<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 23, 1997
REGISTRATION NO. 333-26185
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
STREAM INTERNATIONAL INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)(1)
---------------
DELAWARE 7379 364003866
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL CLASSIFICATION IDENTIFICATION NUMBER)
INCORPORATION OR CODE NUMBER)
ORGANIZATION)
---------------
275 DAN ROAD,
CANTON, MASSACHUSETTS 02021
(781) 575-6800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
STEPHEN D.R. MOORE
STREAM INTERNATIONAL INC.
275 DAN ROAD
CANTON, MASSACHUSETTS 02021
(781) 575-6800
FAX (781) 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
MAXIMUM AMOUNT
AGGREGATE OF
TITLE OF EACH CLASS OF OFFERING PRICE REGISTRATION
SECURITIES TO BE REGISTERED (2) FEE (3)
- --------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.01 par value per share............. $134,092,250 $45,455
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Subsequent to the initial filing of this Registration Statement, the
Registrant changed its name from Stream International Holdings Inc. to
Stream International Inc.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act of 1933,
as amended.
(3) Previously paid. ---------------
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
DECEMBER 23, 1997
3,445,000 Shares
LOGO
Common Stock
--------
Of the 3,445,000 shares of Common Stock offered hereby, 1,925,000 are being
sold by Stream International Inc. ("Stream" or the "Company") and 1,520,000 are
being sold by R.R. Donnelley & Sons Company ("R.R. Donnelley") and certain of
its affiliates (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 approximately 49.3% of the outstanding Common Stock of the
Company (approximately 43.2% 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO DISCOUNTS AND TO SELLING
PUBLIC COMMISSIONS COMPANY (1) STOCKHOLDERS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share........................ $ $ $ $
- --------------------------------------------------------------------------------
Total (2)........................ $ $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Before deducting expenses of the offering payable by the Company, estimated
at $2,000,000.
(2) R.R. Donnelley and certain of its affiliates have granted the Underwriters
a 30-day option to purchase up to 516,750 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 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 BT Alex. Brown Incorporated, Baltimore, Maryland, on or about ,
1998.
Joint Lead Managers
BT ALEX. BROWN
LEHMAN BROTHERS
--------
J.P. MORGAN & CO. SALOMON SMITH BARNEY
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE>
[INSIDE COVER PAGE OF PROSPECTUS]
[LEFT PANEL]
TOP LEFT OF PANEL: PHOTOGRAPH OF A GLOBE SHOWING NORTH AMERICA
MIDDLE RIGHT OF PANEL: "TECHNICAL SUPPORT SERVICES"
TOP RIGHT OF PANEL: PARAGRAPH WRITTEN IN ORANGE LETTERING "STREAM CURRENTLY
HANDLES CALLS FROM MORE THAN 4,600 WORKSTATIONS IN NINE CALL CENTERS IN THE
UNITED STATES, FRANCE, THE NETHERLANDS AND THE UNITED KINGDOM." PARAGRAPH
WRITTEN IN BLUE LETTERING "STREAM HAS PURSUED A STRATEGY OF GEOGRAPHIC
EXPANSION, WITH THREE 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
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."
[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, AND
DIRECTLY TO CORPORATE CUSTOMERS."
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 AND
REMOTE ACCESS SERVERS, AS WELL AS THEIR ASSOCIATED SOFTWARE APPLICATIONS." THE
FOLLOWING PARAGRAPH FOLLOWS THE HEADING "ONLINE SERVICE PROVIDER:" "STREAM
SUPPORTS INTERNET AND INTRANET PRODUCTS THROUGH THE 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 "HIGHLY-SKILLED 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."
<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 3,500 service agents, who resolve inquiries in 11 languages at nine call
centers located in the U.S., France, the Netherlands and the U.K. 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 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 Norrell 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 166
clients as of October 1, 1997, and the Company currently supports over 250
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 technical support as a
Microsoft Authorized Support Center. 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 received
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 work force. The Company employs experts in numerous products and
platforms, ranging from advanced programming languages such as C++ 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
online service provider and corporate help desk markets, (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 ("Corporate Software & Technology"
or 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 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 ("Modus Media International" or the "MMI
Business") 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 complete a
reorganization (the "Reorganization") pursuant to which (i) the Company and
certain of its subsidiaries have contributed to two subsidiaries (the "Spin-Off
Subsidiaries") the Corporate Software & Technology Business and MMI Business
(the "Drop-Down") and (ii) the Company will distribute to the Company's
stockholders all of the outstanding voting stock of the Spin-Off Subsidiaries
owned by the Company (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 own approximately 87.4% of the
outstanding Common Stock of the Company. Upon the closing of this offering,
R.R. Donnelley and its affiliates will own approximately 49.3% of the
outstanding Common Stock of the Company (43.2% if the Underwriters' over-
allotment option is exercised in full). R.R. Donnelley has agreed that for a
period of three years following the effective date of the Registration
Statement relating to this offering it will not purchase any additional shares
of Common Stock that would result in it and its affiliates owning 50% or more
of the Company's outstanding Common Stock. See "Certain Transactions" and "The
Reorganization."
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company................. 1,925,000 shares
Common Stock offered by the Selling Stockholders.... 1,520,000 shares
Common Stock to be outstanding after the offering... 8,413,961 shares (1)
Use of proceeds..................................... Capital expenditures,
working capital and general
corporate purposes
Proposed Nasdaq National Market symbol.............. STRM
</TABLE>
- --------
(1) Excludes options to purchase 330,496 shares of Common Stock outstanding as
of October 1, 1997 at a weighted average exercise price of $39.22. Upon the
effectiveness of this offering, the Company plans to reduce the exercise
price of 152,319 of these options to a price equal to 100% of the initial
public offering price. The Company plans upon the closing of this offering
to grant options to employees for approximately 1,008,000 shares of Common
Stock, vesting over four years, at an exercise price equal to the fair
market value of the Common Stock on the closing date.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
---------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
------ ------- ------- ------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA (1):
Revenues............... $2,842 $14,074 $37,388 $78,243 $155,498 $ 109,399 $ 139,308
Cost of services....... 1,560 9,905 22,891 57,338 117,309 83,580 99,476
Selling, general and
administrative
expenses.............. 872 3,661 10,646 23,994 39,110 27,649 34,583
Nonrecurring charges
(2)................... -- -- -- -- 4,500 -- 2,000
Income (loss) from op-
erations.............. 410 508 3,851 (3,089) (5,421) (1,830) 3,249
Income (loss) from
operations excluding
nonrecurring charges.. 410 508 3,851 (3,089) (921) (1,830) 5,249
Net income (loss)...... 227 284 2,127 (2,272) (4,685) (1,490) 1,342
Pro forma net income
(loss) per
common share (3)...... $ .04 $ .04 $ .33 $ (.35) $ (.72) $ (.23) $ .21
Pro forma weighted
average common shares
outstanding (3)....... 6,389 6,389 6,389 6,438 6,480 6,470 6,489
OPERATING DATA (AT PE-
RIOD END):
Call centers........... 1 5 6 10 11 11 9
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-----------------------
ACTUAL AS ADJUSTED (4)
------- ---------------
<S> <C> <C>
BALANCE SHEET DATA (1):
Cash and cash equivalents.............................. $11,102 $
Working capital........................................ 22,388
Total assets........................................... 86,982
Long-term obligations, net of current portion.......... 3,615
Total stockholders' equity............................. 52,976
</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. During the nine months
ended September 30, 1997, the Company recorded an additional charge of $2.0
million associated with the consolidation of certain European locations
primarily for employee termination benefits. 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, (ii) the
reclassification of all shares of Class A Common Stock and Class A-1 Common
Stock as Common Stock and (iii) a one-for-12.35 reverse stock split of the
Company's Common Stock, in each case prior to the closing of this offering.
(4) 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, the
reclassification of all shares of Class A Common Stock and Class A-1 Common
Stock (collectively, "Class A Common Stock") as Common Stock and a one-for-
12.35 reverse stock split of the Company's Common Stock, in each case prior to
the closing of this offering (collectively, the "Reclassification"), and (iii)
the assumption by the Company of approximately $81.3 million of indebtedness to
R.R. Donnelley and the exchange of such indebtedness for Common Stock of the
Company in connection with the Drop-Down, and also assumes 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. In the nine months ended September 30, 1997,
Microsoft accounted for approximately 45% of the Company's revenues and
Hewlett-Packard accounted for approximately 23%. In 1997, the Company's
relationship with Compaq terminated and the Company's relationship with
CompuServe accounted for an insignificant portion of revenues. In the first
nine months of 1997, MSN accounted for approximately 23% of the Company's
revenues. As a result of competitive factors in the online services industry,
the Company expects that its revenues from MSN will decline significantly
commencing in the fourth quarter of 1997. In addition, there can be no
assurance that the Company's revenues from other key clients will not decline
in future periods. The Company's ten largest clients accounted for
approximately 92% of the Company's revenues in 1996.
The Company's agreements with its 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. See "Business--Clients."
History of Operating Losses. The Company has incurred operating losses in
each of the last two fiscal years. At September 30, 1997, the Company's
accumulated deficit was approximately $3.0 million.
6
<PAGE>
In order to sustain 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. 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 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 Keane, Inc. ("Keane"), National TechTeam, Inc. ("National
TechTeam"), SITEL Corporation ("SITEL"), Sykes Enterprises, Incorporated
("Sykes"), TeleTech Holdings, Inc. ("TeleTech") and Wang Laboratories, Inc.
("Wang"). 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 nine,
and since 1994, the number of employees, including temporary and part-time
employees, of the Company has grown from approximately 1,300 to over 3,800.
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 has added workstation capacity in the United States in the fourth
quarter of 1997 and anticipates adding additional workstation capacity in
North America and Europe in 1998. 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. Any
future strategic alliances or acquisitions of businesses, operations or
technology, and the attendant challenge of integrating technology, personnel
and quality assurance procedures, could also place significant demands 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 the Selling Stockholders in this offering, own approximately 87.4% of
the outstanding Common Stock of the Company. Upon the closing of this
offering, R.R. Donnelley and its affiliates will own approximately 49.3% of
the outstanding Common Stock of the Company (43.2% 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, one member of the Board of Directors of the Company has been
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.
7
<PAGE>
Risks Relating to the Reorganization. The Company has historically depended
on the businesses 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 has entered into agreements with the Spin-Off
Subsidiaries (collectively, the "Transitional Service Agreements") for the
continued provision after the Drop-Down of certain services formerly shared
among such entities or provided by R.R. Donnelley. Pursuant to the
Transitional Service Agreements, the Company receives from the Spin-Off
Subsidiaries certain tax, employee benefits and other services, and the
Company provides to the Spin-Off Subsidiaries certain legal services 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 party's confidential information
other than in connection with the performance of its obligations under such
agreements.
The Transitional Service Agreements generally terminate by the first quarter
of 1998. 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 comparable terms. 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 dedicated personnel and
the addition of certain officers to replace employees who, until the
Reorganization, provided services to the Spin-Off Subsidiaries and to the
Company. These payroll 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 contributed to the
Spin-Off Subsidiaries, and the Company plans to restructure these arrangements
in 1998. 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 consummation of the Reorganization, will
operate as units of Stream and, in some cases, under the Stream name.
Prior to the time of the Drop-Down, the Spin-Off Subsidiaries were wholly
owned by the Company. Following the Reorganization, approximately 86.1% of the
outstanding voting stock of Corporate Software & Technology will be owned by
R.R. Donnelley and its affiliates. In addition, R.R. Donnelley owns shares of
non-voting preferred stock of Modus Media International. None of the
agreements entered or 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. 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 has contributed 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 Parent Company (as defined herein) to R.R. Donnelley prior
to the Drop-Down has been or will be converted into voting stock of the
Company and Corporate Software & Technology and non-voting preferred stock of
Modus Media International, and R.R. Donnelley has released the Company and the
Spin-Off Subsidiaries from such indebtedness. Each Spin-Off Subsidiary will
8
<PAGE>
indemnify the Company from and against the respective liabilities assumed by
such Spin-Off Subsidiary in the Reorganization, and R.R. Donnelley will
guarantee for three years following the Drop-Down (which occurred in December
1997) the payment by the Spin-Off Subsidiaries of any such indemnification
obligations (up to an aggregate of $100 million). The Company will, however,
generally remain contingently liable for all liabilities that are 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, the Spin-Off Subsidiaries will have the
financial resources to satisfy such claims or that the Company will be able to
collect any indemnified amounts from the Spin-Off Subsidiaries or R.R.
Donnelley on a timely basis, if at all. Any failure to collect such
indemnified amounts, or delay in doing so, could have a material adverse
effect on the Company.
R.R. Donnelley has agreed (i) until the expiration of the applicable
statutes of limitations, to indemnify the Company in respect of any income tax
payable by the Company with respect to any gain realized by the Company as a
result of the Drop-Down 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) to
guarantee the payment by the Spin-Off Subsidiaries of any other income tax
liabilities of the Company relating to the Spin-Off Subsidiaries' businesses,
subject to offset or reimbursement to the extent the net operating loss
carryforwards of the Company, immediately prior to the Drop-Down, are realized
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. 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. In addition, the Company's
revenues and operating profits (excluding nonrecurring charges) for the second
and third quarters of 1997 were lower than for the first quarter of 1997 due
primarily to the termination of the Company's agreement with Compaq and a
significant reduction in call volumes from another hardware manufacturer. 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
9
<PAGE>
and guidance of its key executives. 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 three
call centers in Europe, has approximately 500 permanent 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.
The Company's European operations, which began in 1994, are less mature than
its U.S. operations and have incurred operating losses since inception.
Several of these facilities were not originally designed or sited for use as
call centers. As part of the Company's plan to lower costs and to build its
European business, the Company is reorganizing and consolidating certain of
its European operations and recorded a restructuring charge of $3.0 million in
1996 in connection with this reorganization. The Company has recorded an
additional charge of approximately $2.0 million in the first quarter of 1997
in connection with this reorganization, and the Company expects its European
operations to continue to incur operating losses in 1998. The ability of the
European operations to achieve profitability will depend upon market growth
and the Company's ability to continue to constrain costs. The Company plans in
early 1998 to transfer operations in the Netherlands to a new facility. There
can be no assurance the Company will not encounter difficulties in such
transition.
The Company may encounter difficulties in marketing, selling and delivering
its services outside 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."
10
<PAGE>
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 began to implement a new workforce
management system in 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 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 Amended and Restated 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 their 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
11
<PAGE>
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 8,413,961 shares of
Common Stock to be outstanding upon completion of this offering, the 3,445,000
shares offered hereby will be freely tradeable without restriction. All of the
remaining 4,968,961 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 88,757
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 121,527 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 4,813,927 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, 95,996 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 also intends to file a Registration Statement on Form S-8 enabling
option holders to sell shares for which certain options are exercisable
beginning 90 days after the date of this Prospectus. The holders of up to
approximately 4,939,146 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 effective date 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 Representatives of the Underwriters and
a Pricing Committee of the Board of Directors that will include a
representative of R.R. Donnelley. 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 and to "Stream
International Inc." in December 1997. 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 Inc. The only business
conducted by the Company after the Reorganization will be the outsource
technical support business. Unless the context otherwise requires, references
in this Prospectus to "Stream" or the "Company" refer to Stream International
Inc. and its subsidiaries after giving effect to the Reorganization, and
references to the "Parent Company" refer to Stream International Inc. prior to
the Reorganization. The Company's executive offices are located at 275 Dan
Road, Canton, Massachusetts 02021, and its telephone number is (781) 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 1,925,000 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.
Approximately $ million to $ million of the net proceeds of this
offering will be used to fund capital expenditures primarily for the expansion
of operations, and 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, the Company's bank credit facility contains certain restrictions
on the payment of cash dividends.
13
<PAGE>
CAPITALIZATION
The following table sets forth as of September 30, 1997 (i) the actual
capitalization of the Company, (ii) such capitalization on a pro forma basis
to reflect the Spin-Off Distribution and the Reclassification 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 1,925,000 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>
SEPTEMBER 30, 1997
-----------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term obligations........................... $ 1,286 $ 1,286 $1,286
======= ======= ======
Long-term obligations, net of current portion.... $ 3,615 $ 3,615 $3,615
------- ------- ------
Stockholders' equity (1):
Net parent company investment.................. 52,926 -- --
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; 50,000,000 shares
authorized, 6,488,961 shares issued and
outstanding pro forma, 8,413,961 shares issued
and outstanding pro forma as adjusted......... -- 65 84
Additional paid-in capital..................... -- 52,861
Cumulative translation adjustments ............ 50 50 50
------- ------- ------
Total stockholders' equity..................... 52,976 52,976
------- ------- ------
Total capitalization........................... $56,591 $56,591 $
======= ======= ======
</TABLE>
- --------
(1) Excludes options to purchase 330,496 shares of Common Stock outstanding
as of October 1, 1997 at a weighted average exercise price of $39.22.
Upon the effectiveness of this offering, the Company plans to reduce the
exercise price of 152,319 of these options to a price equal to 100% of
the initial public offering price. The Company plans upon the closing of
this offering to grant options to employees for approximately 1,008,000
shares of Common Stock at an exercise price equal to the fair market
value of the Common Stock on the closing date, vesting over four years.
14
<PAGE>
DILUTION
The net tangible book value of the Company as of September 30, 1997, giving
pro forma effect to the Reorganization and the Reclassification, was $ ,
or $ per share of Common Stock. 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. Without taking into account any other changes in
such net tangible book value after September 30, 1997, other than to give
effect to the receipt and application by the Company of the net proceeds from
the sale of the 1,925,000 shares of Common Stock offered hereby by the Company
at an assumed initial public offering price of $ per share after deducting
the estimated underwriting discounts and commissions and offering expenses,
the pro forma net tangible book value of the Company as of September 30, 1997
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 September 30, 1997..... $
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 September 30, 1997, 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... 6,488,961(1) 77.1% $ % $
New investors........... 1,925,000 22.9 (2) $
--------- ----- ----------- -------
Total................... 8,413,961 100.0% $ 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 4,968,961 shares
or 59.1% 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 3,445,000 or 40.9% of the total number of shares of Common
Stock outstanding after this offering. See "Principal and Selling
Stockholders."
(2) Before deducting the estimated underwriting discounts and commissions and
offering expenses.
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 selected consolidated
financial data presented below as of September 30, 1997 and for the nine-month
periods ended September 30, 1996 and 1997 are derived from the Company's
unaudited Consolidated Financial Statements that are included elsewhere in
this Prospectus and include, in the opinion of management, all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the information set forth therein. 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>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
---------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
------ ------- ------- ------- -------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues............... $2,842 $14,074 $37,388 $78,243 $155,498 $ 109,399 $ 139,308
Operating expenses:
Cost of services...... 1,560 9,905 22,891 57,338 117,309 83,580 99,476
Selling, general and
administrative
expenses............. 872 3,661 10,646 23,994 39,110 27,649 34,583
Nonrecurring charges
(1).................. -- -- -- -- 4,500 -- 2,000
------ ------- ------- ------- -------- --------- ---------
Income (loss) from op-
erations.............. 410 508 3,851 (3,089) (5,421) (1,830) 3,249
Interest expense....... -- -- -- -- 188 145 124
Provision (benefit) for
income taxes.......... 183 224 1,724 (817) (924) (485) 1,783
------ ------- ------- ------- -------- --------- ---------
Net income (loss)...... $ 227 $ 284 $ 2,127 $(2,272) $ (4,685) $ (1,490) $ 1,342
====== ======= ======= ======= ======== ========= =========
Pro forma net income
(loss) per common
share (2)............. $ .04 $ .04 $ .33 $ (.35) $ (.72) $ (.23) $ .21
Pro forma weighted
average common shares
outstanding (2)....... 6,389 6,389 6,389 6,438 6,480 6,470 6,489
OPERATING DATA (AT
PERIOD END):
Call centers........... 1 5 6 10 11 11 9
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
SEPTEMBER 30,
1993 1994 1995 1996 1997
------ ------- ------- ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (3):
Cash and cash equivalents........ $ 2 $ 162 $ 21 $ 1,142 $11,102
Working capital ................. 34 3,469 13,350 19,910 22,388
Total assets..................... 7,559 20,593 53,598 76,987 86,982
Long-term obligations, net of
current portion................. 938 2,505 1,734 3,952 3,615
Total stockholders' equity....... 3,198 12,603 40,964 52,663 52,976
</TABLE>
- -------
(1) During the fiscal year ended December 31, 1996, the Company recorded a
pre-tax charge of $4,500,000 associated with the consolidation of certain
European facilities, recruiting certain members of management and
establishing new compensation and benefit plans. Excluding such charges,
loss from operations, net loss and pro forma net loss per common share for
1996 would have been $921,000, $1,385,000 and $0.21, respectively. During
the period ended September 30, 1997, the Company recorded an additional
charge of $2,000,000 associated with the consolidation of certain European
locations primarily for employee termination benefits. Excluding such
charges, income from operations, net income and pro forma net income per
common share for the nine months ended September 30, 1997 would have been
$5,249,000, $2,542,000 and $0.39, respectively. See Note 5 of Notes to
Consolidated Financial Statements.
(2) Gives effect to the Reclassification.
(3) Balance sheet data are 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 Global Software 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.
During 1997, the Company began the implementation of a new workforce
management system, which is designed to increase the utilization of service
agents through improved scheduling. In 1997, the Company closed one small call
center and opened one new call center in the U.S. The Company has also closed
two small call centers in Europe and plans to transfer one call center's
operations to a new center in Europe in early 1998. In 1998, in order to
increase capacity, the Company plans to open one new call center in the U.S.
and one in Europe.
The Company's European operations, which began in 1994, are less mature than
its U.S. operations and have incurred operating losses since inception.
Several of these facilities were not originally designed or sited for use as
call centers. As part of the Company's plan to lower costs and build its
European business, the Company is reorganizing and consolidating certain of
its European operations and recorded a restructuring charge of $3.0 million in
1996 in connection with this reorganization. The Company has recorded an
additional charge of approximately $2.0 million in the first quarter of 1997
in connection with this reorganization, and the Company expects its European
operations to continue to incur operating losses in 1998. The ability of the
European operations to achieve profitability will depend upon market growth
and the Company's ability to continue to constrain costs.
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 has entered into
agreements pursuant to which it obtains certain transitional services from the
Spin-Off Subsidiaries and provides 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>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------- -------------------
1994 1995 1996 1996 1997
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues................... 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Cost of services......... 61.2 73.3 75.4 76.4 71.4
Selling, general and
administrative expenses. 28.5 30.7 25.2 25.3 24.8
Nonrecurring charges..... -- -- 2.9 -- 1.4
------- ------- ------- -------- --------
Income (loss) from
operations................ 10.3 (4.0) (3.5) (1.7) 2.4
Interest expense........... -- -- 0.1 0.1 0.1
Provision (benefit) for
income taxes.............. 4.6 (1.1) (0.6) (0.4) 1.3
------- ------- ------- -------- --------
Net income (loss).......... 5.7% (2.9)% (3.0)% (1.4)% 1.0%
======= ======= ======= ======== ========
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996
Revenues. Revenues increased $29.9 million, or 27.3%, to $139.3 million in
the nine months ended September 30, 1997 from $109.4 million in the nine
months ended September 30, 1996. This increase was due primarily to growth in
call volumes in North America from customers of online service providers and
hardware manufacturers. International revenues decreased $0.3 million, or
1.9%, to $15.2 million in the nine months ended September 30, 1997 from $15.5
million in the nine months ended September 30, 1996, due primarily to the
reduction of business in Germany and the closing of the Company's Munich
facility.
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 $15.9 million, or 19.0%, to $99.5
million in the nine months ended September 30, 1997 from $83.6 million in the
nine months ended September 30, 1996. As a percentage of revenues, cost of
services decreased to 71.4% in the nine months ended September 30, 1997 from
76.4% in the nine months ended September 30, 1996. This decrease was due
primarily to the increased utilization of the Company's call center
infrastructure in North America in 1997 as a result of the increased call
volumes.
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 $7.0 million, or 25.4%, to $34.6
million in the nine months ended September 30, 1997 from $27.6 million in the
nine months ended September 30, 1996. As a percentage of revenues, SG&A
expenses decreased to 24.8% in the nine months ended September 30, 1997 from
25.3% in the nine months ended September 30, 1996. This decrease was due
primarily to the leveraging of these costs over a larger revenue base.
Nonrecurring Charges. During the nine months ended September 30, 1997, the
Company recorded a pre-tax charge of $2.0 million related to employee
termination benefits associated with the consolidation of certain European
locations. See Note 5 of Notes to Consolidated Financial Statements.
Income (Loss) from Operations. Income from operations increased $5.0 million
to $3.2 million in the nine months ended September 30, 1997 from a loss from
operations of $1.8 million in the nine months ended September 30, 1996.
Excluding the nonrecurring charge recorded in the nine months ended September
30, 1997, income from operations was $5.2 million.
18
<PAGE>
Net Income (Loss). Net income increased $2.8 million to $1.3 million in the
nine months ended September 30, 1997 from a net loss of $1.5 million in the
nine months ended September 30, 1996. The Company recorded a tax provision of
$1.8 million in the nine months ended September 30, 1997 as compared to a tax
benefit of $0.5 million in the nine months ended September 30, 1996. The
related current tax liability (refund due) is reflected as an increase
(decrease) in net parent company investment. After the closing of the
Reorganization, the Company will file tax returns as a stand alone entity.
Excluding the nonrecurring charge recorded in the nine months ended September
30, 1997, net income was $2.5 million.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE YEAR ENDED DECEMBER 31, 1995
Revenues. Revenues increased $77.3 million, or 98.8%, 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 increased $60.0 million, or 104.7%, to
$117.3 million in 1996 from $57.3 million 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 was incurred without a commensurate increase in revenues.
SG&A Expenses. 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. Of the total pre-tax
charge, $2.4 million is attributable to lease obligations associated with the
consolidation of certain European locations, $1.4 million relates to certain
other assets not expected to be utilized after the Reorganization and $0.7
million relates to recruitment of certain members of management and
establishment of new compensation and benefits 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 $2.4 million 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.
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.
19
<PAGE>
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 was 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 and for the nine months
ended September 30, 1997. 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)
======= ======= ======= =======
<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>
20
<PAGE>
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------
MARCH 31, JUNE 30, SEPT. 30,
1997 1997 1997
--------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues........................................... $49,352 $46,658 $43,298
Operating expenses:
Cost of services................................. 35,450 34,187 29,839
Selling, general and administrative expenses..... 11,023 11,272 12,288
Nonrecurring charges............................. 2,000 -- --
------- ------- -------
Income (loss) from operations...................... 879 1,199 1,171
Interest expense................................... 51 29 44
Net income (loss).................................. $ 118 $ 481 $ 743
======= ======= =======
</TABLE>
The Company's revenues and operating profits (excluding nonrecurring
charges) declined from the first quarter of 1997 to the second and third
quarters of 1997 due primarily to the termination of the Company's agreement
with Compaq and a significant reduction in call volumes from another hardware
manufacturer. In addition, the Company's revenues and operating profits in the
first quarter of 1997 were favorably impacted by a significant short-term
increase in call volumes, particularly from customers of online service
providers.
While the effects of seasonality on the Company's business often are
obscured by the addition of new clients or new products, the Company's
business tends to be seasonally slower in the third quarter and stronger in
the fourth quarter. The third quarter is affected by lower computer purchase
levels by corporations and consumers during the summer months in both North
America and Europe. The fourth quarter is seasonally strong due to increased
computer purchases and usage in both consumer and corporate markets.
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 has established an unsecured bank line of
credit for $25 million. Advances under the line bear interest at either a
Eurodollar rate plus an applicable margin (up to 1.5%) or a base rate plus an
applicable margin (up to 0.25%), at the Company's option. The line of credit
requires the Company to comply with certain financial ratios and imposes
certain limitations or prohibitions on the Company's ability to undertake
certain mergers and acquisitions and other transactions. The line of credit
expires in December 2000. There are currently no amounts outstanding under
this line.
21
<PAGE>
Net cash provided by operating activities increased $15.3 million to $19.5
million in the nine months ended September 30, 1997 compared to $4.2 million
in the nine months ended September 30, 1996. This increase was the result of
an increase of $4.4 million in net income before depreciation and other non-
cash charges, including a nonrecurring charge of $2.0 million, to $13.1
million in the nine months ended September 30, 1997, compared to $8.7 million
in the nine months ended September 30, 1996, offset somewhat by changes in
working capital. Net cash used in investing activities decreased $11.8 million
to a use of $7.6 million in the nine months ended September 30, 1997 from
$19.4 million in the nine months ended September 30, 1996. In the nine months
ended September 30, 1996, the Company opened two new call centers, while no
new call centers were opened in the nine months ended September 30, 1997. Net
cash used in financing activities increased $17.2 million to a use of $2.0
million in the nine months ended September 30, 1997 from $15.2 million
provided by financing from the Parent Company in the nine months ended
September 30, 1996.
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, including a nonrecurring charge of $4.5 million,
to $11.5 million in 1996, 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, as
part of the Company's effort to relocate high-cost call centers to lower-cost
facilities and labor markets, 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 1995 compared to $6.1 million in 1994. These
amounts represent primarily transfers from the Parent Company necessary to
fund the Company's expansion.
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 typically
leases facilities under operating lease arrangements and expects to continue
to do so. Including the addition of one call center in the U.S., the Company
plans to make capital expenditures of approximately $20 million in 1997, of
which approximately $8.6 million has been incurred through September 30, 1997.
In addition to capital expenditures, the addition of new call centers requires
expenditures relating to employee hiring and training. The Company currently
intends to fund the opening of new call centers through the net proceeds of
this offering, funds generated from operations, lease arrangements and its
credit facility.
The Company believes that funds generated from operations, the net proceeds
of this offering and funds available under its credit 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.
22
<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 3,500 service agents, who resolve inquiries in 11 languages
at nine call centers located in the U.S., France, the Netherlands and the U.K.
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 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. In addition, the Company
provides corporate help desk services to major corporations, including Norrell
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
166 clients as of October 1, 1997, and the Company currently supports over 250
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
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<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 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 technical support as
a Microsoft Authorized Support Center.
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 received 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 three
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
24
<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 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 three-quarters of the
Company's 3,500 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++ 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 product lines supported by
the Company for a large software publisher has increased from three to 14. In
addition, during 1996 the number of product lines 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 166 as of October 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, as
the industry consolidates, the Company believes there will be opportunities
both domestically and internationally for acquisitions of businesses with
compatible technologies and quality standards. 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.
25
<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 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 has
accounted for a substantial majority of the Company's revenues since its
inception.
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. 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:
26
<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 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 Norrell 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 as well as MSN.
The initial term of the primary Microsoft agreement, which relates to support
of desktop and language products and will include MSN, expires in November
1998, subject to Microsoft's right to extend the term, to terminate the
agreement at any time with respect to certain products and to terminate the
agreement in the event of the failure of Stream to meet certain performance
requirements.
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
27
<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 technical support as a
Microsoft Authorized Support Center. The Company is supplementing its quality
assurance procedures through the establishment 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 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 three-quarters of the Company's 3,500 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++ 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."
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<PAGE>
FACILITIES
The Company currently maintains nine 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 October 1, 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 3/31/99 100 240
Beaverton, Oregon
(Murray Facility).... 89,000 9/30/00 560 870
Canton, Massachusetts. 99,900 1/31/00 650 800
Dallas, Texas (LBJ
Facility)............ 97,900 10/31/00 820 750
Dallas, Texas (Trinity
Facility)............ 150,000 9/30/01 960 1,380
Memphis, Tennessee
(2).................. 57,800 12/31/07 -- --
International Centers
Amsterdam, the
Netherlands (3)...... 19,900 12/31/99 220 230
Londonderry, Northern
Ireland.............. 30,000 12/31/05 110 250
Velizy, France........ 14,400 11/15/04 90 110
------- ----- -----
Total............... 581,500 3,510 4,630
</TABLE>
- --------
(1) Includes full-time temporary service agents.
(2) Opened in November 1997.
(3) In 1998, the Company plans to consolidate this facility and its former
facility in Apeldoorn, the Netherlands, into a new approximately 67,000
square foot facility in the Netherlands.
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.
The Company anticipates that it will open at least one new call center in
each of the U.S. and Europe in 1998. 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 800 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.
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<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 October 1, 1997, the Company had
approximately 58 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 three call centers in Europe, the establishment
of a joint venture in Japan with Fujitsu and support capabilities in 11
languages. As of October 1, 1997, the Company had approximately 500 permanent
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.
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."
30
<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. 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. 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 October 1, 1997 the Company
employed 11 sales account managers responsible for new accounts as well as
three business unit directors and four 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 Keane, National
TechTeam, SITEL, Sykes, TeleTech and Wang. 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."
31
<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 October 1, 1997, the Company had approximately 3,048 permanent full-
time employees, consisting of 2,739 service agents, 292 management,
administration and finance personnel and 17 sales and marketing personnel. As
of such date, the Company also had approximately 766 temporary 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."
32
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND OTHER KEY EMPLOYEES
The executive officers, directors and key employees of the Company effective
upon the consummation of the Drop-Down in December 1997 and their ages as of
November 1, 1997 are as follows:
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS AND DIRECTORS AGE POSITION
- -------------------------------- --- --------
<S> <C> <C>
Stephen D.R. Moore.................. 46 Chief Executive Officer and Chairman of the Board
Judith G. Salerno................... 43 President, Chief Operating Officer and Director
Jeffrey D. Glidden.................. 47 Chief Financial Officer and Vice President, Finance
Jonathan S. Lavine(1)(2)............ 31 Director
Mark E. Nunnelly(1)(2).............. 38 Director
John M. Richman..................... 69 Director
OTHER KEY EMPLOYEES
- -------------------
Lynda M. Avallone................... 41 Treasurer
Alicia T. Brophey................... 50 Vice President, General Counsel and Corporate
Secretary
James T. Jarratt.................... 53 Senior Vice President, Operations
Lewis Legon......................... 48 Vice President, Human Resources
Lloyd R. Linnell.................... 44 Vice President, Information Technology, and Chief
Information Officer
Julie M. Schoenfeld................. 39 Vice President, Sales
Bawa J. Singh, Ph.D. ............... 50 Vice President, Quality and Operations Planning
Joseph P. Texeira................... 40 Corporate Controller
</TABLE>
- --------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Mr. Moore serves as Chief Executive Officer and Chairman of the Board of the
Company. Previously, he 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 serves as President and Chief Operating Officer and a Director
of the Company. Previously, she 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.
Mr. Glidden serves as Chief Financial Officer and Vice President, Finance,
of the Company. Previously, he served as Chief Financial Officer of the Parent
Company's outsource technical support business unit since May 1997. From 1991
to May 1997, Mr. Glidden served as Chief Financial Officer and Senior Vice
President of Banyan Systems Incorporated, an enterprise directory software
company, and served as Banyan's acting President and Chief Executive Officer
from November 1996 to February 1997. Previously, he served as Vice President
of Atwell Group, Inc., a financial advisory services company, from 1989 to
1991, and as Vice President and Treasurer of Imagitex, Inc., an image
processing hardware and software systems manufacturing company, from 1982 to
1989.
33
<PAGE>
Mr. Lavine serves as a Director of the Company. He has been a Principal at
Bain Capital, Inc. since 1995 and was an Associate at Bain Capital, Inc. from
1993 to 1995. In 1992, Mr. Lavine was a consultant at McKinsey & Co.
Previously, Mr. Lavine worked in the mergers and acquisitions department of
Drexel Burnham Lambert, Incorporated. Mr. Lavine is also a Director of Clarity
Telecom, Inc. and American Pad & Paper Company.
Mr. Nunnelly serves as a Director of the Company. He has served as a
Director of the Parent Company since 1995. Mr. Nunnelly 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. Richman serves as a Director of the Company. Mr. Richman has been
counsel to the law firm of Wachtell, Lipton, Rosen & Katz since 1990. He
served as a Director of R.R. Donnelley from 1988 to December 1997 and as
Acting Chairman and Chief Executive Officer from October 1996 to March 1997.
Previously, he was Vice Chairman of Philip Morris Companies from 1988 to 1989
and Chairman and CEO of Kraft, Inc. from 1979 to 1989. Mr. Richman is also a
Director of BankAmerica Corporation, Bank of America NT & SA, Security Capital
Atlantic Incorporated and USX Corporation.
Ms. Avallone serves as Treasurer of the Company. Previously, she served as
Treasurer of the Parent Company's outsource technical support business since
June 1997. From 1994 to 1997, Ms. Avallone was Treasurer of Augat Inc., a
manufacturer of connector products. She was previously employed by The
Timberland Company as Director of Tax, and also has tax and audit experience
with Arthur Andersen & Co. and Coopers & Lybrand.
Ms. Brophey serves as Vice President, General Counsel and Corporate
Secretary of the Company. She served as General Counsel of CSI from 1994 to
1995 and has served as Vice President and General Counsel of the Parent
Company since 1995. From 1980 to 1994, Ms. Brophey served as Corporate Counsel
of Wang Laboratories, Inc.
Mr. Jarratt serves as Senior Vice President, Operations, of the Company.
Previously, he served as Senior Vice President, Operations, of the Parent
Company's outsource technical support business since June 1997. From 1995 to
1997, Mr. Jarratt served as Senior Vice President and General Manager of Risk
Management Services for Equifax, a supplier of decision supported information
to financial and insurance companies, and previously as its Vice President and
Chief Operating Officer. From 1993 to 1995, he served as General Manager/Vice
President of Operations at NeoData, a provider of integrated direct marketing
services. He was also previously employed by Citibank and Frito-Lay Inc.
Mr. Legon serves as Vice President, Human Resources, of the Company.
Previously, he served as Vice President, Human Resources, of the Parent
Company's outsource technical support business since June 1997. From 1996 to
1997, he served as Vice President, Human Resources Worldwide, for Genzyme, a
biotechnology company. From 1992 to 1995, he served as Vice President, Human
Resources, for Deknatel Snowden Pencer, a medical device company, which merged
with Genzyme in 1995. He was also previously employed by Parker Brothers and
Erewhon, Inc.
Mr. Linnell serves as Vice President, Information Technology, and Chief
Information Officer of the Company. Previously, he served as Vice President,
Information Technology, of the Parent Company since 1996. From 1991 to 1995,
Mr. Linnell held various positions at US West's Technologies Division, a
telecommunications company, most recently as Vice President, Billing and
Corporate Data. He was also previously employed by Bell Communications
Research, Inc. and Bell Telephone Laboratories, Inc.
34
<PAGE>
Ms. Schoenfeld serves as Vice President, Sales, of the Company. Previously,
she 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, a software company, from 1989 to 1993, and
was also previously employed by Avant-Garde Computing, Inc., Hewlett-Packard
and Procter & Gamble Company Inc.
Mr. Singh serves as Vice President, Quality and Operations Planning, of the
Company. Previously, he served as Vice President, Quality and Operations
Planning of the Parent Company's outsource technical support business since
November 1997. Mr. Singh served as Division Vice President/General Manager for
Capital One Services Corporation, a financial services company, from 1996 to
1997. Between 1977 and 1996 he served in a variety of operations management
capacities at American Airlines Air Transportation Corporation, his most
recent position being Vice President, New Business Development, SABRE Decision
Technologies.
Mr. Texeira serves as the Corporate Controller of the Company. Previously,
he 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., a business forms company, 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.
BOARD CLASSES AND COMMITTEES
The Board of Directors is divided into three classes, each of whose members
serve for a staggered three-year term. The Board is comprised of two Class I
Directors (Messrs. Moore and Nunnelly), two Class II Directors (Ms. Salerno
and Mr. Richman) and one Class III Director (Mr. Lavine). 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 1998,
1999 and 2000, respectively.
The Board of Directors has appointed a Compensation Committee (consisting of
Messrs. Lavine and Nunnelly), 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 has also appointed an Audit Committee
(consisting of Messrs. Lavine and Nunnelly), which will review the results and
scope of the audit and other services provided by the Company's independent
public accountants.
COMPENSATION OF DIRECTORS
Non-employee members of the Board of Directors will be paid an annual fee of
$15,000 and will be reimbursed for out-of-pocket expenses.
In December 1997, the Company adopted the 1997 Director Stock Option Plan
(the "Director Plan"). Under the terms of the Director Plan, options to
purchase 15,000 shares of Common Stock will be granted to each non-employee
director upon the closing of this offering. Thereafter, options to purchase
15,000 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 5,000 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 three annual installments, with 50% of the options
vesting on the first anniversary of the date
of grant and 25% vesting on each of the second and third anniversaries. The
exercisability of these options will be accelerated upon the occurrence of an
Acquisition Event (as defined in the Director Plan). A total of 150,000 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.
35
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Company's Compensation Committee are Messrs. Lavine and
Nunnelly. See "Certain Transactions."
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth the compensation
paid by the Company in the fiscal year ended December 31, 1996 to 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 COMPENSATION
- ------------------------------- ------------------- ------------ ------------
<S> <C> <C> <C> <C>
Stephen D.R. Moore.............. $372,561 $187,501 -- $ --
Chief Executive Officer
Judith G. Salerno............... 227,147 81,440 2,632 6,500 (2)
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 only a small portion of whose compensation is included in the
historical financial statements of the Company.
(2) 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.
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
NUMBER OF ANNUAL RATES OF STOCK
SHARES PERCENT 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 1,417 1.7% $29.87 12/16/06 $ 26,618 $ 67,456
1,215 1.5 29.87 10/15/06 22,824 57,840
</TABLE>
- --------
(1) Excludes Messrs. Cowan, Leahy, Morphis and Rosenthal, who were executive
officers of the Parent Company in 1996, but only a small portion of whose
compensation is included in the historical financial statements of the
Company.
(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) Upon the effectiveness of this offering, the exercise prices of Ms.
Salerno's options will be reduced to an amount equal to 100% of the initial
public offering price.
(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.
36
<PAGE>
Prior to the Reorganization, the Parent Company reduced the exercise price
of all outstanding options to purchase Common Stock (subject to certain
exceptions) to equal the fair market value of the Parent Company's Common
Stock. In connection with the Reorganization, the Company will adjust the
exercise prices of all outstanding options to reflect the Spin-Off
Distribution and will grant to each optionee new options ("New Options") for a
number of shares of common stock of each of the Spin-Off Subsidiaries 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 all 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 Company's outsource technical support business, the MMI Business and
the CS&T Business, as determined by the Board of Directors of the Parent
Company prior to the Reorganization. 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. All optionees will therefore
retain their Original Options, with an adjusted exercise price, and will
receive New Options to purchase shares of common stock of each of the Spin-Off
Subsidiaries. The New Options will have vesting schedules equivalent to that
of the Original Options and, with respect to employees of the Company, 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 each of the Spin-Off Subsidiaries, 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.
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...... -- -- 17,924/21,862 $ /$
Judith G. Salerno....... -- -- 2,870/7,077 $ /$
</TABLE>
- --------
(1) Excludes Messrs. Cowan, Leahy, Morphis and Rosenthal, who were executive
officers of the Parent Company in 1996, but only a small portion of whose
compensation is included in the historical financial statements of the
Company.
(2) Based on a fair market value of $ (the midpoint of the range set
forth on the cover page of this Prospectus) and after giving effect to the
reduction of the option exercise price of Ms. Salerno options to $2.41 per
share.
Other Arrangements. The Company expects to enter into employment agreements
with Mr. Moore and Ms. Salerno prior to or following 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 within two years following the
Reorganization..
In connection with the hiring of Jeffrey Glidden as Chief Financial Officer,
the Company agreed to pay Mr. Glidden an annual base salary of $220,000, plus
an annual bonus of up to 40% of such salary. Mr. Glidden will receive 18
months of severance payments if his employment is terminated without cause.
EMPLOYEE BENEFIT PLANS
1997 Stock Incentive Plan. The Company's 1997 Stock Incentive Plan (the
"1997 Incentive Plan") was adopted by the Company in December 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
37
<PAGE>
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 1,150,000 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
500,000 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 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.
The Board of Directors or Compensation Committee may, in its sole
discretion, amend, modify or terminate any award granted or made under the
1997 Incentive Plan, so long as such amendment, modification or termination
would not materially and adversely affect the participant. 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. All awards granted under the
1997 Incentive Plan will accelerate upon an acquisition of the Company.
The Company plans to grant, upon the closing of this offering, options to
employees to purchase up to approximately 1,008,000 shares of Common Stock
under the 1997 Incentive Plan, at an exercise price equal to the fair market
value of the Common Stock on the closing date, vesting over four years. Such
options include , and shares to Mr. Moore, Ms. Salerno and Mr.
Glidden, respectively.
1997 Employee Stock Purchase Plan. The Company's 1997 Employee Stock
Purchase Plan (the "Purchase Plan") was adopted by the Company in December
1997 and becomes effective upon the closing of this offering. The Purchase
Plan authorizes the issuance of up to a total of 600,000 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.
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.
The employee may authorize an amount at a rate of any whole number percentage
between 1% and 10%, inclusive, to be deducted by the Company from the
employee's pay during the Offering Period, up to a maximum of $7,500. 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 10% 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. Offering
Periods will begin on each March 1 and September 1 (or such other dates as the
Board may determine), and the Purchase Plan provides for the
38
<PAGE>
issuance of up to a maximum of 100,000 shares of Common Stock in any Offering
Period (plus shares available for purchase but not purchased in previous
Offering Periods). 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 311,336
shares of Common Stock, the 1995 Replacement Stock Option Plan (the "1995
Replacement Plan"), covering 68,891 shares of Common Stock and the 1995
California Stock Option Plan (the "1995 California Plan"), covering 12,551
shares of Common Stock. As of October 1, 1997, options for a total of 330,496
shares of Common Stock were outstanding under these plans. Following the
Reorganization, no further options will be granted under these plans.
The 1995 Plan, 1995 Replacement Plan and 1995 California Plan (collectively,
as amended, 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 any other
method approved by the Board or the Compensation Committee. Options are not
assignable or transferable except by will or the laws of descent and
distribution. All options granted under the 1995 Plans will accelerate upon an
acquisition of the Company.
Savings and Retirement Program. In July 1995, the Company adopted a Savings
and Retirement Program (the "401(k) Plan"), a plan intended to be tax-
qualified and 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
percent (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 (net of tax witholding) totaling approximately $23
million, including approximately $12.3 million distributed to certain
affiliates of Bain, $4.2 million to Mr. Rosenthal and $165,000 to Mr. Moore.
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 Reorganization or 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 55,483 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 $70.29 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 the
Reorganization, prior to the Spin-Off Distribution such members of management
will receive 30,823 of the shares held in such escrow account (including
14,770 shares to Mr. Rosenthal and 9,632 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 4,228 shares to Mr.
Rosenthal and 942 shares to Mr. Moore) on a pro rata basis. All share data in
this Prospectus gives effect to the issuance of shares in accordance with the
TARSAP Plan, as amended.
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. This arrangement terminated
upon the Drop-Down.
40
<PAGE>
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 and leased certain facilities
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 shared 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.
From April 1995 through September 1997, the Parent Company borrowed an
aggregate of approximately $182.9 million from R.R. Donnelley, including
accrued interest at the LIBOR rate plus 35 basis points per annum. In
connection with the Reorganization, the aggregate amount of these loans was or
will be converted into voting stock of the Company and Corporate Software &
Technology and non-voting preferred stock of Modus Media International, and
R.R. Donnelley has released the Company and the Spin-Off Subsidiaries
therefrom. See "The Reorganization."
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 6,747 and 40,486 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 Parent Company,
respectively, at a purchase price of $74.10 per share (prior to giving effect
to the Spin-Off Distribution).
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 accrue interest at the rates of 5.80% and 7.34%,
respectively, and are due on April 21, 2000. The Company has agreed to pay to
Mr. Moore an amount equal to the interest payable on the $100,000 loan. The
full amount of these loans is currently outstanding.
Messrs. Cowan, Leahy, Morphis and Rosenthal, each of whom 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 were assigned to or assumed by the Spin-Off Subsidiaries in
connection with the Reorganization, and the costs and expenses associated with
these individuals are included in the Company's financial statements based on
allocations of time spent by management providing services to the Company and
the Spin-Off Subsidiaries.
41
<PAGE>
THE REORGANIZATION
Prior to the closing of this offering, the Company will complete a
Reorganization pursuant to which (i) the Company and certain of its
subsidiaries have contributed to the Spin-Off Subsidiaries its Corporate
Software & Technology Business and MMI Business and (ii) the Company will
distribute to the Company's stockholders all of the outstanding voting stock of
the Spin-Off Subsidiaries owned by the Company. 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 the Selling
Stockholders in this offering, own approximately 87.4% of the outstanding
Common Stock of the Company. Upon the closing of this offering, R.R. Donnelley
and its affiliates will own approximately 49.3% of the outstanding Common Stock
of the Company (43.2% if the Underwriters' over-allotment option is exercised
in full). Following the Reorganization, R.R. Donnelley and its affiliates will
also own approximately 86.1% of the outstanding voting stock of Corporate
Software & Technology and shares of non-voting preferred stock of Modus Media
International. R.R. Donnelley has agreed that for a period of three years
following the effectiveness of the Registration Statement relating to this
offering it will not purchase any additional shares of Common Stock that would
result in it and its affiliates owning 50% or more of the Company's outstanding
Common Stock.
In connection with the Reorganization, the Company has entered into the
following arrangements with the Spin-Off Subsidiaries and R.R. Donnelley:
Contribution Agreements. The Company has entered into a Contribution
Agreement with each of the Spin-Off Subsidiaries (collectively, the
"Contribution Agreements") providing for the contribution of the Corporate
Software & Technology Business to one Spin-Off Subsidiary (the "CS&T
Subsidiary") and the MMI Business to the other Spin-Off Subsidiary (the "MMI
Subsidiary"), including the assets and liabilities of such respective
businesses. 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 the event the Spin-Off Subsidiaries fail to provide the
required indemnification and a claim for payment is made within three years of
the Drop-Down (which occurred on December 15, 1997), R.R. Donnelley has agreed
to guarantee such indemnification to the Company, up to an aggregate indemnity
of $100 million. In addition, each Spin-Off Subsidiary has guaranteed to Stream
the indemnification obligations of the other Spin-Off Subsidiary with respect
to any indemnification claim made prior to the date on which the Spin-Off
Subsidiary providing the guarantee is acquired or effects an initial public
offering. The Company will, however, generally remain contingently liable for
all liabilities assumed by the Spin-Off Subsidiaries. The Contribution
Agreements provide for arbitration in the event there is a dispute as to any
indemnification obligation by a Spin-Off Subsidiary, and R.R. Donnelley is not
required to make any guaranty payment with respect to any disputed claim until
60 days after such dispute is resolved. There can be no assurance that claims
relating to liabilities of the Spin-Off Subsidiaries will not be asserted
against the Company or that, if any such claim is asserted, the Spin-Off
Subsidiaries will have the financial resources to satisfy such claims or that
the Company will be able to collect any indemnified amounts from the Spin-Off
Subsidiaries or R.R. Donnelley on a timely basis, if at all. Any failure to
collect such indemnified amounts, or delay in doing so, could have a material
adverse effect on the Company.
Assumption and Exchange of Indebtedness. In connection with the
Reorganization, the Company assumed approximately $81.3 million of indebtedness
to R.R. Donnelley, and R.R. Donnelley exchanged such indebtedness for 2,721,329
shares of Common Stock. R.R. Donnelley has exchanged or will exchange the
remaining indebtedness from the Parent Company for shares of voting common
stock of the CS&T Subsidiary and shares of non-voting preferred stock of the
MMI Subsidiary.
42
<PAGE>
Transitional Service Agreements. The Company has historically depended on
the businesses 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 has entered into agreements with the Spin-Off Subsidiaries
(collectively, the "Transitional Service Agreements") for the continued
provision after the Drop-Down of certain services formerly shared among such
entities or provided by R.R. Donnelley. Pursuant to the Transitional Service
Agreements, the Company receives from the Spin-Off Subsidiaries certain tax,
employee benefits and other services, and the Company provides to the Spin-Off
Subsidiaries certain legal services 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
party's confidential information other than in connection with the performance
of its obligations under such agreements.
The Transitional Service Agreements generally terminate by the first quarter
of 1998. 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 comparable terms. 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 have
entered into a tax sharing agreement under which the Spin-Off Subsidiaries
will indemnify the Company, and the Company will indemnify the Spin-Off
Subsidiaries, in respect of any taxes relating to their respective businesses
prior to the Drop-Down, after taking into account, under rules set forth in
the tax sharing agreement, the net operating loss carryforwards and other tax
attributes of the Parent Company immediately prior to the Drop-Down (and in
limited circumstances losses and other tax attributes of the Company carried
back to periods prior to the Drop-Down). The tax sharing agreement also
defines the parties' obligations with respect to filing tax returns, and their
rights and obligations with respect to claims made by the Internal Revenue
Service or other taxing authority with respect to periods prior to the Drop-
Down. Subject to reimbursement by R.R. Donnelley, described below, the Company
will be responsible for income taxes payable by the Company as a result of the
Reorganization, which is not expected to be tax-free to either the Company or
its stockholders.
R.R. Donnelley Tax Indemnification and Guaranty. The Company and R.R.
Donnelley have entered into a tax reimbursement agreement under which R.R.
Donnelley will pay or reimburse the Company for any income taxes payable by
the Company as a direct result of the Reorganization, after taking into
account, under rules set forth in the tax reimbursement agreement, the net
operating loss carryforwards and other tax attributes of the Parent Company
immediately prior to the Drop-Down (and in limited circumstances losses and
other tax attributes of the Company carried back to periods prior to the Drop-
Down). The current net operating and capital losses and the net operating loss
carryforwards, capital loss carryovers, credits and tax attributes
(collectively, the "Tax Attributes") of the Parent Company as of the closing
date of the Drop-Down (to the extent not utilized, first, to offset income or
other taxes that arise as a result of the Reorganization and, next, to offset
income or other taxes relating to the businesses of the Company and the Spin-
Off Subsidiaries prior to the Drop-Down) may be available to offset taxable
income of the Company in periods after the date of the Drop-Down. To the
extent such Tax Attributes are actually so used, the Company has agreed in the
tax reimbursement agreement to pay to R.R. Donnelley the amount by which the
Company's income tax liability is actually reduced as a result of the
utilization of such Tax Attributes (determined after the utilization of all
other losses and tax attributes that are or would otherwise be available to
the Company for a particular taxable year). The aggregate amount payable by
the Company will not exceed the aggregate amount paid by R.R. Donnelley
pursuant to the tax reimbursement agreement and, to the extent relating to
taxes, the guaranty described below. The tax reimbursement agreement provides
that R.R. Donnelley will generally have shared control with the Company (and
in certain circumstances sole control) with respect to administrative and
court proceedings in connection with claims by the Internal Revenue Service or
other taxing authority relating to tax issues with respect to the steps
included in the Reorganization.
43
<PAGE>
R.R. Donnelley will also guaranty the obligations of the Spin-Off
Subsidiaries to the Company in respect of taxes relating to the businesses of
the Spin-Off Subsidiaries (see "--Tax Sharing Agreement", above). In the case
of taxes other than income taxes, (i) any claim by the Company for payment from
R.R. Donnelley must be made within three years of the date of the Drop-Down and
(ii) the amount payable by R.R. Donnelley pursuant to its guaranty, when
combined with the aggregate indemnities by R.R. Donnelley described above under
"--Contribution Agreements", will not exceed $100 million.
Certain Voting Rights. Bain and R.R. Donnelley have entered into a voting
agreement pursuant to which until the earlier of June 30, 1999 and the closing
of the Company's initial public offering, R.R. Donnelley has granted to Bain an
irrevocable proxy to vote its shares of capital stock of the Company, except
with respect to the election of one director designated by R.R. Donnelley
pursuant to the voting agreement (Mr. Richman) and the matters as to which it
has approval rights under the Certificate of Incorporation, as described below.
Upon the Drop-Down, the Certificate of Incorporation of the Company was amended
to provide that, until the closing of the Company's initial public offering,
the Company shall not, without the approval of R.R. Donnelley, (i) amend the
Certificate of Incorporation in such manner as would adversely affect the
rights of R.R. Donnelley thereunder, (ii) authorize or issue any capital stock
having any preference as to dividends or liquidation superior to or on a parity
with the Class A Common Stock, (iii) merge or consolidate with any other
person, subject to certain exceptions, (iv) sell assets consisting of more than
25% of its net worth or shares representing more than 25% of its outstanding
shares, other than for cash and/or publicly traded securities, (v) effect an
initial public offering that does not meet certain criteria or (vi) enter into
any transactions with affiliates, subject to certain exceptions. These voting
provisions will terminate upon the closing of this offering.
Subcontracts. The Company and the CS&T Subsidiary have entered into a
subcontract pursuant to which the CS&T Subsidiary provides 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 has entered into subleases pursuant to which the
Company subleases call center space in Amsterdam to R.R. Donnelley.
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.
The action was originally commenced in the Delaware Court of Chancery on May
17, 1994 and is captioned State of Wisconsin Investment Board and Cede & Co. v.
Corporate Software, Inc. Certain additional shares previously subject to this
proceeding have been redeemed by the Parent Company for amounts ranging from
$15.00 to $15.125 per share plus interest and attorneys' fees. 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 has assigned this potential liability to the CS&T Subsidiary, which has
agreed 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 has been assumed by the respective Spin-Off Subsidiaries and
is 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 October 1, 1997, and as
adjusted to reflect the sale of the shares of Common Stock offered hereby, by
(i) certain principal stockholders, including 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, (iii) each of the Named Executive
Officers and (iv) all directors and executive officers as a group.
<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>
PRINCIPAL STOCKHOLDERS
R.R. Donnelley & Sons 5,668,697 87.4% 1,520,000(3) 4,148,697(3) 49.3%
Company (2) ..........
77 West Wacker Drive
Chicago, Illinois
60601
Bain Capital Funds (4). 262,085 4.0 -- 262,085 3.1
c/o Bain Capital, Inc.
Two Copley Place
Boston, Massachusetts
02116
DIRECTORS AND NAMED
EXECUTIVE OFFICERS
Stephen D.R. Moore (5). 56,716 * -- 56,716 *
Judith G. Salerno (6).. 8,739 * -- 8,739 *
Jonathan S. Lavine (7). -- -- -- -- --
John M. Richman........ -- -- -- -- --
Mark E. Nunnelly (8)... -- -- -- -- --
All directors and
executive officers as
a group
(6 persons) (9)....... 65,708 1.0 -- 65,708 *
</TABLE>
- --------
*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 October 1, 1997 pursuant to the exercise of
options. All share amounts give effect to the distribution of shares of
Common Stock pursuant to the TARSAP Plan. See "Certain Transactions."
(2) Includes 2,433,347 shares of Common Stock held by R.R. Donnelley & Sons
Company, 224,295 shares of Common Stock held by R.R. Donnelley
International, Inc. and 289,726 shares of Common Stock held by R.R.
Donnelley Norwest Inc. Also includes 2,721,329 shares of Common Stock
issued to R.R. Donnelley upon the exchange of approximately $81.3 million
of indebtedness to R.R. Donnelley assumed by the Company in the
Reorganization.
(3) R.R. Donnelley has granted to the Underwriters a 30-day option to
purchase up to 516,750 additional shares of Common Stock solely to cover
over-allotments, if any. This table assumes no exercise of such over-
allotment option.
(4) Includes 75,948 shares of Common Stock held by Bain Capital Fund IV L.P.,
86,914 shares of Common Stock held by Bain Capital Fund IV-B L.P. and
81,068 shares of Common Stock held by Information Partners Capital Fund
L.P. Bain Capital, Inc. exercises investment and voting power with
respect to each of these funds. Also includes 11,391 shares of Common
Stock held by BCIP Associates and 6,764 shares of Common Stock held by
BCIP Trust Associates.
(5) Includes 26,021 shares subject to outstanding stock options that are
exercisable within the 60-day period following October 1, 1997 and 8,490
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 5,223 shares subject to outstanding stock options that are
exercisable within the 60-day period following October 1, 1997.
(7) Excludes the shares described in Note (4), as to which Mr. Lavine
disclaims beneficial ownership. Mr. Lavine is a principal of Bain Capital
Fund, Inc., the management company for Bain Capital Fund IV, L.P. and
Bain Capital Fund IV-B, L.P., and is a general partner of BCIP Associates
and BCIP Trust Associates.
(8) Excludes the shares described in Note (4) above, as to which Mr. Nunnelly
disclaims beneficial ownership. Mr. Nunnelly is a managing director of
Bain Capital Investors, Inc., the general partner of Bain Capital
Partners IV, L.P., which is the general partner of Bain Capital Fund IV,
L.P., Bain Capital Fund IV-B L.P. and Information Partners (which in turn
is the general partner of Information Partners Capital Fund, L.P.). Mr.
Nunnelly is also a general partner of each of BCIP Associates and BCIP
Trust Associates.
(9) Includes the shares described in Notes (5) and (6) above and an
additional 31,497 shares issuable upon the exercise of options within the
60-day period following October 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 50,000,000 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, in each case prior to the closing of this offering.
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 their direct transferees who acquire up to a 25% equity
interest in the Company) from this restriction.
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 provisions relating to 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.
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.
