Brothers Inc. for a
period of 180 days from the date of this Prospectus. In addition, the Company
has agreed pursuant to the Underwriting Agreement not to sell or otherwise
dispose of, directly or indirectly, any shares of Common Stock (or any
security convertible into or exchangeable or exercisable for Common Stock)
without the prior written consent of Alex. Brown & Sons Incorporated and
Lehman Brothers Inc. for a period of 180 days from the date of this
Prospectus, other than pursuant to the Company's stock plans. See
"Underwriting."
REGISTRATION RIGHTS
After the completion of this offering, certain stockholders of the Company
(the "Rightsholders") will be entitled to require the Company to register
under the Act up to a total of shares of outstanding Common Stock (the
"Registrable Shares") under the terms of a certain agreement among the Company
and the Rightsholders (as amended, the "Registration Agreement"). The
Registration Agreement provides that in the event the Company proposes to
register any of its securities under the Act at any time or times, the
Rightsholders, subject to certain exceptions, shall be entitled to include
Registrable Shares in such registration. However, the managing underwriter of
any such offering may exclude for marketing reasons some of such Registrable
Shares from such registration. The Rightsholders have, subject to certain
conditions and limitations, additional rights to require the Company to
prepare and file registration statements with respect to their Registrable
Shares beginning 181 days after this offering. Furthermore, such holders may
require the Company to file additional registration statements on Form S-3
subject to certain conditions and limitations. The Company is generally
required to bear the expenses of all such registrations, except underwriting
discounts and commissions.
Prior to this offering, there has been no public market for the Common Stock
of the Company, and no predictions can be made as to the effect, if any, that
market sales of shares of Common Stock or the availability of shares for
future sale may have on the market price for the Common Stock. Sales of
substantial amounts of Common Stock, or the perception that such sales could
occur, could adversely effect prevailing market prices for the Common Stock
and could impair the Company's future ability to obtain capital through an
offering of equity securities. See "Risk Factors--Ownership of R.R. Donnelley"
and "Risk Factors--Shares Eligible for Future Sale."
50
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives,
Alex. Brown & Sons Incorporated, Lehman Brothers Inc., J.P. Morgan Securities
Inc., Salomon Brothers Inc and Smith Barney Inc., have severally agreed to
purchase from the Company and the Selling Stockholders the following
respective numbers of shares of Common Stock at the initial public offering
price less the underwriting discounts and commissions set forth on the cover
page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Alex. Brown & Sons Incorporated....................................
Lehman Brothers Inc................................................
J.P. Morgan Securities Inc. .......................................
Salomon Brothers Inc...............................................
Smith Barney Inc...................................................
------
Total..........................................................
======
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all shares of the Common Stock offered hereby if any of such shares
are purchased.
The Company and the Selling Stockholders have been advised by the
Representatives of the Underwriters that the Underwriters propose to offer the
shares of Common Stock to the public at the initial public offering price set
forth on the cover page of this Prospectus and to certain dealers at such
price less a concession not in excess of $ per share. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of $ per
share to certain other dealers. After the initial public offering, the
offering price and other selling terms may be changed by the Representatives
of the Underwriters.
R.R. Donnelley and its affiliates have granted to the Underwriters an
option, exercisable not later than 30 days after the date of this Prospectus,
to purchase up to additional shares of Common Stock at the public offering
price less the underwriting discounts and commissions set forth on the cover
page of this Prospectus. To the extent that the Underwriters exercise such
option, each of the Underwriters will have a firm commitment to purchase
approximately the same percentage thereof that the number of shares of Common
Stock to be purchased by it shown in the above table bears to , and R.R.
Donnelley and its affiliates will be obligated, pursuant to the option, to
sell such shares to the Underwriters. The Underwriters may exercise such
option only to cover over-allotments made in connection with the sale of
Common Stock offered hereby. If purchased, the Underwriters will offer such
additional shares on the same terms as those on which the shares are being
offered.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
The Company and certain stockholders of the Company have agreed pursuant to
certain agreements that, subject to certain limited exceptions, they will not,
without the prior written consent of Alex. Brown & Sons Incorporated and
Lehman Brothers Inc., offer, sell or otherwise dispose of any shares of Common
Stock for a period of 180 days from the date of this Prospectus. See "Shares
Eligible for Future Sale."
51
<PAGE>
Certain of the Underwriters from time to time have performed various
services for the Company and its affiliates and R.R. Donnelley, including in
connection with the Reorganization.
Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters
and certain selling group members to bid for and purchase shares of Common
Stock. As an exception to these rules, the Representatives are permitted to
engage in certain transactions that stabilize the price of the Common Stock.
Such transactions may consist of bids or purchases for the purpose of pegging,
fixing or maintaining the price of the Common Stock. In addition, if the
Representatives over-allot (i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus), and thereby create a
short position in the Common Stock in connection with this offering, the
Representatives may reduce that short position by purchasing Common Stock in
the open market. The Representatives also may elect to reduce any short
position by exercising all or part of the over-allotment option described
herein. The Representatives also may impose a penalty bid on certain
Underwriters and selling group members. This means that if the Representatives
purchase shares of Common Stock in the open market to reduce the Underwriters'
short position or to stabilize the price of the Common Stock, they may reclaim
the amount of the selling concession from the Underwriters and selling group
members who sold those shares as part of this offering. In general, purchases
of a security for the purpose of stabilization or to reduce a syndicate short
position could cause the price of the security to be higher than it might
otherwise be in the absence of such purchases. The imposition of a penalty bid
might have an effect on the price of a security to the extent that it were to
discourage resales of the security by purchasers in this offering. Neither the
Company nor any of the Underwriters makes any representation or prediction as
to the direction or magnitude of any effect that the transactions described
above may have on the price of the Common Stock. In addition, neither the
Company nor any of the Underwriters makes any representation that the
Representatives will engage in such transactions or that such transactions,
once commenced, will not be discontinued without notice.
The Representatives of the Underwriters have advised the Company and the
Selling Stockholders that the Underwriters do not intend to confirm sales to
any account over which they exercise discretionary authority.
Prior to this offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock will be determined by negotiation between the Company, R.R. Donnelley
and the Representatives of the Underwriters. Among the factors to be
considered in such negotiations will be prevailing market conditions, the
results of operations of the Company in recent periods, the market
capitalizations and stages of development of other companies which the
Company, R.R. Donnelley and the Representatives of the Underwriters believe to
be comparable to the Company, estimates of the business potential of the
Company, the present state of the Company's development and other factors
deemed relevant.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Hale and Dorr LLP, Boston, Massachusetts, and for the
Underwriters by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts.
52
<PAGE>
EXPERTS
The Consolidated Financial Statements and Schedule included in this
Prospectus have been audited by Arthur Andersen LLP, independent public
accountants, as stated in their reports appearing in this Prospectus and
elsewhere in the Registration Statement, and have been so included in reliance
upon the reports of such firm given upon their authority as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (which term shall include all
amendments, exhibits and schedules thereto) on Form S-1 under the Act with
respect to the shares of Common Stock offered hereby. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the Commission, to
which Registration Statement reference is hereby made. Statements made in this
Prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete. With respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference. The Registration Statement and the exhibits thereto may be
inspected and copied at prescribed rates at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the regional offices of the Commission
located at Seven World Trade Center, 13th Floor, New York, New York 10048 and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Such material
may also be accessed electronically by means of the Commission's home page on
the Internet at http://www.sec.gov.
The Company intends to distribute to its stockholders annual reports
containing audited consolidated financial statements and will make available
copies of quarterly reports for the first three quarters of each fiscal year
containing unaudited consolidated financial information.
53
<PAGE>
STREAM INTERNATIONAL INC.
AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Report of Independent Public Accountants......................... F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996..... F-3
Consolidated Statements of Income for Each of the Three Years in
the Period Ended
December 31, 1996 .............................................. F-4
Consolidated Statements of Stockholders' Investment for Each of
the Three Years in the Period Ended December 31, 1996........... F-5
Consolidated Statements of Cash Flows for Each of the Three Years
in the Period Ended
December 31, 1996............................................... F-6
Notes to Consolidated Financial Statements....................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Stream International Inc.:
We have audited the accompanying consolidated balance sheets of Stream
International Inc. and subsidiaries as of December 31, 1995 and 1996, and the
related consolidated statements of income, stockholders' investment and cash
flows for the years ended December 31, 1994, 1995 and 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Stream
International Inc. and subsidiaries as of December 31, 1995 and 1996, and the
results of their operations and their cash flows for the years ended December
31, 1994, 1995 and 1996 in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
_____________________________________
ARTHUR ANDERSEN LLP
Boston, Massachusetts
April 30, 1997
F-2
<PAGE>
STREAM INTERNATIONAL INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1995 1996
------- -------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................... $ 21 $ 1,142
Accounts receivable, less allowance for doubtful accounts of
$156 in 1995 and $304 in 1996............................... 21,981 35,636
Deferred income taxes........................................ 190 1,323
Prepaid expenses............................................. 1,706 1,345
Other current assets......................................... 64 339
------- -------
Total current assets....................................... 23,962 39,785
------- -------
PROPERTY AND EQUIPMENT:
Building and leasehold improvements.......................... 1,454 5,455
Equipment and furniture...................................... 34,856 53,695
Construction in process...................................... 2,893 82
------- -------
39,203 59,232
Accumulated depreciation..................................... 9,962 22,415
------- -------
Net property and equipment................................... 29,241 36,817
OTHER ASSETS................................................... 395 385
------- -------
Total assets............................................... $53,598 $76,987
======= =======
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Current portion of long-term debt............................ -- $ 837
Accounts payable............................................. $ 2,708 1,344
Other accrued liabilities.................................... 7,079 11,919
Nonrecurring charge accrual.................................. -- 4,500
Current portion of capital lease obligation.................. 825 1,275
------- -------
Total current liabilities.................................. 10,612 19,875
------- -------
LONG-TERM DEBT................................................. -- 3,348
DEFERRED INCOME TAXES.......................................... 288 497
LONG-TERM PORTION OF CAPITAL LEASE OBLIGATION.................. 1,734 604
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' INVESTMENT:
Net parent company investment................................ 40,947 52,584
Cumulative translation adjustment............................ 17 79
------- -------
Total stockholders' investment............................. 40,964 52,663
------- -------
Total liabilities and stockholders' investment............. $53,598 $76,987
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
STREAM INTERNATIONAL INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1995 1996
------- ------- --------
<S> <C> <C> <C>
Revenues............................................. $37,388 $78,243 $155,498
Operating expenses:
Cost of services................................... 22,891 57,338 117,309
Selling, general and administrative expenses....... 10,646 23,994 39,110
Nonrecurring charges............................... -- -- 4,500
------- ------- --------
33,537 81,332 160,919
Income (loss) from operations........................ 3,851 (3,089) (5,421)
Interest expense..................................... -- -- 188
------- ------- --------
Income (loss) before income taxes.................... 3,851 (3,089) (5,609)
Provision (benefit) for income taxes................. 1,724 (817) (924)
------- ------- --------
Net income (loss).................................... $ 2,127 $(2,272) $ (4,685)
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
STREAM INTERNATIONAL INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
NET PARENT COMMON STOCK ADDITIONAL CUMULATIVE
COMPANY ---------------- PAID-IN RETAINED ADJUSTMENT
INVESTMENT SHARES PAR VALUE CAPITAL EARNINGS TRANSLATION TOTAL
---------- ------ --------- ---------- -------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31,
1993................... $ 3,198 0 $0 $ 0 $ 0 $ 0 $ 3,198
Net income.............. 2,127 2,127
Translation adjustment.. (3) (3)
Net transfers from
parent company......... 7,281 7,281
------- --- --- --- --- --- -------
BALANCES AT DECEMBER 31,
1994................... 12,606 0 0 0 0 (3) 12,603
Net loss................ (2,272) (2,272)
Translation adjustment.. 20 20
Net transfers from
parent company......... 30,613 30,613
------- --- --- --- --- --- -------
BALANCES AT DECEMBER 31,
1995................... 40,947 0 0 0 0 17 40,964
Net loss................ (4,685) (4,685)
Translation adjustment.. 62 62
Net transfers from
parent company......... 16,322 16,322
------- --- --- --- --- --- -------
BALANCES AT DECEMBER 31,
1996................... $52,584 0 $0 $ 0 $ 0 $79 $52,663
======= === === === === === =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
STREAM INTERNATIONAL INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1994 1995 1996
------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................... $ 2,127 $ (2,272) $ (4,685)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activ-
ities:
Depreciation and amortization................. 2,600 6,233 12,624
(Gain) loss on disposal of fixed assets....... (175) -- 14
Deferred income taxes......................... (187) 285 (924)
Changes in assets and liabilities:
Accounts receivable--net...................... (4,581) (14,052) (13,655)
Prepaid expenses.............................. (475) (1,125) 361
Other current assets.......................... (125) 61 (275)
Other noncurrent assets....................... (223) (154) 10
Accounts payable.............................. 254 2,001 (1,364)
Accrued liabilities........................... 908 3,735 4,840
Nonrecurring charge accrual................... -- -- 4,500
------- -------- --------
Net cash provided by (used in) operating activi-
ties........................................... 123 (5,288) 1,446
------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.............. (7,748) (24,053) (20,014)
Proceeds from sale of fixed assets.............. 1,640 -- 280
------- -------- --------
Net cash used in investing activities............. (6,108) (24,053) (19,734)
------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments under capital lease obligations........ (1,133) (1,433) (1,160)
Net transfers from parent company............... 7,281 30,613 16,322
Net proceeds from long-term borrowings.......... -- -- 4,185
------- -------- --------
Net cash provided by financing activities....... 6,148 29,180 19,347
------- -------- --------
Effect of exchange rate changes on cash and cash
equivalents...................................... (3) 20 62
------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVA-
LENTS............................................ 160 (141) 1,121
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.... 2 162 21
------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR.......... $ 162 $ 21 $ 1,142
======= ======== ========
Supplemental disclosure of noncash financing ac-
tivities:
Assets acquired through capital lease............. $ 3,601 $ 53 $ 480
Supplemental disclosure of cash flow information:
Cash paid during the year for interest............ -- -- $ 188
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
STREAM INTERNATIONAL INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
Stream International Inc. (the "Company") is a worldwide provider of
outsource technical support services over the telephone, e-mail and the
Internet. The Company provides support services primarily to customers of
leading software publishers, hardware manufacturers and online service
providers. The Company operates call centers in the U.S., Germany, France, the
United Kingdom and the Netherlands.
2. THE REORGANIZATION
The Company's outsource technical support business began in 1992 as a unit
of Corporate Software Incorporated ("CSI"), which sold and licensed software
products and services to major corporations (to be known as the "Corporate
Software & Technology Business"). CSI established its technical support
business unit in response to demands from key clients that were increasingly
seeking to outsource technical support. In 1995, CSI and the Outsource
Manufacturing Services Division (to be known as "Modus Media International" or
the "MMI Business") of R.R. Donnelley & Sons Company ("R.R. Donnelley")
combined to form the Stream family of companies (the "CSI-MMI Merger"). Modus
Media International is a leading provider of outsource manufacturing services
to major software publishers and OEMs.
Historically, the Company conducted its business as a unit of its parent
company, Stream International Holdings Inc. (prior to the Reorganization
described below, the "Parent Company"). Prior to the closing of the proposed
initial public offering (see Note 13), the Parent Company will effect a
reorganization (the "Reorganization"), pursuant to which the Parent Company
will (i) contribute to two wholly-owned subsidiaries (the "Spin-Off
Subsidiaries") its Corporate Software & Technology Business and MMI Business,
(ii) contribute to PLEX LLC ("PLEX"), a limited liability company wholly owned
by the Parent Company, the capital stock of the Spin-Off Subsidiaries and
(iii) distribute to the Parent Company's stockholders all of the equity
interests in PLEX (the "Spin-Off Distribution"). Upon consummation of the
Reorganization, the only business conducted by the Company will be the
outsource technical support business. Accordingly, these financial statements
exclude the results of the Spin-Off Subsidiaries and include only the results
of the outsource technical support business, the business to be conducted by
the Company after the Reorganization. In connection with the Reorganization,
Stream International Holdings Inc. will change its name to "Stream
International Inc." As used herein, the "Company" and "Stream" refer to Stream
International Holdings Inc. after giving effect to the foregoing name change
and the Reorganization.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements include the accounts of the Company
and its foreign operations. The accounts of the Company's foreign operations
have been translated into U.S. dollars in accordance with Statement of
Financial Accounting Standards No. 52. All significant intercompany accounts
and transactions have been eliminated in consolidation.
Certain costs and expenses presented in these financial statements have been
allocated based on management's estimates of the cost of services provided to
the Company by the Parent Company. Management believes that these allocations
are based on assumptions that are reasonable under existing circumstances. The
historical operating impact may not be indicative of future results.
F-7
<PAGE>
STREAM INTERNATIONAL INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Operating results through the consummation of the Reorganization are
recorded as a return of capital to or contributions from the Parent Company.
CASH AND CASH EQUIVALENTS
The Company considers all cash and investments with an original maturity of
three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated using the
straight-line method over the estimated useful lives of the respective assets
ranging from 3 to 7 years. Leasehold improvements are amortized over the
shorter of the related lease term or the useful life of the asset. Maintenance
and repair costs are charged to expense as incurred. The cost and the related
accumulated depreciation of assets retired or disposed of are eliminated and
any resulting gains or losses are recognized in income.
DEFERRED START-UP COSTS
Deferred start-up costs include costs associated with the hiring and
training of employees for significant new contracts. Deferred start-up costs
are charged to operations over a six month period upon the commencement of the
new contract.
DEFERRED GRANTS
The Company periodically receives grants for the hiring and training of new
employees. These grants are deferred and recognized in the period the related
expense was incurred.
REVENUE RECOGNITION
The Company recognizes revenues at the time services are performed. The
Company has certain contracts which are billed in advance. Amounts billed but
not earned under these contracts are excluded from revenues and included in
deferred income.
INCOME TAXES
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). Income taxes are determined based on income reported in the financial
statements, regardless of when such taxes are payable. In addition, tax assets
and liabilities are adjusted to reflect changes in the U.S. and applicable
foreign tax laws when enacted. Future tax benefits are recognized to the
extent realization of such benefits is more likely to occur than not.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount that is realizable, based upon the realization criteria
defined in SFAS 109.
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; however,
management does not believe these differences would have a material effect on
operating results.
F-8
<PAGE>
STREAM INTERNATIONAL INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of" ("SFAS 121") effective January 1, 1996. In accordance with
the requirements of SFAS 121, the Company periodically assessed whether events
or circumstances have occurred that may indicate the carrying value of its
long-lived assets may not be recoverable. When such events or circumstances
indicate the carrying value of an asset may be impaired, the Company uses an
estimate of the future undiscounted cash flows to be derived from the asset
over the remaining useful life of the asset to assess whether or not the asset
is recoverable. If the future undiscounted cash flows to be derived over the
life of the asset do not exceed the asset's net book value, the Company
recognizes an impairment loss for the amount by which the net book value of
the asset exceeds its estimated fair market value.
4. SIGNIFICANT CLIENTS AND CONCENTRATIONS OF CREDIT RISK
A majority of the Company's revenues are attributable to clients operating
in the information technology industry. Revenues from significant clients are
defined as revenues in excess of 10% of total revenues. In 1994, one client
accounted for 73% of revenue, in 1995 two clients accounted for 67% of revenue
and in 1996 four clients accounted for 77% of the Company's revenue. The loss
of one or more of its significant clients could have a material adverse effect
on the Company's business, operating results or financial condition.
Financial instruments which potentially subject the Company to
concentrations of credit risk are limited to trade accounts receivable. The
Company does not require collateral or other security to support client
receivables. The Company performs periodic credit evaluations of its clients
to minimize collection risks on trade accounts receivable and maintains
allowances for potentially uncollectible accounts.
5. NONRECURRING CHARGE
During the year ended December 31, 1996, the Company recorded a charge
associated with the consolidation of certain European locations, including the
accrual of remaining lease obligations and the write-off of leasehold
improvements and certain other assets not expected to be utilized after the
Reorganization. The Company also recorded a one-time charge for costs
associated with recruiting certain members of management and establishing new
compensation and benefit plans.
6. RELATED PARTY TRANSACTIONS
Historically, certain treasury, legal, tax, financial, accounting,
information technology and other services were performed centrally. Costs of
those services have been allocated among the Company and the Spin-Off
Subsidiaries using allocation methods that management believes are reasonable.
Total expenses allocated to the Company were $3,170,000 in 1994, $5,208,000 in
1995 and $7,722,000 in 1996, respectively.
In connection with the Reorganization, the Company and the Spin-Off
Subsidiaries will enter into agreements (collectively, the "Transitional
Service Agreements") for the continued provision after the Reorganization of
certain services formerly shared among such entities or provided by R.R.
Donnelley. Pursuant to the Transitional Service Agreements, the Company will
receive from the Spin-Off Subsidiaries certain financial, tax, insurance,
payroll, employee benefits, information technology and other services and will
provide to the Spin-Off Subsidiaries certain legal services, outsource
technical support for certain clients of the Spin-Off Subsidiaries and
information technology services.
F-9
<PAGE>
STREAM INTERNATIONAL INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company and the Spin-Off Subsidiaries will enter into a tax sharing
agreement (the "Tax Sharing Agreement") that will define the parties' rights
and obligations with respect to filing of returns, payments, deficiencies and
refunds of federal, state and other income or franchise taxes relating to the
parties' businesses for tax years prior to and including the year in which the
Reorganization occurs. The Company and the Spin-Off Subsidiaries will agree to
cooperate with each other and to share information in preparing required tax
returns and in dealing with other tax matters.
7. INCOME TAXES
The components of income/(loss) before income taxes are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic.......................................... $3,974 $(1,863) $ (185)
Foreign........................................... (123) (1,226) (5,424)
------ ------- -------
$3,851 $(3,089) $(5,609)
====== ======= =======
The components of the provision for income taxes are as follows:
<CAPTION>
1994 1995 1996
------ ------- -------
<S> <C> <C> <C>
Current provision:
Federal.......................................... $1,436 $ (833) $ 686
State............................................ 338 (196) 162
Foreign.......................................... 137 (73) (848)
------ ------- -------
$1,911 $(1,102) $ --
------ ------- -------
Deferred provision:
Federal.......................................... $ (151) $ 231 $ (748)
State............................................ (36) 54 (176)
------ ------- -------
(187) 285 (924)
------ ------- -------
$1,724 $ (817) $ (924)
====== ======= =======
The following reconciles the Company's effective tax rate to the federal
statutory rate for the years ended December 31, 1994, 1995 and 1996:
<CAPTION>
1994 1995 1996
------ ------- -------
<S> <C> <C> <C>
Federal statutory rate............................ 35.0% 35.0% 35.0%
State income taxes, net of federal deduction...... 5.1 3.0 0.2
Change in valuation allowance..................... 4.7 (11.6) (18.7)
------ ------- -------
44.8% 26.4% 16.5%
====== ======= =======
</TABLE>
F-10
<PAGE>
STREAM INTERNATIONAL INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company's deferred income tax assets and liabilities are summarized as
follows:
<TABLE>
<CAPTION>
1994 1995 1996
----- ----- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts..................... $ 34 $ 62 $ 121
Accrued liabilities................................. 295 491 1,495
Foreign operating losses not benefited and other
items.............................................. 180 356 1,050
----- ----- ------
509 909 2,666
Valuation allowance................................. (180) (356) (1,050)
----- ----- ------
Total deferred tax asset......................... $ 329 $ 553 $1,616
===== ===== ======
Deferred tax liabilities:
Property, plant & equipment......................... $(142) $(651) $ (790)
----- ----- ------
Net deferred tax asset (liability).................. $ 187 $ (98) $ 826
===== ===== ======
</TABLE>
8. DEBT
During 1996, a foreign subsidiary of the Company entered into a Debt
Agreement with a bank to finance capital purchases for the Northern Ireland
facility. The original loan balance of 2.5 million pounds sterling accrues
interest at the London Interbank Market Rate plus .65% per annum. The loan is
to be repaid in equal annual installments of 500,000 pounds sterling
commencing October 1997. Under the terms of the agreement, the foreign
subsidiary is required to comply with a number of affirmative and negative
covenants. As of December 31, 1996 the foreign subsidiary is in compliance
with the covenants of the agreement.
9. STOCKHOLDERS' INVESTMENT
CSI--MMI OPTIONS
In connection with the CSI--MMI Merger in 1995, the Parent Company
established the Stream 1995 Stock Option Plan (the "1995 Stock Option Plan"),
the 1995 California Stock Option Plan (the "1995 California Plan") and the
1995 Replacement Option Plan. The 1995 Stock Option Plan and the 1995
California Plan provided for the issuance of up to an aggregate of 4,000,000
shares at exercise prices not less than fair market value on the date of
grant. The 1995 Replacement Option Plan provided for the issuance of 838,125
shares granted to replace options previously granted by CSI. This latter plan
terminated on December 31, 1995 except with respect to outstanding options.
At the effective date of the Reorganization, outstanding awards under the
Parent Company's stock option plans will be replaced by substitute awards such
that for each option currently held, the option holder will receive an option
in the Company and an option in PLEX. The substitute awards will have the same
ratio of the exercise price per option to the market value per share, the same
aggregate difference between market value and exercise price and the same
vesting provisions, option periods and other terms and conditions of the
options that they will replace.
10. EMPLOYEE BENEFIT PLANS
SAVINGS AND RETIREMENT PROGRAM
Substantially all domestic employees who meet certain requirements are
eligible to participate in the Parent Company's defined contribution (401(k))
plan. Participants may make contributions to the plan
F-11
<PAGE>
STREAM INTERNATIONAL INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
from 1% to 15% of their compensation, as defined. The Company contributes an
amount equal to 50% of the employee's contributions to the 401(k) plan, not to
exceed 3% of the employee's annual compensation. Company contributions are
fully vested after four years of service.
11. COMMITMENTS AND CONTINGENCIES
The Company leases office space and various equipment. These leases are
mainly accounted for as operating leases. Rental costs under operating lease
agreements were approximately $2,173,000, $4,000,000, and $5,765,000 for the
years ended December 31, 1994, 1995 and 1996, respectively.
The Company leases certain equipment used at its call centers. The leases
are mainly accounted for as capital leases. The gross amounts of property and
equipment representing capital leases in the accompanying consolidated balance
sheets at December 31, 1995 and 1996 were approximately $3,614,000 and
$4,094,000, respectively. Similar amounts of accumulated depreciation were
$2,069,000 and $3,071,000, respectively. Depreciation of capital lease assets
is included in depreciation and amortization expenses of property and
equipment.
Minimum future lease obligations at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
----------- ----------
<S> <C> <C>
Year ended December 31:
1997............................................... $ 5,488,000 $1,354,000
1998............................................... 5,468,000 581,000
1999............................................... 4,959,000 50,000
2000............................................... 3,142,000 11,000
2001............................................... 1,240,000 --
Thereafter......................................... 1,339,000 --
----------- ----------
Total minimum payments............................... $21,636,000 1,996,000
===========
Less: Amount representing interest................... (117,000)
----------
Present value of minimum lease payments.............. $1,879,000
==========
</TABLE>
The Company has a 40% ownership interest in a joint venture accounted for
under the equity method. As of December 31, 1996, the Company's share of the
joint venture's cumulative losses exceeded its investment by approximately
$460,000. This amount has not been recorded as the Company has no commitment
to fund the joint venture or guarantee of the joint venture's debt.
In connection with the Reorganization, the Company and the Spin-Off
Subsidiaries will enter into agreements which contain general indemnities
between the Company and the Spin-Off Subsidiaries. Under the agreements each
of the Spin-Off Subsidiaries will indemnify the Company for any losses,
liabilities or damages (including legal fees) in connection with any
liability, claim or action assumed by such Spin-Off Subsidiary and the Company
will indemnify the Spin-Off Subsidiaries in connection with any liability,
claim or action retained by the Company.
In May 1994, certain former stockholders of CSI commenced appraisal
proceedings against CSI in Delaware seeking appraisal rights for their shares
under Section 262 of the Delaware General Corporation Law. One of the Spin-Off
Subsidiaries will agree to indemnify the Company for any liability incurred as
a result of the proceedings.
F-12
<PAGE>
STREAM INTERNATIONAL INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In addition, the Company is a party to certain litigation arising in the
ordinary course of business which, in the opinion of management, will not have
a material adverse effect on the operations or financial condition of the
Company. With respect to such matters not involving the outsource technical
support business, the Spin-Off Subsidiaries and R.R. Donnelley have agreed to
indemnify the Company for any liability incurred as a result of the
proceedings, subject to certain limitations.
12. GEOGRAPHIC INFORMATION
The Company predominantly provides outsource technical support services to
the information technology industry. A summary of the Company's operations by
geographic area are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1995 1996
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenue:
United States.................................... $35,029 $70,406 $134,741
Europe........................................... 2,359 7,837 20,757
------- ------- --------
$37,388 $78,243 $155,498
======= ======= ========
Income (loss) from operations:
United States.................................... $ 3,974 $(1,863) $ (185)
Europe........................................... (123) (1,226) (5,236)
------- ------- --------
$ 3,851 $(3,089) $ (5,421)
======= ======= ========
Identifiable assets at December 31:
United States.................................... $19,003 $47,491 $ 65,084
Europe........................................... 1,590 6,107 11,903
------- ------- --------
$20,593 $53,598 $ 76,987
======= ======= ========
</TABLE>
13. INITIAL PUBLIC OFFERING (SUBSEQUENT EVENT)
The Company filed a Form S-1 for an initial public offering ("IPO") of
common stock on April 30, 1997. A portion of the shares to be sold are being
sold by certain stockholders of the Company. In addition, the Company will
become liable for approximately $50 million of indebtedness to R.R. Donnelley,
and such debt will be paid out of the proceeds of the IPO. The remaining net
proceeds will be used for general corporate purposes, including working
capital requirements and capital expenditures.
F-13
<PAGE>
[INSIDE BACK COVER PAGE OF PROSPECTUS]
"INDUSTRY RECOGNITION AS LEADER IN CLASS." ABOVE THE STATEMENT ARE GRAPHICAL
IMAGES OF THE FOLLOWING AWARDS ALONG WITH THE WRITTEN TITLE OF EACH AWARD:
SOFTWARE SUPPORT PROFESSIONALS ASSOCIATION STAR AWARDS FOR SOFTWARE TECHNICAL
ASSISTANCE IN THE LAST FOUR YEARS AND EUROCHANNEL'S INNOVATOR AWARD IN 1996.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PRO-
SPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEI-
THER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
The Company............................................................... 13
Use of Proceeds........................................................... 13
Dividend Policy........................................................... 13
Capitalization............................................................ 14
Dilution.................................................................. 15
Selected Consolidated Financial and Operating Data........................ 16
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 17
Business.................................................................. 22
Management................................................................ 32
Certain Transactions...................................................... 40
The Reorganization........................................................ 42
Principal and Selling Stockholders........................................ 45
Description of Capital Stock.............................................. 47
Shares Eligible for Future Sale........................................... 49
Underwriting.............................................................. 51
Legal Matters............................................................. 52
Experts................................................................... 53
Additional Information.................................................... 53
Index to Consolidated Financial Statements................................ F-1
</TABLE>
------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EF-
FECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR NOT PAR-
TICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACT-
ING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Shares
[Stream logo]
Common Stock
------------
PROSPECTUS
------------
Alex. Brown & Sons
INCORPORATED
Lehman Brothers
J.P. Morgan & Co.
Salomon Brothers Inc
Smith Barney Inc.
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than the
underwriting discounts and commissions. All amounts shown are estimates except
for the Securities and Exchange Commission registration fee and the NASD
filing fee.
<TABLE>
<S> <C>
SEC Registration Fee................................................ $45,455
NASD Filing Fee..................................................... 15,500
NASD Expenses....................................................... *
Nasdaq Listing Fee.................................................. *
Blue Sky Fees and Expenses.......................................... *
Transfer Agent and Registrar Fees................................... *
Accounting Fees and Expenses........................................ *
Legal Fees and Expenses............................................. *
Printing, Engraving and Mailing Expenses............................ *
Miscellaneous....................................................... *
-------
Total............................................................. $ *
=======
</TABLE>
- --------
* To be completed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article SEVENTH of the Registrant's Amended and Restated Certificate of
Incorporation, as in effect upon the closing of this offering (the
"Certificate of Incorporation"), provides that no director of the Registrant
shall be personally liable for any monetary damages for any breach of
fiduciary duty as a director, except to the extent that the Delaware General
Corporation Law prohibits the elimination or limitation of liability of
directors for breach of fiduciary duty.
Article EIGHTH of the Registrant's Certificate of Incorporation provides
that a director or officer of the Registrant (a) shall be indemnified by the
Registrant against all expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred in connection
with any litigation or other legal proceeding (other than an action by or in
the right of the Registrant) brought against him or her by virtue of his or
her position as a director or officer of the Registrant if he or she acted in
good faith and in a manner he or she reasonably believed to be in, or not
opposed to, the best interests of the Registrant, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful and (b) shall be indemnified by the Registrant against
all expenses (including attorneys' fees) and amounts paid in settlement
actually and reasonably incurred in connection with any action by or in the
right of the Registrant brought against him or her by virtue of his or her
position as a director or officer of the Registrant if he or she acted in good
faith and in a manner he or she reasonably believed to be in, or not opposed
to, the best interests of the Registrant, except that no indemnification shall
be made with respect to any matter as to which such person shall have been
adjudged to be liable to the Registrant, unless and only to the extent that a
court determines that, despite such adjudication but in view of all of the
circumstances, he or she is entitled to indemnification of such expenses.
Notwithstanding the foregoing, to the extent that a director or officer has
been successful, on the merits or otherwise, including, without limitation,
the dismissal of an action without prejudice, he or she is required to be
indemnified by the Registrant against all expenses (including attorneys' fees)
actually and reasonably incurred in connection therewith. Expenses shall be
advanced to a director or officer at his or her request, provided that he or
she undertakes to repay the amount advanced if it is ultimately determined
that he or she is not entitled to indemnification for such expenses.
Indemnification is required to be made unless the Registrant determines by
clear and convincing evidence that the applicable standard of conduct required
for indemnification has not been met. In the event of a determination by the
Registrant that the director or officer did not meet the applicable
II-1
<PAGE>
standard of conduct required for indemnification, or if the Registrant fails
to make an indemnification payment within 60 days after such payment is
claimed by such person, such person is permitted to petition the court to make
an independent determination as to whether such person is entitled to
indemnification. As a condition precedent to the right of indemnification, the
director or officer must give the Registrant notice of the action for which
indemnity is sought and the Registrant has the right to participate in such
action or assume the defense thereof.
Article EIGHTH of the Registrant's Certificate of Incorporation further
provides that the indemnification provided therein is not exclusive, and
provides that in the event that the Delaware General Corporation Law is
amended to expand the indemnification permitted to directors or officers the
Registrant must indemnify those persons to the full extent permitted by such
law as so amended.
Under Section 8 of the Underwriting Agreement, the Underwriters are
obligated, under certain circumstances, to indemnify directors and officers of
the Registrant against certain liabilities, including liabilities under the
Act. Reference is made to the form of Underwriting Agreement filed as Exhibit
1.1 hereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Set forth in chronological order below is information regarding the number
of shares of capital stock and other securities granted as options or issued
by the Registrant since the Registrant's inception in February 1995. Further
included is the consideration, if any, received by the Registrant for such
shares of capital stock and other securities, as well as information relating
to the section of the Act or rule of the Commission under which exemption from
registration was claimed. All awards of options did not involve any sale under
the Act and none of the securities issued by the Registrant were registered
under the Act. The information presented in this Item 15 has not been adjusted
to reflect the reverse stock split of the Company's Common Stock to be
effected prior to the consummation of this offering.
(a) Issuances of Capital Stock
1. In April 1995, the Registrant issued in connection with the CSI-MMI
Merger an aggregate of 7,280,000 shares of Class A Common Stock, 119,992
shares of Class B-N Common Stock ( shares on an as-converted basis) and
1,623,696 shares of Class B-V Common Stock ( shares on an as-converted
basis).
2. In September 1995, the Registrant issued in connection with a five-for-
one stock split authorized by the Board of Directors an aggregate of
29,120,000 shares of Class A Common Stock, 479,968 shares of Class B-N Common
Stock ( shares on an as-converted basis) and 6,494,784 shares of Class B-V
Common Stock ( shares on an as-converted basis).
3. In September 1995, the Registrant sold 500,000 shares of Class A Common
Stock to its Chairman of the Board at a purchase price of $6.00 per share and
sold 83,333 shares of Class A Common Stock to its Co-President at a purchase
price of $6.00 per share.
4. In October 1995, the Registrant issued to an employee 900 shares of Class
B-V Common Stock ( shares on an as-converted basis).
5. In June 1996, the Registrant sold an aggregate of 460,133 shares of Class
A Common Stock to employees at a purchase price of $6.00 per share.
6. In June 1996, the Registrant sold to an affiliate of one of its directors
an aggregate of 166,666 shares of Class A Common Stock at a purchase price of
$6.00 per share.
7. In August 1996, the Registrant sold to an employee of the Registrant an
aggregate of 33,500 shares of Class A Common Stock at a purchase price of
$6.00 per share.
II-2
<PAGE>
(b) Grants and Exercises of Stock Options
Since its incorporation in February 1995, the Registrant has issued options
to purchase an aggregate of 4,538,250 shares of Class A Common Stock at a
weighted average exercise price of $ per share and 838,125 shares of Class
B-V Common Stock ( shares on an as-converted basis) at a weighted average
exercise price of $ per share ($ per share on an as-converted basis).
During the same time period, the Registrant has issued a total of 1,981 shares
of Class A Common Stock and 79,752 of Class B-V Common Stock ( shares on an
as-converted basis) pursuant to the exercise of options.
The securities issued in the above transactions were offered and sold in
reliance upon the exemptions from registration under Sections 3(b) and 4(2) of
the Act, and Regulation D and Rule 701 thereunder, relative to sales by an
issuer not involving any public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Registrant.
3.2 By-Laws of the Registrant.
3.3* Form of Amended and Restated Certificate of Incorporation of the
Registrant.
3.4* Form of Amended and Restated By-Laws of the Registrant.
4.1* Specimen Certificate for shares of Common Stock, $.01 par value, of
the Registrant.
5* Opinion of Hale and Dorr llp with respect to the validity of the
securities being offered.
10.1+ Microsoft Corporation Product Service Vendor Agreement dated as of
December 14, 1995 between the Registrant and Microsoft Corporation,
as amended.
10.2* 1997 Stock Incentive Plan.
10.3* 1997 Director Stock Option Plan.
10.4 1995 Stock Option Plan, as amended.
10.5 1995 Replacement Stock Option Plan.
10.6 1995 California Stock Option Plan, as amended.
10.7* Form of Contribution Agreement to be entered into among the
Registrant, the MMI Subsidiary and PLEX.
10.8* Form of Contribution Agreement to be entered into among the
Registrant, the Corporate Software and Technology Subsidiary and
PLEX.
10.9* Form of Contribution Agreement to be entered into among the
Registrant, the MMI Subsidiary, the Corporate Software and Technology
Subsidiary and PLEX.
10.10* Form of Transitional Service Agreement to be entered into between the
Registrant and the MMI Subsidiary.
10.11* Form of Transitional Service Agreement to be entered into between the
Registrant and the Corporate Software and Technology Subsidiary.
10.12* Form of Tax Sharing Agreement to be entered into among the Registrant,
the Spin-Off Subsidiaries, PLEX and R.R. Donnelley.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.13* Forms of Indemnification Agreements to be entered into between the
Registrant and R.R. Donnelley.
10.14* Registration Rights Agreement dated as of April 21, 1995 among the
Registrant and the Stockholders named therein, as amended.
10.15* Employment Agreement between the Registrant and Stephen D.R. Moore.
10.16* Employment Agreement between the Registrant and Judith G. Salerno.
10.17 Form of Management Retention Agreement entered into by the Registrant
with Stephen D. R. Moore and Judith G. Salerno.
10.18 Promissory Note and Stock Pledge Agreement dated April 15, 1996
between Judith G. Salerno and the Registrant.
10.19* Promissory Notes and Stock Pledge Agreement between Stephen D.R. Moore
and the Registrant.
11* Calculation of shares used in determining pro forma net income per
common share.
21* Subsidiaries of the Registrant.
23.1* Consent of Hale and Dorr llp (included in Exhibit 5).
23.2 Consent of Arthur Andersen llp.
23.3* Consents of Certain Persons Named as Post-Reorganization Directors.
24 Powers of Attorney (included on the signature page of this
Registration Statement).
27 Financial Data Schedule.
</TABLE>
- --------
*To be filed by amendment.
+Confidential treatment requested as to certain portions, which portions are
omitted and filed separately with the Commission.
(b) Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts
All other schedules have been omitted because they are not required or
because the required information is given in the Consolidated Financial
Statements or Notes thereto.
II-4
<PAGE>
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the provisions contained in the Certificate of Incorporation and
By-Laws of the Registrant and the laws of the State of Delaware, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Act, as amended, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Canton, Massachusetts, on this 30th
day of April, 1997.
STREAM INTERNATIONAL HOLDINGS INC.
/s/ Terence M. Leahy
By: _________________________________
TERENCE M. LEAHY, CHIEF EXECUTIVE
OFFICER
POWER OF ATTORNEY AND SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated. Each person whose signature appears
below hereby authorizes Stephen D. R. Moore, Judith G. Salerno, and Mark G.
Borden, and each of them, with full power of substitution, to execute in the
name and on behalf of such person any amendment (including any post-effective
amendment) to this Registration Statement (or any other registration statement
for the same offering that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act) and to file the same, with exhibits thereto,
and other documents in connection therewith, making such changes in this
Registration Statement as the person(s) so acting deems appropriate, and
appoints each of such persons, each with full power of substitution, attorney-
in-fact to sign any amendment (including any post-effective amendment) to this
Registration Statement (or any other registration statement for the same
offering that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act) and to file the same, with exhibits thereto, and other
documents in connection therewith.
Pursuant to the requirements of the Act, this Registration Statement has
been signed below by the following persons in the capacities and on the dates
indicated.
SIGNATURE TITLE DATE
/s/ Terence M. Leahy Chief Executive April 30, 1997
- ------------------------------------- Officer and
TERENCE M. LEAHY Director (Principal
Executive Officer)
/s/ Gene S. Morphis Senior Vice April 30, 1997
- ------------------------------------- President
GENE S. MORPHIS and Chief Financial
Officer (Principal
Financial and
Accounting Officer)
/s/ Steven J. Baumgartner Director April 30, 1997
- -------------------------------------
STEVEN J. BAUMGARTNER
II-6
<PAGE>
SIGNATURE TITLE DATE
/s/ Cheryl A. Francis Director April 30, 1997
- -------------------------------------
CHERYL A. FRANCIS
/s/ Morton H. Meyerson Director April 30, 1997
- -------------------------------------
MORTON H. MEYERSON
/s/ Stephen D. R. Moore Director April 30, 1997
- -------------------------------------
STEPHEN D. R. MOORE
/s/ Mark E. Nunnelly Director April 30, 1997
- -------------------------------------
MARK E. NUNNELLY
/s/ Morton H. Rosenthal Director April 30, 1997
- -------------------------------------
MORTON H. ROSENTHAL
/s/ Robert F. White Director April 30, 1997
- -------------------------------------
ROBERT F. WHITE
II-7
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SUPPLEMENTARY SCHEDULE
STREAM INTERNATIONAL INC.
We have audited, in accordance with generally accepted auditing standards,
the financial statements of Stream International Inc. as of December 31, 1995
and 1996 and for each of the three years in the period ended December 31,
1996, included in the Registration Statement, and have issued our report
thereon dated April 30, 1997. Our audit was made for the purpose of forming an
opinion on those financial statements taken as a whole. The schedule listed in
Item 16(b) is the responsibility of the Company's management and is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly states, in all material
respects, the financial data required to be set forth therein, in relation to
the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Boston, Massachusetts
April 30, 1997
S-1
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGE TO
BEGINNING OF COST AND BALANCE AT
DESCRIPTION PERIOD EXPENSES WRITEOFFS END OF PERIOD
- ----------- ------------ --------- --------- -------------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts,
for the year ended December 31,
1995........................... $ 86,000 81,000 (11,000) $156,000
<CAPTION>
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts,
for the year ended December 31,
1996........................... $156,000 148,000 -- $304,000
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Registrant.
3.2 By-Laws of the Registrant.
3.3* Form of Amended and Restated Certificate of Incorporation of the
Registrant.
3.4* Form of Amended and Restated By-Laws of the Registrant.
4.1* Specimen Certificate for shares of Common Stock, $.01 par value, of
the Registrant.
5* Opinion of Hale and Dorr llp with respect to the validity of the
securities being offered.
10.1+ Microsoft Corporation Product Service Vendor Agreement dated as of
December 14, 1995 between the Registrant and Microsoft Corporation,
as amended.
10.2* 1997 Stock Incentive Plan.
10.3* 1997 Director Stock Option Plan.
10.4 1995 Stock Option Plan, as amended.
10.5 1995 Replacement Stock Option Plan.
10.6 1995 California Stock Option Plan, as amended.
10.7* Form of Contribution Agreement to be entered into among the
Registrant, the MMI Subsidiary and PLEX.
10.8* Form of Contribution Agreement to be entered into among the
Registrant, the Corporate Software and Technology Subsidiary and
PLEX.
10.9* Form of Contribution Agreement to be entered into among the
Registrant, the MMI Subsidiary, the Corporate Software and Technology
Subsidiary and PLEX.
10.10* Form of Transitional Service Agreement to be entered into between the
Registrant and the MMI Subsidiary.
10.11* Form of Transitional Service Agreement to be entered into between the
Registrant and the Corporate Software and Technology Subsidiary.
10.12* Form of Tax Sharing Agreement to be entered into among the Registrant,
the Spin-Off Subsidiaries, PLEX and R.R. Donnelley.
10.13* Forms of Indemnification Agreements to be entered into between the
Registrant and R.R. Donnelley.
10.14* Registration Rights Agreement dated as of April 21, 1995 among the
Registrant and the Stockholders named therein, as amended.
10.15* Employment Agreement between the Registrant and Stephen D.R. Moore.
10.16* Employment Agreement between the Registrant and Judith G. Salerno.
10.17 Form of Management Retention Agreement entered into by the Registrant
with Stephen D. R. Moore and Judith G. Salerno.
10.18 Promissory Note and Stock Pledge Agreement dated April 15, 1996
between Judith G. Salerno and the Registrant.
10.19* Promissory Notes and Stock Pledge Agreement between Stephen D.R. Moore
and the Registrant.
11* Calculation of shares used in determining pro forma net income per
common share.
21* Subsidiaries of the Registrant.
23.1* Consent of Hale and Dorr llp (included in Exhibit 5).
23.2 Consent of Arthur Andersen llp.
23.3* Consents of Certain Persons Named as Post-Reorganization Directors.
24 Powers of Attorney (included on the signature page of this
Registration Statement).
27 Financial Data Schedule.
</TABLE>
- --------
*To be filed by amendment.
+Confidential treatment requested as to certain portions, which portions are
omitted and filed separately with the Commission.
<PAGE>
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
R.R. DONNELLEY GLOBAL SOFTWARE SERVICES CORP.
R.R. Donnelley Global Software Services Corp., a Delaware corporation, the
original Certificate of Incorporation of which was filed with the Secretary of
State of Delaware on February 16, 1995, hereby certifies that this Restated
Certificate of Incorporation restating, integrating and amending its Certificate
of Incorporation was duly proposed by its board of directors and adopted
unanimously by its stockholders in accordance with Sections 228, 242 and 245 of
the Delaware General Corporation Law.
FIRST: The name of the corporation (the "Corporation") is Stream
-----------
International Inc.
SECOND: The registered office of the Corporation is located at
Corporation Trust Center, 1209 Orange Street in the City of Wilmington, County
of New Castle in the State of Delaware. The name of its registered agent at
such address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the Delaware General
Corporation Law (the "GCL").
---
FOURTH: A. Authorized Shares. The total number of shares of stock which
-----------------
the Corporation shall have authority to issue is 17,135,000, consisting of three
classes: (i) 15,000,000 shares of Class A Common Stock, $.01 par value ("A
-
Common"), (ii) 2,000,000 shares of Class B-V Common Stock, $.01 par value ("BV
- ------ --
Common") and (iii) 135,000 shares of Class B-N Common Stock, $.01 par value ("BN
- ------ --
Common" and, together with the BV Common, "B Common"). All of the foregoing
- ------ --------
classes of stock are collectively referred to as "Common Stock", each of the A
------------
Common, the BV Common and the BN Common being a "Class of Common Stock"). A
----------------------
holder of record of Common Stock is referred to herein as a "Stockholder".