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. See "Risk Factors--Antitakeover
Provisions" and "Management."
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 8,413,961 shares of
Common Stock outstanding (assuming no exercise of outstanding options). Of
these shares, the 3,445,000 shares (3,961,750 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 4,968,961 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 539,212 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 450,455 shares are subject to
lock-up agreements (as described below). Approximately 121,527 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 4,813,927
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 84,140 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. 200,971 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; 104,975 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. Such registration statements are expected to become
effective on the date 90 days after the date of this Prospectus. 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 will hold 4,846,058 shares of Common Stock immediately following
this offering and options to purchase 104,975 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 BT Alex.
Brown 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 BT Alex. Brown 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 up to approximately 4,939,146 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 the effective date of
this offering. 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,
BT Alex. Brown Incorporated, Lehman Brothers Inc., J.P. Morgan Securities 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>
BT Alex. Brown Incorporated........................................
Lehman Brothers Inc................................................
J.P. Morgan Securities Inc. .......................................
Smith Barney Inc...................................................
---------
Total.......................................................... 3,445,000
=========
</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 516,750 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 3,445,000, 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 3,445,000 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 BT Alex. Brown 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 could
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 Representatives of the
Underwriters and a Pricing Committee of the Board of Directors that will
include a representative of R.R. Donnelley. 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 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 certain
matters will be passed upon for the Underwriters by Testa, Hurwitz &
Thibeault, llp, Boston, Massachusetts.
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.
52
<PAGE>
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. With respect to each
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. 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 and September
30, 1997................................................................. F-3
Consolidated Statements of Income for Each of the Three Years in the Peri-
ods Ended December 31, 1994, 1995 and 1996 and for the Nine Month Periods
Ended September 30, 1996 and 1997........................................ F-4
Consolidated Statements of Stockholders' Investment for Each of the Three
Years in the Periods Ended December 31, 1994, 1995 and 1996 and for the
Nine Month Period Ended September 30, 1997............................... F-5
Consolidated Statements of Cash Flows for Each of the Three Years in the
Periods Ended
December 31, 1994, 1995 and 1996 and for the Nine Month Periods Ended
September 30, 1996 and 1997.............................................. 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 (except with respect
to the matters discussed in Note
13, as to which the date is
December 23, 1997)
F-2
<PAGE>
STREAM INTERNATIONAL INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996 AND SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- SEPTEMBER 30,
1995 1996 1997
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................... $ 21 $ 1,142 $11,102
Accounts receivable, less allowance for doubt-
ful accounts of $156 in 1995, $304 in 1996 and
$277 in the nine month period ended September
30, 1997...................................... 21,981 35,636 35,406
Deferred income taxes.......................... 190 1,323 2,720
Prepaid expenses............................... 1,706 1,345 2,218
Other current assets........................... 64 339 753
------- ------- -------
Total current assets......................... 23,962 39,785 52,199
------- ------- -------
PROPERTY AND EQUIPMENT:
Building and leasehold improvements............ 1,454 5,455 4,716
Equipment and furniture........................ 34,856 53,695 53,362
Construction in process........................ 2,893 82 2,355
------- ------- -------
39,203 59,232 60,433
Accumulated depreciation....................... 9,962 22,415 27,526
------- ------- -------
Net property and equipment..................... 29,241 36,817 32,907
OTHER ASSETS..................................... 395 385 1,876
------- ------- -------
Total assets................................. $53,598 $76,987 $86,982
======= ======= =======
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Current portion of long-term debt.............. $ -- $ 837 $ 808
Accounts payable............................... 2,708 1,344 1,796
Other accrued liabilities...................... 7,079 11,919 21,832
Nonrecurring charge accrual.................... -- 4,500 4,897
Current portion of capital lease obligation.... 825 1,275 478
------- ------- -------
Total current liabilities.................... 10,612 19,875 29,811
------- ------- -------
LONG-TERM DEBT................................... -- 3,348 3,228
DEFERRED INCOME TAXES............................ 288 497 580
LONG-TERM PORTION OF CAPITAL LEASE OBLIGATION.... 1,734 604 387
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' INVESTMENT:
Net parent company investment.................. 40,947 52,584 52,926
Cumulative translation adjustment.............. 17 79 50
------- ------- -------
Total stockholders' investment............... 40,964 52,663 52,976
------- ------- -------
Total liabilities and stockholders' invest-
ment........................................ $53,598 $76,987 $86,982
======= ======= =======
</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 AND THE NINE MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- ------------------
1994 1995 1996 1996 1997
------- ------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues......................... $37,388 $78,243 $155,498 $109,399 $139,308
Operating expenses:
Cost of services............... 22,891 57,338 117,309 83,580 99,476
Selling, general and adminis-
trative
expenses...................... 10,646 23,994 39,110 27,649 34,583
Nonrecurring charges........... -- -- 4,500 -- 2,000
------- ------- -------- -------- --------
33,537 81,332 160,919 111,229 136,059
Income (loss) from operations.... 3,851 (3,089) (5,421) (1,830) 3,249
Interest expense................. -- -- 188 145 124
------- ------- -------- -------- --------
Income (loss) before income tax-
es.............................. 3,851 (3,089) (5,609) (1,975) 3,125
Provision (benefit) for income
taxes........................... 1,724 (817) (924) (485) 1,783
------- ------- -------- -------- --------
Net income (loss)................ $ 2,127 $(2,272) $ (4,685) $ (1,490) $ 1,342
======= ======= ======== ======== ========
Pro forma net income per common
share........................... $ .33 $ (.35) $ (.72) $ (.23) $ .21
======= ======= ======== ======== ========
Pro forma weighted average common
shares outstanding.............. 6,389 6,438 6,480 6,470 6,489
======= ======= ======== ======== ========
</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 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1997
(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
Net income (unaudited).. 1,342 1,342
Translation adjustment.. (29) (29)
Net transfers from (to)
parent Company......... (1,000) (1,000)
------- --- --- --- --- ---- -------
BALANCES AT SEPTEMBER
30, 1997 (UNAUDITED)... $52,926 0 $0 $ 0 $ 0 $ 50 $52,976
======= === === === === ==== =======
</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 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- ----------------
1994 1995 1996 1996 1997
------- -------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIV-
ITIES:
Net income (loss)............. $ 2,127 $ (2,272) $ (4,685) $(1,490) $ 1,342
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Nonrecurring charge......... -- -- 4,500 -- 2,000
Depreciation and amortiza-
tion....................... 2,600 6,233 12,624 9,777 10,806
(Gain) loss on disposal of
fixed assets............... (175) -- 14 522 250
Deferred income taxes....... (187) 285 (924) (94) (1,314)
Changes in assets and liabili-
ties:
Accounts receivable--net.... (4,581) (14,052) (13,655) (1,529) (339)
Prepaid expenses............ (475) (1,125) 361 1,117 (905)
Other current assets........ (125) 61 (275) (480) (404)
Other noncurrent assets..... (223) (154) 10 19 (1,491)
Accounts payable............ 254 2,001 (1,364) (1,746) 509
Accrued liabilities......... 908 3,735 4,840 (1,880) 10,537
Nonrecurring charge usage... -- -- -- -- (1,538)
------- -------- -------- ------- -------
Net cash provided by (used in)
operating
activities................... 123 (5,288) 1,446 4,216 19,453
------- -------- -------- ------- -------
CASH FLOWS FROM INVESTING ACTIV-
ITIES:
Purchase of property and
equipment.................... (7,748) (24,053) (20,014) (19,391) (8,629)
Proceeds from sale of fixed
assets....................... 1,640 -- 280 -- 1,000
------- -------- -------- ------- -------
Net cash used in investing ac-
tivities....................... (6,108) (24,053) (19,734) (19,391) (7,629)
------- -------- -------- ------- -------
CASH FLOWS FROM FINANCING ACTIV-
ITIES:
Payments under capital lease
obligations.................. (1,133) (1,433) (1,160) (601) (977)
Net transfers from (to) parent
company...................... 7,281 30,613 16,322 15,772 (1,000)
Net proceeds from long-term
borrowings................... -- -- 4,185 -- --
------- -------- -------- ------- -------
Net cash provided by (used in)
financing activities......... 6,148 29,180 19,347 15,171 (1,977)
------- -------- -------- ------- -------
Effect of exchange rate changes
on cash and cash equivalents... (3) 20 62 (13) 113
------- -------- -------- ------- -------
NET INCREASE (DECREASE) IN CASH
AND CASH
EQUIVALENTS.................... 160 (141) 1,121 (17) 9,960
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD............ 2 162 21 21 1,142
------- -------- -------- ------- -------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD...................... $ 162 $ 21 $ 1,142 $ 4 $11,102
======= ======== ======== ======= =======
Supplemental disclosure
of noncash financing
activities:
Assets acquired through capital
lease.......................... $ 3,601 $ 53 $ 480 $ 480 $ --
Supplemental disclosure of cash
flow information:
Cash paid during the period for
interest....................... $ -- $ -- $ 188 $ 145 $ 124
</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
(SEPTEMBER 30, 1996 AND 1997 INFORMATION IS UNAUDITED)
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., France, the
Netherlands and the United Kingdom.
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 Global Software
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) distribute to the Parent Company's stockholders all of the outstanding
voting stock of the Spin-Off Subsidiaries, (iii) assume approximately $81.3
million in indebtedness to R.R. Donnelley and exchange such indebtedness for
common stock and (iv) effect a one-for-12.35 reverse stock split of the
Company's Common Stock.
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.
Operating results through the consummation of the Reorganization are
recorded as a return of capital to or contributions from the Parent Company.
INTERIM FINANCIAL STATEMENTS
The unaudited financial statements as of September 30, 1997, and for the
nine months ended September 30, 1996 and September 30, 1997, in the opinion of
management include all adjustments (consisting of only normal recurring
adjustments) necessary for a fair presentation of such information. The
results of operations for the nine months ended September 30, 1997 are not
necessarily indicative of the results for the full year.
F-7
<PAGE>
STREAM INTERNATIONAL INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(SEPTEMBER 30, 1996 AND 1997 INFORMATION IS UNAUDITED)
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 on a separate return basis, regardless of when such taxes are
payable. Any related current tax liability (benefit) is reflected as an
increase (decrease) in net parent company investment. Future tax benefits
related to foreign subsidiaries 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.
Certain costs and expenses allocable to the Company by the Parent Company
have been allocated based on management's estimates. Management believes that
these allocations are based on assumptions that are reasonable under the
circumstances. The historical operating impact may not be indicative of future
results. See Note 6, "Related Party Transactions."
F-8
<PAGE>
STREAM INTERNATIONAL INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(SEPTEMBER 30, 1996 AND 1997 INFORMATION IS UNAUDITED)
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 assesses 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. As discussed further in
Note 5, the Company recognized losses relating to certain assets not expected
to be utilized after the Reorganization that totaled approximately $1.4
million during the year ended December 31, 1996. This impairment charge has
been included as a component of the nonrecurring charges in the Company's
Consolidated Statements of Income for the period ended December 31, 1996. No
other impairment losses were recognized during the year ended December 31,
1996.
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,
defined as revenues in excess of 10% of total revenues, and the revenues as a
percentage of total sales for the periods ended December 31, 1994, 1995 and
1996 and for the nine months ended September 30, 1996 and 1997 are as follows
(dollar amounts in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------- ------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
$ % $ % $ % $ % $ %
------- --- ------- --- ------- --- ------- --- ------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Customer A....... $27,427 73% $44,207 57% $62,188 40% $45,811 42% $62,868 45%
Customer B....... * * $ 8,562 11% $18,904 12% $16,695 15% * *
Customer C....... * * * * $19,822 13% * * $32,341 23%
Customer D....... * * * * $19,067 12% $14,531 13% * *
</TABLE>
- --------
* Accounted for less than 10% of total revenues for the period indicated.
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 CHARGES
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.
F-9
<PAGE>
STREAM INTERNATIONAL INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(SEPTEMBER 30, 1996 AND 1997 INFORMATION IS UNAUDITED)
During the period ended September 30, 1997, the Company recorded an
additional charge associated with the consolidation of certain European
locations relating to employee termination benefits.
6. RELATED PARTY TRANSACTIONS
The Company's net parent company investment represents the Parent Company's
cumulative equity funding of operations and does not constitute intercompany
debt.
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 amounted to $3,170,000, $5,208,000 and
$7,722,000 for the years ended December 31, 1994, 1995 and 1996, respectively,
and $5,459,000 and $438,000 for the nine month periods ended September 30,
1996 and 1997, respectively.
The Company and the Spin-Off Subsidiaries will enter into agreements
(collectively, the "Transitional Service Agreements") for the continued
provision following the Reorganization of certain services formerly shared
among such entities. Pursuant to the Transitional Service Agreements, the
Company will receive from the Spin-Off Subsidiaries certain tax, employee
benefits and other services and will provide to the Spin-Off Subsidiaries
certain legal and information technology services.
The Company and the Spin-Off Subsidiaries will enter into a tax sharing
agreement under which the Spin-Off Subsidiaries will indemnify the Company,
and the Company will indemnify the Spin-Off Subsidiaries, in respect of any
taxes relating to their respective businesses prior to the consummation of the
Reorganization, after taking into account the net operating loss carryforwards
and other tax attributes of the Company immediately prior to consummation of
the Reorganization. The tax sharing agreement also defines the parties'
obligations with respect to filing tax returns, and their rights and
obligations with respect to claims made by the Internal Revenue Service or
other taxing authority with respect to periods prior to the date of the
Reorganization.
7. INCOME TAXES
The components of income/(loss) before income taxes are as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- ---------------
1994 1995 1996 1996 1997
------- -------- -------- ------- ------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Domestic.......................... $ 4,315 $ (2,045) $ (2,307) $(1,213) $5,199
Foreign........................... (464) (1,044) (3,302) (762) (2,074)
------- -------- -------- ------- ------
$ 3,851 $ (3,089) $ (5,609) $(1,975) $3,125
======= ======== ======== ======= ======
</TABLE>
F-10
<PAGE>
STREAM INTERNATIONAL INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(SEPTEMBER 30, 1996 AND 1997 INFORMATION IS UNAUDITED)
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------- ----------------
1994 1995 1996 1996 1997
-------- -------- ------- ------ -------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current provision:
Federal..................... $ 1,547 $ (893) $ (1) $ (390) $ 2,451
State....................... 364 (209) 1 (74) 646
Foreign..................... -- -- -- 73 --
-------- -------- ------- ------ -------
1,911 (1,102) -- (391) 3,097
-------- -------- ------- ------ -------
Deferred provision:
Federal..................... (151) 231 (748) (76) (1,064)
State....................... (36) 54 (176) (18) (250)
-------- -------- ------- ------ -------
(187) 285 (924) (94) (1,314)
-------- -------- ------- ------ -------
$ 1,724 $ (817) $ (924) $ (485) $ 1,783
======== ======== ======= ====== =======
The following reconciles the Company's effective tax rate to the federal
statutory rate for the years ended December 31, 1994, 1995 and 1996, and for
the nine month periods ended September 30, 1996 and 1997:
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------- ----------------
1994 1995 1996 1996 1997
-------- -------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
Federal statutory rate....... 35.0% (35.0)% (35.0)% (35.0)% 35.0%
State income taxes, net of
federal deduction........... 5.5 (3.3) (2.0) (3.0) 8.2
Change in valuation allowance
and other items............. 4.3 11.9 20.5 13.4 13.9
-------- -------- ------- ------ -------
44.8% (26.4)% (16.5)% (24.6)% 57.1%
======== ======== ======= ====== =======
</TABLE>
The Company's deferred income tax assets and liabilities are summarized as
follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- -------------
1994 1995 1996 1997
------- ------- -------- -------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts...... $ 34 $ 62 $ 121 $ 752
Accrued liabilities.................. 295 491 1,495 1,968
Foreign operating losses not
benefited and other items........... 180 536 1,586 1,710
------ ------- -------- -------
509 1,089 3,202 4,430
Valuation allowance.................. (180) (536) (1,586) (1,710)
------ ------- -------- -------
Total deferred tax asset.......... $ 329 $ 553 $ 1,616 $ 2,720
====== ======= ======== =======
Deferred tax liabilities:
Property, plant & equipment.......... $ (142) $ (651) $ (790) $ (580)
------ ------- -------- -------
Net deferred tax asset (liability)... $ 187 $ (98) $ 826 $ 2,140
====== ======= ======== =======
</TABLE>
F-11
<PAGE>
STREAM INTERNATIONAL INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(SEPTEMBER 30, 1996 AND 1997 INFORMATION IS UNAUDITED)
The current net operating and capital losses and the net operating loss
carryforwards, capital loss carryovers, credits and tax attributes of the
Company as of the closing date of the Reorganization (to the extent not
utilized to offset income or taxes relating to the businesses of the Company
and Spin-Off Subsidiaries prior to consummation of the Reorganization or to
offset income or taxes that arise as a result of the Reorganization) may be
available to offset taxable income of the Company in periods after the date of
the Reorganization.
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 0.65% 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 was in compliance
with the covenants of the agreement.
9. STOCKHOLDERS' INVESTMENT
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.
Prior to the Reorganization, the Parent Company reduced the exercise price
of all outstanding options to purchase common stock (subject to certain
exceptions) to equal the fair market value of the Parent Company's common
stock. 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 options in each of the Spin-Off Subsidiaries. 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 of the Company's 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
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. The portion of the Parent Company's
contributions and costs attributable to the Company amounted to approximately
$215,000, $119,000, and $313,000, for each of the years ended December 31,
1994, 1995 and 1996, respectively, and $235,000, and $369,000, for the nine
month periods ended September 30, 1996 and 1997, respectively.
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,
F-12
<PAGE>
STREAM INTERNATIONAL INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(SEPTEMBER 30, 1996 AND 1997 INFORMATION IS UNAUDITED)
$4,000,000, and $5,765,000 for the years ended December 31, 1994, 1995 and
1996, respectively, and $4,559,000 and $3,858,000 for the nine month periods
ended September 30, 1996 and 1997, 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 and September 30, 1997 were approximately
$3,614,000, $4,094,000, and $3,504,000, respectively. Corresponding amounts of
accumulated depreciation were $2,069,000, $3,071,000, and $3,737,000,
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 and September 30, 1997
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 SEPTEMBER 30, 1997
---------------------- --------------------
OPERATING CAPITAL OPERATING CAPITAL
LEASES LEASES LEASES LEASES
----------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Year ended December 31:
1997........................ $ 5,488,000 $1,354,000 $ 1,632,000 $281,000
1998........................ 5,468,000 581,000 5,886,000 581,000
1999........................ 4,959,000 50,000 5,377,000 50,000
2000........................ 3,142,000 11,000 3,595,000 11,000
2001........................ 1,240,000 -- 1,697,000 --
Thereafter.................. 1,339,000 -- 4,695,000 --
----------- ---------- ----------- --------
Total minimum payments........ $21,636,000 1,996,000 $22,882,000 923,000
=========== ===========
Less: Amount representing
interest..................... (117,000) (58,000)
---------- --------
Present value of minimum lease
payments..................... $1,879,000 $865,000
========== ========
</TABLE>
In October 1997, the Company entered into a 5 year building lease in
Amsterdam, the Netherlands. The building will house the Company's call center
operations in Amsterdam. Under the terms of the lease, the Company's minimum
obligation will be approximately 1,470,000 dutch guilders per year.
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 the joint venture's debt. As of
September 30, 1997, the Company's share of the joint venture's cumulative
losses did not exceed its investment.
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
F-13
<PAGE>
STREAM INTERNATIONAL INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(SEPTEMBER 30, 1996 AND 1997 INFORMATION IS UNAUDITED)
Law. One of the Spin-Off Subsidiaries will agree to indemnify the Company for
any liability incurred as a result of the proceedings.
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 will agree 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 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
-------------------------- ------------------
1994 1995 1996 1996 1997
------- ------- -------- -------- --------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
United States................. $35,029 $70,406 $134,741 $ 93,886 $124,047
Europe........................ 2,359 7,837 20,757 15,513 15,261
------- ------- -------- -------- --------
$37,388 $78,243 $155,498 $109,399 $139,308
======= ======= ======== ======== ========
Income (loss) from operations:
United States................. $ 3,974 $(1,863) $ (185) $ (540) $ 7,715
Europe........................ (123) (1,226) (5,236) (1,290) (4,466)
------- ------- -------- -------- --------
$ 3,851 $(3,089) $ (5,421) $ (1,830) $ 3,249
======= ======= ======== ======== ========
Identifiable assets:
United States................. $19,003 $47,491 $ 65,084 $ 47,702 $ 72,123
Europe........................ 1,590 6,107 11,903 11,176 14,859
------- ------- -------- -------- --------
$20,593 $53,598 $ 76,987 $ 58,878 $ 86,982
======= ======= ======== ======== ========
</TABLE>
13. SUBSEQUENT EVENTS
INITIAL PUBLIC OFFERING
The Company filed a Form S-1 for an initial public offering ("IPO") of
common stock on December 23, 1997, of which the Reorganization is a condition
precedent to the closing. Pro forma earnings per share have been computed
based on the weighted average number of shares outstanding giving effect to
the Reorganization, which is discussed in Note 2. In connection with the
Reorganization, the Parent Company's stock option plans will be replaced by
substitute awards, as discussed in Note 9. The effect of dilutive common stock
options is immaterial for all periods presented.
F-14
<PAGE>
STREAM INTERNATIONAL INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(SEPTEMBER 30, 1996 AND 1997 INFORMATION IS UNAUDITED)
If the Reorganization had been completed at September 30, 1997, the
outstanding options and the pro forma weighted average exercise prices would
have been 330,496 shares and $39.22, respectively. Upon the effectiveness of
this offering, the Company plans to reduce the exercise price of 152,319 of
these options to a price equal to 100% of the initial public offering price.
F-15
<PAGE>
[INSIDE BACK COVER PAGE OF PROSPECTUS]
"WORLD-CLASS QUALITY." BELOW THE STATEMENT ARE PICTURES OF THREE AWARDS WITH
THE FOLLOWING CORRESPONDING STATEMENTS: "STREAM HAS WON THE SOFTWARE SUPPORT
PROFESSIONALS ASSOCIATION STAR (SOFTWARE TECHNICAL ASSISTANCE RECOGNITION)
AWARD FOR THE PAST FOUR YEARS." "IN 1996, MICROSOFT RECOGNIZED STREAM FOR
EXCELLENCE IN TECHNICAL SUPPORT AS A MICROSOFT AUTHORIZED SUPPORT CENTER."
"STREAM WAS AWARDED 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.................................................................. 23
Management................................................................ 33
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............................................................. 53
Experts................................................................... 53
Additional Information.................................................... 53
Index to Consolidated Financial Statements................................ F-1
</TABLE>
------------
UNTIL , 1998 (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
LOGO
Common Stock
------------
PROSPECTUS
------------
BT ALEX. BROWN
LEHMAN BROTHERS
J.P. MORGAN & CO.
SALOMON SMITH BARNEY
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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.................................................... 10,000
Nasdaq Listing Fee............................................... 50,000
Blue Sky Fees and Expenses....................................... 7,000
Transfer Agent and Registrar Fees................................ 5,000
Accounting Fees and Expenses..................................... 400,000
Legal Fees and Expenses.......................................... 750,000
Printing, Engraving and Mailing Expenses......................... 400,000
Miscellaneous.................................................... 317,045
----------
Total.......................................................... $2,000,000
==========
</TABLE>
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 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, the
repricing of options and the adjustment to options in connection with the
Reorganization, or the Reorganization 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 and 1,623,696 shares of Class B-V Common
Stock.
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 and 6,494,784 shares of Class B-V Common Stock.
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.
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.
8. In December 1997, in connection with the Reorganization, the Registrant
issued to R.R. Donnelley 33,687,421 shares of Class A-1 Common Stock in
exchange for the cancellation of approximately $81.3 million of indebtedness.
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
exercise prices ranging from $6.00 to $14.50 per share and 838,125 shares of
Class B-V Common Stock at exercise prices ranging from $0.67 to $0.89 per
share. 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 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* Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of the
Registrant.
3.2 Amended and Restated By-Laws of the Registrant.
3.3* Form of Amended and Restated Certificate of Incorporation of the
Registrant, to be effective immediately prior to the closing of
this offering.
4 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 Support Services Vendor Agreement
dated as of November 25, 1997 between a subsidiary of the
Registrant and Microsoft Corporation.
10.2 Form of 1997 Stock Incentive Plan.
10.3 Form of 1997 Director Stock Option Plan.
10.4(degrees) 1995 Stock Option Plan, as amended.
10.5(degrees) 1995 Replacement Stock Option Plan.
10.6(degrees) 1995 California Stock Option Plan, as amended.
10.7 Form of amendment to 1995 Stock Option Plan.
10.8 Form of amendment to 1995 Replacement Stock Option Plan.
10.9 Form of amendment to 1995 California Stock Option Plan.
10.10 Contribution Agreement dated as of December 15, 1997 between the
Registrant and the MMI Subsidiary.
10.11 Contribution Agreement dated as of December 15, 1997 among the
Registrant, the CS&T Subsidiary, and a subsidiary of the
Registrant.
10.12 Transitional Service Agreement dated as of December 15, 1997
between a subsidiary of the Registrant and the MMI Subsidiary.
10.13 Transitional Service Agreement dated as of December 15, 1997
between a subsidiary of the Registrant and the CS&T Subsidiary.
10.14 Tax Sharing Agreement dated as of December 15, 1997 among the
Registrant and the Spin-Off Subsidiaries.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.15 Guaranty dated as of December 15, 1997 from R.R. Donnelley to
the Registrant with respect to the MMI Subsidiary.
10.16 Guaranty dated as of December 15, 1997 from R.R. Donnelley to
the Registrant with respect to the CS&T Subsidiary.
10.17 Registration Rights Agreement dated as of April 21, 1995 among
the Registrant and the Stockholders named therein, including
form of amendment thereto.
10.18(degrees) Form of Management Retention Agreement entered into by the
Registrant with Stephen D.R. Moore and Judith G. Salerno.
10.19(degrees) Promissory Note and Stock Pledge Agreement dated April 15, 1996
between Judith G. Salerno and the Registrant.
10.20 Tax Reimbursement Agreement dated as of December 15, 1997
between the Registrant and R.R. Donnelley.
10.21 Guaranty dated as of December 15, 1997 from the MMI Subsidiary
to the Registrant.
10.22 Guaranty dated as of December 15, 1997 from the CS&T Subsidiary
to 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.
24 Powers of Attorney (included on Signature Page).
27 Financial Data Schedule.
</TABLE>
- --------
*To be filed by amendment.
(degrees)Previously filed.
+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 Amendment to Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in Canton, Massachusetts, on this
23rd day of December, 1997.
STREAM INTERNATIONAL INC.
/s/ Stephen D.R. Moore
By: __________________________________
STEPHEN D.R. MOORE, CHIEF
EXECUTIVE OFFICER
POWER OF ATTORNEY AND SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
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, Jeffrey D.
Glidden 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.
SIGNATURE TITLE DATE
Chief Executive
/s/ Stephen D. R. Moore Officer and December 23,
- ------------------------------------ Director 1997
STEPHEN D. R. MOORE (Principal
Executive Officer)
/s/ Jeffrey D. Glidden Chief Financial December 23,
- ------------------------------------ Officer and Vice 1997
JEFFREY D. GLIDDEN President, Finance
(Principal
Financial and
Accounting
Officer)
/s/ Jonathan S. Lavine Director December 23,
- ------------------------------------ 1997
JONATHAN S. LAVINE
/s/ Mark E. Nunnelly Director December 23,
- ------------------------------------ 1997
MARK E. NUNNELLY
II-6
<PAGE>
SIGNATURE TITLE DATE
/s/ John M. Richman Director December 23,
- ------------------------------------- 1997
JOHN M. RICHMAN
/s/ Judith G. Salerno Director December 23,
- ------------------------------------- 1997
JUDITH G. SALERNO
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
Allowance for Doubtful Accounts,
for the year ended December 31,
1996........................... $156,000 $148,000 $ -- $304,000
Allowance for Doubtful Accounts,
for the period ended September
30, 1997
(Unaudited).................... $304,000 $ -- $(27,000) $277,000
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1* Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of the
Registrant.
3.2 Amended and Restated By-Laws of the Registrant.
3.3* Form of Amended and Restated Certificate of Incorporation of
the Registrant, to be effective immediately prior to the
closing of this offering.
4 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 Support Services Vendor Agreement
dated as of November 25, 1997 between a subsidiary of the
Registrant and Microsoft Corporation.
10.2 Form of 1997 Stock Incentive Plan.
10.3 Form of 1997 Director Stock Option Plan.
10.4(degrees) 1995 Stock Option Plan, as amended.
10.5(degrees) 1995 Replacement Stock Option Plan.
10.6(degrees) 1995 California Stock Option Plan, as amended.
10.7 Form of amendment to 1995 Stock Option Plan.
10.8 Form of amendment to 1995 Replacement Stock Option Plan.
10.9 Form of amendment to 1995 California Stock Option Plan.
10.10 Contribution Agreement dated as of December 15, 1997 between
the Registrant and the MMI Subsidiary.
10.11 Contribution Agreement dated as of December 15, 1997 among the
Registrant, the CS&T Subsidiary, and a subsidiary of the
Registrant.
10.12 Transitional Service Agreement dated as of December 15, 1997
between a subsidiary of the Registrant and the MMI Subsidiary.
10.13 Transitional Service Agreement dated as of December 15, 1997
between a subsidiary of the Registrant and the CS&T
Subsidiary.
10.14 Tax Sharing Agreement dated as of December 15, 1997 among the
Registrant and the Spin-Off Subsidiaries.
10.15 Guaranty dated as of December 15, 1997 from R.R. Donnelley to
the Registrant with respect to the MMI Subsidiary.
10.16 Guaranty dated as of December 15, 1997 from R.R. Donnelley to
the Registrant with respect to the CS&T Subsidiary.
10.17 Registration Rights Agreement dated as of April 21, 1995 among
the Registrant and the Stockholders named therein, including
form of amendment thereto.
10.18(degrees) Form of Management Retention Agreement entered into by the
Registrant with Stephen D.R. Moore and Judith G. Salerno.
10.19(degrees) Promissory Note and Stock Pledge Agreement dated April 15, 1996
between Judith G. Salerno and the Registrant.
10.20 Tax Reimbursement Agreement dated as of December 15, 1997
between the Registrant and R.R. Donnelley.
10.21 Guaranty dated as of December 15, 1997 from the MMI Subsidiary
to the Registrant.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.22 Guaranty dated as of December 15, 1997 from the CS&T Subsidiary to 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.
24 Powers of Attorney (included on Signature Page).
27 Financial Data Schedule.
</TABLE>
- --------
*To be filed by amendment.
(degrees)Previously filed.
+Confidential treatment requested as to certain portions, which portions are
omitted and filed separately with the Commission.
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
STREAM INTERNATIONAL HOLDINGS INC.
PURSUANT TO SECTIONS 242 AND 245
OF THE GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE
STREAM INTERNATIONAL HOLDINGS INC. (the "Corporation"), a corporation
organized and existing under and by virtue of the General Corporation Law of the
State of Delaware (the "General Corporation Law"), hereby certifies as follows:
1. The name of the corporation is Stream International Holdings Inc.
Stream International Holdings Inc. was originally incorporated under the name
R.R. Donnelley Global Software Services Corp. and the original Certificate of
Incorporation was filed with the Secretary of State of Delaware on February 16,
1995; on April 21, 1995, the Corporation filed with the Secretary of State of
Delaware a Restated Certificate of Incorporation changing its name to Stream
International Inc.; and on February 8, 1996, it filed with the Secretary of
State of Delaware a Certificate of Amendment changing its name to Stream
International Holdings Inc.
2. This Amended and Restated Certificate of Incorporation restates and
integrates and further amends the Restated Certificate of Incorporation of the
Corporation, as amended, and was duly adopted in accordance with the provisions
of Sections 242 and 245 of the General Corporation Law, and was approved by
written consent of the stockholders of the Corporation given in accordance with
the provisions of Section 228 of the General Corporation Law (prompt notice of
such action having been given to those stockholders who did not consent in
writing). The resolution setting forth the Amended and Restated Certificate of
Incorporation is as follows:
RESOLVED: That the Restated Certificate of Incorporation of the Corporation,
- --------
as amended, be and hereby is amended and restated in its entirety so that the
same shall read as follows:
FIRST. The name of this Corporation is: Stream International Inc.
-1-
<PAGE>
SECOND. The address of the Corporation's registered office in the State of
Delaware is Corporation Trust Company, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of its registered agent at such
address is Corporation Trust Company.
THIRD. The nature of the business or purposes to be conducted or promoted by
the Corporation is as follows:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH. A. Authorized Shares. The total number of shares of stock which
-----------------
the Corporation shall have authority to issue is 135,675,000, consisting of four
classes: (i) 75,000,000 shares of Class A Common Stock, $.01 par value ("A
Common"), (ii) 50,000,000 shares of Class A-1 Common Stock, $.01 par value ("A-1
Common"), (iii) 10,000,000 shares of Class B-V Common Stock, $.01 par value ("BV
Common"), and (iv) 675,000 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 A-1 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." Except as set forth in Sections C and E(1) of this Article
FOURTH, the term "A Common" as used herein shall refer collectively to the A
Common and A-1 Common.
B. Voting. Except as provided in Article ELEVENTH, 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 matters submitted to a vote of Stockholders.
Stockholders may vote by written consent. Each share of A Common, BV Common and
BN Common shall entitle the holder thereof to one vote.
C. Distributions. No dividend shall be declared or paid on any Class of
-------------
Common Stock payable in any other Class of Common Stock of the Corporation. 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.
-2-
<PAGE>
Notwithstanding the foregoing, if the Corporation declares or pays any dividend
or distribution consisting of shares of capital stock of Modus Media
International Holdings Inc. or Corporate Software & Technology Holdings Inc., or
any subsidiary thereof (collectively, the "Subsidiaries"), or declares or pays
any dividend or distribution consisting of the proceeds of any sale or other
disposition of any one or more of the Subsidiaries, no such dividend or
distribution shall be declared or paid on shares of A-1 Common and the entire
amount of such dividend or distribution shall be paid to holders of each other
outstanding Class of Common Stock.
D. Liquidation. 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.
E. Conversion.
----------
1. Effective at the earlier of (a) the time immediately prior to the payment
for and delivery of shares of common stock of the Company 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 1.01527911 shares
of A Common (representing 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 the filing of the Corporation's Restated Certificate of
Incorporation with the Secretary of State of Delaware on April 21, 1995 (the
"Filing Time") which have lapsed or expired prior to the Calculation Time
(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 the Calculation Time and (ii) the number of shares of BV Common
issuable upon exercise of all outstanding options to purchase BV Common
immediately prior to the Calculation Time.) For purposes hereof, "Calculation
Time" shall refer to the closing of the transaction pursuant to which the
Corporation contributes its outsource manufacturing business and software sale
and licensing business to two subsidiaries (the "Contribution"), and the
"Distribution" shall refer to the closing of the transaction pursuant to which
the Corporation distributes all of the outstanding shares of voting stock of
such subsidiaries to its stockholders.
2. 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
-3-
<PAGE>
similar transaction involving the Corporation if after consummation of such
transaction a person or group of persons (within the meaning of the Securities
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 on 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.
3. 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.
4. 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 the
Calculation Time 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.
5. 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 nonassessable.
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. Previous Reclassification of Stock. Upon the filing of the Restated
----------------------------------
Certificate of Incorporation of the Corporation on April 25, 1995, each share of
Common Stock, $.01 par value, of the Corporation issued and outstanding
immediately prior to the time of such filing was 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
-4-
<PAGE>
and after the time of such filing, be deemed to represent the shares of A Common
into which the shares evidenced thereby were so reclassified.
FIFTH.
A. Restrictions on Transfer. No Stockholder may sell, transfer, assign,
------------------------
give, encumber, pledge or otherwise dispose of ("Transfer") all or any part of
its shares of Common Stock in the Corporation (whether voluntarily,
involuntarily or by operation of law), except that a Stockholder may Transfer
any or all of its shares in the Corporation, subject to compliance with the
provisions of Sections B and C below:
1. to the Corporation;
2. to any other Stockholder;
3. by gift, bequest or operation of the laws of descent;
4. to an entity unaffiliated with the Corporation pursuant to a merger,
consolidation, stock-for-stock exchange or similar transaction involving the
Corporation;
5. if such Stockholder is a partnership, to its partners;
6. pursuant to a transaction which would be exempt from the registration
requirements of Section 5 of the Securities Act by virtue of the exemption
provided by Section 4(2) of the Securities Act if the transferor were the issuer
of the shares, provided that the transferee is an "Accredited Investor" within
the meaning of Rule 501(a) promulgated under the Securities Act; or
7. pursuant to an effective registration statement under the Securities Act.
Any such permitted transferee pursuant to clauses (2), (3), (5) or (6) shall
receive and hold such shares or portion thereof subject to the terms hereof and
the obligations of the transferor Stockholder, and there shall be no further
transfer of such shares in the Corporation or portion thereof except in
accordance with the terms of this Article FIFTH.
Each certificate for shares of Common Stock shall bear a legend in
substantially the following form:
"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
-5-
<PAGE>
certain mandatory transfers, as provided in the Amended and Restated
Certificate of Incorporation of the Corporation, a copy of which is on file
at the principal executive offices of the Corporation."
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 the Act or the 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.
The provisions of this Article FIFTH (including the provisions of Sections B
and C below) shall terminate and be of no further force and effect upon the
closing of, and shall not apply to shares sold as a part of, the Initial Public
Offering.
B. Additional Limitations on Transfer.
----------------------------------
1. Notwithstanding the provisions of Section A above, no Transfer of the
shares of Common Stock shall be made if, in the opinion of outside counsel to
the Corporation, such Transfer (i) may not be effected without registration
under the Securities Act or (ii) would result in the violation of any applicable
state securities laws. 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
hereunder.
-6-
<PAGE>
2. A permitted transferee of the shares of a Stockholder, or any portion
thereof, shall become a Stockholder entitled to all the rights of a Stockholder
if, and only if:
(a) the transferee or the transferor pays to the Corporation all costs
and expenses incurred in connection with such Transfer, including specifically,
without limitation, costs incurred in the review and processing of the Transfer;
and
(b) the transferee executes and delivers such instruments, in form and
substance satisfactory to the Corporation, as may be necessary or desirable to
effect such Transfer and to confirm the agreement of the transferee to be bound
by all of the terms and provisions hereof.
3. The Corporation shall be entitled to treat the record owner of any shares
in the Corporation as the absolute owner thereof in all respects, and shall
incur no liability for distributions of cash or other property made in good
faith to such owner until such time as the Transfer of such shares has been
recorded on the books of the Corporation.
C. Right of First Offer; Tag Along, Drag Along Rights.
--------------------------------------------------
1. If a Stockholder wishes to Transfer shares (which Transfer may only be
made by way of a sale for cash), the Stockholder wishing to Transfer the shares
(the "Offering Stockholder") shall first give thirty days' prior written notice
(a "First Offer Notice") to the Corporation stating the desire of such
Stockholder to make such Transfer, the number and class of shares to be
Transferred (the "First Offer Shares"), and the cash price which such
Stockholder proposes to be paid for the First Offer Shares (the "First Offer
Price").
Upon receipt of the First Offer Notice, the Corporation shall have the
irrevocable and exclusive option to purchase all, but not less than all, of the
First Offer Shares at the First Offer Price. The Corporation's option under
this Section C(1) shall be exercisable by written notice to the Stockholder
wishing to effect the Transfer given on or before the thirtieth day after the
date the First Offer Notice was actually received by the Corporation. Delivery
of such a written notice of exercise shall constitute an irrevocable obligation
on the part of the Corporation to purchase the First Offer Shares at the First
Offer Price.
If the First Offer Notice has been duly given and the Corporation does not
exercise its option and purchase all of the First Offer Shares (or a lesser
number consented to by the Stockholder wishing to effect the Transfer), the
Stockholder wishing to effect the Transfer shall be free, for a period of 180
days from the expiration of the first offer acceptance period, to sell the First
Offer Shares at a cash price not less than 95% of the First Offer Price and on
the other material terms set
-7-
<PAGE>
forth in the First Offer Notice, provided that such sale complies with the
provisions of Sections A and B hereof.
If the proposed purchase price of a transferee for the First Offer Shares
is less than 95% of the First Offer Price, the Offering Stockholder shall not
Transfer any of the First Offer Shares unless the Offering Stockholder first
reoffers the First Offer Shares at such lesser cash price to the Corporation by
giving 15 days' prior written notice (the "Reoffer Notice") thereof, stating the
Offering Stockholder's intention to make such Transfer at such lower cash price
(the "Reoffer Price"). The Corporation shall then have the irrevocable and
exclusive option to purchase the First Offer Shares at the Reoffer Price,
exercisable by written notice to the Offering Stockholder given on or before the
15th day after the date that the Reoffer Notice was actually received by the
Corporation. If the Corporation does not then purchase all the First Offer
Shares (or a lesser number consented to by the Offering Stockholder), such First
Offer Shares may be sold by the Offering Stockholder to a transferee 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 Sections A and B hereof.
If the Corporation does not exercise the option to purchase the First Offer
Shares at the First Offer Price or at the Reoffer Price, and the Offering
Stockholder has not sold the First Offer Shares to a transferee for any reason
before the expiration of the 60-day period described above in the event of a
Reoffer or, if no Reoffer Notice is given, the 180-day period described above,
the Offering Stockholder shall not give a First Offer Notice with respect to a
transaction which would require compliance with this Section C(1) for a period
of 180 days from the expiration of such 60-day or 180-day period, as the case
may be.
The closing of purchases pursuant to first offer rights granted under this
Section C(1) shall take place in the principal executive office of the
Corporation at 10:00 a.m. local time on the tenth business day following the
delivery to the Offering Stockholder of all notices exercising such first offer
rights, or at such other time and/or place as the parties to such purchase may
agree. At such closing (a) the Offering Stockholder shall Transfer to the
Corporation good and marketable title to the Shares being purchased by the
Corporation, free and clear of any lien, claim or encumbrance, by delivery of
such instruments of transfer as the Corporation shall reasonably request; and
(b) the Corporation shall pay to the Offering Stockholder the purchase price for
the Shares being purchased in cash, by delivery of a certified or bank check or
by wire transfer of immediately available funds to such account as such Offering
Stockholder shall direct by written notice delivered to the Corporation, not
later than two business days before such closing.
The provisions of this Section C(1) shall not apply to a Transfer described
in clauses (1), (3), (4), (5) or (7) of Section A hereof.
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<PAGE>
2. If any Stockholder or Stockholders (the "Selling Stockholders"), having
complied with the provisions of Section C(1) with respect to such proposed
Transfer and all applicable waiting periods thereunder having expired, propose
to Transfer pursuant to clauses (1), (2) or (6) of Section A in a single
transaction or a series of related transactions more than 50% of the aggregate
number of outstanding shares of Common Stock of the Corporation ("Shares"), such
Stockholders shall, not later than 30 days before the closing of such proposed
Transfer, give written notice of such proposed Transfer to the Corporation,
which shall promptly send a copy thereof to each other Stockholder, and each
other Stockholder shall have the right (a "Tag Along Right") to require the
Selling Stockholders to reduce the number of Shares to be Transferred by the
Selling Stockholders, if necessary, and to require the proposed purchaser to
purchase from each of the other Stockholders electing to exercise a Tag Along
Right that number of Shares equal to the product obtained by multiplying (i) the
total number of Shares to be purchased by the purchaser by (ii) the electing
Stockholder's Fractional Shares, rounded up to the nearest whole number, such
purchase to be upon the same terms and conditions at the same time and place as
the sale of Shares by the Selling Stockholders in the proposed Transfer. In
order to exercise any Tag Along Right, an electing Stockholder must be able to
transfer good and marketable title to such Stockholder's Shares to the
purchaser, free and clear of any lien, claim or other encumbrance. For purposes
of this Section C, the term "Fractional Shares" means the quotient obtained by
dividing (a) the total number of Shares owned by the electing Stockholder, by
(b) the sum of the total number of Shares owned by all electing Stockholders and
the Selling Stockholders. Each electing Stockholder shall give written notice of
its election to the Selling Stockholders no later than 10 business days after
its receipt of the notice from the Corporation described above. This Section
C(2) shall not apply to any Selling Stockholder or Stockholders who elect to
exercise their Drag Along Rights provided in Section C(3).
3. If any Stockholder or Stockholders which collectively own at least 66
2/3% of the outstanding Shares (the "Disposing Stockholders"), having complied
with the provisions of Section C(1) with respect to such proposed disposition
and all applicable waiting periods thereunder having expired, propose to sell or
otherwise dispose of all of the Shares then owned by them in a single
transaction or a series of related transactions pursuant to clauses (4) or (6)
of Section A (a "Total Disposition"), the Disposing Stockholders 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 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 the Disposing Stockholders sell Shares pursuant to this disposition. The
Disposing Stockholders 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.
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<PAGE>
4. None of the restrictions contained in this 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 a Stockholder which is a corporation, partnership or limited
liability corporation to an affiliate (as hereinafter defined) thereof or by a
Stockholder which is a partnership to its partners; and
(c) by a Stockholder to any other person or entity who, prior to such
Transfer, is a Stockholder.
SIXTH. The Corporation shall have a perpetual existence.
SEVENTH. In furtherance of and not in limitation of powers conferred by
statute, it is further provided that the Board of Directors is expressly
authorized to adopt, amend or repeal the Bylaws of the Corporation, subject to
any specific limitation on such power contained in any Bylaw adopted by the
Stockholders.
EIGHTH. Except to the extent that the General Corporation Law of the State
of Delaware prohibits the elimination or limitation of liability of directors
for breaches of fiduciary duty, no director of the Corporation shall be
personally liable to the Corporation or its Stockholders for monetary damages
for any breach of fiduciary duty as a director, notwithstanding any provision of
law imposing such liability. No amendment to or repeal of this provision shall
apply to or have any effect on the liability or alleged liability of any
director of the Corporation for or with respect to any acts or omissions of such
director occurring prior to such amendment.
NINTH. 1. Action, Suits and Proceedings Other than by or in the Right of the
------------------------------------------------------------------
Corporation. The Corporation shall indemnify each person who was or is a party
- -----------
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation), 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 serving, or has agreed to serve, at
the request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan) (all such persons being
referred to hereafter as an "Indemnitee"), or by reason of any action alleged to
have been taken or omitted in such capacity, against all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or her or on his or her behalf in connection with
such action, suit or proceeding and any appeal
-10-
<PAGE>
therefrom, 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 Corporation,
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe his or her conduct was unlawful. The termination of any action, suit
or proceeding by judgment, order, settlement, conviction or upon a plea of nolo
----
contendere or its equivalent, shall not, of itself, create a presumption that
- ----------
the person did not act in good faith and in a manner which he or she reasonably
believed to be in, or not opposed to, the best interests of the Corporation,
and, with respect to any criminal action or proceeding, had reasonable cause to
believe that his or her conduct was unlawful. Notwithstanding anything to the
contrary in this Article, except as set forth in Section 6 below, the
Corporation shall not indemnify an Indemnitee seeking indemnification in
connection with a proceeding (or part thereof) initiated by the Indemnitee
unless the initiation thereof was approved by the Board of Directors of the
Corporation.
2. Actions or Suits by or in the Right of the Corporation. The Corporation
------------------------------------------------------
shall indemnify any Indemnitee who was or is a party or is threatened to be made
a party to any threatened, pending or completed action or suit by or in the
right of the Corporation to procure a judgment in its favor 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 serving, or has agreed to serve, at the request of
the Corporation, as a director, officer or trustee of, or in a similar capacity
with, another corporation, partnership, joint venture, trust or other enterprise
(including any employee benefit plan), or by reason of any action alleged to
have been taken or omitted in such capacity, against all expenses (including
attorneys' fees) and amounts paid in settlement actually and reasonably incurred
by him or her or on his or her behalf in connection with such action, suit or
proceeding and any appeal therefrom, 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 Corporation, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Court of Chancery of Delaware or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of such
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses (including
attorneys' fees) which the Court of Chancery of Delaware or such other court
shall deem proper.
3. Indemnification for Expenses of Successful Party. Notwithstanding the
------------------------------------------------
other provisions of this Article, to the extent that an Indemnitee has been
successful, on the merits or otherwise, in defense of any action, suit or
proceeding referred to in Sections 1 and 2 of this Article, or in defense of any
claim, issue or matter therein, or on appeal from any such action, suit or
proceeding, he or she shall be indemnified against all expenses (including
attorneys' fees) actually and
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<PAGE>
reasonably incurred by him or her or on his or her behalf in connection
therewith. Without limiting the foregoing, if any action, suit or proceeding is
disposed of, on the merits or otherwise (including a disposition without
prejudice), without (i) the disposition being adverse to the Indemnitee, (ii) an
adjudication that the Indemnitee was liable to the Corporation, (iii) a plea of
guilty or nolo contendere by the Indemnitee, (iv) an adjudication that the
---------------
Indemnitee did not act in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the Corporation, and
(v) with respect to any criminal proceeding, an adjudication that the Indemnitee
had reasonable cause to believe his or her conduct was unlawful, the Indemnitee
shall be considered for the purposes hereof to have been wholly successful with
respect thereto.
4. Notification and Defense of Claim. As a condition precedent to his or
---------------------------------
her right to be indemnified, the Indemnitee must notify the Corporation in
writing as soon as practicable of any action, suit, proceeding or investigation
involving him or her for which indemnity will or could be sought. With respect
to any action, suit, proceeding or investigation of which the Corporation is so
notified, the Corporation will be entitled to participate therein at its own
expense and/or to assume the defense thereof at its own expense, with legal
counsel reasonably acceptable to the Indemnitee. After notice from the
Corporation to the Indemnitee of its election so to assume such defense, the
Corporation shall not be liable to the Indemnitee for any legal or other
expenses subsequently incurred by the Indemnitee in connection with such claim,
other than as provided below in this Section 4. The Indemnitee shall have the
right to employ his or her own counsel in connection with such claim, but the
fees and expenses of such counsel incurred after notice from the Corporation of
its assumption of the defense thereof shall be at the expense of the Indemnitee
unless (i) the employment of counsel by the Indemnitee has been authorized by
the Corporation, (ii) counsel to the Indemnitee shall have reasonably concluded
that there may be a conflict of interest or position on any significant issue
between the Corporation and the Indemnitee in the conduct of the defense of such
action or (iii) the Corporation shall not in fact have employed counsel to
assume the defense of such action, in each of which cases the fees and expenses
of counsel for the Indemnitee shall be at the expense of the Corporation, except
as otherwise expressly provided by this Article. The Corporation shall not be
entitled, without the consent of the Indemnitee, to assume the defense of any
claim brought by or in the right of the Corporation or as to which counsel for
the Indemnitee shall have reasonably made the conclusion provided for in clause
(ii) above.
5. Advance of Expenses. Subject to the provisions of Section 6 below, in the
-------------------
event that the Corporation does not assume the defense pursuant to Section 4 of
this Article of any action, suit, proceeding or investigation of which the
Corporation receives notice under this Article, any expenses (including
attorneys' fees) incurred by or on behalf of an Indemnitee in defending a civil
or criminal action, suit, proceeding or investigation or any appeal therefrom
shall be paid by the
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<PAGE>
Corporation in advance of the final disposition of such matter; provided,
however, that the payment of such expense incurred by or on behalf of an
Indemnitee in advance of the final disposition of such matter shall be made only
upon receipt of an undertaking by or on behalf of the Indemnitee to repay all
amounts so advanced in the event that it shall ultimately be determined that the
Indemnitee is not entitled to be indemnified by the Corporation as authorized in
this Article. Such undertaking may be accepted without reference to the
financial ability of the Indemnitee to make such repayment.
6. Procedure for Indemnification. In order to obtain indemnification or
-----------------------------
advancement of expenses pursuant to Section 1, 2, 3 or 5 of this Article, the
Indemnitee shall submit to the Corporation a written request, including in such
request such documentation and information as is reasonably available to the
Indemnitee and is reasonably necessary to determine whether and to what extent
the Indemnitee is entitled to indemnification or advancement of expenses. Any
such indemnification or advancement of expenses shall be made promptly, and in
any event within 60 days after receipt by the Corporation of the written request
of the Indemnitee, unless with respect to requests under Section 1, 2 or 5 the
Corporation determines, by clear and convincing evidence, within such 60-day
period that the Indemnitee did not meet the applicable standard of conduct set
forth in Section 1 or 2, as the case may be. Such determination shall be made
in each instance by (a) a majority vote of a quorum of the directors of the
Corporation consisting of persons who are not at that time parties to the
action, suit or proceeding in question ("disinterested directors"), (b) if no
such quorum is obtainable, a majority vote of a committee of two or more
disinterested directors, (c) a majority vote of a quorum of the outstanding
shares of stock of all classes entitled to vote for directors, voting as a
single class, which quorum shall consist of Stockholders who are not at that
time parties to the action, suit or proceeding in question, (c) independent
legal counsel (who may be regular legal counsel to the Corporation), or (d) a
court of competent jurisdiction.
7. Remedies. The right to indemnification or advances as granted by this
--------
Article shall be enforceable by the Indemnitee in any court of competent
jurisdiction if the Corporation denies such request, in whole or in part, or if
no disposition thereof is made within the 60-day period referred to above in
Section 6. Unless otherwise provided by law, the burden of proving that the
Indemnitee is not entitled to indemnification or advance of expenses under this
Article shall be on the Corporation. Neither the failure of the Corporation to
have made a determination prior to the commencement of such action that
indemnification is proper in the circumstances because the Indemnitee has met
the applicable standard of conduct, nor an actual determination by the
Corporation pursuant to Section 6 that the Indemnitee has not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that the Indemnitee has not met the applicable standard of conduct.
The Indemnitee's expenses (including attorneys' fees) incurred
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<PAGE>
in connection with successfully establishing his or her right to
indemnification, in whole or in part, in any such proceeding shall also be
indemnified by the Corporation.
8. Subsequent Amendment. No amendment, termination or repeal of this Article
--------------------
or of the relevant provisions of the General Corporation Law of Delaware or any
other applicable laws shall affect or diminish in any way the rights of any
Indemnitee to indemnification under the provisions hereof with respect to any
action, suit, proceeding or investigation arising out of or relating to any
actions, transactions or facts occurring prior to the final adoption of such
amendment, termination or repeal.
9. Other Rights. The indemnification and advancement of expenses provided by
------------
this Article shall not be deemed exclusive of any other rights to which an
Indemnitee seeking indemnification or advancement of expenses may be entitled
under any law (common or statutory), agreement or vote of Stockholders or
disinterested directors or otherwise, both as to action in his or her official
capacity and as to action in any other capacity while holding office for the
Corporation, and shall continue as to an Indemnitee who has ceased to be a
director or officer, and shall inure to the benefit of the estate, heirs,
executors and administrators of the Indemnitee. Nothing contained in this
Article shall be deemed to prohibit, and the Corporation is specifically
authorized to enter into, agreements with officers and directors providing
indemnification rights and procedures different from those set forth in this
Article. In addition, the Corporation may, to the extent authorized from time to
time by its Board of Directors, grant indemnification rights to other employees
or agents of the Corporation or other persons serving the Corporation and such
rights may be equivalent to, or greater or less than, those set forth in this
Article.
10. Partial Indemnification. If an Indemnitee is entitled under any
-----------------------
provision of this Article to indemnification by the Corporation for some or a
portion of the expenses (including attorneys' fees), judgments, fines or amounts
paid in settlement actually and reasonably incurred by him or her or on his or
her behalf in connection with any action, suit, proceeding or investigation and
any appeal, therefrom but not, however, for the total amount thereof, the
Corporation shall nevertheless indemnify the Indemnitee for the portion of such
expenses (including attorneys' fees), judgments, fines or amounts paid in
settlement to which the Indemnitee is entitled.
11. Insurance. The Corporation may purchase and maintain insurance, at its
---------
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise (including any employee benefit plan) against any expense, liability
or loss incurred by him or her in any such capacity, or arising out of his or
her status as
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<PAGE>
such, whether or not the Corporation would have the power to indemnify such
person against such expense, liability or loss under the General Corporation Law
of Delaware.
12. Merger or Consolidation. If the Corporation is merged into or
-----------------------
consolidated with another corporation and the Corporation is not the surviving
corporation, the surviving corporation shall assume the obligations of the
Corporation under this Article with respect to any action, suit, proceeding or
investigation arising out of or relating to any actions, transactions or facts
occurring prior to the date of such merger or consolidation.
13. Savings Clause. If this Article or any portion hereof shall be
--------------
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Indemnitee as to any expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with any action, suit, proceeding or investigation, whether civil,
criminal or administrative, including an action by or in the right of the
Corporation, to the fullest extent permitted by any applicable portion of this
Article that shall not have been invalidated and to the fullest extent permitted
by applicable law.
14. Definitions. Terms used herein and defined in Section 145(h) and
-----------
Section 145(i) of the General Corporation Law of Delaware shall have the
respective meanings assigned to such terms in such Section 145(h) and Section
145(i).
15. Subsequent Legislation. If the General Corporation Law is amended after
----------------------
adoption of this Article to expand further the indemnification permitted to
Indemnitees, then the Corporation shall indemnify such persons to the fullest
extent permitted by the General Corporation Law, as so amended.
TENTH. The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute and this
Amended and Restated Certificate of Incorporation, and all rights conferred upon
Stockholders herein are granted subject to this reservation.
ELEVENTH. This Article is inserted for the management of the business and
for the conduct of the affairs of the Corporation.
A. Number of Directors. The number of directors shall be fixed from time to
time by, or in the manner provided in, the Corporation's By-laws.
B. Classes of Directors. The Board of Directors shall be and is divided into
three classes: Class I, Class II and Class III.
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<PAGE>
C. Election of Directors.
---------------------
(i) Elections of directors need not be by written ballot except as and to
the extent provided in the By-laws of the Corporation.
(ii) The holders of record of shares of A Common, exclusively and as a
separate class, shall be entitled to elect one director of the Corporation, and
the holders of record of B Common, exclusively and as a separate class, shall be
entitled to elect the balance of the total number of directors of the
Corporation. At any meeting held for the purpose of electing directors, the
presence in person or by proxy of the holders of a majority of the shares of A
Common then outstanding shall constitute a quorum of the A Common for the
purpose of electing directors by holders of A Common, and the presence in person
or by proxy of the holders of a majority of the shares of B Common then
outstanding shall constitute a quorum of the B Common for the purpose of
electing directors by holders of B Common. A vacancy in any directorship filled
by the holders of A Common or B Common shall be filled only by vote or written
consent in lieu of a meeting of the holders of A Common or B Common,
respectively, or, in the case of a B Common directorship, by the remaining
directors elected by the holders of B Common. The provisions of this Section
C(ii) shall terminate and be of no further force and effect upon the earlier of
(a) June 30, 1999 and (b) the conversion of shares of B Common into A Common
pursuant to Section E of Article FOURTH above.
D. Terms of Office. Each director shall serve for a term ending on the date
---------------
of the third annual meeting following the annual meeting at which such director
was elected and until his or her successor is duly elected and qualified;
provided, that each initial director in Class I shall serve for a term ending on
the date of the annual meeting of Stockholders in 1998 and until his or her
successor is duly elected and qualified; each initial director in Class II shall
serve for a term ending on the date of the annual meeting of Stockholders in
1999 and until his or her successor is duly elected and qualified; and each
initial director in Class III shall serve for a term ending on the date of the
annual meeting of Stockholders in 2000 and until his or her successor is duly
elected and qualified; and provided further, that the term of each director
----------------
shall be subject to his earlier death, resignation or removal.
E. Allocation of Directors Among Classes in the Event of Increases or
------------------------------------------------------------------
Decreases in the Number of Directors. In the event of any increase or decrease
- ------------------------------------
in the authorized number of directors, (i) each director then serving as such
shall nevertheless continue as a director of the class of which he or she is a
member and (ii) the newly created or eliminated directorships resulting from
such increase or decrease shall be apportioned by the Board of Directors among
the three classes of directors so as to ensure that no one class has more than
one director more than any other class. To the extent possible, consistent with
the foregoing rule, any newly created directorships shall be added to those
classes whose terms of office are to
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<PAGE>
expire at the latest dates following such allocation, and any newly eliminated
directorships shall be subtracted from those classes whose terms of offices are
to expire at the earliest dates following such allocation, unless otherwise
provided from time to time by resolution adopted by the Board of Directors.
F. Quorum; Action at Meeting. A majority of the directors at any time in
-------------------------
office shall constitute a quorum for the transaction of business. In the event
one or more of the directors shall be disqualified to vote at any meeting, then
the required quorum shall be reduced by one for each director so disqualified,
provided that in no case shall less than one-third of the number of directors
fixed pursuant to Section A above constitute a quorum. If at any meeting of the
Board of Directors there shall be less than such a quorum, a majority of those
present may adjourn the meeting from time to time. Every act or decision done
or made by a majority of the directors present at a meeting duly held at which a
quorum is present shall be regarded as the act of the Board of Directors unless
a greater number is required by law, by the By-laws of the Corporation or by
this Amended and Restated Certificate of Incorporation.