-----------
B. Voting. The holders of record of A Common shall have the sole right to
------
vote in the election or upon the removal of Class A Directors, and the holders
of record of BV Common shall have the sole right to vote in the election or upon
the removal of Class B Directors, in each case as provided in and subject to
Article SIXTH. The holders of record of A Common, BV Common and BN Common,
voting together as a single class, shall have full voting rights on all other
matters submitted to a vote of Stockholders, provided that no amendment or
repeal of any provision of this Restated Certificate of Incorporation which
adversely affects the rights of the holders of any Class of Common Stock shall
be adopted without the affirmative vote of the holders of at least a majority of
the outstanding shares of such
<PAGE>
Class, in addition to any other vote required by law or this Restated
Certificate of Incorporation, and provided that no amendment to the By-laws of
the Company in effect immediately prior to the issuance of any B Common shall be
adopted without the affirmative vote of the holders of at least a majority of
the holders of the BV Common and the BN Common, voting together as a single
class, and the affirmative vote of the holders of at least a majority of the
holders of the A Common. Subject to the foregoing provisions of this Section B,
each share of A Common, BV Common and BN Common shall entitle the holder thereof
to one vote.
C. Distributions. 1. As used in this Article FOURTH, "Distribution"
------------- ------------
means any dividend or distribution declared and paid on the Common Stock or any
Class thereof in cash or property other than shares of Common Stock. No
Distribution shall be declared or paid on any Class of Common Stock unless a per
share Distribution of like kind and amount is concurrently declared and paid on
all other Classes of Common Stock.
2. No dividend shall be declared or paid on any Class of Common Stock
payable in any other Class of Common Stock. No dividend payable in shares of a
Class of Common Stock shall be declared or paid on the same Class of Common
Stock, nor shall the shares of any Class of Common Stock be subdivided or
combined into a different number of shares, unless concurrently therewith a
dividend of equal proportionate amount is declared and paid on each other Class
of Common Stock in shares of such Class, or the shares of each other Class of
Common Stock are similarly subdivided or combined, so that the proportion which
the number of issued and outstanding shares of each Class of Common Stock bears
to the total number of issued and outstanding shares of Common Stock will not
change as a result of such dividend, subdivision or combination.
D. Liquidation; Merger, Etc. 1. Upon the liquidation, dissolution or
-------------------------
winding up of the Corporation, whether voluntary or involuntary, the holders of
Common Stock shall be entitled to receive equal per share distributions of the
assets of the Corporation remaining after payment or provision for payment of
all liabilities; provided, however, that in the event of any such liquidation,
-------- -------
dissolution or winding up of the Corporation during the Sharing Period, if and
to the extent any Excess Return Sharing Payments are required to be paid by or
on behalf of the B Holders under the TARSAP Replacement Plan (as defined in
Article ELEVENTH), and the Corporation shall facilitate the satisfaction of such
payment obligation by deducting and directing to the Specified Executives the
per share distributions owned by the B Holders in respect to their shares of B
Common.
2. Subject to Article Eleventh, the Company shall not enter into or
consummate any merger, consolidation or recapitalization of the Corporation or
similar transaction in which shares of any Class of Common Stock are converted
into cash or other securities or property unless all holders of Common Stock
(regardless of Class) shall be entitled to receive per share consideration of
like kind and amount. The approval of any merger or consolidation with or into
RRD or an Affiliate of RRD
<PAGE>
in which shares of any Class of Common Stock are converted into cash or other
securities or property shall require, in addition to any other vote required by
this Restated Certificate of Incorporation or the GCL, the affirmative vote of
the holders of at least a majority of the outstanding shares of B Common, voting
together as a single class, unless, in the case of any transaction described in
this sentence which is to be consummated during a Call Period, each share of
Common Stock is to be converted into or exchanged for either: (i) cash in an
amount not less than the Call Price applicable to such Call Period or (ii) any
combination of cash or Marketable Securities having an aggregate, Fair Value not
less than such Call Price.
E. Conversion. 1. Subject to Paragraph 4, effective at the earlier of
----------
(a) the time of payment for and delivery of shares of Common Stock sold to
underwriters (the "Closing") in the first public offering registered under the
-------
Securities Act of 1933, as amended (the "Securities Act") (the "Initial Public
-------------- --------------
Offering") or (b) immediately prior to the first distribution of the remaining
- --------
assets of the Corporation upon the liquidation, dissolution or winding up of the
Corporation, each share of B Common shall automatically be converted into one
share of A Common plus a fraction of a share of A Common of which the numerator
is the number of shares of BV Common issuable upon exercise of all options to
purchase BV Common granted by the Corporation after the time of filing this
Restated Certificate of Incorporation with the Secretary of State of Delaware
(the "Filing Time") which have lapsed or expired prior to such conversion
-----------
(calculated immediately prior to such lapse or expiration) and the denominator
is the sum of (i) the number of shares of BV Common outstanding immediately
prior to such conversion and (ii) the number of shares of BV Common issuable
upon exercise of all outstanding options to purchase BV Common immediately prior
to such conversion.
2. Subject to Paragraph 4, each share of B Common which is purchased by
the Corporation or the Designee pursuant to Section F or G of Article FIFTH
shall, immediately prior to such purchase, automatically be converted into the
number of full and fractional shares of A Common which would be issuable if such
shares were then being converted pursuant to Paragraph 1. Subject to Paragraph
4, immediately prior to any (i) merger or consolidation of the Corporation with
any other corporation as a result of which a majority of the Common Stock of the
Corporation or any other surviving corporation would be owned by any person
other than RRD or any Affiliate of RRD, (ii) sale of all or substantially all of
the common stock or assets of the Corporation (including any Total Disposition),
each share of B Common shall automatically be converted into the number of full
and fractional shares of A Common which would be issuable if such shares were
then being converted pursuant to Paragraph 1.
3. Each holder of shares of BN Common shall be entitled to convert any or
all of such shares of BN Common into the same number of shares of BV Common
immediately prior to the effectiveness of any merger, consolidation or similar
transaction involving the Corporation if after consummation of such transaction
a Person or group of Persons (within the meaning of the Securities
<PAGE>
Exchange Act of 1934) in the aggregate would own or control securities which
possess in the aggregate the ordinary voting power to elect a majority of the
surviving corporation's board of directors. Any holder of shares of BN Common
desiring to elect to so convert shall deliver notice to the Corporation at its
principal executive office at any time prior to the close of business on the
last business day preceding the effectiveness of such transaction, specifying
the number of shares to be so converted.
4. No fractional shares of A Common shall be issued upon any conversion
pursuant to Paragraph 1 or 2. The number of full and fractional shares of A
Common to which a B Holder is entitled upon conversion shall be determined on
the basis of the total number of shares of B Common being converted held by such
B Holder. Any remaining fraction of a share of A Common shall be settled by a
cash payment made by the Corporation in an amount equal to such fraction
multiplied by (a) in the case of a conversion described in clause (a) of
Paragraph 1, the initial public offering price in the prospectus first filed
pursuant to Rule 424 under the Securities Act after the date of the registration
statement for the Initial Public Offering, (b) in the case of a conversion
described in clause (b) of Paragraph 1, the Fair Value of such fraction
determined by the Board, or (c) in the case of a conversion described in
Paragraph 2, the applicable Put Price or Call Price, as the case may be.
5. From and after the conversion of B Common or BN Common pursuant to this
Section E, the certificates representing the shares so converted shall be deemed
for all purposes to represent the number of shares of Common stock into which
such shares have been converted, but (unless the Common Stock issued upon such
conversion will cease to be outstanding) the holder thereof shall be entitled to
a new certificate or certificates for the shares of Common Stock into which the
shares formerly evidenced by such outstanding certificate have been converted,
upon surrender to the Corporation of such certificate duly endorsed or
accompanied by proper instruments of transfer. The Corporation shall pay any
documentary stamp or similar tax due on the issuance of Common Stock upon
conversion of B Common, and the holder of any shares so converted shall pay to
the Corporation the amount of any tax which is due (or shall establish to the
satisfaction of the Corporation that no such tax is due) if the shares of Common
Stock issuable upon conversion are to be issued in a name other than the name of
such holder.
6. The Corporation shall at all times reserve sufficient shares of A
Common and BV Common out of its authorized but unissued Common Stock to permit
all conversions contemplated by this Section E. All shares of Common Stock
issued upon conversion shall be deemed validly issued, fully paid and non-
assessable. The Corporation will endeavor to comply with all applicable federal
and state securities laws and to list the shares of Common Stock issued upon
conversion on each securities exchange on which the Class so issued is then
listed.
F. Reclassification of Existing Stock. At the Filing Time each share of
----------------------------------
Common Stock, $.01 par value, of the Corporation issued and outstanding
<PAGE>
immediately prior to the Filing Time shall be reclassified into 2,994.638 shares
of A Common. Pending the surrender of certificates representing the Common
Stock reclassified pursuant to the preceding sentence, each certificate therefor
shall, from and after the Filing Time, be deemed to represent the shares of A
Common into which the shares evidenced thereby were so reclassified.
FIFTH: A. Restrictions on Transfer. 1. As used in this Restated
------------------------
Certificate of Incorporation:
(a) "Affiliate" has the meaning assigned to it in Rule 405 under the
---------
Securities Act, except that RRD shall not be deemed an Affiliate of the
Corporation and its subsidiaries;
(b) "B Holder" means a holder of record of B Common (or of A Common
--------
issued upon conversion of B Common pursuant to Paragraph 2 of Section E of
Article FOURTH), but references to Common Stock owned or held by a B Holder
include any A Common owned or held by such B Holder;
(c) "Board" means the Board of Directors of the Corporation;
-----
(d) "Business Day" means a day, other than a Saturday, Sunday or legal
------------
holiday, on which banks are open for business in the city where the
Corporation's principal executive office is located;
(e) "Consolidated Debt" means, as of any date, the sum of (i) the long-
-----------------
term debt of the Corporation and its subsidiaries outstanding on such date,
plus (ii) the average of the short-term debt of the Corporation and its
subsidiaries minus the amount of cash and cash equivalents of the
Corporation and its subsidiaries on the last day of each of the 12 months
ending on such date, each determined on a consolidated basis; provided that,
--------
for purposes of such calculations, indebtedness of the Corporation and its
subsidiaries under any revolving credit facility shall (A) to the extent
such indebtedness is not greater than the equity of the Corporation and its
subsidiaries on a consolidated basis on the date as of which such
determination is made, be deemed to be short term debt and (B) to the extent
such indebtedness exceeds such equity value, be deemed to be long-term debt;
(f) "Designee" means R.R. Donnelley & Sons Company, a Delaware
--------
corporation, or R.R. Donnelley Norwest Inc., an Oregon corporation, or R.R.
Donnelley International, Inc., a Delaware corporation, (provided that R.R.
Donnelley & Sons Company deliver a guaranty of the obligations of such
corporation) if (i) for any reason (other than the lack of funds legally
available therefor) the Corporation fails or refuses to exercise any right
granted to the Corporation pursuant to Section B, C or G to purchase shares
of Common Stock and the Class A Directors had approved the exercise of such
rights, or (ii) for any reason the Corporation is unable to purchase shares
of Common
<PAGE>
Stock it has the right or obligation to purchase pursuant to Section B, C, F
or G;
(g) "EBITA" means, without duplication (i) consolidated earnings of the
-----
Corporation and its subsidiaries; plus or minus (ii) any provision or credit
---- -- -----
or franchise taxes included in the determination of consolidated earnings;
plus (iii) net interest expenses, including deferred financing fee
----
amortization deducted in determination of consolidated earnings; plus (iv)
----
amortization deducted in the determination of consolidated earnings; plus or
---- --
minus (v) the amount that charges to the Corporation by RRD under the
-----
Transition Services Agreement between RRD and the Corporation are greater
than or less than $5,500,000, except to the extent such charges are
increased to reflect changes in the Consumer Price Index (as defined
therein) or are increased or decreased as a result of arms-length
negotiations between Newco and RRD with respect to changes in the scope or
cost of services provided to Newco by RRD; plus or minus (vi) extraordinary
---- -- -----
losses or gains, or any one-time unusual or non-recurring charges or credits
in each case discussed under generally accepted accounting principles,
included in the determination of consolidated earnings such as, but not all
inclusive, of the following types:
(1) Charge or credit on disposal of a part of a business which does
not meet the APB 30, par. 13 criteria under generally accepted
accounting principles for a segment of a business which has been
reported as a separate component of income from continuing operations;
(2) Charge or credit associated with a one-time employee
termination program or plan;
(3) Charge or credit on the impairment, disposal or abandonment of
a fixed asset;
(4) Charge or credit on the impairment, disposal or abandonment of
an investment (or joint venture) accounted for under the equity method;
(5) Charge or credit associated with the efforts of a strike,
including those against competitors and major suppliers;
(6) Charge or credit associated with the discontinuance of certain
product lines;
(7) Casualty charges or credits net of insurance recoveries,
related to infrequent occurrences not qualify for extraordinary charge
criteria as defined under generally accepted accounting principles;
(8) Charge or credit associated with the guarantee of the loan
<PAGE>
of a supplier;
(9) Charge or credit associated with plant relocation;
(10) Charge or credit associated with litigation and environmental
issues;
(11) Charge or credit associated with loan prepayments and
refinancings;
(12) Charge or credit associated with changes in compensation
programs;
(13) Charge or credit associated with the write-off of deferred pre-
production, deferred research and development and deferred start-up
costs for new locations and facilities;
(14) Charge or credit associated with future acquisition activities;
(15) Charge or credit associated with merger or acquisition or IPO
activities;
(16) Costs associated with the consummation of this transaction; and
(17) Charge or credit on disposal of marketable securities;
provided that, in order to be excluded from the EBITA calculation under clause
- --------
(vi) above, (A) each charge or credit must be extraordinary, one-time, unusual
or non-recurring and of an amount greater than $50,000 and (B) the cumulative
effect of the charges and credits must be of sufficient magnitude to cause a 2%
change in EBITA. To the extent a charge or credit which is excluded from the
EBITA calculation under clause (vi) above is associated with a change in the
Corporation's business (such as a plant closing, major customer defection,
product discontinuance, etc.), EBITA will also be adjusted for the pro-forma
impact of such changes. For purposes of calculating "EBITA," generally accepted
accounting principles as used in the preparation of the audited financial
statements of the GSS Business and Software Holdings, Inc., respectively, as of
and for the year ended December 31, 1994 shall be frozen; such generally
accepted accounting principles are summarized in Exhibit U to the Contribution
Agreement dated as of April 21, 1995 among the Corporation, RRD and Software
Holdings, Inc. Any subsequent changes in accounting principles, whether or not
promulgated by the Financial Accounting Standards Board, shall be excluded.
Also, in calculating "EBITA" with respect to any period other than at year end,
EBITA shall be determined on the basis of
<PAGE>
interim financial statements prepared on the same basis as the annual financial
statements. A copy of the Transition Services Agreement, the audited financial
statements of the GSS Business and of Software Holdings, Inc. and the exhibit
referred to above is maintained by the Corporation at its headquarters and
copies of which will be made available to any stockholder upon request.
(h) "Fair Value" means (i) with respect to any shares of Common Stock or
----------
other security, the fair value of such shares (or other securities) as of the
applicable date on the basis of a sale of such shares (or other securities) in
an arms length private sale between a willing buyer and a willing seller,
neither acting under compulsion, without any discount for any lack of liquidity
of such shares (or other securities) or the fact that such shares (or other
securities) may represent a minority interest or that there may be restrictions
on the voting rights of such shares (or such securities), and (ii) with respect
to any other assets or property, the fair market value;
(i) "Marketable Securities" means securities which are listed on a national
---------------------
securities exchange or granted in the NASDAQ Stock Market and can be resold in a
public offering in compliance with the Securities Act without further regulation
thereunder.
(j) "Person" means any natural person, corporation, general or limited
------
partnership, limited liability company, trust, association, joint venture,
government or other entity or organization;
(k) "Principal B Holder" means one or more B Holders owning, in the
------------------
aggregate, at least 7.5% of the then issued and outstanding shares of Common
Stock;
(l) "Prohibited Holder" means any Person (other than RRD or an Affiliate of
-----------------
RRD) that (i) competes with RRD and has sales in the businesses in which it so
competes with RRD in excess of 5% of the consolidated net sales of RRD, or (ii)
competes with the Corporation and has sales in the businesses in which it so
competes with the Corporation in excess of 10% of the consolidated net sales of
the Corporation; provided, that neither Resource Holdings, Inc., a Delaware
--------
corporation, nor any Affiliate thereof shall constitute a Prohibited Holder;
(m) "RRD" means, collectively, R.R. Donnelley & Sons Company, a Delaware
---
corporation, and its subsidiaries (other than the Corporation and its
subsidiaries); and
(n) "Transfer" means sell, assign, exchange, pledge, encumber, give,
--------
dispose of or otherwise transfer (and when used as a noun means any of the
foregoing acts), and includes any Transfer by operation of law and any indirect
Transfer through the Transfer of ownership of an entity more than 50% of the
<PAGE>
assets of which consist of shares of Common Stock.
Certain other terms used in this Restated Certificate of Incorporation are
defined generally in the Section or Paragraph where first used. Reference is
made to Section C of Article NINTH.
2. Subject to Paragraphs 6 and 7, until the termination of the
provisions of this Article FIFTH in accordance with Paragraph 8:
(a) no Stockholder shall Transfer, offer to Transfer or solicit any
offer to acquire any shares of Common Stock held by such Stockholder
(regardless of how or when acquired) unless such Transfer complies with the
provisions of this Article FIFTH;
(b) each Person (other than the Corporation) acquiring shares of Common
Stock (a "Transferee"), whether from a Stockholder or from the Corporation
----------
and regardless of the method of Transfer, shall execute and deliver to the
Corporation, as a condition precedent to such acquisition, an instrument in
form and substance satisfactory to the Corporation confirming that such
Transferee takes such shares of Common Stock subject to, and such Transferee
shall be bound by, the terms and conditions of this Article FIFTH; and
(c) each certificate for shares of Common Stock shall bear the
following legend:
"The sale, assignment, pledge, encumbrance or other
transfer of the shares represented by this certificate
is subject to restrictions, and such shares are subject
to certain mandatory transfers, as provided in the
Restated Certificate of Incorporation of the Corporation,
a copy of which is on file at the principal executive
offices of the Corporation."
3. Until the Corporation has received an opinion of counsel reasonably
satisfactory to it that shares of Common Stock may be Transferred in a
transaction involving a public offering within the meaning of the Securities Act
without registration thereunder, or are being sold pursuant to a registration
statement thereunder, each certificate for shares of Common Stock shall bear the
following legend:
"The shares represented by this certificate were issued
without registration under the Securities Act of 1933,
as amended, and may not be sold, assigned, pledged,
encumbered or otherwise transferred unless such shares
have been registered under that Act or the
<PAGE>
Corporation has received an opinion of counsel reasonably
satisfactory to it that such registration is not required."
Appropriate stop transfer notations shall be entered in the books of the
Corporation, and no Transfer shall be recorded therein except upon compliance
with the conditions of the foregoing legend.
4. Any attempted Transfer of shares of Common Stock which does not
comply with the applicable provisions of this Article FIFTH shall be null and
void. The Corporation shall not cooperate with or record on its books any
Transfer of shares of Common Stock not Transferred in accordance with this
Article FIFTH, nor shall the Corporation be liable to any Stockholder or
Transferee for any damages, losses or expenses, or be subject to any other
remedy, as a consequence of any actions taken or not taken by the Corporation
pursuant to this Section A.
5. If any Stockholder which is obligated to Transfer shares of Common
Stock pursuant to any provision of this Article FIFTH fails or refuses to do so
at the time and place required, the Secretary of the Corporation is hereby
authorized and directed to affect such Transfer by recording the same on the
books of the Corporation and issuing and delivering a certificate representing
the shares required to be Transferred to the Transferee against payment of the
required purchase price therefor. The Secretary shall hold such purchase price,
as bailee but without any obligation to pay or account for interest thereon, for
payment to the defaulting Stockholder upon surrender of the certificate
representing the shares of Common Stock required to be transferred by such
Stockholder.
6. None of the restrictions contained in this Article FIFTH with
respect to Transfers of shares of Common Stock (other than those set forth in
paragraph 3 and in Section C), nor any right or option to purchase or obligation
to sell Common Stock pursuant to any provision of this Article FIFTH except
Section C, shall apply to any Transfer:
(a) by a Stockholder to a spouse, child, parent, sibling or grandchild
of such Stockholder or to a trust of which there are no beneficiaries other
than such Stockholder or one or more of such relatives;
(b) by gift to a bona fide charity or foundation approved by the Board
(such approval not to be unreasonably withheld);
(c) by will or the laws of descent or to a legal representative in the
event a Stockholder becomes mentally incompetent;
(d) by a Stockholder which is a corporation, partnership or limited
liability company to an Affiliate thereof or by a Stockholder which is a
partnership to its partners;
<PAGE>
(e) by a Stockholder to any other Person who, prior to such Transfer, is a
Stockholder; and
(f) by RRD to any Person of any or all shares of Common Stock owned by RRD;
provided that in each of the Transfers described in clauses (a) through (e) each
Transferee, donee or distributee (a "Permitted Transferee") is not a Prohibited
--------------------
Holder and agrees to take subject to and to be bound by the provisions of this
Article FIFTH, and that a Stockholder making a Transfer pursuant to clause (d)
shall remain subject to the provisions relating to indirect Transfers contained
in the definition of that term; and provided, further, that in a Transfer by RRD
-------- -------
to any Person of any shares of Common Stock which, when added to all other
shares of Common Stock Transferred by RRD after the Filing Time and prior to
such Transfer (other than Transfers described in clause (b), (d) and (m)) would
exceed 20% of the issued and outstanding shares of Common Stock at the date of
such Transfer, such Person agrees to take subject to and be bound by the
provisions of this Restated Certificate of Incorporation as they apply to RRD.
For purposes of this Article FIFTH, the Permitted Transferees of a Stockholder
include the Permitted Transferees of such Stockholder's Permitted Transferees.
None of the restrictions contained in this Article FIFTH (other than those set
forth in Paragraph 3) shall apply to (i) a Transfer of shares of B Common if
such Transfer has been approved in advance by the Class A Directors and, if and
to the extent so required by the Class A Directors, the Transferee has agreed to
take subject to and to be bound by the provisions of this Article FIFTH or (ii)
a Transfer of shares of A Common by a Stockholder other than RRD if such
Transfer has been approved in advance by the Class A Directors and by the Class
B Directors and, if and to the extent so required by the Class A Directors or
the Class B Directors, the Transferee has agreed to take subject to and to be
bound by the provisions of this Article FIFTH. None of the restrictions
contained in this Article FIFTH shall apply to a Transfer to the Corporation.
7. Notwithstanding any other provision of this Article FIFTH to the
contrary:
(a) the Corporation and any Stockholder may Transfer shares of Common Stock
pursuant to a public offering registered under the Securities Act; and
(b) the Corporation may enter into an agreement to consolidate with or
merge with or into any other Person if such agreement is approved by the Board
and by the requisite vote of the Stockholders in accordance with this Restated
Certificate of Incorporation and the GCL and any other applicable laws.
In either such event, the shares of Common Stock may be sold in such public
offering or exchanged pursuant to such merger or consolidation for the
consideration
<PAGE>
provided thereunder without compliance with the provisions of this Article
FIFTH. A Transfer to (i) the Corporation or a Designee pursuant to Section B, C,
F or G, (ii) a Stockholder pursuant to Section C or (iii) a Purchaser pursuant
to Section E shall not be subject to any right or option to purchase, or
obligation to sell, Common Stock pursuant to any other provision of this Article
FIFTH.
8. The provisions of this Article FIFTH, other than Paragraph 3 of this
Section A, shall terminate and be of no further force or effect upon the Closing
of the Initial Public Offering.
B. First Offer Rights. 1. Except as provided in Paragraphs 6 and 7 of
------------------
Section A and Sections C, E and F, any B Holder who desires to Transfer any
shares of Common Stock (the "Selling Holder") shall first give 30 days' prior
--------------
written notice (a "Seller's Notice") to the Corporation and RRD stating the
---------------
Selling Holder's desire to make such Transfer, the number and Class of shares of
Common Stock to be Transferred (the "Offered Shares") and the cash price which
--------------
the Selling Holder proposes to be paid for the Offered Shares (the "First Offer
-----------
Price"). No Selling Holder shall Transfer any shares of Common Stock pursuant
- -----
to this Section B, except in a sale for cash.
2. Upon receipt of the Seller's Notice, the Corporation shall have the
irrevocable and exclusive option to purchase all, but not less than all, of the
Offered Shares at the First Offer Price, unless the Selling Holder consents to
the purchase of less than all of the Offered Shares; provided that the Class A
Directors may cause the Corporation to assign such option to a Designee in
accordance with the definition of that term. The Corporation's (or the
Designee's) option under this Paragraph 2 shall be exercisable by a written
notice to the Selling Holder given on or before the 30th day after the date that
the Seller's Notice was actually received by the Corporation and RRD. Delivery
of a written notice of exercise shall constitute an irrevocable obligation on
the part of the Corporation or the Designee, whichever exercises the option, to
purchase the Offered Shares at the First Offer Price as contemplated by this
Section B.
3. If the Seller's Notice has been duly given and the Corporation or the
Designee does not exercise the option and purchase all of the Offered Shares at
the First Offer Price (unless a purchase of less than all such shares is
consented to by the Selling Holder), the Selling Holder shall be free, for a
period of 180 days from the date of the expiration of the 30-day acceptance
period, to sell all of the Offered Shares (not purchased by the Corporation or
the Designee) to a Transferee (other than a Prohibited Holder) at a cash price
not less than 95% of the First Offer Price and on the other material terms set
forth in the First Offer Notice, provided that such sale complies with the
provisions of Section A.
4. If the proposed purchase price of a Transferee for the Offered Shares
is less than 95% of the First Offer Price, the Selling Holder shall not Transfer
any of the Offered Shares unless the Selling Holder first reoffers the Offered
Shares at
<PAGE>
such lesser cash price to the Corporation (or the Designee) by giving 15 days'
prior written notice (the "Reoffer Notice") thereof, stating the Selling
Holder's intention to make such Transfer at such lower cash price (the "Reoffer
-------
Price"). The Corporation or the Designee shall then have the irrevocable and
- -----
exclusive option to purchase the Offered Shares at the Reoffer Price,
exercisable by written notice to the Selling Holder given on or before the 15th
day after the date that the Reoffer Notice was actually received by the
Corporation or the Designee. If the Corporation or the Designee does not then
purchase all the Offered Shares (or a lesser number consented to by the Selling
Holder), such Offered Shares may be sold by the Selling Holder to a Transferee
(other than a Prohibited Holder) within 60 days following the date of the
expiration of the 15-day reoffer acceptance period, at a cash price equal to or
greater than the Reoffer Price, provided that such sale complies with the
provisions of Section A.
5. If the Corporation or the Designee does not exercise the option to
purchase the Offered Shares at the First Offer Price or at the Reoffer Price,
and the Selling Holder has not sold the Offered Shares to a Transferee (other
than a Prohibited Holder) for any reason before the expiration of the 60-day
period described in Paragraph 4 in the event of a Reoffer or, if no Reoffer
Notice is given, the 180-day period described in Paragraph 3, the Selling Holder
shall not give a Seller's Notice with respect to a transaction which would
require compliance with this Section B for a period of 180 days from the
expiration of such 60-day or 180-day period, as the case may be.
6. The closing of all purchases pursuant to the first offer rights granted
under this Section B shall take place at the principal executive office of the
Corporation at 10 a.m. local time on the later of (a) the tenth Business Day
following the delivery to the Selling Holder of the notice exercising such first
offer right with respect to all of the Offered Shares to be sold by the Selling
Holder or (b) the fifth Business Day following the expiration or termination of
all waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended ("HSR"), applicable to such purchase, or at such other time
---
and/or place as the parties to such purchase may agree. At such closing, (i)
the Selling Holder shall Transfer to the Corporation or the Designee good and
marketable title to the shares of Common Stock being purchased, free and clear
of any lien, claim or encumbrance, by delivery of the certificates representing
the shares of Common Stock to be Transferred, duly endorsed in blank, with any
required stock transfer tax stamps attached, together with such stock powers,
certificates, legal opinions and other instruments of transfer as the
Corporation or the Designee shall reasonably request; and (ii) the Corporation
or the Designee shall pay to the Selling Holder the purchase price for the
shares of Common Stock being purchased in cash, by delivery of a certified or
bank check or by wire transfer of immediately available funds to such account as
the Selling Holder shall direct by written notice delivered to the Corporation
or the Designee not later than two Business Days before such closing.
C. First Refusal Rights. 1. Notwithstanding anything to the
--------------------
<PAGE>
contrary in this Article FIFTH, if a B Holder desires to Transfer any shares of
Common Stock to a Prohibited Holder (which Transfer may only be made by way of a
sale for cash), and has received a bona fide offer by a Prohibited Holder to
---------
purchase the shares of Common Stock (the "First Refusal Offer"), the following
-------------------
procedures shall apply. The Selling Holder shall first give 30 days' prior
written notice (a "First Refusal Notice") to the Corporation, which shall
--------------------
promptly send a copy thereof to all other Stockholders (the Corporation and all
other Stockholders being referred to herein as the "First Refusal Offerees")
----------------------
stating the Selling Holder's desire to make such Transfer to a Prohibited
Holder, the number and Class of shares of Common Stock to be Transferred (the
"First Refusal Shares"), the name of the Prohibited Holder and the cash price to
- ---------------------
be paid by the Prohibited Holder. An offer shall not be deemed bona fide unless
---- ----
the Selling Holder has informed the prospective Prohibited Holder of such
Selling Holder's obligations under this Article FIFTH, and the prospective
Prohibited Holder has agreed to be bound by the provisions of this Article
FIFTH. The Corporation and the other First Refusal Offerees may take such steps
as they reasonably deem necessary to determine the validity or the bona fide
---- ----
nature of the offer.
2. Upon receipt of the First Refusal Notice the Corporation or the
Designee shall have the irrevocable and exclusive option to purchase up to all
of the First Refusal Shares at the cash price set forth therein; provided that
the Class A Directors may cause the Corporation to assign such option to a
Designee in accordance with the definition of that term; and provided further
that either: (a) the Corporation or the Designee purchases all such First
Refusal Shares, (b) if the Corporation or the Designee elects to purchase less
than all the First Refusal Shares, the other First Refusal Offerees elect to
purchase all the remaining First Refusal Shares pursuant to Paragraph 3, or (c)
the Selling Holder consents to the purchase of less than all of the First
Refusal Shares. The Corporation's or Designee's option under this Paragraph 2
shall be exercisable by a written notice to the Selling Holder and the
Corporation (and the Corporation shall promptly send a copy thereof to each of
the other First Refusal Offerees), given on or before the 15th day after the
date the First Refusal Notice was actually received by the Corporation and RRD.
Delivery of such a written notice of exercise shall constitute an irrevocable
obligation on the part of the Corporation or the Designee, whichever exercises
the option, to purchase the First Refusal Shares at the cash price set forth in
the First Refusal Notice as contemplated by this Section C.
3. If the Corporation or the Designee does not elect to purchase all of
the First Refusal Shares, then each of the other First Refusal Offerees shall
have the irrevocable and exclusive option to purchase up to that percentage of
the First Refusal Shares not purchased by the Corporation or the Designee
determined by dividing the number of shares of Common Stock owned by Stockholder
by the total number of shares of Common Stock owned by such Stockholders who
elect to purchase First Refusal Shares Shares hereunder, without reference to
either the First Refusal Shares or the number of shares of Common Stock held by
any Stockholder who elects not to purchase any First Refusal Shares (the
"Proportionate Share"). To
- --------------------
<PAGE>
the extent that any Stockholder does not fully subscribe for its Proportionate
Share of the First Refusal Shares, each other fully subscribing Stockholder
shall have an option to purchase that percentage of the First Refusal Shares not
purchased by non-fully subscribing Stockholders determined by dividing the
number of shares of Common Stock owned by such fully subscribing Stockholder by
the total number of shares of Common Stock owned by all fully subscribing
Stockholders electing to purchase additional shares. Unless the Selling Holder
consents to the purchase of less than all the First Refusal Shares, no
Stockholder may purchase any shares of Common Stock (irrespective of whether it
is prepared to subscribe fully for its Proportionate Share) unless all First
Refusal Shares are to be purchased. The option of each of the First Refusal
Offerees participating in the purchase under this Paragraph 3 shall be
exercisable by written notice to the Selling Holder, with copies to the
Corporation, given on or before the 30th day after the date the First Refusal
Notice was actually received by such Stockholder. Each delivery of such a
written notice of exercise shall constitute an irrevocable obligation on the
part of the applicable First Refusal Offeree to purchase the First Refusal
Shares at the cash price set forth in the First Refusal Notice as contemplated
by this Section C.
4. If the First Refusal Notice has been duly given and the Corporation or
the Designee and all the First Refusal Offerees do not exercise their options
and purchase all of the First Refusal Shares (or a lesser number consented to by
the Selling Holder), the Selling Holder shall be free, for a period of 30 days
from the expiration of the first refusal acceptance period, to sell the First
Refusal Shares to the Prohibited Holder named in the First Refusal Notice at the
same cash price and on the same terms as set forth in the First Refusal Notice,
provided that such sale complies with the provisions of Section A.
5. If the Corporation or the Designee and the other First Refusal Offerees
do not exercise their option to purchase the First Refusal Shares and the
Selling Holder has not sold the First Refusal Shares as set forth in the First
Refusal Notice for any reason before the expiration of the 30-day period
described in Paragraph 4, then the Selling Holder shall not give a First Refusal
Notice with respect to a transaction which would require compliance with this
Section C for a period of 180 days from the expiration of such 30-day period.
6. The closing of all purchases pursuant to the first refusal rights
granted under this Section C shall take place at the principal executive office
of the Corporation at 10 a.m. local time on the later of (a) the tenth Business
Day following the delivery to the Selling Holder of all notices exercising such
first refusal rights with respect to all of the First Refusal Shares to be sold
by the Selling Holder or (b) the fifth Business Day following the expiration or
termination of all waiting periods under HSR applicable to such purchase, or at
such other time and/or place as the parties to such purchase may agree. At such
closing, (i) the Selling Holder shall Transfer to the Corporation or the
Designee and each Stockholder purchasing shares of Common Stock good and
marketable title to the shares of Common Stock being purchased by each of them,
free and clear of any lien, claim or encumbrance, by
<PAGE>
delivery of the certificates representing the shares of Common Stock to be
Transferred, duly endorsed in blank, with any required stock transfer tax stamps
attached, together with such stock powers, certificates, legal opinions and
other instruments of transfer as the Corporation or the Designee or the
accepting Stockholder(s) shall reasonably request; and (ii) the Corporation or
the Designee and each Stockholder purchasing shares of Common Stock shall pay to
the Selling Holder the purchase price for the shares of Common Stock being
purchased in cash, by delivery of a certified or bank check or by wire transfer
or immediately available funds to such account as the Selling Holder shall
direct by written notice delivered to the Corporation or the Designee and each
such Stockholder not later than two Business Days before such closing.
D. Involuntary Transfers. 1. If a Stockholder involuntarily Transfers
---------------------
any or all of its shares of Common Stock for any reason, except to a Permitted
Transferee, the Transferee of such shares of Common Stock held by such
Transferee to the Corporation or the Designee in accordance with the procedures
set forth in Section B or, if the Transferee is a Prohibited Holder, to the
Corporation or the Designee and the other Stockholders in accordance with the
procedures set forth in Section C.
2. For purposes of such offer, the cash price for such shares of
Common Stock shall be the Fair Value of such shares of Common Stock as of the
date of such involuntary Transfer, appropriately adjusted to reflect the Fair
Value of any dividends or distributions received or to be received by the holder
of such shares of Common Stock subsequent to the date of such involuntary
Transfer. The Board shall make or obtain a determination of the Fair Value of
such shares of Common Stock no later than 90 days following the date the
Corporation receives written notice of their involuntary Transfer (but the
receipt of such notice shall not be a prerequisite to the exercise of any rights
granted under this Section D), and the Seller's Notice or First Refusal Notice,
as the case may be, with respect to such shares of Common Stock shall be given
by such Stockholder or by the Corporation on behalf of such Stockholder as
promptly as practicable following such determination.
3. For purposes of this Section D, the Fair Value of shares of Common
Stock shall be determined in good faith by the Board, in its reasonable
discretion, provided, that, if requested by any Stockholder who, alone or
together with one or more other Stockholders making such request, holds at least
7.5% of the outstanding shares of Common Stock, such Fair Value shall be
determined by a nationally-recognized investment banking or business valuation
firm, which is not an Affiliate of the Corporation or any Stockholder (an
"Evaluator"), selected by the Board.
- ----------
E. Tag Along, Drag Along Rights. 1. In the event that RRD proposes to
----------------------------
Transfer to a Person (a "Purchaser") other than an Affiliate of RRD shares of
---------
Common Stock which, when added to all other shares of Common Stock Transferred
by RRD after the Filing Time and prior to such proposed Transfer (other than
Transfers permitted under clauses (b), (d) and (e) of Paragraph 6 of Section A
of Article FIFTH)
<PAGE>
would exceed 20% of the issued and outstanding shares of Common Stock at the
date of such proposed Transfer (a "Disposition"), RRD shall, not later than 30
-----------
days before the closing of such Disposition, give written notice (a "Proposal
--------
Notice") of such proposed Disposition to the Corporation, which shall promptly
- ------
send a copy thereof to each B Holder, and each B Holder shall have the right (a
"Tag Along Right") to require RRD to reduce the number of shares of Common Stock
---------------
to be sold by RRD, if necessary, and to require the Purchaser to purchase from
each of the B Holders electing to exercise a Tag Along Right that number of
shares of Common Stock equal to the product obtained by multiplying (a) the
total number of shares of Common Stock to be purchased by the Purchaser by (b)
the electing B Holder's Fractional Interest, rounded up to the nearest whole
number; such purchase to be upon the same terms and conditions and at the same
time and place, as the sale of Common Stock by RRD in the Disposition. In order
to exercise any Tag Along Right, an electing B Holder must be able to transfer
good and marketable title to such B Holder's shares of Common Stock to the
Purchaser, free and clear of any lien, claim or other encumbrance. For purposes
of this Section E, the term "Fractional Interest" means the quotient obtained by
-------------------
dividing (i) the total number of shares of Common Stock owned by the electing B
Holder, by (ii) the sum of the total number of shares of Common Stock owned by
all electing B Holders and RRD. Each electing B Holder shall give written
notice of its election to RRD no later than ten Business Days after its receipt
of a Proposal Notice. Neither Section B nor Section C shall apply to sales of
shares of Common Stock by Stockholders pursuant to the exercise of a Tag Along
Right in accordance with this Paragraph 1.
2. Subject to Paragraph 3, in the event that at any time RRD owns a
majority of all the outstanding shares of Common Stock RRD proposes to sell or
otherwise dispose of all of the shares of Common Stock then owned by RRD to a
Purchaser other than an Affiliate of RRD (a "Total Disposition"), RRD shall have
-----------------
the right (a "Drag Along Right") to require each of the other Stockholders to
----------------
sell and deliver good and marketable title to all of the shares of Common Stock
held by such Stockholder to the Purchaser, free and clear of any lien, claim or
other encumbrance, upon the same terms and conditions, and at the same time and
place, as RRD sells shares of Common Stock pursuant to the Total Disposition.
RRD may exercise the Drag Along Right by giving written notice (a "Total
-----
Disposition Notice") of such proposed Total Disposition, no later than 30 days
- ------------------
before the proposed closing of such Total Disposition, identifying the Purchaser
and describing the consideration to be paid and the other material terms
thereof, to the Corporation, which shall promptly send a copy thereof to each
other Stockholder. Neither Section B nor Section C shall apply to sales of
shares of Common Stock by Stockholders pursuant to the exercise of RRD's Drag
Along Right in accordance with this Paragraph 2.
3. If requested by any Stockholder who, alone or together with one or
more other Stockholders making such request, holds at least 7.5% of the
outstanding shares of Common Stock, within ten days after a Total Disposition
Notice has been given, the Board shall select an Evaluator which shall determine
whether the Fair Value of the consideration to be paid for Common Stock
described
<PAGE>
in the Total Disposition Notice is at least equal to 95% of the Fair Value of
the Common Stock. If, in the opinion of the Evaluator, the Fair Value of such
consideration is less than 95% of the Fair Value of the Common Stock, (a) no
Stockholder shall be obligated to sell and deliver Common Stock pursuant to such
exercise of the Drag Along Right and (b) the fees and expenses of the Evaluator
shall be paid by RRD. If, in the opinion of the Evaluator, the Fair Value of
such consideration is at least equal to 95% of the Fair Value of the Common
Stock, (i) each other Stockholder shall be obligated to sell and deliver all
shares of Common Stock held by such Stockholder pursuant to such exercise of the
Drag Along Right, and (ii) the fees and expenses of the Evaluator shall be paid
by the Stockholder or Stockholders requesting the valuation pursuant to this
Paragraph 3.
4. In the event of any Disposition or Total Disposition occurring
during the Sharing Period each of RRD and each B Holder selling shares in such
Disposition or Total Disposition shall make appropriate arrangements to comply
with any obligations to pay Excess Return Sharing Payments pursuant to the
TARSAP Replacement Plan (including arrangements pursuant to which the Purchaser
agrees to deduct from payments otherwise due to B Holders in respect of their
shares and pay to the Specified Executives and to the Corporation appropriate
portions of such proceeds to the extent required to satisfy the payment
obligations (including tax withholding payment obligations) specified in Article
ELEVENTH and in the TARSAP Replacement Plan).
F. Put Rights. 1. Subject to the terms and conditions of this Section F,
----------
during each Put Period, any Principal B Holder shall have the right (the "Put
---
Right") to sell to the Corporation, and upon exercise of the Put Right in
- -----
accordance with this Section F, the Corporation (to the extent funds are legally
available therefor) shall purchase from the B Holder exercising the Put Right,
all, but not less than all, of the shares of Common Stock owned by such B
Holder. If the Put Right has been exercised, each other B Holder shall have a
similar put exercisable during the time period specified below to sell to the
Corporation or the Designee, and upon proper notice to the Corporation or the
Designee in accordance with this Section F, the Corporation (to the extent funds
are legally therefor) shall purchase from each other B Holder giving such
notice, all, but not less than all, of the shares of Common Stock owned by each
such B Holder. The Class A Directors may permit a Designee to perform the
obligations of the Corporation under this Section F in accordance with the
definition of Designee.
2. As used in this Section F, "Put Period" means: (a) the second
----------
calendar quarter of each year commencing in 1998 (each such quarter, an "Annual
------
Put Period"), and (b) in the event the Class A Directors increase the number of
- ----------
directors in accordance with Section A of Article SIXTH, the period (referred to
herein as an "Expansion Put Period") commencing with the day on which the number
--------------------
of directors is increased and ending on the last day of the third full calendar
month following the month in which such expansion occurred.
<PAGE>
3. The Put Right may be exercised by any Principal B Holder by giving
written notice to the Corporation during the Put Period (the "Put Notice"). The
----------
Corporation shall promptly send a copy of the Put Notice to each other
Stockholder. Thereupon, each other B Holder shall have the right to sell all,
but not less than all, of such B Holder's shares of Common Stock to the
Corporation or the Designee at the same price and upon the same terms and
conditions, by giving written notice thereof to the Corporation on or before the
30th day after the date of the Put Notice. If the holders of 95% or more of the
outstanding shares of B Common exercise the Put Right and the subsequent put
granted in this Section F, then each B Holder who did not exercise the Put Right
or subsequent put shall be required to sell all of such holder's Common Stock to
the Corporation or the Designee (the "Mandatory Put"). The B Holders exercising
-------------
the Put Right and the subsequent put granted in this Section F and the B Holders
subject to the Mandatory Put are referred to herein collectively as the "Put
---
Holders".
- -------
4. The per share price (the "Put Price") for the shares of Common
---------
Stock to be purchased upon exercise of the Put Right and each subsequent put by
any other B Holder giving proper notice and under the Mandatory Put (the "Put
---
Shares") shall be the quotient obtained by dividing:
- ------
(a) if the Put Right is exercised during an Annual Put Period, the
remainder of (i) the product of eight times EBITA for the 12 months
ending on the December 31 immediately preceding the exercise of the Put
Right, as set forth in the audited financial statements of the
Corporation, minus (ii) Consolidated Debt as of such December 31, by
(b) the number of shares of Common Stock issued and outstanding as
of such December 31; and
(c) if the Put Right is exercised during an Expansion Put Period,
the remainder of (iii) the product of eight times EBITA for the 12
months ending on the last day of the month immediately preceding the
first day of the Expansion Put Period as set forth in the unaudited
financial statements of the Corporation, minus (iv) Consolidated Debt
as of such day, by
(d) the number of shares of Common Stock issued and outstanding as
of such day.
5. Notwithstanding any contrary provision of this Section F, if during
any twelve month period ending December 31, the Corporation shall effectuate,
through any individual transaction or series of related transactions (including
by way of merger), any acquisition of the equity securities or assets of any
other Person for a price (including assumed liabilities) in excess of $5,000,000
which acquisition is not in the ordinary course of business consistent with past
practice, that has not been approved or ratified by the Class B Directors, the
Put Price for the
<PAGE>
Annual Put Period next following consummation of such acquisition shall be
determined after excluding the effects of such acquisition (including the
incurrence of any indebtedness to finance the acquisition).
6. The closing of all purchases of Put Shares shall take place at the
principal executive office of the Corporation at 10 a.m. local time on the later
of (a) the 45th day after the last day of the Put Period (or if such day is not
a Business Day, the next succeeding Business Day) or (b) the fifth Business Day
following the expiration or termination of all waiting periods under HSR
applicable to such purchases, or at such other time and/or place as the parties
to such purchases may agree. At such closing, (i) each Put Holder shall
Transfer to the Corporation or the Designee good and marketable title to the Put
Shares being sold by such Put Holder, free and clear of any lien, claim or
encumbrance, by delivery of the certificates representing the Put Shares to be
Transferred, duly endorsed in blank, with any required stock transfer tax stamps
attached, together with such stock powers, certificates, legal opinions and
other instruments of transfer as the Corporation or the Designee shall
reasonably request; and (ii) the Corporation or Designee shall pay to each Put
Holder the purchase price for the Put Shares being sold by such Put Holder
(calculated as provided in Paragraph 4 or 5, as applicable) in cash, by delivery
of a certified or bank check or by wire transfer of immediately available funds
to such account as each such Put Holder shall direct by written notice delivered
to the Corporation or the Designee not later than two Business Days before such
closing.
7. In the event the Put Right is exercised during the Sharing Period,
the Corporation (or, if applicable, the Designee) shall (i) deduct from the
purchase price paid for the Put Shares being sold by each Put Holder pursuant to
this Section F such amount, if any, as is then required to be paid by such Put
Holder with respect to such Put Holder's shares of Common Stock for payment of
Excess Return Sharing Payments pursuant to the TARSAP Replacement Plan and (ii)
pay to each Specified Executive who qualifies therefor the appropriate Excess
Return Sharing Payment on the terms and subject to the conditions of the TARSAP
Replacement Plan; all subject to withholding for taxes as provided in Article
ELEVENTH.
8. The Put Right may only be exercised once and shall expire as to all
remaining B Holders upon the first closing of any purchase of Put Shares.
G. Call Rights. 1. Subject to the terms and conditions of this Section
-----------
G, during a Call Period, the Corporation shall have the right (the "Call Right")
----------
to purchase all, but not less than all, of the shares of Common Stock owned by
each of the B Holders, and upon exercise of a Call Right in accordance with this
Section G, each B Holder shall sell all, but not less than all, of the shares of
Common Stock owned by such B Holder to the Corporation; provided that the Class
A Directors may cause the Corporation to assign such option to a Designee in
accordance with the definition of that term. As used in this Section G, "Call
----
Period" means (a) the third calendar quarter of 1998 and (b) the second calendar
- ------
quarter of each year, commencing in 1999.
<PAGE>
2. The per share price (the "Call Price") for all shares of Common Stock
----------
to be purchased upon exercise of the Call Right (the "Call Shares") shall be the
-----------
quotient obtained by dividing:
(a) the remainder of (i) the product of nine times EBITA for the 12
months ending on the December 31 (March 31, in the case of the first Call
Period) immediately preceding the exercise of the Call Right, as set forth
in the financial statements of the Corporation, minus (ii) Consolidated
Debt as of such day, by
(b) the number of shares of Common Stock outstanding as of such day.
3. The Call Right may be exercised by giving written notice (the "Call
----
Notice") to each B Holder during the Call Period. The Corporation shall give
- ------
such notice at the request of a Designee exercising the Call Right. The closing
of all purchases of Call Shares shall take place at the principal executive
office of the Corporation at 10 a.m. local time on the later of (a) the Business
Day following the delivery to the B Holders of the Call Notice or (b) the fifth
Business Day following the expiration or termination of all waiting periods
under HSR applicable to such purchases, or at such other time and/or place as
the parties to such purchases may agree. At such closing, (i) each B Holder
shall Transfer to the Corporation or the Designee good and marketable title to
all Call Shares owned by such holder, free and clear of any lien, claim or
encumbrance, by delivery of the certificates representing the Call Shares to be
Transferred, duly endorsed in blank, with any required stock transfer tax stamps
attached, together with such stock powers, certificates and other instruments of
transfer as the Corporation or the Designee shall reasonably request; and (ii)
the Corporation or the Designee shall pay to each B Holder the purchase price
for the Call Shares being sold by such B Holder (calculated as provided in
Paragraph 2) in cash, by delivery of a certified or bank check or by wire
transfer of immediately available funds to such account as such B or C Holder
shall direct by written notice delivered to the Corporation or the Designee not
later than two Business Days before such closing.