G. Removal. Directors of the Corporation elected by the holders of A Common
-------
pursuant to Section C(ii) above may be removed only by the affirmative vote
of the holders of a majority of the shares of the A Common of the
Corporation issued and outstanding and entitled to vote. Directors of the
Corporation elected by the holders of B Common pursuant to Section C(ii)
above may be removed only by the affirmative vote of the holders of a
majority of the shares of the B Common of the Corporation issued and
outstanding and entitled to vote.
H. Vacancies. Except as set forth in Section C above, any vacancy in the
---------
Board of Directors, however occurring, including a vacancy resulting from an
enlargement of the board, shall be filled only by a vote of a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director. A director elected to fill a vacancy shall be elected to hold office
until the next election of the class for which such director shall have been
chosen, subject to the election and qualification of his or her successor and to
his or her earlier death, resignation or removal.
I. Stockholder Nominations and Introduction of Business, Etc. Advance notice
---------------------------------------------------------
of Stockholder nominations for election of directors and other business to be
brought by Stockholders before a meeting of Stockholders shall be given in the
manner provided by the By-laws of the Corporation.
J. Amendments to Article. Notwithstanding any other provisions of law, this
---------------------
Amended and Restated Certificate of Incorporation or the By-laws of the
Corporation, each as amended, and notwithstanding the fact that a lesser
percentage may be specified by law, the affirmative vote of the holders of at
least two-thirds of
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<PAGE>
the shares of capital stock of the Corporation issued and outstanding and
entitled to vote shall be required to amend or repeal, or to adopt any provision
inconsistent with, this Article ELEVENTH.
TWELFTH. The Corporation shall not, without first obtaining the affirmative
vote or written consent of R.R. Donnelley & Sons Company ("RRD"):
1. Amend or repeal any provision of, or add any provision to, the
Corporation's Amended and Restated Certificate of Incorporation, if such action
would adversely affect the preferences, rights, privileges or powers of, or the
restrictions provided herein for the benefit of, RRD or its Affiliates (as
hereinafter defined);
2. Authorize or issue any new or existing class or classes or series of
capital stock having any preference or priority as to dividends or liquidation
superior to or on a parity with any such preference or priority of the Class A
Common Stock;
3. Merge or consolidate into or with any other person in a transaction which
results in the voting securities of the Corporation outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving or acquiring entity
or its parent) less than 50% of the combined voting power of the voting
securities of the Corporation or such surviving or acquiring entity or its
parent outstanding immediately after such merger or consolidation, or sell
all or substantially all of the Corporation's assets, in either case unless
the Distribution shall have occurred and the aggregate consideration received
by the Corporation and its Stockholders and optionholders in such transaction
is equal to at least $150 million. For this purpose, publicly traded
securities shall be valued based upon the closing price of such securities on
the date immediately prior to the effective date of the definitive agreement
with respect to such transaction (the "Valuation Date"). RRD shall be deemed
to have approved a transaction for which RRD's approval is required under
this paragraph (3) on the 15th business day after receipt by RRD of a written
request from the Corporation for approval of such transaction, which request
specifies in reasonable detail the identity of such other person, the
consideration to be received by the Corporation and its Stockholders and
optionholders in such transaction and the other terms of and conditions to
such transaction, unless RRD offers to purchase, and purchases from each
Stockholder and optionholder accepting such offer, each outstanding share of
capital stock of the Corporation including each option therefor at a price
per share equal to the value of the consideration that the Stockholders of
the Corporation would have received with respect to each such share as a
result of the proposed transaction (assuming, in the case of consideration
consisting in whole or in part of publicly traded securities, a value based
upon the closing price of such securities on the Valuation Date);
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<PAGE>
4. Sell, or permit any of its subsidiaries to sell, assets (including stock
of any such subsidiary) constituting 25% or more of the Corporation's assets
(measured by book value as of the close of the last month preceding such sale)
or issue, or permit any subsidiary to issue, Common Stock representing 25% or
more of the total number of shares of Common Stock outstanding prior to such
issuance unless the consideration received by the Corporation, or such
subsidiary, therefor consists solely of cash and/or securities of a class
registered under the Securities Exchange Act of 1934, as amended;
5. Effect the Initial Public Offering unless the Distribution shall have
occurred and the Corporation is valued in the Initial Public Offering at not
less than $125 million (determined by multiplying the total number of shares
outstanding immediately following the Initial Public Offering on a fully diluted
basis by the offering price to the public);
6. Enter, or permit any subsidiary to enter into, any transaction with an
Affiliate (as hereinafter defined) of the Corporation, including, without
limitation, the purchase of Stock, whether pursuant to Section C(1) of Article
FIFTH or otherwise; provided, however, that approval shall not be required for
(a) any incentive or compensatory arrangement between the Corporation (or any
subsidiary of the Corporation) and an officer of the Corporation (or any
subsidiary of the Corporation), regardless of whether such arrangement is in the
form of equity or cash incentives or compensation, (b) transactions, agreements
and other obligations disclosed by the Corporation to R.R. Donnelley & Sons
Company prior to the effectiveness of this Amended and Restated Certificate of
Incorporation (and any transactions contemplated by any such disclosed
agreements) or (c) transactions with Modus Media International Holdings Inc. or
Corporate Software & Technology Holdings Inc. (or any subsidiary of either of
the foregoing) that are in the ordinary course of business and are not material
to the Corporation;
7. Dissolve or completely liquidate the Corporation; or
8. Issue, incur or assume, or permit any subsidiary to issue, incur or
assume, any indebtedness for borrowed money if, after giving effect thereto, the
aggregate principal amount of all such indebtedness of the Corporation and its
subsidiaries shall exceed the greater of (i) six (6) times EBITDA (as defined
below) for the four fiscal quarters of the Corporation most recently completed
or (ii) the aggregate principal amount of all asset-backed working capital lines
granted to the Corporation and its subsidiaries by one or more banks or
comparable lending institutions.
The provisions of this Article shall terminate and be of no further force
and effect immediately following the earliest to occur of (i) the Closing of the
Initial Public Offering, (ii) the sale of all or substantially all of the assets
of the Corporation,
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<PAGE>
or (iii) a merger or consolidation which results in the voting securities of the
Corporation outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting securities of
the surviving or acquiring entity or its parent) less than 50% of the combined
voting power of the voting securities of the Corporation or such surviving or
acquiring entity or its parent outstanding immediately after such merger or
consolidation.
"EBITDA" means, without duplication (i) the consolidated earnings of the
Corporation and its subsidiaries; plus or minus (ii) any provision or credit or
-------------
franchise taxes included in the determination of such consolidated earnings;
plus; (iii) net interest expenses, including deferred financing fee amortization
- ----
deducted in determination of such consolidated earnings; plus (iv) depreciation
----
and amortization deducted in the determination of such consolidated earnings
plus or minus (v) extraordinary losses or gains, or any one-time, unusual or
- -------------
non-recurring charges or credits in each case discussed and applied under
generally accepted accounting principles, included in the determination of such
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 qualifying for extraordinary charge criteria as
defined under generally accepted accounting principles;
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<PAGE>
(8) Charge or credit associated with the guarantee of the loan 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 acquisition activities;
(15) Charge or credit associated with merger or acquisition or initial
public offering activities;
(16) Charge or credit associated with the disposal of marketable
securities;
provided that, in order to be excluded from the EBITDA calculation under clause
- --------
(v) 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 EBITDA. To the extent a charge or credit which is excluded from the
EBITDA calculation under clause (v) above is associated with a change in the
Corporation's business (such as a plant closing, major customer defection,
product discontinuance, etc.), EBITDA will also be adjusted for a pro-forma
impact of such changes. Any subsequent changes in accounting principles,
whether or not promulgated by the Financial Accounting Standards Board, shall be
excluded. Also, in calculating "EBITDA" with respect to any period other than
the fiscal year of the Corporation, EBITDA shall be determined on the basis of
interim financial statements prepared on the same basis as the annual financial
statements.
An "Affiliate" of any designated Person shall mean any other Person that has
a relationship with such designated Person whereby either of such Persons
directly or indirectly controls or is controlled by or is under common control
with the other, or holds or beneficially owns 10% or more of all then
outstanding equity interests in, or
-21-
<PAGE>
10% or more of the combined voting power of all then outstanding securities
entitled to vote generally in the election of directors of, the other; and for
this purpose the term "control" shall mean the power, direct or indirect, of one
Person to direct or cause direction of the management and policies of another
Person, whether by contract, through voting securities or otherwise; provided
that Bain Capital, Inc. and its directors and officers (collectively, the "Bain
Group") and any investment fund controlled by the Bain Group (collectively, the
"Bain Investment Funds") shall be deemed to be Affiliates of the Corporation and
its subsidiaries, but any entity in which a Bain Investment Fund has made an
investment shall not be deemed to be an Affiliate of the Corporation or its
subsidiaries for any purpose. "Person" shall mean any individual, entity or
group, including any "person" within the meaning of Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, as amended.
THIRTEENTH. The Corporation hereby expressly elects, pursuant to Section
203(b)(c) of the General Corporation Law, not to be governed by Section 203 of
the General Corporation Law.
EXECUTED at Canton, Massachusetts on December 15, 1997.
STREAM INTERNATIONAL HOLDINGS INC.
By:/s/ Stephen D.R. Moore
------------------------------
Stephen D.R. Moore
President
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<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED
BY-LAWS
OF
STREAM INTERNATIONAL INC.
<PAGE>
AMENDED AND RESTATED BY-LAWS
----------------------------
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE 1 - Stockholders.............................................. 1
Section 1.1 Place of Meetings................................... 1
Section 1.2 Annual Meeting...................................... 1
Section 1.3 Special Meetings.................................... 1
Section 1.4 Notice of Meetings.................................. 1
Section 1.5 Voting List......................................... 2
Section 1.6 Quorum.............................................. 2
Section 1.7 Adjournments........................................ 2
Section 1.8 Voting and Proxies.................................. 2
Section 1.9 Action at Meeting................................... 2
Section 1.10 Nomination of Directors............................. 3
Section 1.11 Notice of Business at Annual Meetings............... 3
Section 1.12 Action without Meeting.............................. 4
Section 1.13 Organization........................................ 4
ARTICLE 2 - Directors................................................. 5
Section 2.1 General Powers...................................... 5
Section 2.2 Number; Election and Qualification.................. 5
Section 2.3 Classes of Directors................................ 5
Section 2.4 Terms of Office..................................... 5
Section 2.5 Allocation of Directors Among Classes in the Event
of Increases or Decreases in the Number of Directors 5
Section 2.6 Vacancies........................................... 6
Section 2.7 Resignation......................................... 6
Section 2.8 Regular Meetings.................................... 6
Section 2.9 Special Meetings.................................... 6
Section 2.10 Notice of Special Meetings.......................... 6
Section 2.11 Meetings by Telephone Conference Calls.............. 7
Section 2.12 Quorum.............................................. 7
Section 2.13 Action at Meeting................................... 7
Section 2.14 Action by Consent................................... 7
Section 2.15 Removal............................................. 7
Section 2.16 Committees.......................................... 7
Section 2.17 Compensation of Directors........................... 8
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<PAGE>
ARTICLE 3 - Officers.................................................. 8
Section 3.1 Enumeration......................................... 8
Section 3.2 Election............................................ 8
Section 3.3 Qualification....................................... 8
Section 3.4 Tenure.............................................. 8
Section 3.5 Resignation and Removal............................. 9
Section 3.6 Vacancies........................................... 9
Section 3.7 Chairman of the Board and Vice Chairman of the Board 9
Section 3.8 President........................................... 9
Section 3.9 Vice Presidents..................................... 9
Section 3.10 Secretary and Assistant Secretaries................. 10
Section 3.11 Treasurer and Assistant Treasurers.................. 10
Section 3.12 Salaries............................................ 11
ARTICLE 4 - Capital Stock............................................. 11
Section 4.1 Issuance of Stock................................... 11
Section 4.2 Certificates of Stock............................... 11
Section 4.3 Transfers........................................... 11
Section 4.4 Lost, Stolen or Destroyed Certificates.............. 12
Section 4.5 Record Date......................................... 12
ARTICLE 5 - General Provisions........................................ 12
Section 5.1 Fiscal Year......................................... 12
Section 5.2 Corporate Seal...................................... 12
Section 5.3 Waiver of Notice.................................... 13
Section 5.4 Voting of Securities................................ 13
Section 5.5 Evidence of Authority............................... 13
Section 5.6 Certificate of Incorporation........................ 13
Section 5.7 Transactions with Interested Parties................ 13
Section 5.8 Severability........................................ 14
Section 5.9 Pronouns............................................ 14
ARTICLE 6 - Amendments................................................ 14
Section 6.1 By the Board of Directors........................... 14
Section 6.2 By the Stockholders................................. 14
Section 6.3 Certain Provisions.................................. 14
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<PAGE>
AMENDED AND RESTATED BY-LAWS
OF
STREAM INTERNATIONAL INC.
ARTICLE 1 - Stockholders
------------------------
1.1 Place of Meetings. All meetings of stockholders shall be held at such
-----------------
place within or without the State of Delaware as may be designated from time to
time by the Board of Directors or the President or, if not so designated, at the
registered office of the corporation.
1.2 Annual Meeting. The annual meeting of stockholders for the election of
--------------
directors and for the transaction of such other business as may properly be
brought before the meeting shall be held within six months after the end of each
fiscal year of the corporation on a date to be fixed by the Board of Directors
or the President (which date shall not be a legal holiday in the place where the
meeting is to be held) at the time and place to be fixed by the Board of
Directors or the President and stated in the notice of the meeting. If no
annual meeting is held in accordance with the foregoing provisions, the Board of
Directors shall cause the meeting to be held as soon thereafter as convenient.
If no annual meeting is held in accordance with the foregoing provisions, a
special meeting may be held in lieu of the annual meeting, and any action taken
at that special meeting shall have the same effect as if it had been taken at
the annual meeting, and in such case all references in these By-laws to the
annual meeting of the stockholders shall be deemed to refer to such special
meeting.
1.3 Special Meetings. Special meetings of stockholders may be called at any
----------------
time by the Chairman of the Board of Directors, the Chief Executive Officer (or,
if there is no Chief Executive Officer, the President) or the Board of
Directors. Business transacted at any special meeting of stockholders shall be
limited to matters relating to the purpose or purposes stated in the notice of
meeting.
1.4 Notice of Meetings. Except as otherwise provided by law, written
------------------
notice of each meeting of stockholders, whether annual or special, shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notices of all meetings
shall state the place, date and hour of the meeting. The notice of a special
meeting shall state, in addition, the purpose or purposes for which the meeting
is called. If mailed, notice is given when deposited in the United States mail,
postage prepaid, directed to the stockholder at his or her address as it appears
on the records of the corporation.
<PAGE>
1.5 Voting List. The officer who has charge of the stock ledger of the
-----------
corporation shall prepare, at least 10 days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
10 days prior to the meeting, at a place within the city where the meeting is to
be held. The list shall also be produced and kept at the time and place of the
meeting during the whole time of the meeting, and may be inspected by any
stockholder who is present.
1.6 Quorum. Except as otherwise provided by law, the Certificate of
------
Incorporation or these By-laws, the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote at
the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business.
1.7 Adjournments. Any meeting of stockholders may be adjourned to any other
------------
time and to any other place at which a meeting of stockholders may be held under
these By-laws by the stockholders present or represented at the meeting and
entitled to vote, although less than a quorum, or, if no stockholder is present,
by any officer entitled to preside at or to act as Secretary of such meeting.
It shall not be necessary to notify any stockholder of any adjournment of less
than 30 days if the time and place of the adjourned meeting are announced at the
meeting at which adjournment is taken, unless after the adjournment a new record
date is fixed for the adjourned meeting. At the adjourned meeting, the
corporation may transact any business which might have been transacted at the
original meeting.
1.8 Voting and Proxies. Each stockholder shall have one vote for each
------------------
share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise provided
by the General Corporation Law of the State of Delaware, the Certificate of
Incorporation or these By-laws. Each stockholder of record entitled to vote at a
meeting of stockholders, or to express consent or dissent to corporate action in
writing without a meeting, may vote or express such consent or dissent in person
or may authorize another person or persons to vote or act for him or her by
written proxy executed by the stockholder or his or her authorized agent and
delivered to the Secretary of the corporation. No such proxy shall be voted or
acted upon after three years from the date of its execution, unless the proxy
expressly provides for a longer period.
1.9 Action at Meeting. When a quorum is present at any meeting, the
-----------------
holders of a majority of the stock present or represented and voting on a matter
(or if there are two or more classes of stock entitled to vote as separate
classes, then in the case of each such class, the holders of a majority of the
stock of that class present or
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<PAGE>
represented and voting on a matter) shall decide any matter to be voted upon by
the stockholders at such meeting, except when a different vote is required by
express provision of law, the Certificate of Incorporation or these By-laws. Any
election by stockholders shall be determined by a plurality of the votes cast by
the stockholders entitled to vote at the election.
1.10 Nomination of Directors. Only persons who are nominated in accordance
-----------------------
with the following procedures shall be eligible for election as directors.
Nomination for election to the Board of Directors of the corporation at a
meeting of stockholders may be made by the Board of Directors or by any
stockholder of the corporation entitled to vote for the election of directors at
such meeting who complies with the notice procedures set forth in this Section
1.10. Such nominations, other than those made by or on behalf of the Board of
Directors, shall be made by notice in writing delivered or mailed by first class
United States mail, postage prepaid, to the Secretary, and received not less
than 60 days nor more than 90 days prior to such meeting; provided, however,
-------- -------
that if less than 70 days' notice or prior public disclosure of the date of the
meeting is given to stockholders, such nomination shall have been mailed or
delivered to the Secretary not later than the close of business on the 10th day
following the date on which the notice of the meeting was mailed or such public
disclosure was made, whichever occurs first. Such notice shall set forth (a) as
to each proposed nominee (i) the name, age, business address and, if known,
residence address of each such nominee, (ii) the principal occupation or
employment of each such nominee, (iii) the number of shares of stock of the
corporation which are beneficially owned by each such nominee, and (iv) any
other information concerning the nominee that must be disclosed as to nominees
in proxy solicitations pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (including such person's written consent to be named as
a nominee and to serve as a director if elected); and (b) as to the stockholder
giving the notice (i) the name and address, as they appear on the corporation's
books, of such stockholder and (ii) the class and number of shares of the
corporation which are beneficially owned by such stockholder. The corporation
may require any proposed nominee to furnish such other information as may
reasonably be required by the corporation to determine the eligibility of such
proposed nominee to serve as a director of the corporation.
The chairman of the meeting may, if the facts warrant, determine and declare
to the meeting that a nomination was not made in accordance with the foregoing
procedure, and if he or she should so determine, he or she shall so declare to
the meeting and the defective nomination shall be disregarded.
1.11 Notice of Business at Annual Meetings. At an annual meeting of the
-------------------------------------
stockholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before an annual meeting,
business must be (a) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, (b) otherwise
properly brought
-3-
<PAGE>
before the meeting by or at the direction of the Board of Directors, or (c)
otherwise properly brought before an annual meeting by a stockholder. For
business to be properly brought before an annual meeting by a stockholder, if
such business relates to the election of directors of the corporation, the
procedures in Section 1.10 must be complied with. If such business relates to
any other matter, the stockholder must have given timely notice thereof in
writing to the Secretary. To be timely, a stockholder's notice must be delivered
to or mailed and received at the principal executive offices of the corporation
not less than 60 days nor more than 90 days prior to the meeting; provided,
--------
however, that in the event that less than 70 days' notice or prior public
- -------
disclosure of the date of the meeting is given or made to stockholders, notice
by the stockholder to be timely must be so received not later than the close of
business on the 10th day following the date on which such notice of the date of
the meeting was mailed or such public disclosure was made, whichever occurs
first. A stockholder's notice to the Secretary shall set forth as to each matter
the stockholder proposes to bring before the annual meeting (a) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (b) the name and
address, as they appear on the corporation's books, of the stockholder proposing
such business, (c) the class and number of shares of the corporation which are
beneficially owned by the stockholder, and (d) any material interest of the
stockholder in such business. Notwithstanding anything in these By-laws to the
contrary, no business shall be conducted at any annual meeting except in
accordance with the procedures set forth in this Section 1.11 and except that
any stockholder proposal which complies with Rule 14a-8 of the proxy rules (or
any successor provision) promulgated under the Securities Exchange Act of 1934,
as amended, and is to be included in the corporation's proxy statement for an
annual meeting of stockholders shall be deemed to comply with the requirements
of this Section 1.11.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 1.11, and if he or she should
so determine, the chairman shall so declare to the meeting that any such
business not properly brought before the meeting shall not be transacted.
1.12 Action without Meeting. Except as permitted by the Certificate of
----------------------
Incorporation, stockholders may not take any action by written consent in lieu
of a meeting.
1.13 Organization. The Chairman of the Board, or in his or her absence the
------------
Vice Chairman of the Board designated by the Chairman of the Board, or the
President, in the order named, shall call meetings of the stockholders to order,
and shall act as chairman of such meeting; provided, however, that the Board of
-------- -------
Directors may appoint any stockholder to act as chairman of any meeting in the
absence of the Chairman of the Board. The Secretary of the corporation shall act
as secretary at all
-4-
<PAGE>
meetings of the stockholders; but in the absence of the Secretary at any meeting
of the stockholders, the presiding officer may appoint any person to act as
secretary of the meeting.
ARTICLE 2 - Directors
---------------------
2.1 General Powers. The business and affairs of the corporation shall be
--------------
managed by or under the direction of a Board of Directors, who may exercise all
of the powers of the corporation except as otherwise provided by law, the
Certificate of Incorporation or these By-laws. In the event of a vacancy in the
Board of Directors, the remaining directors, except as otherwise provided by
law, may exercise the powers of the full Board until the vacancy is filled.
2.2 Number; Election and Qualification. The number of directors which shall
----------------------------------
constitute the whole Board of Directors shall be determined by resolution of the
Board of Directors, but in no event shall be less than three. The number of
directors may be decreased at any time and from time to time by a majority of
the directors then in office, but only to eliminate vacancies existing by reason
of the death, resignation, removal or expiration of the term of one or more
directors. The directors shall be elected at the annual meeting of stockholders
by such stockholders as have the right to vote on such election. Directors need
not be stockholders of the corporation.
2.3 Classes of Directors. The Board of Directors shall be and is divided
--------------------
into three classes: Class I, Class II and Class III.
2.4 Terms of Office. Each director shall serve for a term ending on the
---------------
date of the third annual meeting following the annual meeting at which such
director was elected; provided, that each initial director in Class I shall
--------
serve for a term ending on the date of the annual meeting of stockholders in
1999; each initial director in Class II shall serve for a term ending on the
date of the annual meeting of stockholders in 2000; and each initial director in
Class III shall serve for a term ending on the date of the annual meeting of
stockholders in 2001; and provided further, that the term of each director shall
----------------
be subject to the election and qualification of his or her successor and to his
or her earlier death, resignation or removal.
2.5 Allocation of Directors Among Classes in the Event of Increases or
------------------------------------------------------------------
Decreases in the Number of Directors. In the event of any increase or decrease
- ------------------------------------
in the authorized number of directors, (i) each director then serving as such
shall nevertheless continue as a director of the class of which he or she is a
member and (ii) the newly created or eliminated directorships resulting from
such increase or decrease shall be apportioned by the Board of Directors among
the three classes of
-5-
<PAGE>
directors so as to ensure that no one class has more than one director more than
any other class. To the extent possible, consistent with the foregoing rule, any
newly created directorships shall be added to those classes whose terms of
office are to expire at the latest dates following such allocation, and any
newly eliminated directorships shall be subtracted from those classes whose
terms of offices are to expire at the earliest dates following such allocation,
unless otherwise provided from time to time by resolution adopted by the Board
of Directors.
2.6 Vacancies. Except as set forth in the Certificate of Incorporation, any
---------
vacancy in the Board of Directors, however occurring, including a vacancy
resulting from an enlargement of the Board, shall be filled only by vote of a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director. A director elected to fill a vacancy shall be elected
for the unexpired term of his or her predecessor in office, and a director
chosen to fill a position resulting from an increase in the number of directors
shall hold office until the next election of the class for which such director
shall have been chosen, subject to the election and qualification of his or her
successor and to his or her earlier death, resignation or removal.
2.7 Resignation. Any director may resign by delivering his or her written
-----------
resignation to the corporation at its principal office or to the President or
Secretary. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
2.8 Regular Meetings. Regular meetings of the Board of Directors may be
----------------
held without notice at such time and place, either within or without the State
of Delaware, as shall be determined from time to time by the Board of Directors;
provided, that any director who is absent when such a determination is made
- --------
shall be given notice of the determination. A regular meeting of the Board of
Directors may be held without notice immediately after and at the same place as
the annual meeting of stockholders.
2.9 Special Meetings. Special meetings of the Board of Directors may be
----------------
held at any time and place, within or without the State of Delaware, designated
in a call by the Chairman of the Board, President, two or more directors, or by
one director in the event that there is only a single director in office.
2.10 Notice of Special Meetings. Notice of any special meeting of directors
--------------------------
shall be given to each director by the Secretary or by the officer or one of the
directors calling the meeting. Notice shall be duly given to each director (i)
by giving notice to such director in person or by telephone at least 24 hours in
advance of the meeting, (ii) by sending a telegram, telecopy, or telex, or
delivering written notice by hand, to his or her last known business or home
address at least 24 hours in advance of the meeting, or (iii) by mailing written
notice to his or her last known business or
-6-
<PAGE>
home address at least 72 hours in advance of the meeting. A notice or waiver of
notice of a meeting of the Board of Directors need not specify the purposes of
the meeting.
2.11 Meetings by Telephone Conference Calls. Directors or any members of any
--------------------------------------
committee designated by the directors may participate in a meeting of the Board
of Directors or such 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 by such means shall constitute
presence in person at such meeting.
2.12 Quorum. A majority of the total number of the whole Board of Directors
------
shall constitute a quorum at all meetings of the Board of Directors. In the
event one or more of the directors shall be disqualified to vote at any meeting,
then the required quorum shall be reduced by one for each such director so
disqualified; provided, however, that in no case shall less than one-third
-------- -------
(1/3) of the number so fixed constitute a quorum. In the absence of a quorum at
any such meeting, a majority of the directors present may adjourn the meeting
from time to time without further notice other than announcement at the meeting,
until a quorum shall be present.
2.13 Action at Meeting. At any meeting of the Board of Directors at which a
-----------------
quorum is present, the vote of a majority of those present shall be sufficient
to take any action, unless a different vote is specified by law, the Certificate
of Incorporation or these By-laws.
2.14 Action by Consent. Any action required or permitted to be taken at any
-----------------
meeting of the Board of Directors or of any committee of the Board of Directors
may be taken without a meeting, if all members of the Board or committee, as the
case may be, consent to the action in writing, and the written consents are
filed with the minutes or proceedings of the Board or committee.
2.15 Removal. Except as set forth in the Certificate of Incorporation,
-------
directors of the corporation may be removed only for cause by the affirmative
vote of the holders of a majority of the shares of the capital stock of the
corporation issued and outstanding and entitled to vote.
2.16 Committees. The Board of Directors may, by resolution passed by a
----------
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of a committee, the member or
members of the committee present at any meeting and not disqualified from
voting, whether or not
-7-
<PAGE>
he, she or they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors and subject to the provisions of the
General Corporation Law of the State of Delaware, shall have and may exercise
all the powers and authority of the Board of Directors in the management of the
business and affairs of the corporation and may authorize the seal of the
corporation to be affixed to all papers which may require it. Each such
committee shall keep minutes and make such reports as the Board of Directors may
from time to time request. Except as the Board of Directors may otherwise
determine, any committee may make rules for the conduct of its business, but
unless otherwise provided by the directors or in such rules, its business shall
be conducted as nearly as possible in the same manner as is provided in these
By-laws for the Board of Directors.
2.17 Compensation of Directors. Directors may be paid such compensation for
-------------------------
their services and such reimbursement for expenses of attendance at meetings as
the Board of Directors may from time to time determine. No such payment shall
preclude any director from serving the corporation or any of its parent or
subsidiary corporations in any other capacity and receiving compensation for
such service.
ARTICLE 3 - Officers
--------------------
3.1 Enumeration. The officers of the corporation shall consist of a
-----------
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, including a Chairman of the
Board, a Vice-Chairman of the Board, and one or more Vice Presidents, Assistant
Treasurers, and Assistant Secretaries. The Board of Directors may appoint such
other officers as it may deem appropriate.
3.2 Election. The President, Treasurer and Secretary shall be elected
--------
annually by the Board of Directors at its first meeting following the annual
meeting of stockholders. Other officers may be appointed by the Board of
Directors at such meeting or at any other meeting.
3.3 Qualification. No officer need be a stockholder. Any two or more
-------------
offices may be held by the same person.
3.4 Tenure. Except as otherwise provided by law, by the Certificate of
------
Incorporation or by these By-laws, each officer shall hold office until his or
her successor is elected and qualified, unless a different term is specified in
the vote choosing or appointing him or her, or until his or her earlier death,
resignation or removal.
-8-
<PAGE>
3.5 Resignation and Removal. Any officer may resign by delivering his or
-----------------------
her written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt unless
it is specified to be effective at some other time or upon the happening of some
other event.
Any officer may be removed at any time, with or without cause, by vote of a
majority of the entire number of directors then in office.
Except as the Board of Directors may otherwise determine, no officer who
resigns or is removed shall have any right to any compensation as an officer for
any period following his or her resignation or removal, or any right to damages
on account of such removal, whether his or her compensation be by the month or
by the year or otherwise, unless such compensation is expressly provided in a
duly authorized written agreement with the corporation.
3.6 Vacancies. The Board of Directors may fill any vacancy occurring in any
---------
office for any reason and may, in its discretion, leave unfilled for such period
as it may determine any offices other than those of President, Treasurer and
Secretary. Each such successor shall hold office for the unexpired term of his
or her predecessor and until his or her successor is elected and qualified, or
until his or her earlier death, resignation or removal.
3.7 Chairman of the Board and Vice Chairman of the Board. The Board of
----------------------------------------------------
Directors may appoint a Chairman of the Board. If the Board of Directors
appoints a Chairman of the Board, he or she shall perform such duties and
possess such powers as are assigned to him or her by the Board of Directors. If
the Board of Directors appoints a Vice Chairman of the Board, he or she shall,
in the absence or disability of the Chairman of the Board, perform the duties
and exercise the powers of the Chairman of the Board and shall perform such
other duties and possess such other powers as may from time to time be vested in
him or her by the Board of Directors.
3.8 President. The President shall, subject to the direction of the Board
---------
of Directors, have general charge and supervision of the business of the
corporation. Unless otherwise provided by the Board of Directors, he or she
shall preside at all meetings of the stockholders, if he or she is a director,
at all meetings of the Board of Directors. Unless the Board of Directors has
designated the Chairman of the Board or another officer as Chief Executive
Officer, the President shall be the Chief Executive Officer of the corporation.
The President shall perform such other duties and shall have such other powers
as the Board of Directors may from time to time prescribe.
3.9 Vice Presidents. Any Vice President shall perform such duties and
---------------
possess such powers as the Board of Directors or the President may from time to
time prescribe. In the event of the absence, inability or refusal to act of the
President,
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<PAGE>
the Vice President (or if there shall be more than one, the Vice Presidents in
the order determined by the Board of Directors) shall perform the duties of the
President and when so performing shall have all the powers of and be subject to
all the restrictions upon the President. The Board of Directors may assign to
any Vice President the title of Executive Vice President, Senior Vice President
or any other title selected by the Board of Directors.
3.10 Secretary and Assistant Secretaries. The Secretary shall perform such
-----------------------------------
duties and shall have such powers as the Board of Directors or the President may
from time to time prescribe. In addition, the Secretary shall perform such
duties and have such powers as are incident to the office of the secretary,
including without limitation the duty and power to give notices of all meetings
of stockholders and special meetings of the Board of Directors, to attend all
meetings of stockholders and the Board of Directors and keep a record of the
proceedings, to maintain a stock ledger and prepare lists of stockholders and
their addresses as required, to be custodian of corporate records and the
corporate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such powers as
the Board of Directors, the President or the Secretary may from time to time
prescribe. In the event of the absence, inability or refusal to act of the
Secretary, the Assistant Secretary (or if there shall be more than one, the
Assistant Secretaries in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any meeting of
stockholders or directors, the person presiding at the meeting shall designate a
temporary secretary to keep a record of the meeting.
3.11 Treasurer and Assistant Treasurers. The Treasurer shall perform such
----------------------------------
duties and shall have such powers as may from time to time be assigned to him or
her by the Board of Directors or the President. In addition, the Treasurer
shall perform such duties and have such powers as are incident to the office of
treasurer, including without limitation the duty and power to keep and be
responsible for all funds and securities of the corporation, to deposit funds of
the corporation in depositories selected in accordance with these By-laws, to
disburse such funds as ordered by the Board of Directors, to make proper
accounts of such funds, and to render as required by the Board of Directors
statements of all such transactions and of the financial condition of the
corporation.
The Assistant Treasurers shall perform such duties and possess such powers as
the Board of Directors, the President or the Treasurer may from time to time
prescribe. In the event of the absence, inability or refusal to act of the
Treasurer, the Assistant Treasurer (or if there shall be more than one, the
Assistant Treasurers in the
-10-
<PAGE>
order determined by the Board of Directors) shall perform the duties and
exercise the powers of the Treasurer.
3.12 Salaries. Officers of the corporation shall be entitled to such
--------
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
ARTICLE 4 - Capital Stock
-------------------------
4.1 Issuance of Stock. Unless otherwise voted by the stockholders and
-----------------
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
4.2 Certificates of Stock. Every holder of stock of the corporation shall
---------------------
be entitled to have a certificate, in such form as may be prescribed by law and
by the Board of Directors, certifying the number and class of shares owned by
him or her in the corporation. Each such certificate shall be signed by, or in
the name of the corporation by, the Chairman or Vice Chairman, if any, of the
Board of Directors, or the President or a Vice President, and the Treasurer or
an Assistant Treasurer, or the Secretary or an Assistant Secretary of the
corporation. Any or all of the signatures on the certificate may be a facsimile.
Each certificate for shares of stock which are subject to any restriction on
transfer pursuant to the Certificate of Incorporation, the By-laws, applicable
securities laws or any agreement among any number of stockholders or among such
holders and the corporation shall have conspicuously noted on the face or back
of the certificate either the full text of the restriction or a statement of the
existence of such restriction.
4.3 Transfers. Except as otherwise established by rules and regulations
---------
adopted by the Board of Directors, and subject to applicable law, shares of
stock may be transferred on the books of the corporation by the surrender to the
corporation or its transfer agent of the certificate representing such shares
properly endorsed or accompanied by a written assignment or power of attorney
properly executed, and with such proof of authority or the authenticity of
signature as the corporation or its transfer agent may reasonably require.
Except as may be otherwise required by law, by the Certificate of Incorporation
or by these By-laws, the corporation shall be entitled to treat the record
holder of stock as shown on its books as the owner of
-11-
<PAGE>
such stock for all purposes, including the payment of dividends and the right to
vote with respect to such stock, regardless of any transfer, pledge or other
disposition of such stock until the shares have been transferred on the books of
the corporation in accordance with the requirements of these By-laws.
4.4 Lost, Stolen or Destroyed Certificates. The corporation may issue a new
--------------------------------------
certificate of stock in place of any previously issued certificate alleged to
have been lost, stolen, or destroyed, upon such terms and conditions as the
Board of Directors may prescribe, including the presentation of reasonable
evidence of such loss, theft or destruction and the giving of such indemnity as
the Board of Directors may require for the protection of the corporation or any
transfer agent or registrar.
4.5 Record Date. The Board of Directors may fix in advance a date as a
-----------
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders, or entitled to receive payment of any
dividend or other distribution or allotment of any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action. Such record date shall not be more than 60 nor less than 10 days before
the date of such meeting, nor more than 60 days prior to any other action to
which such record date relates.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day before the day on which notice is given, or, if
notice is waived, at the close of business on the day before the day on which
the meeting is held. The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating to such purpose.
A determination of stockholders of record entitled to notice of or to vote at
a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
- -------- -------
adjourned meeting.
ARTICLE 5 - General Provisions
------------------------------
5.1 Fiscal Year. Except as from time to time otherwise designated by the
-----------
Board of Directors, the fiscal year of the corporation shall begin on the first
day of January in each year and end on the last day of December in each year.
5.2 Corporate Seal. The corporate seal shall be in such form as shall be
--------------
approved by the Board of Directors.
-12-
<PAGE>
5.3 Waiver of Notice. Whenever any notice whatsoever is required to be
----------------
given by law, by the Certificate of Incorporation or by these By-laws, a waiver
of such notice either in writing signed by the person entitled to such notice or
such person's duly authorized attorney, or by telegraph, cable or any other
available method, whether before, at or after the time stated in such waiver, or
the appearance of such person or persons at such meeting in person or by proxy,
shall be deemed equivalent to such notice.
5.4 Voting of Securities. Except as the directors may otherwise designate,
--------------------
the President or Treasurer may waive notice of, and act as, or appoint any
person or persons to act as, proxy or attorney-in-fact for this corporation
(with or without power of substitution) at, any meeting of stockholders or
shareholders of any other corporation or organization, the securities of which
may be held by this corporation.
5.5 Evidence of Authority. A certificate by the Secretary, or an Assistant
---------------------
Secretary, or a temporary Secretary, as to any action taken by the stockholders,
directors, a committee or any officer or representative of the corporation shall
as to all persons who rely on the certificate in good faith be conclusive
evidence of such action.
5.6 Certificate of Incorporation. All references in these By-laws to the
----------------------------
Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the corporation, as amended and/or restated and in effect from
time to time.
5.7 Transactions with Interested Parties. No contract or transaction
------------------------------------
between the corporation and one or more of the directors or officers, or between
the corporation and any other corporation, partnership, association, or other
organization in which one or more of the directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or a committee of the
Board of Directors which authorizes the contract or transaction or solely
because his, her or their votes are counted for such purpose, if:
(1) The material facts as to his or her relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board or committee in good faith
authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum;
(2) The material facts as to his or her relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or
-13-
<PAGE>
(3) The contract or transaction is fair as to the corporation as of the time it
is authorized, approved or ratified, by the Board of Directors, a committee
of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the presence of
a quorum at a meeting of the Board of Directors or of a committee which
authorizes the contract or transaction.
5.8 Severability. Any determination that any provision of these By-laws for
------------
any reason inapplicable, illegal or ineffective shall not affect or invalidate
any other provision of these By-laws.
5.9 Pronouns. All pronouns used in these By-laws shall be deemed to refer
--------
to the masculine, feminine or neuter, singular or plural, as the identity of the
person or persons may require.
ARTICLE 6 - Amendments
----------------------
6.1 By the Board of Directors. These By-laws may be altered, amended or
-------------------------
repealed or new by-laws may be adopted by the affirmative vote of a majority of
the directors present at any regular or special meeting of the Board of
Directors at which a quorum is present.
6.2 By the Stockholders. Except as otherwise provided in Section 6.3, these
-------------------
By-laws may be altered, amended or repealed or new by-laws may be adopted by the
affirmative vote of the holders of a majority of the shares of the capital stock
of the corporation issued and outstanding and entitled to vote at any regular or
special meeting of stockholders, provided notice of such alteration, amendment,
repeal or adoption of new by-laws shall have been stated in the notice of such
regular or special meeting.
6.3 Certain Provisions. Notwithstanding any other provision of law, the
------------------
Certificate of Incorporation or these By-laws, and notwithstanding the fact that
a lesser percentage may be specified by-law, the affirmative vote of the holders
of at least two-thirds of the shares of the capital stock of the corporation
issued and outstanding and entitled to vote shall be required to amend or
repeal, or to adopt any provision inconsistent with Section 1.3, Section 1.10,
Section 1.11, Section 1.12, Section 1.13, Article 2 or Article 6 of these By-
laws.
-14-
<PAGE>
EXHIBIT 4
FORM OF SPECIMEN CERTIFICATE OF SHARES OF COMMON STOCK,
$.01 PAR VALUE PER SHARE, OF THE REGISTRANT
UPON THE CLOSING OF THIS OFFERING
[FRONT SIDE OF CERTIFICATE]
[Stream logo]
STREAM INTERNATIONAL INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
COMMON STOCK
Number SI Shares
THIS CERTIFICATE IS TRANSFERRABLE IN BOSTON, MA OR NEW YORK, NY
CUSIP 863237 10 3
SEE REVERSE FOR CERTAIN
DEFINITIONS
This certifies that is the owner of FULLY PAID AND NONASSESSABLE
SHARES OF COMMON STOCK OF THE PAR VALUE OF ONE CENT ($0.01) EACH OF Stream
International Inc. (hereinafter called the "Corporation") transferable upon
the books of the Corporation by the holder hereof in person or by a duly
authorized attorney upon surrender of this Certificate properly endorsed and
assigned. This Certificate and the share represented hereby are issued and
shall be subject to the laws of the State of Delaware and to all of the
provisions of the Amended and Restated Certificate of Incorporation and
Amended and Restated By-Laws of the Corporation as amended from time to time
(copies of which are on file with the Corporation) to all of which the holder,
by acceptance hereof, assents. This Certificate is not valid unless
countersigned and registered by the Transfer Agent and Registrar.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed
by the facsimile signatures of its duly authorized officers and its facsimile
corporate seal to be hereunto affixed.
Dated:
[corporate seal and signatures of Jeffrey D. Glidden, CHIEF FINANCIAL
OFFICER AND VICE PRESIDENT, FINANCE and Linda M. Avallone, TREASURER]
[RIGHT COLUMN OF FRONT SIDE OF CERTIFICATE]
Countersigned and Registered: BankBoston N.A., Transfer Agent and Registrar
[signature of ]
AUTHORIZED SIGNATURE
<PAGE>
[BACK SIDE OF STOCK CERTIFICATE]
STREAM INTERNATIONAL INC.
The Corporation is authorized to issue more than one class of stock. A
statement of the powers, designations, preferences and relative participating,
optional or other special rights of each class and series of stock and the
qualifications, limitations or restrictions thereon will be provided without
charge to each stockholder upon request to the Corporation.
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM--as tenants in common
TEN ENT--as tenants by the entireties
JT TEN--as joint tenants with right of survivorship and not as tenants in
common
UNIF GIFT MIN ACT-- (Cust) Custodian (Minor) under Uniform Gifts to
Minors Act (State)
Additional abbreviations may also be used though not in the above list.
ASSIGNMENT
For value received, hereby sell, assign, and transfer unto
(PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF
ASSIGNEE) (PLEASE PRINT OR TYPE NAME AND ADDRESS INCLUDING POSTAL ZIP
CODE OF ASSIGNEE) Shares of the capital stock represented by the
within Certificate, and do hereby irrevocably constitute and appoint
Attorney to transfer the said stock on the books of the within-named
Corporation with full power of substitution in the premises.
Dated, ______________________ _______________________________
NOTICE: The signatures to this
assignment must correspond
with the name as written upon
the face of the Certificate in
every particular, without
alteration or enlargement, or
any change whatever.
SIGNATURE(S) GUARANTEED: ______________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17AD-15.
<PAGE>
EXHIBIT 10.2
STREAM INTERNATIONAL INC.
1997 Stock Incentive Plan
-------------------------
1. Purpose
-------
The purpose of this 1997 Stock Incentive Plan (the "Plan") of Stream
International Inc. (f/k/a Stream International Holdings Inc.), a Delaware
corporation (the "Company"), is to advance the interests of the Company's
stockholders by enhancing the Company's ability to attract, retain and motivate
persons who make (or are expected to make) important contributions to the
Company by providing such persons with equity ownership opportunities and
performance-based incentives and thereby better aligning the interests of such
persons with those of the Company's stockholders. Except where the context
otherwise requires, the term "Company" shall include any present or future
subsidiary corporations of Stream International Inc. as defined in Section
424(f) of the Internal Revenue Code of 1986, as amended, and as further amended
from time to time, and any regulations promulgated thereunder (the "Code") (a
"Subsidiary").
2. Eligibility
-----------
All of the employees, officers, directors, consultants and advisors of the
Company are eligible to be granted options, restricted stock, or other stock-
based awards (each, an "Award") under the Plan. Any person who has been granted
an Award under the Plan shall be deemed a "Participant".
3. Administration, Delegation
--------------------------
a. Administration by Board of Directors. The Plan will be administered
------------------------------------
by the Board of Directors of the Company (the "Board"). The Board shall have
authority to grant Awards and to adopt, amend and repeal such administrative
rules, guidelines and practices relating to the Plan as it shall deem advisable
from time to time, to interpret and correct the provisions of the Plan and any
Award. No member of the Board shall be liable for any action or determination
relating to the Plan. All decisions by the Board shall be made in their sole
discretion and shall be final and binding on all persons having or claiming any
interest in the Plan or in any Award.
b. Delegation to Executive Officers. To the extent permitted by
--------------------------------
applicable law, the Board may delegate to one or more executive officers of the
Company the power to make Awards and exercise such other powers under the Plan
as the Board may determine, provided that the Board shall fix the maximum number
of shares
<PAGE>
subject to Awards and the maximum number of shares for any one Participant to be
made by such executive officers.
c. Appointment of Committees. To the extent permitted by applicable law,
-------------------------
the Board may delegate any or all of its powers under the Plan to one or more
committees or subcommittees of the Board (a "Committee"). If and when the Class
A Common Stock, $.01 par value per share, of the Company (the "Common Stock") is
registered under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), the Board shall appoint one such Committee of not less than two members,
each member of which shall be an "outside director" within the meaning of
Section 162(m) of the Code and a "non-employee director" as defined in Rule
16b-3 promulgated under the Exchange Act. All references in the Plan to the
"Board" shall mean a Committee or the Board or the executive officer referred to
in Section 3(b) to the extent of such delegation.
4. Stock Available for Awards
--------------------------
a. Number of Shares. Subject to adjustment under Section 4(c), Awards
----------------
may be made under the Plan for up to 14,202,500 shares of Common Stock. If any
Award expires or is terminated, surrendered or canceled without having been
fully exercised or is forfeited in whole or in part or results in any Common
Stock not being issued, the unused Common Stock covered by such Award shall
again be available for the grant of Awards under the Plan, subject, however, in
the case of Incentive Stock Options (as defined hereinafter) to any limitation
required under the Code. Shares issued under the Plan may consist in whole or
in part of authorized but unissued shares or treasury shares.
b. Per-Participant Limit. Subject to adjustment under Section 4(c), for
---------------------
Awards granted after the Common Stock is registered under the Exchange Act, the
maximum number of shares with respect to which an Award may be granted to any
Participant under the Plan shall be 6,175,000 per calendar year. The per-
Participant limit described in this Section 4(b) shall be construed and applied
consistently with Section 162(m) of the Code.
c. Adjustment to Common Stock. In the event of any stock split, stock
--------------------------
dividend, recapitalization, combination of shares, liquidation, spin-off, or
other similar change in capitalization or event, or any distribution to holders
of Common Stock other than a normal cash dividend, (i) the number and class of
securities available under this Plan, (ii) the number and class of security and
exercise price per share subject to each outstanding Option, (iii) the
repurchase price per security subject to each outstanding Restricted Stock Award
(as defined hereinafter), and (iv) the terms of each other outstanding stock-
based Award shall be appropriately adjusted by the Company (or substituted
Awards may be made, if applicable) to the
-2-
<PAGE>
extent the Board shall determine, in good faith, that such an adjustment (or
substitution) is necessary and appropriate.
5. Stock Options
-------------
a. General. The Board may grant options to purchase Common Stock (each,
-------
an "Option") and determine the number of shares of Common Stock to be covered by
each Option, the exercise price of each Option and the conditions and
limitations applicable to the exercise of each Option, including conditions
relating to applicable federal or state securities laws, as it considers
necessary or advisable. An Option which is not intended to be an Incentive
Stock Option (as hereinafter defined) shall be designated a "Nonstatutory Stock
Option".
b. Incentive Stock Options. An Option that the Board intends to be an
-----------------------
"incentive stock option" as defined in Section 422 of the Code (an "Incentive
Stock Option") shall only be granted to employees of the Company and shall be
subject to and shall be construed consistently with the requirements of Section
422 of the Code. The Company shall have no liability to a Participant, or any
other party, if an Option (or any part thereof) which is intended to be an
Incentive Stock Option is not an Incentive Stock Option.
c. Exercise Price. The Board shall establish the exercise price at the
--------------
time each Option is granted and specify it in the applicable option agreement.
d. Duration of Options. Each Option shall be exercisable at such times
-------------------
and subject to such terms and conditions as the Board may specify in the
applicable option agreement.
e. Exercise of Option. Options may be exercised only by delivery to the
------------------
Company of a written notice of exercise signed by the proper person together
with payment in full as specified in Section 5(f) for the number of shares for
which the Option is exercised.
f. Payment Upon Exercise. Common Stock purchased upon the exercise of an
----------------------
Option granted under the Plan shall be paid for as follows:
(i) in cash or by check, payable to the order of the Company;
(ii) except as the Board may otherwise provide in an Option, delivery
of an irrevocable and unconditional undertaking by a credit worthy broker to
deliver promptly to the Company sufficient funds to pay the exercise price, or
delivery by the Participant to the Company of a copy of irrevocable and
unconditional instructions to a credit worthy broker to deliver promptly to the
Company cash or a check sufficient to pay the exercise price;
-3-
<PAGE>
(iii) to the extent permitted by the Board and explicitly provided in
the Option (x) by delivery of shares of Common Stock owned by the Participant
valued at their fair market value as determined by the Board in good faith
("Fair Market Value"), which Common Stock was owned by the Participant at least
six months prior to such delivery, (y) by delivery of a promissory note of the
Participant to the Company on terms determined by the Board (and payment to the
Company by the Participant of cash in an amount equal to the par value of the
shares purchased), or (z) payment of such other lawful consideration as the
Board may determine; or
(iv) any combination of the above permitted forms of payment.
6. Restricted Stock
----------------
a. Grants. The Board may grant Awards entitling recipients to acquire
------
shares of Common Stock, subject to (i) payment to the Company by the Participant
of cash in an amount equal to the par value of the shares purchased, and (ii)
the right of the Company to repurchase all or part of such shares at their issue
price or other stated or formula price (or to require forfeiture of such shares
if issued in an amount equal only to the par value of the shares purchased) from
the recipient in the event that conditions specified by the Board in the
applicable Award are not satisfied prior to the end of the applicable
restriction period or periods established by the Board for such Award (each,
"Restricted Stock Award").
b. Terms and Conditions. The Board shall determine the terms and
--------------------
conditions of any such Restricted Stock Award, including the conditions for
repurchase (or forfeiture) and the issue price, if any. Any stock certificates
issued in respect of a Restricted Stock Award shall be registered in the name of
the Participant and, unless otherwise determined by the Board, deposited by the
Participant, together with a stock power endorsed in blank, with the Company (or
its designee). At the expiration of the applicable restriction periods, the
Company (or such designee) shall deliver the certificates no longer subject to
such restrictions to the Participant or if the Participant has died, to the
beneficiary designated by a Participant, in a manner determined by the Board, to
receive amounts due or exercise rights of the Participant in the event of the
Participant's death (the "Designated Beneficiary"). In the absence of an
effective designation by a Participant, Designated Beneficiary shall mean the
Participant's estate.
7. Other Stock-Based Awards
------------------------
The Board shall have the right to grant other Awards based upon the Common
Stock having such terms and conditions as the Board may determine, including the
grant of shares based upon certain conditions, the grant of securities
convertible into Common Stock and the grant of stock appreciation rights.
-4-
<PAGE>
8. General Provisions Applicable to Awards
---------------------------------------
a. Transferability of Awards. Except as the Board may otherwise
-------------------------
determine or provide in an Award, Awards shall not be sold, assigned,
transferred, pledged or otherwise encumbered by the person to whom they are
granted, either voluntarily or by operation of law, except by will or the laws
of descent and distribution, and, during the life of the Participant, shall be
exercisable only by the Participant. References to Participant, to the extent
relevant in the context, shall include references to authorized transferees.
b. Documentation. Each Award under the Plan shall be evidenced by a
-------------
written instrument in such form as the Board shall determine. Each Award may
contain terms and conditions in addition to those set forth in the Plan.
c. Board Discretion. Except as otherwise provided by the Plan, each type
----------------
of Award may be made alone, in addition to or in relation to any other type of
Award. The terms of each type of Award need not be identical, and the Board
need not treat Participants uniformly.
d. Termination of Status. The Board shall determine the effect on an
---------------------
Award of the disability, death, retirement, authorized leave of absence or other
change in the employment or other status of a Participant and the extent to
which, and the period during which, the Participant, the Participant's legal
representative, conservator, guardian or Designated Beneficiary may exercise
rights under the Award.
e. Acquisition Events
------------------
(i) Consequences of Acquisition Events. Upon the occurrence of an
-----------------------------------
Acquisition Event (as defined below), (a) each outstanding Option or Award shall
be assumed or an equivalent option or award shall be substituted by the
successor corporation or a parent or subsidiary of the successor corporation
(unless the successor corporation refuses to assume or substitute for the Option
or Award), provided that any such Options substituted for Incentive Stock
Options shall satisfy, in the determination of the Board, the requirements of
Section 424(a) of the Code, and (b) (x) all Options then outstanding shall
become immediately exercisable in full immediately prior to the effectiveness of
the Acquisition Event and, unless assumed or substituted by the successor
corporation, will terminate, to the extent unexercised, upon the consummation of
such Acquisition Event; (y) all Restricted Stock Awards then outstanding shall
become immediately free of all restrictions upon the consummation of the
Acquisition Event; and (z) all other stock-based Awards shall become immediately
exercisable, realizable or vested in full, or shall be immediately free of all
restrictions or conditions, as the case may be, upon the consummation of the
Acquisition Event.
-5-
<PAGE>
An "Acquisition Event" shall mean: (x) any merger or consolidation
which results 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 or acquiring entity or
its parent) less than 50% of the combined voting power of the voting securities
of the Company or such surviving or acquiring entity or its parent outstanding
immediately after such merger or consolidation; (y) any sale of all or
substantially all of the assets of the Company; or (z) the complete liquidation
of the Company.
(ii) Assumption of Options Upon Certain Events. The Board may grant
------------------------------------------
Awards under the Plan in substitution for stock and stock-based awards held by
employees of another corporation who become employees of the Company as a result
of a merger or consolidation of the employing corporation with the Company or
the acquisition by the Company of property or stock of the employing
corporation. The substitute Awards shall be granted on such terms and conditions
as the Board considers appropriate in the circumstances.
f. Withholding. Each Participant shall pay to the Company, or make
-----------
provisions satisfactory to the Board for payment of, any taxes required by law
to be withheld in connection with Awards to such Participant no later than the
date of the event creating the tax liability. The Board may allow Participants
to satisfy such tax obligations in whole or in part in shares of Common Stock,
including shares retained from the Award creating the tax obligation, valued at
their Fair Market Value. The Company may, to the extent permitted by law,
deduct any such tax obligations from any payment of any kind otherwise due to a
Participant.
g. Amendment of Award. The Board may amend, modify or terminate any
------------------
outstanding Award, including but not limited to, substituting therefor another
Award of the same or a different type, changing the date of exercise or
realization, and converting an Incentive Stock Option to a Nonstatutory Stock
Option, provided that the Participant's consent to such action shall be required
unless the Board determines that the action, taking into account any related
action, would not materially and adversely affect the Participant.
h. Conditions on Delivery of Stock. The Company will not be obligated to
-------------------------------
deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from shares previously delivered under the Plan until (i) all
conditions of the Award have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws and any applicable stock exchange or
stock market rules and regulations, and (iii) the Participant has executed and
delivered to the Company such representations or agreements as the Company may
consider appropriate to satisfy the requirements of any applicable laws, rules
or regulations.
-6-
<PAGE>
i. Acceleration. The Board may at any time provide that any Options
------------
shall become immediately exercisable in full or in part, that any Restricted
Stock Awards shall be free of all restrictions, or that any other stock-based
Awards may become exercisable in full or in part or free of some or all
restrictions or conditions, or otherwise realizable in full or in part, as the
case may be, despite the fact that foregoing options may (i) cause the
application of Sections 280G and 4999 of the Code if a change in control of the
Company occurs, and (ii) disqualify all or part of the Option as an incentive
stock option.
9. Miscellaneous
-------------
a. No Right To Employment or Other Status. No person shall have any
--------------------------------------
claim or right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment or any other
relationship with the Company. The Company expressly reserves the right at any
time to dismiss or otherwise terminate its relationship with a Participant free
from any liability or claim under the Plan, except as expressly provided in the
applicable Award.
b. No Rights As Stockholder. Subject to the provisions of the applicable
------------------------
Award, no Participant or Designated Beneficiary shall have any rights as a
stockholder with respect to any shares of Common Stock to be distributed with
respect to an Award until becoming the record holder thereof.
c. Effective Date and Term of Plan. The Plan shall become effective on
-------------------------------
the date on which it is adopted by the Board, but no Award granted to a
Participant designated as subject to Section 162(m) by the Board shall become
exercisable, vested or realizable, as applicable to such Award, unless and until
the Plan has been approved by the Company's stockholders. No Awards shall be
granted under the Plan after the completion of ten years from the earlier of (i)
the date on which the Plan was adopted by the Board or (ii) the date the Plan
was approved by the Company's stockholders, but Awards previously granted may
extend beyond that date.
d. Amendment of Plan. The Board may amend, suspend or terminate the Plan
-----------------
or any portion thereof at any time, provided that no Award granted to a
Participant designated as subject to Section 162(m) by the Board after the date
of such amendment shall become exercisable, realizable or vested, as applicable
to such Award (to the extent that such amendment to the Plan was required to
grant such Award to a particular Participant), unless and until such amendment
shall have been approved by the Company's stockholders.
-7-
<PAGE>
e. Stockholder Approval. For purposes of this Plan, stockholder approval
--------------------
shall mean approval by a vote of the stockholders in accordance with the
requirements of Section 162(m) of the Code.
f. Governing Law. The provisions of the Plan and all Awards made
-------------
hereunder shall be governed by and interpreted in accordance with the laws of
the State of Delaware, without regard to any applicable conflicts of law.
-8-
<PAGE>
EXHIBIT 10.3
STREAM INTERNATIONAL INC.
1997 Director Stock Option Plan
-------------------------------
1. Purpose
-------
The purpose of this 1997 Director Stock Option Plan (the "Plan") of
Stream International Inc. (f/k/a Stream International Holdings Inc.) (the
"Company") is to encourage ownership in the Company by outside directors of the
Company whose continued services are considered essential to the Company's
future progress and to provide them with a further incentive to remain as
directors of the Company.
2. Administration
--------------
The Board of Directors shall supervise and administer the Plan.
Grants of stock options under the Plan and the amount and nature of the awards
to be granted shall be automatic in accordance with Section 5. However, all
questions of interpretation of the Plan or of any options issued under it shall
be determined by the Board of Directors and such determination shall be final
and binding upon all persons having an interest in the Plan.
3. Participation in the Plan
-------------------------
Directors of the Company who are not employees of the Company or any
subsidiary of the Company shall be eligible to participate in the Plan.
4. Stock Subject to the Plan
-------------------------
(a) The maximum number of shares which may be issued under the Plan
shall be 1,852,500 shares of the Company's Class A Common Stock, par value $.01
per share ("Common Stock"), subject to adjustment as provided in Section 9 of
the Plan.
(b) If any outstanding option under the Plan for any reason expires or
is terminated without having been exercised in full, the shares allocable to the
unexercised portion of such option shall again become available for grant
pursuant to the Plan.
<PAGE>
(c) All options granted under the Plan shall be non-statutory options
not entitled to special tax treatment under Section 422 of the Internal Revenue
Code of 1986, as amended to date and as it may be amended from time to time (the
"Code").
5. Terms, Conditions and Form of Options
-------------------------------------
Each option granted under the Plan shall be evidenced by a written
agreement in such form as the Board of Directors shall from time to time
approve, which agreements shall comply with and be subject to the following
terms and conditions:
(a) Option Grants.
-------------
(i) Upon the closing of the Company's initial public offering
of Common Stock, the Company shall grant to each eligible director an option for
185,250 shares of Common Stock.
(ii) Upon the initial election of any eligible director as a
director of the Company following the closing of the Company's initial public
offering of Common Stock, the Company shall grant to such director an option for
185,250 shares of Common Stock. No person serving as a director upon the
adoption of this Plan shall receive such an option.
(iii) On the date of each annual meeting of stockholders of the
Company following the closing of the Company's initial public offering of Common
Stock, the Company shall grant to each eligible director an option for 61,750
shares of Common Stock (provided that no director shall receive an option
pursuant to this Section 5(a)(iii) if he or she received an option under
Sections 5(a)(i) or (ii) above within six (6) months prior to the date of such
annual meeting of stockholders).
(b) Option Exercise Price. The option exercise price per share for
---------------------
each option granted under the Plan shall equal (i) the last reported sales price
per share of the Company's Common Stock on the Nasdaq National Market (or, if
the Company is traded on a nationally recognized securities exchange on the date
of grant, the reported closing sales price per share of the Company's Common
Stock by such exchange) on the date of grant (or if no such price is reported on
such date such price as reported on the nearest preceding day) or (ii) if the
Common Stock is not traded on the Nasdaq National Market or an exchange, the
fair market value per share on the date of grant as most recently determined by
the Board of Directors.
(c) Options Non-Transferable. Except as otherwise provided in the
------------------------
agreement evidencing the option grant, each option granted under the Plan by its
terms shall not be transferable by the optionee other than by will, or by the
laws of
-2-
<PAGE>
descent and distribution, and shall be exercised during the lifetime of the
optionee only by the optionee. Except as otherwise provided in the agreement
evidencing the option grant, no option or interest therein may be transferred,
assigned, pledged or hypothecated by the optionee during the optionee's
lifetime, whether by operation of law or otherwise, or be made subject to
execution, attachment or similar process.
(d) Exercise Period. Each option shall become exercisable on a
---------------
cumulative basis as to 50% of the shares subject to the option on the first
anniversary of the date of grant of such option and 25% of the shares subject to
the option on each of the second and third anniversaries of the date of grant of
such option. In the event an optionee ceases to serve as a director, each such
option may be exercised by the optionee (or, in the event of her death, by her
administrator, executor or heirs), at any time within 12 months after the
optionee ceases to serve as a director, to the extent such option was
exercisable at the time of such cessation of service. Notwithstanding the
foregoing, no option shall be exercisable after the expiration of ten years from
the date of grant.
(e) Exercise Procedure. Options may be exercised only by written
------------------
notice to the Company at its principal office accompanied by (i) payment in cash
of the full consideration for the shares as to which they are exercised or (ii)
an irrevocable undertaking by a broker to deliver promptly to the Company
sufficient funds to pay the exercise price or delivery of irrevocable
instructions to a broker to deliver promptly to the Company cash or a check
sufficient to pay the exercise price.
6. Assignments
-----------
The rights and benefits of participants under the Plan may not be
assigned, whether voluntarily or by operation of law, except as provided in
Section 5(d).
7. Effective Date
--------------
The Plan shall become effective immediately upon its adoption by the
Board of Directors.
8. Limitation of Rights
--------------------
(a) No Right to Continue as a Director. Neither the Plan, nor the
----------------------------------
granting of an option nor any other action taken pursuant to the Plan, shall
constitute or be evidence of any agreement or understanding, express or implied,
that the Company will retain a director for any period of time.
-3-
<PAGE>
(b) No Stockholders' Rights for Options. An optionee shall have no
-----------------------------------
rights as a stockholder with respect to the shares covered by such optionee's
options until the date of the issuance to such optionee of a stock certificate
therefor, and no adjustment will be made for dividends or other rights (except
as provided in Section 9) for which the record date is prior to the date such
certificate is issued.
9. Changes in Common Stock; Acquisition Events.
-------------------------------------------
(a) If the outstanding shares of Common Stock are increased, decreased
or combined into a different number or kind of shares or other securities, or if
additional shares or new or different shares or other securities are distributed
with respect to such shares of Common Stock or other securities, through sale of
all or substantially all of the assets of the Company, recapitalization,
reclassification, stock dividend, stock split, reverse stock split or other
distribution with respect to such shares of Common Stock, or other securities,
an appropriate and proportionate adjustment will be made in (i) the maximum
number and kind of shares reserved for issuance under the Plan, (ii) the number
and kind of shares or other securities subject to then outstanding options under
the Plan and (iii) the price for each share subject to any then outstanding
options under the Plan, without changing the aggregate purchase price as to
which such options remain exercisable. No fractional shares will be issued
under the Plan on account of any such adjustments.
(b) Upon the occurrence of an Acquisition Event, all options then
outstanding hereunder shall (i) be assumed or an equivalent option or award
shall be substituted by the successor corporation or parent or subsidiary of the
successor corporation (unless the successor corporation refuses to assume or
substitute for the option) and (ii) become immediately exercisable in full
immediately prior to the effectiveness of the Acquisition Event and, unless
assumed or substituted by the successor corporation, will terminate, to the
extent unexercised, upon the consummation of such Acquisition Event. An
"Acquisition Event" shall mean: (x) any merger or consolidation which results
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 or acquiring entity or its parent) less
than 50% of the combined voting power of the voting securities of the Company or
such surviving or acquiring entity or its parent outstanding immediately after
such merger or consolidation; (y) any sale of all or substantially all of the
assets of the Company; or (z) the complete liquidation of the Company.
10. Amendment of the Plan
---------------------
The Board of Directors may at any time, and from time to time, suspend
or discontinue the Plan or modify or amend it in any respect whatsoever;
provided, however, that if at any time the approval of the stockholders of the
Company is
-4-
<PAGE>
required under any applicable tax, regulatory or listing requirement as to such
modification or amendment, the Board of Directors may not affect such
modification or amendment without such approval.
11. Governing Law
-------------
The Plan and all determinations made and actions taken pursuant hereto
shall be governed by the laws of the State of Delaware.
-5-
<PAGE>
EXHIBIT 10.7
STREAM INTERNATIONAL INC.
Amendment No. 2 to 1995 Stock Option Plan
-----------------------------------------
The 1995 Stock Option Plan of Stream International Inc. (f/k/a Stream
International Holdings Inc.) is hereby amended as follows:
1. The following sentence is hereby added as the final sentence of
Section 6(i):
"If a participant is employed by Modus Media International Holdings,
Inc. ("MMI") or Corporate Software & Technology Holdings, Inc. ("CST")
(MMI and CST shall each be referred to individually as a "Spin-Off
Subsidiary") or a subsidiary thereof at the time that the voting
common stock of such Spin-Off Subsidiary owned by the Company is
distributed to the stockholders of the Company (the "Spin-Off") then,
solely for purposes of this Section 6(i), such participant shall be
deemed to be employed by the Company for so long as such participant
is employed by such Spin-Off Subsidiary or a subsidiary thereof."
2. Section 6(j) is hereby restated in its entirety as follows:
"(j) Acquisition Events. An 'Acquisition Event' shall mean: (x) any
------------------
merger or consolidation which results in the voting securities of the
Company or a Spin-Off Subsidiary outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving or acquiring entity
or its parent) less that 50% of the combined voting power of the
voting securities of such company or such surviving or acquiring
entity or its parent outstanding immediately after such merger or
consolidation; (y) any sale of all or substantially all of the assets
of the Company or a Spin-Off Subsidiary; or (z) the complete
liquidation of the Company or a Spin-Off Subsidiary. The Spin-Off
shall not constitute an Acquisition Event.
If (i) a participant is employed by the Company or a Spin-Off
Subsidiary (or a subsidiary thereof) at the time of the occurrence of
an Acquisition Event with respect to the Company, (ii) a participant
is employed by MMI (or a subsidiary thereof) at the time of the
occurrence of an Acquisition Event with respect to MMI, or (iii) a
participant is employed by CST (or a subsidiary thereof) at the time
of the occurrence of an Acquisition Event with respect to CST, then
upon the occurrence of such Acquisition Event: (x) if such Acquisition
Event is with respect to the Company, each outstanding option shall be
assumed or an
<PAGE>
equivalent option shall be substituted by the successor corporation or
a parent or subsidiary of the successor corporation (unless the
successor corporation refuses to assume or substitute for the option),
provided that any such options substituted for Incentive Stock Options
shall satisfy, in the determination of the Board, the requirements of
Section 424(a) of the Code, and (y) all options then outstanding shall
become exercisable in full immediately prior to the effectiveness of
the Acquisition Event and, unless assumed or substituted by the
successor corporation, will terminate, to the extent unexercised, upon
the consummation of the Acquisition Event. This paragraph shall also
apply to a participant whose employment with the Company or a Spin-Off
Subsidiary, as applicable, is terminated prior to the consummation of
an Acquisition Event to the extent such participant's options remain
exercisable upon the consummation of such Acquisition Event. For
purposes of this paragraph, employment shall include service as a
director, consultant or advisor."
<PAGE>
EXHIBIT 10.8
STREAM INTERNATIONAL INC.
Amendment No. 1 to 1995 Replacement Stock Option Plan
-----------------------------------------------------
The 1995 Replacement Stock Option Plan of Stream International Inc. (f/k/a
Stream International Holdings Inc.) is hereby amended as follows:
1. The following sentence is hereby added as the final sentence of
Section 6(h):
"If a participant is employed by Modus Media International Holdings,
Inc. ("MMI") or Corporate Software & Technology Holdings, Inc. ("CST")
(MMI and CST shall each be referred to individually as a "Spin-Off
Subsidiary") or a subsidiary thereof at the time that the voting
common stock of such Spin-Off Subsidiary owned by the Company is
distributed to the stockholders of the Company (the "Spin-Off"), then,
solely for purposes of this Section 6(h), such participant shall be
deemed to be employed by the Company for so long as such participant
is employed by such Spin-Off Subsidiary or a subsidiary thereof."
2. Section 6(i) is hereby restated in its entirety as follows:
"(i) Acquisition Events. An 'Acquisition Event' shall mean: (x) any
------------------
merger or consolidation which results in the voting securities of the
Company or a Spin-Off Subsidiary outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving or acquiring entity
or its parent) less that 50% of the combined voting power of the
voting securities of such company or such surviving or acquiring
entity or its parent outstanding immediately after such merger or
consolidation; (y) any sale of all or substantially all of the assets
of the Company or a Spin-Off Subsidiary; or (z) the complete
liquidation of the Company or a Spin-Off Subsidiary. The Spin-Off
shall not constitute an Acquisition Event.
If (i) a participant is employed by the Company or a Spin-Off
Subsidiary (or a subsidiary thereof) at the time of the occurrence of
an Acquisition Event with respect to the Company, (ii) a participant
is employed by MMI (or a subsidiary thereof) at the time of the
occurrence of an Acquisition Event with respect to MMI, or (iii) a
participant is employed by CST (or a subsidiary thereof) at the time
of the occurrence of an Acquisition Event with respect to CST, then
upon the occurrence of such Acquisition Event: (x) if such Acquisition
Event is with respect
<PAGE>
to the Company, each outstanding option shall be assumed or an
equivalent option shall be substituted by the successor corporation or
a parent or subsidiary of the successor corporation (unless the
successor corporation refuses to assume or substitute for the option),
provided that any such options substituted for Incentive Stock Options
shall satisfy, in the determination of the Board, the requirements of
Section 424(a) of the Code, and (y) all options then outstanding shall
become exercisable in full immediately prior to the effectiveness of
the Acquisition Event and, unless assumed or substituted by the
successor corporation, will terminate, to the extent unexercised, upon
the consummation of the Acquisition Event. This paragraph shall also
apply to a participant whose employment with the Company or a Spin-Off
Subsidiary, as applicable, is terminated prior to the consummation of
an Acquisition Event to the extent such participant's options remain
exercisable upon the consummation of such Acquisition Event. For
purposes of this paragraph, employment shall include service as a
director, consultant or advisor."
<PAGE>
EXHIBIT 10.9
STREAM INTERNATIONAL INC.
Amendment No. 2 to 1995 California Stock Option Plan
----------------------------------------------------
The 1995 California Stock Option Plan of Stream International Inc. (f/k/a
Stream International Holdings Inc.) is hereby amended as follows:
1. The following sentence is hereby added as the final sentence of
Section 6(i):
"If a participant is employed by Modus Media International Holdings,
Inc. ("MMI") or Corporate Software & Technology Holdings, Inc. ("CST")
(MMI and CST shall each be referred to individually as a "Spin-Off
Subsidiary") or a subsidiary thereof at the time that the voting
common stock of such Spin-Off Subsidiary owned by the Company is
distributed to the stockholders of the Company (the "Spin-Off"), then,
solely for purposes of this Section 6(i), such participant shall be
deemed to be employed by the Company for so long as such participant
is employed by such Spin-Off Subsidiary or a subsidiary thereof."
2. Section 6(j) is hereby restated in its entirety as follows:
"(j) Acquisition Events. An 'Acquisition Event' shall mean: (x) any
------------------
merger or consolidation which results in the voting securities of the
Company or a Spin-Off Subsidiary outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving or acquiring entity
or its parent) less that 50% of the combined voting power of the
voting securities of such company or such surviving or acquiring
entity or its parent outstanding immediately after such merger or
consolidation; (y) any sale of all or substantially all of the assets
of the Company or a Spin-Off Subsidiary; or (z) the complete
liquidation of the Company or a Spin-Off Subsidiary. The Spin-Off
shall not constitute an Acquisition Event.
If (i) a participant is employed by the Company or a Spin-Off
Subsidiary (or a subsidiary thereof) at the time of the occurrence of
an Acquisition Event with respect to the Company, (ii) a participant
is employed by MMI (or a subsidiary thereof) at the time of the
occurrence of an Acquisition Event with respect to MMI, or (iii) a
participant is employed by CST (or a subsidiary thereof) at the time
of the occurrence of an Acquisition Event with respect to CST, then
upon the occurrence of such Acquisition Event: (x) if such Acquisition
Event is with respect
<PAGE>
to the Company, each outstanding option shall be assumed if an
equivalent option shall be substituted by the successor corporation or
a parent or subsidiary of the successor corporation (unless the
successor corporation refuses to assume or substitute for the option),
provided that any such options substituted for Incentive Stock Options
shall satisfy, in the determination of the Board, the requirements of
Section 424(a) of the Code, and (y) all options then outstanding shall
become exercisable in full immediately prior to the effectiveness of
the Acquisition Event and, unless assumed or substituted by the
successor corporation, will terminate, to the extent unexercised, upon
the consummation of an Acquisition Event. This paragraph shall also
apply to a participant whose employment with the Company or a Spin-Off
Subsidiary, as applicable, is terminated prior to the consummation of
an Acquisition Event to the extent such participant's options remain
exercisable upon the consummation of such Acquisition Event. For
purposes of this paragraph, employment shall include service as a
director, consultant or advisor."
<PAGE>
EXHIBIT 10.10
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONTRIBUTION AGREEMENT
Dated as of December 15, 1997
AMONG
STREAM INTERNATIONAL INC.,
MODUS MEDIA INTERNATIONAL, INC.,
and
MODUS MEDIA INTERNATIONAL HOLDINGS, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1 - DEFINITIONS........................................................... 2
ARTICLE 2 - THE SEPARATION........................................................ 12
2.1 Transfer of MMI Assets and Assumption of MMI Assumed
Liabilities........................................................... 12
2.1.1 Transfer of Assets............................................. 12
2.1.2 Assumption of Liabilities...................................... 12
2.1.3 Transfer to MMI................................................ 12
2.1.4 Further Assurances............................................. 13
2.1.5 Tax Treatment of Drop-down..................................... 14
2.1.6 Allocation of Cash............................................. 14
2.2 Ancillary Agreements.................................................. 15
2.3 Resignations.......................................................... 15
2.4 Transfers Not Effected on or Prior to the Drop-down................... 15
2.5 No Representations or Warranties; Consents............................ 16
2.6 Insurance............................................................. 16
2.7 Stock Options......................................................... 16
2.8 Extension of Certain Leases........................................... 18
2.9 Financial Statements.................................................. 18
ARTICLE 3 - CERTAIN EMPLOYEE AND BENEFIT PLAN MATTERS............................. 19
3.1 Certain MMI Plans; Assumption of Obligations by MMI................... 19
3.2 Certain Payments by Stream International.............................. 19
3.3 Employees on Certain Leave............................................ 20
3.4 Stream Savings Plan................................................... 20
3.4.1 Creation of Multiple Employer Plan............................. 20
3.4.2 Subsequent Contributions....................................... 20
3.4.3 New Savings Plan............................................... 21
3.5 Employee Matters...................................................... 21
3.6 Information Regarding Certain Former Employees of R.R.
Donnelley............................................................. 21
ARTICLE 4 - THE DISTRIBUTION...................................................... 21
4.1 Action Prior to the Distribution...................................... 21
4.2 Stream International Board Action; Conditions Precedent to the
Distribution.......................................................... 22
ARTICLE 5 - INDEMNIFICATION....................................................... 22
5.1 Indemnification by Stream International for Stream International
Liabilities........................................................... 22
5.2 Indemnification by MMI for MMI Liabilities............................ 22
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
5.3 Limitations on Indemnification Obligations............................ 23
5.4 Procedure for Indemnification......................................... 24
5.4.1 Third Party Claims; Notice.................................... 24
5.4.2 Defense of Third Party Claims................................. 24
5.4.3 Cooperation by Indemnitee..................................... 25
5.4.4 Limitation on Authority to Settle Claim....................... 25
5.4.5 Other Claims.................................................. 25
5.4.6 Advancement of Certain Expenses............................... 26
5.4.7 Subrogation to Rights of Indemnitee........................... 26
5.4.8 Named Parties................................................. 26
5.4.9 Dispute Resolution............................................ 26
5.4.10 Determination of Time of Payment of Indemnitee................ 27
5.5 Remedies Cumulative................................................... 28
5.6 Nature of Indemnity Payments.......................................... 28
ARTICLE 6 - ACCESS TO INFORMATION AND SERVICES.................................... 29
6.1 Provision of Corporate Records........................................ 29
6.2 Access to Information................................................. 29
6.3 Production of Witnesses............................................... 29
6.4 Reimbursement......................................................... 29
6.5 Retention of Records.................................................. 30
6.6 Confidentiality....................................................... 30
6.7 Financial Statements.................................................. 30
ARTICLE 7 - MISCELLANEOUS......................................................... 32
7.1 Rule of Construction.................................................. 32
7.2 Survival of Agreements................................................ 32
7.3 Expenses.............................................................. 32
7.4 Governing Law......................................................... 32
7.5 Notices............................................................... 33
7.6 Amendments............................................................ 33
7.7 Successors and Assigns................................................ 33
7.8 Abandonment of Distribution........................................... 34
7.9 No Third Party Beneficiaries.......................................... 34
7.10 Titles and Headings................................................... 34
7.11 Exhibits and Schedules................................................ 34
7.12 Counterparts.......................................................... 34
7.13 Legal Enforceability.................................................. 34
7.14 Entire Agreement...................................................... 35
</TABLE>
<PAGE>
LIST OF SCHEDULES
SCHEDULES:
- ---------
Schedule A MMI Subsidiaries
Schedule B Stream International Subsidiaries
Schedule C Certain Asset and Stock Transfer Agreements
Schedule 3.1 - Employee Benefit Plans
<PAGE>
CONTRIBUTION AGREEMENT
This CONTRIBUTION AGREEMENT (the "Agreement"), dated as of December 15,
1997, is among Stream International Inc., a Delaware corporation (f/k/a Stream
International Holdings Inc.) ("Stream International"), Modus Media International
Holdings, Inc., a Delaware corporation and, as of the date hereof, a wholly-
owned direct subsidiary of Stream International ("MMI Holdings"), and Modus
Media International, Inc., a Delaware corporation and a wholly-owned subsidiary
of MMI Holdings ("MMI").
WHEREAS, Stream International has been engaged in (i) the development,
marketing and sale of outsource technical support services to software
publishers, hardware manufacturers and corporate customers (as more fully
defined below, the "Stream International Business"); (ii) the development,
marketing and sale of printing, CD-ROM and disk replication, packaging,
fulfillment and inventory management services (as more fully defined below, the
"MMI Business"); and (iii) the marketing and resale of software and the
development, marketing and sale of software license management services and
software consulting services (as more fully defined below, the "CST Business");
WHEREAS, the Board of Directors of Stream International has determined that
it is appropriate and desirable to separate the MMI Business into a separate
company by (i) transferring the MMI Business to MMI Holdings in exchange for
voting common stock and preferred stock of MMI Holdings; (ii) causing MMI
Holdings to transfer the MMI Business (other than certain indebtedness owed to
R.R. Donnelley) to MMI or certain of its Subsidiaries (together with the
transactions described in clause (i), the "Drop-down"); and (iii) prior to the
earlier of (a) the closing of the initial public offering of common stock of
Stream International (the "Stream IPO") and (b) January 10, 1998, distributing
to the holders of common stock of Stream International as of the Record Date all
of the voting common stock of MMI Holdings held by Stream International (the
"Distribution");
WHEREAS, concurrently with the Drop-down, Stream International is effecting
a similar separation of the CST Business by (i) causing Stream International
Services Corp., a Delaware corporation (f/k/a Stream International Inc.)
("SISC"), to transfer the CST Business to Corporate Software & Technology
Holdings, Inc., a Delaware corporation ("CST Holdings"), in exchange for voting
common stock of CST Holdings issued to SISC, and (ii) causing such outstanding
voting stock of CST Holdings to be transferred by SISC to Stream International;
WHEREAS, Stream International intends thereafter to distribute to the
holders of common stock of Stream International as of the Record Date all of the
voting common stock of CST Holdings held by Stream International;
<PAGE>
WHEREAS, Stream International, MMI Holdings and MMI have determined that it
is necessary and desirable to set forth the principal corporate transactions
required to effect the Drop-down and the Distribution and to set forth other
agreements that will govern certain relationships and other matters among Stream
International, MMI Holdings and MMI in connection with the Drop-down and the
Distribution; and
WHEREAS, the Drop-down is intended to be a taxable exchange, not subject to
Section 351 of the Code.
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained in this Agreement, the parties hereby agree as follows:
ARTICLE 1
DEFINITIONS
Certain terms are used in this Agreement as specifically defined herein
(such meanings to be equally applicable to both the singular and plural forms of
the terms defined). These definitions are set forth in this Article 1.
Action means any action, suit, arbitration, inquiry, proceeding or
------
investigation by or before any Governmental Authority or arbitration tribunal.
Additional Option shall have the meaning ascribed in Section 2.7.
-----------------
Adjusted Option shall have the meaning ascribed in Section 2.7.
---------------
Affiliate means "affiliate" as defined in Rule 12b-2 promulgated under the
---------
Exchange Act, as such Rule is in effect on the date hereof; provided, however,
-------- -------
that (i) MMI Holdings, MMI and the MMI Subsidiaries, (ii) CST Holdings, CST and
the CST Subsidiaries and (iii) Stream International and the Stream International
Subsidiaries shall not be deemed Affiliates of each other for purposes of this
Agreement; and provided further, that R.R. Donnelley (and its Subsidiaries other
------------ -------
than CST Holdings, MMI Holdings and Stream International and their Subsidiaries
following the Drop-down), on the one hand, and CST Holdings, MMI Holdings and
Stream International (and each of their Subsidiaries following the Drop-down),
on the other hand, shall not be deemed Affiliates of each other for purposes of
this Agreement.
Agreement shall have the meaning ascribed in the Preamble.
---------
2
<PAGE>
Ancillary Agreements means all of the agreements, instruments,
--------------------
understandings, assignments or other arrangements entered into in connection
with the Drop-down and/or the Distribution, including, without limitation, (i)
the Conveyancing Instruments, (ii) the Services Agreements, (iii) the Tax
Indemnification Agreements, (iv) subleases, subcontracts and other instruments
entered into to effect the transactions contemplated hereby, (v) the asset and
stock transfer agreements and instruments for certain Subsidiaries and branches
of SISC and Subsidiaries of Stream International, including those listed on
Schedule C hereto and (vi) the Letter Agreement.
- ----------
Assets means, with respect to any Person, the assets, properties and rights
------
(including goodwill) of such Person, wherever located (including in the
possession of vendors or other third parties or elsewhere), whether real,
personal or mixed, tangible, intangible or contingent, in each case whether or
not recorded or reflected or required to be recorded or reflected on the books
and records or financial statements of such Person, including the following:
(a) all accounting and other books, records and files whether in
paper, microfilm, microfiche, computer tape or disc, magnetic tape or any other
form;
(b) all apparatus, computers and other electronic data processing
equipment, fixtures, machinery, equipment, furniture, office equipment,
automobiles, trucks, rolling stock, motor vehicles and other transportation
equipment, special and general tools, test devices, prototypes and models and
other tangible personal property;
(c) all inventories of materials, parts, raw materials, supplies,
work-in-process and finished goods and products;
(d) all interests in real property of whatever nature, including
easements, whether as owner, mortgagee or holder of a Security Interest in real
property, lessor, sublessor, lessee, sublessee or otherwise;
(e) all interests in any capital stock or other equity interests of
any Subsidiary of such Person or any other Person, all bonds, notes, debentures
or other securities issued by any such Subsidiary or any other Person, all
loans, advances or other extensions of credit or capital contributions to any
such Subsidiary or any other Person and all other investments in securities of
any Person;
(f) all license agreements, leases of personal property, open purchase
orders, unfilled orders for the manufacture and sale of products and other
contracts, agreements or commitments;
(g) all deposits, letters of credit and performance and surety bonds;
3
<PAGE>
(h) all written technical information, data, specifications, research
and development information, engineering drawings, operating and maintenance
manuals, and materials and analyses prepared by consultants and other third
parties;
(i) all domestic and foreign patents, copyrights, trade names,
trademarks, service marks and registrations and applications for any of the
foregoing, mask works, trade secrets, inventions, other proprietary information
and licenses from third Persons granting the right to use any of the foregoing;
(j) all computer applications, programs and other software, including
operating software, network software, firmware, middleware, design software,
design tools, systems documentation and instructions;
(k) all cost information, sales and pricing data, customer prospect
lists, supplier records, customer and supplier lists, customer and vendor data,
correspondence and lists, product literature, artwork, design, development and
manufacturing files, vendor and customer drawings, formulations and
specifications, quality records and reports and other books, records, studies,
surveys, reports, plans and documents;
(l) all prepaid expenses, trade accounts and other accounts and notes
receivables;
(m) all rights under contracts or agreements, all claims or rights
against any Person arising from the ownership of any Asset, all rights in
connection with any bids or offers and all claims, choses in action or similar
rights, whether accrued or contingent;
(n) all rights under insurance policies and all rights in the nature
of insurance, indemnification or contribution;
(o) all licenses, permits, approvals and authorizations which have
been issued by any Governmental Authority;
(p) subject to Section 2.1.6, cash or cash equivalents, bank accounts,
lock boxes and other deposit arrangements; and
(q) interest rate, currency, commodity or other swap, collar, cap or
other hedging or similar agreements or arrangements.
Audited Financial Statements shall have the meaning ascribed in
----------------------------
Section 2.9.
Claim Notice shall have the meaning ascribed in Section 5.4.5.
------------
4
<PAGE>
Code means the Internal Revenue Code of 1986, as amended, and regulations
----
and rulings thereunder and shall include corresponding provisions of any
subsequently enacted federal tax law.
Consents means any consents, waivers or approvals from, or notification
--------
requirements to, any third parties.
Controlled Group shall have the meaning ascribed in Section 3.4.1.
----------------
Conveyancing Instruments means, collectively, the various agreements,
------------------------
instruments and other documents, in form and substance mutually satisfactory to
Stream International and MMI Holdings, entered into or to be entered into to
effect the transfer of the MMI Assets by Stream International or its
Subsidiaries to MMI Holdings or its Subsidiaries and the assumption by MMI
Holdings or its Subsidiaries of the MMI Assumed Liabilities.
CST shall have the meaning ascribed in the Preamble.
---
CST Assets shall have the meaning ascribed in the CST Contribution
----------
Agreement, as in effect on the date hereof.
CST Assumed Liabilities shall have the meaning ascribed in the CST
-----------------------
Contribution Agreement, as in effect on the date hereof.
CST Balance Sheet shall have the meaning ascribed in the CST Contribution
-----------------
Agreement, as in effect on the date hereof.
CST Business shall have the meaning ascribed in the CST Contribution
------------
Agreement, as in effect on the date hereof.
CST Contribution Agreement shall have the meaning ascribed in Section 7.3.
--------------------------
CST Holdings shall have the meaning ascribed in the Preamble.
------------
CST Subsidiary shall have the meaning ascribed in the CST Contribution
--------------
Agreement, as in effect on the date hereof.
Determination Event shall have the meaning ascribed in Section 5.4.10.
-------------------
Distribution shall have the meaning ascribed in the Preamble.
------------
Distribution Date means the date on which the Distribution occurs.
-----------------
Drop-down shall have the meaning ascribed in the Preamble.
---------
5
<PAGE>
Due Date shall have the meaning ascribed in Section 5.4.10.
--------
Employee Benefit Plan means any plan, fund or other arrangement within the
---------------------
meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended, and any fringe benefit or similar arrangement.
Exchange Act means the Securities Exchange Act of 1934, as amended.
------------
Former MMI Employee means any person who was an employee of Stream
-------------------
International or its Subsidiaries and who worked primarily in the MMI Business
but terminated such employment prior to the date hereof, including, without
limitation, any person who is listed on Schedule 3.1 hereto and who is not a
------------
MMI Employee.
GAAP means United States generally accepted accounting principles
----
consistently applied.
Governmental Approvals means any notices, reports or other filings made
----------------------
with or to be made with, or any consents, registrations, approvals, permits or
authorizations obtained from to be obtained from, any Governmental Authority.
Governmental Authority shall mean any federal, state, local, foreign or
----------------------
international court, government, department, commission, board, bureau, agency,
official or other regulatory, administrative or governmental authority.
Indemnifiable Losses shall have the meaning ascribed in Section 5.1.
--------------------
Indemnifying Party shall have the meaning ascribed in Section 5.3.
------------------
Indemnitee shall have the meaning ascribed in Section 5.3.
----------
Information shall have the meaning ascribed in Section 6.2.
-----------
Insurance Program means the various insurance policies maintained by Stream
-----------------
International and/or R.R. Donnelley pursuant to which various insurance carriers
provide insurance coverage to Stream International and its Subsidiaries
(including, prior to the Distribution, MMI Holdings and the MMI Subsidiaries and
CST Holdings and the CST Subsidiaries); provided, however, that the term
-------- -------
"Insurance Program" shall not include any insurance policy used to pay benefits
under an Employee Benefit Plan, including but not limited to the Employee
Benefit Plans listed on Schedule 3.1 hereto.
Letter Agreement means the Letter Agreement among Stream International, MMI
----------------
and MMI Holdings dated the date hereof with respect to certain Assets and
Liabilities.
6
<PAGE>
Liabilities means, with respect to any Person, any and all debts,
-----------
liabilities and obligations, absolute or contingent, matured or unmatured,
liquidated or unliquidated, accrued or unaccrued, known or unknown, whenever
arising, including after the Distribution (unless otherwise specified in this
Agreement), of such Person including all costs and expenses relating thereto,
and including, without limitation, those debts, liabilities and obligations
arising under any law, rule, regulation, Action, threatened Action, order or
consent decree of any Governmental Authority or any award of any arbitrator of
any kind, and those arising under any contract, commitment or undertaking.
MMI shall have the meaning ascribed in the Preamble.
---
MMI Assets means (i) all Assets of Stream International and its
----------
Subsidiaries used primarily in the MMI Business, including but not limited to
those Assets shown on Schedule A to the Letter Agreement and those Assets
----------
reflected on the MMI Balance Sheet, (ii) those Assets of Stream International
and its Subsidiaries that are not primarily used in the MMI Business but that
are identified on Schedule B to the Letter Agreement, and (iii) all Assets of
----------
Stream International and its Subsidiaries other than the Stream International
Assets, the CST Assets, the outstanding stock issued by and the Assets of
Corporate Software & Technology GmbH (f/k/a Stream International GmbH), and the
outstanding stock issued by and the Assets of Corporate Software & Technology
Limited (f/k/a Corporate Software Limited) and its Subsidiary, International
Software Limited. "MMI Assets" shall not include the original corporate minute
books, stock ledgers and certificates and corporate seals of Stream
International.
MMI Assumed Liabilities means (i) all Liabilities of Stream International
-----------------------
or its Subsidiaries relating to the MMI Business, including without limitation,
all Liabilities related to the MMI Assets, excluding all indebtedness for
borrowed money to R.R. Donnelley other than as set forth in clause (iv) below,
(ii) all Liabilities reflected on the MMI Balance Sheet, excluding all
indebtedness for borrowed money to R.R. Donnelley other than as set forth in
clause (iv) below, (iii) the additional Liabilities listed on Schedule C to the
----------
Letter Agreement, (iv) the net amount of indebtedness to R.R. Donnelley set
forth on Schedule D to the Letter Agreement, (v) the Liabilities retained or
----------
assumed by MMI pursuant to Article 3 hereof, and (vi) all Liabilities of Stream
International or its Subsidiaries (other than, to the extent covered in clause
(i) above, the MMI Subsidiaries) arising out of or related to actions, omissions
or events occurring at or prior to the time of the Distribution which are not
included in the CST Assumed Liabilities or Stream International Liabilities;
provided, however, that the term "MMI Assumed Liabilities" shall not include any
- -------- -------
Liabilities related to Taxes (it being understood that Liabilities related to
Taxes shall be governed by the Tax Indemnification Agreements).
7
<PAGE>
MMI Balance Sheet means the MMI balance sheet as of November 30, 1997,
-----------------
prepared in accordance with GAAP, a copy of which will be furnished by MMI to
Stream International pursuant to Section 6.7.1 hereof.
MMI Benefit Plans shall have the meaning ascribed in Section 3.1.
-----------------
MMI Business means (i) the businesses, Assets and operations of Stream
------------
International and its Subsidiaries primarily related to the development,
marketing and sale of printing, CD-ROM and disk replication, packaging,
fulfillment and inventory management services, including, without limitation,
all businesses, Assets or operations primarily managed or operated by, or
operationally related primarily to, any of such businesses, which have been sold
or otherwise disposed of or discontinued prior to the Drop-down and (ii)
following the Drop-down, the businesses, Assets and operations of MMI Holdings
and its Subsidiaries as they may be constituted from time to time to the extent
not included in clause (i) of this sentence.
MMI Compensation Agreement shall have the meaning ascribed in
--------------------------
Section 2.1.3.
MMI Employee means (i) any individual who, on or immediately prior to the
------------
date hereof was employed by Stream International or any of its Subsidiaries, or
who is on a leave of absence approved by Stream International or any of its
Subsidiaries and who, immediately after the Distribution, is employed by MMI
Holdings or any MMI Subsidiary, or who is continuing on a leave of absence
approved by MMI Holdings or any MMI Subsidiary, and (ii) any individual whose
employment is transferred from Stream International or any of its Subsidiaries
to MMI Holdings or any MMI Subsidiary within 12 months after the date hereof.
MMI Foreign Benefit Plans shall have the meaning ascribed in Section 3.1.
-------------------------
MMI Holdings shall have the meaning ascribed in the Preamble.
------------
MMI Indemnitee shall have the meaning ascribed in Section 5.1.
--------------
MMI Subsidiary means the Subsidiaries of Stream International listed on
--------------
Schedule A hereto, each of which were Subsidiaries of MMI Holdings prior to the
- ----------
date hereof or will become Subsidiaries of MMI Holdings as a result of the Drop-
down.
New MMI Savings Plan shall have the meaning ascribed in Section 3.4.3.
--------------------
1995 Contribution Agreement means the Contribution Agreement dated as of
---------------------------
April 21, 1995, among R.R. Donnelley, Stream International Holdings Inc.
(formerly
8
<PAGE>
known as R.R. Donnelley Global Software Services Corp. and now known as Stream
International Inc.) and Software Holdings, Inc.
Person means any natural person or any corporation, association,
------
partnership, joint venture, company, limited liability company, trust,
organization, business or government or any governmental agency or political
subdivision thereof.
Record Date means the close of business on the date to be determined by the
-----------
Stream International Board as the record date for the Distribution.
Restructuring Expenses shall have the meaning ascribed in Section 7.3.
----------------------
R.R. Donnelley means R.R. Donnelley & Sons Company, a Delaware corporation.
--------------
Security Interest means any mortgage, security interest, pledge, lien,
-----------------
charge, claim, option, right to acquire, voting or other restriction, right-of-
way, covenant, condition, easement, encroachment, restriction on transfer, or
other encumbrance of any nature whatsoever.
Services Agreements means the Transitional Service Agreement between SISC
-------------------
and MMI, the Transitional Service Agreement between SISC and CST and the
Transitional Service Agreement between MMI and CST, each dated the date hereof,
pursuant to which the parties will provide various services to each other
following the date hereof.
SISC shall have the meaning ascribed in the Preamble.
----
Stream International shall have the meaning ascribed in the Preamble.
--------------------
Stream International Assets means all Assets of Stream International and
---------------------------
its Subsidiaries used primarily in the Stream International Business, including,
but not limited to (i) Assets reflected on the Stream International Balance
Sheet, and (ii) Assets shown on Schedule E to the Letter Agreement; provided,
---------- --------
however, that the term "Stream International Assets" shall not include the CST
- -------
Assets, the MMI Assets, the outstanding stock issued by and the Assets of
Corporate Software & Technology GmbH (f/k/a Stream International GmbH), and the
outstanding stock issued by and the Assets of Corporate Software & Technology
Limited (f/k/a Corporate Software Limited) and its Subsidiary, International
Software Limited.
Stream International Balance Sheet means the Stream International balance
----------------------------------
sheet as of November 30, 1997, prepared in accordance with GAAP, a copy of which
will be furnished to MMI Holdings in accordance with Section 6.7.4.
9
<PAGE>
Stream International Board means the Board of Directors of Stream
--------------------------
International.
Stream International Business means (i) the businesses, Assets and
-----------------------------
operations of Stream International and its Subsidiaries primarily related to the
development, marketing and sale of outsource technical support services,
including, without limitation, all businesses, Assets of any Person or
operations primarily managed or operated by, or operationally related primarily
to, any of such businesses which have been sold or otherwise disposed of or
discontinued prior to the Drop-down and (ii) following the Drop-down, the
businesses, Assets and operations of Stream International or its Subsidiaries as
they may be constituted from time to time to the extent not included in clause
(i) of this sentence; provided, however, that the term "Stream International
-------- -------
Business" shall not include the MMI Business or the CST Business.
Stream International Common Stock means the Class A, Class A-1, Class B-N
---------------------------------
and Class B-V Common Stock, each par value $.01 per share, of Stream
International.
Stream International Indemnitee shall have the meaning ascribed in
-------------------------------
Section 5.2.
Stream International Liabilities means (i) all Liabilities of Stream
--------------------------------
International or any of its Subsidiaries relating primarily to the Stream
International Business, including, without limitation, all Liabilities related
primarily to the Stream International Assets, but excluding all indebtedness for
borrowed money to R.R. Donnelley other than as set forth in clause (iii) below,
(ii) all Liabilities reflected on the Stream International Balance Sheet, but
excluding all indebtedness for borrowed money to R.R. Donnelley other than as
set forth in clause (iii) below, (iii) the net indebtedness to R.R. Donnelley
shown on Schedule F to the Letter Agreement and (iv) the Liabilities identified
----------
on Schedule G to the Letter Agreement; provided, however, that the term "Stream
---------- -------- -------
International Liabilities" shall not include Liabilities of Stream International
as a guarantor of or surety for any MMI Assumed Liabilities or CST Assumed
Liabilities, shall not include the MMI Assumed Liabilities or the CST Assumed
Liabilities, and shall not include any Liabilities related to Taxes (it being
understood that Liabilities related to Taxes shall be governed by the Tax
Indemnification Agreements).
Stream International Option means a stock option, granted under Stream
---------------------------
International's 1995 Stock Option Plan, 1995 Replacement Stock Option Plan or
1995 California Stock Option Plan, outstanding as of the Distribution Date.
Stream International Subsidiary means the Subsidiaries of Stream
-------------------------------
International, other than CST Holdings or any CST Subsidiary, MMI Holdings or
any MMI Subsidiary, Corporate Software & Technology GmbH (f/k/a Stream
International GmbH), Corporate Software & Technology Limited (f/k/a Corporate
Software
10
<PAGE>
Limited), and International Software Limited, including without limitation, the
entities listed on Schedule B hereto.
----------
Stream IPO shall have the meaning ascribed in the Preamble.
----------
Stream Savings Plan shall have the meaning ascribed in Section 3.4.1.
-------------------
Subsidiary, as used herein with respect to any Person, means any other
----------
Person of which such Person shall at the time own, directly or indirectly
through one or more Subsidiaries, at least a majority of the outstanding capital
stock (or other shares of beneficial interest) entitled to vote generally, or
shall hold at least a majority of partnership or similar interests, or shall be
a general partner.
Target Amounts shall have the meaning ascribed in Section 2.1.6.
--------------
Tax shall have the meaning ascribed in the Tax Sharing Agreement.
---
Tax Indemnification Agreements means the Tax Sharing Agreement and the Tax
------------------------------
Reimbursement Agreement.
Tax Reimbursement Agreement means the Tax Reimbursement Agreement between
---------------------------
Stream International and R.R. Donnelley, dated the date hereof.
Tax Return shall have the meaning ascribed in the Tax Sharing Agreement.
----------
Tax Sharing Agreement means the Tax Sharing Agreement among Stream
---------------------
International, MMI Holdings, MMI, CST Holdings and CST, dated the date hereof.
Third Party Claim shall have the meaning ascribed in Section 5.4.1.
-----------------
Third Party Claim Notice shall have the meaning ascribed in Section 5.4.1.
------------------------
Transfer Date means (i) with respect to any MMI Employee described in
-------------
clause (a) of the definition of MMI Employee, the date hereof, and (ii) with
respect to any MMI Employee described in clause (b) of the definition of MMI
Employee, the date on which such MMI Employee's employment is transferred from
Stream International or any Stream International Subsidiary to MMI Holdings or
any MMI Subsidiary.
Unaudited Financial Statements shall have the meaning ascribed in
------------------------------
Section 2.9.
11
<PAGE>
ARTICLE 2
THE SEPARATION
This Article 2 sets forth certain transactions to be consummated in
connection with the Drop-down. Subject to the terms and conditions of this
Agreement, the parties shall consummate such transactions on (except to the
extent specified in Section 2.1.3) the date hereof at such times and in such
sequence as they shall mutually agree.
2.1 Transfer of MMI Assets and Assumption of MMI Assumed Liabilities.
----------------------------------------------------------------
2.1.1 Transfer of Assets. Except as set forth in Section 2.1.3,
------------------
on the date hereof, Stream International and/or the Stream International
Subsidiaries shall, to the extent necessary by means of appropriate Conveyancing
Instruments, convey, transfer, assign and deliver to MMI Holdings or, if
directed by MMI Holdings, to its Subsidiaries, and MMI Holdings (or its
Subsidiaries, as applicable) will accept from Stream International and/or the
Stream International Subsidiaries, all of Stream International's or its
Subsidiaries' rights, title and interest in and to all of the MMI Assets.
2.1.2 Assumption of Liabilities. In consideration for the
-------------------------
contribution described in Section 2.1.1, simultaneously with such contribution,
(i) MMI Holdings and/or its Subsidiaries shall, to the extent necessary by means
of appropriate Conveyancing Instruments, assume all of Stream International's
and its Subsidiaries' (other than any MMI Subsidiary) duties, obligations and
responsibilities with respect to the MMI Assumed Liabilities and (ii) MMI
Holdings shall issue to Stream International voting common stock and preferred
stock of MMI Holdings.
2.1.3 Transfer to MMI. Other than certain foreign MMI Assets that
---------------
have been assigned prior to the date hereof, no MMI Asset shall be conveyed,
transferred, assigned or delivered under this Section 2.1, and any purported
conveyance, transfer, assignment, or delivery of any MMI Asset under this
Section 2.1 shall be null and void, unless (i) simultaneously therewith or
immediately prior thereto MMI Holdings shall have delivered to Bain Capital Inc.
shares of non-voting common stock of CST Holdings pursuant to the MMI
Compensation Agreement among Stream International, MMI Holdings and Bain Capital
Inc. dated as of December 10, 1997 (the "MMI Compensation Agreement") and (ii)
at the time of any such conveyance, transfer, assignment or delivery, no person
shall own or have any beneficial interest in any non-voting stock of MMI
Holdings other than Bain Capital Inc. Immediately after the consummation of all
of the transfers and assumptions described in Sections 2.1.1 and 2.1.2, MMI
Holdings shall contribute all of the MMI Assets it received to MMI and MMI shall
assume all of the MMI Assumed Liabilities
12
<PAGE>
which had been assumed by MMI Holdings (other than those described in clause
(iv) of the definition of MMI Assumed Liabilities).
2.1.4 Further Assurances.
------------------
(a) In addition to the actions specifically provided for
elsewhere in this Agreement, each of the parties hereto shall use commercially
reasonable efforts, prior to, on and after the date hereof, to take, or cause to
be taken, all actions, and to do, or cause to be done, all things, reasonably
necessary, proper or advisable under applicable laws, regulations and agreements
to consummate and make effective the transactions contemplated by this Agreement
and the Ancillary Agreements, including execution of Conveyancing Instruments
relating to the assumption by MMI Holdings and MMI of MMI Assumed Liabilities
that arise after the Drop-down.
(b) Without limiting the foregoing, prior to, on and after
the date hereof, each party hereto shall cooperate with each other party hereto,
and without any further consideration, but at the expense of the requesting
party, to execute and deliver, or use commercially reasonable efforts to cause
to be executed and delivered, all instruments, including instruments of
conveyance, assignment and transfer, and to make all filings with, and to obtain
all consents, approvals or authorizations of, any Governmental Authority or any
other Person under any permit, license, agreement, indenture or other instrument
(including any Consents or Governmental Approvals), and to take all such other
actions as such party may reasonably be requested to take by any other party
hereto from time to time, consistent with the terms of this Agreement and the
Ancillary Agreements, in order to effectuate the provisions and purposes of this
Agreement and the Ancillary Agreements and the transfer of the MMI Assets, and
the assignment and assumption of the MMI Assumed Liabilities and the other
transactions contemplated hereby and thereby. Without limiting the foregoing,
each party will, at the reasonable request, cost and expense of any other party,
use commercially reasonable efforts to take such other actions as may be
reasonably necessary to vest in such other party good and marketable title, free
and clear of any Security Interest other than a Security Interest securing a MMI
Assumed Liability, if and to the extent it is practicable to do so. In the event
and to the extent that any such required consent, approval or authorization to
assign and assume an agreement, lease, commitment or obligation which is an MMI
Asset or MMI Assumed Liability is not obtained, (i) Stream International or its
applicable Subsidiary shall continue to be bound thereby and (ii) from and after
the date hereof, MMI Holdings or its Subsidiaries shall pay, perform and
discharge fully all the obligations of Stream International or its applicable
Subsidiary thereunder and MMI Holdings and MMI shall indemnify, as set forth in
Section 5.2 hereof, Stream International or its applicable Subsidiary for all
Indemnifiable Losses arising out of such performance or failure to perform by
MMI Holdings or its Subsidiaries or out of the failure to obtain any Consents or
Governmental Approval. Stream International
13
<PAGE>
or its applicable Subsidiary shall, without the payment of any further
consideration, pay and remit to MMI promptly any monies, rights and other
considerations received by Stream International or its applicable Subsidiary in
respect of such performance. Stream International or its applicable Subsidiary
shall exercise or exploit its rights and options under all such third party
agreements, leases, licenses and other rights and commitments referred to in
this Section 2.1.4(b) which are MMI Assets only as reasonably directed by MMI
and at MMI's expense. If and when any such Consent or Governmental Approval
shall be obtained or such agreement, lease, license or other right shall
otherwise become assignable or be able to be novated, Stream International or
its applicable Subsidiary shall promptly assign and novate all its rights and
obligations thereunder to MMI Holdings or its Subsidiaries without payment of
further consideration and MMI Holdings or its Subsidiaries shall, without the
payment of any further consideration, assume such rights and obligations.
Without limiting the foregoing obligations, with respect to the Guaranty between
Stream International Inc. and Microsoft Corporation dated June 2, 1995, MMI
Holdings shall use its best efforts to have such Guaranty assigned to MMI
Holdings by February 15, 1998.
2.1.5 Tax Treatment of Drop-down. Each of MMI Holdings, MMI and
--------------------------
Stream International shall, and shall cause each of its Affiliates after the
Drop-down to (i) treat the transactions provided for in Sections 2.1.1 and 2.1.2
of this Agreement as a taxable exchange, and not as a transaction described in
Section 351 of the Code, for federal income tax purposes (and all other
applicable income tax purposes) and (ii) file Form 8594, and all their
respective federal, state, local and other Tax Returns required to be filed.
2.1.6 Allocation of Cash. Notwithstanding anything herein to the
------------------
contrary, but subject to Section 3.2 hereof, the consolidated aggregate cash
held by Stream International and its Subsidiaries as of October 31, 1997, shall
be allocated to the particular business (i.e., the CST Business, the MMI
Business or the Stream International Business) that generated such cash,
provided that the maximum amount allocated to CST pursuant to this sentence
shall be $7,500,000, the maximum amount allocated to MMI pursuant to this
sentence shall be $12,500,000 and the maximum amount allocated to Stream
International pursuant to this sentence shall be $5,000,000 (such amounts are
hereinafter referred to as the "Target Amounts"). If any business has generated
cash in excess of its Target Amount, such excess shall be allocated to the other
businesses, pro rata based on the ratio of their Target Amounts, until one of
such businesses has been allocated its Target Amount. Any remaining excess
shall be allocated to the remaining business until it has been allocated its
Target Amount. If the consolidated aggregate cash held by Stream International
and its Subsidiaries as of October 31, 1997 exceeds $25,000,000, the amount in
excess of $25,000,000 shall be allocated 30% to CST, 50% to MMI and 20% to
Stream International. Any cash generated after October 31, 1997 shall remain
with the particular business (i.e., the CST Business, the MMI Business or the
Stream International Business) that generated
14
<PAGE>
such cash; provided, however, that the proceeds received by Stream International
pursuant to that certain Asset Purchase Agreement dated as of the date hereof
between Stream International and R.R. Donnelley Norwest, Inc. shall be allocated
40% to the MMI Business and 60% to the CST Business.
2.2 Ancillary Agreements. On (except to the extent specified in
--------------------
Section 2.1.3) the date hereof, Stream International, MMI Holdings and MMI, as
the case may be, shall enter into each of the Ancillary Agreements.
2.3 Resignations. At the request of Stream International, MMI Holdings
------------
shall cause all MMI Employees to resign effective on the date hereof from all
boards of directors or similar governing bodies of Stream International or any
Stream International Subsidiary on which they serve, and from all positions as
officers of Stream International or any Stream International Subsidiary in which
they serve. At the request of MMI Holdings, Stream International shall cause
all of its own and all of the Stream International Subsidiaries' employees and
directors (other than MMI Employees and those directors of Stream International
who will continue to serve as directors of MMI or MMI Holdings) to resign
effective on the date hereof from all boards of directors or similar governing
bodies of MMI Holdings or any MMI Subsidiary on which they serve, and from all
positions as officers of MMI Holdings or any MMI Subsidiary in which they serve.
2.4 Transfers Not Effected on or Prior to the Drop-down. Nothing herein
---------------------------------------------------
shall be deemed to require the transfer of any Assets or the assumption of any
Liabilities which by their terms or operation of law cannot be transferred or
assumed; provided, however, that Stream International and MMI Holdings and their
-------- -------
respective Subsidiaries shall cooperate to seek to obtain any necessary Consents
or Governmental Approvals for the transactions contemplated by this Article 2.
In the event that any transfer of Assets or Liabilities has not been
consummated, effective as of or prior to the date hereof, the party retaining
such Asset or Liability shall thereafter hold such Asset for the party entitled
thereto (at the expense of the party entitled thereto) and retain such Liability
for the account of the party by whom such Liability is to be assumed (at the
expense of the party to whom such Liability is to be transferred), and each
party will take such other action as may be reasonably requested by the other
party in order to place the party to whom such Asset is to be transferred, or by
whom such Liability is to be assumed, as the case may be, insofar as reasonably
possible, in the same position as would have existed had such Asset or Liability
been transferred as of the date hereof. As and when any such Asset or Liability
becomes transferable, such transfer shall be effected forthwith.
2.5 No Representations or Warranties; Consents. MMI Holdings understands
------------------------------------------
and hereby agrees that Stream International is not, in this Agreement or in any
other agreement or document contemplated by this Agreement or otherwise, nor
shall Stream International be deemed or implied to be, representing or
15
<PAGE>
warranting in any way except as, and only to the extent, required by applicable
law (i) as to the value or freedom from encumbrance or Security Interest of, or
any other matter concerning, any of the MMI Assets transferred or to be
transferred to MMI Holdings as contemplated by this Article 2 or (ii) as to the
legal sufficiency to convey title to any such Asset of the execution, delivery
and filing of this Agreement or any Ancillary Agreement, including, without
limitation, any Conveyancing Instruments, IT BEING UNDERSTOOD AND HEREBY AGREED
THAT ALL MMI ASSETS ARE BEING TRANSFERRED "AS IS, WHERE IS" and that MMI
Holdings shall bear the economic and legal risk that any conveyances of such
Assets shall prove to be insufficient or that MMI Holdings or any of its
Subsidiaries' title to any such assets shall be other than good and marketable
and free from encumbrances or Security Interests. Similarly, MMI Holdings
understands and hereby agrees that Stream International is not, in this
Agreement or in any other agreement or document contemplated by this Agreement
or otherwise, nor shall Stream International be deemed or implied to be,
representing or warranting in any way that the obtaining of any Consents or
Governmental Approvals, the execution and delivery of any amendatory agreements
and the making of any filings or applications contemplated by this Agreement or
such other agreements or documents shall satisfy the provisions of any or all
applicable agreements or the requirements of any or all applicable laws or
judgments, it being understood and hereby agreed that MMI Holdings and the MMI
Subsidiaries shall bear the economic and legal risk that any necessary Consents
or Governmental Approvals are not obtained or that any requirements of laws or
judgments are not complied with. Notwithstanding the foregoing, the parties
shall use reasonable efforts to obtain all Consents and Governmental Approvals,
to enter into all amendatory agreements and to make all filings and applications
which may be required for the consummation of the transactions contemplated by
this Agreement.
2.6 Insurance. MMI agrees that it will purchase, to the extent available
---------
at a reasonable cost, insurance policies to be in effect as of the Distribution
Date which provide substantially the same types of coverage as the policies
maintained by Stream International or R.R. Donnelley under the Insurance Program
with respect to the MMI Business, including without limitation any insurance
required by any lease of real or personal property. Stream International shall,
if so requested by MMI, use reasonable efforts to assist MMI in obtaining such
initial insurance coverage for MMI from and after the Distribution in such
amounts as are agreed upon by Stream International and MMI. Following the
Distribution, each of Stream International and MMI shall cooperate with and
assist the other party in the prevention of conflicts or gaps in insurance
coverage and/or collection of proceeds.
2.7 Stock Options. Prior to the Distribution, Stream International shall
-------------
adjust each Stream International Option by reducing to $4.86 the per share
exercise price for such option (other than options with exercise prices at or
above $4.86 per share and options held by Messrs. Cowan, Leahy, Moore and
Rosenthal and certain
16
<PAGE>
options held by Mr. Morphis) and by providing, with respect to those option
holders who will be employed by MMI Holdings, CST Holdings or their Subsidiaries
following the Distribution, that the option terminates three months after the
option holder ceases to be employed by MMI Holdings or CST Holdings or their
Subsidiaries, as the case may be (each such option, as so adjusted prior to the
Distribution Date, the "Adjusted Option").
In connection with the Distribution, each Stream International Option to
purchase shares of Class A Common Stock of Stream International shall be
supplemented with an option to purchase an identical number of shares of voting
stock of each of CST Holdings and MMI Holdings, and each Stream International
Option to purchase shares of Class B Common Stock of Stream International shall
be supplemented with an option to purchase such number of shares of voting stock
of each of CST Holdings and MMI Holdings as is equal to the number of shares of
Class A Common Stock into which the shares of Class B Common Stock covered by
such option would be convertible at the conversion rate fixed on the date of the
Drop-down (collectively, the "Additional Options"). The per share exercise
price for the Additional Options shall be equal to the product determined by
multiplying the exercise price per share of Stream International Common Stock at
which such Stream International Option was exercisable by 11.93% in the case of
the Additional Option granted by MMI Holdings and 38.48% in the case of the
Additional Option granted by CST Holdings. The per share exercise price for
each Stream International Option shall be reduced by an amount equal to the
aggregate exercise price of the Additional Options granted in respect of such
option. The Additional Options shall be subject to the terms of the MMI
Holdings and CST Holdings 1997 Class A Replacement Stock Option Plans, 1997
Class A California Replacement Stock Option Plans and 1997 Class B Replacement
Stock Option Plans, as applicable.
Notwithstanding all the foregoing in this Section 2.7, if the holder of an
outstanding Stream International Option does not consent in writing to the
adjustment of such holder's option in accordance with the foregoing, such
holder's option shall not be adjusted and no Additional Options shall be granted
to such holder.
Upon termination of employment of any employee of MMI Holdings or any MMI
Subsidiary who has an Adjusted Option, MMI Holdings shall provide to Stream
International and CST the name of such employee and the date the employee ceased
employment with MMI Holdings or any MMI Subsidiary and shall indicate whether
the termination was for cause. Upon Stream International's request from time to
time, MMI shall also provide a complete list of employees of MMI Holdings or any
MMI Subsidiary who have Adjusted Options, which list shall show such holder's
name, Social Security number and address and shall include such other
information as Stream International shall reasonably request.
17
<PAGE>
Upon termination of employment of any employee of Stream International or
any Stream International Subsidiary who has an Additional Options granted by MMI
Holdings, Stream International shall provide to MMI Holdings the name of such
employee and the date the employee ceased employment with Stream International
or a Stream International Subsidiary and shall indicate whether the termination
was for cause. Upon MMI Holdings' request from time to time, Stream
International shall also provide a complete list of employees of Stream
International or any Stream International Subsidiary who have Additional Options
granted by MMI Holdings, which list shall show such holder's name, Social
Security number and address and shall include such other information as MMI
Holdings shall reasonably request.
2.8 Extension of Certain Leases.
---------------------------
To the extent Stream International or R.R. Donnelley has any contingent
liability following the date hereof, whether as a primary obligor, guarantor or
otherwise with respect to any lease of real property to which MMI Holdings or a
MMI Subsidiary is a party on the date hereof or which is assigned or purported
to be assigned to MMI Holdings or a MMI Subsidiary pursuant to this Agreement or
any Ancillary Agreement, MMI Holdings or the MMI Subsidiary, as the case may be,
shall cause any such contingent liability of Stream International, any Stream
International Subsidiary and R.R. Donnelley to be extinguished upon the earlier
of the time of lease renewal or the time of any extension thereof.
2.9 Financial Statements.
--------------------
At or prior to the Drop-down, MMI shall deliver to Stream International a
complete and correct copy of the audited consolidated balance sheet of MMI as of
December 31, 1996, and the related statements of income, stockholders' equity,
retained earnings and changes in financial condition of MMI for the fiscal year
then ended (collectively, the "Audited Financial Statements"). At or prior to
the Drop-down, MMI shall also furnish to Stream International a complete and
correct copy of the unaudited balance sheet of MMI as at September 30, 1997 and
the related statements of operations and cash flow for the nine months then
ended, compiled by MMI (collectively, the "Unaudited Financial Statements").
MMI Holdings represents that, and the Chief Financial Officer or Treasurer of
MMI shall deliver a Certificate stating that, the Audited Financial Statements
and Unaudited Financial Statements are complete and correct, are in accordance
with the books and records of MMI and present fairly the financial condition and
results of operations of MMI, as at the dates and for the periods indicated, and
have been prepared in accordance with generally accepted accounting principles
consistently applied, except that the Unaudited Financial Statements have been
prepared for the internal use of management and may not be in accordance with
generally accepted accounting principles because of the absence of footnotes
normally contained therein and are subject to normal year-end audit adjustments
which in the aggregate will not be material.
18
<PAGE>
ARTICLE 3
CERTAIN EMPLOYEE AND BENEFIT PLAN MATTERS
3.1 Certain MMI Plans; Assumption of Obligations by MMI. Stream
---------------------------------------------------
International or its Subsidiaries maintain the Employee Benefit Plans listed on
Schedule 3.1 hereto for the benefit of the U.S. employees of the MMI Business
(the "MMI Benefit Plans"). Except as provided in Section 3.4 with respect to
the Stream Savings Plan, and concurrently with the action described in
Section 2.1.1, Stream International will transfer and assign all MMI Benefit
Plans to MMI Holdings, and MMI Holdings will immediately thereafter transfer and
assign all MMI Benefit Plans to MMI and MMI will (i) accept such transfer and
assignment, (ii) assume and adopt all MMI Benefit Plans, (iii) assume any
Liabilities with respect to such MMI Benefit Plans whether arising before or
after the date hereof and (iv) assume any Liabilities arising (whether before or
after the date hereof) under any Employee Benefit Plan maintained by Stream
International or its Subsidiaries, which is not a MMI Benefit Plan, to the
extent related to MMI Employees and Former MMI Employees including, but not
limited to, under any Employee Benefit Plans maintained up to the date hereof by
Stream International or its Subsidiaries under the laws of any country other
than the United States (the "MMI Foreign Benefit Plans") with respect to MMI
Employees or Former MMI Employees. Nothing in this Agreement shall be construed
to prevent MMI from altering or discontinuing any MMI Benefit Plan or MMI
Foreign Benefit Plan after the Distribution Date, provided that such alteration
or discontinuance relates only to MMI Employees or Former MMI Employees. In
addition to the Liabilities assumed pursuant to the foregoing, MMI will assume
all Liabilities relating to any Employee Benefit Plan of Stream International or
its Subsidiaries which relate to matters occurring prior to the Distribution,
such as any Liabilities arising in connection with the administration of any
Employee Benefit Plan, to the extent such Liabilities do not relate solely to
the CST Business or the Stream International Business or do not relate solely to
a specific employee of the CST Business or the Stream International Business.