4. In the event the Call Right is exercised during the Sharing Period, the
Corporation (or, if applicable, the Designee) shall (i) deduct from the purchase
price paid for the Call Shares being sold by each B Holder pursuant to this
Section G such amount, if any, as is then required to be paid by such B Holder
from the proceeds of the shares sold by such B Holder as payment of Excess
Return Sharing Payments pursuant to Article ELEVENTH and (ii) pay to each
Specified Executive who qualifies therefor the appropriate Excess Return Sharing
Payment on the terms and subject to the conditions of the TARSAP Replacement
Plan; all subject to withholding for taxes as provided in Article ELEVENTH.
5. Notwithstanding any contrary provision of this Section G, if during any
twelve month period ending December 31 (March 31 in the case of the
<PAGE>
first Call Period), the Corporation shall effectuate, through any individual
transaction or series of related transactions (including by way of merger), any
acquisition of the equity securities or assets of any other Person for a price
(including assumed liabilities) in excess of $5,000,000 which acquisition is not
in the ordinary course of business consistent with past practice, that has not
been approved or ratified by the Class B Directors, the Call Price for the Call
Period next following such acquisition shall be the greater of (i) the Call
Price for such Call Period, determined after excluding the effects of such
acquisition (including the incurrence of any indebtedness to finance the
acquisition) or (ii) the Call Price for such Call Period without excluding such
effects.
H. Determination of Put Price and Call Price. Promptly following the
-----------------------------------------
commencement of a Put Period or a Call Period, the Corporation shall, upon the
request of, in the case of Put Period, any Principal B Holder or, in the case of
a Call Period, RRD, calculate the Put Price or Call Price, as the case may be,
for such Put Period or Call Period. The calculation of such Put Price or Call
Price shall be subject to the approval in good faith of the Board and the Put
Price or Call Price approved by the Board shall be final and binding, providing
that if such calculation is not approved by a majority of the Class A Directors
and a majority of the Class B Directors, then the calculation shall be made by
an independent accounting firm of nationally recognized standing selected by the
Class I Directors (with the Class A Directors and the Class B Directors each
having the right to veto one such accounting firm selected by the Class I
Directors). The calculation made by such independent accounting firm shall be
final and binding.
SIXTH: A. Number and Classes of Directors. 1. Except to the extent
-------------------------------
otherwise provided in this Restated Certificate of Incorporation, the business
and affairs of the Corporation shall be managed by or under the direction of the
Board, which shall consist of not less than eight nor more than 12 directors.
Election of directors need not be by written ballot unless the By-laws of the
Corporation so provide. Effective at the Filing Time, the number of directors
which shall constitute the whole Board shall be eight but such number may be
increased at any time to not more than 12 only by action of the Class A
Directors. Subject to Section E, the Board shall be divided into three classes
as follows:
(a) Not less than three nor more than seven Class A Directors
(the "Class A Directors") who shall be elected and may only be removed
----------------
without cause by vote of the holders of A Common;
(b) Three Class B Directors (the "Class B Directors") who shall be
-----------------
elected and may only be removed without cause by vote of the holders of
BV Common; and
(c) Two Class I Directors (the "Class I Directors") who shall not
-----------------
be Affiliates of any Stockholder and shall be elected and may only be
removed without cause by vote of the holders of A Common and BV
<PAGE>
Common voting together as a single class, except that the initial
Class I Directors may only be removed by vote of the holders of the
A Common and by vote of the holders of BV Common.
Each Class A Director and Class B Director shall be elected to serve until the
next annual meeting of Stockholders and the election and qualification of his or
her successor. Each initial Class I Director shall serve until the third annual
meeting of Stockholders following his or her initial election, and thereafter
each Class I Director shall be elected to serve until the next succeeding annual
meeting of Stockholders, and, in each case, the election and qualification of
his or her successor.
B. Vacancies. Vacancies in the Class A Directors may be filled
---------
by the remaining Class A Directors then in office or by vote of the holders of A
Common. Vacancies in the Class B Directors may be filled by the remaining Class
B Directors then in office or by a vote of the holders of BV Common. Vacancies
in Class I Directors may be filled by action of the Class A Directors and the
Class B Directors or by the holders of A Common and BV Common voting together as
a single class.
C. Quorum and Acts of Directors. 1. Directors comprising at
----------------------------
least 66-2/3% of the Board (including at least one Class A Director and one
Class B Director) must be present, in person or by telephone, at every meeting
of the Board to constitute a quorum, except that in the case of any meeting of
the Board at which approval of any of the actions described in Paragraph 2 is to
be sought, directors comprising at least 66-2/3% of the Board including
directors comprising a majority of the Class A Directors and directors
comprising a majority of the Class B Directors must be present in person or by
telephone to constitute a quorum. Subject to Paragraph 2, the act of a majority
of the directors present at a meeting at which a quorum is present shall be the
act of the Board unless otherwise provided by law, this Restated Certificate of
Incorporation or the By-Laws of the Corporation. References in this Restated
Certificate of Incorporation to an action, request, approval or ratification of
a class of directors means either the affirmative vote of a majority of the
directors of such class at a duly called and held meeting of the Board or the
unanimous written consent of the directors of such class.
2. Notwithstanding that no vote may be required or that a lesser
percentage vote may be specified by law, by the provisions of this Restated
Certificate of Incorporation or the By-Laws of the Corporation or otherwise:
(a) the Corporation shall not take, and shall not cause or permit
any subsidiary of the Corporation to take, any of the actions specified in
clauses (i) through (x), in a single transaction or a series of related
transactions, without the approval of the Class A Directors;
(i) amend this Restated Certificate of Incorporation or the
By-laws of the Corporation or the certificate or articles of incorporation
or by-laws of any
<PAGE>
subsidiary of the Corporation;
(ii) authorize or issue, or obligate itself to issue, any equity
security (including any security convertible into or exercisable or exchangeable
for any equity security) except for sales or issuances of shares of capital
stock of a wholly-owned subsidiary of the Corporation to the Corporation or to
another wholly-owned subsidiary of the Corporation;
(iii) redeem, retire, purchase or otherwise acquire, directly or
indirectly, through any of its subsidiaries or otherwise, shares of its capital
stock or warrants or options with respect to such capital stock, except as
provided in the Restated Certificate of Incorporation;
(iv) voluntarily dissolve or liquidate;
(v) register any security under the Securities Act (except pursuant
to any agreement granting Securities Act registration rights approved by the
Board in accordance with this Paragraph 2), grant Securities Act registration
rights to any person, or withdraw, reduce, expand or otherwise modify the
Securities Act registration rights granted to any Person;
(vi) enter into or engage in, or amend or modify the terms of, any
material transaction or arrangement between the Corporation or any of its
subsidiaries and any director or officer of the Corporation, any stockholder, or
any partner or family member of any such Person, or any Affiliate of any of the
foregoing Persons, except a purchase of Common Stock pursuant to Section B, C, F
or G of Article FIFTH;
(vii) declare or pay any cash or other dividend or make any other
distribution of any kind (including any Distribution, as defined in Section C or
Article FOURTH) on its capital stock;
(viii) purchase, lease, exchange or otherwise acquire any equity
securities or assets of any other Person, except for acquisitions in the
ordinary course of business consistent with past practice;
(ix) incur, create, assume, become or be liable in any manner with
respect to, or permit to exist, any indebtedness (including capitalized leases)
or for the deferred purchase price for the acquisition of property, other than
(1) accounts payable incurred in the ordinary course of business or (2)
indebtedness for borrowed money not to exceed in the aggregate at any one time
110% of the amount of indebtedness for money borrowed contemplated in any
applicable operating plan that has been approved by the Board (including a
majority of the Class A Directors and a majority of the Class B Directors); or
<PAGE>
(x) sell, lease, exchange, transfer or otherwise dispose of (by
merger, consolidation or otherwise), any assets (including the capital
stock of subsidiaries), having a Fair Value in excess of 10% of the
consolidated net assets of the Corporation and its subsidiaries, other
than in the ordinary course of business, provided that this limitation
shall not apply to transfers to the Corporation or any of its wholly-owned
subsidiaries; and
(b) the Corporation shall not take, and shall not permit any
subsidiary of the Corporation to take, any of the actions specified in clause
(i), (ii), (iii), (v) or (vi) of subparagraph (a) of this Paragraph 2, in a
single transaction or a series of related transactions, without the approval of
the Class B Directors.
D. Board Committees. Any committee of the Board designated
----------------
pursuant to Section 141 of the GCL shall have (i) at least one member each from
among the Class A Directors and the Class B Directors, and (ii) the same
proportion, as nearly as may be, of members who are Class A Directors and Class
B Directors as the number of Class A Directors and Class B Directors on the
Board. No action of any such committee shall be taken without the approval of at
least one member who is a Class A Director and at least one member who is a
Class B Director.
E. Termination. The provisions of the Article SIXTH shall
-----------
terminate and be of no further force and effect, and thereafter the Board shall
consist of a single class of directors comprising initially the then incumbent
directors, upon the earliest to occur of:
(a) the merger or consolidation of the Corporation with or into
another Person, if immediately thereafter the holders of Common Stock
immediately before the effective date of such merger or consolidation and
their Affiliates own less than 50% of the capital stock having ordinary
voting rights in the election of directors of the surviving or resulting
Person or its parent; or the sale of all or substantially all of the
business and assets of the Corporation;
(b) the Closing of the Initial Public Offering;
(c) the purchase of Common Stock upon the exercise of the Put Right or
the Call Right pursuant to article FIFTH; or
(d) at any time that the Stockholders who received the initial
issuance of B Common own of record in the aggregate less than 10% of the
sum of (i) the then outstanding shares of Common Stock and (ii) all shares
of Common Stock issuable upon exercise of any then outstanding options or
rights to acquire shares of Common Stock or conversion of any then
outstanding convertible securities (excluding conversions pursuant to
Section E of Article FOURTH).
SEVENTH: A. Indemnification. 1. The Corporation shall
---------------
<PAGE>
indemnify and hold harmless to the fullest extent permitted under the GCL, as it
exists at the Filing Time or as it may thereafter be amended, any Person who was
or is made a party to or is threatened to be made a party to or is otherwise
involved in any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he or she is or was or has agreed to become a director or officer of the
Corporation, or is or was a director or officer of the Corporation serving (or
who has agreed to serve) at the request of the Corporation as a director,
officer, trustee, employee or agent of or in any other capacity with respect to
another Person (in any of the foregoing capacities, a "Representative of the
---------------------
Corporation"), or by reason of any action alleged to have been taken or omitted
- -----------
in such capacity, and may indemnify to the same extent any person who was or is
a party to or is threatened to be made a party to any such action, suit or
proceeding by reason of the fact that he or she is or was or has agreed to
become an employee or agent of the Corporation serving (or who has agreed to
serve) at the request of the Corporation as a Representative of the Corporation,
against expenses (including attorneys' and other professional or expert's fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him or her in connection with such action, suit or proceeding.
2. Expenses (including attorney's and other professional or expert's
fees) incurred in defending any civil, criminal, administrative or investigative
action, suit or proceeding shall (in the case of any action, suit or proceeding
against a director or officer of the Corporation) or may (in the case of any
action, suit or proceeding against an employee, agent or Representative of the
Corporation) be paid by the Corporation in advance of the final disposition of
such action, suit or proceeding as authorized by the Board upon receipt of an
undertaking by or on behalf of the indemnified Person to repay such amount if it
shall ultimately be determined that such Person is not entitled to be
indemnified by the Corporation as authorized in this Article SEVENTH. The
Corporation may require security for any such undertaking.
3. The indemnification and the rights set forth in this Article
SEVENTH shall not be exclusive of any provisions with respect thereto in the By-
Laws of the Corporation or any other contract or agreement between the
Corporation and any officer, director, trustee, employee or agent or
Representative of the Corporation, and shall inure to the benefit of the estate
or personal representative of any Person indemnified hereunder.
4. The Corporation's obligation, if any, to indemnify any Person who
was or is serving at its request as a director, officer, trustee, employee,
partner or agent of another Person shall be reduced by any amount such Person
may collect as indemnification from such other corporation, partnership, joint
venture or other enterprise, as the case may be. The Corporation shall not be
required to indemnify a Person in connection with a proceeding initiated by such
Person, including a counterclaim or crossclaim, unless the proceeding was
authorized by the Board.
<PAGE>
5. For purposes of this Article SEVENTH: (a) any reference to "other
enterprise" shall include all plans, programs, policies, agreements, contracts
and payroll practices and related trusts for the benefit of or relating to
employees of the Corporation and its related entities ("Employee Benefit
----------------
Plans"); (b) any reference to "fines", "penalties", "liability" and "expenses"
- -----
shall include any excise taxes, penalties, claims, liabilities and reasonable
expenses (including reasonable legal fees and related expenses) assessed against
or incurred by a Person with respect to any Employee Benefit Plan; (c) any
reference to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation or trustee
or administrator of any Employee Benefit Plan which imposes duties on, or
involves services by, such director, officer, employee or agent with respect to
an Employee Benefit Plan, its participants, beneficiaries, fiduciaries,
administrators and service providers; (d) any reference to serving at the
request of the Corporation as a director, officer, employee or agent of a
partnership or trust shall include service as a partner or trustee; and (e) a
Person who acted in good faith and in a manner he or she reasonably believed to
be in the interest of the participants and beneficiaries of an Employee Benefit
Plan shall be deemed to have acted in a manner "not opposed to the best
interests of the Corporation" for purposes of this Article SEVENTH.
B. Limitation of Liability. No director of the Corporation shall be
-----------------------
personally liable to the Corporation or any Stockholder for monetary damages for
breach of fiduciary duty as a director, except for liability (a) for any breach
of the director's duty of loyalty to the Corporation or the Stockholders, (b)
for acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (c) under Section 174 of the GCL, or (d) for any
transaction from which the director derived an improper personal benefit.
If the GCL is amended after the Filing Time to authorize corporate
action further eliminating or limiting the personal liability of directors, then
the liability of a director of the Corporation shall be eliminated or limited to
the fullest extent permitted by the GCL as so amended.
C. Effect of Amendment of Repeal. Neither the amendment nor
-----------------------------
repeal of any provision of this article SEVENTH nor the adoption of any
provision of this Restated Certificate of Incorporation inconsistent with this
Article SEVENTH shall eliminate or reduce the effect of this Article SEVENTH in
respect of any matter arising or relating to any actions or omissions occurring
prior to such amendment, repeal or adoption of an inconsistent provision or in
respect of any cause of action, suit or claim relating to any such matter that
would have given rise to a right of indemnification or right to receive payments
of expenses pursuant to Section A of this Article SEVENTH if such provision had
not been so amended or repealed or if a provision inconsistent therewith had not
been so adopted.
EIGHTH: A. Relations with RD. 1. In anticipation that the
-----------------
Corporation and RRD may engage in the same or similar activities or lines of
<PAGE>
business and have an interest in the same areas of corporate opportunities, and
in recognition of (a) the benefits to be derived by the Corporation through its
continued contractual, corporate and business relations with RRD (including
service of officers and directors of RRD as officers and directors of the
Corporation) and (b) the difficulties attendant to any director, who desires and
endeavors fully to satisfy such director's fiduciary duties, in determining the
full scope of such duties in any particular situation, the provisions of this
Article EIGHTH are set forth to regulate, define and guide the conduct of
certain affairs of the Corporation as they may involve RRD and its officers and
directors, and the powers, rights, duties and liabilities of the Corporation and
its officers, directors and Stockholders in connection therewith.
2. In anticipation that (a) RRD will have continued contractual,
corporate and business relations with the Corporation, and in anticipation that
the Corporation and RRD may enter into contracts or otherwise transact business
with each other and that the Corporation may derive benefits therefrom and (b)
the Corporation may from time to time enter into contractual, corporate or
business relations with RRD, and the provisions of this Article EIGHTH are set
forth to regulate and guide certain contractual, corporate and other business
relations of the Corporation as they may involve RRD, and the powers, rights,
duties and liabilities of the Corporation and its officers, directors and
Stockholders in connection therewith.
3. The provisions of this Article EIGHTH are in addition to, and not
in limitation of, the provisions of the GCL and the other provisions of this
Restated Certificate of Incorporation. Any contract, activity or business
relation which does not comply with procedures set forth in this Article EIGHTH
shall not by reason thereof be deemed void or voidable or result in any breach
of any fiduciary duty or duty of loyalty or failure to act in good faith or in
the best interests of the Corporation or the derivation of any improper personal
benefit, but shall be governed by the provisions of this Restated Certificate of
Incorporation, the By-Laws, the GCL and other applicable law.
B. Corporation Opportunities; Competition. 1. Except as RRD may
--------------------------------------
otherwise agree in writing, (a) RRD shall have the right to, and shall have no
duty not to, (i) engage in the same or similar business activities or lines of
business as the Corporation, including those competing with the Corporation, and
(ii) do business with any client or customer of the Corporation, and (b)
notwithstanding any provision of this Restated Certificate of Incorporation to
the contrary, either RRD nor any officer, director or Affiliate thereof shall be
liable to the Corporation or the Stockholders for breach of any fiduciary duty
by reason of any such activities of or of such Person's participation therein.
Except as RRD may otherwise agree in writing, in the event that RRD acquires
knowledge of a potential transaction or matter that may be a corporate
opportunity for both RRD and the Corporation, RRD shall have no duty to
communicate or present such corporate opportunity to the Corporation and,
notwithstanding any provision of this Restated Certificate of Incorporation to
the
<PAGE>
contrary, shall not be liable to the Corporation or the Stockholders for breach
of any fiduciary duty as a Stockholder by reason of the fact that RRD pursues or
acquires such corporate opportunity for itself, directs such corporation
opportunity to another Person, or does not present such corporate opportunity to
the Corporation.
2. In the event that a director or officer of the Corporation who is
also a director or officer of RRD acquires knowledge of a potential transaction
or matter that may be a corporate opportunity for both the Corporation and RRD,
such director or officer of the Corporation shall act in good faith in a manner
consistent with the following policy: (a) a corporate opportunity offered to
any Person who is a director, officer or employee of both the Corporation and
RRD shall belong to RRD or to the Corporation, as the case may be, if such
opportunity is expressly offered to such Person primarily in his capacity as a
director, officer or employee of RRD or of the Corporation, respectively; (b)
otherwise, such opportunity shall belong to either RRD or the Corporation as a
majority of the Independent Directors (as defined in Section D) shall determine
in their good faith judgment, taking into account all the facts and
circumstances with respect to such opportunity.
3. For the purposes of this Section B, "corporate opportunities"
shall not include any business opportunities that are, from their nature, not in
the line of the Corporation's business or are of no practical advantage to it or
that are ones in which the Corporation has no interest or reasonable expectancy.
C. Interested Transactions. 1. No contract, agreement, arrangement
-----------------------
or transaction between the Corporation and RRD, or between the Corporation and
one or more of the directors or officers of the Corporation, or any amendment,
modification or termination thereof, shall be void or voidable solely for the
reason that RRD or any one or more of the officers of directors of the
Corporation are parties thereto, or have a financial interest therein, or solely
because any such directors or offices are present at or participate in the
meeting of the Board or committee thereof which authorizes the contract,
agreement, arrangement, transaction, amendment, modification or termination or
solely because his or their votes are counted for such purpose, if:
(a) the material facts as to the relationship or interest and as to the
contract, agreement, arrangement, transaction, amendment, modification or
termination are disclosed or are known to the Board or the committee
thereof that authorized the contract, agreement, arrangement, transaction,
amendment, modification or termination and the Board or such committee in
good faith authorizes or approves the contract, agreement, arrangement,
transaction, amendment, modification or termination by the affirmative vote
of a majority of the Independent Directors;
(b) such contract, agreement, arrangement, transaction, amendment,
modification or termination is effected pursuant to, and consistent with,
terms and conditions specified in any arrangements, standards, guidelines
or
<PAGE>
protocols (contemplating multiple transactions), which arrangements,
standards, guidelines or protocols are in good faith authorized or
approved, after disclosure or knowledge of the material facts related
thereto (including any interest of RRD), by the affirmative vote of a
majority of the Independent Directors (such authorization or approval or
such arrangements, standards, guidelines or protocols constituting or being
deemed to constitute authorization or approval of such contract, agreement,
arrangement, transaction, amendment modification or termination); or
(c) such conract, agreement, arrangement, transaction, amendment,
modification or termination is fair as to the Corporation as of the time it
is authorized, approved or ratified by the Board.
2. Each contract, agreement, arrangement, transaction, amendment,
modification or termination authorized, approved or effected, and each of such
arrangements, standards, guidelines or protocols so authorized or approved, as
described in clause (a) or (b) of Paragraph 1 shall be deemed to be entirely
fair to the Corporation and the Stockholders; provided that if such
authorization or approval is not obtained, or such contract, agreement,
arrangement, transaction, amendment, modification or termination is not so
effected, no presumption shall arise that such contract, agreement, arrangement,
transaction, amendment, modification or termination, or such arrangements,
standards, guidelines or protocols, is or are not fair to the Corporation and
its stockholders.
3. Directors of the Corporation who are also directors or officers
of RRD may be counted in determining the presence of a quorum at a meeting of
the Board or Committee thereof that authorizes or approves any such contract,
agreement, arrangement, transaction, amendment, modification or termination or
any such arrangements, guidelines, standards or protocols.
4. RRD shall not be liable to the Corporation or the Stockholders
for breach of any fiduciary duty by reason of the fact that RRD in good faith
and in compliance with this Section C takes any action or exercises any rights
or gives or withholds any consent in connection with any agreement or contract
between RRD and the Corporation. No vote cast or other action taken by any
Person who is an officer, director or other representative of RRD, which vote is
cast or action is taken in his or her capacity as a director of this
Corporation, shall constitute an action of or the exercise of a right by or a
consent of RRD for the purpose of any such agreement or contract.
D. Certain Definitions. For purposes of this Article EIGHTH only:
-------------------
(a) the "Corporation" shall mean the Corporation and all Persons in
-----------
which the Corporation beneficially owns (directly or indirectly) more than
50% of the outstanding voting stock, voting power or similar voting
interests;
<PAGE>
(b) any contract, agreement, arrangement or transaction with any
Person in which the Corporation beneficially owns (directly or indirectly)
more than 50% of the outstanding voting stock, voting power or similar
voting interests, or with any officer or director thereof, shall be deemed
to be a contract, agreement, arrangement or transaction with the
Corporation;
(c) References to RRD include its Affiliates as well as its
subsidiaries; and
(d) "Independent Director" means a director of the Corporation
--------------------
(i) who has no relationship to the Corporation other than as director and a
holder of Common Stock or an option to purchase Common Stock, in an
aggregate amount not exceeding one percent of the outstanding Common Stock,
and (ii) is not a director, officer, employee, partner, trustee or
Affiliate of, or otherwise financially interested in, any other Stockholder
or Affiliate thereof. A vote or determination of the Independent Directors
or a majority of them shall be effective for purposes of this Article
EIGHTH even though the number of Independent Directors is less than a
quorum.
E. Consent to Provisions. Any Person purchasing or otherwise
---------------------
acquiring any interest in any shares of capital stock of the Corporation shall
be deemed to have notice of and to have consented to the provisions of this
Article EIGHTH.
F. Amendment or Repeal. In addition to any vote of the
-------------------
Stockholders required by this Restated Certificate of Incorporation or the GCL,
the affirmative vote of the holders of at least 60% of the Common Stock then
outstanding, voting together as a single class, shall be required to alter,
amend or repeal, or adopt any provision inconsistent with, any provision of this
Article EIGHTH. Neither the alteration, amendment or repeal of this Article
EIGHTH nor the adoption of any provision inconsistent with this Article EIGHTH
shall eliminate or reduce the effect of this Article EIGHTH in respect of any
matter occurring, or any cause of action, suit or claim that, but for this
Article EIGHTH, would accrue or arise, prior to such alteration, amendment,
repeal or adoption.
NINTH: A. By-laws. In furtherance and not in limitation of the
-------
powers conferred by statute, the Board of Directors is expressly authorized to
make, alter or repeal the By-laws of the Corporation, subject to any specific
limitation on such power contained in any By-laws adopted by the stockholders
and subject to the provisions in this Restated Certificate of Incorporation.
B. Amendment. The Corporation reserves the right to amend or
---------
repeal any provision contained in this Restated Certificate of Incorporation in
the manner now or hereafter prescribed by the GCL and this Restated Certificate
of Incorporation, and all rights herein conferred upon Stockholders or directors
are granted subject to this reservation.
<PAGE>
C. Interpretation. Terms defined herein apply to the plural as
--------------
well as the singular. Accounting terms have the meanings assigned to them under
generally accepted accounting principles in the United States unless the context
otherwise requires. An index of definitions is attached to this Restated
Certificate of Incorporation for convenience of reference but shall not be
deemed to be a part thereof. References to the neuter gender include the
masculine or feminine, where appropriate. The word "including" means without
limitation and the word "or" is not exclusive. Section captions are inserted for
convenience of reference and shall not affect the meaning or interpretation of
any provision. References to Sections without more are to Sections of the same
Article, and references to Paragraphs without more are to Paragraphs within the
same Section.
TENTH: This Corporation hereby expressly elects, pursuant to Sections
203(b)(3) of the GCL, not to be governed by Section 203 of the GCL.
ELEVENTH: A. Sharing Obligations. If, during the Sharing Period,
-------------------
any Triggering Acquisition is consummated, the Corporation shall notify the SHI
Representative in the manner provided in the TARSAP Replacement Plan, to permit
it to calculate whether any Excess Return Sharing Payments are required to be
paid to any Specified Executive and, if so, the amounts thereof, all in the
manner provided in TARSAP Replacement Plan. If the Corporation is notified by
the SHI Representative (as provided in the TARSAP Replacement Plan) that any
such Excess Return Sharing Payments are owed hereunder, there shall be deducted
from the proceeds to each B Holder an amount per share of Common Stock sold by
such B Holder in the Triggering Acquisition, determined in accordance with the
TARSAP Replacement Plan, sufficient to cover, in the aggregate, such B Holder's
obligation to pay or cause to be paid Excess Return Sharing Payments, which
amounts shall then be paid to the Specified Executives who qualify for such
payments (subject to withholding by the Corporation of any and all amounts
required to be withheld therefrom by the Corporationto satisfy any applicable
tax withholding requirements of federal, state or local law) on the terms and
subject to the conditions of the TARSAP Replacement Plan.
B. Certain Definitions. As used in this Restated Certificate of
-------------------
Incorporation:
"Excess Return Sharing Payments" has the meaning specified in the
------------------------------
TARSAP Replacement Plan.
"Sharing Period" has the meaning specified in the TARSAP Replacement
--------------
Plan.
"SHI Representative" has the meaning specified in the TARSAP
------------------
Replacement Plan.
"Specified Executive" shall have the meaning ascribed to "Plan
-------------------
<PAGE>
Participant" in the TARSAP Replacement Plan.
"TARSAP Replacement Plan" shall mean the TARSAP Replacement Plan and
-----------------------
Agreement dated as of April 21, 1995 among the Corporation, the SHI
Representative and the other parties thereto, as amended and in effect from time
to time, a copy of which is maintained by the Corporation at its headquarters
and copies of which will be made available to any Stockholder upon request.
"Triggering Acquisition" has the meaning specified in the TARSAP
----------------------
Replacement Plan.
IN WITNESS WHEREOF, R.R. Donnelley Global Software Services Corp. has
caused this Certificate to be signed on this 21st day of April, 1995 in its name
by a duly authorized officer.
R.R. DONNELLEY GLOBAL SOFTWARE
SERVICES CORP.
By: /s/ Robert E. Logan
---------------------
Vice President
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
STREAM INTERNATIONAL INC.
Pursuant to Section 242
to the General Corporation Law of
the State of Delaware
---------------------------------------
Stream International Inc. (hereinafter called the "Corporation"), organized
and existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify as follows:
At a meeting of the Board of Directors of the Corporation, a resolution was
duly adopted, pursuant to Section 242 of the General Corporation Law of the
State of Delaware, setting forth an amendment to the Certificate of
Incorporation of the Corporation and declaring said amendment to be advisable.
The stockholders of the Corporation duly approved said proposed amendment by
unanimous written consent, and notice has been given to non-consenting
stockholders, in accordance with Sections 228 and 242 of the General Corporation
Law of the State of Delaware. The resolution setting forth the amendment is as
follows:
RESOLVED: That Article FOURTH of the Certificate of Incorporation of the
--------
Corporation be and hereby is deleted in its entirety and the following Article
FOURTH is inserted in lieu thereof:
"A. Authorized Shares. The total number of shares of stock which the
-----------------
Corporation shall have authority to issue is 85,675,000 shares, consisting
of three classes: (1) 75,000,000 shares of Class A Common Stock, $.01 par
value ("A Common"), (ii) 10,000,000 shares of Class B-V Common Stock, $.01
par value ("B-V Common") and (iii) 675,000 shares of Class B-N Common
Stock, $.01 par value ("B-N Common" and, together with the B-V Common, "B
Common"). All of the foregoing classes of stock are collectively referred
to as "Common Stock," each of the A Common, the B-V Common and the B-N
Common a "Class of Common Stock." A holder of record of Common Stock is
referred to herein as a "stockholder."
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Certificate of Amendment to be signed by its Chairman of
the Board and attested by its Secretary this 29th day of August, 1995
--------
Stream International Inc.
By: /s/ Rory J. Cowan
-------------------------
Chairman of the Board
ATTEST: /s/ Alicia T. Brophy
- --------------------------------
Secretary
[Corporate Seal]
<PAGE>
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
Stream International Inc., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware, does
hereby certify:
FIRST: that the Board of Directors of Stream International Inc. (the
"Corporation") adopted by unanimous written consent resolutions setting forth
proposed amendments to Restated Certificate of Incorporation of the Corporation,
declaring said amendments to be advisable and directing that such amendments be
submitted to the stockholders of the Corporation for their consideration. The
amendments proposed in the resolutions amend the Restated Certificate of
Incorporation as follows:
1. Paragraph 2 of Section E of Article FOURTH is hereby amended to
read in its entirety as follows:
2. Subject to Paragraph 4, each share of B Common which is
purchased by RRD pursuant to Section F of Article FIFTH or the
Corporation or the Designee pursuant to Section G of Article FIFTH
shall, immediately prior to such purchase, automatically be converted
into the number of full and fractional shares of A Common which would
be issuable if such shares were then being converted pursuant to
Paragraph 1. Subject to Paragraph 4, immediately prior to any (i)
merger or consolidation of the Corporation with any other corporation
as a result of which a majority of the Common Stock of the Corporation
or any other surviving corporation would be owned by any person other
than RRD or any Affiliate of RRD, (ii) sale of all or substantially
all of the common stock or assets of the Corporation (including any
Total Disposition), each share of B Common shall automatically be
converted into the number of full and fractional shares of A Common
which would be issuable if such shares were then being converted
pursuant to Paragraph 1.
2. Subparagraph (f) of Paragraph 1 of Section A of Article
FIFTH is hereby amended to read in its entirety as follows:
(f) "Designee" means R.R. Donnelley & Sons Company, a Delaware
--------
corporation, or R.R. Donnelley Norwest Inc., an Oregon corporation, or
R.R. Donnelley International, Inc., a Delaware corporation, (provided
that R.R. Donnelley & Sons Company deliver a guaranty of the
obligations of such corporation) if (i) for any reason (other than the
lack of funds legally available therefor) the Corporation
<PAGE>
fails or refuses to exercise any right granted to the Corporation pursuant
to Section B, C or G to purchase shares of Common Stock and the Class A
Directors had approved the exercise of such rights, or (ii) for any reason
the Corporation is unable to purchase shares of Common Stock it has the
right or obligation to purchase pursuant to Section B, C or G;
3. Subparagraph (m) of Paragraph 1 of Section A of Article FIFTH is
hereby amended to read in its entirety as follows:
(m) "RRD" means, collectively, R.R. Donnelley & Sons Company, a
---
Delaware Corporation, and its subsidiaries (other than the Corporation, and
its subsidiaries; provided, that for purposes of Section F of Article
--------
FIFTH, "RRD" means only R.R. Donnelley & Sons Company, a Delaware
corporation; and
4. Paragraph 7 of Section A of Article FIFTH is hereby amended to
read in its entirety as follows:
7. Notwithstanding any other provision of this Article FIFTH to
the contrary:
(a) the corporation and any Stockholder may Transfer shares
of Common Stock pursuant to a public offering registered under the
Securities Act; and
(b) the Corporation may enter into an agreement to consolidate
with or merge with or into any other Person if such agreement is
approved by the Board and by the requisite vote of the Stockholders in
accordance with this Restated Certificate of Incorporation and the GCL
and any other applicable laws.
In either such event, the shares of Common Stock may be sold in such public
offering or exchanged pursuant to such merger or consolidation for the
consideration provided thereunder without compliance with the provisions of
this Article FIFTH. A Transfer to (i) the corporation or a Designee
pursuant to Section B, C or G, (ii) a Stockholder pursuant to Section C,
(iii) a Purchaser pursuant to Section E or (iv) RRD pursuant to Section F
shall not be subject to any right or option to purchase, or obligation to
sell, Common Stock Pursuant to any other provision of this Article FIFTH.
5. Section F of Article FIFTH is hereby amended to read in its
entirety as follows:
F. Put Rights. 1. Subject to the terms and conditions of this
----------
Section F, during each Put Period, and Principal B Holder shall
<PAGE>
have the right (the "Put Right") to sell to RRD, and upon exercise of the Put
---------
Right in accordance with this Section F, RRD shall purchase from the B Holder
exercising the Put Right, all, but not less than all, of the shares of Common
Stock owned by such B Holder. If the Put Right has been exercised, each other B
Holder shall have a similar put exercisable during the time period specified
below to sell to RRD, and upon proper notice to the Corporation and RRD in
accordance with this Section F, RRD shall purchase from each other B Holder
giving such notice, all, but not less than all, of the shares of Common Stock
owned by each such B Holder.
2. As used in this Section F, "Put Period" means: (a) the
----------
second calendar quarter of each year commencing in 1998 (each such quarter, an
"Annual Put Period"), and (b) in the event the Class A Directors increase the
- ------------------
number of directors in accordance with Section A of Article SIXTH, the period
(referred to herein as an "Expansion Put Period") commencing with the day on
--------------------
which the number of directors is increased and ending on the last day of the
third full calendar month following the month in which such expansion occurred.
3. The Put Right may be exercised by any Principal B Holder by
giving written notice to the Corporation and to RRD during the Put Period (the
"Put Notice"). The Corporation shall promptly send a copy of the
----------
Put Notice to each other Stockholder. Thereupon, each other B Holder shall have
the right to sell all, but not less than all, of such B Holder's shares of
Common Stock to RRD at the same price and upon the same terms and conditions, by
giving written notice thereof to the Corporation and RRD on or before the 30th
day after the date of the Put Notice. If the holders of 95% or more of the
outstanding shares of B Common exercise the Put Right and the subsequent put
granted in this Section F, then each B Holder who did not exercise the Put Right
or subsequent put shall be required to sell all of such holder's Common Stock to
RRD (the "Mandatory Put"). The B Holders exercising the Put Right and the
-------------
subsequent put granted in this Section F and the B Holders subject to the
Mandatory Put are referred to herein collectively as the "Put Holders".
-----------
4. The per share price (the "Put Price") for the shares of Common
---------
Stock to be purchased upon exercise of the Put Right and each subsequent put by
any other B Holder giving proper notice and under the Mandatory Put (the "Put
---
Shares") shall be the quotient obtained by dividing:
- ------
(a) if the Put Right is exercised during an Annual Put Period, the
remainder of (i) the product of eight times EBITA for the 12 months ending
on the December 31 immediately preceding
<PAGE>
the exercise of the Put Right, as set forth in the audited financial
statements of the Corporation, minus (ii) Consolidated Debt as of such
December 31, by
(b) the number of shares of Common Stock issued and outstanding as of
such December 31; and
(c) if the Put Right is exercised during an Expansion Put Period, the
remainder of (iii) the product of eight times EBITA for the 12 months
ending on the last day of the month immediately preceding the first day of
the Expansion Put Period as set forth in the unaudited financial statements
of the Corporation, minus (iv) Consolidated Debt as of such day, by
(d) the number of shares of Common Stock issued and outstanding as of
such day.
5. Notwithstanding any contrary provision of this Section F, if
during any twelve month period ending December 31, the Corporation shall
effectuate, through any individual transaction or series of related transactions
(including by way of merger), any acquisition of the equity securities or assets
of any other Person for a price (including assumed liabilities) in excess of
$5,000,000 which acquisition is not in the ordinary course of business
consistent with past practice, that has not been approved or ratified by the
Class B Directors, the Put Price for the Annual Put Period next following
consummation of such acquisition shall be determined after excluding the effects
of such acquisition (including the incurrence of any indebtedness to finance the
acquisition).
6. The closing of all purchases of Put Shares shall take place at the
principal executive office of the Corporation at 10 a.m. local time on the later
of (a) the 45th day after the last day of the Put Period (or if such day is not
a Business Day, the next succeeding Business Day) or (b) the fifth Business Day
following the expiration or termination of all waiting periods under HSR
applicable to such purchases, or at such other time and/or place as the parties
to such purchases may agree. At such closing, (i) each Put Holder shall Transfer
to RRD good and marketable title to the Put Shares being sold by such Put
Holder, free and clear of any lien, claim or encumbrance, by delivery of the
certificates representing the Put Shares to be Transferred, duly endorsed in
blank, with any required stock transfer tax stamps attached, together with such
stock powers, certificates, legal opinions and other instruments of transfer as
RRD shall reasonably request; and (ii) RRD shall pay to each Put Holder the
purchase price for the Put Shares being sold by such Put Holder, (calculated as
provided in Paragraph 4 or 5, as applicable) in cash, by delivery of a certified
or bank check or by wire
<PAGE>
transfer of immediately available funds to such account as each such
Put Holder shall direct by written notice delivered to RRD not later
than two Business Days before such closing.
7. In the event the Put Right is exercised during the
Sharing Period, RRD shall (i) deduct from the purchase price paid for
the Put Shares being sold by each Put Holder pursuant to this Section
F such amount, if any, as is then required to be paid by such Put
Holder with respect to such Put Holder's shares of Common Stock for
payment of Excess Return Sharing Payments pursuant to the TARSAP
Replacement Plan and (ii) pay to each Specified Executive who
qualifies therefor the appropriate Excess Return Sharing Payment on
the terms and subject to the conditions of the TARSAP Replacement
Plan; all subject to withholding for taxes as provided in Article
ELEVENTH.
8. The Put Right may only be exercised once and shall
expire as to all remaining B Holders upon the first closing of any
purchase of Put Shares.
9. The agreement of RRD to perform its obligations as
provided in this Section F are set forth in an agreement dated as of
December 22, 1995 among RRD, the Corporation and certain other
parties, a copy of which is maintained by the Corporation at its
headquarters and copies of which will be made available to any
Stockholder upon request.
SECOND: that the stockholders of the Corporation, by written consent
of the holders of more than a majority of the outstanding shares of each class
of stock entitled to vote thereon given pursuant to Section 228(c) of the
General Corporation Law of the State of Delaware, a copy of which has been filed
with the minutes of the Corporation, adopted the foregoing amendments to the
Restated Certificate of Incorporation of the Corporation. Written notice of
such consent has been given as provided in Section 228(c) of the General
Corporation Law of the State of Delaware.
THIRD: that said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, Stream International Inc. has caused this
Certificate to be signed on this 29th day of December, 1995 in its name by a
--------
duly authorized officer.
STREAM INTERNATIONAL INC.
By: /s/ Rory J. Cowan
------------------------------------
Name:
Title: Chief Executive Officer
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
Stream International Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
FIRST: That the Board of Directors of Stream International Inc., by
unanimous written consent, duly adopted resolutions setting forth a proposed
amendment to the Restated Certificate of Incorporation of said corporation,
declaring said amendment to be advisable and directing consideration thereof by
the stockholders of said corporation. The resolution setting forth the proposed
amendment is as follows:
RESOLVED, that Article FIRST of the Restated Certificate of Incorporation
of Stream International Inc., be and hereby is, amended to read as follows:
"FIRST. The name of the Corporation is Stream International Holdings
Inc."
SECOND: The Board of Directors of Stream International Inc. directed that
such amendment be submitted to the stockholders of the Corporation for their
consent and approval and, in lieu of a meeting and vote of stockholders, the
stockholders have given written consent to said amendment in accordance with the
provisions of Section 228 of the General Corporation Law of the State of
Delaware.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Sections 242 and 228 of the General Corporation Law of the State
of Delaware.
IN WITNESS WHEREOF, said Stream International Inc. has caused its corporate
seal to be hereunto affixed and this Certificate to be signed by its President
and attested by its Secretary this 6th day of February, 1996.
STREAM INTERNATIONAL INC.
By /s/ Stephen D.R. Moore
------------------------------
Stephen D.R. Moore
President
ATTEST
By /s/ Alicia T. Brophey
-----------------------
Alicia T. Brophey
Secretary
<PAGE>
CORRECTED CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
STREAM INTERNATIONAL HOLDINGS INC.
(formerly Stream International Inc.)
Pursuant to Section 103(f)
of the General Corporation Law of
the State of Delaware
---------------------------------------
Stream International Holdings Inc. (hereinafter called the "Corporation"),
organized and existing under and by virtue of the General Corporation Law of the
State of Delaware, does hereby certify as follows:
At a meeting of the Board of Directors of the Corporation, a resolution was
duly adopted, pursuant to Section 242 of the General Corporation Law of the
State of Delaware, setting forth an amendment to the Certificate of
Incorporation of the Corporation and declaring said amendment to be advisable.
The stockholders of the Corporation duly approved said proposed amendment by
written consent, and notice has been given to non-consenting stockholders, in
accordance with Sections 228 and 242 of the General Corporation Law of the State
of Delaware. The Certificate of Amendment filed on August 30, 1995 with respect
to such amendment was incorrect in that the references to the portion of the
Certificate of Incorporation being amended should have been to Section A of
Article FOURTH rather than to Article FOURTH.
The correct resolution setting forth the amendment is as follows:
RESOLVED: That Section A of Article FOURTH of the Certificate of
--------
Incorporation of the Corporation be and hereby is deleted in its entirety and
the following Section A is inserted in lieu thereof:
"A. Authorized Shares. The total number of shares of stock which the
-----------------
Corporation shall have authority to issue is 85,675,000 shares, consisting
of three classes: (i) 75,000,000 shares of Class A Common Stock, $.01 par
value ("A Common"), (ii) 10,000,000 shares of Class B-V Common Stock, $.01
par value ("B-V Common") and (iii) 675,000 shares of Class B-N Common Stock,
<PAGE>
$.01 par value ("B-N Common" and, together with the B-V Common, "B
Common"). All of the foregoing classes of stock are collectively referred
to as "Common Stock"; each of the A Common, the B-V Common and the B-N
Common, a "Class of Common Stock." A holder of record of Common Stock is
referred to herein as a "Stockholder."
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Corrected Certificate of Amendment to be signed by its
Senior Vice President and attested by its Secretary this 14th day of March,
1996.
Stream International Holdings Inc.
By: /s/ Gene Morphis
-----------------------------------
Senior Vice President
ATTEST:
/s/ Alicia T. Brophey
- -----------------------------
Secretary
[Corporate Seal]
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
STREAM INTERNATIONAL HOLDINGS INC.
Stream International Holdings Inc. (the "Corporation"), organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify as follows:
The Board of Directors of the Corporation, by unanimous written consent,
pursuant to Section 242 of the General Corporation Law of the State of Delaware,
has approved an amendment to Certificate of Incorporation of the Corporation and
declared such amendment to be advisable. The stockholders of the Corporation
have duly approved such amendment by written consent, and notice has been given
to non-consenting stockholders in accordance with Sections 228 and 242 of the
General Corporation Law of the State of Delaware. Such amendments amend the
Certificate of Incorporation of the Corporation as follows:
1. Paragraph 1 of Section E of Article FIFTH of the Certificate of
Incorporation be and hereby is amended to read in its entirety as follows:
"1. In the event that RRD proposes to Transfer to a Person (a
"Purchaser") other than an Affiliate of RRD shares of Common Stock
---------
which, when added to all other shares of Common Stock Transferred by
RRD after the Filing Time and prior to such proposed Transfer (other
than Transfers permitted under clauses (b), (d) and (e) of Paragraph 6
of Section A of Article FIFTH) would exceed 20% of the issued and
outstanding shares of Common Stock at the date of such proposed
Transfer (a "Disposition"), RRD shall, not later than 30 days before
-----------
the closing of such Disposition give written notice (a "Proposal
--------
Notice") of such proposed Disposition to the Corporation, which shall
------
promptly send a copy thereof to each B Holder and to each holder of
shares of Class A Common Stock who is contractually entitled to
participate in the rights granted under this Section E (an "Eligible A
----------
Holder"), and each B Holder and Eligible A Holder shall have the right
------
(a "Tag Along Right") to require RRD to reduce the number of shares of
---------------
Common Stock to be sold by RRD, if necessary, and to require the
Purchaser to purchase from each of the
<PAGE>
B Holders and Eligible A Holders electing to exercise a Tag Along
Right that number of shares of Common Stock equal to the product
obtained by multiplying (a) the total number of shares of Common Stock
to be purchased by the Purchaser by (b) the electing B Holder's or
Eligible A Holder's Fractional Interest, as the case may be, rounded
up to the nearest whole number; such purchase to be upon the same
terms and conditions and at the same time and place, as the sale of
Common Stock by RRD in the Disposition. In order to exercise any Tag
Along Right, an electing B Holder and Eligible A Holder must be able
to transfer good and marketable title to such B Holder's or Eligible A
Holder's shares of Common Stock to the Purchaser, free and clear of
any lien, claim or other encumbrance. For purposes of this Section E,
the term "Fractional Interest" means the quotient obtained by dividing
-------------------
(i) the total number of shares of Common Stock owned by the electing B
Holder or Eligible A Holder, as the case may be, by (ii) the sum of
the total number of shares of Common Stock owned by all electing B
Holders, Eligible A Holders and RRD. Each electing B Holder and
Eligible A Holder shall give written notice of its election to RRD no
later than ten (10) Business Days after its receipt of a Proposal
Notice. Neither Section B nor Section C shall apply to sales of shares
of Common Stock by Stockholders pursuant to the exercise of the Tag
Along Right in accordance with this Paragraph 1."
IN WITNESS WHEREOF, this Certificate of Amendment has been executed by a
duly authorized officer of Stream International Holdings Inc. on October 31 ,
------
1996.
STREAM INTERNATIONAL HOLDINGS INC.
By: /s/ Eugene Morphis
---------------------------------------
Eugene Morphis, Senior Vice President
ATTEST:
/s/Alicia T. Brophey
- --------------------------------
Alicia T. Brophey, Secretary
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED
BY-LAWS OF
STREAM INTERNATIONAL INC.
ARTICLE I
Offices
-------
SECTION 1.1. Registered Office. The registered office of the corporation
-----------------
in the State of Delaware shall be located at Corporation Trust Center, 1209
Orange Street, in the City of Wilmington, County of New Castle and the name of
its registered agent is The Corporation Trust Company.
SECTION 1.2. Other Offices. The corporation may also have offices at such
-------------
other places both within or without the State of Delaware as the Board of
Directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
Meetings of Stockholders
------------------------
SECTION 2.1. Annual Meeting. The annual meeting of the stockholders shall
--------------
be held at 1:00 p.m. on the third Thursday in April in each year, if not a legal
holiday, or, if a legal holiday, then on the next succeeding business day, or in
any case on such other day as the Board of Directors shall designate, for the
purpose of electing directors of each class for which the term expires on that
date and for the transaction of such other business as properly be brought
before the meeting. If the election of directors shall not be held on the day
hereinbefore designated for the annual meeting, or at any adjournment thereof,
the Board of Directors shall cause such election to be held at a special meeting
of stockholders as soon thereafter as convenient.
SECTION 2.2. Special Meetings. Except as otherwise prescribed by statute,
----------------
special meetings of the stockholders for any purpose or purposes, may be called
and the location thereof designated by the Chairman at the request in writing of
(i) a majority of the Board of Directors, or (ii) stockholders owning not less
than a majority of the issued and outstanding shares of Class A Common Stock,
Class BV Common Stock and Class BN Common Stock of the corporation. Such
request shall state the purposes of the proposed meeting.
SECTION 2.3. Place of Meetings. Each meeting of the stockholders for the
-----------------
election of directors shall be held at such place within or without the State of
Delaware, as the Board of Directors shall designate as the place for such
meeting.