3.2 Certain Payments by Stream International. Stream International and
----------------------------------------
its Subsidiaries hereby agree to continue making all regular payments, whether
for insurance premiums, benefits, expenses or other related purposes to (i) any
MMI Benefit Plan, or (ii) any Employee Benefit Plan maintained by Stream
International or its Subsidiaries, with respect to any participating MMI
Employee or participating Former MMI Employee through the date hereof,
consistent with the manner and timing of such payments which are made with
respect to any employee or former employee of Stream International or its
Subsidiaries who are participating in the same or comparable Employee Benefit
Plans maintained by Stream International or its
19
<PAGE>
Subsidiaries. The amount of any such payments made after November 30, 1997, or
made prior to such date to the extent relating to any period following such
date, shall be deducted from the cash allocated to MMI pursuant to Section 2.1.6
and added to the cash allocated to Stream International pursuant to such
Section 2.1.6. In addition, Stream International and its Subsidiaries shall
continue to make such payments with respect to any MMI Employee whose employment
is transferred from Stream International or any of its Subsidiaries to MMI or
any MMI Subsidiary within 12 months through the date hereof until the date of
such transfer.
3.3 Employees on Certain Leave. If any individual who becomes a MMI
--------------------------
Employee is on a leave of absence approved by Stream International or any of its
Subsidiaries on his or her Transfer Date and continues on a leave approved by
MMI or any MMI Subsidiary after the Transfer Date, then such leave shall
continue under MMI's leave policies and MMI shall assume any liability for any
benefits provided by Stream International or any Stream International Subsidiary
prior to the Transfer Date or any benefits required to be provided to such MMI
Employee by law; provided that the maximum amount and duration of such benefits
as well as the duration of the leave provided before and after the Transfer Date
shall not exceed the limits under the applicable Stream International or Stream
International Subsidiary policy.
3.4 Stream Savings Plan.
-------------------
3.4.1 Creation of Multiple Employer Plan. The Stream Savings and
----------------------------------
Retirement Program was established for the benefit of all U.S. employees of
Stream International and its Subsidiaries under Section 401(k) of the Code (the
"Stream Savings Plan"). On the date hereof the Stream Savings Plan will be
adopted by MMI Holdings, the MMI Subsidiaries, CST Holdings and the CST
Subsidiaries as additional plan sponsors. Therefore, the Stream Savings Plan
will then be maintained by a controlled group of corporations as defined under
Section 414 of the Code ("Controlled Group") as well as corporations that are
not part of the Controlled Group. In addition, Stream International has
approved the amendment of the Stream Savings Plan, effective upon the
Distribution Date, into a multiple employer plan in order to continue to provide
benefits under the terms of the Stream Savings Plan, as amended, for employees
or former employees of any of the corporations that have adopted the Stream
Savings Plan, which corporations, as of the Distribution Date, or thereafter,
cease to be a member of the Controlled Group that includes Stream International.
All assets of the Stream Savings Plan will continue to be maintained in the
existing trust established thereunder.
3.4.2 Subsequent Contributions. After the date hereof, MMI
------------------------
Employees will continue to make contributions to the Stream Savings Plan,
without interruption, based on elections made by them in accordance with the
terms of the Stream Savings Plan. Each MMI Employee who is making salary
reduction contributions to the Stream Savings Plan immediately prior to his or
her Transfer
20
<PAGE>
Date, with respect to compensation paid on or before such Transfer Date, and who
continues to be employed by MMI or a MMI Subsidiary until the end of the
calendar quarter in which such Transfer Date occurs, will have matching
contributions made to the Stream Savings Plan as of the end of such calendar
quarter by MMI, with respect to all such contributions made during such calendar
quarter. Stream International shall cease making any matching contributions with
respect to MMI Employees' salary reduction contributions after making its
matching contribution for the calendar quarter which ends immediately prior to
the calendar quarter which includes the Transfer Date of MMI Employees.
3.4.3 New Savings Plan. No later than March 31, 1998, MMI shall
----------------
establish a new savings plan under Section 401(k) of the Code with such terms
and conditions, subject to the limitations of Code Section 411(d)(6), as MMI may
provide and all contributions with respect to MMI Employees will thereafter be
made to such new savings plan (the "New MMI Savings Plan"). No later than
March 31, 1998, MMI shall direct the trustee of the trust established under the
Stream Savings Plan to transfer to the trust established under the New MMI
Savings Plan, in such manner and at such time as the trustee of the New MMI
Savings Plan and the trustee of the Stream Savings Plan shall reasonably agree,
any Assets and Liabilities allocable to the individual accounts maintained with
respect to participants and beneficiaries in the Stream Savings Plan who are MMI
Employees or Former MMI Employees, subject to the requirements of Section 414 of
the Code.
3.5 Employee Matters. MMI agrees to (i) be solely responsible for all
----------------
employment law compliance with respect to the transfer of all MMI Employees; and
(ii) to assume any Liabilities, whether arising before or after the date hereof,
with respect to any MMI Employee or Former MMI Employee related to (a)
employment with Stream International or any of its Subsidiaries, including,
without limitation, any accrued vacation or severance pay, and (b) the transfer
of employment to MMI or any MMI Subsidiary or any subsequent termination of such
employment.
3.6 Information Regarding Certain Former Employees of R.R. Donnelley. MMI
----------------------------------------------------------------
(or, if applicable, its Subsidiaries) shall assume the obligations under
Section 7.2(b)(3) of the 1995 Contribution Agreement including, without
limitation, the obligation to provide information relating to the termination of
an Eligible RRD Newco Employee (as defined in Section 7.2(b)(6) of the 1995
Contribution Agreement) who is a MMI Employee. Such termination information
shall be provided to R.R. Donnelley as such information is available to MMI or
any of its Subsidiaries.
21
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ARTICLE 4
THE DISTRIBUTION
4.1 Action Prior to the Distribution. Stream International and MMI
--------------------------------
Holdings shall take all such action (if any) as may be necessary or appropriate
under the securities or blue sky laws of the United States or any individual
state (and any comparable laws under any foreign jurisdiction) in connection
with the Distribution.
4.2 Stream International Board Action; Conditions Precedent to the
--------------------------------------------------------------
Distribution. The Stream International Board shall, in its discretion,
- ------------
establish the Record Date and the Distribution Date and any appropriate
procedures in connection with the Distribution. The consummation of the
Distribution shall be subject to the consummation in all material respects of
each of the transactions contemplated by Article 2 hereof that are required to
be consummated prior to the Distribution; provided, however, that the
-------- -------
satisfaction of such condition shall not create any obligation on the part of
Stream International to effect the Distribution or in any way limit Stream
International's power to abandon the Distribution as set forth in Section 7.8
hereof.
ARTICLE 5
INDEMNIFICATION
5.1 Indemnification by Stream International for Stream International
----------------------------------------------------------------
Liabilities. Except as set forth in the Services Agreement between SISC and
- -----------
MMI, Stream International shall indemnify, defend and hold harmless MMI Holdings
and each Affiliate of MMI Holdings (including the MMI Subsidiaries) and each of
their respective directors, officers, employees and agents and each of the
heirs, executors, successors and assigns of any of the foregoing (the "MMI
Indemnitees") from and against any and all losses, claims, damages, obligations,
payments, costs and expenses, matured or unmatured, absolute or contingent,
accrued or unaccrued, liquidated or unliquidated, known or unknown (including,
without limitation, the costs and expenses of any and all Actions, threatened
Actions, demands, assessments, judgments, settlements and compromises relating
thereto and reasonable attorneys' fees and any and all expenses whatsoever
reasonably incurred in investigating, preparing or defending against any such
Actions or threatened Actions) (collectively, "Indemnifiable Losses") of the MMI
Indemnitees (i) arising out of or due to the failure or alleged failure of
Stream International or any of its Affiliates to pay, perform or otherwise
discharge in due course any Stream International Liabilities or (ii) arising out
of Stream International's or any Stream International Subsidiary's performance
of,
22
<PAGE>
or failure to perform, any of its covenants or agreements contained in this
Agreement.
5.2 Indemnification by MMI for MMI Liabilities. Except as set forth in
------------------------------------------
the Services Agreement between SISC and MMI, MMI Holdings and MMI shall jointly
and severally indemnify, defend and hold harmless Stream International and each
Affiliate of Stream International (including the Stream International
Subsidiaries) and each of their respective directors, officers, employees and
agents and each of the heirs, executors, successors and assigns of any of the
foregoing (the "Stream International Indemnitees") from and against any and all
Indemnifiable Losses (i) arising out of or due to the failure or alleged failure
of MMI Holdings or any of its Affiliates to pay, perform or discharge any MMI
Assumed Liability (without regard to whether all applicable Consents and
Governmental Approvals relating to the assumption thereof have been obtained);
(ii) arising out of the failure to obtain any Consents or Governmental Approvals
required for the Drop-down and the Distribution; (iii) arising out of any
violation or alleged violation of applicable laws, regulations, rules or orders
of a Governmental Authority, including, but not limited to, federal or state
securities law, in connection with the transactions contemplated by this
Agreement, including the Drop-down and the Distribution (other than in
connection with the Stream IPO); (iv) arising out of MMI Holdings' or any MMI
Subsidiary's performance of, or failure to perform, any obligations described in
Section 2.1.4(b)(ii) hereof; (v) arising out of or related to the contingent
liabilities referred to in Section 2.8 hereof or (vi) arising out of MMI
Holdings' or any MMI Subsidiary's performance of, or failure to perform, any of
its covenants or agreements contained in this Agreement.
5.3 Limitations on Indemnification Obligations. The amount which any
------------------------------------------
party (an "Indemnifying Party") is required to pay to any MMI Indemnitee or
Stream International Indemnitee (an "Indemnitee") pursuant to Sections 5.1 or
5.2 hereof shall be reduced (including, without limitation, retroactively) by
any insurance proceeds or other amounts actually recovered by or on behalf of
such Indemnitee in reduction of the related Indemnifiable Loss. To the extent
an Indemnifying Party makes full payment in respect of an Indemnifiable Loss and
such Indemnifiable Loss is covered by an insurance policy which has not been the
subject of an effective assignment to the Indemnifying Party, at the request of
the Indemnifying Party, the Indemnitee shall use commercially reasonable efforts
at the expense of the Indemnifying Party (which expenses shall be deemed to
include any increase in insurance premiums of the Indemnitee attributable to the
filing of such claims) to enforce any and all claims under such insurance policy
in respect of such Indemnifiable Loss for the benefit of the Indemnifying Party.
If any Indemnitee shall have received the full payment required by this
Agreement from an Indemnifying Party in respect of an Indemnifiable Loss and
shall subsequently actually receive insurance proceeds or other amounts in
respect of such Indemnifiable Loss, then such Indemnitee shall pay to such
Indemnifying Party a sum equal to the amount of such insurance proceeds or
23
<PAGE>
other amounts actually received (net of any expenses in obtaining the same), but
not to exceed the net amount of the payments previously received by the
Indemnitee from the Indemnifying Party in respect of such Indemnifiable Loss. An
insurer who would otherwise be obligated to pay any claim shall not be relieved
of the responsibility with respect thereto or, solely by virtue of the
indemnification provisions hereof, have any subrogation rights with respect
thereto, it being expressly understood and agreed that no insurer or any other
third party shall be entitled to a "windfall" (i.e., a benefit they would not be
entitled to receive in the absence of the indemnification provisions) by virtue
of the indemnification provisions hereof. Nothing herein shall require an
Indemnitee to enforce claims under an insurance policy before proceeding to
enforce its rights to indemnification against an Indemnifying Party.
5.4 Procedure for Indemnification.
-----------------------------
5.4.1 Third Party Claims; Notice. If an Indemnitee shall receive
--------------------------
notice or otherwise learn of (i) a default or breach by an Indemnifying Party
under any agreement or instrument with a third party to which the Indemnifying
Party is a party, (ii) the assertion by any other Person of any claim other than
a claim relating to Taxes or (iii) the commencement by any such Person of any
Action (other than an Action relating to Taxes) (clauses (i), (ii) and (iii) are
each hereinafter referred to as a "Third Party Claim") with respect to which an
Indemnifying Party may be obligated to provide indemnification pursuant to this
Article 5, such Indemnitee shall give such Indemnifying Party written notice
thereof within 10 business days after becoming aware of such Third Party Claim
("Third Party Claim Notice"); provided, however, that the failure of any
-------- -------
Indemnitee to give notice as provided in this Section 5.4.1 shall not relieve
the related Indemnifying Party of its obligations under this Article 5, except
to the extent that such Indemnifying Party actually is prejudiced by such
failure to give notice. Such notice shall describe the Third Party Claim in
reasonable detail, and shall indicate the amount (estimated if necessary) of the
Indemnifiable Loss that has been or may be sustained by such Indemnitee.
Thereafter, such Indemnitee shall deliver to such Indemnifying Party, within
five business days after the Indemnitee's receipt thereof, copies of all notices
and documents (including court papers) received by the Indemnitee relating to
the Third Party Claim.
The Indemnifying Party shall have a period of 20 days after the receipt of
a Third Party Claim Notice within which to respond thereto. If such
Indemnifying Party does not respond within such 20-day period, such Indemnifying
Party shall be deemed to have accepted responsibility to indemnify the
Indemnitee in respect of the claims specified in the Third Party Claim Notice
and shall have no further right to contest its obligation in respect thereof.
If such an Indemnifying Party does respond within such 20-day period and
disputes such claim in whole or in part, the Indemnitee and the Indemnifying
Party shall resolve the portion of the claim which is disputed in accordance
with the provisions of Section 5.4.9 hereof.
24
<PAGE>
5.4.2 Defense of Third Party Claims. In case any Third Party Claim
-----------------------------
is brought against an Indemnitee and the Indemnifying Party has not disputed its
obligation to indemnify the Indemnitee with respect to any part of such Third
Party Claim, the Indemnifying Party will be entitled to participate in and to
assume the defense thereof to the extent that it may wish, with counsel
reasonably satisfactory to such Indemnitee, and after notice from an
Indemnifying Party to such Indemnitee of its election so to assume the defense
thereof and for so long as the Indemnifying Party diligently pursues such
defense, such Indemnifying Party will not be liable to such Indemnitee for any
legal or other expenses subsequently incurred by such Indemnitee in connection
with the defense thereof; provided, however, that, if the defendants in any such
-------- -------
claim include both the Indemnifying Party and one or more Indemnitees and in any
Indemnitee's reasonable judgment a conflict of interest between one or more of
such Indemnitees and such Indemnifying Party exists in respect of such claim,
such Indemnitees shall have the right to employ separate counsel to represent
such Indemnitees, and in that event the reasonable fees and expenses of such
separate counsel (but not more than one separate counsel reasonably satisfactory
to the Indemnifying Party for all Indemnitees with respect to any single Third
Party Claim or group of consolidated related Third Party Claims) shall be paid
by such Indemnifying Party. If the Indemnifying Party undertakes to assume the
defense of a Third Party Claim, it shall promptly notify the Indemnitee in
writing of its intention to do so.
5.4.3 Cooperation by Indemnitee. If an Indemnifying Party chooses
-------------------------
to defend or to seek to compromise or settle any Third Party Claim, each related
Indemnitee shall make available to such Indemnifying Party any personnel or any
books, records or other documents within its control or which it otherwise has
the ability to make available that are necessary or appropriate for such
defense, settlement or comprise, and shall otherwise cooperate in the defense,
settlement or compromise of such Third Party Claim.
5.4.4 Limitation on Authority to Settle Claim. Notwithstanding
---------------------------------------
anything else in this Section 5.4 to the contrary, neither an Indemnifying Party
nor an Indemnitee shall settle or compromise any Third Party Claim over the
objection of the other; provided, however, that consent to compromise or
-------- -------
settlement shall not be unreasonably withheld, except that consent to any
compromise or settlement involving equitable or injunctive relief against any
Indemnifying Party or Indemnitee may be withheld by such Indemnifying Party or
Indemnitee for any reason. No Indemnifying Party shall consent to any judgment
or enter into any settlement or compromise which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to each
related Indemnitee of a written release from all Liability with respect to such
Third Party Claim.
5.4.5 Other Claims. Any claim on account of any Indemnifiable Loss
------------
which does not result from a Third Party Claim shall be asserted by written
notice
25
<PAGE>
given by the Indemnitee to the related Indemnifying Party ("Claim Notice"). Such
Indemnifying Party shall have a period of 20 days after the receipt of the Claim
Notice within which to respond thereto. If such Indemnifying Party does not
respond within such 20-day period, such Indemnifying Party shall be deemed to
have accepted responsibility to make payment and shall have no further right to
contest the validity of such claim. If such Indemnifying Party does respond
within such 20-day period and disputes such claim in whole or in part, the
Indemnitee and the Indemnifying Party shall resolve the portion of the claim
which is disputed in accordance with the provisions of Section 5.4.9 hereof.
5.4.6 Advancement of Certain Expenses. Upon the written demand of
-------------------------------
an Indemnitee, an Indemnifying Party shall reimburse or advance funds to such
Indemnitee for all Indemnifiable Losses reasonably incurred by it in connection
with investigating or defending any Third Party Claim in advance of its final
disposition; provided, however, that such reimbursement need be made only upon
-------- -------
delivery to the Indemnifying Party of an undertaking by such Indemnitee to repay
all amounts so reimbursed or advanced if it shall ultimately be determined that
such Indemnitee is not entitled to indemnification under this Article 5 or
otherwise.
5.4.7 Subrogation to Rights of Indemnitee. In the event of payment
-----------------------------------
by an Indemnifying Party to any Indemnitee in connection with any Third Party
Claim of the full amount payable under this Article 5 in respect thereof, such
Indemnifying Party shall be subrogated to and shall stand in the place of such
Indemnitee as to any events or circumstances in respect of which such Indemnitee
may have any right or claim relating to such Third Party Claim against any
claimant or plaintiff asserting such Third Party Claim or as against any other
Person. In such event, such Indemnitee shall cooperate with such Indemnifying
Party in a reasonable manner, and at the cost and expense of such Indemnifying
Party, in prosecuting any subrogated right or claim.
5.4.8 Named Parties. The parties hereto acknowledge that it may
-------------
not be feasible to substitute MMI for Stream International as a named party in
any existing Actions constituting MMI Assumed Liabilities. In such event,
Stream International shall remain as a named party and will be able to
participate in the defense of such Action (with the liability regarding the
legal or other expenses for such participation to be determined pursuant to
Section 5.4.2 hereof), but following the date hereof, MMI Holdings and MMI shall
assume the defense of any such Action in accordance with the provisions of this
Section 5.4 and Stream International and its Affiliates shall cooperate with MMI
Holdings and MMI as contemplated by Section 5.4 and Article 6 hereof.
5.4.9 Dispute Resolution. If an Indemnifying Party disputes all
------------------
or part of a Third Party Claim pursuant to Section 5.4.1 or all or part of a
claim other than a Third Party Claim pursuant to Section 5.4.5, such dispute
shall be resolved in
26
<PAGE>
accordance with the procedure set forth in this Section 5.4.9. Within 10 days
after notice by the Indemnifying Party that it disputes the claim in question,
the Indemnitee and the Indemnifying Party shall designate in writing one
arbitrator to resolve the dispute; provided that if the Indemnitee and the
Indemnifying Party cannot agree on an arbitrator within such 10-day period, the
arbitrator shall be selected by the Boston, Massachusetts, office of the
American Arbitration Association. The arbitrator so designated shall not be an
Affiliate of the Indemnitee or Indemnifying Party or any employee of, or
consultant to, the Indemnitee, the Indemnifying Party or any of their
Affiliates. Within 15 days after the designation of the arbitrator, the
Indemnitee, the Indemnifying Party and the arbitrator shall meet, at which time
the Indemnitee and the Indemnifying Party shall each be required to set forth in
writing all disputed issues and a proposed ruling on each such issue. The
arbitrator shall thereupon set a date for a hearing, which shall be no later
than 30 days after the submission of the written proposals described in the
immediately preceding sentence, to discuss each of the issues identified by the
Indemnitee and the Indemnifying Party. Each of the Indemnitee and the
Indemnifying Party shall have the right to be represented by counsel. The
arbitration shall be governed by the Commercial Arbitration Rules of the
American Arbitration Association; provided, however, that the arbitrator shall
have sole discretion with regard to the admissibility of evidence.
The arbitrator shall use his or her best efforts to rule on each disputed
issue within 30 days after the completion of the hearing described in the
immediately preceding paragraph. The determination of the arbitrator as to the
resolution of any dispute shall be binding and conclusive upon all parties
hereto. All rulings of the arbitrator shall be in writing and shall be
delivered to the Indemnitee and the Indemnifying Party. The attorneys' fees of
the Indemnitee and the Indemnifying Party in any arbitration shall be borne by
them as determined by the arbitrator, together with the fees of the arbitrator
and the costs and expenses of the arbitration. Any arbitration pursuant to this
Section 5.4.9 shall be conducted in Boston, Massachusetts. Any arbitration
award may be entered in and enforced by any court having jurisdiction thereover
and shall be final and binding upon the parties.
5.4.10 Determination of Time of Payment of Indemnitee. With respect
----------------------------------------------
to any claim made by an Indemnitee pursuant to this Article 5, the Indemnifying
Party shall have no further right to contest its obligations in respect thereof
(or a portion thereof, if applicable pursuant to clause (ii) of this Section
5.4.10) following the occurrence of a Determination Event with respect to such
claim (or a portion thereof, if applicable pursuant to clause (ii) of this
Section 5.4.10), and the Indemnifying Party thereafter shall pay all
Indemnifiable Losses related to such claim or applicable portion thereof on
their respective Due Dates. With respect to a reimbursement or advance of funds
made by an Indemnifying Party pursuant to Section 5.4.6, the Indemnifying Party
shall have no right to contest the right of the Indemnitee to indemnification
(and, hence, no right to demand repayment pursuant
27
<PAGE>
to the provison clause of Section 5.4.6) with respect to the claim to which the
reimbursement or advance relates (or portion thereof, if applicable pursuant to
clause (ii) of this Section 5.4.10) following the occurrence of a Determination
Event with respect to such claim (or portion thereof, if applicable pursuant to
clause (ii) of this Section 5.4.10). "Determination Event" shall mean the
earliest of (i) the failure of the Indemnifying Party to respond to a Third
Party Claim Notice or Claim Notice within the applicable 20-day period,
(ii) with respect to any portion of a claim, the failure of the Indemnifying
Party to dispute within the applicable 20-day period, its obligation to pay such
portion of the claim in its response to a Third Party Claim Notice or Claim
Notice, (iii) the written acknowledgment of the Indemnifying Party of its
obligation hereunder with respect to such claim or (iv) the decision of an
arbitrator pursuant to Section 5.4.9 hereof upholding the obligation of the
Indemnifying Party in respect of such claims. "Due Date" shall mean (a) with
respect to a Third Party Claim that has been assumed by the Indemnifying Party
pursuant to Section 5.4.2 hereof, as and when any sums related to such claim
become due and payable, (b) with respect to any Third Party Claim whose defense
has not been assumed by the Indemnifying Party, upon written demand by the
Indemnitee and (c) with respect to any claim on account of any Indemnifiable
Loss which does not result from a Third Party Claim, upon written demand
therefor by the Indemnitee; provided, however, that in no event shall the Due
-------- -------
Date for any claim occur prior to the Determination Event for such claim.
5.5 Remedies Cumulative. The remedies provided in this Article 5 shall
-------------------
be cumulative and shall not preclude assertion by any Indemnitee of any other
rights or the seeking of any and all other remedies against any Indemnifying
Party; provided, however, that all remedies sought or asserted by an Indemnitee
-------- -------
against an Indemnifying Party with respect to an Indemnifiable Loss shall be
limited by and be subject to the provisions of this Article 5.
5.6 Nature of Indemnity Payments. All payments by the Indemnifying Party
----------------------------
under Section 5.1 or 5.2 hereof shall be treated, to the maximum extent
allowable under applicable Tax laws, as an adjustment to the MMI Assets
contributed to MMI Holdings in connection with the Drop-down. The amount of
each payment by the Indemnifying Party shall be computed after taking into
account all Tax consequences to the Indemnitee, or any Affiliate, of (i) the
receipt of (or the right to receive) the payment and (ii) the event or
incurrence of the liability that gave rise to the right to receive the payment.
In determining the Tax consequences to the Indemnitee, or any Affiliate, for
purposes of this Section 5.6, any Tax detriment, in the case of a payment, and
any Tax benefit, in the case of an event or an incurrence of a liability, shall
be taken into account in the taxable years or periods in which the Indemnitee,
or any Affiliate, is required to pay additional Taxes by reason of the payment,
or is entitled to a refund of Tax or a reduction in the amount of Taxes it would
otherwise be required to pay by reason of the event or the incurrence of the
liability.
28
<PAGE>
ARTICLE 6
ACCESS TO INFORMATION AND SERVICES
6.1 Provision of Corporate Records. Prior to or as soon as practicable
------------------------------
following the date hereof, Stream International shall deliver to MMI Holdings
all existing corporate books and records in Stream International's possession
relating to the MMI Business, including original corporate minute books, stock
ledgers and certificates and corporate seals of each of MMI Holdings and each
MMI Subsidiary, and all active agreements, active litigation files and records
of filings; provided, however, that Stream International shall retain its own
-------- -------
original corporate minute books, stock ledgers and certificates and corporate
seals. Stream International shall also provide to MMI Holdings, unless already
in the possession of MMI Holdings or a MMI Subsidiary and only to the extent
that Stream International maintains them, lists of trademarks, trade names and
copyrights included in the MMI Assets.
6.2 Access to Information. From and after the date hereof, Stream
---------------------
International shall afford to MMI Holdings and its authorized accountants,
counsel and other designated representatives reasonable access (including using
reasonable efforts to give access to third parties possessing information) and
duplicating rights during normal business hours to all records, books,
contracts, instruments, computer data and other data and information
(collectively, "Information") within Stream International's possession relating
to the MMI Business, insofar as such access is reasonably required by MMI
Holdings. MMI Holdings likewise shall afford to Stream International and its
authorized accountants, counsel and other designated representatives reasonable
access (including using reasonable efforts to give access to third parties
possessing information and providing reasonable access to its own employees who
are in possession of relevant information) and duplicating rights during normal
business hours to Information within MMI Holdings' possession relating to the
Stream International Business, insofar as such access is reasonably required by
Stream International. Information may be requested under this Section 6.2 for,
without limitation, audit, accounting, claims, litigation, insurance and tax
purposes, as well as for purposes of fulfilling disclosure and reporting
obligations and for performing this Agreement and the transactions contemplated
hereby.
6.3 Production of Witnesses. From and after the date hereof, each of MMI
-----------------------
Holdings and Stream International shall use reasonable efforts to make available
to the other upon written request, its and its Subsidiaries' officers,
directors, employees and agents as witnesses to the extent that such persons may
reasonably be required in connection with any legal, administrative or other
proceedings in which the requesting party may from time to time be involved.
29
<PAGE>
6.4 Reimbursement. Except to the extent otherwise contemplated by the
-------------
Services Agreements or any other Ancillary Agreement, a party providing
Information or personnel to the other party under this Article 6 shall be
entitled to receive from the recipient, upon the presentation of invoices
therefor, payments for such amounts, relating to supplies, disbursements and
other out-of-pocket expenses, as may be reasonably incurred in providing such
Information or personnel; provided, however, that no such reimbursements shall
-------- -------
be required for the salary or cost of fringe benefits or similar expenses
pertaining to employees or directors of the providing party.
6.5 Retention of Records. Except as otherwise required by law or agreed
--------------------
to in writing, each of Stream International and MMI Holdings shall retain, and
shall cause each of its Subsidiaries to retain, in accordance with such party's
record retention program all material Information within such parties'
possession or under its control relating to the other and the other's
Subsidiaries. Notwithstanding the foregoing, in lieu of retaining any specific
Information, Stream International and MMI Holdings may offer in writing to
deliver such Information to the other and if such offer is not accepted within
45 days, the offered Information may be destroyed or otherwise disposed of at
any time. If a recipient of such offer shall request in writing prior to the
scheduled date for such destruction or disposal that any of the information be
delivered to such requesting party, the party proposing the destruction or
disposal shall promptly arrange for the delivery of such of the information as
was requested at the cost of the requesting party.
6.6 Confidentiality. Each of Stream International and MMI Holdings shall
---------------
hold, and shall cause its Subsidiaries, Affiliates, employees, consultants and
advisors to hold, in strict confidence all Information concerning the other
party and its Affiliates, including without limitation information which the
other party and its Affiliates are required by customer or other agreements to
keep confidential, obtained by it prior to the Distribution Date or furnished by
the other or the other's representatives pursuant to this Agreement (except to
the extent that such Information has been (i) in the public domain through no
fault of such party or (ii) later lawfully acquired from other sources by such
party), and each party shall not release or disclose such Information to any
other Person, except as reasonably required to its auditors, attorneys,
financial advisors, bankers and other consultants and advisors, unless compelled
to disclose by judicial or administrative process or, as advised by its counsel,
by other requirements of law or as necessary to enforce its rights under this
Agreement.
6.7 Financial Statements.
--------------------
6.7.1 MMI Holdings shall deliver to Stream International:
(a) no later than December 31, 1997, the MMI Balance Sheet;
30
<PAGE>
(b) within 90 days after the end of each fiscal year of MMI
Holdings, an audited balance sheet of MMI Holdings as at the end of such year
and audited statements of income and of cash flows of MMI Holdings for such
year, certified by certified public accountants of established national
reputation selected by MMI Holdings, and prepared in accordance with GAAP; and
(c) within 45 days after the end of each fiscal quarter of
MMI Holdings, an unaudited balance sheet of MMI Holdings as at the end of such
quarter, and unaudited statements of income and of cash flow of MMI Holdings for
such fiscal quarter and for the current fiscal year to the end of such fiscal
quarter.
6.7.2 The foregoing financial statements shall be prepared on a
consolidated basis if MMI Holdings then has any subsidiaries. The financial
statements delivered pursuant to clauses (a) and (b) of Section 6.7.1 shall be
accompanied by a certificate of the chief financial officer of MMI Holdings
stating that such statements have been prepared in accordance with GAAP (except
as noted) and fairly present the financial condition and, with respect to the
financial statements described in clause (b), results of operations of MMI
Holdings at the date thereof and for the periods covered thereby, except that
the financial statements may not be in accordance with GAAP because of the
absence of footnotes normally contained therein and are subject to normal year-
end audit adjustments which in the aggregate will not be material.
6.7.3 MMI Holdings' obligations under clauses (b) and (c) of
Section 6.7.1 shall terminate upon the earliest of (i) the sale of all or
substantially all of the assets of MMI or MMI Holdings, (ii) the sale of all or
substantially all of the outstanding shares of capital stock of MMI Holdings or
MMI (by merger, purchase or otherwise Holdings or MMI but in no event including
any transaction required to effect the Distribution) or (iii) the consummation
of an initial public offering of equity securities of MMI registered under the
Securities Act of 1933, as amended.
6.7.4 Stream International shall deliver to MMI Holdings, no later
than December 31, 1997, the Stream International Balance Sheet, which shall be
accompanied by a certificate of the chief financial officer of Stream
International stating that such balance sheet has been prepared in accordance
with GAAP (except as noted) and fairly presents the financial condition of
Stream International as of the date thereof, except that the balance sheet may
not be in accordance with GAAP because of the absence of footnotes normally
contained therein and are subject to normal year-end adjustments which in the
aggregate will not be material.
31
<PAGE>
ARTICLE 7
MISCELLANEOUS
7.1 Rule of Construction. Notwithstanding any other provisions in this
--------------------
Agreement, in the event and to the extent that there shall be a conflict between
the provisions of this Agreement (or any Ancillary Agreement or Conveyancing
Instrument) and the provisions of the Tax Indemnification Agreements or the
Services Agreements, the provisions of the Tax Indemnification Agreements or the
Services Agreements, as the case may be, shall control. Subject to the
preceding sentence, in the event and to the extent that there shall be a
conflict between the provisions of this Agreement and the provisions of any
Ancillary Agreement or Conveyancing Instrument, this Agreement shall control.
Except as otherwise specifically provided in any particular Ancillary Agreement,
all provisions of Section 2.1.3 and of Articles 5 and 7 shall apply to each
agreement constituting an Ancillary Agreement.
7.2 Survival of Agreements. Except as otherwise contemplated by this
----------------------
Agreement, all covenants and agreements of the parties contained in this
Agreement and in each Ancillary Agreement, and liabilities for the breach of any
obligations contained herein or therein, shall survive the date hereof.
7.3 Expenses. Except as otherwise set forth in this Agreement or any
--------
Ancillary Agreement, all costs and expenses incurred prior to or on the earlier
of (i) January 10, 1998 and (ii) the closing of the Stream IPO by CST Holdings,
MMI Holdings and/or Stream International in connection with the preparation,
execution, delivery and implementation of this Agreement, the Ancillary
Agreements, the Contribution Agreement, dated as of even date hereto, among
Stream International, SISC, CST Holdings and CST (the "CST Contribution
Agreement"), the Ancillary Agreements (as defined in the CST Contribution
Agreement) and in connection with the consummation of the transactions
contemplated by this Agreement and the CST Contribution Agreement, but unpaid as
of the earlier of (i) January 10, 1998 and (ii) the closing of the Stream IPO
(collectively, the "Restructuring Expenses"), shall be paid equally by CST
Holdings and MMI Holdings to the extent that appropriate documentation
concerning such costs and expenses shall be provided by CST Holdings, MMI
Holdings and Stream International to CST Holdings and MMI Holdings; provided
that no costs or expenses shall be required to be paid to the extent incurred
after January 10, 1998.
7.4 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the domestic substantive laws of The Commonwealth of
Massachusetts without regard to any choice or conflict of law rule or provision
that would result in the application of the domestic substantive laws of any
other jurisdiction.
32
<PAGE>
7.5 Notices. Any notice, request, demand, claim or other communication
-------
hereunder shall be in writing and shall be delivered by registered or certified
mail, return receipt requested, postage prepaid, and addressed to the intended
recipient as set forth below, and shall be deemed duly given on the date which
is three days after such notice, request, demand, claim or other communication
is sent:
to Stream International:
Stream International Inc.
275 Dan Road
Canton, Massachusetts 02021
Telecopy: (781) 830-7465
Attention: Treasurer
to MMI Holdings and MMI:
Modus Media International Holdings, Inc.
690 Canton Street
Westwood, Massachusetts 02090
Telecopy: (781) 407-3831
Attention: Treasurer
Notwithstanding the foregoing, any party may send any notice, request, demand,
claim, or other communication hereunder to the intended recipient at the address
set forth above using any other means (including personal delivery, expedited
courier, messenger service, telecopy, telex, ordinary mail, or electronic mail),
but no such notice, request, demand, claim or other communication shall be
deemed to have been duly given unless and until it actually is received by the
intended recipient. Any party may change the address to which notices,
requests, demands, claims, and other communications hereunder are to be
delivered by giving the other party notice in the manner herein set forth.
7.6 Amendments. This Agreement may not be modified or amended except by
----------
an agreement in writing signed by the parties hereto; provided, however, that no
--------- -------
change to the definition of MMI Assumed Liabilities or defined terms used
therein or to the definitions of terms incorporated by reference to the CST
Contribution Agreement, which adversely affects CST Holdings or its
Subsidiaries, shall be effective unless agreed to in writing by CST Holdings.
7.7 Successors and Assigns. This Agreement and all of the provisions
----------------------
hereof shall be binding upon and inure to the benefit of the parties and their
respective successors and assigns, including any corporation with which, or into
which, either party may be merged or which may succeed to its assets or
business;
33
<PAGE>
provided, however, that no party may assign, delegate or otherwise transfer its
- -------- -------
rights or obligations under this Agreement except to a Person that acquires all
or substantially all of the assets or business of such party (whether by merger,
consolidation, sale of stock, sale of assets or otherwise). Each party agrees
not to transfer all or substantially all of its assets unless the transferee
agrees in writing to be bound by this Agreement.
7.8 Abandonment of Distribution. The Distribution may be abandoned at
---------------------------
any time prior to its consummation by and in the sole discretion of the Stream
International Board without the approval of MMI Holdings, MMI or of Stream
International's stockholders.
7.9 No Third Party Beneficiaries. Except for R.R. Donnelley in respect
----------------------------
of Section 2.8 hereof, the provisions of Article 5 hereof relating to
Indemnitees and the proviso clause of Section 7.6 and except for successors and
assigns permitted by Section 7.7, this Agreement is solely for the benefit of
the parties hereto and their respective Subsidiaries and Affiliates and shall
not be deemed to confer upon third parties any remedy, claim, Liability,
reimbursement, claim of action or other right in excess of those existing
without reference to this Agreement.
7.10 Titles and Headings. Titles and headings to sections herein are
-------------------
inserted for the convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
7.11 Exhibits and Schedules. The Exhibits and Schedules to this
----------------------
Agreement shall be construed with and as an integral part of this Agreement.
7.12 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.
7.13 Legal Enforceability. Any provision of this Agreement which is
--------------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof. Any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision or remedies otherwise available to any party hereto
in any other jurisdiction. Without prejudice
34
<PAGE>
to any rights or remedies otherwise available to any party hereto, each party
hereto acknowledges that damages would be an inadequate remedy for any breach of
the provisions of this Agreement and agrees that the obligations of the parties
hereunder shall be specifically enforceable.
7.14 Entire Agreement. This Agreement, all Schedules and Exhibits hereto,
----------------
and all agreements and instruments delivered by the parties pursuant hereto
represent the entire understanding and agreement between the parties hereto with
respect to the subject matter hereof and supersede all prior oral and written
and all contemporaneous oral negotiations, commitments and understandings
between such parties.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
STREAM INTERNATIONAL INC.
By /s/ Judith G. Salerno
--------------------------------------------
Name: Judith G. Salerno
Title: President and Chief
Operating Officer
MODUS MEDIA INTERNATIONAL HOLDINGS, INC.
By /s/ Terence M. Leahy
--------------------------------------------
Terence M. Leahy
Chief Executive Officer and President
MODUS MEDIA INTERNATIONAL, INC.
By /s/ Terence M. Leahy
--------------------------------------------
Terence M. Leahy
Chief Executive Officer and President
35
<PAGE>
SCHEDULE A
MMI Subsidiaries
<TABLE>
<CAPTION>
New name to be
adopted prior to, as
of or following the Jurisdiction of
Name of Subsidiary date hereof Incorporation
- ------------------ ----------- ---------------
<S> <C> <C>
Modus Media Delaware
International, Inc.
Donnelley Documentation Modus Media International Delaware
Services (Ireland) Limited Documentation Services (Ireland)
Limited
R.R. Donnelley Holdings Modus Media International Delaware
(Australia) Limited Holdings (Australia) Limited
R.R. Donnelley (Ireland) Modus Media International Delaware
Limited (Ireland) Limited
Stream International Pty. Ltd. Modus Media International Australia
Pty. Ltd.
Stream International Ltd. Modus Media International Brazil
Ltda.
Stream International Leinster Modus Media International British Virgin
Unlimited Leinster Unlimited Islands
Stream International France, Modus Media International, S.A. France
S.A.
Modus Media International Hong Kong
(Hong Kong) Pte Limited
Stream International Ireland Modus Media International Ireland
(Holdings) Ireland (Holdings)
Stream International Modus Media International Ireland
Dublin Dublin
</TABLE>
36
<PAGE>
<TABLE>
<S> <C> <C>
Stream International Modus Media International Ireland
Kildare Kildare
Stream International Modus Media International Ireland
Fulfillment Services Fulfillment Services
Donnelley Sasatoku KK Japan
Stream International KK Modus Media International Japan
Kabushiki Kaisha
Stream International Modus Media International Korea
Korea Ltd. Korea Ltd.
Modus Media (M) Sdn. Bhd. Malaysia
Stream International S.A. Modus Media International S.A Mexico
de C.V. de C.V.
Stream International B.V. Modus Media International B.V. The Netherlands
Stream International Pte. Ltd. Modus Media International Pte. Singapore
Ltd.
Fulfill Plus Pte. Ltd. Singapore
Taiwan Modus Media Taiwan
International Limited [formation
in progress]
Stream International Limited Modus Media International United Kingdom
Limited
Modus Media International [name reserved] PRC
Software Services (Shenzhen)
Co. Ltd.
[formation in progress]
</TABLE>
37
<PAGE>
SCHEDULE B
Stream International Subsidiaries
<TABLE>
<CAPTION>
New name to be
adopted prior to, as
of or following the Jurisdiction of
Name of Subsidiary date hereof Incorporation
- ------------------ ----------- ---------------
<S> <C> <C>
Stream International Services Delaware
Corp. (f/k/a Stream International
Inc.)
Corporate Software Securities Stream International Massachusetts
Corporation Securities Corporation
Corporate Software Europe Stream International Europe The Netherlands
B.V. B.V.
Stream International N.I. United Kingdom
Limited
Stream International Inc. Nevada
</TABLE>
38
<PAGE>
SCHEDULE C
Certain Asset and Stock Transfer Agreements
1. Contribution Agreement between Stream International Holdings Inc. and Modus
Media International, Inc. (now known as Modus Media International Holdings,
Inc.) dated November 6, 1997 (for the transfer of Modus Media International
Korea Limited shares from Stream International to MMI Holdings).
2. Contribution Agreement between MMI Holdings and MMI dated December 12, 1997
(for the transfer of Modus Media International Korea Limited shares from
MMI Holdings to MMI).
39
<PAGE>
SCHEDULE 3.1
I. The former MMI Employees are listed in the Letter Agreement
II. MMI Benefit Plans
1. Employee Welfare Benefit Plans for the Benefit of Employees of Modus
Media International currently including, Health Plans, Long Term
Disability Plan, Group Life Insurance and AD & D Plan, Dental Plan,
Employee Assistance Plan, Tuition Assistance Plan and Short Term
Disability Plan.
2. Supplemental Life Insurance Plans for Employees of Modus Media
International
a. Allmerica Group Variable Life for certain highly paid employees.
b. New York Life Insurance Company Executive Life Insurance Premium
Payment Program for certain Director level employees or above.
c. New York Life Insurance Company Supplemental Whole Life Insurance
Payroll Deduction Program.
d. Unum Life Insurance Company Supplemental Life Insurance Payroll
Deduction Program.
3. Pre-Tax Contribution Plan for Employees of Modus Media International
4. Dependent Care Flexible Spending Accounting Plan for Employees of
Modus Media International
5. Health Care Flexible Spending Account Plan for Employees of Modus
Media International
6. Stream Savings and Retirement Program for MMI Employees and Former MMI
Employees
7. Business Travel Accident Insurance for Employees of Modus Medial
International
40
<PAGE>
8. Computer Reimbursement Program for Employees of Modus Media
International
9. Adoption Assistance Plan for Employees of Modus Media International
10. Matching Charitable Gifts Program
11. Paid Time Off Policy
41
<PAGE>
EXHIBIT 10.11
================================================================================
CONTRIBUTION AGREEMENT
Dated as of December 15, 1997
AMONG
STREAM INTERNATIONAL INC.,
STREAM INTERNATIONAL SERVICES CORP.,
CORPORATE SOFTWARE & TECHNOLOGY, INC.
AND
CORPORATE SOFTWARE & TECHNOLOGY HOLDINGS, INC.
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE 1 - DEFINITIONS.................................................. 2
ARTICLE 2 - THE SEPARATION............................................... 12
2.1 Transfer of CST Assets and Assumption of CST Assumed
Liabilities............................................... 12
2.1.1 Transfer of Assets................................. 12
2.1.2 Assumption of Liabilities.......................... 12
2.1.3 Transfer to CST.................................... 12
2.1.4 Further Assurances................................. 13
2.1.5 Tax Treatment of Drop-down......................... 14
2.1.6 Allocation of Cash................................. 14
2.2 Ancillary Agreements...................................... 15
2.3 Resignations.............................................. 15
2.4 Transfers Not Effected on or Prior to the Drop-down....... 15
2.5 No Representations or Warranties; Consents................ 16
2.6 Insurance................................................. 16
2.7 Stock Options............................................. 17
2.8 Extension of Certain Leases............................... 18
2.9 Financial Statements...................................... 18
ARTICLE 3 - CERTAIN EMPLOYEE AND BENEFIT PLAN MATTERS.................... 19
3.1 Certain CST Plans; Assumption of Obligations by CST....... 19
3.2 Certain Payments by Stream International.................. 19
3.3 Employees on Certain Leave................................ 20
3.4 Stream Savings Plan....................................... 20
3.4.1 Creation of Multiple Employer Plan................. 20
3.4.2 Subsequent Contributions........................... 20
3.4.3 New Savings Plan................................... 21
3.5 Employee Matters.......................................... 21
3.6 Information Regarding Certain Former Employees of
R.R. Donnelley............................................ 21
ARTICLE 4 - THE DISTRIBUTION............................................. 21
4.1 Action Prior to the Distribution.......................... 21
4.2 Stream International Board Action; Conditions Precedent
to the Distribution....................................... 22
ARTICLE 5 - INDEMNIFICATION.............................................. 22
5.1 Indemnification by Stream International for Stream
International Liabilities................................. 22
5.2 Indemnification by CST for CST Liabilities................ 22
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
5.3 Limitations on Indemnification Obligations................ 23
5.4 Procedure for Indemnification............................. 24
5.4.1 Third Party Claims; Notice......................... 24
5.4.2 Defense of Third Party Claims...................... 24
5.4.3 Cooperation by Indemnitee.......................... 25
5.4.4 Limitation on Authority to Settle Claim............ 25
5.4.5 Other Claims....................................... 25
5.4.6 Advancement of Certain Expenses.................... 26
5.4.7 Subrogation to Rights of Indemnitee................ 26
5.4.8 Named Parties...................................... 26
5.4.9 Dispute Resolution................................. 26
5.4.10 Determination of Time of Payment of Indemnitee..... 27
5.5 Remedies Cumulative....................................... 28
5.6 Nature of Indemnity Payments.............................. 28
ARTICLE 6 - ACCESS TO INFORMATION AND SERVICES........................... 28
6.1 Provision of Corporate Records............................ 28
6.2 Access to Information..................................... 29
6.3 Production of Witnesses................................... 29
6.4 Reimbursement............................................. 29
6.5 Retention of Records...................................... 29
6.6 Confidentiality........................................... 30
6.7 Financial Statements...................................... 30
ARTICLE 7 - MISCELLANEOUS................................................ 31
7.1 Rule of Construction...................................... 31
7.2 Survival of Agreements.................................... 31
7.3 Expenses.................................................. 32
7.4 Governing Law............................................. 32
7.5 Notices................................................... 32
7.6 Amendments................................................ 33
7.7 Successors and Assigns.................................... 33
7.8 Abandonment of Distribution............................... 33
7.9 No Third Party Beneficiaries.............................. 33
7.10 Titles and Headings....................................... 34
7.11 Exhibits and Schedules.................................... 34
7.12 Counterparts.............................................. 34
7.13 Legal Enforceability...................................... 34
7.14 Entire Agreement.......................................... 34
</TABLE>
<PAGE>
LIST OF SCHEDULES
SCHEDULES:
- ---------
Schedule A CST Subsidiaries
Schedule B Stream International Subsidiaries
Schedule C Certain Asset and Stock Transfer Agreements
Schedule 3.1 - Employee Benefit Plans
<PAGE>
CONTRIBUTION AGREEMENT
This CONTRIBUTION AGREEMENT (the "Agreement"), dated as of December 15,
1997, is among Stream International Inc., a Delaware corporation (f/k/a Stream
International Holdings Inc.) ("Stream International"), Stream International
Services Corp., a Delaware corporation (f/k/a Stream International Inc.) and a
wholly-owned indirect subsidiary of Stream International ("SISC"), Corporate
Software & Technology Holdings, Inc., a Delaware corporation and, as of the date
hereof, a wholly-owned direct subsidiary of SISC ("CST Holdings"), and Corporate
Software & Technology, Inc., a Delaware corporation and a wholly-owned
subsidiary of CST Holdings ("CST").
WHEREAS, Stream International has been engaged in (i) the development,
marketing and sale of outsource technical support services to software
publishers, hardware manufacturers and corporate customers (as more fully
defined below, the "Stream International Business"); (ii) the development,
marketing and sale of printing, CD-ROM and disk replication, packaging,
fulfillment and inventory management services (as more fully defined below, the
"MMI Business"); and (iii) the marketing and resale of software and the
development, marketing and sale of software license management services and
software consulting services (as more fully defined below, the "CST Business");
WHEREAS, the Board of Directors of Stream International has determined that
it is appropriate and desirable to separate the CST Business into a separate
company by (i) causing SISC or certain of its Subsidiaries to transfer the CST
Business to CST Holdings in exchange for voting common stock of CST Holdings;
(ii) immediately thereafter, causing CST Holdings to transfer the CST Business
(other than indebtedness owed to R.R. Donnelley) to CST or certain of its
Subsidiaries (together with the transactions described in clause (i), the "Drop-
down"); (iii) immediately thereafter, causing SISC to transfer its outstanding
voting common stock of CST Holdings to Stream International; and (iv) prior to
the earlier of (a) the closing of the initial public offering of common stock of
Stream International (the "Stream IPO") and (b) January 10, 1998, distributing
to the holders of common stock of Stream International as of the Record Date all
of the voting common stock of CST Holdings held by Stream International (the
"Distribution");
WHEREAS, concurrently with the Drop-down, Stream International is effecting
a similar separation of the MMI Business by (i) transferring the MMI Business to
Modus Media International Holdings, Inc., a Delaware corporation ("MMI
Holdings"), in exchange for voting common stock and preferred stock of MMI
Holdings and (ii) causing MMI Holdings to transfer the MMI Business to Modus
Media International, Inc., a Delaware corporation ("MMI");
<PAGE>
WHEREAS, Stream International intends thereafter to distribute to the
holders of common stock of Stream International as of the Record Date all of the
voting common stock of MMI Holdings held by Stream International;
WHEREAS, Stream International, SISC, CST and CST Holdings have determined
that it is necessary and desirable to set forth the principal corporate
transactions required to effect the Drop-down and the Distribution and to set
forth other agreements that will govern certain relationships and other matters
among Stream International, SISC, CST and CST Holdings in connection with the
Drop-down and the Distribution; and
WHEREAS, the Drop-down is intended to be a taxable exchange, not subject to
Section 351 of the Code.
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained in this Agreement, the parties hereby agree as follows:
ARTICLE 1
DEFINITIONS
Certain terms are used in this Agreement as specifically defined herein
(such meanings to be equally applicable to both the singular and plural forms of
the terms defined). These definitions are set forth in this Article 1.
Action means any action, suit, arbitration, inquiry, proceeding or
------
investigation by or before any Governmental Authority or arbitration tribunal.
Additional Option shall have the meaning ascribed in Section 2.7.
-----------------
Adjusted Option shall have the meaning ascribed in Section 2.7.
---------------
Affiliate means "affiliate" as defined in Rule 12b-2 promulgated under the
---------
Exchange Act, as such Rule is in effect on the date hereof; provided, however,
-------- -------
that (i) CST Holdings, CST and the CST Subsidiaries, (ii) MMI Holdings, MMI and
the MMI Subsidiaries and (iii) Stream International and the Stream International
Subsidiaries shall not be deemed Affiliates of each other for purposes of this
Agreement; and provided further, that R.R. Donnelley (and its Subsidiaries other
------------ -------
than CST Holdings, MMI Holdings and Stream International and their Subsidiaries
following the Drop-down), on the one hand, and CST Holdings, MMI Holdings and
Stream International (and each of their Subsidiaries following the Drop-down),
on the other hand, shall not be deemed Affiliates of each other for purposes of
this Agreement.
2
<PAGE>
Agreement shall have the meaning ascribed in the Preamble.
---------
Ancillary Agreements means all of the agreements, instruments,
--------------------
understandings, assignments or other arrangements entered into in connection
with the Drop-down and/or the Distribution, including, without limitation,
(i) the Conveyancing Instruments, (ii) the Services Agreements, (iii) the Tax
Indemnification Agreements, (iv) subleases, subcontracts and other instruments
entered into to effect the transactions contemplated hereby, (v) the asset and
stock transfer agreements and instruments for certain Subsidiaries and branches
of SISC and Stream International, including those listed on Schedule C hereto
----------
and (vi) the Letter Agreement.
Assets means, with respect to any Person, the assets, properties and rights
------
(including goodwill) of such Person, wherever located (including in the
possession of vendors or other third parties or elsewhere), whether real,
personal or mixed, tangible, intangible or contingent, in each case whether or
not recorded or reflected or required to be recorded or reflected on the books
and records or financial statements of such Person, including the following:
(a) all accounting and other books, records and files whether in
paper, microfilm, microfiche, computer tape or disc, magnetic tape or any other
form;
(b) all apparatus, computers and other electronic data processing
equipment, fixtures, machinery, equipment, furniture, office equipment,
automobiles, trucks, rolling stock, motor vehicles and other transportation
equipment, special and general tools, test devices, prototypes and models and
other tangible personal property;
(c) all inventories of materials, parts, raw materials, supplies,
work-in-process and finished goods and products;
(d) all interests in real property of whatever nature, including
easements, whether as owner, mortgagee or holder of a Security Interest in real
property, lessor, sublessor, lessee, sublessee or otherwise;
(e) all interests in any capital stock or other equity interests of
any Subsidiary of such Person or any other Person, all bonds, notes, debentures
or other securities issued by any such Subsidiary or any other Person, all
loans, advances or other extensions of credit or capital contributions to any
such Subsidiary or any other Person and all other investments in securities of
any Person;
(f) all license agreements, leases of personal property, open
purchase orders, unfilled orders for the manufacture and sale of products and
other contracts, agreements or commitments;
3
<PAGE>
(g) all deposits, letters of credit and performance and surety
bonds;
(h) all written technical information, data, specifications,
research and development information, engineering drawings, operating and
maintenance manuals, and materials and analyses prepared by consultants and
other third parties;
(i) all domestic and foreign patents, copyrights, trade names,
trademarks, service marks and registrations and applications for any of the
foregoing, mask works, trade secrets, inventions, other proprietary information
and licenses from third Persons granting the right to use any of the foregoing;
(j) all computer applications, programs and other software,
including operating software, network software, firmware, middleware, design
software, design tools, systems documentation and instructions;
(k) all cost information, sales and pricing data, customer prospect
lists, supplier records, customer and supplier lists, customer and vendor data,
correspondence and lists, product literature, artwork, design, development and
manufacturing files, vendor and customer drawings, formulations and
specifications, quality records and reports and other books, records, studies,
surveys, reports, plans and documents;
(l) all prepaid expenses, trade accounts and other accounts and
notes receivables;
(m) all rights under contracts or agreements, all claims or rights
against any Person arising from the ownership of any Asset, all rights in
connection with any bids or offers and all claims, choses in action or similar
rights, whether accrued or contingent;
(n) all rights under insurance policies and all rights in the nature
of insurance, indemnification or contribution;
(o) all licenses, permits, approvals and authorizations which have
been issued by any Governmental Authority;
(p) subject to Section 2.1.6, cash or cash equivalents, bank
accounts, lock boxes and other deposit arrangements; and
(q) interest rate, currency, commodity or other swap, collar, cap or
other hedging or similar agreements or arrangements.
Audited Financial Statements shall have the meaning ascribed in
----------------------------
Section 2.9.
4
<PAGE>
Claim Notice shall have the meaning ascribed in Section 5.4.5.
------------
Code means the Internal Revenue Code of 1986, as amended, and regulations
----
and rulings thereunder and shall include corresponding provisions of any
subsequently enacted federal tax law.
Consents means any consents, waivers or approvals from, or notification
--------
requirements to, any third parties.
Controlled Group shall have the meaning ascribed in Section 3.4.1.
----------------
Conveyancing Instruments means, collectively, the various agreements,
------------------------
instruments and other documents, in form and substance mutually satisfactory to
Stream International and CST Holdings, entered into or to be entered into to
effect the transfer of the CST Assets by Stream International or its
Subsidiaries to CST Holdings or its Subsidiaries and the assumption by CST
Holdings or its Subsidiaries of the CST Assumed Liabilities.
CST shall have the meaning ascribed in the Preamble.
---
CST Assets means (i) all Assets of Stream International and its
----------
Subsidiaries used primarily in the CST Business, including, but not limited to,
those Assets shown on Schedule A to the Letter Agreement and those Assets
----------
reflected on the CST Balance Sheet and (ii) those Assets of Stream International
and its Subsidiaries that are not primarily used in the CST Business but that
are identified on Schedule B to the Letter Agreement, provided however, that the
---------- -------- -------
term "CST Assets" shall not include the Stream International Assets, the MMI
Assets, the outstanding stock issued by and the Assets of Corporate Software &
Technology GmbH (f/k/a Stream International GmbH), the outstanding stock issued
by and the Assets of Corporate Software & Technology Limited (f/k/a Corporate
Software Limited) and its Subsidiary, International Software Limited, and the
original corporate minute books, stock ledgers and certificates and corporate
seals of SISC or Stream International.
CST Assumed Liabilities means (i) all Liabilities of Stream International
-----------------------
or any of its Subsidiaries relating to the CST Business, including without
limitation, all Liabilities related to the CST Assets, but excluding all
indebtedness for borrowed money to R.R. Donnelley other than as set forth in
clause (iv) below, (ii) all Liabilities reflected on the CST Balance Sheet, but
excluding all indebtedness for borrowed money to R.R. Donnelley other than as
set forth in clause (iv) below, (iii) the additional Liabilities listed on
Schedule C to the Letter Agreement, (iv) the amount of indebtedness to
- ----------
R.R. Donnelley set forth on Schedule D to the Letter Agreement and (v) the
----------
Liabilities retained or assumed by CST pursuant to Article 3 of this Agreement;
provided, however, that the term "CST Assumed Liabilities" shall not include the
- -------- -------
MMI Assumed Liabilities or the Stream International Liabilities or any
5
<PAGE>
Liabilities related to Taxes (it being understood that Liabilities related to
Taxes shall be governed by the Tax Indemnification Agreements).
CST Balance Sheet means the CST balance sheet as of November 30, 1997,
-----------------
prepared in accordance with GAAP, a copy of which will be furnished by CST to
Stream International pursuant to Section 6.7.1 hereof.
CST Benefit Plans shall have the meaning ascribed in Section 3.1.
-----------------
CST Business means (i) the businesses, Assets and operations of Stream
------------
International and its Subsidiaries primarily related to the marketing and resale
of software and the development, marketing and sale of software license
management services and software consulting services, including, without
limitation, all businesses, Assets or operations primarily managed or operated
by, or operationally related primarily to, any of such businesses, which have
been sold or otherwise disposed of or discontinued prior to the Drop-down
(including, without limitation, the business of 800-Software, Inc. and Software
Intermediate Holdings Inc.), (ii) following the Drop-down, the businesses,
Assets and operations of CST Holdings and its Subsidiaries as they may be
constituted from time to time to the extent not included in clause (i) of this
sentence, (iii) the businesses, Assets, and operations of Software Holdings
Inc., but excluding the businesses, Assets, operations and shares of stock of
its Subsidiaries except as set forth in clauses (i) and (ii) of this sentence,
(iv) the businesses, Assets and operations of Corporate Software & Technology
GmbH (f/k/a Stream International GmbH) and Corporate Software & Technology
Limited (f/k/a Corporate Software Limited) and its Subsidiary, International
Software Limited and (v) corporate help desk activities to the extent they
relate solely to customers in Europe.
CST Compensation Agreement shall have the meaning ascribed in
--------------------------
Section 2.1.3.
CST Employee means (i) any individual who, on or immediately prior to the
------------
date hereof was employed by Stream International or any of its Subsidiaries, or
who is on a leave of absence approved by Stream International or any of its
Subsidiaries and who, immediately after the Drop-down, is employed by CST
Holdings or any CST Subsidiary, or who is continuing on a leave of absence
approved by CST Holdings or any CST Subsidiary, and (ii) any individual whose
employment is transferred from Stream International or any of its Subsidiaries
to CST Holdings, CST or any CST Subsidiary within 12 months after the date
hereof.
CST Foreign Benefit Plans shall have the meaning ascribed in Section 3.1.
-------------------------
CST Holdings shall have the meaning ascribed in the Preamble.
------------
6
<PAGE>
CST Indemnitee shall have the meaning ascribed in Section 5.1.
--------------
CST Subsidiary means each of the Subsidiaries of Stream International
--------------
listed on Schedule A hereto, which were Subsidiaries of CST Holdings prior to
----------
the date hereof or will become Subsidiaries of CST Holdings as a result of the
Drop-down.
Determination Event shall have the meaning ascribed in Section 5.4.10.
-------------------
Distribution shall have the meaning ascribed in the Preamble.
------------
Distribution Date means the date on which the Distribution occurs.
-----------------
Drop-down shall have the meaning ascribed in the Preamble.