<PAGE>
Meetings of stockholders for any other purpose may be held at such place, within
or without the State of Delaware and at such time as shall be determined
pursuant to Section 2.2 and stated in the notice of the meeting or in a duly
executed waiver of notice thereof.
SECTION 2.4. Notice of Meetings. Written or printed notice stating the
------------------
place and time of each annual or special meeting of the stockholders and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called, shall be given not less than ten (10) days nor more than sixty (60) days
before the date of the meeting. (See also Articles IV and IX.)
When a meeting is adjourned to another time or place, no notice of the
adjourned meeting other than an announcement at the meeting need be given unless
the adjournment is for more than thirty (30) days or a new record date is fixed
for the adjourned meeting after such adjournment.
SECTION 2.5. Quorum. The holders of a majority of the stock of the
------
corporation issued and outstanding and entitled to vote thereat present in
person or represented by proxy, shall be requisite for, and shall constitute, a
quorum at all meetings of the stockholders of the corporation for the
transaction of business, except as otherwise provided by statute, the
certificate of incorporation or these bylaws. If, however, such quorum shall
not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat present in person or represented by proxy
shall have power to adjourn the meeting from time to time until a quorum shall
be present or represented. At such adjourned meeting at which a quorum shall be
present or represented, any business may be transacted which might have been
transacted at the meeting as originally notified.
SECTION 2.6. Proxies. At every meeting of the stockholders, each
-------
stockholder having the right to vote thereat shall be entitled to vote in person
or by proxy. Such proxy shall be appointed by an instrument in writing
subscribed by such stockholder and bearing a date not more than three (3) years
prior to such meeting, unless such proxy provides for a longer period; and it
shall be filed with the Secretary of the corporation before, or at the time of,
the meeting.
SECTION 2.7. Voting. Unless the certificate of incorporation provides
------
otherwise, at every meeting of stockholders, each stockholder shall be entitled
to one (1) vote for each share of stock of the corporation entitled to vote
thereat and registered in the name of such stockholder on the books of the
corporation on the pertinent record date. When a quorum is present at any
meeting of the stockholders, the vote of the holders of a majority of the stock
having voting power present in person or represented by proxy shall decide any
question brought before such meeting, unless the question is one upon which, by
provision of the statutes, the certificate of incorporation or these bylaws, a
different vote is required, in which case
-2-
<PAGE>
such provision shall govern and control the decision of such question. If the
certificate of incorporation provides for more or less than one vote for any
share on any matter, every reference in these bylaws to a majority or other
proportion of stock shall refer to such majority or other proportion of the
votes of such stock.
SECTION 2.8. Action Without Meeting. Unless otherwise restricted by the
----------------------
certificate of incorporation or these bylaws, whenever the vote of stockholders
at a meeting thereof is required or permitted to be taken for or in connection
with any corporate action, the meeting and vote of stockholders may be dispensed
with if a consent in writing setting forth the action so taken shall be signed
by the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted. Prompt notice
of the taking of the corporate action without a meeting by less than unanimous
written consent shall be given to those stockholders who have not consented
thereto in writing. Such consent shall be filed with the minutes of the
stockholders and shall have the same force and effect as a unanimous vote of
stockholders.
SECTION 2.9. Treasury Stock. Shares of its own stock belonging to the
--------------
corporation or to another corporation, if a majority of the shares entitled to
vote in the election of directors of such other corporation is held by this
corporation, shall not be voted at any meeting and shall not be counted in
determining the total number of outstanding shares for the purpose of
determining whether a quorum is present. Nothing in this section shall be
construed to limit the right of this corporation to vote shares of its own stock
held by it in a fiduciary capacity.
ARTICLE III
Directors
---------
SECTION 3.1. Number and Election. As provided in the certificate of
-------------------
incorporation, the number of directors which will constitute the whole Board of
Directors shall be eight, but such number may be increased at any time to not
more than twelve by action of the Class A Directors. The Board of Directors
shall be divided into three classes: not less than three nor more than seven
Class A Directors; three Class B Directors; and two Class I Directors. Each
Class A Director and each Class B Director shall be elected to serve until the
next annual meeting of stockholders and the election or qualification of his
successor or until his death or resignation or until he shall have been removed
in the manner hereinafter provided. Each initial Class I Director shall serve
until the third annual meeting of stockholders following his initial election,
and thereafter each Class I Director shall be elected to serve until the next
succeeding annual meeting of stockholders, and, in each case, the election and
qualification of his successor or until his death or resignation or until he
-3-
<PAGE>
shall have been removed in the manner hereinafter provided. Directors need not
be residents of the State of Delaware or stockholders of the corporation.
SECTION 3.2. Resignations and Vacancies. Any director may resign at any
--------------------------
time by giving written notice to the Board of Directors, the Chairman or the
Chief Executive Officer. Any such resignation shall take effect at the date of
the receipt of such notice or at any time later specified therein; and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective. If, at any time other than the annual meeting of
the stockholders, any vacancy occurs in the Board of Directors caused by
resignation, death, retirement, disqualification or removal from office of any
director or otherwise, or any new directorship is created by an increase in the
authorized number of directors, such vacancy shall be filled as provided in the
certificate of incorporation, and the director so chosen to fill such vacancy
shall hold office until the next annual election of directors of the class to
which he was chosen and until his successor shall be duly elected and qualified,
unless sooner removed.
SECTION 3.3. Removal. Any Class A director may only be removed without
-------
cause by the affirmative vote of the holders of a majority of the Class A Common
Stock.
Any Class B director may only be removed without cause by the affirmative
vote of the holders of a majority of the Class BV Common Stock.
Any Class I director may only be removed without cause by the affirmative
vote of the holders of a majority of Class A Common Stock and Class BV Common
Stock voting together as a single class.
SECTION 3.4. Management of Affairs of Corporation. The property and
------------------------------------
business of the corporation shall be managed by or under the direction of its
Board of Directors, which may exercise all such powers of the corporation and do
all such lawful acts and things as are not by statute or by the certificate of
incorporation or by these bylaws directed or required to be exercised or done by
stockholders.
SECTION 3.5. Dividends and Reserves. Except as otherwise provided in the
----------------------
certificate of incorporation and to the extent permitted by law, dividends upon
stock of the corporation (i) may be declared by the Board of Directors at any
regular or special meeting, and (ii) may be paid in cash, in property, in shares
of stock or otherwise.
SECTION 3.6. Regular Meetings. An annual meeting of the Board of
----------------
Directors shall be held, without other notice than these bylaws, immediately
after, and at the same place as, the annual meeting of the stockholders. The
Board of Directors may provide, by resolution, the time and place, either within
or without the State of
-4-
<PAGE>
Delaware, for the holding of additional regular meetings without other notice
than such resolution.
SECTION 3.7. Special Meetings. Special meetings of the Board of Directors
----------------
may be called by the Chairman or the Chief Executive Officer, and shall be
called by the Secretary at the request of any one director, to be held at such
time and place, either within or without the State of Delaware, as shall be
designated by the call and specified in the notice of such meeting; and notice
thereof shall be given as provided in Section 3.8 of these bylaws.
SECTION 3.8. Notice of Special Meetings. Except as otherwise prescribed
--------------------------
by statute, written notice of the time and place of each special meeting of the
Board of Directors shall be given at least two (2) days prior to the time of
holding the meeting. Any director may waive notice of any meeting. (See also
Articles IV and IX.)
SECTION 3.9. Quorum. The rules for quorum and acts of directors shall be
------
as provided in the certificate of incorporation. If a quorum shall not be
present at any meeting of directors, the directors present thereat may adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
Unless otherwise restricted by the certificate of incorporation, any member
of the Board of Directors or of any committee designated by the Board of
Directors may participate in a meeting of the directors or committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in a
meeting by means of such equipment shall constitute presence in person at such
meeting.
SECTION 3.10. Presumption of Assent. Unless otherwise provided by
---------------------
statute, a director of the corporation who is present at a meeting of the Board
of Directors at which action is taken on any corporate matter shall be presumed
to have assented to the action taken unless his dissent shall be entered in the
minutes of the meeting or unless, he shall file his written dissent to such
action with the person acting as Secretary of the meeting before the adjournment
thereof or shall forward such dissent by registered mail to the Secretary of the
corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a director who voted in favor of such action.
SECTION 3.11. Action Without Meeting. Unless otherwise restricted by the
----------------------
certificate of incorporation or these bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors, or of any committee
thereof, may be taken without a meeting, if a written consent thereto is signed
by all members of the Board of Directors or of such committee, as the case may
be, and such written
-5-
<PAGE>
consent is filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 3.12. Committees. The Board of Directors may, by resolution
----------
passed by a majority of the number of directors fixed by these bylaws, designate
such committees as it may from time to time determine. Each such committee
shall consist of such number and class of directors as provided in the
certificate of incorporation.
SECTION 3.13. Quorum and Manner of Acting - Committees. The presence of a
----------------------------------------
majority of members of any committee shall constitute a quorum for the
transaction of business at any meeting of such committee, provided, however,
that the approval of at least one member who is a Class A Director and at least
one member who is a Class B Director shall be necessary for the taking of any
action thereat.
SECTION 3.14. Committee Chairman-Books and Records. The chairman of each
------------------------------------
committee shall be selected from among the members of the committee by the Board
of Directors.
Each committee shall keep a record of its acts and proceedings, and all
actions of each committee shall be reported to the Board of Directors at its
next meeting.
Each committee shall fix its own rules of procedure not inconsistent with
these bylaws or the resolution of the Board of Directors designating such
committee and shall meet at such times and places and upon such call or notice
as shall be provided by such rules.
SECTION 3.15. Fees and Compensation of Directors. Directors shall not
----------------------------------
receive any stated salary for their services as such; but, by resolution of the
Board of Directors, a fixed fee for Class I Directors, with or without expenses
of attendance, may be allowed for attendance at each regular or special meeting
of the Board of Directors. All members of the Board of Directors shall be
allowed their reasonable traveling expenses when actually engaged in the
business of the corporation. Members of any committee may be allowed like fees
and expenses for attending committee meetings. Nothing herein contained shall
be construed to preclude any director from serving the corporation in any other
capacity and receiving compensation therefor.
ARTICLE IV
Notices
-------
SECTION 4.1. Manner of Notice. Whenever under the provisions of the
----------------
statutes, the certificate of incorporation or these bylaws notice is required to
be given to any stockholder, director or member of any committee designated by
the Board of
-6-
<PAGE>
Directors, it shall not be construed to require personal delivery and such
notice may be given in writing by depositing it, in a sealed envelope, in the
United States mail, air mail or first class, postage prepaid, addressed or by
delivering it via facsimile transmission to such stockholder, director or member
either at the address of such stockholder, director or member as it appears on
the books of the corporation or, in the case of such a director or member, at
his business address; and such notice shall be deemed to be given at the time
when it is thus deposited in the United States mail or delivered by facsimile
transmission.
SECTION 4.2. Waiver of Notice. Whenever any notice is required to be
----------------
given under the provisions of the statutes, the certificate of incorporation, or
these bylaws, a waiver thereof in writing signed by the person or persons
entitled to such notice, whether before, at or after the time stated therein,
shall be deemed equivalently to such notice. Attendance by a person at a
meeting shall constitute a waiver of notice of such meeting, except when the
person attends a meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the stockholders, directors or
committee of directors need be specified in any written waiver of notice unless
so required by statute, the certificate of incorporation or these bylaws.
ARTICLE V
Officers
--------
SECTION 5.1. Offices and Official Positions. The officers of the
------------------------------
corporation shall be a Chairman, a Chief Executive Officer, a Secretary and
Treasurer. In addition, the Board of Directors may elect one or more divisional
Presidents, Vice Presidents and such other officers as the Board of Directors
deems necessary, and may prescribe their duties. None of the officers need be a
director, a stockholder of the corporation or a resident of the State of
Delaware.
SECTION 5.2. Election and Term of Office. The officers of the corporation
---------------------------
shall be elected annually by the Board of Directors at their first meeting held
after each annual meeting of the stockholders. If the election of officers
shall not be held at such meeting of the Board of Directors, such election shall
be held at a regular or special meeting of the Board of Directors as soon
thereafter as may be convenient. Each officer shall hold office until his
successor is elected and qualified or until his death or resignation or until he
shall have been removed in the manner hereinafter provided.
SECTION 5.3. Removal and Resignation. Any officer may be removed, either
-----------------------
with or without cause, by a majority of the directors then in office at any
regular or
-7-
<PAGE>
special meeting of the Board of Directors. Any officer may resign at any time
by giving written notice to the Board of Directors, the Chairman, the Chief
Executive Officer or the Secretary of the corporation. Any such resignation
shall take effect at the date of the receipt of such notice or at any later time
specified therein; and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
SECTION 5.4. Vacancies. A vacancy in any office because of death,
---------
resignation, removal, or any other cause may be filled for the unexpired portion
of the term by the Board of Directors.
SECTION 5.5. Chairman. The Chairman shall be responsible for the overall
--------
coordination of the Company's strategic direction and external relations between
the corporation and its stockholders and lenders, subject to the policies and
directions as may be provided by the Board of Directors. The Chairman shall
preside at all meetings of the stockholders and Board of Directors at which he
is present. The Chairman shall also have power to execute deeds, mortgages,
bonds, contracts or other instruments of the corporation except where required
or permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the Board of
Directors to some other officer or agent of the corporation. The Chairman in
general shall perform all other duties which may be prescribed by the Board of
Directors from time to time.
SECTION 5.6. Chief Executive Officer. The Chief Executive Officer of the
-----------------------
corporation will be responsible for the corporation's operations and financial
performance and, together with the Chairman, the coordination of the
corporation's strategic direction, subject to the direction of the Board of
Directors. The Chief Executive Officer shall have authority to designate the
duties and powers of other officers and delegate special powers and duties to
specified officers, so long as such designation shall not be inconsistent with
the statutes, these bylaws or action of the Board of Directors. The Chief
Executive Officer may execute, in the name and on behalf of the corporation, any
deeds, mortgages, bonds, contracts or other instruments which the Board of
Directors or a committee thereof has authorized to be executed, except in cases
where the execution shall have been expressly delegated by the Board of
Directors or a committee thereof to some other officer or agent of the
corporation. The Chief Executive Officer may sign with the Secretary or an
Assistant Secretary certificates for shares of stock of the corporation, the
issuance of which shall have been duly authorized by the Board of Directors, and
shall vote, or give a proxy to any other person to vote, all shares of the stock
of any corporation standing in the name of the corporation. The Chief Executive
Officer in general shall have all other powers and shall perform all other
duties which are incident to the chief executive office of a corporation or as
may be prescribed by the Board of Directors from time to time or provided in
these bylaws.
-8-
<PAGE>
SECTION 5.7. Divisional Presidents. The Divisional Presidents, if any are
---------------------
elected, shall have such powers and duties as shall be prescribed by the Board
of Directors, assigned by the Chief Executive Officer or provided in these
bylaws.
SECTION 5.8. Senior Vice Presidents and Vice Presidents. The Senior Vice
------------------------------------------
Presidents and Vice Presidents, if any are elected, shall have such powers and
duties as shall be prescribed by the Board of Directors, assigned by the Chief
Executive Officer or provided in these bylaws.
SECTION 5.9. Secretary. The Secretary shall have the duty to record the
---------
proceedings of the meetings of the stockholders and directors in a book to be
kept for that purpose. The Secretary shall have the power to affix the seal of
the corporation to all instruments requiring or calling for the corporate seal
when such instruments have been signed on behalf of the corporation by a duly
authorized officer. The Secretary shall have other powers and duties as may be
assigned from time to time by the Chief Executive Officer or the Board of
Directors, or provided in these Bylaws.
SECTION 5.10. Treasurer. The Treasurer shall be responsible for the
---------
receipt, custody and disbursement of all funds of the corporation, whether in
the form of cash or securities. The Treasurer shall have the power to affix the
seal of the corporation to all instruments requiring or calling for the
corporate seal when such instruments have been signed on behalf of the
corporation by a duly authorized officer. The Treasurer shall have such other
powers and duties as may be assigned from time to time by the Chief Executive
Officer or the Board of Directors, or provided in these By-Laws.
SECTION 5.11. Assistant Treasurers. The Assistant Treasurers, if any are
--------------------
elected, shall in the absence of the Treasurer perform all functions and duties
of the Treasurer and in addition shall perform such functions and duties as the
Treasurer may delegate, but this shall in no way relieve the Treasurer of the
responsibilities and liability of his office.
SECTION 5.12. Assistant Secretaries. The Assistant Secretaries, if any
---------------------
are elected, shall in the absence of the Secretary perform all functions and
duties of the Secretary and in addition shall assume such functions and duties
as the Secretary may delegate, but this shall in no way relieve the Secretary of
the responsibilities and liability of his office.
ARTICLE VI
Contracts, Loans, Checks and Deposits
-------------------------------------
-9-
<PAGE>
SECTION 6.1. Contracts and Other Instruments. The Board of Directors may
-------------------------------
authorize any officer or officers, agent or agents, to enter into any contract
or execute and deliver any instrument in the name of and on behalf of the
corporation, or of any division thereof, and such authority may be general or
confined to specific instances.
SECTION 6.2. Loans. No loans shall be contracted on behalf of the
-----
corporation, and no evidence of indebtedness shall be issued in the name of the
corporation, unless authorized by a resolution of the Board of Directors. Such
authority may be general or confined to specific instances.
SECTION 6.3. Checks, Drafts, etc. All checks, demands, drafts or other
-------------------
orders for the payment of money, notes or other evidences of indebtedness issued
in the name of the corporation, or any division thereof, shall be signed by such
officer or officers, agent or agents of the corporation, and in such manner, as
shall from time to time be authorized by the Board of Directors.
SECTION 6.4. Deposits. All funds of the corporation not otherwise
--------
employed shall be deposited from time to time to the credit of the corporation
in such banks, trust companies or other depositories as the Board of Directors
may select.
ARTICLE VII
Certificates of Stock and Their Transfer
----------------------------------------
SECTION 7.1. Certificates of Stock. The certificates of stock of the
---------------------
corporation shall be in such form as may be determined by the Board of
Directors, shall be numbered and shall be entered in the books of the
corporation as they are issued. They shall exhibit the holder's name and number
of shares and shall be signed by the Chairman or the Chief Executive Officer or
by any Vice President and by the Secretary or an Assistant Secretary. If any
stock certificate is signed (a) by a transfer agent or an assistant transfer
agent or (b) by a transfer clerk acting on behalf of the corporation and a
registrar, the signature of any officer of the corporation may be facsimile. In
case any such officer whose facsimile signature has thus been used on any such
certificate shall cease to be such officer, whether because of death,
resignation or otherwise, before such certificate has been delivered by the
corporation, such certificate may nevertheless be delivered by the corporation,
as though the person whose facsimile signature has been used thereon had not
ceased to be such officer. All certificates properly surrendered to the
corporation for transfer shall be cancelled and no new certificate shall be
issued to evidence transferred shares until the former certificate for at least
a like number and class of shares shall have been surrendered and cancelled and
the corporation reimbursed for any applicable taxes on the transfer, except that
in the case of a lost, destroyed or mutilated certificate a new one may be
issued therefor upon such terms, and with
-10-
<PAGE>
such indemnity (if any) to the corporation, as the Board of Directors may
prescribe specifically or in general terms or by delegation to a transfer agent
for the corporation. (See Section 7.2).
SECTION 7.2. Lost, Stolen or Destroyed Certificates. The Board of
--------------------------------------
Directors in individual cases, or by general resolution of by delegation to the
transfer agent, may direct a new certificate or certificates to be issued in
place of any certificate or certificates theretofore issued by the corporation
alleged to have been lost, stolen or destroyed, upon the making of an affidavit
of that fact by the person claiming the certificate of stock to be lost, stolen
or destroyed. When authorizing such issue of a new certificate or certificates,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
SECTION 7.3. Transfers of Stock. Upon surrender to the corporation or the
------------------
transfer agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, and upon payment of applicable taxes with respect to such transfer,
and in compliance with any restrictions on transfer applicable to the
certificate or shares represented thereby contained in the certificate of
incorporation or of which the corporation shall have notice and subject to such
rules and regulations as the Board of Directors may from time to time deem
advisable concerning the transfer and registration of certificates for shares of
capital stock of the corporation, the corporation shall issue a new certificate
to the person entitled thereto, cancel the old certificate and record the
transaction upon its books. Transfers of shares shall be made only on the books
of the corporation by the registered holder thereof or by his attorney or
successor duly authorized as evidenced by documents filed with the Secretary or
transfer agent of the corporation.
SECTION 7.4. No Fractional Share Certificates. Certificates shall not be
--------------------------------
issued representing fractional shares of stock.
SECTION 7.5. Fixing Record Date. The Board of Directors may fix in
------------------
advance a date, not exceeding sixty (60) days, nor less than ten (10) days,
preceding the date of any meeting of stockholders, or the date for the payment
of any dividend, or the date for the allotment of rights or the date when any
change or conversion or exchange of capital stock shall go into effect, or a
date in connection with obtaining any consent, as a record date for the
determination of the stockholders entitled to notice of, and to vote at, any
such meeting, or adjournment thereof, or entitled to receive payment of any such
dividend, or to any such allotment of rights, or to exercise the rights in
respect of any such change, conversion or exchange of capital
-11-
<PAGE>
stock, or to give such consent, and in such case such stockholders and only such
stockholders as shall be stockholders of record on the date so fixed shall be
entitled to notice of, and to vote at, such meeting and any adjournment thereof,
or to receive payment of such dividend, or to receive such allotment of rights,
or to exercise such rights, or to give such consent, as the case may be,
notwithstanding any transfer of any stock on the books of the corporation after
any such record date fixed as aforesaid.
SECTION 7.6. Stockholders of Record. The corporation shall be entitled to
----------------------
treat the holder of record of any share or shares of stock as the holder in fact
thereof and accordingly, shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of Delaware.
ARTICLE VIII
General Provisions
------------------
SECTION 8.1. Fiscal year. The fiscal year of the corporation shall be
-----------
determined by resolution of the Board of Directors.
SECTION 8.2. Seal. The corporate seal shall have inscribed thereon the
----
name of the corporation, and the words "CORPORATE SEAL" and "DELAWARE;" and it
shall otherwise be in the form approved by the Board of Directors. Such seal
may be used by causing it, or a facsimile thereof, to be impressed or affixed or
otherwise reproduced.
ARTICLE IX
Amendments
----------
SECTION 9.1. In General. Any provision of these bylaws may be altered,
----------
amended or repealed from time to time by the requisite vote the stockholders of
the corporation as provided in the certificate of incorporation, present in
person or by proxy at any annual meeting of stockholders at which a quorum is
present, or at any special meeting of stockholders at which a quorum is present,
if notice of the proposed alteration, amendment or repeal be contained in the
notice of such special meeting, or, subject to the certificate of incorporation,
by the directors then qualified and acting at any regular or special meeting of
the Board of Directors; provided, however, that the stockholders may provide
specifically for limitations on the power
-12-
<PAGE>
of directors to amend particular bylaws and, in such event, the directors' power
of amendment shall be so limited.
-13-
<PAGE>
EXHIBIT 10.1
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
MICROSOFT CORPORATION
PRODUCT SUPPORT SERVICE
VENDOR AGREEMENT
This Product Support Services Vendor Agreement (the "Agreement") is entered into
by and between Microsoft Corporation, a Washington corporation ("MS"), and
Stream International, Inc., a Massachusetts Corporation ("Company") to be
effective as of 12/14/95 ("Effective Date").
In consideration of the mutual covenants herein, the parties hereby agree as
follows:
1. Services.
--------
(a) Company agrees to provide product support services (the
"Services") identified in Exhibit A to end users of certain Microsoft
Corporation products identified in Exhibit B (the "Product(s)"), on the terms
and conditions provided herein in accordance with MS standard support policies
and procedures as detailed in documentation provided by MS to Company
(including, without limitation, MS policies set forth in Exhibit E), which may
be modified by MS from time to time in its sole discretion, and in accordance
with the performance requirements set forth in Exhibit C. In the event that any
modification causes an increase in the cost of performance for Company, Company
will advise MS and provided Company can prove such increased cost, the parties
will negotiate a mutually-agreeable amendment to this Agreement addressing that
issue. ***********************************************************************
*********************************************************and Company will be
responsible for maintaining all necessary telecommunications equipment and
services at the Facility to handle all calls *****************************
including all costs associated therewith. Other facilities may be added as
mutually agreed by amendment of this Agreement.*********************************
********************************************************************************
****************************** to the******************************************.
The technology to be provided by each party is set forth in Exhibit F.
(i) Special terms and conditions of support for localized
versions of Products are set forth in Exhibit G, which is incorporated
herein by this reference.
<PAGE>
(b) Company agrees to use its best efforts and most capable
technical expertise to resolve customer support problems, meeting or exceeding
the performance requirements as set forth in Exhibit C. In the event Company is
unable to resolve a problem, Company may escalate the problem to MS designated
representative(s). Company and Microsoft will mutually agree on the identity of
Company designated representative(s). The initial designated representatives of
the Company and MS are listed on Exhibit C. Either party may redesignate its
representative(s) upon written notice at any time during the term of this
Agreement.
(c) Company will maintain its current Automatic Call Distribution
("ACD") system. If Company changes its current ACD system or adds facilities,
Company will need to ensure that any such new ACD system is capable of providing
the information set forth in Exhibit H.
(d) Company will ensure that its current backup and disaster
recovery procedures are adequate to ensure that Company is in full compliance
with the terms of this Agreement; any changes or additions to such procedures
shall be made upon mutual agreement of the parties.
(e) When and if the Company changes its ACD such that MS can no
longer access appropriate data on its own, Company shall provide MS with reports
on the Services provided by Company under this Agreement as specified in Exhibit
H.
(f) At MS's discretion, with reasonable advance notice, MS reserves
the right to make onsite visits to all sites where Company supports Products. In
connection with said visits, Company will provide to MS, as and when required by
MS, access to office premises at the Facility equipped with standard office
equipment as available to personnel of Company in proximate offices, at no
charge.
(g) "Company agrees that any support personnel of Company while they
are supporting the Product(s) identified in Exhibits B & C shall be dedicated to
supporting only the Product(s) designated as their respective obligation, and
other MS products pursuant to this Agreement and/or other similar agreements
between MS and Company, and shall not accept telephone calls or other
communications or provide any Services for any third party product(s) without
the express written consent of MS. However, Company may reassign staff at its
sole discretion subject to forgoing provisions.
(h) Company will not subcontract any of its obligations hereunder
without the prior written approval of MS.
-2-
<PAGE>
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
2. Ownership and License Grants.
----------------------------
(a) Knowledge Base and Notes. MS grants to Company a non-exclusive,
------------------------
personal, non-transferable, non-assignable, royalty-free license for the term of
this Agreement to reproduce and use data from the MS product support service
database ("Knowledge Base") and application notes ("Notes") for the Product(s)
for the sole purpose of providing Services hereunder. Company shall maintain all
disclaimers, copyright notices, trademarks, and other protective notices on all
copies of the
Knowledge Base and Notes and all data contained therein. MS grants to Company a
non-exclusive, personal, non-transferable, non-assignable, royalty-free license
for the term of this Agreement to reproduce and distribute unmodified articles
from the Knowledge Base and Notes solely to support customers for the purpose of
providing Services hereunder. Upon the expiration or termination of this
Agreement, Company's license rights with respect to the Knowledge Base and Notes
will automatically terminate, and Company shall within ten (10) days thereafter
provide written certification to MS signed by an authorized representative of
Company that Company has destroyed all copies of the Knowledge Base and Notes
(including all related documentation) in its possession.
(b) Product(s). MS will provide Company ************ with copies of
----------
the Product(s) identified in Exhibit B. Effective upon the delivery of the
Products to Company, MS shall be deemed to have granted to Company a non-
exclusive, personal, non-transferable, non-assignable, royalty-free license to
use the Products at the Facility under the terms of the End User License
Agreement ("EULA") accompanying each of the Products for the sole purpose of
providing Services for the Product(s) *************************** as provided
for under the terms of this Agreement. Notwithstanding the terms of the EULAs
accompanying the Products, Company shall be entitled to reproduce a number of
copies of the Products (including all related documentation) equal to the number
of computers used by Company at the Facility to provide the Services for the
Product(s), provided that such copies may only be used to provide product
support for the Product(s) to MS customers as provided for under the terms of
this Agreement. Upon the expiration or termination of this Agreement, Company's
license to use and reproduce such Products will automatically terminate, and
Company shall within ten (10) days thereafter either (i) return all copies of
the Products (including all related documentation) licensed to Company pursuant
to this Agreement in its possession to MS, or (ii) provide written certification
to MS signed by an authorized representative of Company that Company has
destroyed all copies of the Products (including all related documentation)
licensed to Company pursuant to this Agreement in its possession.
-3-
<PAGE>
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
(c) **************. At the******************************************
--------------
*****************************************************************************
*****************************************************************************
as *********************************************************************** and
******. Upon the ************************************************************
********and*************************************and***************************
******************************************************************************
***********************************************that***************************
and***************************************************.
(d) MS Intellectual Property Rights. Company hereby agrees and
-------------------------------
acknowledges that any and all works or processes developed by Company in the
course of its delivery of Services under this Agreement which are protectible as
copyrights, trade secrets or any other form of intellectual property have been
specially ordered and commissioned by MS. Company understands and agrees that
such works shall be deemed to be "works-made-for-hire" for copyright purposes.
All patents and other proprietary rights resulting from the Services shall be
owned by MS to the extent any and/or all of the works do not qualify as "works-
made-for-hire."
**************************************Company shall***************************
************************in the**************************************************
**************and**********************************************************
***********************and/or***********************************************such
****************************************************************************from
*****at any***********************************************in its***********it
************************************************************************its
************************************************ Company (a) hereby irrevocably
sells, assigns, transfers and conveys to MS, its successors and assigns,
irrevocably and perpetually, Company's entire right, title and interest in the
work(s) and/or process(es) resulting from or developed for the Services, (b)
agrees to do such further acts and execute and deliver to MS such instruments as
may be required to perfect, register or enforce MS's ownership of the rights
conveyed under this Agreement or to carry out the intent and purpose of this
Agreement, and (c) agrees that if Company fails or refuses to execute any such
instruments, Company hereby appoints MS as Company's attorney-in-fact to act on
Company's behalf solely for the purpose of executing such instruments. Any such
appointment shall be irrevocable and deemed to be a power coupled with an
interest.
"In addition, notwithstanding the foregoing the parties hereby
acknowledge and agree that Company shall be the owner of all software tools
developed by Company,
-4-
<PAGE>
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
as well as methods and techniques of doing business, including patents, trade
secrets and other proprietary rights associated therewith (collectively,
"Company Tools"), during the term of this Agreement for use in providing the
Services. Company hereby grants to MS a perpetual, royalty-free, non-exclusive,
worldwide license to reproduce, modify use, and create derivative works from
such Company Tools for internal MS use; MS agrees not to distribute such Company
Tools to any third parties. Company agrees to provide copies of the object code
and source code versions of all Company Tools and all related documents to MS
for such purposes.
(e) ********************. ***********************Company
--------------------
acknowledges and agrees that ***********************************************
with the *****************************************************************
**********************************************************************
**********************************************************************
****************************shall be *************************************
***************************in the ***************************************
Company shall **********************************************************the
*************************with this Agreement and shall**********************
***********************************with the ********************************
********Company shall**********************************************************
**********************************************************of this
************************************************************with all
*********************************************************with all other
********************which are***********************************.
(f) Training. Company agrees to undertake and successfully
--------
complete all training programs provided by MS with respect to the Product(s) and
subsequent versions Company is currently supporting for ****************in its
sole discretion deems necessary to prepare Company to provide the Services
outlined in this Agreement, provided that such training shall not exceed
*********** days per year for any one product support personnel unless the
parties mutually agree otherwise. Training will be conducted at a mutually
agreed upon facility ***********************************************************
*************************************************** except that all travel,
accommodation and related expenses for Company employees shall be the
responsibility of Company. Company acknowledges and agrees that it shall be
responsible for internal and ongoing training of its product support personnel
on the Product(s) after receivinginitial training. Company will designate ******
ongoing trainer per Product supported. ****************************************
************* to be ***********************************************************
the terms of this Agreement.
-5-
<PAGE>
(g) ACD System Documentation. Company shall provide MS with
------------------------
standard specifications and documentation from its ACD system with respect to
the Services provided by Company under this Agreement.
(h) LAN Security. Company shall physically isolate the local area
------------
network (LAN) used by Company personnel in the provision of the Services under
this Agreement (the "Support LAN") from other LANs maintained by the Company.
Company shall restrict use of the Support LAN solely to Company personnel
providing Services for the Product(s) under this Agreement or similar agreements
between MS and Company. Company agrees to notify MS promptly upon discovery of
any breach of security in the Support LAN.
(i) ******************** As of the Effective Date, ***************
--------------------
*******************************************************************************
**************in conjunction with ********************************
*******************************************************pursuant to
***********pursuant to the terms of this Agreement. *******************
********************************************************at the
************************of this Agreement. ***************************
************************to this ******************************which is
incorporated herein by this reference. Company shall*****************
***********************************************.
3. Price. MS will pay Company the amounts specified in Exhibit D
-----
each month subject to adjustments, deductions or credits to such amounts as
provided for in this Agreement or any Exhibit hereto. Payment terms are net
thirty (30) days after receipt of invoice.
4. Warranties. Company warrants that:
----------
(a) It possesses all necessary authority to enter into this
Agreement, and that by so doing it does not violate any other agreements to
which it is a party;
(b) The Services will conform in all material respects with the
service requirements set forth in this Agreement, including, without limitation,
those set forth in Exhibits A and C;
(c) The Services will be performed by (i) employees of Company
within the scope of their employment who have signed confidentiality agreements
with the Company that require such employees to comply with obligations
substantially similar to those imposed by Company by Section 2(e) above and
Section 8 below, or (iii) by temporary employees and/or MS-permitted
subcontractors under written contractual obligations to Company ("Contractor
Agreement") that require independent contractors to sign confidentiality
agreements to comply with obligations
-6-
<PAGE>
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
substantially similar to those imposed on Company by Section 2(e) above and
Section 8 below; further, any such Contractor Agreement shall expressly provide
that MS is a third party beneficiary of the Contractor Agreement with rights to
enforce such agreement. Finally, Company warrants and represents that it will
ensure that any such temporary employees and/or MS-permitted subcontractors it
utilizes to fulfill its obligations under this Agreement will perform them in
accordance with the service and performance requirements set forth this in this
Agreement including, without limitation, those set forth in Exhibits A, C, E, F,
G and H.
(d) In providing Services to end users, Company shall make no
representations or undertake any obligations on behalf of MS concerning the
Product(s) and/or any other Microsoft Corporation products beyond those
expressly made or undertaken by Microsoft Corporation in written product
warranty statements and other written materials, including but not limited to
end user licenses prepared by Microsoft Corporation accompanying the Product(s).
Company shall also conform to all applicable and valid laws and government rules
and regulations;
(e) Any and all materials Company publishes as part of its Services
for Product(s) do not and will not infringe any intellectual property rights
owned by MS or Microsoft Corporation including, but not limited to, any
copyright, patent, or trade secret; and
(f) *********************************************Company will not
******************************************************************
****************************************************in connection with its
*************************************************************
*************************************for the purpose of****************
************************************.
THE WARRANTIES ABOVE ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER WARRANTIES,
EXPRESS, IMPLIED, STATUTORY OR OTHERWISE AND ALL IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR THAT A PRODUCT WILL
OPERATE ERROR-FREE.
5. Indemnification and Limitation of Liability.
(a) Company General Indemnification. Company agrees to indemnify,
-------------------------------
defend, and hold MS harmless from and against any and all claims, actions,
demands, and costs, including reasonable attorneys' fees and expenses arising
out of or in connection with any negligent or willful act or omission of Company
or its employees, independent contractors and agents in connection with the
Services
-7-
<PAGE>
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
provided under this Agreement ("Claims"). Acts for which Company shall indemnify
MS include, but shall not be limited to, representations or obligations
undertaken on behalf of MS concerning the Product(s) and/or any other Microsoft
Corporation products made to customers which exceed the scope of the warranties
or end user licenses which accompany the Product(s) and/or other Microsoft
Corporation products. MS shall have the right to assume the defense of any claim
indemnified hereunder. Should MS exercise this right to defend any indemnified
claim, Company shall have no liability for such claim and MS shall agree to
fully indemnify Company from and against any liability or damage that may
ultimately be assessed against Company in connection with such proceeding,
regardless of any comparative negligence or liability on the part of Company.
Company agrees to cooperate fully with MS and MS's counsel in any matter where
MS elects to defend, provided MS shall promptly reimburse Company for reasonable
costs and expenses incurred by same in connection with its duty to cooperate. In
addition to the foregoing option to defend, MS shall have the right to
participate in the defense of any claim being defended by Company pursuant to
its obligation hereunder, at MS's own cost and expense. Company shall pay any
and all expenses and other reasonable costs incurred by MS arising in connection
with its obligations under this Section 5(a) promptly upon demand.
(b) ********************** *******************************
----------------------
***********************************************************
************************************************************in
connection with any******************************************* *****in
connection with any********************************************
************************************************************************
*************************************.
(c) ******************************** ***************************
--------------------------------
*****************************************************************
****************************************************************and
*************************************************************provided
to the ***************************************************************
********************************************provided that **********
*******************************************************************
*****to which***********************************************************
*****to the**********of this Section 5(c), ***************************
*****************************************************************and the
**********************************************************************
********with the ***************at the***********************************
-8-
<PAGE>
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
**********in connection with***************************************************
*****************************************of any***************************
and to *********************************************provided that
****************************************************************
*****************shall******************************************
*********shall be***********************************************by the
****************************************************************
***********************************************************and*****
and*********by the ***************.
(d) ******************** EXCEPT FOR INDEMNIFICATION CLAIMS
--------------------
PURSUANT TO SECTION 5(a) and 5(b) ABOVE IN*******************************
************to the **********************************************
*****************************************************************
******from********************************************************
*******************************to this*********************of the
*****************************************************************
*****************************************************************
***************************and********of the************************
***************************.
6. Term and Default.
----------------
(a) This Agreement shall commence as of the Effective Date, and
shall continue in force for a period of twelve (12) months from the date on
which the first customer calls are routed by MS unless earlier terminated by MS
as provided in this Agreement or Exhibits hereto. There will be ninety (90) day
reviews of Company performance, beginning upon the Effective Date.
(b) If Company is not in material default under the terms of this
Agreement, and provided Company has met its performance requirements as of the
anniversary of the Effective Date, then MS shall have the option of renewing
this Agreement for a further period of one (1) year provided MS gives the
Company notice thereof in writing not less than two (2) months before the date
of expiration of the term hereof. Any renewal pursuant to this Section shall be
on the same terms and conditions contained in this Agreement save and except
that the prices payable by MS to Company for the renewal term shall be in
accordance with fair market prices payable for similar services in the market
generally and *****************************************************************
************************************************************************
*******************************************************************************
*****************************.
-9-
<PAGE>
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
(c) This Agreement may be terminated by either party in the event
the other party (the "Other Party" for the purposes of this subsection) assigns
its rights or interest in the Agreement in contravention of Section 11(f) or the
Other Party suspends performance of its obligations as described in Section
11(i) or if the Other Party becomes insolvent or admits in writing its inability
to pay its debts as they become due or makes an assignment for the benefit of
creditors or if a petition under any bankruptcy act, receivership statute or the
like, as they now exist or as they may be amended, is filed by the Other Party
or by any third party or an application for a receiver is made by anyone and
such application is not resolved favorably to the Other Party within sixty (60)
days.
(d) This Agreement may further be terminated by MS pursuant to the
provisions of Section 7.
(e) The ("Measurement Interval") for all Services will be measured
by MS as prescribed in Exhibits C&D, ********************************.
Quality bonuses/deductions will only be awarded or deducted once a statistically
valid sample of surveys is achieved. During the term of this Agreement, if the
Services provided by Company hereunder do not conform to any of the performance
requirements set forth in Exhibit C for any Measurement Interval, the Services
may be deemed unacceptable by MS and this Agreement may be terminated by written
notification if company has not brought its performance into conformance with
the applicable standards within ************ subsequent to the date notice of
such unacceptability is given to Company; however, if Company provides MS an
acceptable correction plan by the end of that ********** period, then
termination of Company shall be governed by the provisions in Section 7 below.
(f) Company acknowledges MS's right to require immediate removal and
prompt replacement of any Company employee, MS-permitted independent contractor,
or agent performing Company's obligations under this Agreement who engages in
any conduct prohibited by law or inconsistent with MS policy as set forth in
Exhibit E.
(g) Sections 2 (d), (e), 3, 4, 5, 6 (h) 8, 9, 10 and 11 of this
Agreement shall survive termination for any reason.
(h) Upon the expiration or earlier termination of this Agreement,
Company shall cooperate with MS to assist in the orderly transition of Services
to MS, or as MS may direct, in a professional manner, with no disruption to
customer service.
-10-
<PAGE>
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
7. Default in Performance and Remedies. During the term of this Agreement:
-----------------------------------
(a) In the event Company fails to meet the performance requirements
as specified in this Agreement and in Exhibit C (the "Performance
Requirements"), the payments will be modified as set forth in Exhibit D. Company
and MS agree that such amount will represent a fair and reasonable pre-estimate
of damages incurred by MS as a result of such non-performance; provided that the
Performance Requirements will be waived for an initial grace as described in
Exhibits C & D ****************************************************************.
(b) In the event there is a continued failure by Company to meet the
Performance Requirements for more than ******* Measurement Interval(s), and MS
has not terminated Company for its first failure to meet performance standards
during the first Measurement Interval, Company shall, at MS's request, provide a
corrective action plan, including training and staffing plans, to MS for
approval. MS shall review and approve or provide required changes to Company on
such corrective action plan within ******** business days from its receipt of
such plan.
(c) In the event the Performance Requirements are not met within
*********** days following MS's approval of any corrective action plan, MS
shall have the right to terminate this Agreement.
(d) All remedies set forth in this section shall be in addition to
and not in lieu of all other remedies available to MS under this Agreement at
law or in equity.
8. Confidentiality and Publicity.
-----------------------------
(a) Except as otherwise provided herein, the parties expressly
undertake to retain in confidence the terms and conditions of this Agreement and
all other non-public information and know-how disclosed to each other during the
term of this Agreement that has been designated as proprietary and/or
confidential or that, by the terms of this Agreement and/or the nature of the
circumstances surrounding the disclosure, ought in good faith to be treated as
proprietary and/or confidential (the "Confidential Information"), and will make
no use of such information and know-how except under the terms and during the
existence of this Agreement; provided that each party may disclose the terms and
conditions of this Agreement to its immediate legal and financial consultants as
required in the ordinary course of its business. Information disclosed by MS
regarding new products or new product releases shall be presumed confidential,
however disclosed. Each of the parties shall use its best efforts to protect the
Confidential Information, which precautions shall be at least as great as the
precautions it takes to protect its own confidential information.
-11-
<PAGE>
Each of the parties may disclose Confidential information only to its employees
on a "need-to-know" basis. The parties may disclose Confidential Information as
required by government or judicial order, provided that the disclosing party
gives the other party prompt notice of such order and complies with any
protective order (or equivalent) imposed on such disclosure. The parties shall
notify each other promptly upon the discovery of any unauthorized use or
disclosure of Confidential Information, and will cooperate with each other in
every reasonable way to assist the disclosing party in regaining possession of
such Confidential Information and to prevent future unauthorized use or
disclosures.
(b) The parties acknowledge that monetary damages may not be a
sufficient remedy for unauthorized disclosure or use of Confidential Information
and that the parties may seek, without waiving any other rights or remedies,
such injunctive or equitable relief as may be deemed proper by a court of
competent jurisdiction.
(c) Company shall not issue any press release or advertising
concerning Company's relationship with MS and the Services hereunder, without
MS's written pre-approval.
9. Notices and Requests. All notices, authorizations, and requests in
--------------------
connection with this Agreement shall be deemed given on the day they are (i)
deposited in the mail, postage prepaid, certified or registered, return receipt
requested; or (ii) sent by air courier, charges prepaid, with a confirming
telefax; or (iii) transmitted, if transmitted by facsimile, and addressed as
follows:
Notices to Company:
- ------------------
Stream International, Inc.
Attn: Vice President, Support Services
Phone: 617-575-6800
Fax: 617-575-6999
copy to General Counsel
Notices to MS:
- -------------
MICROSOFT CORPORATION
One Microsoft Way
Redmond, WA 98052-6399
Attn: Vice President, Product Support Services
Phone:
Fax: (206) 936-7329
With a copy to: Law & Corporate Affairs
-12-
<PAGE>
or to such other address as the party to receive the notice or request so
designates by written notice to the other.
10. Audit. Company shall keep all usual and proper records relating to its
-----
compliance with the terms of this Agreement. MS reserves the right to audit
Company's systems and records during the term of this Agreement and for a period
of two years thereafter, provided that such audit(s) shall be conducted during
normal business hours in such a manner as not to interfere unreasonably with the
operations of Company and provided further that such audit(s) shall only be
conducted in circumstances where (i) MS has reasonable grounds to suspect
Company's non-compliance with any terms of this Agreement, (ii) MS communicates
any such concern to Company in writing, and (iii) Company either does not
respond to such concern within five (5) business days or Company's response does
not alleviate MS's concern to its satisfaction. Audit expenses shall be paid by
MS unless material discrepancies are disclosed by the audit, in which case audit
expenses shall be paid by Company. MS's audit rights referred to in this section
shall be reasonable in scope, but will be of an expansive scope if MS's audit
reveals material discrepancies.
11. General.
-------
(a) This Agreement shall be construed and controlled by the laws of
the State of Washington, and Company consents to jurisdiction and venue in the
state and federal courts sitting in the State of Washington. Process may be
served on either party by US Mail, postage prepaid, certified or registered,
return receipt requested, or by such other method as is authorized by law.
(b) Neither this Agreement, nor any terms or conditions contained
herein, shall be construed as creating a partnership, joint venture, agency
relationship or franchise.
(c) This Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof and supersedes all prior and
contemporaneous agreements or communications with respect to the subject matter
hereof. This Agreement shall not be modified except by a written agreement dated
subsequent to the date of this Agreement and signed on behalf of Company and MS
by their respective duly authorized representative.
(d) No waiver of any breach of any provision of this Agreement shall
constitute a waiver of any prior, concurrent, or subsequent breach of the same
or any other provisions hereof, and no waiver shall be effective unless made in
writing and signed by an authorized representative of the waiving party.
-13-
<PAGE>
(e) If any provision of this Agreement shall be held by a court of
competent jurisdiction to be illegal, invalid, or unenforceable, the remaining
provisions shall remain in full force and effect.
(f) The rights and obligations hereunder shall be binding upon and
inure to the benefit of the successors and assigns of the parties hereto,
provided any rights or obligations hereunder shall not be assigned by either
party without the prior written consent of the other party, which consent shall
not be unreasonably withheld.
(g) In any suit or action to enforce any right or remedy under this
Agreement or to interpret any provision of this Agreement, the prevailing party
will be entitled to recover its costs, including reasonable attorneys' fees.
(h) The section headings herein are for the convenience of the
parties and shall not be deemed to supersede or modify any provisions.
(i) If either party is unable to perform under this Agreement due to
circumstances or causes beyond its control, and which could not by reasonable
diligence have been avoided, such party shall have the option, without
liability, of suspending performance of its obligations under this Agreement for
the duration of such contingency upon written notice to the other party.
However, either party may terminate this Agreement upon written notice to the
other party in the event that such other party has suspended performance of its
obligations under this Agreement for more than thirty (30) days.
(j) The parties agree that wherever and whenever one party has the
right to exercise its discretion under this Agreement, such discretion shall be
exercised with reasonableness.
-14-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
MICROSOFT CORPORATION Stream International, Inc.
One Microsoft Way 275-Dan Road
Redmond, WA 98052-6399 Canton, MA 02021
By: D.N. Willingham By: S.D.R. Moore
---------------------- ---------------------
Deborah N. Willingham S.D.R. Moore
- -------------------------- ---------------------
Name (Print) Name (Print)
VP, Support President
- -------------------------- ---------------------
Title Title
-15-
<PAGE>
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
EXHIBIT A
- ---------
Services
- --------
Company will provide the following product support services (the "Services") for
those products listed in Exhibit B:
Service Description
- ------- -----------
******************** *********************
******************** *********************
*********************
*********************
*********************
******************** *********************
*********************
*********************
*********************
******************** *********************
*********************
******************** *********************
*********************
*********************
******************** *********************
*********************
*********************
******************** *********************
*********************
*********************
*********************
******************** *********************
*********************
*********************
A-1
<PAGE>
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
******************** *********************
*********************
*********************
*********************
*********************
*********************
*********************
*********************
*********************
******************** *********************
*********************
*********************
*********************
A-2
<PAGE>
Confidential material omitted and filed separately
with the Securities and Exchange Commission
Asterisks denote such omissions.