---------
Due Date shall have the meaning ascribed in Section 5.4.10.
--------
Employee Benefit Plan means any plan, fund or other arrangement within the
---------------------
meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended, and any fringe benefit or similar arrangement.
Exchange Act means the Securities Exchange Act of 1934, as amended.
------------
Former CST Employee means any person who was an employee of Stream
-------------------
International or its Subsidiaries and who worked primarily in the CST Business
but terminated such employment prior to the date hereof, including, without
limitation, any person who is listed on Schedule 3.1 hereto and who is not a CST
------------
Employee.
GAAP means United States generally accepted accounting principles
----
consistently applied.
Governmental Approvals means any notices, reports or other filings made
----------------------
with or to be made with, or any consents, registrations, approvals, permits or
authorizations obtained from or to be obtained from, any Governmental Authority.
Governmental Authority shall mean any federal, state, local, foreign or
----------------------
international court, government, department, commission, board, bureau, agency,
official or other regulatory, administrative or governmental authority.
Indemnifiable Losses shall have the meaning ascribed in Section 5.1.
--------------------
Indemnifying Party shall have the meaning ascribed in Section 5.3.
------------------
Indemnitee shall have the meaning ascribed in Section 5.3.
----------
7
<PAGE>
Information shall have the meaning ascribed in Section 6.2.
-----------
Insurance Program means the various insurance policies maintained by
-----------------
Stream International and/or R.R. Donnelley pursuant to which various insurance
carriers provide insurance coverage to Stream International and its Subsidiaries
(including, prior to the Distribution, MMI Holdings and the MMI Subsidiaries and
CST Holdings and the CST Subsidiaries); provided, however, that the term
-------- -------
"Insurance Program" shall not include any insurance policy used to pay benefits
under an Employee Benefit Plan, including but not limited to the Employee
Benefit Plans listed on Schedule 3.1 hereto.
Letter Agreement means the Letter Agreement among Stream International,
----------------
SISC, CST and CST Holdings dated the date hereof with respect to certain Assets
and Liabilities.
Liabilities means, with respect to any Person, any and all debts,
-----------
liabilities and obligations, absolute or contingent, matured or unmatured,
liquidated or unliquidated, accrued or unaccrued, known or unknown, whenever
arising, including after the Distribution (unless otherwise specified in this
Agreement), of such Person including all costs and expenses relating thereto,
and including, without limitation, those debts, liabilities and obligations
arising under any law, rule, regulation, Action, threatened Action, order or
consent decree of any Governmental Authority or any award of any arbitrator of
any kind, and those arising under any contract, commitment or undertaking.
MMI shall have the meaning ascribed in the Preamble.
---
MMI Assets shall have the meaning ascribed in the MMI Contribution
----------
Agreement.
MMI Assumed Liabilities shall have the meaning ascribed in the MMI
-----------------------
Contribution Agreement.
MMI Balance Sheet shall have the meaning ascribed in the MMI Contribution
-----------------
Agreement.
MMI Business shall have the meaning ascribed in the MMI Contribution
------------
Agreement.
MMI Contribution Agreement shall have the meaning ascribed in Section 7.3.
--------------------------
MMI Holdings shall have the meaning ascribed in the Preamble.
------------
8
<PAGE>
MMI Subsidiary shall have the meaning ascribed in the MMI Contribution
--------------
Agreement.
New CST Savings Plan shall have the meaning ascribed in Section 3.4.3.
--------------------
1995 Contribution Agreement means the Contribution Agreement dated as of
---------------------------
April 21, 1995, among R.R. Donnelley, Stream International Holdings Inc.
(formerly known as R.R. Donnelley Global Software Services Corp. and now known
as Stream International Inc.) and Software Holdings, Inc.
Person means any natural person or any corporation, association,
------
partnership, joint venture, company, limited liability company, trust,
organization, business or government or any governmental agency or political
subdivision thereof.
Record Date means the close of business on the date to be determined by the
-----------
Stream International Board as the record date for the Distribution.
Restructuring Expenses shall have the meaning ascribed in Section 7.3.
----------------------
R.R. Donnelley means R.R. Donnelley & Sons Company, a Delaware corporation.
--------------
Security Interest means any mortgage, security interest, pledge, lien,
-----------------
charge, claim, option, right to acquire, voting or other restriction, right-of-
way, covenant, condition, easement, encroachment, restriction on transfer, or
other encumbrance of any nature whatsoever.
Services Agreements means the Transitional Service Agreement between SISC
-------------------
and MMI, the Transitional Service Agreement between SISC and CST and the
Transitional Service Agreement between MMI and CST, each dated the date hereof,
pursuant to which the parties will provide various services to each other
following the date hereof.
SISC shall have the meaning ascribed in the Preamble.
----
Stream International shall have the meaning ascribed in the Preamble.
--------------------
Stream International Assets means all Assets of Stream International and
---------------------------
its Subsidiaries used primarily in the Stream International Business, including,
but not limited to (i) Assets reflected on the Stream International Balance
Sheet, and (ii) Assets shown on Schedule E to the Letter Agreement; provided,
---------- --------
however, that the term "Stream International Assets" shall not include the CST
- -------
Assets, the MMI Assets, the outstanding stock issued by and the Assets of
Corporate Software & Technology GmbH (f/k/a Stream International GmbH), and the
outstanding stock issued by and
9
<PAGE>
the Assets of Corporate Software & Technology Limited (f/k/a Corporate Software
Limited) and its Subsidiary, International Software Limited.
Stream International Balance Sheet means the Stream International balance
----------------------------------
sheet as of November 30, 1997, prepared in accordance with GAAP, a copy of which
will be furnished to CST Holdings in accordance with Section 6.7.4.
Stream International Board means the Board of Directors of Stream
--------------------------
International.
Stream International Business means (i) the businesses, Assets and
-----------------------------
operations of Stream International and its Subsidiaries primarily related to the
development, marketing and sale of outsource technical support services,
including, without limitation, all businesses, Assets of any Person or
operations primarily managed or operated by, or operationally related primarily
to, any of such businesses which have been sold or otherwise disposed of or
discontinued prior to the Drop-down and (ii) following the Drop-down, the
businesses, Assets and operations of Stream International or its Subsidiaries as
they may be constituted from time to time to the extent not included in clause
(i) of this sentence; provided, however, that the term "Stream International
-------- -------
Business" shall not include the MMI Business or the CST Business.
Stream International Common Stock means the Class A, Class A-1, Class B-N
---------------------------------
and Class B-V Common Stock, each par value $.01 per share, of Stream
International.
Stream International Indemnitee shall have the meaning ascribed in
-------------------------------
Section 5.2.
Stream International Liabilities means (i) all Liabilities of Stream
--------------------------------
International or any of its Subsidiaries relating primarily to the Stream
International Business, including, without limitation, all Liabilities related
primarily to the Stream International Assets, but excluding all indebtedness for
borrowed money to R.R. Donnelley other than as set forth in clause (iii) below,
(ii) all Liabilities reflected on the Stream International Balance Sheet, but
excluding all indebtedness for borrowed money to R.R. Donnelley other than as
set forth in clause (iii) below, (iii) the net indebtedness to R.R. Donnelley
shown on Schedule F to the Letter Agreement and (iv) the Liabilities identified
----------
on Schedule G to the Letter Agreement; provided, however, that the term "Stream
---------- -------- -------
International Liabilities" shall not include Liabilities of Stream International
as a guarantor of or surety for any MMI Assumed Liabilities or CST Assumed
Liabilities, shall not include the MMI Assumed Liabilities or the CST Assumed
Liabilities, and shall not include any Liabilities related to Taxes (it being
understood that Liabilities related to Taxes shall be governed by the Tax
Indemnification Agreements).
10
<PAGE>
Stream International Option means a stock option, granted under Stream
---------------------------
International's 1995 Stock Option Plan, 1995 Replacement Stock Option Plan or
1995 California Stock Option Plan, outstanding as of the Distribution Date.
Stream International Subsidiary means the Subsidiaries of Stream
-------------------------------
International, other than CST Holdings or any CST Subsidiary, MMI Holdings or
any MMI Subsidiary, Corporate Software & Technology GmbH (f/k/a Stream
International GmbH), Corporate Software & Technology Limited (f/k/a Corporate
Software Limited), and International Software Limited, including without
limitation, the entities listed on Schedule B hereto.
----------
Stream IPO shall have the meaning ascribed in the Preamble.
----------
Stream Savings Plan shall have the meaning ascribed in Section 3.4.1.
-------------------
Subsidiary, as used herein with respect to any Person, means any other
----------
Person of which such Person shall at the time own, directly or indirectly
through one or more Subsidiaries, at least a majority of the outstanding capital
stock (or other shares of beneficial interest) entitled to vote generally, or
shall hold at least a majority of partnership or similar interests, or shall be
a general partner.
Target Amounts shall have the meaning ascribed in Section 2.1.6.
--------------
Tax shall have the meaning ascribed in the Tax Sharing Agreement.
---
Tax Indemnification Agreements means the Tax Sharing Agreement and the Tax
------------------------------
Reimbursement Agreement.
Tax Reimbursement Agreement means the Tax Reimbursement Agreement between
---------------------------
Stream International and R.R. Donnelley, dated the date hereof.
Tax Return shall have the meaning ascribed in the Tax Sharing Agreement.
----------
Tax Sharing Agreement means the Tax Sharing Agreement among Stream
---------------------
International, MMI Holdings, MMI, CST Holdings and CST, dated the date hereof.
Third Party Claim shall have the meaning ascribed in Section 5.4.1.
-----------------
Third Party Claim Notice shall have the meaning ascribed in Section 5.4.1.
------------------------
Transfer Date means (i) with respect to any CST Employee described in
-------------
clause (a) of the definition of CST Employee, the date hereof, and (ii) with
respect to any CST Employee described in clause (b) of the definition of CST
Employee, the date on
11
<PAGE>
which such CST Employee's employment is transferred from Stream International or
any Stream International Subsidiary to CST Holdings or any CST Subsidiary.
Unaudited Financial Statements shall have the meaning ascribed in
------------------------------
Section 2.9.
ARTICLE 2
THE SEPARATION
This Article 2 sets forth certain transactions to be consummated in
connection with the Drop-down. Subject to the terms and conditions of this
Agreement, the parties shall consummate such transactions on (except to the
extent specified in Section 2.1.3) the date hereof at such times and in such
sequence as they shall mutually agree.
2.1 Transfer of CST Assets and Assumption of CST Assumed Liabilities.
----------------------------------------------------------------
2.1.1 Transfer of Assets. Except as set forth in Section 2.1.3,
------------------
on the date hereof, Stream International and/or the Stream International
Subsidiaries shall, to the extent necessary by means of appropriate Conveyancing
Instruments, convey, transfer, assign and deliver to CST Holdings or, if
directed by CST Holdings, to its Subsidiaries, and CST Holdings (or its
Subsidiaries, as applicable) will accept from Stream International and/or the
Stream International Subsidiaries, all of Stream International's or its
Subsidiaries' rights, title and interest in and to all of the CST Assets.
2.1.2 Assumption of Liabilities. In consideration for the
-------------------------
contribution described in Section 2.1.1, simultaneously with such contribution,
(i) CST Holdings and/or its Subsidiaries shall, to the extent necessary by means
of appropriate Conveyancing Instruments, assume all of Stream International's
and its Subsidiaries' (other than any CST Subsidiary) duties, obligations and
responsibilities with respect to the CST Assumed Liabilities and (ii) CST
Holdings shall issue to SISC voting common stock of CST Holdings.
2.1.3 Transfer to CST. Other than certain foreign CST Assets that
---------------
have been assigned prior to the date hereof, no CST Asset shall be conveyed,
transferred, assigned or delivered under this Section 2.1, and any purported
conveyance, transfer, assignment, or delivery of any CST Asset under this
Section 2.1 shall be null and void, unless (i) simultaneously therewith or
immediately prior thereto CST Holdings shall have delivered to Bain Capital,
Inc. shares of non-voting common stock of CST Holdings pursuant to the CST
Compensation Agreement among Stream International,
12
<PAGE>
SISC, CST Holdings and Bain Capital, Inc. dated as of December 10, 1997 (the
"CST Compensation Agreement") and (ii) at the time of any such conveyance,
transfer, assignment or delivery, no person shall own or have any beneficial
interest in any non-voting stock of CST Holdings other than Bain Capital, Inc.
Immediately after the consummation of all of the transfers and assumptions
described in Sections 2.1.1 and 2.1.2, CST Holdings shall contribute all of the
CST Assets it received to CST and CST shall assume all of the CST Assumed
Liabilities which had been assumed by CST Holdings (other than those described
in clause (iv) of the definition of CST Assumed Liabilities).
2.1.4 Further Assurances.
------------------
(a) In addition to the actions specifically provided for
elsewhere in this Agreement, each of the parties hereto shall use commercially
reasonable efforts, prior to, on and after the date hereof, to take, or cause to
be taken, all actions, and to do, or cause to be done, all things, reasonably
necessary, proper or advisable under applicable laws, regulations and agreements
to consummate and make effective the transactions contemplated by this Agreement
and the Ancillary Agreements, including execution of Conveyancing Instruments
relating to the assumption by CST Holdings and CST of CST Assumed Liabilities
that arise after the Drop-down.
(b) Without limiting the foregoing, prior to, on and after
the date hereof, each party hereto shall cooperate with each other party hereto,
and without any further consideration, but at the expense of the requesting
party, to execute and deliver, or use commercially reasonable efforts to cause
to be executed and delivered, all instruments, including instruments of
conveyance, assignment and transfer, and to make all filings with, and to obtain
all consents, approvals or authorizations of, any Governmental Authority or any
other Person under any permit, license, agreement, indenture or other instrument
(including any Consents or Governmental Approvals), and to take all such other
actions as such party may reasonably be requested to take by any other party
hereto from time to time, consistent with the terms of this Agreement and the
Ancillary Agreements, in order to effectuate the provisions and purposes of this
Agreement and the Ancillary Agreements and the transfer of the CST Assets, and
the assignment and assumption of the CST Assumed Liabilities and the other
transactions contemplated hereby and thereby. Without limiting the foregoing,
each party will, at the reasonable request, cost and expense of any other party,
use commercially reasonable efforts to take such other actions as may be
reasonably necessary to vest in such other party good and marketable title, free
and clear of any Security Interest other than a Security Interest securing a CST
Assumed Liability, if and to the extent it is practicable to do so. In the event
and to the extent that any such required consent, approval or authorization to
assign and assume an agreement, lease, commitment or obligation which is an CST
Asset or CST Assumed Liability is not obtained, (i) Stream International or its
13
<PAGE>
applicable Subsidiary shall continue to be bound thereby and (ii) from and after
the date hereof, CST Holdings or its Subsidiaries shall pay, perform and
discharge fully all the obligations of Stream International or its applicable
Subsidiary thereunder and CST Holdings and CST shall indemnify, as set forth in
Section 5.2 hereof, Stream International or its applicable Subsidiary for all
Indemnifiable Losses arising out of such performance or failure to perform by
CST Holdings or its Subsidiaries or out of the failure to obtain any Consents or
Governmental Approval. Stream International or its applicable Subsidiary shall,
without the payment of any further consideration, pay and remit to CST promptly
any monies, rights and other considerations received by Stream International or
its applicable Subsidiary in respect of such performance. Stream International
or its applicable Subsidiary shall exercise or exploit its rights and options
under all such third party agreements, leases, licenses and other rights and
commitments referred to in this Section 2.1.4(b) which are CST Assets only as
reasonably directed by CST and at CST's expense. If and when any such Consent or
Governmental Approval shall be obtained or such agreement, lease, license or
other right shall otherwise become assignable or be able to be novated, Stream
International or its applicable Subsidiary shall promptly assign and novate all
its rights and obligations thereunder to CST Holdings or its Subsidiaries
without payment of further consideration and CST Holdings or its Subsidiaries
shall, without the payment of any further consideration, assume such rights and
obligations.
2.1.5 Tax Treatment of Drop-down. Each of CST Holdings, CST, SISC
--------------------------
and Stream International shall, and shall cause each of its Affiliates after the
Drop-down to (i) treat the transactions provided for in Sections 2.1.1 and 2.1.2
of this Agreement as a taxable exchange, and not as a transaction described in
Section 351 of the Code, for federal income tax purposes (and all other
applicable income tax purposes) and (ii) file Form 8594, and all their
respective federal, state, local and other Tax Returns required to be filed.
2.1.6 Allocation of Cash. Notwithstanding anything herein to the
------------------
contrary, but subject to Section 3.2 hereof, the consolidated aggregate cash
held by Stream International and its Subsidiaries as of October 31, 1997, shall
be allocated to the particular business (i.e., the CST Business, the MMI
Business or the Stream International Business) that generated such cash,
provided that the maximum amount allocated to CST pursuant to this sentence
shall be $7,500,000, the maximum amount allocated to MMI pursuant to this
sentence shall be $12,500,000 and the maximum amount allocated to Stream
International pursuant to this sentence shall be $5,000,000 (such amounts are
hereinafter referred to as the "Target Amounts"). If any business has generated
cash in excess of its Target Amount, such excess shall be allocated to the other
businesses, pro rata based on the ratio of their Target Amounts, until one of
such businesses has been allocated its Target Amount. Any remaining excess
shall be allocated to the remaining business until it has been allocated its
Target Amount. If the consolidated aggregate cash held by Stream International
and its Subsidiaries as of October 31, 1997 exceeds $25,000,000, the amount in
excess of $25,000,000 shall be
14
<PAGE>
allocated 30% to CST, 50% to MMI and 20% to Stream International. Any cash
generated after October 31, 1997 shall remain with the particular business
(i.e., the CST Business, the MMI Business or the Stream International Business)
that generated such cash; provided, however, that the proceeds received by
Stream International pursuant to that certain Asset Purchase Agreement dated as
of the date hereof between Stream International and R.R. Donnelley Norwest, Inc.
shall be allocated 40% to the MMI Business and 60% to the CST Business.
2.2 Ancillary Agreements. On (except to the extent specified in
--------------------
Section 2.1.3) the date hereof, Stream International, SISC, CST Holdings and
CST, as the case may be, shall enter into each of the Ancillary Agreements.
2.3 Resignations. At the request of Stream International, CST Holdings
------------
shall cause all CST Employees to resign effective on the date hereof from all
boards of directors or similar governing bodies of Stream International or any
Stream International Subsidiary on which they serve, and from all positions as
officers of Stream International or any Stream International Subsidiary in which
they serve. At the request of CST Holdings, Stream International shall cause
all of its own and all of the Stream International Subsidiaries' employees and
directors (other than CST Employees and those directors of Stream International
who will continue to serve as directors of CST or CST Holdings) to resign
effective on the date hereof from all boards of directors or similar governing
bodies of CST Holdings or any CST Subsidiary on which they serve, and from all
positions as officers of CST Holdings or any CST Subsidiary in which they serve.
2.4 Transfers Not Effected on or Prior to the Drop-down. Nothing herein
---------------------------------------------------
shall be deemed to require the transfer of any Assets or the assumption of any
Liabilities which by their terms or operation of law cannot be transferred or
assumed; provided, however, that Stream International and CST Holdings and their
-------- -------
respective Subsidiaries shall cooperate to seek to obtain any necessary Consents
or Governmental Approvals for the transactions contemplated by this Article 2.
In the event that any transfer of Assets or Liabilities has not been
consummated, effective as of or prior to the date hereof, the party retaining
such Asset or Liability shall thereafter hold such Asset for the party entitled
thereto (at the expense of the party entitled thereto) and retain such Liability
for the account of the party by whom such Liability is to be assumed (at the
expense of the party to whom such Liability is to be transferred), and each
party will take such other action as may be reasonably requested by the other
party in order to place the party to whom such Asset is to be transferred, or by
whom such Liability is to be assumed, as the case may be, insofar as reasonably
possible, in the same position as would have existed had such Asset or Liability
been transferred as of the date hereof. As and when any such Asset or Liability
becomes transferable, such transfer shall be effected forthwith.
15
<PAGE>
2.5 No Representations or Warranties; Consents. CST Holdings understands
------------------------------------------
and hereby agrees that Stream International is not, in this Agreement or in any
other agreement or document contemplated by this Agreement or otherwise, nor
shall Stream International be deemed or implied to be, representing or
warranting in any way except as, and only to the extent, required by applicable
law (i) as to the value or freedom from encumbrance or Security Interest of, or
any other matter concerning, any of the CST Assets transferred or to be
transferred to CST Holdings as contemplated by this Article 2 or (ii) as to the
legal sufficiency to convey title to any such Asset of the execution, delivery
and filing of this Agreement or any Ancillary Agreement, including, without
limitation, any Conveyancing Instruments, IT BEING UNDERSTOOD AND HEREBY AGREED
THAT ALL CST ASSETS ARE BEING TRANSFERRED "AS IS, WHERE IS" and that CST
Holdings shall bear the economic and legal risk that any conveyances of such
Assets shall prove to be insufficient or that CST Holdings or any of its
Subsidiaries' title to any such assets shall be other than good and marketable
and free from encumbrances or Security Interests. Similarly, CST Holdings
understands and hereby agrees that Stream International is not, in this
Agreement or in any other agreement or document contemplated by this Agreement
or otherwise, nor shall Stream International be deemed or implied to be,
representing or warranting in any way that the obtaining of any Consents or
Governmental Approvals, the execution and delivery of any amendatory agreements
and the making of any filings or applications contemplated by this Agreement or
such other agreements or documents shall satisfy the provisions of any or all
applicable agreements or the requirements of any or all applicable laws or
judgments, it being understood and hereby agreed that CST Holdings and the CST
Subsidiaries shall bear the economic and legal risk that any necessary Consents
or Governmental Approvals are not obtained or that any requirements of laws or
judgments are not complied with. Notwithstanding the foregoing, the parties
shall use reasonable efforts to obtain all Consents and Governmental Approvals,
to enter into all amendatory agreements and to make all filings and applications
which may be required for the consummation of the transactions contemplated by
this Agreement.
2.6 Insurance. CST agrees that it will purchase, to the extent available
---------
at a reasonable cost, insurance policies to be in effect as of the Distribution
Date which provide substantially the same types of coverage as the policies
maintained by Stream International or R.R. Donnelley under the Insurance Program
with respect to the CST Business, including without limitation any insurance
required by any lease of real or personal property. Stream International shall,
if so requested by CST, use reasonable efforts to assist CST in obtaining such
initial insurance coverage for CST from and after the Distribution in such
amounts as are agreed upon by Stream International and CST. Following the
Distribution, each of Stream International and CST shall cooperate with and
assist the other party in the prevention of conflicts or gaps in insurance
coverage and/or collection of proceeds.
16
<PAGE>
2.7 Stock Options. Prior to the Distribution, Stream International shall
-------------
adjust each Stream International Option by reducing to $4.86 the per share
exercise price for such option (other than options with exercise prices at or
above $4.86 per share and options held by Messrs. Cowan, Leahy, Moore and
Rosenthal and certain options held by Mr. Morphis) and by providing, with
respect to those option holders who will be employed by CST Holdings, MMI
Holdings or their Subsidiaries following the Distribution, that the option
terminates three months after the option holder ceases to be employed by CST
Holdings or MMI Holdings or their Subsidiaries, as the case may be (each such
option, as so adjusted prior to the Distribution Date, the "Adjusted Option").
In connection with the Distribution, each Stream International Option to
purchase shares of Class A Common Stock of Stream International shall be
supplemented with an option to purchase an identical number of shares of voting
stock of each of CST Holdings and MMI Holdings, and each Stream International
Option to purchase shares of Class B Common Stock of Stream International shall
be supplemented with an option to purchase such number of shares of voting stock
of each of CST Holdings and MMI Holdings as is equal to the number of shares of
Class A Common Stock into which the shares of Class B Common Stock covered by
such option would be convertible at the conversion rate fixed on the date of the
Drop-down (collectively, the "Additional Options"). The per share exercise
price for the Additional Options shall be equal to the product determined by
multiplying the exercise price per share of Stream International Common Stock at
which such Stream International Option was exercisable by 11.93% in the case of
the Additional Option granted by MMI Holdings and 38.48% in the case of the
Additional Option granted by CST Holdings. The per share exercise price for
each Stream International Option shall be reduced by an amount equal to the
aggregate exercise price of the Additional Options granted in respect of such
option. The Additional Options shall be subject to the terms of the MMI
Holdings and CST Holdings 1997 Class A Replacement Stock Option Plans, 1997
Class A California Replacement Stock Option Plans and 1997 Class B Replacement
Stock Option Plans, as applicable.
Notwithstanding all the foregoing in this Section 2.7, if the holder of an
outstanding Stream International Option does not consent in writing to the
adjustment of such holder's option in accordance with the foregoing, such
holder's option shall not be adjusted and no Additional Options shall be granted
to such holder.
Upon termination of employment of any employee of CST Holdings or any CST
Subsidiary who has an Adjusted Option, CST Holdings shall provide to Stream
International and MMI the name of such employee and the date the employee ceased
employment with CST Holdings or any CST Subsidiary and shall indicate whether
the termination was for cause. Upon Stream International's request from time to
time, CST shall also provide a complete list of employees of CST Holdings or any
17
<PAGE>
CST Subsidiary who have Adjusted Options, which list shall show such holder's
name, Social Security number and address and shall include such other
information as Stream International shall reasonably request.
Upon termination of employment of any employee of Stream International or
any Stream International Subsidiary who has an Additional Options granted by CST
Holdings, Stream International shall provide to CST Holdings the name of such
employee and the date the employee ceased employment with Stream International
or a Stream International Subsidiary and shall indicate whether the termination
was for cause. Upon CST Holdings' request from time to time, Stream
International shall also provide a complete list of employees of Stream
International or any Stream International Subsidiary who have Additional Options
granted by CST Holdings, which list shall show such holder's name, Social
Security number and address and shall include such other information as CST
Holdings shall reasonably request.
2.8 Extension of Certain Leases.
---------------------------
To the extent Stream International or R.R. Donnelley has any contingent
liability following the date hereof, whether as a primary obligor, guarantor or
otherwise with respect to any lease of real property to which CST Holdings or a
CST Subsidiary is a party on the date hereof or which is assigned or purported
to be assigned to CST Holdings or a CST Subsidiary pursuant to this Agreement or
any Ancillary Agreement, CST Holdings or the CST Subsidiary, as the case may be,
shall cause any such contingent liability of Stream International, any Stream
International Subsidiary and R.R. Donnelley to be extinguished upon the earlier
of the time of lease renewal or the time of any extension thereof.
2.9 Financial Statements.
--------------------
At or prior to the Drop-down, CST shall deliver to Stream International a
complete and correct copy of the audited consolidated balance sheet of CST as of
December 31, 1996, and the related statements of income, stockholders' equity,
retained earnings and changes in financial condition of CST for the fiscal year
then ended (collectively, the "Audited Financial Statements"). At or prior to
the Drop-down, CST shall also furnish to Stream International a complete and
correct copy of the unaudited balance sheet of CST as at September 30, 1997 and
the related statements of operations and cash flow for the nine months then
ended, compiled by CST (collectively, the "Unaudited Financial Statements").
CST Holdings represents that, and the Chief Financial Officer or Treasurer of
CST shall deliver a Certificate stating that, the Audited Financial Statements
and Unaudited Financial Statements are complete and correct, are in accordance
with the books and records of CST and present fairly the financial condition and
results of operations of CST, as at the dates and for the periods indicated, and
have been prepared in accordance with generally accepted accounting principles
consistently applied, except that the Unaudited
18
<PAGE>
Financial Statements have been prepared for the internal use of management and
may not be in accordance with generally accepted accounting principles because
of the absence of footnotes normally contained therein and are subject to normal
year-end audit adjustments which in the aggregate will not be material.
ARTICLE 3
CERTAIN EMPLOYEE AND BENEFIT PLAN MATTERS
3.1 Certain CST Plans; Assumption of Obligations by CST. Stream
---------------------------------------------------
International or its Subsidiaries maintain the Employee Benefit Plans listed on
Schedule 3.1 hereto for the benefit of the U.S. employees of the CST Business
(the "CST Benefit Plans"). Except as provided in Section 3.4 with respect to
the Stream Savings Plan, and concurrently with the action described in
Section 2.1.1, Stream International will transfer and assign all CST Benefit
Plans to CST Holdings, and CST Holdings will immediately thereafter transfer and
assign all CST Benefit Plans to CST and CST will (i) accept such transfer and
assignment, (ii) assume and adopt all CST Benefit Plans, (iii) assume any
Liabilities with respect to such CST Benefit Plans whether arising before or
after the date hereof and (iv) assume any Liabilities arising (whether before or
after the date hereof) under any Employee Benefit Plan maintained by Stream
International or its Subsidiaries, which is not a CST Benefit Plan, to the
extent related to CST Employees and Former CST Employees including, but not
limited to, under any Employee Benefit Plans maintained up to the date hereof by
Stream International or its Subsidiaries under the laws of any country other
than the United States (the "CST Foreign Benefit Plans") with respect to CST
Employees or Former CST Employees. Nothing in this Agreement shall be construed
to prevent CST from altering or discontinuing any CST Benefit Plan or CST
Foreign Benefit Plan after the Distribution Date, provided that such alteration
or discontinuance relates only to CST Employees or Former CST Employees.
3.2 Certain Payments by Stream International. Stream International and
----------------------------------------
its Subsidiaries hereby agree to continue making all regular payments, whether
for insurance premiums, benefits, expenses or other related purposes to (i) any
CST Benefit Plan, or (ii) any Employee Benefit Plan maintained by Stream
International or its Subsidiaries, with respect to any participating CST
Employee or participating Former CST Employee through the date hereof,
consistent with the manner and timing of such payments which are made with
respect to any employee or former employee of Stream International or its
Subsidiaries who are participating in the same or comparable Employee Benefit
Plans maintained by Stream International or its Subsidiaries. The amount of any
such payments made after November 30, 1997, or made prior to such date to the
extent relating to any period following such date, shall be deducted from the
cash allocated to CST pursuant to Section 2.1.6 and added to the cash allocated
to Stream International pursuant to such Section 2.1.6. In addition, Stream
International and its Subsidiaries shall continue to make such payments with
19
<PAGE>
respect to any CST Employee whose employment is transferred from Stream
International or any of its Subsidiaries to CST or any CST Subsidiary within
12 months after the date hereof until the date of such transfer.
3.3 Employees on Certain Leave. If any individual who becomes a CST
--------------------------
Employee is on a leave of absence approved by Stream International or any of its
Subsidiaries on his or her Transfer Date and continues on a leave approved by
CST or any CST Subsidiary after the Transfer Date, then such leave shall
continue under CST's leave policies and CST shall assume any liability for any
benefits provided by Stream International or any Stream International Subsidiary
prior to the Transfer Date or any benefits required to be provided to such CST
Employee by law; provided that the maximum amount and duration of such benefits
as well as the duration of the leave provided before and after the Transfer Date
shall not exceed the limits under the applicable Stream International or Stream
International Subsidiary policy.
3.4 Stream Savings Plan.
-------------------
3.4.1 Creation of Multiple Employer Plan. The Stream Savings and
----------------------------------
Retirement Program was established for the benefit of all U.S. employees of
Stream International and its Subsidiaries under Section 401(k) of the Code (the
"Stream Savings Plan"). On the date hereof the Stream Savings Plan will be
adopted by CST Holdings, the CST Subsidiaries, MMI Holdings and the MMI
Subsidiaries as additional plan sponsors. Therefore, the Stream Savings Plan
will then be maintained by a controlled group of corporations as defined under
Section 414 of the Code ("Controlled Group") as well as corporations that are
not part of the Controlled Group. In addition, Stream International has
approved the amendment of the Stream Savings Plan, effective upon the
Distribution Date, into a multiple employer plan in order to continue to provide
benefits under the terms of the Stream Savings Plan, as amended, for employees
or former employees of any of the corporations that have adopted the Stream
Savings Plan, which corporations, as of the Distribution Date, or thereafter,
cease to be a member of the Controlled Group that includes Stream International.
All assets of the Stream Savings Plan will continue to be maintained in the
existing trust established thereunder.
3.4.2 Subsequent Contributions. After the date hereof, CST
------------------------
Employees will continue to make contributions to the Stream Savings Plan,
without interruption, based on elections made by them in accordance with the
terms of the Stream Savings Plan. Each CST Employee who is making salary
reduction contributions to the Stream Savings Plan immediately prior to his or
her Transfer Date, with respect to compensation paid on or before such Transfer
Date, and who continues to be employed by CST or a CST Subsidiary until the end
of the calendar quarter in which such Transfer Date occurs, will have matching
contributions made to the Stream Savings Plan as of the end of such calendar
quarter by CST, with respect to all such contributions made during such calendar
quarter. Stream International shall cease
20
<PAGE>
making any matching contributions with respect to CST Employees' salary
reduction contributions after making its matching contribution for the calendar
quarter which ends immediately prior to the calendar quarter which includes the
Transfer Date of CST Employees.
3.4.3 New Savings Plan. No later than March 31, 1998, CST shall
----------------
establish a new savings plan under Section 401(k) of the Code with such terms
and conditions, subject to the limitations of Code Section 411(d)(6), as CST may
provide and all contributions with respect to CST Employees will thereafter be
made to such new savings plan (the "New CST Savings Plan"). No later than
March 31, 1998, CST shall direct the trustee of the trust established under the
Stream Savings Plan to transfer to the trust established under the New CST
Savings Plan, in such manner and at such time as the trustee of the New CST
Savings Plan and the trustee of the Stream Savings Plan shall reasonably agree,
any Assets and Liabilities allocable to the individual accounts maintained with
respect to participants and beneficiaries in the Stream Savings Plan who are CST
Employees or Former CST Employees, subject to the requirements of Section 414 of
the Code.
3.5 Employee Matters. CST agrees to (i) be solely responsible for all
----------------
employment law compliance with respect to the transfer of all CST Employees; and
(ii) to assume any Liabilities, whether arising before or after the date hereof,
with respect to any CST Employee or Former CST Employee related to (a)
employment with Stream International or any of its Subsidiaries, including,
without limitation, any accrued vacation or severance pay, and (b) the transfer
of employment to CST or any CST Subsidiary or any subsequent termination of such
employment.
3.6 Information Regarding Certain Former Employees of R.R. Donnelley. CST
----------------------------------------------------------------
(or, if applicable, its Subsidiaries) shall assume the obligations under
Section 7.2(b)(3) of the 1995 Contribution Agreement including, without
limitation, the obligation to provide information relating to the termination of
an Eligible RRD Newco Employee (as defined in Section 7.2(b)(6) of the 1995
Contribution Agreement) who is a CST Employee. Such termination information
shall be provided to R.R. Donnelley as such information is available to CST or
any of its Subsidiaries.
ARTICLE 4
THE DISTRIBUTION
4.1 Action Prior to the Distribution. Stream International and CST
--------------------------------
Holdings shall take all such action (if any) as may be necessary or appropriate
under the securities or blue sky laws of the United States or any individual
state (and any comparable laws under any foreign jurisdiction) in connection
with the Distribution.
21
<PAGE>
4.2 Stream International Board Action; Conditions Precedent to the
--------------------------------------------------------------
Distribution. The Stream International Board shall, in its discretion,
- ------------
establish the Record Date and the Distribution Date and any appropriate
procedures in connection with the Distribution. The consummation of the
Distribution shall be subject to the consummation in all material respects of
each of the transactions contemplated by Article 2 hereof that are required to
be consummated prior to the Distribution; provided, however, that the
-------- -------
satisfaction of such condition shall not create any obligation on the part of
Stream International to effect the Distribution or in any way limit Stream
International's power to abandon the Distribution as set forth in Section 7.8
hereof.
ARTICLE 5
INDEMNIFICATION
5.1 Indemnification by Stream International for Stream International
----------------------------------------------------------------
Liabilities. Except as set forth in the Services Agreement between SISC and
- -----------
CST, Stream International shall indemnify, defend and hold harmless CST Holdings
and each Affiliate of CST Holdings (including the CST Subsidiaries) and each of
their respective directors, officers, employees and agents and each of the
heirs, executors, successors and assigns of any of the foregoing (the "CST
Indemnitees") from and against any and all losses, claims, damages, obligations,
payments, costs and expenses, matured or unmatured, absolute or contingent,
accrued or unaccrued, liquidated or unliquidated, known or unknown (including,
without limitation, the costs and expenses of any and all Actions, threatened
Actions, demands, assessments, judgments, settlements and compromises relating
thereto and reasonable attorneys' fees and any and all expenses whatsoever
reasonably incurred in investigating, preparing or defending against any such
Actions or threatened Actions) (collectively, "Indemnifiable Losses") of the CST
Indemnitees (i) arising out of or due to the failure or alleged failure of
Stream International or any of its Affiliates to pay, perform or otherwise
discharge in due course any Stream International Liabilities or (ii) arising out
of Stream International's or any Stream International Subsidiary's performance
of, or failure to perform, any of its covenants or agreements contained in this
Agreement.
5.2 Indemnification by CST for CST Liabilities. Except as set forth in
------------------------------------------
the Services Agreement between SISC and CST, CST Holdings and CST shall jointly
and severally indemnify, defend and hold harmless Stream International and each
Affiliate of Stream International (including the Stream International
Subsidiaries) and each of their respective directors, officers, employees and
agents and each of the heirs, executors, successors and assigns of any of the
foregoing (the "Stream International Indemnitees") from and against any and all
Indemnifiable Losses (i) arising out of or due to the failure or alleged failure
of CST Holdings or any of its
22
<PAGE>
Affiliates to pay, perform or discharge any CST Assumed Liability (without
regard to whether all applicable Consents and Governmental Approvals relating to
the assumption thereof have been obtained); (ii) arising out of the failure to
obtain any Consents or Governmental Approvals required for the Drop-down and the
Distribution; (iii) arising out of any violation or alleged violation of
applicable laws, regulations, rules or orders of a Governmental Authority,
including, but not limited to, federal or state securities law, in connection
with the transactions contemplated by this Agreement, including the Drop-down
and the Distribution (other than in connection with the Stream IPO);
(iv) arising out of CST Holdings' or any CST Subsidiary's performance of, or
failure to perform, any obligations described in Section 2.1.4(b)(ii) hereof;
(v) arising out of or related to the contingent liabilities referred to in
Section 2.8 hereof or (vi) arising out of CST Holdings' or any CST Subsidiary's
performance of, or failure to perform, any of its covenants or agreements
contained in this Agreement.
5.3 Limitations on Indemnification Obligations. The amount which any
------------------------------------------
party (an "Indemnifying Party") is required to pay to any CST Indemnitee or
Stream International Indemnitee (an "Indemnitee") pursuant to Sections 5.1 or
5.2 hereof shall be reduced (including, without limitation, retroactively) by
any insurance proceeds or other amounts actually recovered by or on behalf of
such Indemnitee in reduction of the related Indemnifiable Loss. To the extent
an Indemnifying Party makes full payment in respect of an Indemnifiable Loss and
such Indemnifiable Loss is covered by an insurance policy which has not been the
subject of an effective assignment to the Indemnifying Party, at the request of
the Indemnifying Party, the Indemnitee shall use commercially reasonable efforts
at the expense of the Indemnifying Party (which expenses shall be deemed to
include any increase in insurance premiums of the Indemnitee attributable to the
filing of such claims) to enforce any and all claims under such insurance policy
in respect of such Indemnifiable Loss for the benefit of the Indemnifying Party.
If any Indemnitee shall have received the full payment required by this
Agreement from an Indemnifying Party in respect of an Indemnifiable Loss and
shall subsequently actually receive insurance proceeds or other amounts in
respect of such Indemnifiable Loss, then such Indemnitee shall pay to such
Indemnifying Party a sum equal to the amount of such insurance proceeds or other
amounts actually received (net of any expenses in obtaining the same), but not
to exceed the net amount of the payments previously received by the Indemnitee
from the Indemnifying Party in respect of such Indemnifiable Loss. An insurer
who would otherwise be obligated to pay any claim shall not be relieved of the
responsibility with respect thereto or, solely by virtue of the indemnification
provisions hereof, have any subrogation rights with respect thereto, it being
expressly understood and agreed that no insurer or any other third party shall
be entitled to a "windfall" (i.e., a benefit they would not be entitled to
receive in the absence of the indemnification provisions) by virtue of the
indemnification provisions hereof. Nothing herein shall require an Indemnitee to
enforce claims under an insurance
23
<PAGE>
policy before proceeding to enforce its rights to indemnification against an
Indemnifying Party.
5.4 Procedure for Indemnification.
-----------------------------
5.4.1 Third Party Claims; Notice. If an Indemnitee shall receive
--------------------------
notice or otherwise learn of (i) a default or breach by an Indemnifying Party
under any agreement or instrument with a third party to which the Indemnifying
Party is a party, (ii) the assertion by any other Person of any claim other than
a claim relating to Taxes or (iii) the commencement by any such Person of any
Action (other than an Action relating to Taxes), (clauses (i), (ii) and (iii)
are each hereinafter referred to as a "Third Party Claim") with respect to which
an Indemnifying Party may be obligated to provide indemnification pursuant to
this Article 5, such Indemnitee shall give such Indemnifying Party written
notice thereof within 10 business days after becoming aware of such Third Party
Claim ("Third Party Claim Notice"); provided, however, that the failure of any
-------- -------
Indemnitee to give notice as provided in this Section 5.4.1 shall not relieve
the related Indemnifying Party of its obligations under this Article 5, except
to the extent that such Indemnifying Party actually is prejudiced by such
failure to give notice. Such notice shall describe the Third Party Claim in
reasonable detail, and shall indicate the amount (estimated if necessary) of the
Indemnifiable Loss that has been or may be sustained by such Indemnitee.
Thereafter, such Indemnitee shall deliver to such Indemnifying Party, within
five business days after the Indemnitee's receipt thereof, copies of all notices
and documents (including court papers) received by the Indemnitee relating to
the Third Party Claim.
The Indemnifying Party shall have a period of 20 days after the receipt of
a Third Party Claim Notice within which to respond thereto. If such
Indemnifying Party does not respond within such 20-day period, such Indemnifying
Party shall be deemed to have accepted responsibility to indemnify the
Indemnitee in respect of the claims specified in the Third Party Claim Notice
and shall have no further right to contest its obligation in respect thereof.
If such an Indemnifying Party does respond within such 20-day period and
disputes such claim in whole or in part, the Indemnitee and the Indemnifying
Party shall resolve the portion of the claim which is disputed in accordance
with the provisions of Section 5.4.9 hereof.
5.4.2 Defense of Third Party Claims. In case any Third Party Claim
------------------------------
is brought against an Indemnitee and the Indemnifying Party has not disputed its
obligation to indemnify the Indemnitee with respect to any part of such Third
Party Claim, the Indemnifying Party will be entitled to participate in and to
assume the defense thereof to the extent that it may wish, with counsel
reasonably satisfactory to such Indemnitee, and after notice from an
Indemnifying Party to such Indemnitee of its election so to assume the defense
thereof and for so long as the Indemnifying Party diligently pursues such
defense, such Indemnifying Party will not be liable to such Indemnitee for any
legal or other expenses subsequently incurred by such
24
<PAGE>
Indemnitee in connection with the defense thereof; provided, however, that, if
-------- -------
the defendants in any such claim include both the Indemnifying Party and one or
more Indemnitees and in any Indemnitee's reasonable judgment a conflict of
interest between one or more of such Indemnitees and such Indemnifying Party
exists in respect of such claim, such Indemnitees shall have the right to employ
separate counsel to represent such Indemnitees, and in that event the reasonable
fees and expenses of such separate counsel (but not more than one separate
counsel reasonably satisfactory to the Indemnifying Party for all Indemnitees
with respect to any single Third Party Claim or group of consolidated related
Third Party Claims) shall be paid by such Indemnifying Party. If the
Indemnifying Party undertakes to assume the defense of a Third Party Claim, it
shall promptly notify the Indemnitee in writing of its intention to do so.
5.4.3 Cooperation by Indemnitee. If an Indemnifying Party chooses
-------------------------
to defend or to seek to compromise or settle any Third Party Claim, each related
Indemnitee shall make available to such Indemnifying Party any personnel or any
books, records or other documents within its control or which it otherwise has
the ability to make available that are necessary or appropriate for such
defense, settlement or comprise, and shall otherwise cooperate in the defense,
settlement or compromise of such Third Party Claim.
5.4.4 Limitation on Authority to Settle Claim. Notwithstanding
---------------------------------------
anything else in this Section 5.4 to the contrary, neither an Indemnifying Party
nor an Indemnitee shall settle or compromise any Third Party Claim over the
objection of the other; provided, however, that consent to compromise or
-------- -------
settlement shall not be unreasonably withheld, except that consent to any
compromise or settlement involving equitable or injunctive relief against any
Indemnifying Party or Indemnitee may be withheld by such Indemnifying Party or
Indemnitee for any reason. No Indemnifying Party shall consent to any judgment
or enter into any settlement or compromise which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to each
related Indemnitee of a written release from all Liability with respect to such
Third Party Claim.
5.4.5 Other Claims. Any claim on account of any Indemnifiable Loss
------------
which does not result from a Third Party Claim shall be asserted by written
notice given by the Indemnitee to the related Indemnifying Party ("Claim
Notice"). Such Indemnifying Party shall have a period of 20 days after the
receipt of the Claim Notice within which to respond thereto. If such
Indemnifying Party does not respond within such 20-day period, such Indemnifying
Party shall be deemed to have accepted responsibility to make payment and shall
have no further right to contest the validity of such claim. If such
Indemnifying Party does respond within such 20-day period and disputes such
claim in whole or in part, the Indemnitee and the Indemnifying Party shall
resolve the portion of the claim which is disputed in accordance with the
provisions of Section 5.4.9 hereof.
25
<PAGE>
5.4.6 Advancement of Certain Expenses. Upon the written demand of
-------------------------------
an Indemnitee, an Indemnifying Party shall reimburse or advance funds to such
Indemnitee for all Indemnifiable Losses reasonably incurred by it in connection
with investigating or defending any Third Party Claim in advance of its final
disposition; provided, however, that such reimbursement need be made only upon
-------- -------
delivery to the Indemnifying Party of an undertaking by such Indemnitee to repay
all amounts so reimbursed or advanced if it shall ultimately be determined that
such Indemnitee is not entitled to indemnification under this Article 5 or
otherwise.
5.4.7 Subrogation to Rights of Indemnitee. In the event of payment
-----------------------------------
by an Indemnifying Party to any Indemnitee in connection with any Third Party
Claim of the full amount payable under this Article 5 in respect thereof, such
Indemnifying Party shall be subrogated to and shall stand in the place of such
Indemnitee as to any events or circumstances in respect of which such Indemnitee
may have any right or claim relating to such Third Party Claim against any
claimant or plaintiff asserting such Third Party Claim or as against any other
Person. In such event, such Indemnitee shall cooperate with such Indemnifying
Party in a reasonable manner, and at the cost and expense of such Indemnifying
Party, in prosecuting any subrogated right or claim.
5.4.8 Named Parties. The parties hereto acknowledge that it may not
-------------
be feasible to substitute CST for Stream International or SISC as a named party
in any existing Actions constituting CST Assumed Liabilities. In such event,
Stream International or SISC shall remain as a named party and will be able to
participate in the defense of such Action (with the liability regarding the
legal or other expenses for such participation to be determined pursuant to
Section 5.4.2 hereof), but following the date hereof, CST Holdings and CST shall
assume the defense of any such Action in accordance with the provisions of this
Section 5.4 and Stream International and its Affiliates shall cooperate with CST
Holdings and CST as contemplated by Section 5.4 and Article 6 hereof.
5.4.9 Dispute Resolution. If an Indemnifying Party disputes all or
------------------
part of a Third Party Claim pursuant to Section 5.4.1 or all or part of a claim
other than a Third Party Claim pursuant to Section 5.4.5, such dispute shall be
resolved in accordance with the procedure set forth in this Section 5.4.9.
Within 10 days after notice by the Indemnifying Party that it disputes the claim
in question, the Indemnitee and the Indemnifying Party shall designate in
writing one arbitrator to resolve the dispute; provided that if the Indemnitee
and the Indemnifying Party cannot agree on an arbitrator within such 10-day
period, the arbitrator shall be selected by the Boston, Massachusetts, office of
the American Arbitration Association. The arbitrator so designated shall not be
an Affiliate of the Indemnitee or Indemnifying Party or any employee of, or
consultant to, the Indemnitee, the Indemnifying Party or any of their
Affiliates. Within 15 days after the designation of the arbitrator, the
Indemnitee, the Indemnifying Party and the arbitrator shall meet,
26
<PAGE>
at which time the Indemnitee and the Indemnifying Party shall each be required
to set forth in writing all disputed issues and a proposed ruling on each such
issue. The arbitrator shall thereupon set a date for a hearing, which shall be
no later than 30 days after the submission of the written proposals described in
the immediately preceding sentence, to discuss each of the issues identified by
the Indemnitee and the Indemnifying Party. Each of the Indemnitee and the
Indemnifying Party shall have the right to be represented by counsel. The
arbitration shall be governed by the Commercial Arbitration Rules of the
American Arbitration Association; provided, however, that the arbitrator shall
have sole discretion with regard to the admissibility of evidence.
The arbitrator shall use his or her best efforts to rule on each disputed
issue within 30 days after the completion of the hearing described in the
immediately preceding paragraph. The determination of the arbitrator as to the
resolution of any dispute shall be binding and conclusive upon all parties
hereto. All rulings of the arbitrator shall be in writing and shall be
delivered to the Indemnitee and the Indemnifying Party. The attorneys' fees of
the Indemnitee and the Indemnifying Party in any arbitration shall be borne by
them as determined by the arbitrator, together with the fees of the arbitrator
and the costs and expenses of the arbitration. Any arbitration pursuant to this
Section 5.4.9 shall be conducted in Boston, Massachusetts. Any arbitration
award may be entered in and enforced by any court having jurisdiction thereover
and shall be final and binding upon the parties.
5.4.10 Determination of Time of Payment of Indemnitee. With respect
----------------------------------------------
to any claim made by an Indemnitee pursuant to this Article 5, the Indemnifying
Party shall have no further right to contest its obligations in respect thereof
(or a portion thereof, if applicable pursuant to clause (ii) of this
Section 5.4.10) following the occurrence of a Determination Event with respect
to such claim (or a portion thereof, if applicable pursuant to clause (ii) of
this Section 5.4.10), and the Indemnifying Party thereafter shall pay all
Indemnifiable Losses related to such claim or applicable portion thereof on
their respective Due Dates. With respect to a reimbursement or advance of funds
made by an Indemnifying Party pursuant to Section 5.4.6, the Indemnifying Party
shall have no right to contest the right of the Indemnitee to indemnification
(and, hence, no right to demand repayment pursuant to the proviso clause of
Section 5.4.6) with respect to the claim to which the reimbursement or advance
relates (or portion thereof, if applicable pursuant to clause (ii) of this
Section 5.4.10) following the occurrence of a Determination Event with respect
to such claim (or portion thereof, if applicable pursuant to clause (ii) of this
Section 5.4.10). "Determination Event" shall mean the earliest of (i) the
failure of the Indemnifying Party to respond to a Third Party Claim Notice or
Claim Notice within the applicable 20-day period, (ii) with respect to any
portion of a claim, the failure of the Indemnifying Party to dispute within the
applicable 20-day period, its obligation to pay such portion of the claim in its
response to a Third Party Claim Notice or Claim Notice, (iii) the written
acknowledgment of the Indemnifying Party of its
27
<PAGE>
obligation hereunder with respect to such claim or (iv) the decision of an
arbitrator pursuant to Section 5.4.9 hereof upholding the obligation of the
Indemnifying Party in respect of such claims. "Due Date" shall mean (a) with
respect to a Third Party Claim that has been assumed by the Indemnifying Party
pursuant to Section 5.4.2 hereof, as and when any sums related to such claim
become due and payable, (b) with respect to any Third Party Claim whose defense
has not been assumed by the Indemnifying Party, upon written demand by the
Indemnitee and (c) with respect to any claim on account of any Indemnifiable
Loss which does not result from a Third Party Claim, upon written demand
therefor by the Indemnitee; provided, however, that in no event shall the Due
-------- -------
Date for any claim occur prior to the Determination Event for such claim.
5.5 Remedies Cumulative. The remedies provided in this Article 5 shall
-------------------
be cumulative and shall not preclude assertion by any Indemnitee of any other
rights or the seeking of any and all other remedies against any Indemnifying
Party; provided, however, that all remedies sought or asserted by an Indemnitee
-------- -------
against an Indemnifying Party with respect to an Indemnifiable Loss shall be
limited by and be subject to the provisions of this Article 5.
5.6 Nature of Indemnity Payments. All payments by the Indemnifying Party
----------------------------
under Section 5.1 or 5.2 hereof shall be treated, to the maximum extent
allowable under applicable Tax laws, as an adjustment to the CST Assets
contributed to CST Holdings in connection with the Drop-down. The amount of
each payment by the Indemnifying Party shall be computed after taking into
account all Tax consequences to the Indemnitee, or any Affiliate, of (i) the
receipt of (or the right to receive) the payment and (ii) the event or
incurrence of the liability that gave rise to the right to receive the payment.
In determining the Tax consequences to the Indemnitee, or any Affiliate, for
purposes of this Section 5.6, any Tax detriment, in the case of a payment, and
any Tax benefit, in the case of an event or an incurrence of a liability, shall
be taken into account in the taxable years or periods in which the Indemnitee,
or any Affiliate, is required to pay additional Taxes by reason of the payment,
or is entitled to a refund of Tax or a reduction in the amount of Taxes it would
otherwise be required to pay by reason of the event or the incurrence of the
liability.
ARTICLE 6
ACCESS TO INFORMATION AND SERVICES
6.1 Provision of Corporate Records. Prior to or as soon as practicable
------------------------------
following the date hereof, Stream International shall deliver to CST Holdings
all existing corporate books and records in Stream International's possession
relating to the CST Business, including original corporate minute books, stock
ledgers and certificates and corporate seals of each of CST Holdings and each
CST Subsidiary, and all active agreements, active litigation files and records
of filings; provided,
--------
28
<PAGE>
however, that Stream International, SISC and Corporate Software Europe B.V.
- -------
shall retain their own original corporate minute books, stock ledgers and
certificates and corporate seals. Stream International shall also provide to CST
Holdings, unless already in the possession of CST Holdings or a CST Subsidiary
and only to the extent that Stream International maintains them, lists of
trademarks, trade names and copyrights included in the CST Assets.
6.2 Access to Information. From and after the date hereof, Stream
---------------------
International shall afford to CST Holdings and its authorized accountants,
counsel and other designated representatives reasonable access (including using
reasonable efforts to give access to third parties possessing information) and
duplicating rights during normal business hours to all records, books,
contracts, instruments, computer data and other data and information
(collectively, "Information") within Stream International's possession relating
to the CST Business, insofar as such access is reasonably required by CST
Holdings. CST Holdings likewise shall afford to Stream International and its
authorized accountants, counsel and other designated representatives reasonable
access (including using reasonable efforts to give access to third parties
possessing information and providing reasonable access to its own employees who
are in possession of relevant information) and duplicating rights during normal
business hours to Information within CST Holdings' possession relating to the
Stream International Business, insofar as such access is reasonably required by
Stream International. Information may be requested under this Section 6.2 for,
without limitation, audit, accounting, claims, litigation, insurance and tax
purposes, as well as for purposes of fulfilling disclosure and reporting
obligations and for performing this Agreement and the transactions contemplated
hereby.
6.3 Production of Witnesses. From and after the date hereof, each of CST
-----------------------
Holdings and Stream International shall use reasonable efforts to make available
to the other upon written request, its and its Subsidiaries' officers,
directors, employees and agents as witnesses to the extent that such persons may
reasonably be required in connection with any legal, administrative or other
proceedings in which the requesting party may from time to time be involved.
6.4 Reimbursement. Except to the extent otherwise contemplated by the
-------------
Services Agreements or any other Ancillary Agreement, a party providing
Information or personnel to the other party under this Article 6 shall be
entitled to receive from the recipient, upon the presentation of invoices
therefor, payments for such amounts, relating to supplies, disbursements and
other out-of-pocket expenses, as may be reasonably incurred in providing such
Information or personnel; provided, however, that no such reimbursements shall
-------- -------
be required for the salary or cost of fringe benefits or similar expenses
pertaining to employees or directors of the providing party.
6.5 Retention of Records. Except as otherwise required by law or agreed
--------------------
to in writing, each of Stream International and CST Holdings shall retain, and
shall cause each of its Subsidiaries to retain, in accordance with such party's
record
29
<PAGE>
retention program all material Information within such parties' possession or
under its control relating to the other and the other's Subsidiaries.
Notwithstanding the foregoing, in lieu of retaining any specific Information,
Stream International and CST Holdings may offer in writing to deliver such
Information to the other and if such offer is not accepted within 45 days, the
offered Information may be destroyed or otherwise disposed of at any time. If a
recipient of such offer shall request in writing prior to the scheduled date for
such destruction or disposal that any of the information be delivered to such
requesting party, the party proposing the destruction or disposal shall promptly
arrange for the delivery of such of the information as was requested at the cost
of the requesting party.
6.6 Confidentiality. Each of Stream International and CST Holdings shall
---------------
hold, and shall cause its Subsidiaries, Affiliates, employees, consultants and
advisors to hold, in strict confidence all Information concerning the other
party and its Affiliates, including without limitation information which the
other party and its Affiliates are required by customer or other agreements to
keep confidential, obtained by it prior to the Distribution Date or furnished by
the other or the other's representatives pursuant to this Agreement (except to
the extent that such Information has been (i) in the public domain through no
fault of such party or (ii) later lawfully acquired from other sources by such
party), and each party shall not release or disclose such Information to any
other Person, except as reasonably required to its auditors, attorneys,
financial advisors, bankers and other consultants and advisors, unless compelled
to disclose by judicial or administrative process or, as advised by its counsel,
by other requirements of law or as necessary to enforce its rights under this
Agreement.
6.7 Financial Statements.
--------------------
6.7.1 CST Holdings shall deliver to Stream International:
(a) no later than December 31, 1997, the CST Balance Sheet;
(b) within 90 days after the end of each fiscal year of CST
Holdings, an audited balance sheet of CST Holdings as at the end of such year
and audited statements of income and of cash flows of CST Holdings for such
year, certified by certified public accountants of established national
reputation selected by CST Holdings, and prepared in accordance with GAAP; and
(c) within 45 days after the end of each fiscal quarter of
CST Holdings, an unaudited balance sheet of CST Holdings as at the end of such
quarter, and unaudited statements of income and of cash flow of CST Holdings for
such fiscal quarter and for the current fiscal year to the end of such fiscal
quarter.
6.7.2 The foregoing financial statements shall be prepared on a
consolidated basis if CST Holdings then has any subsidiaries. The financial
statements delivered pursuant to clauses (a) and (b) of Section 6.7.1 shall be
30
<PAGE>
accompanied by a certificate of the chief financial officer of CST Holdings
stating that such statements have been prepared in accordance with GAAP (except
as noted) and fairly present the financial condition and, with respect to the
financial statements described in clause (b), results of operations of CST
Holdings at the date thereof and for the periods covered thereby, except that
the financial statements may not be in accordance with GAAP because of the
absence of footnotes normally contained therein and are subject to normal year-
end audit adjustments which in the aggregate will not be material.
6.7.3 CST Holdings' obligations under clauses (b) and (c) of Section
6.7.1 shall terminate upon the earliest of the sale of (i) all or substantially
all of the assets of CST Holdings or CST, (ii) the sale of all or substantially
all of the outstanding shares of capital stock of CST Holdings or CST (by
merger, purchase or otherwise but in no event including any transaction required
to effect the Distribution), or (iii) the consummation of an initial public
offering of equity securities of CST Holdings or CST registered under the
Securities Act of 1933, as amended.
6.7.4 Stream International shall deliver to CST Holdings, no later
than December 31, 1997, the Stream International Balance Sheet, which shall be
accompanied by a certificate of the chief financial officer of Stream
International stating that such balance sheet has been prepared in accordance
with GAAP (except as noted) and fairly presents the financial condition of
Stream International as of the date thereof, except that the balance sheet may
not be in accordance with GAAP because of the absence of footnotes normally
contained therein and are subject to normal year-end adjustments which in the
aggregate will not be material.
ARTICLE 7
MISCELLANEOUS
7.1 Rule of Construction. Notwithstanding any other provisions in this
--------------------
Agreement, in the event and to the extent that there shall be a conflict between
the provisions of this Agreement (or any Ancillary Agreement or Conveyancing
Instrument) and the provisions of the Tax Indemnification Agreements or the
Services Agreements, the provisions of the Tax Indemnification Agreements or the
Services Agreements, as the case may be, shall control. Subject to the
preceding sentence, in the event and to the extent that there shall be a
conflict between the provisions of this Agreement and the provisions of any
Ancillary Agreement or Conveyancing Instrument, this Agreement shall control.
Except as otherwise specifically provided in any particular Ancillary Agreement,
all provisions of Section 2.1.3 and of Articles 5 and 7 shall apply to each
agreement constituting an Ancillary Agreement.