EXHIBIT B
- ---------
Supported Product(s)
- --------------------
Company will supply product support services for the following Product(s):
Desktop:
- -------
****************
****************
****************
****************
Consumer:
- --------
****************
****************
****************
POS:
- ---
****************
****************
****************
Developer:
- ---------
****************
****************
****************
****************
****************
****************
Business Systems:
- ----------------
****************
B-1
<PAGE>
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
EXHIBIT C
- ---------
Pages C-1 through C-5 of Exhibit C
contain confidential materials which have been omitted
and filed separately with the Securities and Exchange Commission
C-1
<PAGE>
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
EXHIBIT D
- ---------
Pages D-1 through D-6 of Exhibit D
contain confidential materials which have been omitted
and filed separately with the Securities and Exchange Commission
D-1
<PAGE>
EXHIBIT E
- ---------
MS Policies
Introduction
The following code of conduct is not a contract. It is intended solely to
provide general guidance to vendors and their representatives to assist them in
functioning smoothly and efficiently while performing work for Microsoft.
Microsoft is committed to promoting a positive work environment. We expect our
vendors and their employees, agents, and subcontractors (collectively,
"representatives") to adhere to the same standards of conduct and behavior that
we expect from our own employees while you and your representatives are on
Microsoft property or doing business with Microsoft.
The information outlined below is important and should be read carefully. All
third party vendors will be required to educate and, when appropriate, train
their representatives to ensure they are aware of Microsoft's expectations
regarding their behavior and the consequences of any breaches of Microsoft
policies.
The policies summarized below are non-exhaustive, and there may be other conduct
not specifically listed that would be unacceptable. Microsoft expects that
vendors and their representatives will conduct themselves in a professional
manner at all times while on Microsoft property or while doing business with
Microsoft. Microsoft may require the immediate removal of any vendor
representative who behaves in a manner that is unlawful or inconsistent with any
Microsoft policy, or that is otherwise deemed harmful to Microsoft's business.
E-mail
Electronic mail, or e-mail, provides an easy-to-use, efficient means of
communicating. The following guidelines for preparing and sending e-mail are
designed to ensure that each vendor and its representatives use the e-mail
system in an appropriate manner.
E-mail may not be used as a forum for political, religious, or other debates, or
as a form of entertainment (for example, chain letters). Use of e-mail must be
limited to Microsoft business. All e-mail group aliases (a pre-defined group of
users) must be for Microsoft business.
To informally exchange information over the computer on a variety of topics, use
the Microsoft Bulletin Board system.
E-1
<PAGE>
Microsoft e-mail names are confidential. Do not give e-mail names to anyone
outside of Microsoft. Do not share your password with anyone, attempt to gain
access to anyone else's e-mail account, or use another's e-mail account without
permission.
Microsoft prohibits obscene, profane, or otherwise offensive material from being
broadcast across the Microsoft network.
Non-solicitation Policy
Microsoft wants to provide a work environment that allows all employees, and all
vendors and their representatives to complete their tasks with the least amount
of disruption. Accordingly, vendors, their representatives, and any other non-
Microsoft employees are not allowed (while on Microsoft property or while using
Microsoft owned equipment) to engage in solicitation or distribution of
literature. This policy prohibits soliciting or handing out materials for any
purpose.
Company Access to Information and Property
E-mail and its contents, as well as any other data stored on or transmitted by
Microsoft-owned equipment, is the property of Microsoft and may be accessed by
Microsoft at any time. Accordingly, the content of e-mail, voice mail, and
similar data should not be regarded as protected by any personal right of
privacy.
Additionally, in order to evaluate and improve customer service, Microsoft may
monitor, as necessary, the telephone calls of vendors and their representatives
who work in customer service positions.
Any facilities or equipment, including but not limited to offices, desks,
computers, electronic media, motor vehicles, or lockers used by vendors and
their representatives while on Microsoft property or while conducting Microsoft
related business, may be accessed by Microsoft as needed. Accordingly, you
should not consider protected by any personal right of privacy anything brought
onto or stored on Microsoft property stored on Microsoft equipment, or used
while working on Microsoft related business. Any Microsoft property used by
vendors and their representatives while performing Microsoft related business
remains the property of Microsoft.
Gifts
Microsoft employees cannot accept payments of any amount or gifts or favors
valued in excess of $ 100 from persons or firms with which we have business
dealings, unless prior approval is obtained from a vice president or more senior
company official. Accordingly, you and your representatives should refrain from
giving to Microsoft employees gifts with a value of more than $ 100.
E-2
<PAGE>
Insider Trading
All Microsoft employees, agency temporaries, independent contractors, and vendor
representatives are considered "insiders" for the purposes of state or federal
securities laws that prohibit insider trading. As an insider, no vendor nor
vendor representative may buy or sell Microsoft's or another company's stock
when in possession of information about Microsoft or another company that is not
available to the investing public and that could influence an investor's
decision to buy stock.
New insider-trading laws carry stiff penalties, and the Securities and Exchange
Commission (SEC) has a mandate to enforce these laws aggressively. Because of
Microsoft's visibility and the volatility of our stock, Microsoft is carefully
watched by the SEC. The company can be negatively affected by insider trading
and may terminate the services of, or refuse to do further business with, anyone
found to have engaged in illegal insider trading.
Proper Use of Software
The unauthorized duplication and use of software and/or documentation by
Microsoft vendors or contractors is a violation of the copyright laws of the
United States and all the other countries in which Microsoft Corporation and its
subsidiaries maintain offices. This applies equally to Microsoft software,
whether a Beta or a final version, and to non-Microsoft software. Violation of
copyright laws can subject vendors and Microsoft to liability for significant
civil and criminal penalties. In addition, Microsoft devotes considerable
resources around the world to educate software users about their obligation to
use and manage software properly. In order for this effort to be effective and
benefit the software industry, Microsoft must lead by example.
The following practices, unless granted by a specific license, are among those
prohibited by this policy:
Making additional copies of third-party software Products for your use on
other computers.
Making copies of software (third-party or Microsoft) for friends or
associates.
Distributing software over a network.
Providing copies of software to bulletin board services.
Helpdesk maintains a list of software Products that have been licensed to
Microsoft for network use or on a site-license basis. Each department that
acquires third-party software is responsible for retaining proof of proper
licensing of that software, such as end user license agreements, original disks
and manuals, and receipts. If you have questions regarding the terms of any
third-party license agreement, contact Law and Corporate Affairs.
E-3
<PAGE>
Failure to follow this policy can result in action against the vendor and its
representative, including termination of the vendor representative's services
and/or termination of Microsoft's contract with the vendor.
Confidentiality
All information supplied by Microsoft to vendors and their representatives
should be regarded as confidential unless otherwise notified. Vendors and their
representatives are not authorized to speak to the press on Microsoft's behalf,
unless expressly authorized to do so by Microsoft's Public Relations group.
Prior to performing any work for Microsoft, all vendors will be required to sign
a contract that includes a nondisclosure agreement.
Vendor Standards
Microsoft expects its chosen vendors to operate in the best interest of the
company at all times. It is expected that all equipment, manpower & services
will be provided at the highest quality level while maintaining flexibility and
cost effectiveness.
It is the responsibility of the vendor to inform its Microsoft contact (or a
member of Microsoft management) when situations develop that require the vendor
to operate in direct violation of the guidelines set forth in this document.
Additionally, in the event a Microsoft employee has a relationship (spouse or
other family relation, friend, domestic partner, etc.) with a vendor that might
create a conflict of interest or the appearance of a conflict of interest,
Microsoft senior management approval is required prior to contracting for the
services of said vendor.
E-4
<PAGE>
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
EXHIBIT F
- ---------
Equipment
MS agrees to provide the following equipment:
. ************************************************************
. Other equipment as mutually agreed to between the parties,
depending on networking solutions.
Company agrees to provide the following equipment:
. Telecommunications equipment to handle all calls to Company.
. DHCP and Windows NT domain services - Windows NTAS 3.5 capable
PC, 1 GB hard drive and a CD ROM drive.
. MS Mail compatible SMTP gateway for e-mail connectivity.
. Server for Knowledge Base and Notes.
. ****************************************************
. Required Desktop Support Machines will be as follows:
Product Cluster Primary Machine Secondary Comments
Machine
- -------------------------------------------------------------------------------
Desktop 486/66, 16 MB 486/33, 8 MB Word/Works for
RAM, 500 MB HD, RAM, 170 MB HD DOS need 1
CD-ROM machine only.
- --------------------------------------------------------------------------------
POS 486/66, 16 MB 486/33, 8 MB Windows: no 2/nd/
RAM, 500 MB HD RAM, 170 MB HD machine
- --------------------------------------------------------------------------------
Dev. Tools 486/66, 20 MB use 2/nd/ machine WinSDK, Fortran:
RAM, 500 MB HD, configuration in no 2/nd/ machine
CD-ROM use today
- --------------------------------------------------------------------------------
Bus. Systems 486/66, 32 MB use 2nd machine Mail: ***** server
RAM, 500 MB HD configuration in and 12 paired
use today modems needed.
- --------------------------------------------------------------------------------
. Other equipment as mutually agreed to between the parties, depending
on networking solutions.
F-1
<PAGE>
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
EXHIBIT G
- ---------
(Support for Localized Versions)
Pages G-1 through G-3 of Exhibit G
contain confidential materials which have been omitted
and filed separately with the Securities and Exchange Commission
G-1
<PAGE>
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
Exhibit H
- ---------
Company Reporting Requirements
Company shall provide MS with data and reporting as specified below. Company
agrees to provide sample data and reporting prior to implementation as requested
by MS.
*******************************************************
*******************************************************
*******************************************************
*******************************************************
*******************************************************
*******************************************************
*******************************************************
*******************************************************
*******************************************************
*******************************************************
*******************************************************
*******************************************************
*******************************************************
*******************************************************
*******************************************************
*******************************************************
*******************************************************
*******************************************************
H-1
<PAGE>
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
EXHIBIT I
- ---------
Pages I-1 and I-2 of Exhibit I
contain confidential materials which have been omitted
and filed separately with the Securities and Exchange Commission
I-1
<PAGE>
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
Amendment Number 1
Amendment Date: October 28, 1996
to: Product Support Service Vendor Agreement effective December 14, 1995
between: MICROSOFT CORPORATION, a Washington USA Corporation,
and Stream International, Inc., a Massachusetts, USA Corporation
Effective as of the Amendment Date indicated above, the below signed parties
agree that the indicated portions of the above-referenced Product Support
Service Vendor Agreement (hereinafter the "Agreement") are hereby amended by
this instrument (hereinafter the "Amendment"), as follows:
1. All references to ************************************* in
Section 2, Ownership and License Grants, item c, shall be changed to **********.
2. Exhibit B,******************* shall be deleted in its entirety
and replaced with the following:
Company will supply product support services for the following Product(s):
Desktop:
- -------
****************
****************
****************
****************
Consumer:
- --------
****************
****************
****************
POS:
- ---
****************
****************
****************
Developer:
- ---------
****************
****************
****************
<PAGE>
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
****************
****************
****************
Business Systems:
- ----------------
****************
3. The following provisions in Exhibit C, ************************ are
hereby modified as follows:
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
<PAGE>
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
4. The ********* subsection of Exhibit C shall be amended as follows:
(i) The ******************* shall be deleted in its entirety and
replaced by the following:
****************************************************
****************************************************
****************************************************
****************************************************
****************************************************
****************************************************
****************************************************
****************************************************
****************************************************
****************************************************
<PAGE>
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
****************************************************
****************************************************
****************************************************
****************************************************
****************************************************
****************************************************
****************************************************
****************************************************
****************************************************
****************************************************
****************************************************
*******************************************************************
****************************************************
5. The ************************* table shall be amended as follows:
********** **************************************************
**************************************************
****************
**************************************************
**************************************************
**************************************************
**************************************************
*******
**************************************************
**************************************************
**************************************************
**************************************************
********
**************************************************
**************************************************
**************************************************
**************************************************
****************************************
**************************************************
**********
<PAGE>
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
**********
**************************************************
**************************************************
**************************************************
**************************************************
**********
**************************************************
**************************************************
**************************************************
****************************
********** **************************************************
********** **************************************************
**************************************************
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*******************
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**************************************************
********** **************************************************
**************************************************
**************************************************
**************************************************
**************************************************
**************************************************
**************************************************
<PAGE>
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
**************************************************
***
********** **************************************************
********** **************************************************
**********
********** **************************************************
********** **************************************************
********** **************************************************
**************************************************
********** **************************************************
********** **************************************************
********** **************************************************
**************************************************
**************************************************
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**************************************************
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**************************************************
********** **************************************************
**************************************************
**************************************************
***********************
********** **************************************************
**************************************************
**************************************************
**************************************************
*****
********** **************************************************
********** **************************************************
**************************************************
**************************************************
**************************************************
**************************************************
**************************************************
*****
<PAGE>
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
6. The following provisions in Exhibit D, ****** are hereby modified as
follows:
(a) The following sentence shall be added to the beginning of Exhibit
D, Payments:
***************************************************************************
***************************************************************************
***************************************************************************
(b) Phase I shall be deleted in its entirety and replaced with the
following:
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
***************************************************************************
****************************************************
(c) Phase 2 shall be amended as follows:
(i) ***************************************************************
**************
***************************************************************
***************************************************************
***************************************************************
******************************
(ii) ***************************************************************
******************************
****************************************************
**********
**********
****************************************************
****************************************************
****************************************************
<PAGE>
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
****************************************************
(iii) ****************************************************
******************************
****************************************************
****************************************************
****************************************************
****************************************************
****************************************************
****************************************************
****************************************************
****************************************************
****************************************************
************ ********** *******
***** *******
********** ****
****** *******
********** ****
****** *******
********** ****
****** *******
******
(iv) *******************************************
****************************************************
****************************************************
****************************************************
************
*********** *********
*********** *********
**
********** **
********** ********
*****
(d) Section 2, **********************, shall be amended as follows:
(i) Item b shall be deleted in its entirety and replaced with
the:
************************************************
************************************************
************************************************
<PAGE>
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
(ii) Item e shall be replaced in its entirety.
(e) Section 3, *******************, shall be amended as follows:
(i) Item a shall be deleted in its entirety and replace with
the following:
************************************************
************************************************
************************************************
************************************************
*********************************
(ii) Item b, *********, shall be deleted in its entirety and
replace with the following:
************************************************
************************************************
************************************************
*********************************
************************************************
************************************************
************************************************
************************************************
************************************************
*****************
************************************************
************************************************
************************************************
************************************************
************************************************
************************************************
************************************************
************************************************
************************************************
************************************************
************************************************
************************************************
************************************************
************************************************
************************************************
***********************
<PAGE>
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
************************************************
************************************************
************************************************
(f) Section 4, ************************* shall be amended as
follows:
(i) The first, second and third bulleted items and the
***************** shall be deleted in their entirety and replaced with the
following language:
************************************************
************************************************
************************************************
***********
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Confidential Materials omitted and filed separately
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Asterisks denote such omissions.
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Confidential Materials omitted and filed separately
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Asterisks denote such omissions.
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5. The terms of this Amendment shall supersede any inconsistent terms
contained in the Agreement.
6. Defined terms used and not defined herein shall have the meanings
assigned to them in the Agreement.
7. This Amendment shall not be interpreted or construed as waiving any
rights, obligations, remedies or claims the parties may otherwise have under
the Agreement.
8. Except as expressly modified herein, all terms and conditions of the
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment in duplicate as of
the date first written above. All signed copies of this Amendment shall be
deemed originals.
ACCEPTED AND AGREED TO:
MICROSOFT CORPORATION STREAM INTERNATIONAL INC.
/s/ Linda Glenicki /s/ J. G. Salerno
- ------------------------------- ---------------------------------
By (signature)
Linda Glenicki Judith G. Salerno
- ------------------------------- ---------------------------------
Name (print)
General Manager, MTS President
- ------------------------------- ---------------------------------
Title Title
December 20, 1996
- ------------------------------- ---------------------------------
Date Date
<PAGE>
MICROSOFT
Amendment No. 2
December 19, 1996
Stream International, Inc.
105 Rosemont Road
Worcester, MA 02090-2318
Attention: Ms. Judith Salerno, President
Subject: Microsoft Corporation Product Support Service Vendor Agreement between
Microsoft Corporation and Stream International, Inc., effective December 14,
1995 (the "Agreement").
Dear Ms. Salerno:
This letter is intended to serve as a letter amendment to Section 6(a) of the
Agreement. The period of time in which Stream is to provide services under the
Agreement shall be extended through February 28, 1997.
Sincerely,
MISCROSOFT CORPORATION
By: /s/Linda Glenicki
--------------------------------
Linda Glenicki
General Manager, Microsoft Technical Support
Date: December 19, 1996
AGREED TO BY STREAM INTERNATIONAL, INC. BY SIGNATURE OF ITS DULY AUTHORIZED
- ---------------------------------------------------------------------------
REPRESENTATIVE BELOW:
- --------------------
STREAM INTERNATIONAL, INC.
By: /s/J. G. Salerno
--------------------------------
Judith Salerno
President
Date January 2, 1997
-------------------------------
Please remit to:
Kevin Kennedy, Microsoftsoft Corporation, One Microsoft Way,
Redmond, WA 98052-6399
<PAGE>
Stream International Inc.
February 28, 1997
Ms. Linda Glenicki
General Manager, End User Support
The Microsoft Network
Microsoft Corporation
One Microsoft Way
Redmond, WA 98052-6399
Dear Linda:
The purpose of this letter is to confirm the extension of the product Support
Services Vendor Agreement ("Agreement") through September 1, 1997. Microsoft
plans to extend the Agreement through December 31, 1997 upon completion of the
Amendment which realigns some of the Service Delivery terms, which though not
material, are necessary to reflect our current operating environment.
Sincerely,
/s/ Judith G. Salerno
Judith G. Salerno
President & Chief Operating Officer
Outsource Technical Support
JGS/dlr
AGREED TO:
MICROSOFT CORPORATION
By: /s/ Linda Glenicki
--------------------------
Title: General Manager
-----------------------
Date: March 3, 1997
------------------------
<PAGE>
EXHIBIT 10.4
STREAM INTERNATIONAL INC.
1995 STOCK OPTION PLAN
1. PURPOSE
-------
The purpose of this 1995 Stock Option Plan (the "Plan") is to advance the
interests of Stream International Inc. (the "Company") by enhancing the ability
of the Company and its subsidiaries to attract and retain employees,
consultants, directors or advisers who are in a position to make significant
contributions to the success of the Company and its subsidiaries; to reward such
individuals for their contributions; and to encourage such individuals to take
into account the long-term interests of the Company through interests in shares
of the Company's Class A Common Stock (the "Stock"). Any employee, consultant,
director or adviser designated to participate in the Plan is referred to as a
"participant."
Options granted pursuant to the Plan may be incentive stock options as
defined in section 422 of the Internal Revenue Code of 1986 (as from time to
time amended, the "Code") (any option that is intended so to qualify as an
incentive stock option being referred to herein as an "incentive option"), or
options that are not incentive options, or both. Non-incentive options shall be
granted in the form of Exhibit A hereto (as it may be amended or modified from
time to time by the Board of Directors (the "Board") of the Company), and
incentive options shall be granted in the form of Exhibit B hereto (as it may be
amended or modified from time to time by the Board). Except as otherwise
expressly provided with respect to an option grant, no option granted pursuant
to the Plan shall be an incentive option.
2. ADMINISTRATION
--------------
The Plan shall be administered by the Board. The Board shall have
authority, not inconsistent with the express provisions of the Plan, (a) to
grant awards consisting of options or stock appreciation rights ("SARs"), or
both, to such employees, consultants, directors and advisers as the Board may
select; (b) to determine the time or times when awards shall be granted and the
number of shares of Stock subject to each award; (c) to determine which options
are, and which options are not, incentive options; (d) to determine the terms
and conditions of each award; (e) to prescribe the form or forms of any
instruments evidencing awards and any other instruments necessary or advisable
under the Plan and to change such forms from time to time; (f) to adopt, amend
and rescind rules and regulations for the administration of the Plan; and (g) to
interpret the Plan and to decide any questions and settle all controversies and
disputes that may arise in connection with the Plan. Such determinations of the
Board shall be conclusive and shall bind all parties. Subject to Section 8, the
Board shall also have the authority, both generally and in particular instances,
to waive compliance by a participant with any obligation to be performed by him
under an award, to waive any condition or provision of an award, and to amend or
cancel any award (and if an award is canceled, to grant a new
<PAGE>
award on such terms as the Board shall specify) except that the Board may not
take any action with respect to an outstanding award that would adversely affect
the rights of the participant under such award without such participant's
consent. Nothing in the preceding sentence shall be construed as limiting the
power of the Board to make adjustments required by Section 4(c) and Section
6(j).
The Board may, in its discretion, delegate some or all of its powers with
respect to the Plan to a committee (the "Committee"), in which event all
references (as appropriate) to the Board hereunder shall be deemed to refer to
the Committee. The Committee, if one is appointed, shall consist of at least two
directors. A majority of the members of the Committee shall constitute a quorum,
and all determinations of the Committee shall be made by a majority of its
members. Any determination of the Committee under the Plan may be made without
notice or meeting of the Committee by a writing signed by a majority of the
Committee members. From and after registration of the Stock under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") the Board shall delegate
the power to select directors and officers to receive awards under the Plan and
the timing, pricing and amount of such awards to a committee, all members of
which shall be disinterested persons within the meaning of Rule 16b-3 under that
Act.
3. EFFECTIVE DATE AND TERM OF PLAN
-------------------------------
The Plan shall become effective on the date on which it is approved by the
shareholders of the Company. Grants of awards under the Plan may be made prior
to that date (but after Board adoption of the Plan), subject to approval of the
Plan by such shareholders.
No awards shall be granted under the Plan after the completion of ten years
from the date on which the Plan was adopted by the Board, but awards previously
granted may extend beyond that date.
4. SHARES SUBJECT TO THE PLAN
--------------------------
(a) Number of Shares. Subject to adjustment as provided in Section 4(c),
----------------
an aggregate of 800,000 shares of Stock may be delivered upon the exercise of
awards granted under the Plan, reduced by the sum of the aggregate number of
shares of Stock which become subject to outstanding options and SARs. To the
extent that shares of Stock subject to an outstanding option (except to the
extent shares of Stock are issued or delivered by the Company in connection with
the exercise of a tandem SAR) or independent SAR are not issued or delivered by
reason of the expiration, termination, cancellation or forfeiture of such option
or SAR or by reason of the delivery or withholding of shares of Stock to pay all
or a portion of the exercise price of an option, or to satisfy all or a portion
of the tax withholding obligations relating
2
<PAGE>
to such option or SAR, then such shares of Stock shall again be available under
the Plan.
(b) Shares to be Delivered. Shares delivered under the Plan shall be
----------------------
authorized but unissued Stock or, if the Board so decides in its sole
discretion, previously issued Stock acquired by the Company and held in its
treasury. No fractional shares of Stock shall be delivered under the Plan.
(c) Changes in Stock. In the event of a stock dividend, stock split or
----------------
combination of shares, recapitalization or other change in the Company's capital
stock, the number and kind of shares of Stock or securities of the Company
subject to awards then outstanding or subsequently granted under the Plan, the
exercise price of such awards, the maximum number of shares or securities that
may be delivered under the Plan, and other relevant provisions shall be
appropriately adjusted by the Board, whose determination shall be binding on all
persons.
The Board may also adjust the number of shares subject to outstanding
awards, the exercise price of outstanding awards and the terms of outstanding
awards, to take into consideration material changes in accounting practices or
principles, extraordinary dividends, consolidations or mergers, acquisitions or
dispositions of stock or property or any other event if it is determined by the
Board that such adjustment is appropriate to avoid distortion in the operation
of the Plan, provided that no such adjustment shall be made in the case of an
incentive option, without the consent of the participant, if it would constitute
a modification, extension or renewal of the option within the meaning of section
424(h) of the Code.
5. ELIGIBILITY FOR AWARDS
----------------------
Persons eligible to receive awards under the Plan shall be those employees,
consultants, directors or advisers who, in the opinion of the Board, are in a
position to make a significant contribution to the success of the Company and
its subsidiaries. A subsidiary for purposes of the Plan shall be a corporation
in which the Company owns, directly or indirectly, stock possessing 50% or more
of the total combined voting power of all classes of stock.
Incentive options shall be granted only to "employees" as defined in the
provisions of the Code or regulations thereunder applicable to incentive stock
options.
6. TERMS AND CONDITIONS OF OPTIONS AND SARs
----------------------------------------
(a) Exercise Price of Options. The exercise price of each option shall be
-------------------------
determined by the Board but in the case of an incentive option shall not be less
than 100% (110%, in the case of an incentive option granted to a ten-percent
shareholder)
3
<PAGE>
of the fair market value of the Stock at the time the option is granted; nor
shall the exercise price be less, in the case of an original issue of authorized
stock, than par value. For this purpose, "fair market value" in the case of
incentive options shall have the same meaning as it does in the provisions of
the Code and the regulations thereunder applicable to incentive options; and
"ten-percent shareholder" shall mean any participant' who at the time of grant
owns directly, or by reason of the attribution rules set forth in section 424(d)
of the Code is deemed to own, stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or of any of its
parent or subsidiary corporations.
(b) Duration of Options. The latest date on which an option may be
-------------------
exercised (the "Final Exercise Date") shall be the date which is ten years (five
years, in the case of an incentive option granted to a "ten-percent shareholder"
as defined in (a) above) from the date the option was granted or such earlier
date as may be specified in the instrument evidencing such option.
(c) Exercise of Options.
-------------------
(1) An option shall be exercisable at such time or times and upon
such terms and conditions as the Board shall specify. In the
case of an option not immediately exercisable in full, the Board
may at any time accelerate the time at which all or any part of
the option may be exercised.
(2) Any exercise of an option shall be in writing, signed by the
proper person and furnished to the Company, accompanied by (i)
such documents as may be required by the Company and (ii) payment
in full as specified below in Section 6(d) for the number of
whole shares for which the option is exercised.
(3) In the case of an option that is not an incentive option, the
Company shall have the right to require, prior to the delivery of
any Stock pursuant to the exercise of the option, that the
participant exercising the option remit to the Company an amount
in cash or by personal check, certified check, bank draft or
money order payable to the order of the Company sufficient to
satisfy any federal, state or local withholding tax requirements
arising in connection with the exercise of the option (the date
such obligation arises being referred to as the "Tax Date") (or
make other arrangements satisfactory to the Company with regard
to such taxes). If specified in the instrument evidencing an
option or permitted by the Board, either at the time of the grant
of the option or the time of exercise, the participant may elect,
at such time and in such manner as the Board may
4
<PAGE>
prescribe, to satisfy such withholding obligation by (i) delivery
of an unconditional and irrevocable undertaking by a broker to
deliver promptly to the Company sufficient funds to pay such
withholding obligation, (ii) delivering to the Company whole
shares of Stock (which the participant has held for at least six
months prior to the delivery of such shares or acquired on the
open market and for which the participant has good title, free
and clear of all liens and encumbrances) having a fair market
value, determined as of the Tax Date, equal to such withholding
obligation, or (iii) requesting that the Company withhold from
the shares of Stock to be delivered upon exercise of the option a
number of whole shares of Stock having a fair market value,
determined as of the Tax Date, equal to such withholding
obligation; provided, however, that the Company shall have sole
discretion to disapprove of an election pursuant to any of
clauses (i), (ii) or (iii) and that in the case of a participant
who is subject to Section 16 of the Exchange Act, the Company may
require that the method of satisfying such an obligation be in
compliance with Section 16 of the Exchange Act and the rules and
regulations thereunder. Stock may be delivered or withheld having
an aggregate fair market value in excess of the minimum amount
required to be withheld, but not in excess of the amount
determined by applying the participant's maximum marginal tax
rate. Any fraction of a share of Stock which would be required to
satisfy such an obligation shall be disregarded and the remaining
amount due shall be paid in cash by the participant.
In the case of an incentive option, if at the time the option is
exercised the Company determines that under applicable law and
regulations the Company could be liable for the withholding of
any federal, state or other tax with respect to a disposition of
the Stock received upon exercise, the Board may require as a
condition of exercise that the participant exercising the option
agree (i) to inform the Company promptly of any disposition
(within the meaning of section 424(c) of the Code and the
regulations thereunder) of Stock received upon exercise, and (ii)
to give such security as the Company deems adequate to meet the
potential liability of the Company for the withholding of tax,
and to augment such security from time to time in any amount
reasonably deemed necessary by the Company to preserve the
adequacy of such security.
(4) If an option is exercised by the executor or administrator of a
deceased participant, or by the person or persons to whom the
5
<PAGE>
option has been transferred by the participant's will or
applicable laws of descent and distribution or pursuant to any
beneficiary designation procedures established by the Company,
the Company shall be under no obligation to deliver Stock
pursuant to such exercise until the Company is satisfied as to
the authority of the person or persons exercising the option.
(d) Payment for and Delivery of Stock. Stock purchased upon exercise of an
---------------------------------
option under the Plan shall be paid for as follows: (i) in cash or by personal
check, certified check, bank draft or money order payable to the order of the
Company or (ii) if specified in the instrument evidencing an option or permitted
by the Board (which, in the case of an incentive option, shall specify such
method of payment in the instrument evidencing the option), (A) through the
delivery of whole shares of Stock (which the participant has held for at least
six months prior to the delivery of such shares or acquired on the open market
and for which the participant has good title, free and clear of all liens and
encumbrances) having a fair market value on the last business day preceding the
date of exercise equal to the purchase price or (B) by delivery of a full
recourse promissory note of the participant to the Company, such note to be
payable on such terms as are specified by the Company or (C) by delivery of an
unconditional and irrevocable undertaking by a broker to deliver promptly to the
Company sufficient funds to pay the exercise price or (D) by any combination of
the permissible forms of payment. The Company shall have sole discretion to
disapprove of an election pursuant to any of clauses (A) - (D) and in the case
of a participant who is subject to Section 16 of the Exchange Act, the Company
may require that the method of making such payment be in compliance with Section
16 and the rules and regulations thereunder. Any fraction of a share of Stock
which would be required to pay such purchase price shall be disregarded and the
remaining amount due shall be paid in cash by the participant. No certificate
representing Stock shall be delivered until the full purchase price therefor has
been paid.
(e) Stock Appreciation Rights. The Board in its discretion may grant SARs
-------------------------
either in tandem with or independent of options awarded under the Plan. Except
as hereinafter provided, each SAR will entitle the participant to receive upon
exercise, with respect to each share of Stock to which the SAR relates, the
excess of (i) the share's value on the date of exercise, over (ii) the share's
fair market value on the date the SAR was granted. For purposes of clause (i),
"value" shall mean fair market value; provided, that the Board may adjust such
--------
value to take into account dividends on the Stock and may also grant SARs that
provide, in such limited circumstances following a change in control of the
Company (as determined by the Board) as the Board may specify, that "value" for
purposes of clause (i) is to be determined by reference to an average value for
the Stock during a period immediately preceding the change in control, all as
determined by the Board. The amount payable to a participant upon exercise of
an SAR shall be paid either in cash or in shares of Stock,
6
<PAGE>
as set forth in the instrument evidencing such SAR or as the Board may otherwise
determine. An SAR shall be exercisable at such time or times and upon such terms
and conditions as the Board shall specify. The latest date on which an SAR may
be exercised shall be the date which is ten years from the date the SAR was
granted or such earlier date as may be specified in the instrument evidencing
such SAR; provided, however, that no tandem SAR shall be exercised later than
the exercise, expiration, cancellation, forfeiture or other termination of the
related option.
(f) Delivery of Stock. A participant shall not have the rights of a
-----------------
shareholder with regard to awards under the Plan except as to Stock actually
received by him under the Plan.
The Company shall not be obligated to deliver any shares of Stock (i)
until, in the opinion of the Company's counsel, all applicable federal and state
laws and regulations have been complied with, and (ii) if the outstanding Stock
is at the time listed on any stock exchange, until the shares to be delivered
have been listed or authorized to be listed on such exchange upon official
notice of issuance, and (iii) until all other legal matters in connection with
the issuance and delivery of such shares have been approved by the Company's
counsel. If the sale of Stock has not been registered under the Securities Act
of 1933, as amended, the Company may require, as a condition to exercise of the
award, such representations or agreements as counsel for the Company may
consider appropriate to avoid violation of such Act and may require that the
certificates evidencing such Stock bear an appropriate legend restricting
transfer.
(g) Nontransferability of Awards. No award may be transferred other than
----------------------------
(i) by will or by the laws of descent and distribution or pursuant to
beneficiary designation procedures approved by the Company or (ii) as otherwise
permitted under Rule 16b-3 under the Exchange Act as set forth in the instrument
evidencing such award. Except as permitted by the foregoing sentence, during a
participant's lifetime an award may be exercised only by him. Except as
permitted by the second preceding sentence, no option or SAR may be sold,
transferred, assigned, pledged, hypothecated, encumbered or otherwise disposed
of (whether by operation of law or otherwise) or be subject to execution,
attachment or similar process. Upon any attempt to so sell, transfer, assign,
pledge, hypothecate, encumber or otherwise dispose of any option or SAR, such
award and all rights thereunder shall immediately become null and void.
(h) Death. If a participant dies, each award held by the participant
-----
immediately prior to death may be exercised, to the extent it was exercisable
immediately prior to death, by his executor or administrator, or by the person
or persons to whom the award is transferred by will or applicable laws of
descent and distribution or pursuant to any beneficiary designation procedures
established by the Company, at any time within the period ending with the first
anniversary of the
7
<PAGE>
participant's death but in no event beyond the Final Exercise Date or, in the
case of an independent SAR, the expiration date of such SAR. All awards held by
a participant immediately prior to death that are not then exercisable shall
terminate on the date of death.
(i) Other Termination of Service. If an employee's employment with the
----------------------------
Company and its subsidiaries terminates for any reason, other than death, all
awards held by the employee that are not then exercisable shall terminate;
provided, that the Board in its sole discretion may provide (either prior to or
following termination) that any or all of such portion of an award which is not
exercisable immediately prior to termination shall be treated as having become
exercisable immediately prior to termination. Awards that are exercisable on the
date employment terminates for any reason other than death shall continue to be
exercisable for a period of three months (or such longer period as the Company
may determine, but in no event beyond the Final Exercise Date, or in the case of
an independent SAR, the expiration date of such SAR) unless the employee was
terminated for cause which in the opinion of the Board casts such discredit on
him as to justify termination of his awards. Subject to Section 6(h), after
completion of that three-month period such awards shall terminate to the extent
not previously exercised, expired or terminated. For purposes of this Section
6(i), employment shall not be considered terminated (i) in the case of sick
leave or other bona fide leave of absence approved for purposes of the Plan by
the Company, or (ii) in the case of a transfer of employment between the Company
and a subsidiary or between subsidiaries, or to the employment of a corporation
(or a parent or subsidiary corporation of such corporation) issuing or assuming
an award in a transaction to which section 424(a) of the Code applies.
In the case of a participant who is not an employee, provisions relating to
the exercisability of awards following termination of service for any reason
other than death shall be specified in the award. If not so specified, all
awards held by such participant that are not exercisable immediately prior to
termination of service for any reason other than death shall terminate upon
termination of service. Awards that are exercisable immediately prior to
termination of service as a consultant, director or adviser for any reason other
than death shall continue to be exercisable for a period of three months (or
such longer period as the Company may determine, but in no event beyond the
Final Exercise Date or, in the case of an independent SAR, the expiration date
of such SAR) unless the participant was terminated for cause, which in the
opinion of the Board casts such discredit on him as to justify termination of
his awards. Subject to Section 6(h), after completion of that three-month
period such awards shall terminate to the extent not previously exercised,
expired or terminated.
(j) Acquisition Events. Upon the occurrence of an Acquisition Event (as
------------------
defined below), all outstanding awards shall terminate, provided that at least
10 days prior to the effective date of such Acquisition Event, the Board shall
either (i) make all outstanding awards exercisable immediately prior to
consummation of such
8
<PAGE>
Acquisition Event or (ii) if there is a surviving or acquiring corporation,
arrange, subject to consummation of the Acquisition Event, to have that
corporation or an affiliate of that corporation grant to participants
replacement awards which in the case of incentive options satisfy, in the
determination of the Board, the requirements of section 424(a) of the Code. An
"Acquisition Event" shall mean (i) any merger or consolidation involving the
Company other than a merger or consolidation after the consummation of which the
shareholders of the Company immediately prior to such merger or consolidation
own more than 50% of the outstanding voting securities of the surviving
corporation or of a corporation that owns, directly or indirectly, all of the
capital stock of such surviving corporation, (ii) any sale of all or
substantially all of the assets of the Company or (iii) the acquisition of more
than 50% of the outstanding voting securities of the Company by a single person
or entity or group of persons and/or entities acting in concert; provided,
however, that the following acquisitions shall not constitute an Acquisition
Event: (A) any acquisition by an employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation controlled by the
Company, or (B) any acquisition by R.R. Donnelley & Sons Company or any
affiliate (as defined under Regulation 12B under the Exchange Act) of R.R.
Donnelley & Sons Company.
The Board may grant awards under the Plan in substitution for awards held
by employees, consultants or advisers of another corporation who concurrently
become employees, consultants, directors or advisers of the Company or a
subsidiary of the Company as the result of a merger or consolidation of that
corporation with the Company or a subsidiary of the Company, or as the result of
the acquisition by the Company or a subsidiary of the Company of property or
stock of that corporation. The Company may direct that substitute awards be
granted on such terms and conditions as the Board considers appropriate in the
circumstances.
(k) Put and Call Rights. In the event of any (i) exercise by any
-------------------
stockholder of the Company of the Put Right set forth in the Company's Restated
Certificate of Incorporation or (ii) exercise by the Company of its Call Right
set forth in the Company's Restated Certificate of Incorporation, the following
provisions should apply to options then outstanding under this Plan. All
capitalized terms used in this Section 6(k) not otherwise defined in this Plan
shall have the respective meanings set forth in the Company's Restated
Certificate of Incorporation.
(A) Upon the exercise of the Put Right, holders of options and holders
------------------
of shares of Stock issued upon exercise of options shall be entitled to sell all
of the shares underlying such options or issued upon exercise thereof, whether
or not then vested (the "Option Shares"), to the Company or the Designee at the
Put Price and shall be subject to the rights of the Company or the Designee to
require the sale of the Option Shares pursuant to the Mandatory Put, provided
--------
that the amount of the aggregate option price of such options shall be
subtracted from the aggregate Put Price payable to the holder of such options,
and any amounts payable with respect to
9
<PAGE>
then unvested Option Shares shall be deposited in escrow pursuant to clause (C)
below. The procedures relating to the exercise of the Put Right and Mandatory
Put, as set forth in the Company's Restated Certificate of Incorporation, shall
apply to the holders of options under this Plan and to Option Shares to the same
extent as they apply to B Holders and shares of Common Stock under the Company's
Restated Certificate of Incorporation.
(B) Upon the exercise of the Call Right, holders of options and
holders of shares of Stock issued upon exercise of options shall be required and
entitled to sell all of their Option Shares to the Company or the Designee at
the Call Price, provided that the amount of the aggregate option price of such
--------
options shall be subtracted from the aggregate Call Price payable to the holder
of such options, and any amounts payable with respect to then unvested Option
Shares shall be deposited in escrow pursuant to clause (C) below. The
procedures relating to the exercise of the Call Right, as set forth in the
Company's Restated Certificate of Incorporation, shall apply to the holders of
options under this Plan and to Option Shares to the same extent as they apply to
B Holders and shares of Common Stock under the Company's Restated Certificate of
Incorporation.
(C) The aggregate amount of the Put Price or Call Price, as the case
may be, that is payable to optionees with respect to then unvested Option Shares
shall be deposited, in cash, in a non-interest bearing escrow account for the
benefit of such optionees. Such escrow account shall be subject to the claims of
the Company's creditors. The amounts deposited in escrow for the benefit of
each optionee with respect to each unvested installment of his option shall be
released to such optionee, subject to the continued employment of the optionee
with the Company or any subsidiary thereof, at the time such unvested
installment would have become vested in accordance with the vesting schedule of
such option as in effect prior to the exercise of the Put Right or Call Right,
as the case may be (as such schedule may be modified by the terms of any
employment agreement between the Company and such optionee).
7. REPURCHASE RIGHTS
-----------------
(a) Upon any termination of employment or service of an optionee with the
Company and its subsidiaries, the Company shall have the right to purchase, for
cash, shares of Stock issued or issuable upon exercise of awards granted
hereunder to the extent such awards were previously exercised or are exercisable
at the time of termination ("Vested Shares"), upon the terms set forth below:
(i) Termination for Any Reason Other Than Cause. If the termination
-------------------------------------------
of employment or service of the optionee is for any reason other than Cause
(as defined below), the Company shall have the right to purchase: (A) from
any holder of an award granted hereunder and covering less than
10
<PAGE>
2,000 shares of Stock (as adjusted for stock splits, stock dividends and
similar events), all then Vested Shares, and (B) from any other holder of
an award granted hereunder, no Vested Shares if termination occurs on or
prior to the second anniversary of the date of grant; up to 45% of the
Vested Shares if termination occurs after the second anniversary and prior
to or on the third anniversary of the date of grant; up to 35% of the
Vested Shares if termination occurs after the third anniversary of the date
of grant and prior to or on the fourth anniversary of the date of grant;
and up to 25% of the Vested Shares if termination occurs thereafter. The
purchase price for the Vested Shares purchased by the Company shall equal
the Fair Value (as defined below) thereof at the time of termination.
(ii) Termination for Cause. If the termination of employment or
---------------------
service of the optionee is by the Company for Cause (as defined below), the
Company shall have the right to purchase all of the then Vested Shares at a
price equal to the amount paid by the optionee for the Vested Shares (less,
in the case of unexercised options, the exercise price)
(b) The repurchase rights of the Company set forth in Section 7(a) shall
terminate upon the earlier of (i) the registration of any class of Common Stock
of the Company under the Securities Exchange Act of 1934, or (ii) the closing of
the initial public offering of shares of Common Stock of the Company under the
Securities Act of 1933.
(c) The Company must exercise its purchase rights under this Section 7, by
written notice to the optionee, within 90 days after the termination of
employment or service. The closing of any purchase pursuant to this Section 7
shall take place as soon as reasonably practicable at the principal office of
the Company, or at such other time and location as the parties to such purchase
may mutually determine. At the closing, the holder of the Vested Shares, or
award therefor, to be sold shall deliver to the Company a certificate
representing such Vested Shares or award, duly endorsed for transfer, and the
Company shall pay the purchase price therefor, by check or wire transfer.
(d) As used in this Section 7, the following terms shall have the
following meanings:
(i) "Cause" shall mean: (i) fraud, embezzlement or other act of
-----
dishonesty by the optionee with respect to the Company that causes
material injury to the Company, or (ii) conviction of, or plea of nolo
contendere to, any felony involving dishonesty or moral turpitude.
(ii) "Fair Value" shall have the meaning set forth in the Restated
----------
Certificate of Incorporation of the Company, as in effect on the date
of
11
<PAGE>
adoption of this Plan, as determined in good faith by the Board of
Directors of the Company; provided, however, that in the event of a
-------- -------
repurchase by the Company of Vested Shares from any holder of an award
granted hereunder and initially covering 2,000 or more shares of Stock
(as adjusted for stock splits, stock dividends and similar events) (a
"Major Holder"), the determination of Fair Value shall be subject to
mutual agreement of the Company and such Major Holder. Absent such an
agreement, Fair Value shall be determined by calculating the average
of the sum of the determinations of Fair Value made by two independent
nationally recognized investment banking firms, one of which shall be
retained by the Company and one of which shall be retained by the
Major Holder. However, if the determinations of Fair Value of such
two firms differ from one another by more than 15%, the Company and
such Major Holder shall mutually select a third independent investment
banking firm to make a final determination of Fair Value with respect
to the Vested Shares then being repurchased by the Company.
8. EMPLOYMENT RIGHTS
-----------------
Neither the adoption of the Plan nor the grant of awards shall confer upon
any participant any right to continue as an employee or director of, or
consultant or adviser to, the Company or any parent or subsidiary or affect in
any way the right of the Company or parent or subsidiary to terminate such
participant at any time. Except as specifically provided by the Board in any
particular case, the loss of existing or potential profit in awards granted
under this Plan shall not constitute an element of damages in the event of
termination of the relationship of a participant even if the termination is in
violation of an obligation of the Company to the participant by contract or
otherwise.
9. EFFECT, DISCONTINUANCE, CANCELLATION, AMENDMENT AND TERMINATION
---------------------------------------------------------------
Neither adoption of the Plan nor the grant of awards to a participant shall
affect the Company's right to make awards to such participant that are not
subject to the Plan, to issue to such participant Stock as a bonus or otherwise,
or to adopt other plans or arrangements under which Stock may be issued.
The Board may at any time discontinue granting awards under the Plan. With
the consent of the participant, the Board may at any time cancel an existing
award in whole or in part and grant another award for such number of shares as
the Board specifies. The Board may at any time or times amend the Plan or any
outstanding award for the purpose of satisfying the requirements of section 422
of the Code or of any changes in applicable laws or regulations or for any other
purpose that may at
12
<PAGE>
the time be permitted by law, or may at any time terminate the Plan as to any
further grants of awards, provided that (except to the extent expressly
permitted by the Plan) no such amendment shall, without the approval of the
shareholders of the Company, effectuate a change for which shareholder approval
is required by law, rule or regulation or in order for the Plan to continue to
qualify under Rule 16b-3 (if applicable), and no such amendment shall adversely
affect the rights of any participant (without his consent) under any award
previously granted.
13
<PAGE>
EXHIBIT A
to 1995 Stock Option Plan
-------------------------
STREAM INTERNATIONAL INC.
1995 STOCK OPTION PLAN
Non-Incentive Option Certificate
--------------------------------
Stock option granted by Stream International Inc., a Delaware corporation
(the "Company"), to [NAME OF OPTIONEE] (the "Optionee"), pursuant to the
Company's 1995 Stock Option Plan (the "Plan"). All initially capitalized terms
not otherwise defined herein shall have the meaning provided in the Plan.
1. Grant of Option
---------------
This certificate evidences the grant by the Company on _____________, 199_
to the Optionee of an option to purchase, in whole or in part, on the terms
provided herein and in the Plan, a total of _________ shares of Class A Common
Stock of the Company (the "Shares") at a purchase price of $[____] per Share.
The latest date on which this option may be exercised (the "Final Exercise
Date") is [_______]. The option evidenced by this certificate is not an
incentive stock option.
This option is exercisable in the installments indicated on Schedule 1
hereto.
This option shall become null and void unless the Optionee shall accept
this certificate by executing it in the space provided below and returning such
original execution copy to the Secretary of the Company.
2. Exercise of Option.
------------------
Each election to exercise this option shall be in writing, signed by the
Optionee or by his/her executor or administrator or by the person or persons to
whom this option is transferred by will or applicable laws of descent and
distribution or pursuant to any beneficiary designation procedures established
by the Company (the "Legal Representative"), and received by the Secretary of
the Company at its principal office, accompanied by payment in full and by such
additional documentation evidencing the right to exercise (or, in the case of a
Legal Representative, of the authority of such person) as the Company may
require. The purchase price may be paid (i) in cash or by personal check,
certified check, bank draft or money order payable to the order of the Company,
(ii) through the delivery of whole shares of Class A Common Stock of the Company
(which the Optionee has held for at least six months prior to the delivery of
such shares or acquired on the open market and for which the participant has
good title, free and clear of all liens and encumbrances)
<PAGE>
having a fair market value on the last business day preceding the date of
exercise equal to the exercise price, (iii) by delivery of an unconditional and
irrevocable undertaking by a broker to deliver to the Company promptly upon the
settlement of the sale of the Shares to be issued sufficient funds to pay the
exercise price, or (iv) by any combination of the permissible forms of payment.
The Company shall have sole discretion to disapprove of an election pursuant to
any of clauses (ii), (iii) or (iv) and in the event the Optionee is subject to
Section 16 of the Exchange Act, the Company may require that the method of
making such payment be in compliance with Section 16 and the rules and
regulations thereunder. Any fraction of a share of Class A Common Stock which
would be required to pay such purchase price shall be disregarded and the
remaining amount due shall be paid in cash by the Optionee. No certificate
representing Shares shall be delivered until the full purchase price therefor
has been paid.
3. Restrictions on Transfer
------------------------
Certificates evidencing any Shares purchased by the Optionee upon exercise
of options granted hereby shall bear the legends required by the Company's
Restated Certificate of Incorporation, and the following legend:
"The shares of stock represented by this certificate are subject to
repurchase rights of the Company set forth in its 1995 Stock Option
Plan.