7.2 Survival of Agreements. Except as otherwise contemplated by this
----------------------
Agreement, all covenants and agreements of the parties contained in this
Agreement
31
<PAGE>
and in each Ancillary Agreement, and liabilities for the breach of any
obligations contained herein or therein, shall survive the date hereof.
7.3 Expenses. Except as otherwise set forth in this Agreement or any
--------
Ancillary Agreement, all costs and expenses incurred prior to or on the earlier
of (i) January 10, 1998 and (ii) the closing of the Stream IPO by CST Holdings,
MMI Holdings and/or Stream International in connection with the preparation,
execution, delivery and implementation of this Agreement, the Ancillary
Agreements, the Contribution Agreement, dated as of even date hereto, among
Stream International, MMI and MMI Holdings (the "MMI Contribution Agreement"),
the Ancillary Agreements (as defined in the MMI Contribution Agreement) and in
connection with the consummation of the transactions contemplated by this
Agreement and the MMI Contribution Agreement, but unpaid as of the earlier of
(i) January 10, 1998 and (ii) the closing of the Stream IPO (collectively, the
"Restructuring Expenses"), shall be paid equally by CST Holdings and MMI
Holdings to the extent that appropriate documentation concerning such costs and
expenses shall be provided by CST Holdings, MMI Holdings and Stream
International to CST Holdings and MMI Holdings; provided that no costs or
expenses shall be required to be paid to the extent incurred after January 10,
1998.
7.4 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the domestic substantive laws of The Commonwealth of
Massachusetts without regard to any choice or conflict of law rule or provision
that would result in the application of the domestic substantive laws of any
other jurisdiction.
7.5 Notices. Any notice, request, demand, claim or other communication
-------
hereunder shall be in writing and shall be delivered by registered or certified
mail, return receipt requested, postage prepaid, and addressed to the intended
recipient as set forth below, and shall be deemed duly given on the date which
is three days after such notice, request, demand, claim or other communication
is sent:
to Stream International:
Stream International Inc.
275 Dan Road
Canton, Massachusetts 02021
Telecopy: (781) 830-7465
Attention: Treasurer
32
<PAGE>
to CST Holdings and CST:
Corporate Software & Technology Holdings, Inc.
2 Edgewater Drive
Norwood, Massachusetts 02062
Telecopy: (781) 440-7444
Attention: Treasurer
Notwithstanding the foregoing, any party may send any notice, request, demand,
claim, or other communication hereunder to the intended recipient at the address
set forth above using any other means (including personal delivery, expedited
courier, messenger service, telecopy, telex, ordinary mail, or electronic mail),
but no such notice, request, demand, claim or other communication shall be
deemed to have been duly given unless and until it actually is received by the
intended recipient. Any party may change the address to which notices,
requests, demands, claims, and other communications hereunder are to be
delivered by giving the other party notice in the manner herein set forth.
7.6 Amendments. This Agreement may not be modified or amended except by
----------
an agreement in writing signed by the parties hereto; provided, however, that no
-------- -------
change to the definition of CST Assumed Liabilities or defined terms used
therein or to the definitions of terms incorporated by reference to the MMI
Contribution Agreement, which adversely affects MMI Holdings or its
Subsidiaries, shall be effective unless agreed to in writing by MMI Holdings.
7.7 Successors and Assigns. This Agreement and all of the provisions
----------------------
hereof shall be binding upon and inure to the benefit of the parties and their
respective successors and assigns, including any corporation with which, or into
which, either party may be merged or which may succeed to its assets or
business; provided, however, that no party may assign, delegate or otherwise
-------- -------
transfer its rights or obligations under this Agreement except to a Person that
acquires all or substantially all of the assets or business of such party
(whether by merger, consolidation, sale of stock, sale of assets or otherwise).
Each party agrees not to transfer all or substantially all of its assets unless
the transferee agrees in writing to be bound by this Agreement.
7.8 Abandonment of Distribution. The Distribution may be abandoned at any
---------------------------
time prior to its consummation by and in the sole discretion of the Stream
International Board without the approval of CST Holdings, CST or of Stream
International's stockholders.
7.9 No Third Party Beneficiaries. Except for R.R. Donnelley in respect of
----------------------------
Section 2.8 hereof, the provisions of Article 5 hereof relating to Indemnitees
and the proviso clause of Section 7.6 and except for successors and assigns
permitted by
33
<PAGE>
Section 7.7, this Agreement is solely for the benefit of the parties hereto and
their respective Subsidiaries and Affiliates and shall not be deemed to confer
upon third parties any remedy, claim, Liability, reimbursement, claim of action
or other right in excess of those existing without reference to this Agreement.
7.10 Titles and Headings. Titles and headings to sections herein are
-------------------
inserted for the convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
7.11 Exhibits and Schedules. The Exhibits and Schedules to this
----------------------
Agreement shall be construed with and as an integral part of this Agreement.
7.12 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.
7.13 Legal Enforceability. Any provision of this Agreement which is
--------------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof. Any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision or remedies otherwise available to any party hereto
in any other jurisdiction. Without prejudice to any rights or remedies
otherwise available to any party hereto, each party hereto acknowledges that
damages would be an inadequate remedy for any breach of the provisions of this
Agreement and agrees that the obligations of the parties hereunder shall be
specifically enforceable.
7.14 Entire Agreement. This Agreement, all Schedules and Exhibits
----------------
hereto, and all agreements and instruments delivered by the parties pursuant
hereto represent the entire understanding and agreement between the parties
hereto with respect to the subject matter hereof and supersede all prior oral
and written and all contemporaneous oral negotiations, commitments and
understandings between such parties.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
STREAM INTERNATIONAL INC.
By /s/ Judith G. Salerno
-------------------------------------------
Name: Judith G. Salerno
Title: President and Chief
Operating Officer
34
<PAGE>
STREAM INTERNATIONAL SERVICES CORP.
By /s/ Judith G. Salerno
-------------------------------------------
Name: Judith G. Salerno
Title: President and Chief
Operating Officer
CORPORATE SOFTWARE & TECHNOLOGY HOLDINGS, INC.
By /s/ Howard S. Diamond
-------------------------------------------
Name: Howard S. Diamond
Title: President and Chief Executive Officer
CORPORATE SOFTWARE & TECHNOLOGY, INC.
By /s/ Howard S. Diamond
-------------------------------------------
Name: Howard S. Diamond
Title: President and Chief Executive Officer
35
<PAGE>
SCHEDULE A
CST Subsidiaries
<TABLE>
<CAPTION>
<S> <C> <C>
New name to be
adopted prior to, as
of or following the Jurisdiction of
Name of Subsidiary date hereof Incorporation
- ------------------ --------------------- ----------------
Corporate Software & Delaware
Technology, Inc.
Stream International Canada Corporate Software & Ontario
Ltd. Technology Canada Limited
Stream International, S.A Corporate Software & France
Technology, S.A.
Stream International GmbH Corporate Software & Germany
Technology GmbH
Topsoft Mailorder GmbH Germany
Corporate Software &
Technology B.V. The Netherlands
Corporate Software Limited Corporate Software & United Kingdom
Technology Limited
International Software United Kingdom
Limited
</TABLE>
36
<PAGE>
SCHEDULE B
Stream International Subsidiaries
<TABLE>
<CAPTION>
New name to be
adopted prior to, as
of or following the Jurisdiction of
Name of Subsidiary date hereof Incorporation
- ------------------ --------------------- ---------------
<S> <C> <C>
Stream International Services Delaware
Corp. (f/k/a Stream International
Inc.)
Corporate Software Securities Stream International Securities Massachusetts
Corporation Corporation
Corporate Software Europe Stream International Europe The Netherlands
B.V. B.V.
Stream International N.I. United Kingdom
Limited
Stream International Inc. Nevada
</TABLE>
37
<PAGE>
SCHEDULE C
Certain Asset and Stock Transfer Agreements
1. Share Sale Agreement between Corporate Software & Technology Limited and
Stream International Holdings Inc. dated December 10, 1997 (for the
transfer of the shares of Stream International N.I. Limited from Corporate
Software & Technology Limited to Stream International).
2. Share Transfer Agreement between Stream International Holdings Inc. and
Stream International Inc. dated December 10, 1997 (for the transfer of the
shares of Stream International N.I. Limited from Stream International to
SISC).
3. Share Transfer Agreement between Stream International Inc. and CST Holdings
dated December 11, 1997 (for the transfer of the shares of Corporate
Software & Technology Limited from SISC to CST Holdings).
4. Share Transfer Agreement between CST Holdings and CST dated December 11,
1997 (for the transfer of the shares of Corporate Software & Technology
Limited from CST Holdings to CST).
5. Contribution Agreement between Stream International Inc. and Corporate
Software Technology, Inc. (now known as Corporate Software & Technology
Holdings, Inc.) dated November 5, 1997 (for the transfer of Corporate
Software & Technology GmbH shares from SISC to CST Holdings).
6. Contribution Agreement between CST Holdings and CST dated December 11, 1997
(for the transfer of Corporate Software & Technology GmbH shares from CST
Holdings to CST).
7. Asset Purchase and Transfer Agreement between Stream International Inc. and
Corporate Software & Technology GmbH dated December 12, 1997 (for the
transfer of certain assets and liabilities of SISC relating to the CST
Business to Corporate Software & Technology GmbH).
8. Business Transfer Agreement between Stream International Europe B.V. and
Corporate Software & Technology B.V. dated November 6, 1997 (for the
transfer of certain assets and liabilities of Stream International Europe
B.V. relating to the CST Business to Corporate Software & Technology B.V.)
9. Agreement for the Partial Transfer of a Business between Stream
International Inc. and Stream International S.A. dated June 29, 1997 (for
the transfer of certain
38
<PAGE>
assets and liabilities of the SISC French branch relating to the CST
Business to Corporate Software & Technology S.A.).
10. Asset Purchase Agreement and Deed of Transfer between Stream International
Inc. and Corporate Software & Technology, Inc. (now known as Corporate
Software & Technology Holdings, Inc.) dated September 12, 1997 (for the
transfer of certain assets and liabilities of the SISC Belgian branch
relating to the CST Business to CST Holdings).
11. Contribution Agreement between CST Holdings and CST dated December 15, 1997
(for the transfer of certain assets and liabilities of the CST Holdings
Belgian branch relating to the CST Business to the CST Belgian branch (in
formation)).
39
<PAGE>
SCHEDULE 3.1
I. The former CST Employees are listed in the Letter Agreement
II. CST Benefit Plans
1. Employee Welfare Benefit Plans for the Benefit of Employees of
Corporate Software & Technology currently including, Health Plans, Long
Term Disability Plan, Group Life Insurance and AD & D Plan, Dental
Plan, Employee Assistance Plan, Tuition Assistance Plan and Short Term
Disability Plan.
2. Supplemental Life Insurance Plans for Employees of Corporate Software &
Technology
a. Allmerica Group Variable Life for certain highly paid employees.
b. New York Life Insurance Company Executive Life Insurance Premium
Payment Program for certain Director level employees or above.
c. New York Life Insurance Company Supplemental Whole Life Insurance
Payroll Deduction Program.
d. Unum Life Insurance Company Supplemental Life Insurance Payroll
Deduction Program.
3. Pre-Tax Contribution Plan for Employees of Corporate Software &
Technology
4. Dependent Care Flexible Spending Accounting Plan for Employees of
Corporate Software & Technology
5. Health Care Flexible Spending Account Plan for Employees of Corporate
Software & Technology
6. Stream Savings and Retirement Program for CST Employees and Former CST
Employees
7. Business Travel Accident Insurance for Employees of Corporate Software
& Technology
40
<PAGE>
8. Computer Reimbursement Program for Employees of Corporate Software &
Technology
9. Adoption Assistance Plan for Employees of Corporate Software &
Technology
10. Matching Charitable Gifts Program
11. Paid Time Off Policy
41
<PAGE>
EXHIBIT 10.12
================================================================================
TRANSITIONAL SERVICE AGREEMENT
BETWEEN
STREAM INTERNATIONAL SERVICES CORP.
AND
MODUS MEDIA INTERNATIONAL, INC.
Dated as of December 15, 1997
================================================================================
<PAGE>
TRANSITIONAL SERVICE AGREEMENT
------------------------------
THIS TRANSITIONAL SERVICE AGREEMENT, dated as of this fifteenth day of
December 1997, is entered into by and between Stream International Services
Corp., a Delaware corporation (f/k/a Stream International Inc.) ("SISC"), and
Modus Media International, Inc., a Delaware corporation ("MMI").
WITNESSETH:
----------
WHEREAS, Stream International Inc., a Delaware corporation (f/k/a Stream
International Holdings Inc.) ("SII"), which directly owns 100% of the
outstanding shares of SISC and indirectly owns 100% of the outstanding shares of
MMI, will (i) transfer to Modus Media International Holdings, Inc., a Delaware
corporation ("MMI Holdings") all of its assets and liabilities related to its
outsource manufacturing operations not held by MMI (other than certain net
indebtedness to R.R. Donnelley & Sons Company); (ii) cause MMI Holdings
immediately thereafter to transfer such assets and liabilities to MMI; (iii)
effect a similar separation of SISC's operations related to the marketing and
resale of software and the development, marketing and sale of software license
management services by transferring the assets and liabilities related to such
operations to Corporate Software & Technology Holdings, Inc., a Delaware
corporation ("CST Holdings") and immediately thereafter causing CST Holdings to
transfer such assets and liabilities to Corporate Software & Technology, Inc.
("CST"); and (iv) cause the transfer of the outstanding voting common stock of
CST Holdings to SII;
WHEREAS, SII will transfer the outstanding voting common stock of CST
Holdings and MMI Holdings to the current shareholders of SII prior to the
earlier of (A) the consummation of an initial public offering of SII Common
Stock, a transaction which would result in SII becoming a stand-alone public
company and (B) January 10, 1998;
WHEREAS, each of SISC and MMI wishes to provide for an orderly and
efficient separation of their businesses; and
WHEREAS, the successful operation of the parties' businesses will require
the performance of certain administrative and other services which the parties
have previously provided to each other, and the parties and their Affiliates (as
defined below) are willing to provide certain of such services to each other
upon the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, the parties
hereby agree as follows:
<PAGE>
1. DEFINITIONS
1.1. The following term has the meaning specified or referred to in this
Section 1 and shall be equally applicable to the singular and plural forms.
"Affiliate" means, with respect to either SISC or MMI, any corporation,
partnership, joint venture, limited liability company, association, joint-stock
company, trust or unincorporated organization which directly or indirectly
controls, is controlled by or is under common control with SISC or MMI,
respectively. For purposes of this Agreement, SII and its subsidiaries,
including SISC, shall not be considered Affiliates of MMI; and MMI Holdings and
its subsidiaries, including MMI, shall not be considered Affiliates of SISC.
2. SERVICES
2.1. Services to be Made Available. In accordance with the terms and
-----------------------------
provisions of this Agreement, SISC agrees to perform for MMI, and MMI agrees to
perform for SISC, the following services, as more fully described in the
Transition Services Plan dated December 15, 1997 (the "Services Plan") (each of
the services set forth in Part I of the Services Plan shall be referred to as a
"Service") in the amounts and to the extent specified with respect to each such
Service in the Services Plan (the provider and purchaser of each Service shall
be referred to herein as the "Provider" and "Purchaser", respectively):
Service
-------
Legal
Human Resources
Tax
Payroll
Telecom - Switches/Velizy
Each Provider shall have the right to fulfill its obligations to furnish
Services hereunder by causing one or more of such Provider's Affiliates to
perform such Services. In such case, the Provider shall remain liable under
this Agreement for the performance of such Services.
- 2 -
<PAGE>
2.2. Fees for Services. Each Purchaser agrees to pay each Provider a fee
-----------------
for each of the Services provided by such Provider to such Purchaser as
specified in the Services Plan.
Schedule 1 to the Services Plan ("Schedule 1") lists the monthly fees set
forth in the Services Plan to be paid by each Purchaser and calculates the net
amount to be paid each calendar month by SISC or MMI, whichever owes the net
amount, in each of the currencies specified. If this Agreement is terminated
with respect to a Service pursuant to Section 2.3 hereof, the fee for such
Service shall no longer be payable (other than to the extent earned prior to the
date of termination) following the effective date of such termination and the
net monthly payment set forth in Schedule 1 shall be adjusted accordingly. Fees
for Services provided for partial months shall be calculated based upon the
number of days Services are provided divided by the number of days in such
calendar month.
The Services Plan may specifically provide that all or part of a Service
will be provided by a third party and that the Purchaser shall pay for such
third party provided service separately from the fee listed in the Services Plan
(a "Third Party Service"). Purchasers shall pay for Third Party Services and
the cost thereof shall not be included on Schedule 1. To the extent that the
Purchaser is billed by the third party directly for such Third Party Services,
the Purchaser shall pay the third party directly. If the Provider is billed for
the Third Party Service, the Provider may either pay the bill and charge the
Purchaser the amount of the bill (such amount to be included as an invoice sent
to the Purchaser and not as an adjustment to Schedule 1) or forward the bill to
the Purchaser for payment by the Purchaser to the third party. In addition, if a
Provider obtains a service for its own use from a third party, then the Provider
may delegate to such third party the provision of such service pursuant to this
Agreement to the Purchaser. The cost thereof shall be borne solely by the
Provider.
Not more often than once per month, each Provider shall, upon request,
forward to the Purchaser of its Services a list of the Services provided
hereunder and the fees for such Services, together with such additional
documentation evidencing the provision thereof as the Purchaser shall reasonably
request. In addition, each Purchaser of Services shall be entitled, upon
request and at reasonable times and places, to audit the books and records of
the Provider that relate to the provision of Services hereunder and the related
charges appearing on Schedule 1, as adjusted from time to time. The party owing
the net monthly payment in a particular currency shall pay to the other party
the amount listed in Schedule 1 within 15 days of the end of the month for which
payment is owed unless one or both of the parties shall in good faith dispute
the types and/or amounts of Services set forth on such Schedule 1 and the
Services Plan as having been provided for such month. In the event of such good
faith dispute, the parties will determine the amounts of the fees set forth in
Schedule 1 which are not in dispute, and the party owing, in a particular
- 3 -
<PAGE>
currency, the net amount of such fees which are not in dispute shall pay such
net amount in such currency within 15 days of the end of the month for which
payment is owed. The parties hereto agree to use their respective best efforts
to resolve such dispute within 10 days. If such dispute is not resolved within
10 days, either party hereto may seek binding arbitration of such dispute in
accordance with the provisions of Section 4.10 hereof.
2.3. Term of Agreement. This Agreement shall become effective as of the
-----------------
earlier of (i) the separation from SII of both the MMI and the Corporate
Software & Technology businesses referred to in the first recital of this
Agreement or (ii) the day of, but immediately prior to, the closing of the
initial public offering of shares of Common Stock of SII (the "Effective Date")
and shall terminate with respect to each Service (A) on the date specified for
such Service in the Services Plan or (B) upon the prior written notice specified
for such Service in the Services Plan by the chief financial officer of the
Purchaser of such Service, whichever is earlier; provided, however, that upon
-------- -------
termination pursuant to clause (B) above, the Purchaser shall pay the Provider
an early termination fee equal to three times the monthly fee for such Service
in Schedule 1; provided further, however, that, where specified in the Services
---------------- -------
Plan hereto, the term for any Service may be extended for additional periods
upon the mutual agreement of SISC and MMI, so long as the Purchaser shall have
given the Provider not less than 60 days' notice (30 days' notice in the case of
each Service with a base date of December 31, 1997) of its desire to extend such
Service. Any extension described in the proviso of the immediately preceding
sentence shall be subject to the mutual agreement of SISC and MMI as to the
renewal term, the amount and extent of such Service during such renewal term and
the fee for such Service during such renewal term.
Notwithstanding the foregoing, if the general counsel of SISC reasonably
determines that the rules of professional responsibility applicable to the SISC
attorneys prevent SISC from providing all or a portion of the legal services to
MMI pursuant to the Services Plan, then SISC's obligation to provide such
services shall, to the extent of such determination, terminate immediately upon
notice to MMI of such determination. If the general counsel of SISC
subsequently determines that such rules of professional responsibility permit
the provision by SISC of all or a portion of such services which were
terminated, SISC shall so notify MMI immediately and shall, at the option of
MMI, thenceforth be obligated to provide such services to the extent so
determined. The fee for legal services shall be prorated and Schedule 1
adjusted to reflect any changes in the provision of legal services, pursuant to
this paragraph.
Anything contained in this Agreement to the contrary notwithstanding, this
Agreement may be terminated at any time:
(i) by mutual consent of SISC and MMI;
- 4 -
<PAGE>
(ii) by SISC in the event of any material breach or default by MMI of
any of MMI's agreements, representations, or warranties contained herein
and the failure of MMI to cure such breach or default within sixty (60)
business days after receipt of written notice from SISC requesting such
breach or default to be cured; or
(iii) by MMI in the event of any material breach or default by SISC
of any of SISC's agreements, representations, or warranties contained
herein and the failure of SISC to cure such breach or default within sixty
(60) business days after receipt of notice from MMI requesting such breach
or default to be cured.
2.4. Timely Performance and Cooperation. Each Provider shall use all
----------------------------------
reasonable efforts in the timely performance of its Services and each Purchaser
shall use all reasonable efforts to cooperate with each Provider in connection
with the provision of the Services to such Purchaser.
3. REPRESENTATIONS AND WARRANTIES
As an inducement to enter into this Agreement, each party represents to and
agrees with the other that, as of the Effective Date:
(a) it is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all requisite
corporate power to own, lease and operate its properties, to carry on its
business as presently conducted and to carry out the transactions
contemplated by this Agreement;
(b) it has duly and validly taken all corporate action necessary to
authorize the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby; and
(c) this Agreement has been duly executed and delivered by it and
constitutes its legal, valid and binding obligation enforceable against it
in accordance with its terms.
4. OTHER TERMS AND PROVISIONS
4.1. Independent Contractor Status. Each Provider shall perform all
-----------------------------
services under this Agreement as an "independent contractor" and not as an agent
of the Purchaser. The Provider is not, in connection with the performance of
Services hereunder, authorized to assume or create any obligation or
responsibility, express or
- 5 -
<PAGE>
implied, on behalf of, or in the name of the Purchaser or to bind the Purchaser
in any manner.
4.2. Limitation of Liability and Reimbursement. Neither the Provider, nor
-----------------------------------------
any of its officers, employees, agents or Affiliates, shall in any event be
liable for any damages, including but not limited to loss of profits or revenue,
which arise out of the Provider's (or any such officer's, employee's, agent's or
Affiliate's) performance or failure to perform any of its obligations under this
Agreement, other than those damages caused by the Provider's (or such persons')
intentional nonperformance, willful misconduct or gross negligence. The
Purchaser hereby agrees to indemnify the Provider for all direct costs and
damages incurred by the Provider to third parties as a result of the provision
by the Provider pursuant to this Agreement of the Services, other than costs or
damages incurred by the Provider as a result of (i) its willful misconduct or
gross negligence or (ii) its failure to use commercially reasonable efforts to
acquire consents as set forth in Section 2.1.4(b) of the Contribution Agreement
dated the date hereof among MMI, MMI Holdings and SII.
4.3. Injunction. Irreparable damage would occur in the event that any of
----------
the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. The parties hereto shall be entitled
to an injunction or injunctions to prevent breaches of the provisions of this
Agreement and to enforce specifically the terms and provisions hereof in any
court of competent jurisdiction, such remedy being in addition to any other
remedy to which they may be entitled at law or in equity.
4.4. Severability. If any term, provision, covenant or restriction of this
------------
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such which may be hereafter declared invalid, void or unenforceable, and the
parties hereto shall use their best efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction.
4.5. Assignment. This Agreement and all of the provisions hereof shall be
----------
binding upon and inure to the benefit of the parties and their respective
successors and assigns, including any corporation with which, or into which,
either party may be merged or which may succeed to its assets or business;
provided, however, that, except as provided in the last sentence of this Section
- -------- -------
4.5, no party may assign, delegate or otherwise transfer its rights or
obligations under this Agreement except to a person or entity that acquires all
or substantially all of the assets or business of such party (whether by merger,
consolidation, sale of stock, sale of assets or
- 6 -
<PAGE>
otherwise). Each party agrees not to transfer all or substantially all of its
assets unless the transferee agrees in writing to be bound by this Agreement.
Either party may assign this Agreement in whole or in part to any of its
Affiliates, in which event all the rights and powers of Purchaser or Provider,
as the case may be, and remedies available to it hereunder shall extend to and
be enforceable by such Affiliate, but no such assignment shall release Purchaser
or Provider, as the case may be, from its obligations hereunder.
4.6. Further Assurances. Subject to the provisions hereof, each of SISC
------------------
and MMI shall make, execute, acknowledge and deliver such other agreements,
documents or instruments and take or cause to be taken such other actions as may
be reasonably required in order to effectuate the purposes of this Agreement and
to consummate the transactions contemplated hereby. Subject to the provisions
hereof, each of SISC and MMI shall, in connection with entering into this
Agreement, performing its obligations hereunder and taking any and all actions
relating hereto, comply with all applicable laws, regulations, orders and
decrees, obtain all required consents and approvals and make all required
filings with any governmental agency, or other regulatory or administrative
agency, commission or similar authority and promptly provide the other with all
such information as the other may reasonably request in order to be able to
comply with the provisions of this sentence.
4.7. Non-Solicitation of Employees. During the term of this Agreement and
-----------------------------
for a period of two years after the termination of the provision of the last
remaining Service which is not a Third Party Service, SISC and MMI each agree
that they will not, without the prior written approval of the other party, hire
or directly or indirectly recruit, solicit or induce, or attempt to induce, any
employee or employees of the other party to this Agreement to terminate their
employment with, or otherwise cease their relationship with, such other party.
4.8. Parties in Interest. Nothing in this Agreement expressed or implied
-------------------
is intended or shall be construed to confer any right or benefit upon any person
or entity other than SISC and MMI and their respective successors and permitted
assigns.
4.9. Waivers, Etc. No failure or delay on the part of SISC or MMI in
-------------
exercising any power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. No modification or waiver of any provision of this Agreement
nor consent to any departure by SISC or MMI therefrom shall in any event be
effective unless the same shall be in writing and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given.
- 7 -
<PAGE>
4.10. Arbitration. Each party hereto may refer any dispute arising
-----------
under this Agreement or the matters contemplated hereby (including without
limitation the payment of fees for Services provided hereunder) to binding
arbitration in the Commonwealth of Massachusetts under the commercial
arbitration rules of the American Arbitration Association before a panel of
three arbitrators, one selected by each party and the third selected by the
other two arbitrators or, if they are unable to agree, by the American
Arbitration Association. Any award made in such arbitration may be enforced in
any court of competent jurisdiction.
4.11. Changes of Law. If, due to any change in applicable law or
--------------
regulations or the interpretation thereof by any court of law or other governing
body having jurisdiction subsequent to the date of this Agreement, performance
of any provision of this Agreement or any transaction contemplated thereby shall
become impracticable or impossible, the parties hereto shall use their best
efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such provision.
4.12. Confidentiality. Subject to any contrary requirement of law and
---------------
the right of each party to enforce its rights hereunder in any legal action,
each party shall keep strictly confidential and shall cause its employees,
Affiliates and agents to keep strictly confidential, except as necessary for the
performance of Services under this Agreement any information (whether written or
oral) concerning the other party and its Affiliates, including without
limitation information which the other party and its Affiliates are required by
customer or other agreements to keep confidential, which is in the possession of
such party or its agents, Affiliates or employees as of the Effective Date or
which it or any of its agents, Affiliates or employees may acquire pursuant to,
or in the course of performing its obligations under, any provision of this
Agreement; provided, however, that such obligation to maintain confidentiality
-------- -------
shall not apply to information which (a) at the time of disclosure was in the
public domain not as a result of acts by the receiving party or (b) lawfully
came into the possession of the receiving party other than pursuant to this
agreement after the Effective Date but prior to the time of disclosure.
4.13 Employment Relationships. Employees of Provider engaged in
------------------------
performing the Services shall under no circumstances be, or be deemed to be,
employees of Purchaser. Purchaser shall not have any supervision or control over
any such employees of Provider and any complaint or requested change in
procedure shall be transmitted by Purchaser to Provider, which shall in turn
give any necessary instructions to its employees in accordance with its policies
and practices then in effect. Provider shall have full and exclusive liability
for the payment of worker's compensation or employer's liability insurance
premiums with respect to such employees and for the payment of all taxes,
contributions, withholdings or other payments for unemployment compensation or
severance, termination, retirement, old age or other benefits, pensions,
annuities or other obligations or liabilities of any
- 8 -
<PAGE>
nature now or hereafter imposed upon employers by the relevant government in
respect of such employees, measured by the wages, salaries, compensation or
other remuneration paid to such employees or otherwise, and Provider shall make
such payments and shall make and file all reports and returns and do all other
things necessary to comply with the law imposing such taxes, contributions,
withholdings or other payments.
4.14. Entire Agreement. This Agreement, together with the Services
----------------
Plan, contains the entire understanding of the parties with respect to the
provision of Services by SISC to MMI and by MMI to SISC.
4.15. Survival. The provisions of Sections 4.2, 4.3, 4.7 and 4.12
--------
shall survive any termination of this Agreement.
4.16. Amendments. Neither this Agreement nor the Services Plan may be
----------
amended except by an agreement in writing signed by the parties hereto, with
respect to this Agreement, and by the parties affected by such amendment, with
respect to the Services Plan.
4.17. Headings. Descriptive headings are for convenience only and
--------
shall not control or affect the meaning or construction of any provision of this
Agreement.
4.18. Counterparts. For the convenience of the parties, any number of
------------
counterparts of this Agreement may be executed by the parties hereto, and each
such executed counterpart shall be, and shall be deemed to be, an original
instrument.
4.19. Notices. Any notice or other communication in connection with
-------
this Agreement shall be deemed to be delivered if in writing (or in the form of
a telecopy) addressed or transmitted as provided below and if either (i)
actually delivered at said address, (ii) in the case of a letter, three business
days shall have elapsed after the same shall have been deposited in the United
States mails, postage prepaid and registered or certified, or (iii) if in the
form of a telecopy, when the receiving party shall have given telephonic notice
of complete and legible receipt, to:
SISC at: Stream International Services Corp.
275 Dan Road
Canton, Massachusetts 02021
Telecopy Number: (781) 830-7465
Attn: Treasurer
MMI at: Modus Media International, Inc.
690 Canton Street
Westwood, Massachusetts 02090
Telecopy Number: (781) 407-3831
- 9 -
<PAGE>
Attn: Treasurer
4.20. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the domestic substantive laws of the Commonwealth of
Massachusetts without giving effect to any choice or conflict of law provision
or rule that would cause the application of the domestic substantive laws of any
other jurisdiction.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
- 10 -
<PAGE>
IN WITNESS WHEREOF, SISC and MMI have caused this Agreement to be duly
executed by their respective officers, each of whom is fully authorized, all as
of the day and year first above written.
STREAM INTERNATIONAL SERVICES CORP.
By: /s/ Judith G. Salerno
---------------------------------
Name: Judith G. Salerno
Title: President
MODUS MEDIA INTERNATIONAL, INC.
By: /s/ Terence M. Leahy
---------------------------------
Name: Terence M. Leahy
Title: President
<PAGE>
EXHIBIT 10.13
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TRANSITIONAL SERVICE AGREEMENT
BETWEEN
STREAM INTERNATIONAL SERVICES CORP.
AND
CORPORATE SOFTWARE & TECHNOLOGY, INC.
Dated as of December 15, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TRANSITIONAL SERVICE AGREEMENT
------------------------------
THIS TRANSITIONAL SERVICE AGREEMENT, dated as of this fifteenth day of
December 1997, is entered into by and between Stream International Services
Corp., a Delaware corporation (f/k/a Stream International Inc.) ("SISC"), and
Corporate Software & Technology, Inc., a Delaware corporation ("CST").
WITNESSETH:
----------
WHEREAS, Stream International Inc., a Delaware corporation (f/k/a Stream
International Holdings Inc.) ("SII"), which directly owns 100% of the
outstanding shares of SISC and indirectly owns 100% of the outstanding shares of
CST, will (i) cause SISC or certain of its Subsidiaries to transfer to Corporate
Software & Technology Holdings, Inc., a Delaware corporation ("CST Holdings")
all of its assets and liabilities related to the marketing and resale of
software and the development, marketing and sale of software license management
services (other than certain net indebtedness to R.R. Donnelley & Sons Company);
(ii) cause CST Holdings to transfer such assets and liabilities to CST; (iii)
cause SISC to distribute the outstanding voting common stock of CST Holdings to
SII; and (iv) effect a similar separation of its outsource manufacturing
operations by transferring the assets and liabilities related to such operations
to Modus Media International Holdings, Inc., a Delaware corporation ("MMI
Holdings") and immediately thereafter causing MMI Holdings to transfer such
assets and liabilities to Modus Media International, Inc., a Delaware
corporation ("MMI");
WHEREAS, SII will transfer the outstanding voting common stock of CST
Holdings and MMI Holdings to the current shareholders of SII prior to the
earlier of (A) the consummation of an initial public offering of SII Common
Stock, a transaction which would result in SII becoming a stand-alone public
company and (B) January 10, 1998.
WHEREAS, each of SISC and CST wishes to provide for an orderly and
efficient separation of their businesses; and
WHEREAS, the successful operation of the parties' businesses will require
the performance of certain administrative and other services which the parties
have previously provided to each other, and the parties and their Affiliates (as
defined below) are willing to provide certain of such services to each other
upon the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, the parties
hereby agree as follows:
<PAGE>
1. DEFINITIONS
The following term has the meaning specified or referred to in this Section
1 and shall be equally applicable to the singular and plural forms.
"Affiliate" means, with respect to either SISC or CST, any
corporation, partnership, joint venture, limited liability company,
association, joint-stock company, trust or unincorporated organization
which directly or indirectly controls, is controlled by or is under common
control with SISC or CST, respectively. For purposes of this Agreement,
SII and its subsidiaries, including SISC, shall not be considered
Affiliates of CST; and CST Holdings and its subsidiaries, including CST,
shall not be considered Affiliates of SISC.
2. SERVICES
2.1. Services to be Made Available. In accordance with the terms and
-----------------------------
provisions of this Agreement, SISC agrees to perform for CST, and CST agrees to
perform for SISC, the following services, as more fully described in the
Transition Services Plan dated December 15, 1997 (the "Services Plan") (each of
the services set forth in Part I of the Services Plan shall be referred to as a
"Service") in the amounts and to the extent specified with respect to each such
Service in the Services Plan (the provider and purchaser of each Service shall
be referred to herein as the "Provider" and "Purchaser", respectively):
Service
-------
Legal
Telecom Switches/Velizy
Retirement Plan
Each Provider shall have the right to fulfill its obligations to furnish
Services hereunder by causing one or more of such Provider's Affiliates to
perform such Services. In such case, the Provider shall remain liable under
this Agreement for the performance of such Services.
2.2. Fees for Services. Each Purchaser agrees to pay each Provider a fee
-----------------
for each of the Services provided by such Provider to such Purchaser as
specified in the Services Plan.
Schedule 1 to the Services Plan ("Schedule 1") lists the monthly fees set
forth in the Services Plan to be paid by each Purchaser and calculates the net
amount to be
-2-
<PAGE>
paid each calendar month by SISC or CST, whichever owes the net amount, in each
of the currencies specified. If this Agreement is terminated with respect to a
Service pursuant to Section 2.3 hereof, the fee for such Service shall no longer
be payable (other than to the extent earned prior to the date of termination)
following the effective date of such termination and the net monthly payment set
forth in Schedule 1 shall be adjusted accordingly. Fees for Services provided
for partial months shall be calculated based upon the number of days Services
are provided divided by the number of days in such calendar month.
The Services Plan may specifically provide that all or part of a Service
will be provided by a third party and that the Purchaser shall pay for such
third party provided service separately from the fee listed in the Services Plan
(a "Third Party Service"). Purchasers shall pay for Third Party Services and
the cost thereof shall not be included on Schedule 1. To the extent that the
Purchaser is billed by the third party directly for such Third Party Services,
the Purchaser shall pay the third party directly. If the Provider is billed for
the Third Party Service, the Provider may either pay the bill and charge the
Purchaser the amount of the bill (such amount to be included as an invoice sent
to the Purchaser and not as an adjustment to Schedule 1) or forward the bill to
the Purchaser for payment by the Purchaser to the third party. In addition, if a
Provider obtains a service for its own use from a third party, then the Provider
may delegate to such third party the provision of such service pursuant to this
Agreement to the Purchaser. The cost thereof shall be borne solely by the
Provider.
Not more often than once per month, each Provider shall, upon request,
forward to the Purchaser of its Services a list of the Services provided
hereunder and the fees for such Services, together with such additional
documentation evidencing the provision thereof as the Purchaser shall reasonably
request. In addition, each Purchaser of Services shall be entitled, upon
request and at reasonable times and places, to audit the books and records of
the Provider that relate to the provision of Services hereunder and the related
charges appearing on Schedule 1, as adjusted from time to time. The party owing
the net monthly payment in a particular currency shall pay to the other party
the amount listed in Schedule 1 within 15 days of the end of the month for which
payment is owed unless one or both of the parties shall in good faith dispute
the types and/or amounts of Services set forth on such Schedule 1 and the
Services Plan as having been provided for such month. In the event of such good
faith dispute, the parties will determine the amounts of the fees set forth in
Schedule 1 which are not in dispute, and the party owing, in a particular
currency, the net amount of such fees which are not in dispute shall pay such
net amount in such currency within 15 days of the end of the month for which
payment is owed. The parties hereto agree to use their respective best efforts
to resolve such dispute within 10 days. If such dispute is not resolved within
10 days, either party hereto may seek binding arbitration of such dispute in
accordance with the provisions of Section 4.10 hereof.
-3-
<PAGE>
2.3. Term of Agreement. This Agreement shall become effective as of the
-----------------
earlier of (i) the separation from SII of both the CST and the Modus Media
International businesses referred to in the first recital of this Agreement or
(ii) the day of, but immediately prior to, the closing of the initial public
offering of shares of Common Stock of SII (the "Effective Date") and shall
terminate with respect to each Service (A) on the date specified for such
Service in the Services Plan or (B) upon the prior written notice specified for
such Service in the Services Plan by the chief financial officer of the
Purchaser of such Service, whichever is earlier; provided, however, that upon
-------
termination pursuant to clause (B) above, the Purchaser shall pay the Provider
an early termination fee equal to three times the monthly fee for such Service
in Schedule 1, provided further, however, that, where specified in the Services
---------------- -------
Plan hereto, the term for any Service may be extended for additional periods
upon the mutual agreement of SISC and CST, so long as the Purchaser shall have
given the Provider not less than 60 days' notice (30 days' notice in the case of
each Service with a base date of December 31, 1997) of its desire to extend such
Service. Any extension described in the proviso of the immediately preceding
sentence shall be subject to the mutual agreement of SISC and CST as to the
renewal term, the amount and extent of such Service during such renewal term and
the fee for such Service during such renewal term.
Notwithstanding the foregoing, if the general counsel of SISC reasonably
determines that the rules of professional responsibility applicable to the SISC
attorneys prevent SISC from providing all or a portion of the legal services to
CST pursuant to the Services Plan, then SISC's obligation to provide such
services shall, to the extent of such determination, terminate immediately upon
notice to CST of such determination. If the general counsel of SISC
subsequently determines that such rules of professional responsibility permit
the provision by SISC of all or a portion of such services which were
terminated, SISC shall so notify CST immediately and shall, at the option of
CST, thenceforth be obligated to provide such services to the extent so
determined. The fee for legal services shall be prorated and Schedule 1
adjusted to reflect any changes in the provision of legal services, pursuant to
this paragraph.
Anything contained in this Agreement to the contrary notwithstanding, this
Agreement may be terminated at any time:
(i) by mutual consent of SISC and CST;
(ii) by SISC in the event of any material breach or default by CST of
any of CST's agreements, representations, or warranties contained herein
and the failure of CST to cure such breach or default within sixty (60)
business days after receipt of written notice from SISC requesting such
breach or default to be cured; or
-4-
<PAGE>
(iii) by CST in the event of any material breach or default by SISC
of any of SISC's agreements, representations, or warranties contained
herein and the failure of SISC to cure such breach or default within sixty
(60) business days after receipt of notice from CST requesting such breach
or default to be cured.
2.4. Timely Performance and Cooperation. Each Provider shall use all
----------------------------------
reasonable efforts in the timely performance of its Services and each Purchaser
shall use all reasonable efforts to cooperate with each Provider in connection
with the provision of the Services to such Purchaser.
3. REPRESENTATIONS AND WARRANTIES
As an inducement to enter into this Agreement, each party represents to and
agrees with the other that, as of the Effective Date:
(a) it is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all requisite
corporate power to own, lease and operate its properties, to carry on its
business as presently conducted and to carry out the transactions
contemplated by this Agreement;
(b) it has duly and validly taken all corporate action necessary to
authorize the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby; and
(c) this Agreement has been duly executed and delivered by it and
constitutes its legal, valid and binding obligation enforceable against it
in accordance with its terms.
4. OTHER TERMS AND PROVISIONS
4.1. Independent Contractor Status. Each Provider shall perform all
-----------------------------
services under this Agreement as an "independent contractor" and not as an agent
of the Purchaser. The Provider is not, in connection with the performance of
Services hereunder, authorized to assume or create any obligation or
responsibility, express or implied, on behalf of, or in the name of the
Purchaser or to bind the Purchaser in any manner.
4.2. Limitation of Liability and Reimbursement. Neither the Provider, nor
-----------------------------------------
any of its officers, employees, agents or Affiliates, shall in any event be
liable for any damages, including but not limited to loss of profits or revenue,
which arise out of the Provider's (or any such officer's, employee's, agent's or
Affiliate's) performance or failure to perform any of its obligations under this
Agreement, other than those
-5-
<PAGE>
damages caused by the Provider's (or such persons') intentional nonperformance,
willful misconduct or gross negligence. The Purchaser hereby agrees to indemnify
the Provider for all direct costs and damages incurred by the Provider to third
parties as a result of the provision by the Provider pursuant to this Agreement
of the Services, other than costs or damages incurred by the Provider as a
result of (i) its willful misconduct or gross negligence or (ii) its failure to
use commercially reasonable efforts to acquire consents as set forth in Section
2.1.4(b) of the Contribution Agreement dated the date hereof among the parties
hereto, CST Holdings and SII.
4.3. Injunction. Irreparable damage would occur in the event that any of
----------
the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. The parties hereto shall be entitled
to an injunction or injunctions to prevent breaches of the provisions of this
Agreement and to enforce specifically the terms and provisions hereof in any
court of competent jurisdiction, such remedy being in addition to any other
remedy to which they may be entitled at law or in equity.
4.4. Severability. If any term, provision, covenant or restriction of this
------------
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such which may be hereafter declared invalid, void or unenforceable, and the
parties hereto shall use their best efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction.
4.5. Assignment. This Agreement and all of the provisions hereof shall be
----------
binding upon and inure to the benefit of the parties and their respective
successors and assigns, including any corporation with which, or into which,
either party may be merged or which may succeed to its assets or business;
provided, however, that, except as provided in the last sentence of this Section
- -------- -------
4.5, no party may assign, delegate or otherwise transfer its rights or
obligations under this Agreement except to a person or entity that acquires all
or substantially all of the assets or business of such party (whether by merger,
consolidation, sale of stock, sale of assets or otherwise). Each party agrees
not to transfer all or substantially all of its assets unless the transferee
agrees in writing to be bound by this Agreement. Either party may assign this
Agreement in whole or in part to any of its Affiliates, in which event all the
rights and powers of Purchaser or Provider, as the case may be, and remedies
available to it hereunder shall extend to and be enforceable by such Affiliate,
but no such assignment shall release Purchaser or Provider, as the case may be,
from its obligations hereunder.
-6-
<PAGE>
4.6. Further Assurances. Subject to the provisions hereof, each of SISC
------------------
and CST shall make, execute, acknowledge and deliver such other agreements,
documents or instruments and take or cause to be taken such other actions as may
be reasonably required in order to effectuate the purposes of this Agreement and
to consummate the transactions contemplated hereby. Subject to the provisions
hereof, each of SISC and CST shall, in connection with entering into this
Agreement, performing its obligations hereunder and taking any and all actions
relating hereto, comply with all applicable laws, regulations, orders and
decrees, obtain all required consents and approvals and make all required
filings with any governmental agency, or other regulatory or administrative
agency, commission or similar authority and promptly provide the other with all
such information as the other may reasonably request in order to be able to
comply with the provisions of this sentence.
4.7. Non-Solicitation of Employees. During the term of this Agreement and
-----------------------------
for a period of two years after the termination of the provision of the last
remaining Service which is not a Third Party Service, SISC and CST each agree
that they will not, without the prior written approval of the other party, hire
or directly or indirectly recruit, solicit or induce, or attempt to induce, any
employee or employees of the other party to this Agreement to terminate their
employment with, or otherwise cease their relationship with, such other party.
4.8. Parties in Interest. Nothing in this Agreement expressed or implied
-------------------
is intended or shall be construed to confer any right or benefit upon any person
or entity other than SISC and CST and their respective successors and permitted
assigns.
4.9. Waivers, Etc. No failure or delay on the part of SISC or CST in
-------------
exercising any power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. No modification or waiver of any provision of this Agreement
nor consent to any departure by SISC or CST therefrom shall in any event be
effective unless the same shall be in writing and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given.
4.10. Arbitration. Each party hereto may refer any dispute arising
-----------
under this Agreement or the matters contemplated hereby (including without
limitation the payment of fees for Services provided hereunder) to binding
arbitration in the Commonwealth of Massachusetts under the commercial
arbitration rules of the American Arbitration Association before a panel of
three arbitrators, one selected by each party and the third selected by the
other two arbitrators or, if they are unable to agree, by the American
Arbitration Association. Any award made in such arbitration may be enforced in
any court of competent jurisdiction.
-7-
<PAGE>
4.11. Changes of Law. If, due to any change in applicable law or
--------------
regulations or the interpretation thereof by any court of law or other governing
body having jurisdiction subsequent to the date of this Agreement, performance
of any provision of this Agreement or any transaction contemplated thereby shall
become impracticable or impossible, the parties hereto shall use their best
efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such provision.
4.12. Confidentiality. Subject to any contrary requirement of law and
---------------
the right of each party to enforce its rights hereunder in any legal action,
each party shall keep strictly confidential and shall cause its employees,
Affiliates and agents to keep strictly confidential, except as necessary for the
performance of Services under this Agreement any information (whether written or
oral) concerning the other party and its Affiliates, including without
limitation information which the other party and its Affiliates are required by
customer or other agreements to keep confidential, which is in the possession of
such party or its agents, Affiliates or employees as of the Effective Date or
which it or any of its agents, Affiliates or employees may acquire pursuant to,
or in the course of performing its obligations under, any provision of this
Agreement; provided, however, that such obligation to maintain confidentiality
-------- -------
shall not apply to information which (a) at the time of disclosure was in the
public domain not as a result of acts by the receiving party or (b) lawfully
came into the possession of the receiving party other than pursuant to this
agreement after the Effective Date but prior to the time of disclosure.
4.13. Employment Relationships. Employees of Provider engaged in
------------------------
performing the Services shall under no circumstances be, or be deemed to be,
employees of Purchaser. Purchaser shall not have any supervision or control
over any such employees of Provider and any complaint or requested change in
procedure shall be transmitted by Purchaser to Provider, which shall in turn
give any necessary instructions to its employees in accordance with its policies
and practices then in effect. Provider shall have full and exclusive liability
for the payment of worker's compensation or employer's liability insurance
premiums with respect to such employees and for the payment of all taxes,
contributions, withholdings or other payments for unemployment compensation or
severance, termination, retirement, old age or other benefits, pensions,
annuities or other obligations or liabilities of any nature now or hereafter
imposed upon employers by the relevant government in respect of such employees,
measured by the wages, salaries, compensation or other remuneration paid to such
employees or otherwise, and Provider shall make such payments and shall make and
file all reports and returns and do all other things necessary to comply with
the law imposing such taxes, contributions, withholdings or other payments.
-8-
<PAGE>
4.14. Entire Agreement. This Agreement, together with the Services
----------------
Plan, contains the entire understanding of the parties with respect to the
provision of Services by SISC to CST and by CST to SISC.
4.15. Survival. The provisions of Sections 4.2, 4.3, 4.7 and 4.12
--------
shall survive any termination of this Agreement.
4.16. Amendments. Neither this Agreement nor the Services Plan may be
----------
amended except by an agreement in writing signed by the parties hereto, with
respect to this Agreement, and by the parties affected by such amendment, with
respect to the Services Plan.
4.17. Headings. Descriptive headings are for convenience only and
--------
shall not control or affect the meaning or construction of any provision of this
Agreement.
4.18. Counterparts. For the convenience of the parties, any number of
------------
counterparts of this Agreement may be executed by the parties hereto, and each
such executed counterpart shall be, and shall be deemed to be, an original
instrument.
4.19. Notices. Any notice or other communication in connection with
-------
this Agreement shall be deemed to be delivered if in writing (or in the form of
a telecopy) addressed or transmitted as provided below and if either (i)
actually delivered at said address, (ii) in the case of a letter, three business
days shall have elapsed after the same shall have been deposited in the United
States mails, postage prepaid and registered or certified, or (iii) if in the
form of a telecopy, when the receiving party shall have given telephonic notice
of complete and legible receipt, to:
SISC at: Stream International Services Corp.
275 Dan Road
Canton, Massachusetts 02021
Telecopy Number: (781) 830-7465
Attn: Treasurer
CST at: Corporate Software & Technology, Inc.
2 Edgewater Drive
Norwood, Massachusetts 02062
Telecopy Number: (781) 440-7444
Attn: Treasurer
4.20. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the domestic substantive laws of the Commonwealth of
Massachusetts without giving effect to any choice or conflict of law provision
or rule that would cause the application of the domestic substantive laws of any
other jurisdiction.
-9-
<PAGE>
IN WITNESS WHEREOF, SISC and CST have caused this Agreement to be duly
executed by their respective officers, each of whom is fully authorized, all as
of the day and year first above written.
STREAM INTERNATIONAL SERVICES CORP.
By: /s/ Judith G. Salerno
---------------------------------------------
Name: Judith G. Salerno
Title: President
CORPORATE SOFTWARE &
TECHNOLOGY, INC.
By: /s/ Howard S. Diamond
----------------------------------------------
Name: Howard S. Diamond
Title: President
-10-
<PAGE>
EXHIBIT 10.14
TAX SHARING AGREEMENT
This TAX SHARING AGREEMENT (the "Agreement"), dated as of December 15,
1997, is among Stream International Inc., a Delaware corporation formerly known
as Stream International Holdings Inc. ("Stream"), Modus Media International
Holdings, Inc., a Delaware corporation and, as of the date hereof, a wholly
owned subsidiary of Stream ("MMI Holdings"), Modus Media International, Inc., a
Delaware corporation and, as of the date hereof, a wholly owned subsidiary of
MMI Holdings ("MMI"), Corporate Software & Technology Holdings, Inc., a Delaware
corporation and, as of the date hereof, a wholly owned subsidiary of Stream
("CST Holdings"), and Corporate Software & Technology, Inc., a Delaware
corporation and, as of the date hereof, a wholly owned subsidiary of CST
Holdings ("CST").
WHEREAS, in connection with an initial public offering of common stock of
Stream, Stream intends to: (i) contribute the MMI Business (as defined below)
to MMI Holdings, in exchange for voting common stock and preferred stock of MMI
Holdings and the assumption by MMI Holdings of certain liabilities associated
with the MMI Business, all in accordance with the terms of the MMI Contribution
Agreement, as defined below (the "MMI Drop-down"); (ii) cause MMI Holdings to
contribute the MMI Business to Modus Media International, Inc., a Delaware
corporation ("MMI"), in exchange for voting common stock of MMI and the
assumption by MMI of certain liabilities associated with the MMI Business;
(iii) cause Stream International Services Corp., a Delaware corporation formerly
known as Stream International Inc. and a wholly owned subsidiary of Stream
("SISC"), to contribute the CST Business (as defined below) to CST Holdings, in
exchange for voting common stock of CST Holdings and the assumption by CST
Holdings of certain liabilities associated with the CST Business, all in
accordance with the CST Contribution Agreement, as defined below (the "CST Drop-
down" and, collectively with the MMI Drop-down, the "Drop-down"); (iv) cause
CST Holdings to contribute the CST Business to Corporate Software & Technology,
Inc., a Delaware corporation ("CST"), in exchange for voting common stock of CST
and the assumption by CST of certain liabilities associated with the CST
Business; (v) cause SISC to distribute all of the voting common stock of CST
Holdings held by SISC to Stream as a dividend; and (v) thereafter distribute all
of the voting common stock of MMI Holdings and CST Holdings held by Stream to
the shareholders of Stream as a dividend (such distribution, the "Distribution",
and all of the foregoing collectively referred to as the "Reorganization");
<PAGE>
WHEREAS, the Contribution Agreements contemplate the execution and delivery
of this Agreement, the purpose of which is to provide for the allocation among
the Stream Group (as hereinafter defined), the MMI Group (as hereinafter
defined), and the CST Group (as hereinafter defined) of all responsibilities,
liabilities and benefits relating to or affecting Taxes (as hereinafter defined)
paid or payable by any of them for all Pre-Drop-down Taxable Periods (as
hereinafter defined), and to provide for certain other matters.
NOW THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained in this Agreement, the parties hereby agree as follows:
ARTICLE 1
DEFINITIONS
-----------
Capitalized terms used but not defined herein shall have the respective
meanings assigned to them in the Contribution Agreements. As used in this
Agreement, the following terms shall have the following meanings (such meanings
to be equally applicable both to the singular and the plural forms of the terms
defined):
"Affiliate" means with respect to any entity, any other individual,
corporation, partnership, joint venture, limited liability company, association,
joint-stock company, trust or unincorporated organization which directly or
indirectly controls, is controlled by or is under common control with such
entity; provided, however, that each of (i) members of the Stream Group, (ii)
-------- -------
members of the CST Group, and (iii) members of the MMI Group will not be deemed
Affiliates of each other for purposes of this Agreement.
"Affiliated Group" means an affiliated group of corporations within the
meaning of Code section 1504(a), without regard to Section 1504(b), for the
taxable period in question.
"Business" means any of the CST Business, the MMI Business or the Stream
Business.
"CST Affiliated Group" means, for each taxable period beginning after the
Drop-down Date and the Short Period, CST Holdings and, if such an Affiliated
Group exists, members of the Affiliated Group of which CST Holdings is the
common parent (or of which CST Holdings would be the common parent if each
stockholder of CST Holdings immediately after the Drop-down were an individual).
-2-
<PAGE>
"CST Business" has the meaning set forth in the CST Contribution Agreement.
"CST Contribution Agreement" means the Contribution Agreement dated as of
the date hereof among Stream, SISC, CST Holdings, and CST.
"CST Drop-down" has the meaning ascribed in the Preamble.
"CST Group" means, with respect to any taxable period, CST Holdings and the
corporations that were members of the Stream Affiliated Group on or prior to the
Drop-down Date and that are members of the CST Affiliated Group immediately
after the Drop-down Date.
"CST Joint Tax Return" means any Tax Return that includes (i) a member of
the Stream Group and a member of the CST Group or (ii) Tax Items of the CST
Business and Tax Items of the Stream Business, in each case determined under the
principles of Section 3.01.
"Code" means the Internal Revenue Code of 1986, as amended, and shall
include corresponding provisions of any subsequently enacted federal Tax laws.
"Contribution Agreements" mean the MMI Contribution Agreement and the CST
Contribution Agreement.
"Distribution" has the meaning ascribed in the Preamble.
"Distribution Date" means the date on which the Distribution is effected.
"Drop-down" has the meaning ascribed in the Preamble.
"Drop-down Date" means the date on which the MMI Drop-down and the CST
Drop-down is effected.
"Final Determination" means the final resolution of any liability for Taxes
for a taxable period. A Final Determination shall result from the first to
occur of:
(i) the expiration of 30 days after IRS acceptance of a Waiver of
Restrictions on Assessment and Collection of Deficiency in Tax and
Acceptance of Overassessment on IRS Form 870 or 870-AD (or any successor
comparable form or the expiration of a comparable period with respect to
any comparable agreement or form under the laws of other jurisdictions)
unless, within such period, the taxpayer gives notice to the other party of
the taxpayer's intention to attempt to recover all or part of any amount
paid pursuant to the Waiver by the filing of a timely claim for refund;
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(ii) a decision, judgment, decree, or other order by a court of
competent jurisdiction that is not subject to further judicial review (by
appeal or otherwise) and has become final;
(iii) the execution of a closing agreement under Section 7121 of the
Code or the acceptance by the IRS or its counsel of an offer in compromise
under Section 7122 of the Code, or comparable agreements under the laws of
other jurisdictions;
(iv) the expiration of the time for filing a claim for refund or for
instituting suit in respect of a claim for refund disallowed in whole or
part by the IRS;
(v) any other final disposition of the Tax liability for such period
by reason of the expiration of the applicable statute of limitations; or
(vi) any other event that the parties agree in writing is a final and
irrevocable determination of the liability at issue.
"Group" means any of the CST Group, the MMI Group or the Stream Group.
"Guaranty" means each of the guaranties made as of the date hereof,
pursuant to which RRD guarantees the payment to Stream in respect of certain
obligations of MMI Holdings and MMI, in one case, and CST Holdings and CST, in
the other case, under the respective Contribution Agreements and this Agreement.
"IRS" means the United States Internal Revenue Service or any successor
thereto, including but not limited to its agents, representatives, and
attorneys.
"Income Taxes" means all Taxes imposed upon, or measured by, income and
such related franchise, excise and similar Taxes as have been customarily
included in the provision for income taxes on the financial statements for
periods ending prior to the Drop-down Date of Stream and its Affiliates.
"Joint Tax Returns" means CST Joint Tax Returns and/or MMI Joint Tax
Returns, and any Tax Return (other than a CST Joint Tax Return or an MMI Joint
Tax Return) that includes (i) a member of the CST Group and a member of the MMI
Group, or (ii) Tax Items of the CST Group and Tax Items of the MMI Group, in
each case determined under the principles of Section 3.01.
"Loss Attributes" has the meaning set forth in Section 3.01(d)(vi) of this
Agreement.
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"Loss Item" has the meaning set forth in the Tax Reimbursement Agreement.
"MMI Affiliated Group" means, for each taxable period beginning after the
Drop-down Date and the Short Period, MMI Holdings and, if such an Affiliated
Group exists, members of the Affiliated Group of which MMI Holdings is the
common parent (or of which MMI Holdings would be the common parent if each
stockholder of MMI Holdings immediately after the Drop-down were an individual).
"MMI Business" has the meaning set forth in the MMI Contribution Agreement.
"MMI Contribution Agreement" means the Contribution Agreement dated as of
the date hereof between Stream, MMI Holdings, and MMI.
"MMI Drop-down" has the meaning ascribed in the Preamble.
"MMI Group" means, with respect to any taxable period, MMI Holdings and the
corporations that were members of the Stream Affiliated Group on or prior to the
Drop-down Date and that are members of the MMI Affiliated Group immediately
after the Drop-down Date.
"MMI Joint Tax Return" means any Tax Return that includes (i) a member of
the Stream Group and a member of the MMI Group or (ii) Tax Items of the MMI
Business and Tax Items of the Stream Business, in each case determined under the
principles of Section 3.01.
"Other Taxes" means all Taxes other than Income Taxes.
"Post-Drop-down Taxable Periods" means all taxable years or periods
beginning after the Drop-down Date and, with respect to any Straddle Period, the
portion of such Straddle Period beginning after the Drop-down Date.
"Pre-Drop-down Taxable Periods" means all taxable years or periods ending
on or before the Drop-down Date and, with respect to any Straddle Period, the
portion of such Straddle Period ending on and including the Drop-down Date.
"RRD" means R. R. Donnelley & Sons Co., a Delaware corporation.
"Reorganization" has the meaning ascribed in the Preamble.
"Reorganization Taxes" has the meaning set forth in the Tax Reimbursement
Agreement.
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"Short Period" means, with respect to any Straddle Period, the period
beginning at the beginning of such Straddle Period and ending on and including
the Drop-down Date.
"Stream Affiliated Group" means, for each taxable period, the Affiliated
Group of which Stream or any successor of Stream is the common parent.
"Stream Business" has the meaning ascribed to "Stream International
Holdings Business" in the Contribution Agreements.
"Stream Group" means, with respect to any taxable period, the corporations
that were members of the Stream Affiliated Group on or prior to the Drop-down
Date, exclusive of the corporations that are included in the CST Affiliated
Group or the MMI Affiliated Group immediately after the Drop-down Date.
"Straddle Period" means any taxable year or period that begins before and
ends after the Drop-down Date.
"Tax" means any federal, state, local or foreign income, profits,
alternative or add-on minimum, severance, sales, use, service, service use, ad
valorem, gross receipts, license, value added, franchise, transfer, recording,
real estate, withholding, payroll, employment, excise, occupation, unemployment
insurance, social security, business license, business organization, stamp,
environmental, premium or property tax, or any other tax, governmental fee or
other like assessment or charge of any kind whatsoever, together with any
related interest, penalties and additions to any such tax, imposed by any taxing
authority upon the Stream Group, the MMI Group, the CST Group or any of their
respective members or divisions or branches.