4. Withholding
-----------
No Shares will be transferred pursuant to the exercise of this option
unless and until the person exercising this option shall have remitted to the
Company an amount sufficient to satisfy any federal, state or local withholding
tax requirements arising in connection with the option, or shall have made other
arrangements satisfactory to the Company with respect to such taxes. Any such
withholding tax requirements may be satisfied by (i) making a payment in cash or
by personal check, certified check, bank draft or money order payable to the
order of the Company, (ii) delivery of an unconditional and irrevocable
undertaking by a broker to deliver to the Company promptly upon the settlement
of the sale of the Shares to be issued sufficient funds to pay the exercise
price, (iii) delivery of whole shares of Class A Common Stock of the Company
(which the Optionee has held for at least six months prior to the delivery of
such shares or acquired on the open market and which the participant has good
title, free and clear of all liens and encumbrances) having a fair market value,
determined as of the Tax Date, equal to such withholding obligation or (iv)
requesting that the Company withhold from the Shares to be delivered upon the
exercise a number of Shares having a fair market value, determined as of the Tax
Date, equal to such withholding obligation; provided, however, that the Company
shall have sole discretion to disapprove of an election pursuant to any of
clauses (ii),
A-2
<PAGE>
(iii) or (iv) and that in event the Optionee is subject to Section 16 of the
Exchange Act, the Company may require that the method of satisfying such an
obligation be in compliance with Section 16 of the Exchange Act and the rules
and regulations thereunder. Stock may be delivered or withheld having an
aggregate fair market value in excess of the minimum amount required to be
withheld, but not in excess of the amount determined by applying the Optionee's
maximum marginal tax rate. Any fraction of a Share which would be required to
satisfy such an obligation shall be disregarded and the remaining amount due
shall be paid in cash by the Optionee.
5. Status Change
-------------
Upon the Optionee's termination of employment with the Company or any
subsidiary thereof for any reason, this option shall terminate as to any Shares
for which it was not exercisable immediately prior to termination; provided,
--------
that the Board or Committee in its sole discretion may provide (either prior to
or following termination) that any or all of such portion of this option which
is not exercisable immediately prior to termination shall be treated as having
become exercisable immediately prior to termination. As to that number of
Shares for which this option was exercisable (or deemed exercisable by action of
the Board or Committee) immediately prior to termination, it shall remain
exercisable as follows:
(i) if termination occurs for any reason other than death, for a period of
three months following the date of termination, except as provided in
clause (ii) below (but in no event beyond the Final Exercise Date), or
(ii) following death, including death during the three-month period
following termination of employment for any reason other than death,
for a period of twelve months thereafter, but not beyond the Final
Exercise Date.
Notwithstanding the foregoing, if the Optionee is terminated for cause (as
provided in the Plan), this option shall immediately terminate as to all Shares
subject to this option.
6. Nontransferability of Option.
----------------------------
This option is not transferable by the Optionee other than by will or the
laws of descent and distribution or pursuant to beneficiary designation
procedures approved by the Company. During the Optionee's lifetime this option
may be exercised only by the Optionee. Except as permitted by the second
preceding sentence, this option may not be sold, transferred, assigned, pledged,
hypothecated, encumbered or otherwise disposed of (whether by operation of law
or otherwise) or be subject to execution, attachment or similar process. Upon
any attempt to so sell,
A-3
<PAGE>
transfer, assign, pledge, hypothecate, encumber or otherwise dispose of this
option, any and all rights hereunder shall immediately become null and void.
7. Provisions of the Plan.
----------------------
This option is subject in its entirety to the provisions of the Plan, a
copy of which is furnished to the Optionee with this option.
8. Notices.
-------
All notices, requests or other communications provided for in this
certificate shall be made, if to the Company, to 2 Edgewater Drive, Norwood,
Massachusetts 02062 (Fax No.: (617) 440-7070) and if to the Optionee, at his or
her address on the records of the Company. All notices, requests or other
communications provided for in this certificate shall be made in writing either
(a) by personal delivery to the party entitled thereto, (b) by facsimile with
confirmation of receipt, (c) by mailing in the United States mails to the last
known address of the party entitled thereto or (d) by express courier service.
The notice, request or other communication shall be deemed to be received upon
personal delivery, upon confirmation of receipt of facsimile transmission or
upon receipt by the party entitled thereto if by United States mail or express
courier service; provided, however, that if a notice, request or other
communication is not received during regular business hours, it shall be deemed
to be received on the next succeeding business day of the Company.
9. Governing Law.
-------------
This option, this certificate, and all determinations made and actions
taken pursuant hereto and thereto, to the extent not governed by the laws of the
United States, shall be governed by the laws of the State of Delaware and
construed in accordance therewith without giving effect to principles of
conflicts of laws.
A-4
<PAGE>
IN WITNESS WHEREOF, the Company has caused this option to be executed under
its corporate seal by its duly authorized officer. This option shall take effect
as a sealed instrument.
STREAM INTERNATIONAL INC.
By:__________________________________
[NAME AND TITLE]
Date:________________________________
Accepted:
__________________________________
Print Name of Employee
__________________________________
(Signature)
A-5
<PAGE>
Schedule 1 to
Non-Incentive Option Certificate
under
1995 Stock Option Plan
----------------------
A-6
<PAGE>
EXHIBIT B
to 1995 Stock Option Plan
-------------------------
STREAM INTERNATIONAL INC.
1995 STOCK OPTION PLAN
Incentive Option Certificate
----------------------------
Stock option granted by Stream International Inc., a Delaware corporation
(the "Company"), to [NAME OF OPTIONEE] (the "Optionee"), pursuant to the
Company's 1995 Stock Option Plan (the "Plan"). All initially capitalized terms
not otherwise defined herein shall have the meaning provided in the Plan.
1. Grant of Option
---------------
This certificate evidences the grant by the Company on _________, 199_, to
the Optionee of an option to purchase, in whole or in part, on the terms
provided herein and in the Plan, a total of _________ shares of Class A Common
Stock of the Company (the "Shares") at a purchase price of $[_____] per Share.
The latest date on which this option may be exercised (the "Final Exercise
Date") is [______]. The option evidenced by this certificate is an incentive
stock option.
This option is exercisable in the installments indicated on Schedule 1
hereto.
This option shall become null and void unless the Optionee shall accept
this certificate by executing it in the space provided below and returning such
original execution copy to the Secretary of the Company.
2. Exercise of Option.
------------------
Each election to exercise this option shall be in writing, signed by the
Optionee or by his/her executor or administrator or by the person or persons to
whom this option is transferred by will or the applicable laws of descent and
distribution or pursuant to any beneficiary designation procedures established
by the Company (the "Legal Representative"), and received by the Secretary of
the Company at its principal office, accompanied by payment in full and by such
additional documentation evidencing the right to exercise (or, in the case of a
Legal Representative, of the authority of such person) as the Company may
require. The purchase price may be paid (i) in cash or by personal check,
certified check, bank draft or money order payable to the order of the Company,
(ii) through the delivery of whole shares of Class A Common Stock of the Company
(which the Optionee has held for at least six months prior to the delivery of
such shares or acquired on the open market and for
<PAGE>
which the participant has good title, free and clear of all liens and
encumbrances) having a fair market value on the last business day preceding the
date of exercise equal to the exercise price, (iii) by delivery of an
unconditional and irrevocable undertaking by a broker to deliver to the Company
promptly upon the settlement of the sale of the Shares to be issued sufficient
funds to pay the exercise price, or (iv) by any combination of the permissible
forms of payment. The Company shall have sole discretion to disapprove of an
election pursuant to any of clauses (ii), (iii) or (iv) and in the event the
Optionee is subject to Section 16 of the Exchange Act, the Company may require
that the method of making such payment be in compliance with Section 16 and the
rules and regulations thereunder. Any fraction of a share of Class A Common
Stock which would be required to pay such purchase price shall be disregarded
and the remaining amount due shall be paid in cash by the Optionee. No
certificate representing Shares shall be delivered until the full purchase price
therefor has been paid.
3. Restrictions on Transfer
------------------------
Certificates evidencing any Shares purchased by the Optionee upon exercise
of options granted hereby shall bear the legends required by the Company's
Restated Certificate of Incorporation, and the following legend:
"The shares of stock represented by this certificate are subject to
repurchase rights of the Company set forth in its 1995 Stock Option
Plan."
4. Withholding
-----------
No Shares will be transferred pursuant to the exercise of this option
unless and until the person exercising this option shall have satisfied all
conditions established by the Board pursuant to Section 6(c) (3) of the Plan.
5. Status Change
-------------
Upon the Optionee's termination of employment with the Company or any
subsidiary thereof for any reason, this option shall terminate as to any Shares
for which it was not exercisable immediately prior to termination; provided,
that the Board or Committee in its sole discretion may provide (either prior to
or following termination) that any or all of such portion of this option which
is not exercisable immediately prior to termination shall be treated as having
become exercisable immediately prior to termination. As to that number of
Shares for which this option was exercisable (or deemed exercisable by action of
the Board or Committee) immediately prior to termination, it shall remain
exercisable as follows:
B-2
<PAGE>
(i) if termination occurs for any reason other than death for a
period of three months following the date of termination, except
as provided in clause (ii) below (but in no event beyond the
Final Exercise Date), or
(ii) following death, including death during the three-month period
following termination of employment for any reason other than
death, for a period of twelve months thereafter, but not beyond
the Final Exercise Date.
Notwithstanding the foregoing, if the Optionee is terminated for cause (as
provided in the Plan), this option shall immediately terminate as to all Shares
subject to this option.
6. Nontransferability of Option.
----------------------------
This option is not transferable by the Optionee other than by will or the
laws of descent and distribution or pursuant to beneficiary designation
procedures approved by the Company. During the Optionee's lifetime this option
may be exercised only by the Optionee. Except as permitted by the second
preceding sentence, this option may not be sold, transferred, assigned, pledged,
hypothecated, encumbered or otherwise disposed of (whether by operation of law
or otherwise) or be subject to execution, attachment or similar process. Upon
any attempt to so sell, transfer, assign, pledge, hypothecate, encumber or
otherwise dispose of this option and all rights hereunder shall immediately
become null and void.
7. Provisions of the Plan.
----------------------
This option is subject in its entirety to the provisions of the Plan, a
copy of which is furnished to the Optionee with this option.
8. Notices.
-------
All notices, requests or other communications provided for in this
certificate shall be made, if to the Company, to 2 Edgewater Drive, Norwood,
Massachusetts 02062 (Fax No.: (617) 440-7070) and if to the Optionee, at his or
her address on the records of the Company. All notices, requests or other
communications provided for in this certificate shall be made in writing either
(a) by personal delivery to the party entitled thereto, (b) by facsimile with
confirmation of receipt, (c) by mailing in the United States mails to the last
known address of the party entitled thereto or (d) by express courier service.
The notice, request or other communication shall be deemed to be received upon
personal delivery, upon confirmation of receipt of facsimile transmission or
upon receipt by the party entitled thereto if by United States mail or express
courier service; provided, however, that if a notice, request or other
B-3
<PAGE>
communication is not received during regular business bonus, it shall be deemed
to be received on the next succeeding business day of the Company.
9. Governing Law.
-------------
This option, this certificate, and all determinations made and actions
taken pursuant hereto and thereto, to the extent not governed by the laws of the
United States, shall be governed by the laws of the State of Delaware and
construed in accordance therewith without giving effect to principles of
conflicts of laws.
IN WITNESS WHEREOF, the Company has caused this option to be executed under
its corporate seal by its duly authorized officer. This option shall take effect
as a sealed instrument.
STREAM INTERNATIONAL INC.
By:_______________________________
Name:
Title:
Date:_____________________________
Accepted:
_______________________________
Print Name of Employee
_______________________________
(Signature)
B-4
<PAGE>
Schedule 1 to
Incentive Option Certificate
under
1995 Stock Option Plan
----------------------
B-5
<PAGE>
STREAM INTERNATIONAL INC.
FIRST AMENDMENT TO 1995 STOCK OPTION PLAN
RESOLVED: That the 1995 Stock Option Plan of Stream International, Inc. is
- --------
hereby amended as follows:
1. Section 6(k) of the Plan is hereby amended to read in its entirety as
follows:
"(k) Put and Call Rights. In the event of any (i) exercise by any
stockholder of the Company of the Put Right set forth in the Company's
Restated Certificate of Incorporation or (ii) exercise by the Company
of its Call Right set forth in the Company's Restated Certificate of
Incorporation, the following provisions should apply to options then
outstanding under this Plan. All capitalized terms used in this
Section 6(k) not otherwise defined in this Plan shall have the
respective meanings set forth in the Company's Restated Certificate of
Incorporation.
(A) Upon the exercise of the Put Right, holders of options and
holders of shares of Stock issued upon exercise of options shall be
entitled to sell all of the shares underlying such options or issued
upon exercise thereof, whether or not then vested (the "Option
Shares"), to R.R. Donnelley & Sons Company ("RRD") or the Designee at
the Put Price and shall be subject to the rights of RRD or the
Designee to require the sale of the Option Shares pursuant to the
Mandatory Put, provided that the amount of the aggregate option price
of such options shall be subtracted from the aggregate Put Price
payable to the holder of such options, and any amounts payable with
respect to then unvested Option Shares shall be deposited in escrow
pursuant to clause (c) below. The procedures relating to the exercise
of the Put Right and Mandatory Put, as set forth in the Company's
Restated Certificate of Incorporation, shall apply to the holders of
options under this Plan and to Option Shares to the same extent as
they apply to B Holders and shares of Common Stock under the Company's
Restated Certificate of Incorporation.
(B) Upon the exercise of the Call Right, holders of options and
holders of shares of Stock issued upon exercise of options shall be
required and entitled to sell all of their Option Shares to the
Company or the Designee at the Call Price, provided that the amount of
the aggregate option price of such options shall be subtracted from
the
1
<PAGE>
aggregate Call Price payable to the holder of such options, and any
amounts payable with respect to then unvested Option Shares shall be
deposited in escrow pursuant to clause (C) below. The procedures
relating to the exercise of the Call Right, as set forth in the
Company's Restated Certificate of Incorporation, shall apply to the
holders of options under this Plan and to Option Shares to the same
extent as they apply to B Holders and shares of Common Stock under the
Company's Restated Certificate of Incorporation.
(C) The aggregate amount of the Put Price or Call Price, as the
case may be, that is payable to optionees with respect to then
unvested Option Shares shall be deposited, in cash, in a non-interest
bearing escrow account for the benefit of such optionees. Such escrow
account shall be subject to the claims of the Company's creditors. The
amounts deposited in escrow for the benefit of each optionee with
respect to each unvested installment of his option shall be released
to such optionee, subject to the continued employment of the optionee
with the Company or any subsidiary thereof, at the time such unvested
installment would have become vested in accordance with the vesting
schedule of such option as in effect prior to the exercise of the Put
Right or Call Right, as the case may be (as such schedule may be
modified by the terms of any employment agreement between the Company
and such optionee)."
2. The following Section 10 is added to the Plan:
"10. Certain Restrictions.
If an optionee desires to Transfer (as defined in the Certificate
of Incorporation of the Company) or Involuntarily Transfers any shares
of Stock issued upon exercise of options granted under this Plan, the
optionee shall comply with, and be subject to, the restrictions on
transfer, first offer rights and first refusal rights set forth in
Sections A, B, C and D of Article FIFTH of the Certificate of
Incorporation of the Company. For purposes of such Sections A, B, C
and D, the optionee shall be considered a "B Holder."
EFFECTIVE DECEMBER 31, 1995.
2
<PAGE>
EXHIBIT 10.5
STREAM INTERNATIONAL INC.
1995 REPLACEMENT STOCK OPTION PLAN
1. PURPOSE
-------
The purpose of this 1995 Replacement Stock Option Plan (the "Plan") is to
enable Stream International Inc. (the "Company") to grant options to purchase
shares of Class B-V Common Stock of the Company ("Stock") and an interest in the
Stream Incentive Option (as defined below) in replacement of options previously
granted by Software Holdings, Inc. ("SHI") under the 1993 Stock Option Plan of
SHI (the "1993 Plan"). Any employee, consultant, director or adviser of the
Company or any of its subsidiaries designated to participate in the Plan is
referred to as a "participant."
Options granted pursuant to the Plan may be incentive stock options as
defined in section 422 of the Internal Revenue Code of 1986 (as from time to
time amended, the "Code") (any option that is intended so to qualify as an
incentive stock option being referred to herein as an "incentive option"), or
options that are not incentive options, or both. Non-incentive options shall be
granted in the form of Exhibit A hereto (as it may be amended or modified from
time to time by the Board of Directors (the "Board") of the Company), and
incentive options shall be granted in the form of Exhibit B hereto (as it may be
amended or modified from time to time by the Board). Except as otherwise
expressly provided with respect to an option grant, no option granted pursuant
to the Plan shall be an incentive option.
2. ADMINISTRATION
--------------
The Plan shall be administered by the Board. The Board shall have
authority, not inconsistent with the express provisions of the Plan, (a) to
grant options in replacement of options previously granted by SHI under the 1993
Plan (the "SHI Options"); (b) to determine which options are, and which options
are not, incentive options; (c) to determine the terms and conditions of each
option; (d) to prescribe the form or forms of any instruments evidencing options
and any other instruments necessary or advisable under the Plan and to change
such forms from time to time; (e) to adopt, amend and rescind rules and
regulations for the administration of the Plan; and (f) to interpret the Plan
and to decide any questions and settle all controversies and disputes that may
arise in connection with the Plan. Such determinations of the Board shall be
conclusive and shall bind all parties. Subject to Section 8, the Board shall
also have the authority, both generally and in particular instances, to waive
compliance by a participant with any obligation to be performed by him under an
option, to waive any condition or provision of an option, and to amend or cancel
any option except that the Board may not take any action with respect to an
outstanding option that would adversely affect the rights of the
1
<PAGE>
participant under such option without such participant's consent. Nothing in the
preceding sentence shall be construed as limiting the power of the Board to make
adjustments required by Section 4(a), Section 4(c) and Section 6(i)
The Board may, in its discretion, delegate some or all of its powers with
respect to the Plan to a committee (the "Committee"), in which event all
references (as appropriate) to the Board hereunder shall be deemed to refer to
the Committee. The Committee, if one is appointed, shall consist of at least two
directors. A majority of the members of the Committee shall constitute a
quorum, and all determinations of the Committee shall be made by a majority of
its members. Any determination of the Committee under the Plan may be made
without notice or meeting of the Committee by a writing signed by a majority of
the Committee members.
3. EFFECTIVE DATE AND TERM OF PLAN
-------------------------------
The Plan shall become effective on April 21, 1995.
No options shall be granted under the Plan other than in replacement of SHI
Options. This Plan shall terminate on December 31, 1995, but options previously
granted may extend beyond that date.
4. SHARES SUBJECT TO THE PLAN
--------------------------
(a) Number of Shares. Subject to adjustment as provided in Section 4(c),
----------------
an aggregate of 167,624 shares of Class B-V Common Stock may be delivered upon
the exercise of options granted under the Plan, plus the number of shares of
----
Class A Common Stock of the Company delivered upon exercise of any portion of
the Newco Incentive Option in which optionees under this Plan have an interest,
as set forth in Section 6. From and after the mandatory conversion of all
shares of Class B-V Common Stock of the Company into Class A Common Stock of the
Company pursuant to the Restated Certificate of Incorporation of the Company, as
it may be amended, the terms "Class B-V Common Stock" and "Stock," as used in
this Plan, shall refer to the Class A Common Stock of the Company, and the
number of shares available under this Plan and the number of shares subject to
each option granted under this Plan, including the purchase price therefor,
shall be appropriately adjusted by the Board, pursuant to Section 4(c), to
reflect the rate of such conversion.
(b) Shares to be Delivered. Shares delivered under the Plan shall be
----------------------
authorized but unissued Stock or, if the Board so decides in its sole
discretion, previously issued Stock acquired by the Company and held in its
treasury. No fractional shares of Stock shall be delivered under the Plan.
(c) Changes in Stock. In the event of a stock dividend, stock split or
----------------
combination of shares, recapitalization or other change in the Company's capital
2
<PAGE>
stock, the number and kind of shares of Stock or securities of the Company
subject to options then outstanding, the exercise price of such options, the
maximum number of shares or securities that may be delivered under the Plan, and
other relevant provisions shall be appropriately adjusted by the Board, whose
determination shall be binding on all persons.
The Board may also adjust the number of shares subject to outstanding
options, the exercise price of outstanding options and the terms of outstanding
options, to take into consideration material changes in accounting practices or
principles, extraordinary dividends, consolidations or mergers, acquisitions or
dispositions of stock or property or any other event if it is determined by the
Board that such adjustment is appropriate to avoid distortion in the operation
of the Plan, provided that no such adjustment shall be made in the case of an
incentive option, without the consent of the participant, if it would constitute
a modification, extension or renewal of the option within the meaning of section
424(h) of the Code.
5. ELIGIBILITY FOR OPTIONS
-----------------------
Persons eligible to receive options under the Plan shall be limited to
holders of SHI Options. Options shall be granted under the Plan only to the
extent an SHI Option is concurrently cancelled.
6. TERMS AND CONDITIONS OF OPTIONS
-------------------------------
(a) Exercise Price; Number of Shares and Interest in Newco Incentive
----------------------------------------------------------------
Option. The exercise price of each option granted under the Plan shall be equal
to the exercise price of the SHI Option replaced by such option (the "Replaced
Option"), multiplied by 2.22224 (rounded to the nearest hundredth), and the
number of shares of Stock covered by such option shall equal the number of
shares of Class A Common Stock of SHI covered by the Replaced Option, multiplied
by .4499965 (rounded up or down to the nearest whole number). In addition, upon
any exercise of an option granted under the Plan prior to the exercise of the
Newco Incentive Option (as defined in the Agreement and Plan of Merger dated as
of April 21, 1995 [the "Merger Agreement"] among the Company, R.R. Donnelley
Merger Company and SHI), the Company shall issue to the participant exercising
such option an interest in the Newco Incentive Option. Such interest in the
Newco Incentive Option shall be evidenced by a certificate in the form attached
as Annex B to the Merger Agreement. To the extent an option granted under the
-----------------------------------------
Plan is exercised after the Exercise Date, no interest in the Newco Incentive
- -----------------------------------------------------------------------------
Option shall be granted with respect to such option.
- ---------------------------------------------------
(b) Duration of Options. Except as otherwise agreed between the Company
-------------------
and a participant, each option granted to such participant shall be exercisable
during the same period or periods during which the Replaced Option was
exercisable.
3
<PAGE>
(c) Exercise of Options.
-------------------
(1) Except as otherwise agreed between the Company and any
participant, each option granted under the Plan shall be
exercisable at such time or times and upon such terms and
conditions as specified in the Replaced Option. In the case of an
option not immediately exercisable in full, the Board may at any
time accelerate the time at which all or any part of the option
may be exercised.
(2) Any exercise of an option shall be in writing, signed by the
proper person and furnished to the Company, accompanied by (i)
such documents as may be required by the Company and (ii) payment
in full as specified below in Section 6(d) for the number of
whole shares for which the option is exercised.
(3) In the case of an option that is not an incentive option, the
Company shall have the right to require, prior to the delivery of
any Stock pursuant to the exercise of the option, that the
participant exercising the option remit to the Company an amount
in cash or by personal check, certified check, bank draft or
money order payable to the order of the Company sufficient to
satisfy any federal, state or local withholding tax requirements
arising in connection with the exercise of the option (the date
such obligation arises being referred to as the "Tax Date") (or
make other arrangements satisfactory to the Company with regard
to such taxes). If specified in the instrument evidencing an
option or permitted by the Board, either at the time of the grant
of the option or the time of exercise, the participant may elect,
at such time and in such manner as the Board may prescribe, to
satisfy such withholding obligation by (i) delivery of an
unconditional and irrevocable undertaking by a broker to deliver
promptly to the Company sufficient funds to pay such withholding
obligation, (ii) delivering to the Company whole shares of Stock
(which the participant has held for at least six months prior to
the delivery of such shares or acquired on the open market and
for which the participant has good title, free and clear of all
liens and encumbrances) having a fair market value, determined as
of the Tax Date, equal to such withholding obligation, or (iii)
requesting that the Company withhold from the shares of Stock to
be delivered upon exercise of the option a number of whole shares
of Stock having a fair market value equal, determined as of the
Tax Date, to such withholding obligation; provided, however, that
the Company shall have sole
4
<PAGE>
discretion to disapprove of an election pursuant to any of
clauses (i), (ii) or (iii) and that in the case of a participant
who is subject to Section 16 of the Exchange Act, the Company may
require that the method of satisfying such an obligation be in
compliance with Section 16 of the Exchange Act and the rules and
regulations thereunder. Stock may be delivered or withheld having
an aggregate fair market value in excess of the minimum amount
required to be withheld, but not in excess of the amount
determined by applying the participant's maximum marginal tax
rate. Any fraction of a share of Stock which would be required to
satisfy such an obligation shall be disregarded and the remaining
amount due shall be paid in cash by the participant.
In the case of an incentive option, if at the time the option is
exercised the Company determines that under applicable law and
regulations the Company could be liable for the withholding of
any federal, state or other tax with respect to a disposition of
the Stock received upon exercise, the Board may require as a
condition of exercise that the participant exercising the option
agree (i) to inform the Company promptly of any disposition
(within the meaning of section 424(c) of the Code and the
regulations thereunder) of Stock received upon exercise, and (ii)
to give such security as the Company deems adequate to meet the
potential liability of the Company for the withholding of tax,
and to augment such security from time to time in any amount
reasonably deemed necessary by the Company to preserve the
adequacy of such security.
(4) If an option is exercised by the executor or administrator of a
deceased participant, or by the person or persons to whom the
option has been transferred by the participant's will or
applicable laws of descent and distribution or pursuant to any
beneficiary designation procedures established by the Company,
the Company shall be under no obligation to deliver Stock
pursuant to such exercise until the Company is satisfied as to
the authority of the person or persons exercising the option.
(d) Payment for and Delivery of Stock. Stock purchased upon exercise of an
---------------------------------
option under the Plan shall be paid for as follows: (i) in cash or by personal
check, certified check, bank draft or money order payable to the order of the
Company or (ii) if specified in the instrument evidencing an option or permitted
by the Board (which, in the case of an incentive option, shall specify such
method of payment in the instrument evidencing the option), (A) through the
delivery of whole shares of Stock (which the participant has held for at least
six months prior to the
5
<PAGE>
delivery of such shares or acquired on the open market and for which the
participant has good title, free and clear of all liens and encumbrances) having
a fair market value on the last business day preceding the date of exercise
equal to the purchase price or (B) by delivery of a full recourse promissory
note of the participant to the Company, such note to be payable on such terms as
are specified by the Company or (C) by delivery of an unconditional and
irrevocable undertaking by a broker to deliver promptly to the Company
sufficient funds to pay the exercise price or (D) by any combination of the
permissible forms of payment. The Company shall have sole discretion to
disapprove of an election pursuant to any of clauses (A)-(D) and in the case of
a participant who is subject to Section 16 of the Exchange Act, the Company may
require that the method of making such payment be in compliance with Section 16
and the rules and regulations thereunder. Any fraction of a share of Stock which
would be required to pay such purchase price shall be disregarded and the
remaining amount due shall be paid in cash by the participant. No Certificate
representing Stock shall be delivered until the full purchase price therefor has
been paid.
(e) Delivery of Stock. A participant shall not have the rights of a
-----------------
shareholder with regard to options under the Plan except as to Stock actually
received by him under the Plan.
The Company shall not be obligated to deliver any shares of Stock (i)
until, in the opinion of the Company's counsel, all applicable federal and state
laws and regulations have been complied with, and (ii) if the outstanding Stock
is at the time listed on any stock exchange, until the shares to be delivered
have been listed or authorized to be listed on such exchange upon official
notice of issuance, and (iii) until all other legal matters in connection with
the issuance and delivery of such shares have been approved by the Company's
counsel. If the sale of Stock has not been registered under the Securities Act
of 1933, as amended, the Company may require, as a condition to exercise of the
option, such representations or agreements as counsel for the Company may
consider appropriate to avoid violation of such Act and may require that the
certificates evidencing such Stock bear an appropriate legend restricting
transfer.
(f) Nontransferability of Options. No option may be transferred other than
-----------------------------
by will or by the laws of descent and distribution or pursuant to beneficiary
designation procedures approved by the Company or (ii) as otherwise permitted
under Rule 16b-3 under the Exchange Act as set forth in the instrument
evidencing such option. Except as permitted by the foregoing sentence, during a
participant's lifetime an option may be exercised only by him. Except as
permitted by the second preceding sentence, no option may be sold, transferred,
assigned, pledged, hypothecated, encumbered or otherwise disposed of (whether by
operation of law or otherwise) or be subject to execution, attachment or similar
process. Upon any attempt to so sell, transfer, assign, pledge, hypothecate,
encumber or otherwise
6
<PAGE>
dispose of any option, such option and all rights thereunder shall immediately
become null and void.
(g) Death. If a participant dies, each option held by the participant
-----
immediately prior to death may be exercised, to the extent it was exercisable
immediately prior to death, by his executor or administrator, or by the person
or persons to whom the option is transferred by will or applicable laws of
descent and distribution or pursuant to beneficiary designation procedures
established by the Company, at any time within the period ending with the first
anniversary of the participant's death but in no event beyond the "Final
Exercise Date" (as specified in the option). All options held by a participant
immediately prior to death that are not then exercisable shall terminate on the
date of death.
(h) Other Termination of Service. If an employee's employment with the
----------------------------
Company and its subsidiaries terminates for any reason, other than death, all
options held by the employee that are not then exercisable shall terminate;
provided, that the Board in its sole discretion may provide (either prior to or
following termination) that any or all of such portion of an option which is not
exercisable immediately prior to termination shall be treated as having become
exercisable immediately prior to termination. Options that are exercisable on
the date employment terminates for any reason other than death shall continue to
be exercisable for a period of three months (or such longer period as the
Company may determine, but in no event beyond the Final Exercise Date) unless
the employee was terminated for cause which in the opinion of the Board casts
such discredit on him as to justify termination of his options. Subject to
Section 6(g), after completion of that three-month period such options shall
terminate to the extent not previously exercised, expired or terminated. For
purposes of this Section 6(h), employment shall not be considered terminated (i)
in the case of sick leave or other bona fide leave of absence approved for
purposes of the Plan by the Company or (ii) in the case of a transfer of
employment between the Company and a subsidiary or between subsidiaries, or to
the employment of a corporation (or a parent or subsidiary corporation of such
corporation) issuing or assuming an option in a transaction to which Section
424(a) of the Code applies.
In the case of a participant who is not an employee, provisions relating to
the exercisability of options following termination of service for any reason
other than death shall be specified in the option. If not so specified, all
options held by such participant that are not exercisable immediately prior to
termination of service for any reason other than death shall terminate upon such
termination of service. Options that are exercisable immediately prior to
termination of service as a consultant, director or adviser for any reason other
than death shall continue to be exercisable for period of three months (or such
longer period as the Company may determine, but in no event beyond the Final
Exercise Date) unless the participant was terminated for cause which in the
opinion of the Board casts such discredit on him as to justify termination of
his options. Subject to Section 6(g), after completion of that
7
<PAGE>
three-month period such options shall terminate to the extent not previously
exercised, expired or terminated.
(i) Acquisition Events. Upon the occurrence of an Acquisition Event (as
------------------
defined below), all outstanding options shall terminate, provided that at least
10 days prior to the effective date of such Acquisition Event, the Board shall
either (i) make all outstanding options exercisable immediately prior to
consummation of such Acquisition Event or (ii) if there is a surviving or
acquiring corporation, arrange, subject to consummation of the Acquisition
Event, to have that corporation or an affiliate of that corporation grant to
participants replacement options which in the case of incentive options satisfy,
in the determination of the Board, the requirements of section 424(a) of the
Code. An "Acquisition Event" shall mean (i) any merger or consolidation
involving the Company other than a merger or consolidation after the
consummation of which the shareholders of the Company immediately prior to such
merger or consolidation own more than 50% of the outstanding voting securities
of the surviving corporation or of a corporation that owns, directly or
indirectly, all of the capital stock of such surviving corporation, (ii) any
sale of all or substantially all of the assets of the Company or (iii) the
acquisition of more than 50% of the outstanding voting securities of the Company
by a single person or entity or group of persons and/or entities acting in
concert; provided, however, that the following acquisitions shall not constitute
an Acquisition Event: (A) any acquisition by an employee benefit plan (or
related trust) sponsored or maintained by the Company or any corporation
controlled by the Company, or (B) any acquisition by R.R. Donnelley & Sons
Company or any affiliate (as defined under Regulation 12B under the Exchange
Act) of R.R. Donnelley & Sons Company.
(j) Put and Call Rights, Etc. In the event of any (i) Disposition or Total
------------------------
Disposition (as such terms are defined in the Company's Restated Certificate of
Incorporation) by R.R. Donnelley & Sons Company ("RRD") that triggers certain
Tag Along or Drag Along Rights (as such rights are defined in the Company's
Restated Certificate of Incorporation), (ii) exercise by any stockholder of the
Company of the Put Right set forth in the Company's Restated Certificate of
Incorporation, or (iii) exercise by the Company of its Call Right set forth in
the Company's Restated Certificate of Incorporation (in each case, a "Trigger
Event"), the exercisability of all then outstanding options under this Plan
shall accelerate so that such options shall immediately be exercisable in full.
The holders of such options, to the same extent as B Holders (as such term is
defined in the Company's Restated Certificate of Incorporation), (A) upon a
Disposition or Total Disposition, shall be entitled to participate in the Tag
Along or Drag Along Rights, as the case may be, and shall be subject to the Drag
Along Rights, (B) upon the exercise of the Put Right, shall be entitled to
participate in the Put Right and shall be subject to the Mandatory Put (as
defined in the Company's Restated Certificate of Incorporation) and (C) upon the
exercise of the Call Right, shall be subject to, and entitled to participate in
the sale of shares pursuant to, the Call Right; provided, that in each such case
--------
any amounts
8
<PAGE>
payable to an optionee in connection with such Tag Along, Drag Along, Put Right,
Mandatory Put or Call Right shall, to the extent the options then held by such
optionee have not been exercised, be net of the aggregate option exercise price
of such options.
7. EMPLOYMENT RIGHTS
-----------------
Neither the adoption of the Plan nor the grant of options shall confer upon
any participant any right to continue as an employee or director of, or
consultant or adviser to, the Company or any parent or subsidiary or affect in
any way the right of the Company or parent or subsidiary to terminate such
participant at any time. Except as specifically provided by the Board in any
particular case, the loss of existing or potential profit in options granted
under this Plan shall not constitute an element of damages in the event of
termination of the relationship of a participant even if the termination is in
violation of an obligation of the Company to the participant by contract or
otherwise.
8. AMENDMENT
---------
With the consent of the participant, the Board may at any time cancel an
existing option in whole or in part and grant another option for such number of
shares as the Board specifies. The Board may at any time or times amend the Plan
or any outstanding option for the purpose of satisfying the requirements of
section 422 of the Code or of any changes in applicable laws or regulations or
for any other purpose that may at the time be permitted by law, provided that,
except to the extent expressly permitted by the Plan, no such amendment shall,
without the approval of the shareholders of the Company, effectuate a change for
which shareholder approval is required in order for the Plan to continue to
qualify under Rule 16b-3 (if applicable). No such amendment shall adversely
affect the rights of any participant, without his consent, under any option
previously granted (except as permitted by the terms of the Stream Incentive
Option).
9
<PAGE>
EXHIBIT A
---------
to 1995 Replacement Stock Option Plan
-------------------------------------
STREAM INTERNATIONAL INC.
1995 REPLACEMENT STOCK OPTION PLAN
Non-Incentive Option Certificate
--------------------------------
Stock option granted by Stream International Inc., a Delaware corporation
(the "Company"), to [NAME OF OPTIONEE] (the "Optionee"), pursuant to the
Company's 1995 Replacement Stock Option Plan (the "Plan") in replacement for
options previously granted to the Optionee under the 1993 Stock Option Plan (the
"1993 Plan") of Software Holdings, Inc. ("SHI"). All initially capitalized
terms not otherwise defined herein shall have the meaning provided in the Plan.
1. Grant of Option
---------------
(a) This certificate evidences the grant by the Company on April 21, 1995
to the Optionee of an option to purchase, in whole or in part, on the terms
provided herein and in the Plan, a total of _________ shares of Class B-V Common
Stock of the Company (the "Shares") at a purchase price of $[____] per Share. In
addition, upon any exercise of this option prior to the exercise of the Newco
Incentive Option (as defined in the Agreement and Plan of Merger dated as of
April 21, 1995 [the "Merger Agreement"] among the Company, R.R. Donnelley Merger
Company and SHI), the Company shall issue to the Optionee an interest in the
Newco Incentive Option. Such interest in the Newco Incentive Option shall be
evidenced by a certificate in the form attached as Annex B to the Merger
Agreement and shall be subject to change as set forth in the Newco Incentive
Option. To the extent this option is exercised after the Exercise Date, no
------------------------------------------------------------------
interest in the Newco Incentive Option shall be granted with respect to this
- ----------------------------------------------------------------------------
option.
- ------
(b) The latest date on which this option may be exercised (the "Final
Exercise Date") is [__________]. The option evidenced by this certificate is
not an incentive stock option.
(c) This option is exercisable in the installments indicated on Schedule 1
hereto.
(d) This option shall become null and void unless the Optionee shall
accept this certificate by executing it in the space provided below and
returning such original execution copy to the Secretary of the Company.
1
<PAGE>
2. Exercise of Option.
------------------
Each election to exercise this option shall be in writing, signed by the
Optionee or by his/her executor or administrator or by the person or persons to
whom this option is transferred by will or applicable laws of descent and
distribution or pursuant to any beneficiary designation procedures established
by the Company (the "Legal Representative"), and received by the Secretary of
the Company at its principal office, accompanied by payment in full and by such
additional documentation evidencing the right to exercise (or, in the case of a
Legal Representative, of the authority of such person) as the Company may
require. The purchase price may be paid (i) in cash or by personal check,
certified check, bank draft or money order payable to the order of the Company,
(ii) through the delivery of whole shares of Class B-V Common Stock of the
Company (which the Optionee has held for at least six months prior to the
delivery of such shares or acquired on the open market and for which the
participant has good title, free and clear of all liens and encumbrances) having
a fair market value on the last business day preceding the date of exercise
equal to the exercise price, (iii) by delivery of an unconditional and
irrevocable undertaking by a broker to deliver to the Company promptly upon the
settlement of the sale of the Shares to be issued sufficient funds to pay the
exercise price, or (iv) by any combination of the permissible forms of payment.
The Company shall have sole discretion to disapprove of an election pursuant to
any of clauses (ii), (iii) or (iv) and in the event the Optionee is subject to
Section 16 of the Exchange Act, the Company may require that the method of
making such payment be in compliance with Section 16 and the rules and
regulations thereunder. Any fraction of a share of Class B-V Common Stock which
would be required to pay such purchase price shall be disregarded and the
remaining amount due shall be paid in cash by the Optionee. No certificate
representing Shares shall be delivered until the full purchase price therefor
has been paid.
3. Restrictions on Transfer
------------------------
Certificates evidencing any Shares purchased by the Optionee upon exercise
of options granted hereby shall bear the legends required by the Company's
Restated Certificate of Incorporation.
4. Withholding
-----------
No Shares will be transferred pursuant to the exercise of this option
unless and until the person exercising this option shall have remitted to the
Company an amount sufficient to satisfy any federal, state or local withholding
tax requirements arising in connection with the option, or shall have made other
arrangements satisfactory to the Company with respect to such taxes. Any such
withholding tax requirements may be satisfied by (i) making a payment in cash or
by personal check, certified check, bank draft or money order payable to the
order of the Company, (ii) delivery of an
2
<PAGE>
unconditional and irrevocable undertaking by a broker to deliver to the Company
promptly upon the settlement of the sale of the Shares to be issued sufficient
funds to pay the exercise price, (iii) delivery of whole shares of Class B-V
Common Stock of the Company (which the Optionee has held for at least six months
prior to the delivery of such shares or acquired on the open market and which
the participant has good title, free and clear of all liens and encumbrances)
having a fair market value, determined as of the Tax Date, equal to such
withholding obligation or (iv) requesting that the Company withhold from the
Shares to be delivered upon the exercise a number of Shares having a fair market
value, determined as of the Tax Date, equal to such withholding obligation;
provided, however, that the Company shall have sole discretion to disapprove of
an election pursuant to any of clauses (ii), (iii) or (iv) and that in event the
Optionee is subject to Section 16 of the Exchange Act, the Company may require
that the method of satisfying such an obligation be in compliance with Section
16 of the Exchange Act and the rules and regulations thereunder. Stock may be
delivered or withheld having an aggregate fair market value in excess of the
minimum amount required to be withheld, but not in excess of the amount
determined by applying the Optionee's maximum marginal tax rate. Any fraction of
a Share which would be required to satisfy such an obligation shall be
disregarded and the remaining amount due shall be paid in cash by the Optionee.
5. Status Change
-------------
Upon the Optionee's termination of employment with the Company or any
subsidiary thereof for any reason, this option shall terminate as to any Shares
for which it was not exercisable immediately prior to termination; provided,
--------
that the Board or Committee in its sole discretion may provide (either prior to
or following termination) that any or all of such portion of this option which
is not exercisable immediately prior to termination shall be treated as having
become exercisable immediately prior to termination. As to that number of
Shares for which this option was exercisable (or deemed exercisable by action of
the Board or Committee) immediately prior to termination, it shall remain
exercisable as follows:
(i) if termination occurs for any reason other than death, for a period
of three months following the date of termination, except as provided
in clause (ii) below (but in no event beyond the Final Exercise
Date), or
(ii) following death, including death during the three-month period
following termination of employment for any reason other than death
for a period of twelve months thereafter, but not beyond the Final
Exercise Date.
Notwithstanding the foregoing, if the Optionee is terminated for cause (as
provided in the Plan), the option shall immediately terminate as to all Shares
subject to the option.
3
<PAGE>
6. Nontransferability of Option.
----------------------------
This option is not transferable by the Optionee other than by will or the
laws of descent and distribution, or pursuant to beneficiary designation
procedures approved by the Company. During the Optionee's lifetime, this option
may be exercised only by the Optionee. Except as permitted by the second
preceding sentence, this option may not be sold, transferred, assigned, pledged,
hypothecated, encumbered or otherwise disposed of (whether by operation of law
or otherwise) or be subject to execution, attachment or similar process. Upon
any attempt to so sell, transfer, assign, pledge, hypothecate, encumber or
otherwise dispose of this option and all rights hereunder shall immediately
become null and void.
7. Provisions of the Plan.
----------------------
This option is subject in its entirety to the provisions of the Plan, a
copy of which is furnished to the Optionee with this option.
8. Registration Rights Agreement.
-----------------------------
Upon exercise of this option, the Optionee shall be entitled to become a
party to the Registration Rights Agreement dated April 21, 1995 among the
Company, certain stockholders of the Company and the former stockholders of SHI.
9. 1993 Plan Options.
-----------------
Pursuant to the provisions of the 1993 Plan, all options granted to the
Optionee under the 1993 Plan, to the extent not exercised prior to the Effective
Time (as defined in the Plan), are cancelled and shall be null and void.
10. Notices.
-------
All notices, requests or other communications provided for in this
certificate shall be made, if to the Company, to Stream International Inc., 2
Edgewater Drive, Norwood, Massachusetts 02062 (Fax No.: (617) 440-7070) and if
to the Optionee at his or her address on the records of the Company. All
notices, requests or other communications provided for in this certificate shall
be made in writing either (a) by personal delivery to the party entitled
thereto, (b) by facsimile with confirmation of receipt, (c) by mailing in the
United States mails to the last known address of the party entitled thereto or
(d) by express courier service. The notice, request or other communication shall
be deemed to be received upon personal delivery, upon confirmation of receipt of
facsimile transmission or upon receipt by the party entitled thereto if by
United States mail or express courier service; provided, however, that if a
notice, request or other communication is not received during regular business
4
<PAGE>
bonus, it shall be deemed to be received on the next succeeding business day of
the Company.
11. Governing Law.
-------------
This option, this certificate, and all determinations made and actions
taken pursuant hereto and thereto, to the extent not governed by the laws of the
United States, shall be governed by the laws of the State of Delaware and
construed in accordance therewith without giving effect to principles of
conflicts of laws.
IN WITNESS WHEREOF, the Company has caused this option to be executed under
its corporate seal by its duly authorized officer. This option shall take effect
as a sealed instrument.
STREAM INTERNATIONAL INC.
By:__________________________________
Date:________________________________
Accepted:
_______________________________
Print Name of Employee
_______________________________
(Signature)
5
<PAGE>
Schedule 1 to
Non-Incentive Option Certificate
under
1995 Replacement Stock Option Plan
[Same vesting schedule as vesting schedule for Replaced Option.]
1
<PAGE>
EXHIBIT B
---------
to 1995 Stock Option Plan
-------------------------
STREAM INTERNATIONAL INC.
1995 REPLACEMENT STOCK OPTION PLAN
Incentive Option Certificate
----------------------------
Stock option granted by Stream International Inc., a Delaware corporation
(the "Company"), to [NAME OF OPTIONEE] (the "Optionee"), pursuant to the
Company's 1995 Replacement Stock Option Plan (the "Plan") in replacement for
options previously granted to Optionee under the 1993 Stock Option Plan (the
"1993 Plan") of Software Holdings, Inc. ("SHI"). All initially capitalized terms
not otherwise defined herein shall have the meaning provided in the Plan.
1. Grant of Option
---------------
(a) This certificate evidences the grant by the Company on April 21, 1995
to the Optionee of an option to purchase, in whole or in part, on the terms
provided herein and in the Plan, a total of _________ shares of Class B-V Common
Stock of the Company (the "Shares") at a purchase price of $[_____] per Share.
In addition, upon any exercise of this option prior to the exercise of the Newco
Incentive Option (as defined in the Agreement and Plan of Merger dated as of
April 21, 1995 [the "Merger Agreement"] among the Company, SHI and others), the
Company shall issue to the Optionee an interest in the Newco Incentive Option.
Such interest in the Newco Incentive Option shall be evidenced by a certificate
in the form attached as Annex B to the Merger Agreement and shall be subject to
change as set forth in the Newco Incentive Option. To the extent this option is
----------------------------
exercised after the Exercise Date, no interest on the Newco Incentive Option
- ----------------------------------------------------------------------------
shall be granted with respect to this option.
- --------------------------------------------
(b) The latest date on which this option may be exercised (the "Final
Exercise Date") is [_____]. The option evidenced by this certificate is an
incentive stock option.
(c) This option is exercisable in the installments indicated on Schedule 1
hereto.
(d) This option shall become null and void unless the Optionee shall
accept this certificate by executing it in the space provided below and
returning such original execution copy to the Secretary of the Company.
1
<PAGE>
2. Exercise of Option.
------------------
Each election to exercise this option shall be in writing, signed by the
Optionee or by his/her executor or administrator or by the person or persons to
whom this option is transferred by will or applicable laws of descent and
distribution or pursuant to any beneficiary designation procedures established
by the Company (the "Legal Representative"), and received by the Secretary of
the Company at its principal office, accompanied by payment in full and by such
additional documentation evidencing the right to exercise (or, in the case of a
Legal Representative, of the authority of such person) as the Company may
require. The purchase price may be paid (i) in cash or by personal check,
certified check, bank draft or money order payable to the order of the Company,
(ii) through the delivery of whole shares of Class B-V Common Stock of the
Company (which the Optionee has held for at least six months prior to the
delivery of such shares or acquired on the open market and for which the
participant has good title, free and clear of all liens and encumbrances) having
a fair market value on the last business day preceding the date of exercise
equal to the exercise price, (iii) by delivery of an unconditional and
irrevocable undertaking by a broker to deliver to the Company promptly upon the
settlement of the sale of the Shares to be issued sufficient funds to pay the
exercise price, or (iv) by any combination of the permissible forms of payment.
The Company shall have sole discretion to disapprove of an election pursuant to
any of clause's (ii), (iii) or (iv) and in the event the Optionee is subject to
Section 16 of the Exchange Act, the Company may require that the method of
making such payment be in compliance with Section 16 and the rules and
regulations thereunder. Any fraction of a share of Class B-V Common Stock which
would be required to pay such purchase price shall be disregarded and the
remaining amount due shall be paid in cash by the Optionee. No certificate
representing Shares shall be delivered until the full purchase price therefor
has been paid.
3. Restrictions on Transfer
------------------------
Certificates evidencing any Shares purchased by the Optionee upon exercise
of options granted hereby shall bear the legends required by the Company's
Restated Certificate of Incorporation.
4. Withholding
-----------
No Shares will be transferred pursuant to the exercise of this option
unless and until the person exercising this option shall have satisfied all
conditions established by the Board pursuant to Section 6(c) (3) of the Plan.
2
<PAGE>
5. Status Change
-------------
Upon the Optionee's termination of employment with the Company or any
subsidiary thereof for any reason, this option shall terminate as to any Shares
for which it was not exercisable immediately prior to termination; provided,
that the Board or Committee in its sole discretion may provide (either prior to
or following termination) that any or all of such portion of this option which
is not exercisable immediately prior to termination shall be treated as having
become exercisable immediately prior to termination. As to that number of Shares
for which this option was exercisable (or deemed exercisable by action of the
Board or Committee) immediately prior to termination, it shall remain
exercisable as follows:
(i) if termination occurs for any reason other than death for a period
of three months following the date of termination, except as
provided in clause (ii) below (but in no event beyond the Final
Exercise Date), or
(ii) following death, including death during the three-month period
following termination of employment for any reason other than death,
for a period of twelve months thereafter, but not beyond the Final
Exercise Date.
Notwithstanding the foregoing, if the Optionee is terminated for cause (as
provided in the Plan), the option shall immediately terminate as to all Shares
subject to the option.
6. Nontransferability of Option.
----------------------------
This option is not transferable by the Optionee other than by will or the
laws of descent and distribution or pursuant to beneficiary designation
procedures approved by the Company. During the Optionee's lifetime this option
may be exercised only by the Optionee. Except as permitted by the second
preceding sentence, this option may not be sold, transferred, assigned, pledged,
hypothecated, encumbered or otherwise disposed of (whether by operation of law
or otherwise) or be subject to execution, attachment or similar process. Upon
any attempt to so sell, transfer, assign, pledge, hypothecate, encumber or
otherwise dispose of this option and all rights hereunder shall immediately
become null and void.
7. Provisions of the Plan.
----------------------
This option is subject in its entirety to the provisions of the Plan, a
copy of which is furnished to the Optionee with this option.
3
<PAGE>
8. Registration Rights Agreement.
-----------------------------
Upon exercise of this option, the Optionee shall be entitled to become a
party to the Registration Rights Agreement dated April 21, 1995 among the
Company, certain stockholders of the Company and the former stockholders of SHI.
9. 1993 Plan Options.
-----------------
Pursuant to the provisions of the 1993 Plan, all options granted to the
Optionee under the 1993 Plan, to the extent not exercised prior to the Effective
Time (as defined in the Plan), are cancelled and shall be null and void.
10. Notices.
-------
All notices, requests or other communications provided for in this
certificate shall be made, if to the Company, to Stream International Inc., 2
Edgewater Drive, Norwood, Massachusetts 02062, (Fax No.: (617) 440-7070) and if
to the Optionee at his or her address on the records of the Company. All
notices, requests or other communications provided for in this certificate shall
be made in writing either (a) by personal delivery to the party entitled
thereto, (b) by facsimile with confirmation of receipt, (c) by mailing in the
United States mails to the last known address of the party entitled thereto or
(d) by express courier service. The notice, request or other communication shall
be deemed to be received upon personal delivery, upon confirmation of receipt of
facsimile transmission or upon receipt by the party entitled thereto if by
United States mail or express courier service; provided, however, that if a
notice, request or other communication is not received during regular business
bonus, it shall be deemed to be received on the next succeeding business day of
the Company.
11. Governing Law.
-------------
This option, this certificate, and all determinations made and actions
taken pursuant hereto and thereto, to the extent not governed by the laws of the
United States, shall be governed by the laws of the State of Delaware and
construed in accordance therewith without giving effect to principles of
conflicts of laws.
4
<PAGE>
IN WITNESS WHEREOF, the Company has caused this option to be executed under
its corporate seal by its duly authorized officer. This option shall take effect
as a sealed instrument.
STREAM INTERNATIONAL INC.
By:__________________________________
Date:________________________________
Accepted:
_______________________________
Print Name of Employee
_______________________________
(Signature)
5
<PAGE>
Schedule 1 to
Incentive Option Certificate
under
1995 Replacement Stock Option Plan
----------------------------------
[Same vesting schedule as vesting schedule for Replaced Option.]
1
<PAGE>
EXHIBIT 10.6
STREAM INTERNATIONAL INC.
1995 CALIFORNIA STOCK OPTION PLAN
1. PURPOSE
-------
The purpose of this 1995 California Stock Option Plan (the "Plan") is to
advance the interests of Stream International Inc. (the "Company") by enhancing
the ability of the Company and its subsidiaries to attract and retain employees,
consultants, directors or advisers who reside in California and who are in a
position to make significant contributions to the success of the Company and its
subsidiaries; to reward such individuals for their contributions; and to
encourage such individuals to take into account the long-term interests of the
Company through interests in shares of the Company' 5 Class A Common Stock (the
"Stock"). Any employee, consultant, director or adviser designated to
participate in the Plan is referred to as a "participant."
Options granted pursuant to the Plan may be incentive stock options as
defined in section 422 of the Internal Revenue Code of 1986 (as from time to
time amended, the "Code") (any option that is intended so to qualify as an
incentive stock option being referred to herein as an "incentive option"), or
options that are not incentive options, or both. Non-incentive options shall be
granted in the form of Exhibit A hereto (as it may be amended or modified from
time to time by the Board of Directors (the "Board") of the Company), and
incentive options shall be granted in the form of Exhibit B hereto (as it may be
amended or modified from time to time by the Board). Except as otherwise
expressly provided with respect to an option grant, no option granted pursuant
to the Plan shall be an incentive option.
2. ADMINISTRATION
--------------
The Plan shall be administered by the Board. The Board shall have
authority, not inconsistent with the express provisions of the Plan, (a) to
grant awards consisting of options or stock appreciation rights ("SARs"), or
both, to such employees, consultants, directors and advisers as the Board may
select; (b) to determine the time or times when awards shall be granted and the
number of shares of Stock subject to each award; (c) to determine which options
are, and which options are not, incentive options; (d) to determine the terms
and conditions of each award; (e) to prescribe the form or forms of any
instruments evidencing awards and any other instruments necessary or advisable
under the Plan and to change such forms from time to time; (f) to adopt, amend
and rescind rules and regulations for the administration of the Plan; and (g) to
interpret the Plan and to decide any questions and settle all controversies and
disputes that may arise in connection with the Plan. Such determinations of the
Board shall be conclusive and shall bind all parties. Subject to Section 8, the
Board shall also have the authority, both generally and in particular instances,
to waive compliance by a participant with any obligation to be performed by him
under an award, to waive any condition or provision of an award,
<PAGE>
and to amend or cancel any award (and if an award is canceled, to grant a new
award on such terms as the Board shall specify) except that the Board may not
take any action with respect to an outstanding award that would adversely affect
the rights of the participant under such award without such participant's
consent. Nothing in the preceding sentence shall be construed as limiting the
power of the Board to make adjustments required by Section 4(c) and Section
6(j).
The Board may, in its discretion, delegate some or all of its powers with
respect to the Plan to a committee (the "Committee"), in which event all
references (as appropriate) to the Board hereunder shall be deemed to refer to
the Committee. The Committee, if one is appointed, shall consist of at least
two directors. A majority of the members of the Committee shall constitute a
quorum, and all determinations of the Committee shall be made by a majority of
its members. Any determination of the Committee under the Plan may be made
without notice or meeting of the Committee by a writing signed by a majority of
the Committee members. From and after registration of the Stock under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") the Board shall
delegate the power to select directors and officers to receive awards under the
Plan and the timing, pricing and amount of such awards to a committee, all
members of which shall be disinterested persons within the meaning of Rule 16b-3
under that Act.
3. EFFECTIVE DATE AND TERM OF PLAN
-------------------------------
The Plan shall become effective on the date on which it is approved by the
shareholders of the Company. Grants of awards under the Plan may be made prior
to that date (but after Board adoption of the Plan), subject to approval of the
Plan by such shareholders.
No awards shall be granted under the Plan after the completion of ten years
from the date on which the Plan was adopted by the Board, but awards previously
granted may extend beyond that date.
4. SHARES SUBJECT TO THE PLAN
--------------------------
(a) Number of Shares. Subject to adjustment as provided in Section 4(c),
----------------
an aggregate of 35,000 shares of Stock may be delivered upon the exercise of
------
awards granted under the Plan, reduced by the sum of the aggregate number of
shares of Stock which become subject to outstanding options and SARs. To the
extent that shares of Stock subject to an outstanding option (except to the
extent shares of Stock are issued or delivered by the Company in connection with
the exercise of a tandem SAR) or independent SAR are not issued or delivered by
reason of the expiration, termination, cancellation or forfeiture of such option
or SAR or by reason of the delivery or withholding of shares of Stock to pay all
or a portion of the exercise price of an option, or to satisfy all or a portion
of the tax withholding obligations relating
-2-
<PAGE>
to such option or SAR, then such shares of Stock shall again be available under
the Plan.
(b) Shares to be Delivered. Shares delivered under the Plan shall be
----------------------
authorized but unissued Stock or, if the Board so decides in its sole
discretion, previously issued Stock acquired by the Company and held in its
treasury. No fractional shares of Stock shall be delivered under the Plan.
(c) Changes in Stock. In the event of a stock dividend, stock split or
----------------
combination of shares, recapitalization or other change in the Company's capital
stock, the number and kind of shares of Stock or securities of the Company
subject to awards then outstanding or subsequently granted under the Plan, the
exercise price of such awards, the maximum number of shares or securities that
may be delivered under the Plan, and other relevant provisions shall be
appropriately adjusted by the Board, whose determination shall be binding on all
persons.
The Board may also adjust the number of shares subject to outstanding
awards, the exercise price of outstanding awards and the terms of outstanding
awards, to take into consideration material changes in accounting practices or
principles, extraordinary dividends, consolidations or mergers, acquisitions or
dispositions of stock or property or any other event if it is determined by the
Board that such adjustment is appropriate to avoid distortion in the operation
of the Plan, provided that no such adjustment shall be made in the case of an
incentive option, without the consent of the participant, if it would constitute
a modification, extension or renewal of the option within the meaning of section
424(h) of the Code.
5. ELIGIBILITY FOR AWARDS
----------------------
Persons eligible to receive awards under the Plan shall be those employees,
consultants, directors or advisers who reside in California and who, in the
opinion of the Board, are in a position to make a significant contribution to
the success of the Company and its subsidiaries. A subsidiary for purposes of
the Plan shall be a corporation in which the Company owns, directly or
indirectly, stock possessing 50% or more of the total combined voting power of
all classes of stock.
Incentive options shall be granted only to "employees" as defined in the
provisions of the Code or regulations thereunder applicable to incentive stock
options.
6. TERMS AND CONDITIONS OF OPTIONS AND SARs
----------------------------------------
(a) Exercise Price of Options. The exercise price of each option shall be
-------------------------
determined by the Board but in the case of an incentive option shall not be less
than 100% (110%, in the case of an incentive option granted to a ten-percent
shareholder)
-3-
<PAGE>
of the fair market value of the Stock at the time the option is granted; nor
shall the exercise price be less, in the case of an original issue of authorized
stock, than par value. For this purpose, "fair market value" in the case of
incentive options shall have the same meaning as it does in the provisions of
the Code and the regulations thereunder applicable to incentive options; and
"ten-percent shareholder" shall mean any participant who at the time of grant
owns directly, or by reason of the attribution rules set forth in section 424(d)
of the Code is deemed to own, stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or of any of its
parent or subsidiary corporations.
(b) Duration of Options. The latest date on which an option may be
-------------------
exercised (the "Final Exercise Date") shall be the date which is ten years (five
years, in the case of an incentive option granted to a "ten-percent shareholder"
as defined in (a) above) from the date the option was granted or such earlier
date as may be specified in the instrument evidencing such option.
(c) Exercise of Options.
-------------------
(1) An option shall be exercisable at such time or times and upon such
terms and conditions as the Board shall specify. In the case of an
option not immediately exercisable in full, the Board may at any time
accelerate the time at which all or any part of the option may be
exercised.
(2) Any exercise of an option shall be in writing, signed by the proper
person and furnished to the Company, accompanied by (i) such documents
as may be required by the Company and (ii) payment in full as
specified below in Section 6(d) for the number of whole shares for
which the option is exercised.
(3) In the case of an option that is not an incentive option, the Company
shall have the right to require, prior to the delivery of any Stock
pursuant to the exercise of the option, that the participant
exercising the option remit to the Company an amount in cash or by
personal check, certified check, bank draft or money order payable to
the order of the Company sufficient to satisfy any federal, state or
local withholding tax requirements arising in connection with the
exercise of the option (the date such obligation arises being referred
to as the "Tax Date") (or make other arrangements satisfactory to the
Company with regard to such taxes). If specified in the instrument
evidencing an option or permitted by the Board, either at the time of
the grant of the option or the time of exercise, the participant may
elect, at such time and in such manner as the Board may prescribe, to
satisfy such withholding obligation by (i) delivery of an
unconditional and irrevocable undertaking by a broker to deliver
promptly to the Company sufficient funds to pay such
-4-
<PAGE>
withholding obligation, (ii) delivering to the Company whole shares of
Stock (which the participant has held for at least six months prior to
the delivery of such shares or acquired on the open market and for
which the participant has good title, free and clear of all liens and
encumbrances) having a fair market value, determined as of the Tax
Date, equal to such withholding obligation, or (iii) requesting that
the Company withhold from the shares of Stock to be delivered upon
exercise of the option a number of whole shares of Stock having a fair
market value, determined as of the Tax Date, equal to such withholding
obligation; provided, however, that the Company shall have sole
discretion to disapprove of an election pursuant to any of clauses
(i), (ii) or (iii) and that in the case of a participant who is
subject to Section 16 of the Exchange Act, the Company may require
that the method of satisfying such an obligation be in compliance with
Section 16 of the Exchange Act and the rules and regulations
thereunder. Stock may be delivered or withheld having an aggregate
fair market value in excess of the minimum amount required to be
withheld, but not in excess of the amount determined by applying the
participant's maximum marginal tax rate. Any fraction of a share of
Stock which would be required to satisfy such an obligation shall be
disregarded and the remaining amount due shall be paid in cash by the
participant.
In the case of an incentive option, if at the time the option is
exercised the Company determines that under applicable law and
regulations the Company could be liable for the withholding of any
federal, state or other tax with respect to a disposition of the Stock
received upon exercise, the Board may require as a condition of
exercise that the participant exercising the option agree (i) to
inform the Company promptly of any disposition (within the meaning of
section 424(c) of the Code and the regulations thereunder) of Stock
received upon exercise, and (ii) to give such security as the Company
deems adequate to meet the potential liability of the Company for the
withholding of tax, and to augment such security from time to time in
any amount reasonably deemed necessary by the Company to preserve the
adequacy of such security.
(4) If an option is exercised by the executor or administrator of a
deceased participant, or by the person or persons to whom the option
has been transferred by the participant's will or applicable laws of
descent and distribution or pursuant to any beneficiary designation
procedures established by the Company, the Company shall be under no
obligation to deliver Stock pursuant to such exercise until the
Company is satisfied as to the authority of the person or persons
exercising the option.
-5-
<PAGE>
(d) Payment for and Delivery of Stock. Stock purchased upon exercise of
---------------------------------
an option under the Plan shall be paid for as follows: (i) in cash or by
personal check, certified check, bank draft or money order payable to the order
of the Company or (ii) if specified in the instrument evidencing an option or
permitted by the Board (which, in the case of an incentive option, shall specify
such method of payment in the instrument evidencing the option), (A) through the
delivery of whole shares of Stock (which the participant has held for at least
six months prior to the delivery of such shares or acquired on the open market
and for which the participant has good title, free and clear of all liens and
encumbrances) having a fair market value on the last business day preceding the
date of exercise equal to the purchase price or (B) by delivery of a full
recourse promissory note of the participant to the Company, such note to be
payable on such terms as are specified by the Company or (C) by delivery of an
unconditional and irrevocable undertaking by a broker to deliver promptly to the
Company sufficient funds to pay the exercise price or (D) by any combination of
the permissible forms of payment. The Company shall have sole discretion to
disapprove of an election pursuant to any of clauses (A) - (D) and in the case
of a participant who is subject to Section 16 of the Exchange Act, the Company
may require that the method of making such payment be in compliance with Section
16 and the rules and regulations thereunder. Any fraction of a share of Stock
which would be required to pay such purchase price shall be disregarded and the
remaining amount due shall be paid in cash by the participant. No certificate
representing Stock shall be delivered until the full purchase price therefor has
been paid.
(e) Stock Appreciation Rights. The Board in its discretion may grant SARs
-------------------------
either in tandem with or independent of options awarded under the Plan. Except
as hereinafter provided, each SAR will entitle the participant to receive upon
exercise, with respect to each share of Stock to which the SAR relates, the
excess of (i) the share's value on the date of exercise, over (ii) the share's
fair market value on the date the SAR was granted. For purposes of clause (i),
"value" shall mean fair market value; provided that the Board may adjust such
value to take into account dividends on the Stock and may also grant SARs that
provide, in such limited circumstances following a change in control of the
Company (as determined by the Board) as the Board may specify, that "value" for
purposes of clause (i) is to be determined by reference to an average value for
the Stock during a period immediately preceding the change in control, all as
determined by the Board. The amount payable to a participant upon exercise of
an SAR shall be paid either in cash or in shares of Stock, as set forth in the
instrument evidencing such SAR or as the Board may otherwise determine. An SAR
shall be exercisable at such time or times and upon such terms and conditions as
the Board shall specify. The latest date on which an SAR may be exercised shall
be the date which is ten years from the date the SAR was granted or such earlier
date as may be specified in the instrument evidencing such SAR; provided,
however, that no tandem SAR shall be exercised later than the exercise,
expiration, cancellation, forfeiture or other termination of the related option.
-6-
<PAGE>
(f) Delivery of Stock. A participant shall not have the rights of a
-----------------
shareholder with regard to awards under the Plan except as to Stock actually
received by him under the Plan.
The Company shall not be obligated to deliver any shares of Stock (i)
until, in the opinion of the Company's counsel, all applicable federal and state
laws and regulations have been complied with, and (ii) if the outstanding Stock
is at the time listed on any stock exchange, until the shares to be delivered
have been listed or authorized to be listed on such exchange upon official
notice of issuance, and (iii) until all other legal matters in connection with
the issuance and delivery of such shares have been approved by the Company's
counsel. If the sale of Stock has not been registered under the Securities Act
of 1933, as amended, the Company may require, as a condition to exercise of the
award, such representations or agreements as counsel for the Company may
consider appropriate to avoid violation of such Act and may require that the
certificates evidencing such Stock bear an appropriate legend restricting
transfer.
(g) Nontransferability of Awards. No award may be transferred other than
----------------------------
(i) by will or by the laws of descent and distribution or pursuant to
beneficiary designation procedures approved by the Company or (ii) as otherwise
permitted under Rule 16b-3 under the Exchange Act as set forth in the instrument
evidencing such award. Except as permitted by the foregoing sentence, during a
participant's lifetime an award may be exercised only by him. Except as
permitted by the second preceding sentence, no option or SAR may be sold,
transferred, assigned, pledged, hypothecated, encumbered or otherwise disposed
of (whether by operation of law or otherwise) or be subject to execution,
attachment or similar process. Upon any attempt to so sell, transfer, assign,
pledge, hypothecate, encumber or otherwise dispose of any option or SAR, such
award and all rights thereunder shall immediately become null and void.
(h) Death. If a participant dies, each award held by the participant
-----
immediately prior to death may be exercised, to the extent it was exercisable
immediately prior to death, by his executor or administrator, or by the person
or persons to whom the award is transferred by will or applicable laws of
descent and distribution or pursuant to any beneficiary designation procedures
established by the Company, at any time within the period ending with the first
anniversary of the participant's death but in no event beyond the Final Exercise
Date or, in the case of an independent SAR, the expiration date of such SAR.
All awards held by a participant immediately prior to death that are not then
exercisable shall terminate on the date of death.
(i) Other Termination of Service. If an employee's employment with the
----------------------------
Company and its subsidiaries terminates for any reason, other than death, all
awards held by the employee that are not then exercisable shall terminate;
provided, that the
-7-
<PAGE>
Board in its sole discretion may provide (either prior to or following
termination) that any or all of such portion of an award which is not
exercisable immediately prior to termination shall be treated as having become
exercisable immediately prior to termination. Awards that are exercisable on the
date employment terminates for any reason other than death shall continue to be
exercisable for a period of three months (or such longer period as the Company
may determine, but in no event beyond the Final Exercise Date, or in the case of
an independent SAR, the expiration date of such SAR) unless the employee was
terminated for cause which in the opinion of the Board casts such discredit on
him as to justify termination of his awards. Subject to Section 6(h), after
completion of that three-month period such awards shall terminate to the extent
not previously exercised, expired or terminated. For purposes of this Section
6(i), employment shall not be considered terminated (i) in the case of sick
leave or other bona fide leave of absence approved for purposes of the Plan by
the Company, or (ii) in the case of a transfer of employment between the Company
and a subsidiary or between subsidiaries, or to the employment of a corporation
(or a parent or subsidiary corporation of such corporation) issuing or assuming
an award in a transaction to which section 424(a) of the Code applies.
In the case of a participant who is not an employee, provisions relating to
the exercisability of awards following termination of service for any reason
other than death shall be specified in the award. If not so specified, all
awards held by such participant that are not exercisable immediately prior to
termination of service for any reason other than death shall terminate upon
termination of service. Awards that are exercisable immediately prior to
termination of service as a consultant, director or adviser for any reason other
than death shall continue to be exercisable for a period of three months (or
such longer period as the Company may determine, but in no event beyond the
Final Exercise Date or, in the case of an independent SAR, the expiration date
of such SAR) unless the participant was terminated for cause which in the
opinion of the Board casts such discredit on him as to justify termination of
his awards. Subject to Section 6(h), after completion of that three-month
period such awards shall terminate to the extent not previously exercised,
expired or terminated.
(j) Acquisition Events. Upon the occurrence of an Acquisition Event (as
------------------
defined below), all outstanding awards shall terminate, provided that at least
10 days prior to the effective date of such Acquisition Event, the Board shall
either (i) make all outstanding awards exercisable immediately prior to
consummation of such Acquisition Event or (ii) if there is a surviving or
acquiring corporation, arrange, subject to consummation of the Acquisition
Event, to have that corporation or an affiliate of that corporation grant to
participants replacement awards which in the case of incentive options satisfy,
in the determination of the Board, the requirements of section 424(a) of the
Code. An "Acquisition Event" shall mean (i) any merger or consolidation
involving the Company other than a merger or consolidation after the
consummation of which the shareholders of the Company immediately prior to such
merger or consolidation own more than 50% of the outstanding voting securities
of
-8-
<PAGE>
the surviving corporation or of a corporation that owns, directly or indirectly,
all of the capital stock of such surviving corporation, (ii) any sale of all or
substantially all of the assets of the Company or (iii) the acquisition of more
than 50% of the outstanding voting securities of the Company by a single person
or entity or group of persons and/or entities acting in concert; provided,
however, that the following acquisitions shall not constitute an Acquisition
Event: (A) any acquisition by an employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation controlled by the
Company, or (B) any acquisition by R.R. Donnelley & Sons Company or any
affiliate (as defined under Regulation 12B under the Exchange Act) of R.R.
Donnelley & Sons Company.
The Board may grant awards under the Plan in substitution for awards held
by employees, consultants or advisers of another corporation who concurrently
become employees, consultants, directors or advisers of the Company or a
subsidiary of the Company as the result of a merger or consolidation of that
corporation with the Company or a subsidiary of the Company, or as the result of
the acquisition by the Company or a subsidiary of the Company of property or
stock of that corporation. The Company may direct that substitute awards be
granted on such terms and conditions as the Board considers appropriate in the
circumstances.
(k) Put and Call Rights. In the event of any (i) exercise by any
-------------------
stockholder of the Company of the Put Right set forth in the Company's Restated
Certificate of Incorporation or (ii) exercise by the Company of its Call Right
set forth in the Company's Restated Certificate of Incorporation, the following
provisions should apply to options then outstanding under this Plan. All
capitalized terms used in this Section 6(k) not otherwise defined in this Plan
shall have the respective meanings set forth in the Company's Restated
Certificate of Incorporation.
(A) Upon the exercise of the Put Right, holders of options shall be
entitled to sell all of the shares underlying such options, whether or not then
vested (the "Option Shares"), to the Company or the Designee at the Put Price
and shall be subject to the rights of the Company or the Designee to require the
sale of the Option Shares pursuant to the Mandatory Put, provided that the
--------
amount of the aggregate option price of such options shall be subtracted from
the aggregate Put Price payable to the holder of such options, and any amounts
payable with respect to then unvested Option Shares shall be deposited in escrow
pursuant to clause (C) below. The procedures relating to the exercise of the Put
Right and Mandatory Put, as set forth in the Company's Restated Certificate of
Incorporation, shall apply to the holders of options under this Plan and to
Option Shares to the same extent as they apply to B Holders and shares of Common
Stock under the Company's Restated Certificate of Incorporation.
(B) Upon the exercise of the Call Right, holders of options shall be
required and entitled to sell all of their Option Shares to the Company or the
Designee at the
-9-
<PAGE>
Call Price, provided that the amount of the aggregate option price of such
--------
options shall be subtracted from the aggregate Call Price payable to the holder
of such options, and any amounts payable with respect to then unvested Option
Shares shall be deposited in escrow pursuant to clause (C) below. The procedures
relating to the exercise of the Call Right, as set forth in the Company's
Restated Certificate of Incorporation, shall apply to the holders of options
under this Plan and to Option Shares to the same extent as they apply to B
Holders and shares of Common Stock under the Company's Restated Certificate of
Incorporation.
(C) The aggregate amount of the Put Price or Call Price, as the case may
be, that is payable to optionees with respect to then unvested Option Shares
shall be deposited, in cash, in a non-interest bearing escrow account for the
benefit of such optionees. Such escrow account shall be subject to the claims of
the Company's creditors. The amounts deposited in escrow for the benefit of
each optionee with respect to each unvested installment of his option shall be
released to such optionee, subject to the continued employment of the optionee
with the Company or any subsidiary thereof, at the time such unvested
installment would have become vested in accordance with the vesting schedule of
such option as in effect prior to the exercise of the Put Right or Call Right,
as the case may be (as such schedule may be modified by the terms of any
employment agreement between the Company and such optionee).
7. REPURCHASE RIGHTS
-----------------
(a) Upon any termination of employment or service of an optionee with the
Company and its subsidiaries, the Company shall have the right to purchase, for
cash, shares of Stock issued or issuable upon exercise of awards granted
hereunder to the extent such awards were previously exercised or are exercisable
at the time of termination ("Vested Shares"), upon the terms set forth below:
(i) Termination for Any Reason Other Than Cause. If the termination
-------------------------------------------
of employment or service of the optionee is for any reason other than Cause
(as defined below), the Company shall have the right to purchase: (A) from
any holder of an award granted hereunder and covering less than 2,000
shares of Stock (as adjusted for stock splits, stock dividends and similar
events), all then Vested Shares, and (B) from any other holder of an award
granted hereunder, no Vested Shares if termination occurs on or prior to
the second anniversary of the date of grant; up to 45% of the Vested Shares
if termination occurs after the second anniversary and prior to or on the
third anniversary of the date of grant; up to 35% of the Vested Shares if
termination occurs after the third anniversary of the date of grant and
prior to or on the fourth anniversary of the date of grant; and up to 25%
of the Vested Shares if termination occurs thereafter. The purchase price
for the Vested Shares purchased by the Company shall equal the Fair Value
(as defined below)
-10-
<PAGE>
thereof at the time of termination.
(ii) Termination for Cause. If the termination of employment or
---------------------
service of the optionee is by the Company for Cause (as defined below), the
Company shall have the right to purchase all of the then Vested Shares at a
price equal to the amount paid by the optionee for the Vested Shares (less,
in the case of unexercised options, the exercise price).
(b) The repurchase rights of the Company set forth in Section 7(a) shall
terminate upon the earlier of (i) the registration of any class of Common Stock
of the Company under the Securities Exchange Act of 1934, or (ii) the closing of
the initial public offering of shares of Common Stock of the Company under the
Securities Act of 1933.
(c) The Company must exercise its purchase rights under this Section 7, by
written notice to the optionee, within 90 days after the termination of
employment or service. The closing of any purchase pursuant to this Section 7
shall take place as soon as reasonably practicable at the principal office of
the Company, or at such other time and location as the parties to such purchase
may mutually determine. At the closing, the holder of the Vested Shares, or
award therefor, to be sold shall deliver to the Company a certificate
representing such Vested Shares or award, duly endorsed for transfer, and the
Company shall pay the purchase price therefor, by check or wire transfer.
(d) As used in this Section 7, the following terms shall have the
following meanings:
(i) "Cause" shall mean: (i) fraud, embezzlement or other act of dishonesty
-----
by the optionee with respect to the Company that causes material injury to
the Company, or (ii) conviction of, or plea of nolo contendere to, any
felony involving dishonesty or moral turpitude.
(ii) "Fair Value" shall have the meaning set forth in the Restated
----------
Certificate of Incorporation of the Company, as in effect on the date of
adoption of this Plan, as determined in good faith by the Board of
Directors of the Company; provided, however, that in the event of a
-----------------
repurchase by the Company of Vested Shares from any holder of an award
granted hereunder and initially covering 2,000 or more shares of Stock (as
adjusted for stock splits, stock dividends and similar events) (a "Major
Holder"), the determination of Fair Value shall be subject to mutual
agreement of the Company and such Major Holder. Absent such an agreement,
Fair Value shall be determined by calculating the average of the sum of the
determinations of Fair Value made by two independent nationally recognized
investment banking firms, one of which shall be retained by the Company and
one of which shall be retained by
-11-
<PAGE>
the Major Holder. However, if the determinations of Fair Value of such two
firms differ from one another by more than 15%, the Company and such Major
Holder shall mutually select a third independent investment banking firm to
make a final determination of Fair Value with respect to the Vested Shares
then being repurchased by the Company.
8. EMPLOYMENT RIGHTS
-----------------
Neither the adoption of the Plan nor the grant of awards shall confer upon
any participant any right to continue as an employee or director of, or
consultant or adviser to, the Company or any parent or subsidiary or affect in
any way the right of the Company or parent or subsidiary to terminate such
participant at any time. Except as specifically provided by the Board in any
particular case, the loss of existing or potential profit in awards granted
under this Plan shall not constitute an element of damages in the event of
termination of the relationship of a participant even if the termination is in
violation of an obligation of the Company to the participant by contract or
otherwise.
9. EFFECT, DISCONTINUANCE, CANCELLATION, AMENDMENT AND TERMINATION
---------------------------------------------------------------
Neither adoption of the Plan nor the grant of awards to a participant shall
affect the Company's right to make awards to such participant that are not
subject to the Plan, to issue to such participant Stock as a bonus or otherwise,
or to adopt other plans or arrangements under which Stock may be issued.
The Board may at any time discontinue granting awards under the Plan. With
the consent of the participant, the Board may at any time cancel an existing
award in whole or in part and grant another award for such number of shares as
the Board specifies. The Board may at any time or times amend the Plan or any
outstanding award for the purpose of satisfying the requirements of section 422
of the Code or of any changes in applicable laws or regulations or for any other
purpose that may at the time be permitted by law, or may at any time terminate
the Plan as to any further grants of awards, provided that (except to the extent
expressly permitted by the Plan) no such amendment shall, without the approval
of the shareholders of the Company, effectuate a change for which shareholder
approval is required by law, rule or regulation or in order for the Plan to
continue to qualify under Rule 16b-3 (if applicable), and no such amendment
shall adversely affect the rights of any participant (without his consent) under
any award previously granted.
-12-
<PAGE>
EXHIBIT A to
1995 California Stock Option Plan
---------------------------------
STREAM INTERNATIONAL INC.
1995 CALIFORNIA STOCK OPTION PLAN
Non - Incentive Option Certificate
----------------------------------
Stock option granted by Stream International Inc., a Delaware corporation
(the "Company"), to [NAME OF OPTIONEES] (the "Optionee"), pursuant to the
Company's 1995 California Stock Option Plan (the "Plan"). All initially
capitalized terms not otherwise defined herein shall have the meaning provided
in the Plan.
1. Grant of Option
---------------
This certificate evidences the grant by the Company on _____________ 199__
to the Optionee of an option to purchase, in whole or in part, on the terms
provided herein and in the Plan, a total of _________ shares of Class A Common
Stock of the Company (the "Shares") at a purchase price of $[____] per Share.
The latest date on which this option may be exercised (the "Final Exercise
Date") is [_______]. The option evidenced by this certificate is not an
incentive stock option.
This option is exercisable in the installments indicated on Schedule 1
hereto.
This option shall become null and void unless the Optionee shall accept
this certificate by executing it in the space provided below and returning such
original execution copy to the Secretary of the Company.
2. Exercise of Option.
------------------
Each election to exercise this option shall be in writing, signed by the
Optionee or by his/her executor or administrator or by the person or persons to
whom this option is transferred by will or applicable laws of descent and
distribution or pursuant to any beneficiary designation procedures established
by the Company (the "Legal Representative"), and received by the Secretary of
the Company at its principal office, accompanied by payment in full and by such
additional documentation evidencing the right to exercise (or, in the case of a
Legal Representative, of the authority of such person) as the Company may
require. The purchase price may be paid (i) in cash or by personal check,
certified check, bank draft or money order payable to the order of the Company,
(ii) through the delivery of whole shares of Class A Common Stock of the Company
(which the Optionee has held for at least six months prior to the delivery of
such shares or acquired on the open market and for which the participant has
good title, free and clear of all liens and encumbrances)
<PAGE>
having a fair market value on the last business day preceding the date of
exercise equal to the exercise price, (iii) by delivery of an unconditional and
irrevocable undertaking by a broker to deliver to the Company promptly upon the
settlement of the sale of the Shares to be issued sufficient funds to pay the
exercise price, or (iv) by any combination of the permissible forms of payment.
The Company shall have sole discretion to disapprove of an election pursuant to
any of clauses (ii), (iii) or (iv) and in the event the Optionee is subject to
Section 16 of the Exchange Act, the Company may require that the method of
making such payment be in compliance with Section 16 and the rules and
regulations thereunder. Any fraction of a share of Class A Common Stock which
would be required to pay such purchase price shall be disregarded and the
remaining amount due shall be paid in cash by the Optionee. No certificate
representing Shares shall be delivered until the full purchase price therefor
has been paid.
3. Restrictions on Transfer
------------------------
Certificates evidencing any Shares purchased by the Optionee upon exercise
of options granted hereby shall bear the legends required by the Company's
Restated Certificate of Incorporation, and the following legend:
"The shares of stock represented by this certificate are subject to
repurchase rights of the Company set forth in its 1995 California Stock
Option Plan."
4. Withholding
-----------
No Shares will be transferred pursuant to the exercise of this option
unless and until the person exercising this option shall have remitted to the
Company an amount sufficient to satisfy any federal, state or local withholding
tax requirements arising in connection with the option, or shall have made other
arrangements satisfactory to the Company with respect to such taxes. Any such
withholding tax requirements may be satisfied by (i) making a payment in cash or
by personal check, certified check, bank draft or money order payable to the
order of the Company, (ii) delivery of an unconditional and irrevocable
undertaking by a broker to deliver to the Company promptly upon the settlement
of the sale of the Shares to be issued sufficient funds to pay the exercise
price, (iii) delivery of whole shares of Class A Common Stock of the Company
(which the Optionee has held for at least six months prior to the delivery of
such shares or acquired on the open market and which the participant has good
title, free and clear of all liens and encumbrances) having a fair market value,
determined as of the Tax Date, equal to such withholding obligation or (iv)
requesting that the Company withhold from the Shares to be delivered upon the
exercise a number of Shares having a fair market value, determined as of the Tax
Date, equal to such withholding obligation; provided, however, that the Company
shall have sole discretion to disapprove of an election pursuant to any of
clauses (ii), (iii) or (iv) and that in event the Optionee is subject to Section
16 of the Exchange
A-2
<PAGE>
Act, the Company may require that the method of satisfying such an obligation be
in compliance with Section 16 of the Exchange Act and the rules and regulations
thereunder. Stock may be delivered or withheld having an aggregate fair market
value in excess of the minimum amount required to be withheld, but not in excess
of the amount determined by applying the Optionee's maximum marginal tax rate.
Any fraction of a Share which would be required to satisfy such an obligation
shall be disregarded and the remaining amount due shall be paid in cash by the
Optionee.
5. Status Change
-------------
Upon the Optionee's termination of employment with the Company or any
subsidiary thereof for any reason, this option shall terminate as to any Shares
for which it was not exercisable immediately prior to termination; provided
--------
that the Board or Committee in its sole discretion may provide (either prior to
or following termination) that any or all of such portion of this option which
is not exercisable immediately prior to termination shall be treated as having
become exercisable immediately prior to termination. As to that number of Shares
for which this option was exercisable (or deemed exercisable by action of the
Board or Committee) immediately prior to termination, it shall remain
exercisable as follows:
(i) if termination occurs for any reason other than death, for a period
of three months following the date of termination, except as provided
in clause (ii) below (but in no event beyond the Final Exercise
Date), or
(ii) following death, including death during the three-month period
following termination of employment for any reason other than death,
for a period of twelve months thereafter, but not beyond the Final
Exercise Date.
Notwithstanding the foregoing, if the Optionee is terminated for cause (as
provided in the Plan), this option shall immediately terminate as to all Shares
subject to this option.
6. Nontransferability of Option.
----------------------------
This option is not transferable by the Optionee other than by will or the
laws of descent and distribution or pursuant to beneficiary designation
procedures approved by the Company. During the Optionee's lifetime this option
may be exercised only by the Optionee. Except as permitted by the second
preceding sentence, this option may not be sold, transferred, assigned, pledged,
hypothecated, encumbered or otherwise disposed of (whether by operation of law
or otherwise) or be subject to execution, attachment or similar process. Upon
any attempt to so sell, transfer, assign, pledge, hypothecate, encumber or
otherwise dispose of this option, any and all rights hereunder shall immediately
become null and void.
A-3
<PAGE>
7. Provisions of the Plan.
----------------------
This option is subject in its entirety to the provisions of the Plan, a
copy of which is furnished to the Optionee with this option.
8. Notices.
-------
All notices, requests or other communications provided for in this
certificate shall be made, if to the Company, to 2 Edgewater Drive, Norwood,
Massachusetts 02062 (Fax No.: (617) 440-7070) and if to the Optionee, at his or
her address on the records of the Company. All notices, requests or other
communications provided for in this certificate shall be made in writing either
(a) by personal delivery to the party entitled thereto, (b) by facsimile with
confirmation of receipt, (c) by mailing in the United States mails to the last
known address of the party entitled thereto or (d) by express courier service.
The notice, request or other communication shall be deemed to be received upon
personal delivery, upon confirmation of receipt of facsimile transmission or
upon receipt by the party entitled thereto if by United States mail or express
courier service; provided, however, that if a notice, request or other
communication is not received during regular business hours, it shall be deemed
to be received on the next succeeding business day of the Company.
9. Governing Law.
-------------
This option, this certificate, and all determinations made and actions
taken pursuant hereto and thereto, to the extent not governed by the laws of the
United States, shall be governed by the laws of the State of Delaware and
construed in accordance therewith without giving effect to principles of
conflicts of laws.
A-4
<PAGE>
IN WITNESS WHEREOF, the Company has caused this option to be executed under
its corporate seal by its duly authorized officer. This option shall take effect
as a sealed instrument.
STREAM INTERNATIONAL INC.
By: __________________________________
[NAME AND TITLE]
Date:_________________________________
Accepted:
__________________________
Print Name of Employee
__________________________
(Signature)
A-5
<PAGE>
Schedule 1 to
Non-Incentive Option Certificate
under
1995 California Stock Option Plan
---------------------------------
A-6
<PAGE>
EXHIBIT B to
1995 California Stock Option Plan
---------------------------------
STREAM INTERNATIONAL INC.
1995 CALIFORNIA STOCK OPTION PLAN
Incentive Option Certificate
----------------------------
Stock option granted by Stream International Inc., a Delaware corporation
(the "Company"), to [NAME OF OPTIONEE] (the "Optionee"), pursuant to the
Company's 1995 California Stock Option Plan (the "Plan"). All initially
capitalized terms not otherwise defined herein shall have the meaning provided
in the Plan.
1. Grant of Option
---------------
This certificate evidences the grant by the Company on __________, 199__,
to the Optionee of an option to purchase, in whole or in part, on the terms
provided herein and in the Plan, a total of _________ shares of Class A Common
Stock of the Company (the "Shares") at a purchase price of $[_____] per Share.
The latest date on which this option may be exercised (the "Final Exercise
Date") is [______]. The option evidenced by this certificate is an incentive
stock option.
This option is exercisable in the installments indicated on Schedule 1
hereto.
This option shall become null and void unless the Optionee shall accept
this certificate by executing it in the space provided below and returning such
original execution copy to the Secretary of the Company.
2. Exercise of Option.
------------------
Each election to exercise this option shall be in writing, signed by the
Optionee or by his/her executor or administrator or by the person or persons to
whom this option is transferred by will or the applicable laws of descent and
distribution or pursuant to any beneficiary designation procedures established
by the Company (the "Legal Representative"), and received by the Secretary of
the Company at its principal office, accompanied by payment in full and by such
additional documentation evidencing the right to exercise (or, in the case of a
Legal Representative, of the authority of such person) as the Company may
require. The purchase price may be paid (i) in cash or by personal check,
certified check, bank draft or money order payable to the order of the Company,
(ii) through the delivery of whole shares of Class A Common Stock of the Company
(which the Optionee has held for at least six months prior to the delivery of
such shares or acquired on the open market and for
<PAGE>
which the participant has good title, free and clear of all liens and
encumbrances) having a fair market value on the last business day preceding the
date of exercise equal to the exercise price, (iii) by delivery of an
unconditional and irrevocable undertaking by a broker to deliver to the Company
promptly upon the settlement of the sale of the Shares to be issued sufficient
funds to pay the exercise price, or (iv) by any combination of the permissible
forms of payment. The Company shall have sole discretion to disapprove of an
election pursuant to any of clauses (ii), (iii) or (iv) and in the event the
Optionee is subject to Section 16 of the Exchange Act, the Company may require
that the method of making such payment be in compliance with Section 16 and the
rules and regulations thereunder. Any fraction of a share of Class A Common
Stock which would be required to pay such purchase price shall be disregarded
and the remaining amount due shall be paid in cash by the Optionee. No
certificate representing Shares shall be delivered until the full purchase price
therefor has been paid.
3. Restrictions on Transfer
------------------------
Certificates evidencing any Shares purchased by the Optionee upon exercise
of options granted hereby shall bear the legends required by the Company's
Restated Certificate of Incorporation, and the following legend:
"The shares of stock represented by this certificate are subject to
repurchase rights of the Company set forth in its 1995 California Stock
Option Plan."
4. Withholding
-----------
No Shares will be transferred pursuant to the exercise of this option
unless and until the person exercising this option shall have satisfied all
conditions established by the Board pursuant to Section 6(c)(3) of the Plan.
5. Status Change
-------------
Upon the Optionee's termination of employment with the Company or any
subsidiary thereof for any reason, this option shall terminate as to any Shares
for which it was not exercisable immediately prior to termination; provided,
that the Board or Committee in its sole discretion may provide (either prior to
or following termination) that any or all of such portion of this option which
is not exercisable immediately prior to termination shall be treated as having
become exercisable immediately prior to termination. As to that number of Shares
for which this option was exercisable (or deemed exercisable by action of the
Board or Committee) immediately prior to termination, it shall remain
exercisable as follows:
B-2
<PAGE>
(i) if termination occurs for any reason other than death for a period
of three months following the date of termination, except as
provided in clause (ii) below (but in no event beyond the Final
Exercise Date), or
(ii) following death, including death during the three-month period
following termination of employment for any reason other than death,
for a period of twelve months thereafter, but not beyond the Final
Exercise Date.
Notwithstanding the foregoing, if the Optionee is terminated for cause (as
provided in the Plan), this option shall immediately terminate as to all Shares
subject to this option.
6. Nontransferability of Option.
----------------------------
This option is not transferable by the Optionee other than by will or the
laws of descent and distribution or pursuant to beneficiary designation
procedures approved by the Company. During the Optionee's lifetime this option
may be exercised only by the Optionee. Except as permitted by the second
preceding sentence, this option may not be sold, transferred, assigned, pledged,
hypothecated, encumbered or otherwise disposed of (whether by operation of law
or otherwise) or be subject to execution, attachment or similar process. Upon
any attempt to so sell, transfer, assign, pledge, hypothecate, encumber or
otherwise dispose of this option and all rights hereunder shall immediately
become null and void.
7. Provisions of the Plan.
----------------------
This option is subject in its entirety to the provisions of the Plan, a
copy of which is furnished to the Optionee with this option.
8. Notices.
-------
All notices, requests or other communications provided for in this
certificate shall be made, if to the Company, to 2 Edgewater Drive, Norwood,
Massachusetts 02062 (`Fax No.: (617) 440-7070) and if to the Optionee, at his or
her address on the records of the Company. All notices, requests or other
communications provided for in this certificate shall be made in writing either
(a) by personal delivery to the party entitled thereto, (b) by facsimile with
confirmation of receipt, (c) by mailing in the United States mails to the last
known address of the party entitled thereto or (d) by express courier service.
The notice, request or other communication shall be deemed to be received upon
personal delivery, upon confirmation of receipt of facsimile transmission or
upon receipt by the party entitled thereto if by United States mail or express
courier service; provided, however, that if a notice, request or other
communication is not received during regular business bonus, it shall be deemed
to
B-3
<PAGE>
be received on the next succeeding business day of the Company.
9. Governing Law.
-------------
This option, this certificate, and all determinations made and actions
taken pursuant hereto and thereto, to the extent not governed by the laws of the
United States, shall be governed by the laws of the State of Delaware and
construed in accordance therewith without giving effect to principles of
conflicts of laws.
IN WITNESS WHEREOF, the Company has caused this option to be executed under
its corporate seal by its duly authorized officer. This option shall take effect
as a sealed instrument.
STREAM INTERNATIONAL INC.
By: _____________________
Name:
Title:
Date:_________________________
Accepted:
__________________________
Print Name of Employee
__________________________
(Signature)
B-4
<PAGE>
Schedule 1 to
Incentive Option Certificate
under
1995 California Stock Option Plan
---------------------------------
B-5
<PAGE>
STREAM INTERNATIONAL, INC.
FIRST AMENDMENT TO 1995 CALIFORNIA STOCK OPTION PLAN
RESOLVED: That the 1995 California Stock Option Plan of Stream International,
Inc. be amended as follows:
1. Section 6(k) of the Plan is hereby amended to read in its entirety as
follows:
"(k) Put and Call Rights. In the event of any (i) exercise by any
stockholder of the Company of the Put Right set forth in the Company's
Restated Certificate of Incorporation or (ii) exercise by the Company of
its Call Right set forth in the Company's Restated Certificate of
Incorporation, the following provisions should apply to options then
outstanding under this Plan. All capitalized terms used in this Section
6(k) not otherwise defined in this Plan shall have the respective meanings
set forth in the Company's Restated Certificate of Incorporation.
(A) Upon the exercise of the Put Right, holders of options and
holders of shares of Stock issued upon exercise of options shall be
entitled to sell all of the shares underlying such options or issued upon
exercise thereof, whether or not then vested (the "Option Shares"), to R.R.
Donnelley & Sons Company ("RRD") or the Designee at the Put Price and shall
be subject to the rights of RRD or the Designee to require the sale of the
Option Shares pursuant to the Mandatory Put, provided that the amount of
the aggregate option price of such options shall be subtracted from the
aggregate Put Price payable to the holder of such options, and any amounts
payable with respect to then unvested Option Shares shall be deposited in
escrow pursuant to clause (c) below. The procedures relating to the
exercise of the Put Right and Mandatory Put, as set forth in the Company's
Restated Certificate of Incorporation, shall apply to the holders of
options under this Plan and to Option Shares to the same extent as they
apply to B Holders and shares of Common Stock under the Company's Restated
Certificate of Incorporation.
(B) Upon the exercise of the Call Right, holders of options and
holders of shares of Stock issued upon exercise of options shall be
required and entitled to sell all of their Option Shares to the Company or
the Designee at the Call Price, provided that the amount of the aggregate
option price of such options shall be subtracted from the
B-6
<PAGE>
aggregate Call Price payable to the holder of such options, and any amounts
payable with respect to then unvested Option Shares shall be deposited in
escrow pursuant to clause (C) below. The procedures relating to the
exercise of the Call Right, as set forth in the Company's Restated
Certificate of Incorporation, shall apply to the holders of options under
this Plan and to Option Shares to the same extent as they apply to B
Holders and shares of Common Stock under the Company's Restated Certificate
of Incorporation.
(C) The aggregate amount of the Put Price or Call Price, as the case
may be, that is payable to optionees with respect to then unvested Option
Shares shall be deposited, in cash, in a non-interest bearing escrow
account for the benefit of such optionees. Such escrow account shall be
subject to the claims of the Company's creditors. The amounts deposited in
escrow for the benefit of each optionee with respect to each unvested
installment of his option shall be released to such optionee, subject to
the continued employment of the optionee with the Company or any subsidiary
thereof, at the time such unvested installment would have become vested in
accordance with the vesting schedule of such option as in effect prior to
the exercise of the Put Right or Call Right, as the case may be (as such
schedule may be modified by the terms of any employment agreement between
the Company and such optionee)."
2. The following Section 10 added to the Plan:
"10. Certain Restrictions.
If an optionee desires to Transfer (as defined in the Certificate of
Incorporation of the Company) or Involuntarily Transfers any shares of Stock
issued upon exercise of options granted under this Plan, the optionee shall
comply with, and be subject to, the restrictions on transfer, first offer rights
and first refusal rights set forth in Sections A, B, C and D of Article FIFTH of
the Certificate of Incorporation of the Company. For purposes of such Sections
A, B, C and D, the optionee shall be considered a "B Holder."
EFFECTIVE DECEMBER 31, 1995.
B-7
<PAGE>
Exhibit 10.17
STREAM INTERNATIONAL HOLDINGS INC.
Form of Management Retention Agreement
--------------------------------------
[ADDRESS OF MANAGEMENT PERSON APPEARS HERE]
Dear _____:
Stream International Holdings Inc. (the "Company") recognizes that, as is
the case with many corporations, the possibility of a change in control may
exist and that such possibility, and the uncertainty and questions which it may
raise among key personnel, may result in the departure or distraction of key
personnel to the detriment of the Company, its stockholders and its customers.
The Board of Directors of the Company (the "Board") has determined that
appropriate steps should be taken to reinforce and encourage the continued
attention and dedication of the Company's key personnel, including yourself, to
their assigned duties without distraction in the face of potentially disturbing
circumstances arising from the possibility of a change in control of the
Company.
In order to induce you to remain in its employ, the Company agrees that you
shall receive the severance benefits set forth in this letter agreement (the
"Agreement") in the event your employment with the Company is terminated under
the circumstances described below subsequent to a "Change in Control" of the
Company (as defined below).
1. Certain Definitions.
-------------------
As used herein, the following terms shall have the following respective
meanings:
(a) A "Change in Control" shall occur or be deemed to have occurred only if
-----------------
any of the following events occur:
(i) any "person," as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), (other
than the Company, any trustee or other fiduciary holding securities under an
employee benefit plan of the Company, any corporation owned directly or
indirectly by the stockholders of the Company in substantially the same
proportion as their ownership of stock of the Company or an Exempt Person) is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing 30% or
more of the combined voting power of the Company's then outstanding securities;
<PAGE>
(ii) the stockholders of the Company approve a merger or consolidation
of the Company with any other corporation, other than (A) a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 50% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation or (B) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in which no
person (as hereinabove defined), other than a person holding more than 50% of
the combined voting power of the Company's then outstanding securities
immediately prior to such recapitalization, acquires more than 50% of the
combined voting power of the Company's then outstanding securities;
(iii) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets, excluding any
disposition to a corporation of which 50% or more of the voting securities are
held by the Company or the stockholders of the Company immediately prior to the
disposition.
(iv) RRD, together with its affiliates, ceases to be beneficial owner
of at least 30% of the combined voting power of the Company's then outstanding
securities provided that such event is not the result of an initial public
offering of the Company's stock.
(v) the closing of any of the events referred to in clauses (i), (ii)
or (iii) below regardless of what sequence:
(i) sale or other disposition of outsourced technical support
business;
(ii) sale or other disposition of the outsourced manufacturing
business, including a joint venture in which the Company or the stockholders of
the Company hold less than 60% of the voting interest immediately prior to the
disposition; and
(iii) sale or other disposition of Corporate Technologies
business.
(vi) RRD, together with affiliates, becomes the beneficial owner of at
least 90% of the combined voting power of the Company's then outstanding
securities provided that such event is not the result of an initial public
offering of the Company's stock.
2
<PAGE>
(b) "Cause" shall mean (i) an intentional act of fraud, embezzlement or
-----
theft in connection with your duties to the Company or in the course of your
employment with the Company, or (ii) your willful engaging in gross misconduct
which is demonstrably and materially injurious to the Company. For purposes of
this Subsection, no act or failure to act on your part shall be deemed "willful"
unless done or omitted to be done by you not in good faith and without
reasonable belief that your action or omission was in the best interest of the
Company.
(c) "Date of Termination" shall have the meanings set forth in Section
-------------------
3(c).
(d) "Disability" shall be deemed to have occurred if, as a result of
----------
incapacity due to physical or mental illness, you shall have been absent from
the full-time performance of your duties with the Company for six (6)
consecutive months and, within thirty (30) days after written Notice of
Termination by reason of disability is given to you, you shall not have returned
to the full-time performance of your duties.
(e) "Exempt Person" means RRD or any affiliate thereof, provided that RRD
-------------
shall cease to be an Exempt Person if and when, following a Change in Control
(as defined in Section 1(a) but substituting RRD for the "Company" as used
therein) of RRD directly or indirectly, acquires beneficial ownership of any
additional shares of the Company's capital stock.
(f) "Good Reason" shall mean, without your express written consent, the
-----------
occurrence after a Change in Control of the Company of any of the following
circumstances unless, in the case of paragraphs (A), (C), (D), (F) or (G), such
circumstances are fully corrected prior to the Date of Termination specified in
the Notice of Termination given in respect thereof:
(A) any significant diminution in your position, duties,
responsibilities, power, title or office as in effect immediately prior to a
Change in Control;
(B) any reduction in your annual base salary as in effect on the date
hereof or as the same may be increased from time to time;
(C) the failure by the Company to (i) continue in effect any material
compensation or benefit plan in which you participate immediately prior to the
Change in Control, unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan) has been made with respect to such plan, (ii)
continue your participation therein (or in such substitute or alternative plan)
on a basis not materially less favorable, both in terms of the amount of
benefits provided and the level of your participation relative to other
participants, as existed at the time of the Change in Control or (iii) award
cash bonuses to you in amounts and in a manner
3
<PAGE>
substantially consistent with past practice in light of the Company's financial
performance;
(D) the failure by the Company to continue to provide you with
benefits substantially similar to those enjoyed by you under any of the
Company's life insurance, medical, health and accident, or disability plans in
which you were participating at the time of the Change in Control, the taking of
any action by the Company which would directly or indirectly materially reduce
any of such benefits, or the failure by the Company to provide you with the
number of paid vacation days to which you are entitled on the basis of years of
service with the Company in accordance with the Company's normal vacation policy
in effect at the time of the Change in Control;
(E) any requirement by the Company or of any person in control of the
Company that (i) the location at which you perform your principal duties for the
Company be changed to a new location that is outside a radius of 35 miles from
your principal residence at the time of the Change in Control or (ii) you travel
on an overnight basis more than 90 days in any consecutive 12-month period;
(F) the failure of the Company to obtain a reasonably satisfactory
agreement from any successor to assume and agree to perform this Agreement, as
contemplated in Section 5;
(G) any purported termination of your employment which is not effected
pursuant to a Notice of Termination satisfying the requirements of Section 3(b),
which purported termination shall not be effective for purposes of this
Agreement.
(g) "Notice of Termination" shall have the meaning set forth in Section
---------------------
3(b).
(h) "Severance Payments" shall have the meaning set forth in Section
------------------
4(c)(ii).
(i) "Term" shall have the meaning set forth in Section 2.
----
2. Term of the Agreement.
---------------------
The term of this Agreement (the "Term") shall commence as of the date
hereof and shall continue in effect through December 31, 1998; provided,
however, that commencing on January 1, 1999 and each January 1 thereafter, the
Term shall be automatically extended for one additional year unless, not later
than November 30 of the preceding calendar year, the Company shall have given
you written notice that the Term will not be extended; and provided further
that, if a Change in Control of the Company shall have occurred during the
original or extended Term, this Agreement shall continue in effect for a period
of not less than twenty-four (24)
4
<PAGE>
months beyond the month in which such Change in Control occurred.
3. Employment Status; Termination Following Change in Control.
----------------------------------------------------------
(a) No benefits shall be payable under this Agreement unless there has been
a Change in Control of the Company during the Term. You acknowledge that this
Agreement does not constitute a contract of employment or impose on the Company
any obligation to retain you as an employee. You may terminate your employment
at any time, with or without Good Reason. If your employment with the Company
terminates for any reason and subsequently a Change in Control shall have
occurred, you shall not be entitled to any benefits hereunder.
(b) Any termination of your employment by the Company or by you following a
Change in Control of the Company during the Term shall be communicated by
written notice of termination that indicates that specific provision in this
Agreement relied upon and sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of your employment
under the provision so indicated ("Notice of Termination"). A Notice of
Termination shall be delivered to the other party hereto in accordance with
Section 6.
(c) The "Date of Termination" shall mean (i) if your employment is
terminated for Disability, thirty (30) days after Notice of Termination is given
(provided that you shall not have returned to the full-time performance of your
duties during such thirty (30) day period), and (ii) if your employment is
terminated by the Company for Cause, by you for Good Reason or for any other
reason (other than Disability), the date specified in the Notice of Termination
(which, in the case of a termination for Cause, shall not be less than thirty
(30) days from the date such Notice of Termination is given and in the case of a
termination for Good Reason shall not be less than fifteen (15) nor more than
sixty (60) days from the date such Notice of Termination is given); provided,
however, that if within fifteen (15) days after any Notice of Termination is
given, or, if later, prior to the Date of Termination (as determined without
regard to this proviso), the party receiving such Notice of Termination notifies
the other party that a dispute exists concerning the termination, then the Date
of Termination shall be the date on which the dispute is finally determined,
either by mutual written agreement of the parties, by a binding arbitration
award, or by a final judgment, order or decree of a court of competent
jurisdiction (which is not appealable or with respect to which the time for
appeal therefrom has expired and no appeal has been perfected); and provided,
further, that the Date of Termination shall be extended by a notice of dispute
only if such notice is given in good faith and the party giving such notice
pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Company will continue to
pay you for your full compensation in effect when the notice giving rise to the
dispute was given (including, but not limited to, base salary) and continue you
as a participant in all compensation, benefit and
5
<PAGE>
insurance plans in which you were participating when the notice giving rise to
the dispute was given, until the dispute is finally resolved in accordance with
this Subsection.
(d) You shall be entitled to the benefits provided in Section 4 if a Change
in Control shall have occurred during the Term and your employment with the
Company is subsequently terminated or terminates within twenty-four (24) months
after such Change in Control, unless such termination is (A) because of your
death, (B) by the Company for Disability or Cause, or (C) by you other than for
Good Reason.
(e) Your right to terminate your employment for Good Reason shall not be
affected by your incapacity due to physical or mental illness. Your continued
employment shall not constitute consent to, or a waiver of rights with respect
to, any circumstance constituting Good Reason under this Agreement.
4. Compensation Upon Termination. Following a Change in Control of the
-----------------------------
Company, you shall be entitled to the following benefits during a period of
disability, or upon termination of your employment, as the case may be, provided
that such period or termination occurs during the Term and provided that this
compensation is in lieu of and not in addition to any compensation otherwise
available to you under a Company Severance Policy or an Employment Agreement, as
the case may be:
(a) Disability. During any period that you fail to perform your full-time
----------
duties with the Company as a result of incapacity due to physical or mental
illness, you shall continue to receive base salary and all other earned
compensation at the rate in effect at the commencement of any such period
(offset by all compensation payable to you under the Company's disability plan
or program or other similar plan during such period) until your employment is
terminated by reason of Disability. Thereafter, or in the event your employment
is terminated by reason of death, your benefits shall be determined under the
Company's long-term disability, retirement, insurance and other compensation
programs then in effect in accordance with the terms of such programs.
(b) Cause and Voluntary Termination other than for Good Reason. If your
----------------------------------------------------------
employment shall be terminated by the Company for Cause or by you other than for
Good Reason following a Change in Control, the Company shall pay you your full
base salary and all other compensation through the Date of Termination at the
rate in effect at the time the Notice of Termination is given, plus all other
amounts to which you are entitled under any compensation plan of the Company at
the time such payments are due, and the Company shall have no further
obligations to you under this Agreement.
6
<PAGE>
(c) Termination Without Cause; Voluntary Termination for Good Reason. If
----------------------------------------------------------------
your employment with the Company is terminated by the Company (other than for
Cause, Disability or your death) or by you for Good Reason within twenty-four
(24) months after a Change in Control, then you shall be entitled to the
benefits below:
(i) the Company shall pay to you (A) your full base salary and all
other compensation through the Date of Termination at the rate in effect at the
time the Notice of Termination is given, no later than the full fifth day
following the Date of Termination, plus all other amounts to which you are
entitled under any compensation plan of the Company at the time such payments
are due and (B) if you so elect, in lieu of your right to continue to receive
deferred compensation under any deferred compensation plan of the Company then
in effect, no later than the fifth full day following the Date of Termination, a
lump-sum amount, in cash, equal to the deferred amounts together with any
earnings credited on such amounts under such plan;
(ii) the Company will pay as severance pay to you, at the time
specified in Subsection (e) below, a lump sum severance payment (together with
the payments provided in paragraph (iii) below, the "Severance Payments") in an
amount equal to the sum of (A) two (2) times the higher of (x) your annual base
salary in effect on the Date of Termination or (y) your annual base salary in
effect immediately prior to the Change in Control, plus (B) the higher of (x)
your incentive bonus at target payout for the year in which the Date of
Termination occurs, or (y) your incentive bonus at target payout for the year in
which the Change in Control occurred;
(iii) the Company shall pay to you all legal fees and expenses
incurred by you in seeking to obtain or enforce any right or benefit provided by
this Agreement; and
(iv) for a twenty-four (24) month period after such termination, the
Company shall arrange to provide you with life, dental, accident and group
health insurance benefits substantially similar to those which you were
receiving immediately prior to the Notice of Termination. Notwithstanding the
foregoing, the Company shall not provide any benefit otherwise receivable by you
pursuant to this paragraph (iv) if an equivalent benefit is actually received by
you from another employer during the 24-month period following your termination,
and any such benefit actually received by you shall be reported to the Company;
and
(v) all options and shares of restricted stock granted or issued to
you under the Company's 1995 Stock Option Plan, 1995 California Stock Option
Plan and 1995 Replacement Stock Option Plan or any other stock option incentive
plan of the Company shall become exercisable or vested in full on the Date of
Termination provided that if such Date of Termination occurs prior to the
closing of any of the
7
<PAGE>
events referred to in Section 1(a)(v), then there shall be no such acceleration
of exercisability or vesting.
(d) In the event that you become entitled to the Severance Payments, if any
of the Severance Payments will be subject to the tax imposed by Section 4999 of
the Code, (or any similar tax that may hereafter be imposed)(the "Excise Tax")
the Company shall pay to you at the time specified in Subsection (e), below, an
additional amount (the "Gross-Up Payment") such that the net amount retained by
you, after deduction of any Excise Tax on the Total Payments (as hereinafter
defined) and any federal, state and local income tax and Excise Tax upon the
payment provided for by this Subsection, shall be equal to the Total Payments.
For purposes of determining whether any of the Severance Payments will be
subject to the Excise Tax and the amount of such Excise Tax, (a) any other
payments or benefits received or to be received by you in connection with a
Change in Control of the Company or your termination of employment (whether
pursuant to the terms of this Agreement or any other plan, arrangement or
agreement with the Company, any person whose actions result in a Change in
Control of the Company or any person affiliated with the Company or such
person)(which together with the Severance Payments, constitute the "Total
Payments") shall be treated as "parachute payments" within the meaning of
Section 280G(b)(2) of the Code, and all "excess parachute payments" within the
meaning of Section 280G(b)(1) shall be treated as subject to the Excise Tax,
unless in the opinion of tax counsel selected by the Company's independent
auditors and acceptable to you such other payments or benefits (in whole or in
part) do not constitute parachute payments, or such excess parachute payments
(in whole or in part) represent reasonable compensation for services actually
rendered within the meaning of Section 280G(b)(4) of the Code in excess of the
base amount within the meaning of Section 280G(b)(3) of the Code, or are
otherwise not subject to the Excise Tax, (b) the amount of the Total Payments
which shall be treated as subject to the Excise Tax shall be equal to the lesser
of (1) the total amount of the Total Payments or (2) the amount of excess
parachute payments within the meaning of Section 280G(b)(1) (after applying
paragraph (a), above, and (c) the value of any non-cash benefits or any deferred
payment or benefit shall be determined by the Company's independent auditors in
accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For
purposes of determining the amount of the Gross-Up Payment, you shall be deemed
to pay federal income taxes at the highest marginal rate of federal income
taxation in the calendar year in which the Gross-Up Payment is to be made and
state and local income taxes at the highest marginal rate of taxation in the
state and locality of your residence on the Date of Termination, net of the
maximum reduction in federal income taxes which could be obtained from
deduction of such state and local taxes. In the event that the Excise Tax is
subsequently determined to be less than the amount taken into account hereunder
at the time of termination of your employment, you shall repay to the Company at
the time that the amount of such reduction in Excise Tax is finally determined
the portion of the Gross-Up Payment attributable to such reduction (plus the
portion of the Gross-Up Payment
8
<PAGE>
attributable to the Excise Tax and federal, state and local income tax imposed
on the Gross-Up Payment being repaid by you if such repayment results in a
reduction in Excise Tax and/or a federal, state and local income tax deduction)
plus interest on the amount of such repayment at the rate provided in Section
1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to
exceed the amount taken into account hereunder at the time of the termination of
your employment (including by reason of any payment the existence or amount of
which cannot be determined at the time of the Gross-Up Payment), the Company
shall make an additional gross-up payment in respect of such excess (plus any
interest payable with respect to such excess) at the time that the amount of
such excess is finally determined.
(e) The payments provided for in Subsections 4(b), (c) and (d) shall be
made not later than the fifth day following the Date of Termination, unless
otherwise specified; provided, however, that, if the amounts of such payments
cannot be finally determined on or before such day, the Company shall pay to you
on such day an estimate, as determined in good faith by the Company, of the
minimum amount of such payments and shall pay the remainder of such payments
(together with interest at the rate provided in Section 1274(b)(2)(B) of the
Code) as soon as the amount thereof can be determined but in no event later than
the thirtieth day after the Date of Termination. In the event that the amount
of the estimated payments exceeds the amount subsequently determined to have
been due, such excess shall constitute a loan by the Company to you, payable on
the fifth day after demand by the Company (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code).
(f) Except as provided in the second sentence of Subsection 4(c)(v) hereof,
you shall not be required to mitigate the amount of any payment provided for in
this Section 4 by seeking other employment or otherwise, nor shall the amount of
any payment or benefit provided for in this Section 4 be reduced by any
compensation earned by you as a result of employment by another employer, by
retirement benefits or by offset against any amount claimed to be owed by you to
the Company or otherwise.
5. Successors; Binding Agreement.
-----------------------------
(a) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business or assets of the Company expressly to assume and agree to perform this
Agreement to the same extent that the Company would be required to perform it if
no such succession had taken place. Failure of the Company to obtain an
assumption of this Agreement at or prior to the effectiveness of any succession
shall be a breach of this Agreement and shall constitute Good Reason if you
elect to terminate your employment, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination. As used in this Agreement, the Company shall
mean the Company as
9
<PAGE>
defined above and any successor to its business or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law, or otherwise.
(b) As used in this Agreement, each of the businesses referred to in
clauses (i), (ii) and (iii) of Section 1(a)(v) is referred to as a "Business."
Notwithstanding anything to the contrary herein, the transfer of your employment
from the Company to any entity that acquires or succeeds to a Business shall not
be considered a termination of your employment with the Company for the purposes
of this Agreement, provided that such acquiring or successor entity agrees to be
bound by this Agreement to the same extent as the Company.
(c) This Agreement shall insure to the benefit of and be enforceable by
your personal or legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees. If you should die while any amount
would still be payable to you hereunder if you had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to your devisee, legatee or other designee or if there
is no such designee, to your estate.
6. Notice. For the purposes of this Agreement, notices and all other
------
communications provided for in this Agreement shall be in writing and shall be
duly given when delivered or when mailed by United States registered or
certified mail, return receipt requested, postage prepaid, addressed to the
Company, at 105 Rosemont Road, Westwood, Massachusetts 02090-2318 Attention:
President and General Counsel, and to you at the address shown above or to such
other address as either the Company or you may have furnished to the other in
writing in accordance herewith, except that notice of change of address shall be
effective only upon receipt.
7. Miscellaneous.
-------------
(a) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
(b) The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Delaware.
(c) No waiver by you at any time of any breach of, or compliance with, any
provision of this Agreement to be performed by the Company shall be deemed a
waiver of that or any other provision at any subsequent time.
(d) This Agreement may be executed in counterparts, each of which shall be
deemed to be an original but both of which together will constitute one and the
same instrument.
10
<PAGE>
(e) Any payments provided for hereunder shall be paid net of any applicable
withholding required under federal, state or local law.
(f) This Agreement sets forth the entire agreement of the parties hereto in
respect of the subject matter contained herein and supersedes all prior
agreements, promises, covenants, arrangements, communications, representations
or warranties, whether oral or written, by any officer, employee or
representative of any party hereto; and any prior agreement of the parties
hereto in respect of the subject matter contained herein is hereby terminated
and cancelled.
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter, which
will then constitute our agreement on this subject.
Sincerely,
STREAM INTERNATIONAL HOLDINGS INC.
By:
------------------------------------
Agreed to this ____ day __________ of 199_
- --------------------------------------
Name of Management Person
Print Name:
---------------------------
Address:
------------------------------
------------------------------
11
<PAGE>
EXHIBIT 10.18
SECURED NON-RECOURSE PROMISSORY NOTE
("SECURED NON-RECOURSE NOTE")
---------------------------
(April 15, 1996)
FOR VALUE RECEIVED, the undersigned, Judith Salerno (the "Borrower"),
--------
hereby promises to pay to Stream International Inc., a Delaware corporation (the
"Company"), or to the legal holder of this Secured Non-Recourse Note at the time
-------
of payment, the principal sum of forty-three thousand dollars ($43,000) in
lawful money of the United States of America, and to pay simple interest
(computed on the basis of a 365 or 366 day year, as the case may be) on the
principal amount hereof from and after the date of this Secured Non-Recourse
Note until the entire principal amount hereof has been paid in full, at the rate
of 6% per annum. The entire principal amount of indebtedness evidenced by this
note, to the extent not theretofore prepaid as provided herein, shall be repaid
on the Maturity Date. Each payment of principal shall be accompanied by payment
of any accrued and unpaid interest thereon.
If the date set for any payment or prepayment of principal or interest
hereunder is a Saturday, Sunday or legal holiday, then such payment or
prepayment shall be made on the next preceding business day.
This Secured Non-Recourse Note has been delivered to evidence indebtedness
of the Borrower to the Company arising out of a loan made to the Borrower to
cover certain of the Borrower's tax obligations in connection with the 1995
strategic alliance between Software Holdings, Inc. and the GSS Division of R.R.
Donnelley & Sons Company. Payment of the principal of and interest on this
Secured Non-Recourse Note is secured pursuant to the terms of a Stock Pledge
Agreement, dated as of April 15, 1996, between the Borrower and the Company (the
"Pledge Agreement"), reference to which is made for a description of the
----------------
collateral provided thereby and the rights of the Company and any subsequent
holder of this Secured Non-Recourse Note in respect of such collateral.
Recourse of the holder of this Note for payment of the principal of and
interest on this Note or any claim based thereon shall be limited solely to the
collateral held pursuant to the Pledge Agreement, and the holder of this Note
shall have no recourse to any other assets of the Borrower for such payment,
whether before or after an Event of Default.
As used in this Note:
(a) the term "Maturity Date" means the earliest of (i) April 15, 1999
-------------
or, at the election of the Board of Directors of Stream International Holdings
Inc. (the "Parent") and as a result of the completion of any public offering of
shares of the Parent registered under the Securities Act of 1933, as amended, in
connection with which the Borrower is given an opportunity to sell shares having
a value equal to or greater than the amount of borrowings evidenced by this
Secured Non-Recourse Note outstanding at the time of
<PAGE>
such offering, provided, that, such offering is completed prior to April 15,
--------------
1999, and (ii) the first date on which a Liquidity Event (as defined below)
shall occur; (iii) the date of termination of Borrower's employment with the
Company; and
(b) the term "Liquidity Event" means any of the following: (i) any
---------------
sale of a majority of the capital stock or assets of the Parent (including
without limitation a sale of a majority of the capital stock resulting from a
Disposition (as defined in the Parent's Restated Certificate of Incorporation)
or Total Disposition (as defined in the Parent's Restated Certificate of
Incorporation) by R.R. Donnelley & Sons which triggers certain Tag Along (as
defined in the Parent's Restated Certificate of Incorporation) and Drag Along
Rights (as defined in the Parent's Restated Certificate of Incorporation), the
exercise by any stockholder of the Put Right (as defined in the Parent's
Restated Certificate of Incorporation) or the exercise by the Parent of its Call
Right (as defined in the Parent's Restated Certificate of Incorporation) all in
accordance with the provisions of Article Fifth of the Parent's Restated
Certificate of Incorporation), (ii) any liquidation or winding-up of the Parent
or distribution of a majority of the Parent's assets, other than to an Affiliate
of the Parent or (iii) any merger, consolidation or similar business combination
with or into any entity other than an entity controlled by Bain Capital Fund IV,
L.P., Bain Capital Fund IV-B, L.P. and Information Partners Capital Fund, L.P.
(collectively, the "Funds") or by R.R. Donnelley & Sons Company.
Interest on the principal amount hereof outstanding from time to time shall
be calculated quarterly on the last business day of March, June, September and
December of each year commencing June 30, 1996 and on the Maturity Date.
This Secured Non-Recourse Note is subject to the following further terms
and conditions:
1. Mandatory Prepayments. If at any time the Borrower receives any
---------------------
proceeds from the sale by the Borrower of Shares to anyone (including the
Company), the proceeds from such sale of Shares shall be applied first, to the
prepayment of the accrued and unpaid interest hereon and then to the unpaid
principal hereof. For purposes of this Section 1, the term "sale" in the
context of a sale of Shares shall include, in addition to any direct sale of
Shares, any transaction (including, without limitation, a merger, consolidation
or recapitalization) pursuant to which Shares are converted into a right to
receive, in whole or partial exchange or substitution for Shares, cash or cash
equivalents.
In addition, until such time as the entire principal amount of this Secured
Non-Recourse Note is paid in full, together with all accrued and unpaid
interest, the Borrower shall pay to the Company, for application against such
principal and interest, 25% of any and all bonus amounts that become payable in
1997 to the Borrower under any bonus plan of Company or Parent, 50% of any and
all bonus amounts that become payable in 1998 to the Borrower under any bonus
plan of Company or Parent and 100%
-2-
<PAGE>
of any and all bonus amounts that become payable in 1999 to Borrower under any
bonus plan of Company or Parent. These moneys should be used first to pay any
accrued and unpaid interest and any left over amounts will be applied to reduce
the principal.
The right of the Borrower to receive proceeds upon the sale of Shares is
subject to the prior right of the Company (or other holder of this Secured Non-
Recourse Note) (i) in the case of a sale of Shares to the Company (or other
holder of this Secured Non-Recourse Note), in lieu of the Company (or such other
holder) paying the proceeds from such sale to the Borrower or his heirs,
successors or permitted assigns to set off against this Secured Non-Recourse
Note an amount equal to the Net Proceeds of such sale, or (ii) in the case of a
sale of Shares to any other person or entity (collectively, the "Transfer
--------
Parties"), in lieu of any of such Transfer Parties paying the purchase price
- -------
therefor to the Borrower or his heirs, successors or permitted assigns, to
direct such Transfer Parties to pay an amount equal to the Net Proceeds of such
sale to the Company (or other holder of this Secured Non-Recourse Note) which
shall set off such amount against this Secured Non-Recourse Note.
Concurrently with any prepayment (including by set-off) of any portion of
the principal amount of this Secured Non-Recourse Note pursuant to this Section
1 or Section 2 hereof, the Company (or other holder of this Secured Non-Recourse
Note) shall make a notation of such payment hereon. If full payment of the
principal of and accrued and unpaid interest on this Secured Non-Recourse Note
is made, this Secured Non-Recourse Note shall be cancelled. Any partial
prepayment (including by reason of set-off) shall be applied first to accrued
and unpaid interest hereon and then to the unpaid principal hereof.
If at any time, or from time to time, after the date hereof and following
the occurrence and during the continuance of an Event of Default (as hereinafter
defined), the Borrower shall receive or shall otherwise become entitled to
receive from the Company (or other holder of this Secured Non-Recourse Note) any
cash payments, cash dividends or other cash distributions in respect of any
Shares, then and in each case, the Borrower or any of his heirs, successors or
permitted assigns to whom such distribution may be made shall, upon the receipt
thereof, return to the Company (or other holder of this Secured Non-Recourse
Note) such payments, dividends and distributions, and the Company (or other
holder of this Secured Non-Recourse Note) shall apply such amount to the
prepayment of the accrued and unpaid interest on and unpaid principal of this
Secured Non-Recourse Note in the manner set forth in the first paragraph of this
Section 1, and the Company (or other holder of this Secured Non-Recourse Note)
shall not be obligated to make any such cash payment, cash dividend or other
cash distribution not theretofore made to which the Borrower or any of his
heirs, successor or permitted assigns are otherwise entitled in respect of their
Shares and may, in lieu of paying such amount to the Borrower, set off the
amount of such cash payment, cash dividend or other cash distribution against
the accrued and unpaid interest on and unpaid principal
-3-
<PAGE>
of this Secured Non-Recourse Note in the manner set forth in the third paragraph
of this Section 1.
2. Payment and Prepayment. All payments and prepayments of principal of
----------------------
and interest on this Secured Non-Recourse Note shall be made to the Company or
its order, or to the legal holder of this Secured Non-Recourse Note or such
holder's order, in lawful money of the United States of America at the principal
offices of the Company (or at such other place as the holder hereof shall notify
the Borrower in writing). The Borrower may, at his option, prepay this Secured
Non-Recourse Note in whole or in part at any time or from time to time without
penalty or premium. Any prepayments of any portion of the principal amount of
this Secured Non-Recourse Note shall be accompanied by payment of all interest
accrued but unpaid hereunder. Upon final payment of principal of and interest
on this Secured Non-Recourse Note it shall be surrendered for cancellation. The
Pledge Agreement requires payment or prepayment of all obligations under this
Secured Promissory Note as a condition precedent to the release of, or transfer
of the Borrower's interests in, the collateral subject to the Pledge Agreement,
all as described more fully in the Pledge Agreement.
3. Events of Default. Upon the occurrence of any of the following events
-----------------
("Events of Default"):
------------------
(a) Failure to pay the principal of this Secured Non-Recourse Note,
including any prepayments required hereunder or under the Pledge Agreement, when
due;
(b) Failure to pay any interest installment due under this Secured
Non-Recourse Note which shall remain unremedied for ten days following the date
when such installment was originally due hereunder; or
(c) Failure of the Borrower to perform the Borrower's obligations
under the Pledge Agreement;
(d) Failure of the Borrower to pay back in full all moneys owed under
this Secured Non-Recourse Promissory Note including both principal and interest
immediately upon the date of voluntary resignation or termination of Borrower's
employment with the Company or within six (6) months from the date of Borrower'
s involuntary resignation or termination of employment with the Company.
then, and in any such event, the holder of this Secured Non-Recourse Note may
declare, by notice of default given to the Borrower, the entire principal amount
of this Secured Non-Recourse Note to be forthwith due and payable, whereupon the
entire principal amount of this Secured Non-Recourse Note outstanding and any
accrued and unpaid interest hereunder shall become due and payable without
presentment, demand, protest, notice of dishonor and all other demands and
notices of any kind, all of which are
-4-
<PAGE>
hereby expressly waived. Upon the occurrence of an Event of Default, the accrued
and unpaid interest hereunder shall thereafter bear the same rate of interest as
on the principal hereunder, but in no event shall such interest be charged which
would violate any applicable usury law. If an Event of Default shall occur
hereunder, the Borrower shall pay costs of collection, including reasonable
attorneys' fees, incurred by the holder in the enforcement hereof.
No delay or failure by the holder of this Secured Non-Recourse Note in the
exercise of any right or remedy shall constitute a waiver thereof, and no single
or partial exercise by the holder hereof of any right or remedy shall preclude
other or future exercise thereof or the exercise of any other right or remedy.
4. Miscellaneous.
-------------
(a) The provisions of this Secured Non-Recourse Note shall be governed
by and construed in accordance with the laws of the Commonwealth of
Massachusetts, without regard to the conflicts of law rules thereof.
(b) All notices and other communications hereunder shall be in writing
and will be deemed to have been duly given if delivered or mailed in accordance
with the Employment Agreement.
(c) The headings contained in this Secured Non-Recourse Note are for
reference purposes only and shall not affect in any way the meaning or
interpretation of the provisions hereof.
-5-
<PAGE>
IN WITNESS WHEREOF, this Secured Non-Recourse Note has been duly executed
and delivered by the Borrower on the date first above written.
/s/ Judith Salerno
--------------------
(Signature of Borrower)
Witness
/s/ Alicia Brophey
- -----------------------
-6-
<PAGE>
(Please furnish taxpayer identification number for each assignee)
FOR VALUE RECEIVED, hereby sell, assign and
-----------------------------
transfer unto
----------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
( ) shares of the Capital Stock of the
- ------------------ -------------------------
standing in name of the
- ------------------ -----------------------------------
books of said represented by
------------------------------------------
Certificate(s) No. herewith, and do hereby irrevocably constitute
---------
and appoint
------------------------------------------------------------------
attorney to transfer the said stock on the books
- -----------------------------
of the within named Company and full power of substitution in the premises.
Dated April 17, 1996
---------------
IN PRESENCE OF
/s/ Alicia Brophey /s/ Judith Salerno
- -------------------- --------------------
NOTICE: The signature(s) to this assignment must correspond with the name as
written upon the face of the certificate, in every particular, without
alternation or enlargement, or any change whatever and must be guaranteed by a
commercial bank, trust company or member firm of the Boston, New York or Midwest
Stock Exchange.
-7-
<PAGE>
STOCK PLEDGE AGREEMENT
STOCK PLEDGE AGREEMENT dated as of April 15, 1996 (this "Stock Pledge
Agreement"), between Judith Salerno (the "Pledgor") and Stream International
Inc., a Delaware corporation (the "Company").
WITNESSETH
----------
WHEREAS, the Company has agreed to make advances to the Pledgor to cover
certain tax obligations of the Pledgor and the Pledgor has agreed to deliver to
the Company a duly executed Secured Promissory Note (the "Tax Loan Note") on the
date the Tax Loan is advanced;
WHEREAS, the Pledgor wishes to grant security and assurance to the Company
in order to secure the payment of the principal of and interest on the Tax Loan
Note (the "Note Obligation") to pledge to the Company certain shares of the
capital stock of Stream International Holdings Inc. (the "Parent") and/or
certain Publicly Traded Securities described as to issuer, type and number of
shares on Exhibit A hereto, all as more particularly described herein;
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
1. Pledge. As collateral security for the full and timely payment of the
------
principal of and interest on the Note Obligation and all other amounts payable
by the Pledgor thereunder or under this Stock Pledge Agreement (including,
without limitation, any and all reasonable fees and expenses, including
reasonable legal fees and expenses, incurred by the Company in connection with
any exercise of its rights under the Note Obligation or hereunder), the Pledgor
hereby delivers, deposits, pledges, transfers and assigns to the Company, in
form transferable for delivery, and creates in the Company a security interest
in:
(a) 23,024 shares of Class B Common Stock of the Parent (collectively,
the "Owned Shares") and all certificates evidencing the Owned Shares and other
instruments or documents evidencing the same and all dividends, cash,
instruments and other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of the Owned
Shares; and
(b) The Publicly Traded Securities described on Exhibit A hereto (the
"Additional Securities") and all certificates evidencing the Additional
---------------------
Securities and other instruments or documents evidencing the same and all
dividends, cash, instruments and other property from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of the Additional Securities.
-8-
<PAGE>
The Owned Shares and Additional Securities (together with any securities or
property delivered to the Pledgor pursuant to Section 2(b) hereof) are
hereinafter collectively referred to as the "Pledged Securities".
The Pledgor hereby delivers to the Company appropriate undated security
transfer powers duly executed in blank for the Pledged Securities set forth
above and will deliver appropriate undated security transfer powers duly
executed in blank for the Pledged Securities to be pledged hereunder from time
to time hereafter. The Pledgor agrees that all certificates evidencing the
Pledged Securities shall be marked with the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE PROVISIONS OF
A STOCK PLEDGE AGREEMENT DATED AS OF APRIL 15,1996 BY AND BETWEEN STREAM
INTERNATIONAL INC., A DELAWARE CORPORATION AND A WHOLLY-OWNED SUBSIDIARY OF
STREAM INTERNATIONAL HOLDINGS INC., A DELAWARE CORPORATION, AND THE BORROWER
NAMED THEREIN, A COPY OF WHICH IS ON FILE AT THE OFFICES OF THE CORPORATION.
The Pledgor agrees to deliver to the Company all Pledged Securities currently
held by him in order that such legend may be placed thereon. The Pledgor further
agrees, with respect to the Additional Securities, to deliver written notice to
each issuer of an Additional Security of the pledge of such security to the
Company.
2. Administration of Security. The following provisions shall govern the
--------------------------
administration of the Pledged Securities:
(a) So long as no Event of Default has occurred and is continuing (as
used herein, "Event of Default" shall mean the occurrence of any Event of
Default as defined in the Note Obligation), the Pledgor shall be entitled to act
with respect to the Pledged Securities in any manner not inconsistent with this
Stock Pledge Agreement or the Note Obligation.
(b) If while this Stock Pledge Agreement is in effect, the Pledgor
shall become entitled to receive or shall receive any debt or equity security
certificate (including, without limitation, any certificates representing shares
of stock received in connection with the exercise of any Option, any certificate
representing a stock dividend or a distribution in connection with any
reclassification, increase or reduction of capital, or issued in connection with
any reorganization), option or right, whether as a dividend or distribution in
respect of, in substitution of, or in exchange for any Pledged Securities, the
Pledgor agrees to accept the same as the Company agent and to hold the same in
trust on behalf of and for the benefit of the Company and to deliver the same
forthwith to the Company in the exact form received, with the endorsement of the
Pledgor when necessary and/or appropriate undated security transfer powers duly
executed in blank, to be held by the Company, subject to the terms of this Stock
Pledge Agreement, as
-9-
<PAGE>
additional collateral security for the Note Obligation. Notwithstanding the
foregoing, it is agreed that the Pledgor may exercise any option or right
received as contemplated in the preceding sentence, and the Company will
exercise any such option or right upon receipt of written instructions to that
effect and any required payments or documents from the Pledgor, and the
securities received upon such exercise of any such option or right shall
thereafter be held by the Pledgor or the Company as contemplated by the
preceding sentence.
(c) The Pledgor shall immediately upon request by the Company and in
confirmation of the security interests hereby created, execute and deliver to
the Company such further instruments, deeds, transfers, assurances and
agreements, in form and substance as the Company shall request, including any
financing statements and amendments thereto, or any other documents, as required
under Massachusetts law and any other applicable law to protect the security
interests created hereunder.
(d) Subject to any sale by the Company or other disposition by the
Company of the Pledged Securities or other property pursuant to this Stock
Pledge Agreement and subject to Sections 5 and 6 below, the Pledged Securities
shall be returned to the Pledgor upon payment in full of the principal of and
accrued and unpaid interest on the Note Obligation.
3. Remedies in Case of an Event of Default.
---------------------------------------
(a) In case an Event of Default shall have occurred and be continuing,
the Company shall have in each case all of the remedies of a secured party under
the Massachusetts Uniform Commercial Code, and, without limiting the foregoing,
shall have the right, in its sole discretion, to sell, resell, assign and
deliver all or, from time to time, any part of the Pledged Securities, or any
interest in or option or right to purchase any part thereof; on any securities
exchange on which the Pledged Securities or any of them may be listed, at any
private sale or at public auction, with or without demand of performance or
other demand, advertisement or notice of the time or place of sale or
adjournment thereof or otherwise (except that the Company shall give ten days'
notice to the Pledgor of the time and place of any sale pursuant to this Section
3), for cash, on credit or for other property, for immediate or future delivery,
and for such price or prices and on such terms as the Company shall, in its sole
discretion, determine, the Pledgor hereby waiving and releasing any and all
right or equity of redemption whether before or after sale hereunder. At any
such sale the Company may bid for and purchase the whole or any part of the
Pledged Securities so sold free from any such right or equity of redemption.
The Company shall apply the proceeds of any such sale first to the payment of
-----
all costs and expenses, including reasonable attorneys' fees, incurred by the
Company in enforcing its rights under this Stock Pledge Agreement and second to
------
the payment of accrued and unpaid interest on the Tax Loan Note and third to the
-----
payment of unpaid principal of the Tax Loan Note.
-10-
<PAGE>
(b) The Pledgor recognizes that the Company may be unable to effect a
public sale of all or a part of the Pledged Securities by reason of certain
prohibitions contained in the Securities Act of 1933, as amended (the
"Securities Act"), or in the rules and regulations promulgated thereunder or in
applicable state securities or "blue sky" laws, but may be compelled to resort
to one or more private sales to a restricted group of purchasers who will be
obliged to agree, among other things, to acquire the Pledged Securities for
their own account, for investment and not with a view to the distribution or
resale thereof. The Pledgor understands that private sales so made may be at
prices and on other terms less favorable to the seller than if the Pledged
Securities were sold at public sale, and agrees that the Company has no
obligation to delay the sale of the Pledged Securities for the period of time
necessary to permit the registration of the Pledged Securities for public sale
under the Securities Act and under applicable state securities or "blue sky"
laws. The Pledgor agrees that a private sale or sales made under the foregoing
circumstances shall be deemed to have been made in a commercially reasonable
manner.
(c) If any consent, approval or authorization of any state, municipal
or other governmental department, agency or authority should be necessary to
effectuate any sale or disposition by the Company pursuant to this Section 3 of
the Pledged Securities, the Pledgor will execute all such applications and other
instruments as may be required in connection with securing any such consent,
approval or authorization, and will otherwise use his or her best efforts to
secure the same.
(d) Neither failure nor delay on the part of the Company to exercise
any right, remedy, power or privilege provided for herein or by statute or at
law or in equity shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, remedy, power or privilege preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege.
4. Pledgor's Obligations Not Affected. The obligations of the Pledgor
----------------------------------
under this Stock Pledge Agreement shall remain in full force and effect without
regard to, and shall not be impaired or affected by: (a) any exercise or non-
exercise by the Company of any right, remedy, power or privilege under or in
respect of this Stock Pledge Agreement or the Note Obligation, or any waiver of
any such right, remedy, power or privilege; (b) any waiver, consent, extension,
indulgence or other action or inaction in respect of this Stock Pledge Agreement
or the Note Obligation, or any assignment or transfer of any thereof; or (c) any
bankruptcy, insolvency, reorganization, arrangement, readjustment, composition,
liquidation or the like, of the Company, whether or not the Pledgor shall have
notice or knowledge of any of the foregoing.
5. Transfer by Pledgor. The Pledgor will not sell, assign, transfer or
-------------------
otherwise dispose of, grant any option with respect to, or mortgage, pledge or
otherwise encumber (collectively, a "Disposition") the Pledged Securities or any
interest therein except as permitted by the Company's Restated Certificate of
Incorporation (the "Charter"), and
-11-
<PAGE>
any Stockholders Agreement to which Pledgor and the Company or its stockholders
may be or become bound. In the event of any Disposition of Pledged Securities
pursuant to and in accordance with the terms and conditions of the Charter and
any Stockholders Agreement, the Company shall release such Pledged Securities
from the pledge hereunder to permit consummation of such transaction solely to
the extent that, after such release, the sum (the "Coverage Amount") of (i) the
product of the number of shares of Class A Common Stock owned by the Pledgor and
subject to this Stock Pledge Agreement multiplied by $6 (the "Class A Calculated
Value") plus (ii) the product of the number of shares of Class B Common Stock
owned by the Pledgor and subject to this Stock Pledge Agreement multiplied by $6
(the "Class B Calculated Value") exceeds 150% of the aggregate principal amount
of the Note Obligation then outstanding (the "Note Amount") is greater than
zero. Notwithstanding the foregoing, (i) upon the written request of the
Pledgor, the Company shall release Additional Securities from the pledge
hereunder to permit consummation of a Disposition solely to the extent that,
after such release, the Value (as defined below) of the Additional Securities
subject to this Stock Pledge Agreement exceeds 125% of the difference between
the Note Amount and a fraction, the numerator of which is the Coverage Amount
and the denominator of which is 1.5, and (ii) in the case of any Disposition in
connection with the occurrence of a trigger event, the Company shall release
such Pledged Securities regardless of whether the Coverage Amount is greater
than zero, provided, that any proceeds received upon such Disposition are either
pledged to the Company as additional collateral and/or used to reduce the Note
Amount so that the foregoing collateral coverage test continues to be satisfied
after giving effect to such Disposition.
For purposes of this Section 5, the Value of the Additional Securities
shall be the market value of such securities determined by reference to the per
share closing price on the date prior to the requested release of such
securities as reported by the New York Stock Exchange, American Stock Exchange
or the National Association of Securities Dealers Automatic Quotation National
Market System, as the case may be.
6. Adjustments to Calculated Value. In the event of any stock dividend,
-------------------------------
stock split, stock issuance, reverse stock split, subdivision, combination,
recapitalization, reclassification, merger, consolidation or other change in any
class of common stock of the Company, the dollar value used to determine the
Calculated Value applicable to such class of common stock shall be appropriately
adjusted to reflect such dividend, split, issuance, subdivision, combination,
recapitalization, reclassification, merger, consolidation or other change.
7. Attorney-in-Fact. The Company is hereby appointed the attorney-in-
----------------
fact of the Pledgor and the Pledgor's transferees for the purpose of carrying
out the provisions of this Stock Pledge Agreement and taking any action and
executing any instrument which the Company reasonably may deem necessary or
advisable to accomplish the purposes hereof, including without limitation, the
execution of the applications and other
-12-
<PAGE>
instruments described in Section 3(c) hereof, which appointment as attorney-in-
fact is irrevocable as one coupled with an interest.
8. Termination. Upon payment in full of the principal of and accrued
-----------
and unpaid interest on the Note Obligation and upon the due performance of and
compliance with all the provisions of the Note Obligation, this Stock Pledge
Agreement shall terminate and the Pledgor shall be entitled to the return of
such of the Pledged Securities as have not theretofore been sold, released
pursuant to Sections 5 and 6 hereof or otherwise applied pursuant to the
provisions of this Stock Pledge Agreement.
9. Notices. All notices or other communications required or
-------
permitted to be given hereunder shall be delivered as provided in the Employment
Agreement.
10. Binding Effect, Successors and Assigns. This Stock Pledge
--------------------------------------
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns and nothing herein is intended or
shall be construed to give any other person any right, remedy or claim under, to
or in respect of this Stock Pledge Agreement.
11. Miscellaneous. The Company and its assigns shall have no
-------------
obligation in respect of the Pledged Securities, except to hold and dispose of
the same in accordance with the terms of this Stock Pledge Agreement. Neither
this Stock Pledge Agreement nor any provision hereof may be amended, modified,
waived, discharged or terminated orally, but only by an instrument in writing
signed by the party against which enforcement of the amendment, modification,
waiver, discharge or termination is sought. The provisions of this Stock Pledge
Agreement shall be binding upon the heirs, representatives, successors and
permitted assigns of the Pledgor. The captions in this Stock Pledge Agreement
are for convenience of reference only and shall not define or limit the
provisions hereof. This Stock Pledge Agreement shall be governed by and
construed and enforced in accordance with the laws of the Commonwealth of
Massachusetts, without regard to the conflicts of law rules thereof. This Stock
Pledge Agreement may be executed simultaneously in several counterparts, each of
which is an original, but all of which together shall constitute one instrument.
-13-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Stock Pledge
Agreement to be executed and delivered as of the date first above written.
STREAM INTERNATIONAL INC.
By /s/ Terence Leahy
-------------------
Title:
PLEDGOR
/s/ Judith Salerno
---------------------
Judith Salerno
-14-
<PAGE>
EXHIBIT A
---------
Judy Salerno Stream International Holdings Inc. Class B-V
Certificate #V-118
23,024 shares
-15-
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Stream International
Holdings Inc. on Form S-1 of our report dated April 30, 1997, appearing in the
Prospectus, which is part of this Registration Statement, and of our report
dated April 30, 1997 relating to the financial statement schedule appearing
elsewhere in this Registration Statement.
We also consent to the reference to us under the headings "Selected
Consolidated Financial and Operating Data" and "Experts" in such Prospectus.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Boston, Massachusetts
April 30, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STREAM
INTERNATIONAL INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 DEC-31-1996
<CASH> 21 1,142
<SECURITIES> 0 0
<RECEIVABLES> 22,137 35,940
<ALLOWANCES> (156) (304)
<INVENTORY> 0 0
<CURRENT-ASSETS> 23,962 39,785
<PP&E> 39,203 59,232
<DEPRECIATION> (9,962) (22,415)
<TOTAL-ASSETS> 53,598 76,987
<CURRENT-LIABILITIES> 10,612 19,875
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 40,964 52,663
<TOTAL-LIABILITY-AND-EQUITY> 53,598 76,987
<SALES> 0 0
<TOTAL-REVENUES> 78,243 155,498
<CGS> 57,338 117,309
<TOTAL-COSTS> 81,332 160,919
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 188
<INCOME-PRETAX> (3,089) (5,609)
<INCOME-TAX> (817) (924)
<INCOME-CONTINUING> (2,272) (4,685)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,272) (4,685)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