"Tax Deficiency" means an assessment of Tax, as a result of a Final
Determination.
"Tax Detriment" means any item of income, gain, recapture of credit or any
other Tax Item which increases Taxes paid or payable.
"Tax Item" means any item of income, gain, loss, deduction, credit,
provisions for reserves, recapture of credit, receipts, proceeds or any other
item which increases or decreases Taxes paid or payable, including an adjustment
under Code Section 481 resulting from a change in accounting method.
"Tax Refund" means a refund or credit of Tax as the result of a Final
Determination.
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"Tax Reimbursement Agreement" means the agreement entered into as of the
date hereof between RRD and Stream with respect to certain Tax liabilities.
"Tax Return" means any return, filing, questionnaire, information return or
other document required to be filed, including requests for extensions of time,
filings made with estimated tax payments, claims for refund and amended returns
that may be filed, for any period with any taxing authority (whether domestic or
foreign) in connection with any Tax (whether or not a payment is required to be
made with respect to such filing).
"Transaction Taxes" mean any Other Taxes payable in connection with
consummation of the transactions contemplated by the Reorganization, including
without limitation the transfer by SISC of Belgium branch operations to CST
Holdings, the transfer by SISC of all outstanding shares of Corporate Software &
Technology GmbH ("CST GmbH") to CST Holdings and the transfer by SISC of the
German branch operations to CST GmbH, the formation by CST Holdings of Corporate
Software & Technology B.V. ("CST BV") and the transfer by Stream International
Europe B.V. ("SISC BV") of certain Dutch operations to CST BV, the transfer by
SISC of French branch operations to Corporate Software & Technology, S.A., the
sale by Corporate Software & Technology Limited of all outstanding shares of
Stream International N.I. Limited ("SINI") and all outstanding shares of Modus
Media International Limited ("MMI UK") to Stream and the contribution by Stream
of the shares of SINI and the shares of MMI UK to SISC, the contribution of all
outstanding shares of Modus Media International Korea Ltd. by Stream to MMI
Holdings, and the contribution of all outstanding shares of Modus Media
International, S.A. de C.V. by Stream to MMI Holdings, and any transfers of the
aforesaid operations and shares by CST Holdings and MMI Holdings to CST and MMI,
respectively.
ARTICLE 2
FILING OF TAX RETURNS
---------------------
Section 2.01 Manner of Filing. All Tax Returns required to be filed after
----------------
the Drop-down Date shall be filed on a timely basis (including extensions) by
the party responsible for such filing under this Agreement. Unless otherwise
required by applicable law, all Tax Returns filed after the date of this
Agreement shall be prepared on a basis consistent with the elections, accounting
methods, conventions, and principles of taxation used for the most recent
taxable periods for which Tax Returns involving similar Tax Items have been
filed, to the extent that a failure to do so would reasonably be expected to
result in a Tax Detriment to another party hereto or a member of its Affiliated
Group. Subject to the provisions of this Agreement, all
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decisions relating to the preparation of Tax Returns shall be made in the sole
discretion of the party responsible under this Agreement for such preparation.
Notwithstanding anything in this Agreement to the contrary, however, in no event
shall any Tax Return be filed in a manner inconsistent with Section 8 of the Tax
Reimbursement Agreement. RRD is an intended third-party beneficiary of the
preceeding sentence.
Section 2.02 Pre-Drop-down Tax Returns.
-------------------------
(a) Consolidated Returns. The Stream consolidated federal income
--------------------
Tax Returns required to be filed for all Pre-Drop-down Taxable Periods, that
have not been previously filed, shall be prepared and filed by Stream. Stream,
MMI Holdings and CST Holdings will cooperate in good faith to determine the
appropriate amount of Tax Items primarily related to the Stream Business, the
MMI Business and the CST Business (determined under the principles of Section
3.01) to be reflected in the consolidated federal income Tax Returns of Stream
for Pre-Drop-down Taxable Periods.
(b) Combined, Consolidated and Unitary Returns. All state and
------------------------------------------
local combined, consolidated and unitary corporate CST and MMI Joint Tax Returns
with respect to Income Taxes which are required to be filed for all Pre-Drop-
down Taxable Periods, which have not been previously filed, shall be prepared
and filed by Stream. Stream, MMI Holdings and CST Holdings will cooperate in
good faith to determine the appropriate amount of Tax Items primarily related to
the Stream Business, the MMI Business and the CST Business (determined under the
principles of Section 3.01) to be reflected in such Returns of Stream for Pre-
Drop-down Taxable Periods.
(c) Other Returns. All other Tax Returns not described elsewhere
-------------
in this Section 2.02 that are required to be filed for Pre-Drop-down Taxable
Periods, including Tax Returns in respect of Transaction Taxes and Joint Tax
Returns (other than CST and MMI Joint Tax Returns), shall be prepared and filed
by the party responsible under the appropriate law of the taxing jurisdiction.
ARTICLE 3
PAYMENT OF TAXES: ENTITLEMENT TO TAX REFUNDS
---------------------------------------------
Section 3.01 General.
-------
(a) Stream shall be liable for and shall indemnify and hold each
member of the MMI Group and each member of the CST Group harmless against all
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Taxes related to the Stream Business, for all Pre-Drop-down Taxable Periods, to
the extent unpaid as of the Drop-down Date.
(b) MMI Holdings shall be liable for and shall indemnify and hold
each member of the Stream Group and each member of the CST Group harmless
against all Taxes related to the MMI Business for all Pre-Drop-down Taxable
Periods, to the extent unpaid as of the Drop-down Date.
(c) CST Holdings shall be liable for and shall indemnify and hold
each member of the Stream Group and each member of the MMI Group harmless
against all Taxes related to the CST Business for all Pre-Drop-down Taxable
Periods, to the extent unpaid as of the Drop-down Date.
(d) For purposes of determining the amount of Taxes related to the
Stream Business, the MMI Business or the CST Business pursuant to paragraphs
(a), (b), and (c) of this Section 3.01, and for purposes of determining
entitlement to Tax Refunds, the following rules shall apply:
(i) except as provided below, Tax Items primarily related to
the Stream Business will be taken into account in determining Taxes related to
the Stream Business, Tax Items primarily related to the MMI Business will be
taken into account in determining Taxes related to the MMI Business, and Tax
Items primarily related to the CST Business will be taken into account in
determining Taxes related to the CST Business;
(ii) Tax Items for any taxable period consisting of deductions
attributable to the exercise of compensatory options granted to employees of any
member of the Stream Affiliated Group to acquire shares of Stream, MMI Holdings
or CST Holdings shall be deemed to be primarily related to the Stream Business,
the MMI Business or the CST Business if a member of the Stream Group, the MMI
Group or the CST Group, respectively, most recently employed the exercising
employee at the time of exercise;
(iii) except as otherwise provided in this Agreement, Tax Items
not primarily related either to the Stream Business, the MMI Business or the CST
Business will be taken into account 40% in determining Taxes related to the MMI
Business and 60% in determining Taxes related to the CST Business;
(iv) in determining the Taxes related to the Stream Business,
the MMI Business and the CST Business for any Short Period, and the amount of
net operating losses, net capital losses, alternative minimum tax credits and
other credits that may be utilized in any Short Period, the Straddle Period
shall be treated as two taxable years or periods, one ending at the end of the
Short Period and the other
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beginning at the beginning of the day after the end of the Short Period, in all
cases determined on a "closing of the books basis" at the end of the Short
Period (except that items computed on an annual basis, such as depreciation,
shall be allocated on a daily basis). For all purposes of this Agreement, the
portion of the Straddle Period ending at the end of the Short Period and the
portion of the Straddle Period beginning at the beginning of the day after the
end of the Short Period shall each be treated as a "taxable year or period";
(v) the benefit of (A) the graduated tax rates of Code
Section 11, (B) the $25,000 bracket amount in Code Section 38, (C) the $40,000
exemption amount and the $150,000 bracket amount in Code Section 55, and (D) the
$2,000,000 bracket amount in Code Section 59A, (and any similar or corresponding
benefits under state or local Tax law) shall be taken into account solely in
determining Taxes related to the Stream Business;
(vi) in determining the Taxes related to the Stream Business,
the MMI Business and the CST Business for any period, (A) any net operating
losses, net capital losses, alternative minimum tax credits and other credits
("Loss Attributes") carried back to such period from a Post-Drop-down Taxable
Period of the Stream Group shall be taken into account solely to determine the
Taxes related to the Stream Business to the extent that the Loss Attributes
carried back exceed Loss Items as defined in the Tax Reimbursement Agreement,
(B) to the extent that the Loss Attributes carried back do not exceed Loss
Items, such Loss Attributes shall first be used to eliminate or reduce Tax
Items, if any, that, absent this clause (B), would have resulted in the
imposition of Reorganization Taxes, and (C) any Loss Attributes carried back to
which clause (A) does not apply and which exceed the Tax Items described in
clause (B) shall be treated consistently with the principles set forth in
Section 3.01(d)(vii), below (see Annex A to the Tax Reimbursement Agreement for
examples applying the rules in this paragraph);
(vii) notwithstanding the foregoing, subject to paragraph (v)
of the definition of Reorganization Taxes in the Tax Reimbursement Agreement,
Loss Attributes, determined separately for each Business in accordance with the
other principles of this Section 3.01, carried over (other than from a
Post-Drop-down Taxable Period) to, or incurred in, a Pre-Drop-down Taxable
Period, shall be considered as Tax Items primarily related to the Stream
Business, the MMI Business and the CST Business, as the case may be, to the
extent necessary to eliminate or reduce Taxes related to the Stream Business,
the MMI Business and the CST Business, respectively, for such taxable year or
period, with any excess Loss Attributes being allocated among the Stream
Business, the MMI Business and the CST Business in proportion to the amount of
Taxes that, absent such excess Loss Attributes, would have been paid by each of
Stream, MMI Holdings and CST Holdings, respectively, in respect of such period.
Schedule 3.01(d)(vii) to this Agreement (and Annex A to the
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Tax Reimbursement Agreement) set forth examples that illustrate the operation of
this paragraph.
Section 3.02 Payment of Tax Liabilities With Respect to Unfiled Returns.
----------------------------------------------------------
(a) Consolidated Federal Income Tax Liabilities. Except as
-------------------------------------------
otherwise provided in this Agreement, Stream shall pay, on a timely basis, all
Taxes due with respect to the consolidated federal income Tax liability for all
taxable years or periods beginning on or before the Drop-down Date of the Stream
Affiliated Group. Each of MMI Holdings on behalf of the MMI Group and CST
Holdings on behalf of the CST Group hereby assumes and agrees to pay (to the
extent not previously paid by MMI Holdings or CST Holdings or any member of
their respective Groups, as the case may be) the MMI Group's share and the CST
Group's share, as the case may be, of those Taxes (with each share determined as
described below) for all Pre-Drop-down Taxable Periods, which payments shall be
made directly to Stream which shall then forward any balance due to the IRS.
The share of the consolidated federal Income Tax liability for each
of such periods for the Stream Group, the MMI Group, and the CST Group shall be
determined based on the liability of Stream, MMI Holdings and CST Holdings,
respectively, in respect of such Tax liability in accordance with the principles
set forth in Section 3.01.
If the calculations made pursuant to this Section 3.02(a) indicate
that either MMI Holdings or CST Holdings has either overpaid or underpaid its
share (determined as described above) of the consolidated federal income Tax
liability for any period, then not later than 90 days after the filing of
Stream's consolidated federal income Tax returns for such period Stream shall
pay MMI Holdings or CST Holdings, as the case may be, the amount of any such
overpayment, or MMI Holdings or CST Holdings, as the case may be, shall pay
Stream the amount of any such underpayment.
All calculations and determinations required to be made pursuant to
this Section 3.02(a) shall be made jointly by the parties hereto in good faith
or, if necessary, pursuant to Section 5.04.
(b) Combined, Consolidated and Unitary Corporate Income Taxes.
---------------------------------------------------------
Except as otherwise provided in this Agreement, Stream shall pay, on a timely
basis, all Taxes due with respect to any combined, consolidated or unitary
state, local and foreign corporate Income Tax liability for all taxable years or
periods beginning on or before the Drop-down Date with respect to CST and MMI
Joint Tax Returns ("Combined Taxes"). Each of MMI Holdings and CST Holdings
hereby assumes and agrees to pay (to the extent not previously paid by it) the
MMI Group's share and the
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CST Group's share, as the case may be, of Combined Taxes (with each share
described below) for all Pre-Drop-down Taxable Periods, which payments shall be
made to Stream, which shall then pay any amount due to the appropriate taxing
authority.
The share of the Combined Tax liability for each of such taxable years
or periods for the Stream Group, the MMI Group, and the CST Group shall be
determined based on the liability of Stream, MMI Holdings and CST Holdings,
respectively, in respect of such Tax liability in accordance with the principles
set forth in Section 3.01.
If the calculations made pursuant to this Section 3.02(b) indicate
that either MMI Holdings or CST Holdings has either overpaid or underpaid its
share (determined as described above) of the Combined Tax liability for any
period then at such time as Stream shall reasonably determine, but in any event
not later than 90 days after the filing of the relevant Tax Return, Stream shall
pay MMI Holdings or CST Holdings, as the case may be, the amount of any such
overpayment, or MMI Holdings or CST Holdings, as the case may be, shall pay
Stream the amount of any such underpayment.
All calculations and determinations required to be made pursuant to
this Section 3.02(b) shall be made jointly by the parties hereto in good faith
or, if necessary, pursuant to Section 5.04.
(c) Other Taxes. All Taxes, to the extent not governed by Section
-----------
3.02(a) or 3.02(b), for Pre-Drop-down Taxable Periods shall be paid, on a
timely basis, by the party responsible under this Agreement for filing the Tax
Return pursuant to which such Taxes are due, or, if no Tax Return is required,
by the party responsible for payment of such Tax under the laws of the taxing
jurisdiction, and shall be reimbursed by the other parties to this Agreement
based on their respective shares of such Taxes determined in accordance with the
principles set forth in Section 3.01.
(d) Transaction Taxes. Notwithstanding any provision of this
-----------------
Agreement to the contrary, Stream, MMI Holdings or CST Holdings shall be liable
for, and shall hold the other parties hereto harmless against, any Transaction
Taxes related to the transfer of assets from one Group to another Group in
connection with the Reorganization to the extent that such assets are located
immediately following the Drop-down Date in a member of the Stream Group, a
member of the MMI Group or a member of the CST Group, respectively,
notwithstanding the fact that the tax laws of the particular jurisdiction may
impose liability for such Transaction Taxes on a member of any other Group. Any
party not responsible under this Agreement for
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paying such Taxes to the taxing authority shall pay the responsible party for
its share of such Taxes not later than 3 business days prior to the due date for
such Taxes.
Section 3.03 Redetermined Tax Liabilities.
----------------------------
(a) Certain Joint Tax Returns. In the case of any Final
-------------------------
Determination regarding a CST Joint Tax Return or an MMI Joint Tax Return, any
Tax Deficiency shall be paid to the appropriate taxing authority by, and any Tax
Refund received from the appropriate taxing authority shall be paid to, Stream;
provided, however, that whether or not there is a Tax Deficiency or Tax Refund
- -------- -------
or whether or not a payment is required to or from the appropriate taxing
authority, MMI Holdings or CST Holdings, as the case may be shall make payments
to Stream or receive payments from Stream based upon the following principles:
(i) MMI Holdings or CST Holdings, as the case may be, shall
make a payment to Stream in an amount equal to any increase in the MMI Group's
or the CST Group's share, respectively, of Tax with respect to such Joint Tax
Return resulting from such Final Determination to the extent such payments would
not be duplicative of any payments therefor previously made by MMI Holdings (or
any member of the MMI Group) or CST Holdings (or any member of the CST Group) to
Stream (or directly to the appropriate taxing authority). The amount of any such
increase in the MMI Group's or the CST Group's share of Tax shall be determined
in accordance with the principles set forth in Section 3.01.
(ii) Stream shall pay to MMI Holdings or CST Holdings, to
the extent not previously paid to MMI Holdings or CST Holdings, or any member of
their respective Groups, by the appropriate taxing authority or by Stream, the
amount of any decrease in the MMI Group's or the CST Group's share,
respectively, of Tax with respect to such Joint Tax Return resulting from such
Final Determination. The amount of any such decrease in the MMI Group's or the
CST Group's share of Tax shall be determined in accordance with the principles
set forth in Section 3.01.
(iii) Notwithstanding any provision of this Agreement to the
contrary, for purposes of this Section 3.03(a), Stream shall pay to MMI Holdings
and CST Holdings 40% and 60%, respectively, of the federal Tax Refund for the
taxable year ended December 31, 1993 in respect of a carryback from the taxable
year ended April 21, 1995 in respect of Form 1120X filed by Stream in September,
1996, and 40% and 60%, respectively, of any federal or state overpayments of
Taxes in respect of any Pre-Drop-down Taxable Periods, and any Tax Deficiency
resulting from any subsequent adjustment to Tax Items which gave rise to such
Tax Refund or overpayments shall, to the extent of such Tax Refund and
overpayments, respectively, be borne by such parties in the same proportions.
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(iv) Any Tax Deficiency or Tax Refund with respect to (i) a
Tax Item not primarily related either to the Stream Business, the MMI Business
or the CST Business, or (ii) a CST Joint Tax Return or an MMI Joint Tax Return
not arising from an adjustment to, or change in, a Tax Item (e.g., change in
applicable law) shall be allocated 40% to MMI Holdings and 60% to CST Holdings.
(b) Other Returns. In the case of any Final Determination
-------------
regarding a Tax Return other than a Joint Tax Return described in Section
3.03(a):
(i) MMI Holdings (or a member of the MMI Group) shall pay
any Tax Deficiency to the appropriate taxing authority, and shall be entitled to
receive and retain all Tax Refunds, for all periods with respect to Tax Returns
that include only Tax Items primarily related to the MMI Business in accordance
with the principles set forth in Section 3.01.
(ii) CST Holdings (or a member of the CST Group) shall pay
any Tax Deficiency to the appropriate taxing authority, and shall be entitled to
receive and retain all Tax Refunds, for all periods with respect to Tax Returns
that include only Tax Items primarily related to the CST Business in accordance
with the principles set forth in Section 3.01.
(iii) Stream shall pay any Tax Deficiency to the appropriate
taxing authority, and shall be entitled to receive and retain all Tax Refunds,
for all periods with respect to Tax Returns that include Tax Items primarily
related to the Stream Business in accordance with the principles set forth in
Section 3.01.
(iv) Any Tax Deficiency or Tax Refund with respect to other
Tax Returns shall be paid by, or shall be received and retained by, the parties
in accordance with the principles set forth in Section 3.01.
(c) Calculation and Payment of Amounts. All calculations and
----------------------------------
determinations required to be made pursuant to this Section 3.03 shall be made
jointly by the parties hereto in good faith or, if necessary, pursuant to
Section 5.04 and on a basis reasonably consistent with prior years. Any
payments made by the parties hereunder to each other shall be treated by each of
the parties, to the maximum extent allowable under applicable Tax laws, as
adjustments to amounts transferred under the Contribution Agreements. The
amount of each payment shall be computed after taking into account all Tax
consequences to the recipient, or any Affiliate, of (i) the receipt of (or the
right to receive) the payment and (ii) the event or incurrence of the liability
that gave rise to the right to receive the payment. In determining the Tax
consequences to the recipient, or any Affiliate, for purposes of this Section
3.03(c), any Tax detriment, in the case of a payment, and any Tax benefit, in
the case of an event or an incurrence of a liability, shall be taken into
account in
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the taxable years or periods in which the recipient, or any Affiliate, is
required to pay additional Taxes by reason of the payment, or is entitled to a
refund of Tax or a reduction in the amount of Taxes it would otherwise be
required to pay by reason of the event or the incurrence of the liability.
Section 3.04 Liability for Taxes with Respect to Post-Drop-down Periods.
----------------------------------------------------------
Unless otherwise provided in this Agreement, or the Tax Reimbursement Agreement,
the Stream Group shall pay all Taxes and shall be entitled to receive and retain
all Tax Refunds with respect to Post-Drop-down Taxable Periods which are
attributable to the Stream Business. Unless otherwise provided in this
Agreement, or the Tax Reimbursement Agreement, each of the MMI Group and the CST
Group, as the case may be, shall pay all Taxes and shall be entitled to receive
and retain all refunds of Taxes with respect Post-Drop-down Taxable Periods
which are attributable to the MMI Business and the CST Business, respectively.
For purposes of this Section 3.04, each Straddle Period shall be treated as
described in Section 3.01.
Section 3.05 Carrybacks. Each of MMI Holdings and CST Holdings agrees that
----------
it will not carry back any Tax Item arising after the Drop-down Date to a
taxable period with respect to a Joint Tax Return which includes a member of the
Stream Group or the other Group of which it is not a member, without the consent
of Stream and the common parent of the other Group. In the event that MMI
Holdings and CST Holdings do carry back any such Tax Item with the consent of
Stream and the common parent of the other Group, any Tax Refund resulting
therefrom shall be paid over to MMI Holdings or CST Holdings, as the case may
be. To the extent that the carryback of any Tax Item does not result in a Tax
Refund (or would not result in a refund if a claim were filed) solely as the
result of an offsetting Tax Item attributable to another Group, such other Group
shall remit to MMI Holdings or CST Holdings, as the case may be, the amount of
any decrease in the MMI Group's or the CST Group's share of Tax with respect to
such return as a result of such carryback as determined under the principles
contained in Section 3.01 and 3.03(a).
Section 3.06 Responsibility for Reorganization Taxes. Stream shall be
---------------------------------------
responsible for 100% of any Reorganization Taxes, and shall indemnify, defend
and hold harmless MMI Holdings, CST Holdings and each member of their respective
Groups from and against all liability for such Reorganization Taxes.
-15-
<PAGE>
ARTICLE 4
INDEMNITY; COOPERATION AND EXCHANGE OF INFORMATION
--------------------------------------------------
Section 4.01 Breach. Stream shall be liable for and shall indemnify,
------
defend and hold harmless each member of the MMI Group and each member of the CST
Group and their officers and directors, from and against, any payment required
to be made as a result of a breach by a member of the Stream Group of any
obligation under this Agreement. MMI Holdings shall be liable for and shall
indemnify, defend and hold harmless each member of the Stream Group and each
member of the CST Group and their officers and directors from and against, any
payment required to be made as a result of the breach by a member of the MMI
Group of any obligation under this Agreement. CST Holdings shall be liable for
and shall indemnify, defend and hold harmless each member of the Stream Group
and each member of the MMI Group and their officers and directors, from and
against, any payment required to be made as a result of the breach by a member
of the CST Group of any obligation under this Agreement.
Section 4.02 Contest Rights
--------------
(a) Notice. Whenever a party hereto or any Affiliate thereof (the
------
"Notified Party") becomes aware of any audit, action, suit, investigation,
claim, assessment, litigation or other administrative or judicial proceeding
(collectively, a "Proceeding") that could result in a redetermination or other
adjustment to any Tax Item which could increase its liability or the liability
of any member of any Group (such party or any such member, hereinafter an
"Indemnitee") for any Tax for which another party hereto (hereinafter the
"Indemnitor") is or may be liable under this Agreement (hereinafter an
"Indemnity Issue"), the Notified Party shall promptly give notice to each other
party hereto of such Indemnity Issue. The failure of any Notified Party to give
such notice shall not relieve the Indemnitor of its obligations under this
Agreement except to the extent such Indemnitor or any of its Affiliates is
actually prejudiced by such failure to give notice.
(b) General Control Rights. Subject to the other provisions of
----------------------
this Section 4.02, with respect to any Proceeding in respect of a Tax Return
relating, in whole or in part, to an Indemnity Issue, the party who has
responsibility for filing such Tax Return (the "Responsible Party") shall have
the right to decide as between the parties hereto how such Proceeding is to be
dealt with and finally resolved with the appropriate taxing authority and shall
control all related Proceedings; provided, however, that if the Responsible
-------- -------
Party is not the Indemnitor, the Responsible Party shall:
-16-
<PAGE>
(i) promptly deliver to the Indemnitor complete copies of
all written notices, requests, or other information received from any taxing
authority or judicial or similar body that relate to any Indemnity Issue;
(ii) not provide any documents or other information to any
taxing authority or judicial or similar body that relate to the Indemnity Issue
without the Indemnitor's prior review;
(iii) not submit any written response or other written work
in respect of any Indemnity Issue to any taxing authority or judicial or similar
body without allowing the Indemnitor to review and revise such written response
or other written work to the extent it relates to any Indemnity Issue (with any
disagreement as to the ultimate language used in any such written response or
other written work to be resolved by the Responsible Party);
(iv) permit the Indemnitor and its representatives, at the
Indemnitor's sole expense, to participate fully in all conferences, meetings,
proceedings or judicial appearances with or before any taxing authority or
judicial or similar body (whether in person or by telephone) the subject matter
of which is or includes the Indemnity Issue;
(v) consult in good faith with the Indemnitor with
respect to all aspects of any action or position to be taken by the Responsible
Party that relates to any Indemnity Issue and take the Indemnitor's interests
into account;
(vi) not adopt any position in any Proceeding that
unfairly compromises an Indemnity Issue so as to gain any advantage with respect
to any non-Indemnity Issue which is the subject of the same or any related
Proceeding;
(vii) if the Proceeding relates solely to one or more
Indemnity Issues, permit the Indemnitor to control such Proceeding in all
respects; and
(viii) except in the circumstances described below, not make
any settlement offer to any taxing authority, discuss any settlement offer made
by any taxing authority, or accept any settlement offer made by any taxing
authority, in each case with respect to any Proceeding that is related, in whole
or in part, to any Indemnity Issue.
(c) Settlements. With respect to any settlement offer that
-----------
relates, in whole or in part, to any Indemnity Issue, the following rules shall
apply if the Responsible Party is not the Indemnitor:
-17-
<PAGE>
(i) no settlement offer shall be made by the Responsible
Party to any taxing authority except in writing and in such case the amount
offered with respect to any Indemnity Issue shall be determined solely by the
Indemnitor (as indicated in a written notice to the Responsible Party);
(ii) in the case of any settlement offer from a taxing
authority that is not in response to a written settlement offer by the
Responsible Party, the Responsible Party shall, if requested by the Indemnitor,
make a written settlement offer (i.e., a counter offer) to the taxing authority
----
in accordance with paragraph (c)(i); and
(iii) in the case of any settlement offer from a taxing
authority (other than a settlement offer described in paragraph (c)(ii)):
(A) the Responsible Party may make a written
settlement offer (i.e., a counter offer) to the taxing authority in accordance
with paragraph (c)(i);
(B) the Responsible Party may choose not to accept the
settlement offer from the taxing authority and instead choose to litigate the
issues reflected in such settlement offer, in which case the Responsible Party
shall litigate the Indemnity Issue, which litigation shall be conducted subject
to the rules of subsection (b) of this Section 4.02;
(C) the Responsible Party may notify the Indemnitor of
the Responsible Party's proposal that such settlement offer be accepted and
entered into and request the Indemnitor's consent to doing so and, upon (x) the
written consent to such settlement offer by the Indemnitor, (y) a failure of the
Indemnitor to respond to such proposal by the Responsible Party within thirty
days after receipt by the Indemnitor of such notice from the Responsible Party,
or (z) a failure of the Indemnitor to withhold its consent to such settlement
offer in accordance with subparagraph (D) below, the Responsible Party may
accept and enter into such settlement offer; or
(D) the Indemnitor may withhold its consent to a
settlement offer of which the Responsible Party has notified the Indemnitor in
accordance with subparagraph (C) above if the Indemnitor (x) notifies the
Responsible Party in writing within such 30-day period that the Indemnitor does
not consent to the proposed settlement, and (y) provides the Responsible Party
with an opinion from tax counsel selected by the Indemnitor and reasonably
satisfactory to the Responsible Party to the effect that there is a reasonable
possibility that the Responsible Party will prevail on the merits with respect
to one or more Indemnity Issues with an aggregate value of not less than the
lesser of $1 million or 25% of the
-18-
<PAGE>
amount at issue with respect to the Indemnitor in a tribunal with jurisdiction
to adjudicate the Indemnity Issues;
(E) if the Indemnitor provides the Responsible Party
with written notification withholding consent in accordance with subparagraph
(D) above, then:
(i) the Indemnitor shall fully indemnify and hold
harmless the Responsible Party from and against any and all liabilities (other
than liability for payments to the Indemnitor hereunder) for Taxes and other
costs and expenses (including, without limitation, additional attorneys' and
accountants' fees) over and above the payments that the Responsible Party would
have been liable for if the Responsible Party had entered into the proposed
settlement; and
(ii) the Responsible Party shall select one of the
following alternatives:
(1) the Responsible party shall enter into a closing
agreement or other final resolution with the relevant taxing authority with
respect to all issues in accordance with the proposed settlement other than
Indemnity Issues (if doing so would not preclude litigation or other judicial
proceedings with respect to the Indemnity Issues), provided that (i) such
--------
closing agreement or other final resolution specifically provides that it does
not apply to the Indemnity Issues, and (ii) the Responsible Party agrees to give
the Indemnitor and its representatives control over the relevant Proceedings,
and the Responsible Party further agrees (y) to take such actions requested by
Indemnitor or its representatives to continue to contest (or, if permitted by
applicable law, to permit the Indemnitor to contest) the Indemnity Issues
(through administrative proceedings or litigation, which proceedings or
litigation shall be conducted pursuant to the provisions of this Section 4.02
using counsel selected by the Indemnitor to the fullest extent possible), and
(z) to permit the Indemnitor, if successful, to obtain the full monetary benefit
of a successful contest;
(2) the Responsible Party shall settle all issues with
the relevant taxing authority in accordance with the proposed settlement, in
which case each of the Responsible Party and the Indemnitor shall, with respect
to its share thereof, pay any additional liability for Taxes as provided for in
such proposed settlement, provided that (i) such settlement shall specifically
--------
provide that it shall not preclude a refund claim from being filed with respect
to the Indemnity Issues and (ii) the Responsible Party agrees to give the
Indemnitor and its representatives control over the relevant Proceedings, and
agrees (y) to take such actions requested by the Indemnitor to continue to
contest (or, if permitted by applicable law, to permit the Indemnitor to
contest) the Indemnity Issues (through administrative proceedings or
-19-
<PAGE>
litigation, which proceedings or litigation shall be conducted pursuant to the
provisions of this Section 4.02, using counsel selected by the Indemnitor to the
fullest extent possible) and (z) to permit the Indemnitor, if successful, to
obtain the full monetary benefit of such claim for refund, taking into account
any payments to be made under Section 3.03; or
(3) the Responsible Party shall pay to the Indemnitor,
deposit with the taxing authority, or deposit in escrow any additional liability
for Taxes, interest and penalties as provided for in such settlement to the
extent that such liability relates to issues other than Indemnity Issues, and
the Responsible Party agrees to give the Indemnitor and its representatives
control over the relevant Proceedings, and further agrees (y) to take such
actions requested by the Indemnitor or its representatives to continue to
contest (or, if permitted by applicable law, to permit the Indemnitor to
contest) any Indemnity and non-Indemnity Issues (through administrative
proceedings or litigation, which proceedings or litigation shall be conducted
pursuant to the provisions of this Section 4.02, using counsel selected by the
Indemnitor to the fullest extent possible) and (z) to permit the Indemnitor, if
successful, to obtain the full monetary benefit of a successful contest.
(d) Payments to Stop Interest. An Indemnitor may, at its
-------------------------
election, pay to or deposit with the relevant taxing authority an amount of
additional Tax for which the Indemnitor would be liable hereunder if such
payment or deposit would have the effect of stopping the accrual of interest
with respect to such Tax liability. The Indemnitor shall have no further
responsibility hereunder for interest with respect to any amount so deposited or
paid for so long as such deposit or payment stops the accrual of interest;
provided, however, that any such payment or deposit does not affect any right of
- -------- -------
the Responsible Party or any other liability of the Indemnitor hereunder. The
Responsible Party shall pay to the Indemnitor the amount of any Tax received by
(or credited to the account of) the Indemnitee as a result of a determination
that such payment or deposit resulted in an overpayment of Tax with respect to
the Indemnity Issues.
(e) Termination. Notwithstanding the foregoing provisions of this
-----------
Section 4.02, the Indemnitee in its sole discretion by written notice to the
Indemnitor and the Responsible Party may refrain from contesting (through
administrative or judicial proceedings) any Indemnity Issue or may settle and
instruct the Responsible Party to settle any Indemnitee Issue with the relevant
Taxing authority without the consent of the Indemnitor, in which event each of
the Responsible Party and the Indemnitee shall be deemed to have unconditionally
waived its rights to indemnity with respect to such Indemnity Issue (and other
Indemnity Issues which are related to the Indemnity Issue which the Responsible
Party or Indemnitee refrained from contesting or settled pursuant to this
subsection (e)). In such event, the Responsible Party shall, within ten days
after the Indemnitee has decided to refrain from or settle
-20-
<PAGE>
such contest, reimburse the Indemnitor for all amounts previously advanced,
deposited or paid to the Responsible Party, Indemnitee or any taxing authority
(or deposited pursuant to the provisions of subsection (d) of this Section 4.02)
with respect to such Indemnity Issue (and other Indemnity Issues which are
related to the Indemnity Issue which the Responsible Party or Indemnitee has
refrained from contesting or settled pursuant to this subsection (e)), other
than third-party expenses incurred by the Responsible Party or Indemnitee in
contesting the Indemnity Issue, together with interest at the rate for
underpayment of tax determined pursuant to Section 6621(a)(2) of the Code in
effect from time to time, from the date of payment to the date of reimbursement.
(f) The rights of the parties under this Section 4.02 shall be
subject to the rights of RRD under Section 7 of the Tax Reimbursement Agreement.
Section 4.03 Cooperation and Exchange of Information.
----------------------------------------
(a) Each of MMI Holdings and CST Holdings shall, and shall cause
each appropriate member of the MMI Group and the CST Group, respectively, to
prepare and submit to Stream, at MMI Holdings' and CST Holdings' expense, (i)
not later than March 1 of the taxable year following the taxable year or period
that includes the Drop-down Date, all information as Stream shall reasonably
request to enable Stream to file extension requests with respect to the Stream
consolidated federal income Tax Return and with respect to any state and local
combined or unitary corporate income Tax Returns for the taxable year or period
that includes the Drop-down Date, and (ii) not later than July 31 of the taxable
year following the taxable year or period that includes the Drop-down Date, all
information as Stream shall reasonably request to enable Stream to file the
Stream consolidated federal income Tax Return and any state and local combined
or unitary corporate income Tax Returns for the taxable year or period that
includes the Drop-down Date. Representatives of MMI Holdings and CST Holdings
shall meet with representatives of Stream from time to time (but no more
frequently than monthly) as requested by Stream to discuss the status of the
preparation of the information set forth in clauses (i) and (ii) of this Section
4.03(a). If, as a result of any such meeting, Stream reasonably determines that
it is likely that MMI Holdings or CST Holdings will not be able to perform its
obligations under this Section 4.03(a) in a timely manner, then Stream shall
have the right to engage a certified public accounting firm of its choice to
gather such information and the MMI Group or the CST Group, as the case may be,
shall permit any such accounting firm full access to all appropriate records or
other information in its possession. The expenses of such accounting firm shall
be borne equally by Stream and MMI Holdings or CST Holdings, as the case may be.
(b) Stream, on behalf of itself and each member of the Stream
Group, agrees to provide to the MMI Group and the CST Group, and each of MMI
Holdings
-21-
<PAGE>
and CST Holdings, on behalf of itself and each member of the MMI Group and the
CST Group, respectively, agrees to provide the Stream Group and the CST Group in
the case of MMI Holdings and the MMI Group in the case of CST Holdings, with
such cooperation and information as a party shall reasonably request in
connection with the preparation or filing of any Tax Return or claim for refund
not inconsistent with this Agreement or in conducting any audit or other
proceeding in respect to Taxes. Such cooperation and information shall include
without limitation promptly forwarding copies of appropriate notices and forms
or other communications received from or sent to any taxing authority which
relate (i) to the Stream Group or the Stream Business, to Stream in the case of
the MMI Group and the CST Group, (ii) to the MMI Group or the MMI Business, to
MMI Holdings in the case of the Stream Group and the CST Group, and (iii) to the
CST Group or the CST Business, to CST Holdings in the case of the Stream Group
and the MMI Group; providing copies of all relevant Tax Returns, together with
accompanying schedules and related workpapers, documents relating to rulings or
other determinations by taxing authorities, including without limitation,
foreign taxing authorities, and records concerning the ownership and Tax basis
of property, which a party may possess; and the issuing corporation's providing
information to the employer corporation with respect to the exercise of
compensatory options to acquire stock of the issuing corporation by an
optionholder who was not an employee of the issuing corporation, including the
optionholder's name, social security number and address, the exercise date, the
exercise price, the fair market value and the number of shares issued, and such
other information as the employer corporation may reasonably request. Each party
shall make its employees and facilities available on a mutually convenient basis
to provide explanations of any documents or information provided hereunder.
(c) MMI Holdings, CST Holdings and Stream agree to retain all Tax
Returns, related schedules and workpapers, and all material records and other
documents as required under Section 6001 of the Code and the regulations
promulgated thereunder relating thereto existing on the date hereof or created
through the Drop-down Date, until the expiration of the statute of limitations
(including extensions) of the taxable years to which such Tax Returns and other
documents relate and until the Final Determination of any payments which may be
required in respect of such years under this Agreement. Stream, MMI Holdings
and CST Holdings agree to advise each other promptly of any such Final
Determination. Any information obtained under this Section 4.03 shall be kept
confidential, except as may be otherwise necessary in connection with the filing
of Tax Returns or claims for refund or in conducting any audit or other
proceeding.
(d) If any member of the Stream Group, the MMI Group or the CST
Group, as the case may be, fails to provide any information requested pursuant
to this Section 4.03 by (i) the dates, specified in subsection (a) hereof or,
(ii) with respect to information not requested pursuant to subsection (a)
hereof, within a reasonable
-22-
<PAGE>
period, then the requesting party shall have the right to engage a certified
public accounting firm of its choice to gather such information. Stream, MMI
Holdings and CST Holdings, as the case may be, agree upon 24 hours' notice, in
the case of a failure to provide information pursuant to subsection (a) hereof,
and otherwise upon 30 days' notice after the expiration of such reasonable
period, to permit any such accounting firm full access to all appropriate
records or other information in the possession of any member of the Stream
Group, the MMI Group or the CST Group, as the case may be, during reasonable
business hours, and to reimburse or pay directly all costs and expenses in
connection with the engagement of such public accountants.
(e) If any member of the Stream Group, the MMI Group or the CST
Group, as the case may be, supplies information to a non-member of the Stream
Group, MMI Group or CST Group, as the case may be, pursuant to this Section 4.03
and an officer of the requesting party signs a statement or other document under
penalties of perjury in reliance upon the accuracy of such information, then a
duly authorized officer of the party supplying such information shall certify,
under penalties of perjury, the accuracy and completeness of the information so
supplied. Stream agrees to indemnify and hold harmless each member of the MMI
Group and the CST Group and its directors, officers and employees, from and
against any cost, fine, penalty or other expense of any kind attributable to the
negligence or willful misconduct of a member of the Stream Group, in supplying a
member of the MMI Group or the CST Group with inaccurate or incomplete
information. Each of MMI Holdings and CST Holdings agrees to indemnify and hold
harmless each member of the Stream Group and the CST Group or the MMI Group, as
the case may be, and their directors, officers and employees, from and against
any cost, fine, penalty or other expense of any kind attributable to the
negligence or willful misconduct of a member of the MMI Group or the CST Group,
as the case may be, in supplying a member of the Stream Group or the other Group
with inaccurate or incomplete information.
Section 4.04 Injunction. The parties hereto agree that the payment of
----------
monetary compensation would not be an adequate remedy to a breach of the
obligations contained in Section 4.03 hereof, and each party consents to the
issuance and entry of an injunction against the taking of any action by it or a
member of its Group described in the preceding section.
-23-
<PAGE>
ARTICLE 5
MISCELLANEOUS
-------------
Section 5.01 Expenses. Unless otherwise expressly provided in this
--------
Agreement, each party shall bear any and all of its expenses that arise from its
obligations under this Agreement.
Section 5.02 Entire Agreement; Termination of Prior Agreements. This
-------------------------------------------------
Agreement constitutes the entire agreement of the parties concerning the subject
matter hereof and supersedes all other agreements, whether or not written, in
respect of any Tax between or among any member or members of one Group with any
member or members of any other Group. Except as otherwise provided herein,
effective as of the Drop-down Date, all such agreements are hereby cancelled and
any rights or obligations existing thereunder are hereby fully and finally
settled without any payment by any party thereto. Anything in this Agreement or
the Contribution Agreements to the contrary notwithstanding, in the event and to
the extent that there shall be a conflict between the provisions of this
Agreement and the Contribution Agreements, the provisions of this Agreement
shall control.
Section 5.03 Notices. Any notice, request, demand, claim, or other
-------
communication hereunder shall be in writing and shall be delivered by registered
or certified mail, return receipt requested, postage prepaid, and addressed to
the intended recipient as set forth below, and shall be deemed duly given on the
date which is three days after the date such notice, request, demand, claim, or
other communication is sent:
To Stream or any other member of the Stream Group:
Stream International Inc.
275 Dan Road
Canton, Massachusetts 02021
Fax: (781) 830-7465
Attention: Treasurer
To MMI Holdings or any other member of the MMI Group:
Modus Media International Holdings Inc.
690 Canton Street
Westwood, Massachusetts 02090
Fax: (781) 830-7465
Attention: Treasurer
-24-
<PAGE>
To CST Holdings or any other member of the CST Group:
Corporate Software and Technology Holdings Inc.
2 Edgewater Drive
Norwood, Massachusetts 02062
Fax: (781) 440-7444
Attention: Treasurer
Notwithstanding the foregoing, any party may send any notice, request,
demand, claim, or other communication hereunder to the intended recipient at the
address set forth above using any other means (including personal delivery,
expedited courier, messenger service, fax, telecopy, telex, ordinary mail, or
electronic mail), but no such notice, request, demand, claim, or other
communication shall be deemed to have been duly given unless and until it is
actually received by the intended recipient. Any party may change the address
to which notices, requests, demands, claims, and other communications hereunder
are to be delivered by giving the other party notice in the manner herein set
forth.
Section 5.04 Resolution of Disputes. Any disputes between the parties with
----------------------
respect to this Agreement shall be resolved in accordance with the dispute
resolution procedures set forth in Section 5.4.9 of each of the Contribution
Agreements.
Section 5.05 Application to Present and Future Subsidiaries; Joint and
---------------------------------------------- ----------
Several Liability. This Agreement is being entered into by each of Stream, MMI
- -----------------
Holdings, MMI, CST Holdings, and CST on behalf of itself and each member of the
Stream Group, the MMI Group and the CST Group, respectively. This Agreement
shall constitute a direct obligation of each such member and shall be deemed to
have been readopted and affirmed on behalf of any corporation which becomes a
member of the Stream Affiliated Group, the MMI Affiliated Group or the CST
Affiliated Group in the future. Stream, MMI Holdings and CST Holdings hereby
guarantee the performance of all actions, agreements and obligations provided
for under this Agreement of each member of the Stream Group, the MMI Affiliated
Group and the CST Affiliated Group, respectively. Each of Stream, MMI Holdings
and CST Holdings shall, upon the written request of the other, cause any of its
respective group members formally to execute this Agreement. References in this
Agreement to MMI Holdings and CST Holdings shall include MMI and CST,
respectively, as the context may require to result in joint and several
liability as between MMI Holdings and MMI, and joint and several liability as
between CST Holdings and CST, in respect of the obligations under this
Agreement.
Section 5.06 Term. This Agreement shall commence on the date of execution
----
indicated below and shall continue in effect until otherwise agreed to in
writing by the parties, or their successors.
-25-
<PAGE>
Section 5.07 Titles and Headings. Titles and headings to sections herein
-------------------
are inserted for the convenience of reference only and are not intended to be a
part or to affect the meaning or interpretation of this Agreement.
Section 5.08 Legal Enforceability. Any provision of this Agreement which
--------------------
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. Without prejudice
to any rights or remedies otherwise available to any party hereto, each party
hereto acknowledges that damages would be an inadequate remedy for any breach of
the provisions of this Agreement and agrees that the obligations of the parties
hereunder shall be specifically enforceable.
Section 5.09 Successors and Assigns. This Agreement and all of the
----------------------
provisions hereof shall be binding upon and inure to the benefit of the parties
and their respective successors and assigns.
Section 5.10 Amendments. This Agreement may not be modified or amended
----------
except by an agreement in writing, signed by the parties hereto.
Section 5.11 Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed to be an original and all of which together shall
be deemed to be one and the same instrument.
Section 5.12 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the domestic substantive laws of the Commonwealth
of Massachusetts without regard to any choice or conflict of law rule or
provision that would result in the application of the domestic substantive laws
of any other jurisdiction.
-26-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this agreement as of the day
and year first above written.
STREAM INTERNATIONAL INC.
By /s/ Judith G. Salerno
---------------------------------
Title: President
-----------------------------
MODUS MEDIA INTERNATIONAL HOLDINGS, INC.
By /s/ Terence M. Leahy
---------------------------------
Title: President
-----------------------------
MODUS MEDIA INTERNATIONAL, INC.
By /s/ Terence M. Leahy
---------------------------------
Title: President
-----------------------------
CORPORATE SOFTWARE & TECHNOLOGY HOLDINGS, INC.
By /s/ Howard S. Diamond
---------------------------------
Title: President
-----------------------------
CORPORATE SOFTWARE & TECHNOLOGY, INC.
By /s/ Howard S. Diamond
---------------------------------
Title: President
-----------------------------
-27-
<PAGE>
Tax Sharing Ag't-3.01(d)(vii)
Tax Sharing Agreement
Schedule 3.01(d)(vii)
<TABLE>
<CAPTION>
--------------------------------------------
Separate Tax Items
--------------------------------------------
1995 1996 1997
--------------------------------------------
As Filed Post-Audit
---------------------
<S> <C> <C> <C> <C>
MMI Holdings and MMI (50) 75 75 75
CST Holdings and CST (50) 50 75 75
Stream - Operating Income (loss) (100) (150) 100 100
Stream - Reorganization Tax Income - - - 300
--------------------------------------------
Totals (200) (25) 250 550
--------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Allocation of Loss Attributes from Pre-Drop-down Taxable Periods
---------------------------------------------------------------------------
1996 1997
--------------------------------------------------
As filed Post-Audit
---------------------------------------------------------------------------
Cumulative Loss Cumulative Loss Cumulative Loss
Separate Attributes Separate Attributes Separate Attributes
Tax Items Used Tax Items Used Tax Items Used
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MMI Holdings and MMI 25 (75) 100 (71) 100 -
CST Holdings and CST - (50) 75 (54) 75 -
Stream - Operating Income (loss) (250) - (150) (100) (150) -
Stream - Reorganization Tax Income - 300 (225)
---------------------------------------------------------------------------
Totals (225) (125) 25 (225) 325 (225)
---------------------------------------------------------------------------
</TABLE>
================================================================================
"Separate Tax Items" are net Tax Items primarily related to each Business under
the principles of Section 3.01 without regard to carryovers.
================================================================================
<PAGE>
EXHIBIT 10.15
GUARANTY
--------
This Guaranty (the "Guaranty") is made as of December 15, 1997 by R.R.
Donnelley & Sons Company, a Delaware corporation (the "Guarantor"), in favor of
Stream International Inc., a Delaware corporation (f/k/a Stream International
Holdings Inc.) ("Stream"). Capitalized terms used herein but not otherwise
defined herein shall have the respective meanings ascribed to them in that
certain Contribution Agreement dated as of the date hereof (the "Contribution
Agreement") among Stream, Modus Media International, Inc., a Delaware
corporation ("MMI") and Modus Media International Holdings, Inc., a Delaware
corporation ("MMI Holdings"); provided that matters related to Taxes shall have
--------
the respective meanings ascribed to them in the Tax Sharing Agreement dated as
of the date hereof (the "Tax Sharing Agreement") among Stream, MMI Holdings,
MMI, Corporate Software & Technology Holdings, Inc., a Delaware corporation
("CST Holdings"), and Corporate Software & Technology, Inc., a Delaware
corporation.
1. (a) In order to induce Stream to enter into the Contribution
Agreement and the Tax Sharing Agreement and to effect the Drop-down and in
consideration thereof, Guarantor hereby unconditionally and irrevocably
guarantees to Stream and its subsidiaries and to its successors and/or assigns
the payment as and when due of all the (i) Indemnifiable Losses required to be
paid by MMI Holdings or MMI pursuant to Section 5.2 of the Contribution
Agreement, (ii) Other Taxes for which MMI Holdings or MMI has indemnified any
member of the Stream Group (as defined in the Tax Sharing Agreement) or
otherwise agreed to pay to Stream pursuant to the Tax Sharing Agreement (the
obligations described in clauses (i) and (ii) are hereinafter collectively
referred to as the "Guaranteed General Obligations"); and (iii) Income Taxes for
which MMI Holdings or MMI has indemnified any member of the Stream Group
pursuant to the Tax Sharing Agreement (the "Guaranteed Income Tax Obligations");
provided that Guarantor shall have no obligation to guarantee payment of, or
- --------
pay, any Guaranteed General Obligation to the extent such Guaranteed General
Obligation arises from or relates to (A) a claim asserted by a Claim Notice from
a Stream International Indemnitee pursuant to Section 5.4.5 of the Contribution
Agreement received by MMI Holdings or MMI after the third anniversary of the
date hereof, (B) a claim asserted by a Third Party Claim Notice from a Stream
International Indemnitee relating to a Third Party Claim pursuant to Section
5.4.1 of the Contribution Agreement received by MMI Holdings or MMI after the
third anniversary of the date hereof or (C) a claim asserted by a member of the
Stream Group pursuant to the Tax Sharing Agreement after the third anniversary
of the date hereof; provided, further, that notwithstanding anything in this
-------- -------
Guaranty to the contrary, the maximum aggregate amount Guarantor shall be
required to pay under this Guaranty in respect of Guaranteed General Obligations
and under a similar guaranty dated as of the date hereof in favor of Stream with
respect to CST Holdings in respect of Guaranteed General Obligations (as defined
therein), shall be $100,000,000, net of any such amount reimbursed to the
<PAGE>
Guarantor by Stream, CST Holdings, MMI Holdings or their Subsidiaries (the
"Maximum Liability").
(b) The Guaranteed General Obligations and the Guaranteed Income Tax
Obligations are hereinafter collectively referred to as the "Guaranteed
Obligations."
2. Notwithstanding anything in this Guaranty to the contrary, Guarantor
shall not be required to make payment of any particular Guaranteed Obligation
until the earlier of the following shall have occurred: (i) with respect to
such Guaranteed Obligation, the sixtieth (60th) day following the Due Date or
the date payment thereof was due by MMI Holdings or MMI pursuant to the Tax
Sharing Agreement, as the case may be, shall have elapsed and the Guaranteed
Obligation shall not have been previously paid in full, or (ii) an Event of
Bankruptcy (as defined below) shall have occurred with respect to MMI Holdings,
MMI or any permitted successor to MMI Holdings' or MMI's obligations pursuant to
the Contribution Agreement or the Tax Sharing Agreement, as the case may be;
provided, however, that any claim by Stream against the Guarantor with respect
- -------- -------
to any Guaranteed Obligation relating to Taxes shall be accompanied by a writing
from Stream, reasonably satisfactory to the Guarantor, setting forth the
determination of any Tax Benefits (as defined in the Tax Reimbursement
Agreement) with respect to each taxable year or period ended prior to the time
such claim is made (including, without limitation, relevant Tax Returns and
Stream's or any accountant's workpapers, supporting documents or other
information). Upon receipt of any writing described in the foregoing proviso
clause, Stream and the Guarantor shall determine (1) the amount, if any, owing
by the Guarantor under this Guaranty in respect of such claim and (2) assuming
such amount were paid by the Guarantor to Stream, the amount, if any, owing by
Stream to the Guarantor under Section 4 of the Tax Reimbursement Agreement.
Within 30 days of such determinations (but in no event earlier than ten days
prior to the date Stream is required to make payment of such claimed amount to a
taxing authority), the Guarantor shall pay to Stream the excess, if any, of the
amount determined under clause (1) over the amount determined under clause (2).
For purposes of the Tax Reimbursement Agreement, Guarantor shall be treated as
having paid to Stream an amount hereunder with respect to Taxes (in addition to
amounts actually paid to Stream with respect to Taxes hereunder), and Stream
shall be treated as having paid to Guarantor under Section 4(a) of the Tax
Reimbursement Agreement, the amount described in clause (2).
3. If Guarantor fails to promptly perform its obligations under this
Guaranty, Stream may from time to time, and without first requiring performance
by MMI Holdings or MMI, bring any action at law or in equity or both to compel
Guarantor to perform its obligations hereunder and to collect in any such action
compensation for all loss, cost, damage, injury and expense sustained or
incurred by Stream or its subsidiaries as a direct or indirect consequence of
the failure of
-2-
<PAGE>
Guarantor to perform its obligations, together with interest thereon at the
lesser of (a) 10% per annum or (b) the maximum rate permitted by applicable law.
4. Guarantor hereby waives: (a) any defense based upon any legal
disability or other defense of MMI Holdings or its Subsidiaries or any other
Person or by reason of the cessation or limitation of the liability of MMI
Holdings or its Subsidiaries from any cause (including improper or impermissible
assignment to or assumption by MMI Holdings or its Subsidiaries of any
Guaranteed Obligations) other than full payment of all sums payable in respect
of the Guaranteed Obligations; (b) any defense based upon any lack of authority
of the officers, directors or agents acting or purporting to act on behalf of
MMI Holdings or its Subsidiaries or any other Person which may have created any
Guaranteed Obligation or any defect in the formation of MMI Holdings or its
Subsidiaries or any other Person which may have created any Guaranteed
Obligation; (c) any defense based upon Stream's election of any remedy against
Guarantor, CST Holdings, MMI Holdings or their Subsidiaries; (d) any defense
based upon Stream's failure to disclose to Guarantor any information concerning
MMI Holdings' or MMI's financial condition or any other circumstance bearing on
MMI Holdings' or MMI's ability to pay all sums payable in respect of the
Guaranteed Obligations; (e) any defense based upon any statute or rule of law
which provides that the obligation of a surety must be neither larger in amount
nor in any other respect more burdensome than that of a principal; (f)
presentment, demand, protest and notice of any kind; (g) the benefit of any
statute of limitations affecting the liability of Guarantor hereunder or the
enforcement thereof; and (h) to the extent permitted by applicable law, all
principles or provisions of law which conflict with the terms of this Guaranty.
5. Guarantor warrants and acknowledges that (a) Stream would not have
entered into the Contribution Agreement and the Tax Sharing Agreement but for
this Guaranty; (b) there are no conditions precedent to the effectiveness of
this Guaranty, and this Guaranty shall be in full force and effect and binding
on Guarantor as of the date hereof; (c) Guarantor has established adequate means
of obtaining from sources other than Stream, on a continuing basis, financial
and other information pertaining to MMI Holdings' and MMI's financial condition
and the status of MMI Holdings' and MMI's performance of obligations imposed by
the Contribution Agreement and the Tax Sharing Agreement, and Stream has made no
representation to Guarantor concerning any such matters; and (d) Guarantor has
reviewed a copy of the Contribution Agreement and the Tax Sharing Agreement and
is fully informed of the remedies Stream may pursue in the event of a default
thereunder.
6. This is a guaranty of payment and not of collection and the
obligations of Guarantor hereunder shall be in addition to and shall not limit
or in any way affect the obligations of Guarantor under any other existing or
future guaranties unless said other guaranties are expressly modified or revoked
in writing. This Guaranty is independent of the obligations of MMI Holdings or
MMI under the
-3-
<PAGE>
Contribution Agreement and the Tax Sharing Agreement. Stream may bring a
separate action to enforce the provisions hereof against Guarantor without
taking action against MMI Holdings, MMI or any other party or joining MMI
Holdings, MMI or any other party as a party to such action.
7. As used in this Guaranty, "Event of Bankruptcy" means as to MMI
Holdings, MMI or any permitted successor to MMI Holdings' obligations under the
Contribution Agreement or the Tax Sharing Agreement (1) the filing of a
voluntary petition in bankruptcy or for reorganization or for the adoption of an
arrangement under the Federal Bankruptcy Code (as now or in the future amended)
or an admission seeking the relief therein provided; (2) the making of a general
assignment for the benefit of its creditors; (3) the consent to the appointment
of a receiver for all or a substantial part of its property; (4) in case of the
filing of an involuntary petition in bankruptcy, the failure to effect a full
dismissal of such petition prior to the earlier of the entry of any order
granting relief sought in the involuntary petition or sixty (60) days after the
date of filing of the petition; (5) the entry of a court order appointing a
receiver or trustee for all or a substantial part of its property without its
consent; or (6) the assumption of custody or sequestration by a court of
competition jurisdiction of all or substantially all of its property.
8. If any attorney is engaged by Stream to enforce or defend any
provisions of the Guaranty, with or without the filing of any legal action or
proceeding, Guarantor shall pay to Stream, immediately upon demand, the amount
of all reasonable attorneys' fees and out-of-pocket costs incurred by Stream in
connection herewith.
9. Guarantor's performance of a portion, but not all, of the Guaranteed
Obligations shall in no way limit, affect, modify or abridge Guarantor's
liability for that portion of the Guaranteed Obligations which are not
performed. Without in any way limiting the generality of the foregoing, in the
event that Stream is awarded a judgment in any suit brought to enforce
Guarantor's covenant to perform a portion of the Guaranteed Obligations, such
judgment shall in no way be deemed to release Guarantor from its covenant to
perform any portion of the Guaranteed Obligations which are not the subject of
such suit.
10. This Guaranty shall be binding upon Guarantor, its representatives,
successors and assigns (including any acquirer of substantially all of
Guarantor's assets) and shall inure to the benefit of and shall be enforceable
by Stream and its successors and assigns. Notwithstanding the foregoing, this
Guaranty may not be assigned by Guarantor without the prior written consent of
Stream. Any permitted assignee and any successor of Guarantor (including any
acquirer of substantially all of Guarantor's assets) must agree in writing to be
bound by this Guaranty.
11. This Guaranty shall survive the merger, sale or liquidation of MMI
Holdings or MMI. This Guaranty shall not be impaired by any modification,
release
-4-
<PAGE>
or other alteration of any portion of the Guaranteed Obligations, nor by any
agreement with, or release of, MMI Holdings, MMI or any other Person; provided,
--------
however, that the Guarantor shall be released from its obligations hereunder to
- -------
the extent that any such modification, release or other alteration releases
Stream and its Subsidiaries from Liability and; provided, further, that if
-------- -------
Stream releases MMI Holdings and MMI from any Guaranteed Obligation, the
Guarantor shall be released from its obligations hereunder with respect to such
Guaranteed Obligation to the same extent (but only to the same extent) that
Stream has released MMI Holdings and MMI from such Guaranteed Obligation.
12. If any provision of this Guaranty shall be determined by a court of
competent jurisdiction to be invalid, illegal or unenforceable, that portion
shall be deemed severed from this Guaranty and the remaining parts shall remain
in full force as though the invalid, illegal or unenforceable portion had never
been part of this Guaranty.
13. This Guaranty shall be governed by, and construed in accordance with,
the laws of the Commonwealth of Massachusetts.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-5-
<PAGE>
IN WITNESS WHEREOF, Guarantor has executed this Guaranty as of the date
appearing on the first page of this Guaranty.
R.R. DONNELLEY & SONS COMPANY, a Delaware
corporation
By: /s/ C. A. Francis
------------------------------------
Name: C. A. Francis
Title: Executive V.P. and Chief
Financial Officer
ACCEPTED AND AGREED:
STREAM INTERNATIONAL INC.
By: /s/ Judith G. Salerno
-----------------------
Name: Judith G. Salerno
Title: President
-6-
<PAGE>
EXHIBIT 10.16
GUARANTY
--------
This Guaranty (the "Guaranty") is made as of December 15, 1997 by R.R.
Donnelley & Sons Company, a Delaware corporation (the "Guarantor"), in favor of
Stream International Inc., a Delaware corporation (f/k/a Stream International
Holdings Inc.) ("Stream"). Capitalized terms used herein but not otherwise
defined herein shall have the respective meanings ascribed to them in that
certain Contribution Agreement dated as of the date hereof (the "Contribution
Agreement") among Stream, Stream International Services Corp., a Delaware
corporation (f/k/a Stream International Inc.), Corporate Software & Technology,
Inc., a Delaware corporation ("CST") and Corporate Software & Technology
Holdings, Inc., a Delaware corporation ("CST Holdings"); provided that matters
--------
related to Taxes shall have the respective meanings ascribed to them in the Tax
Sharing Agreement dated as of the date hereof (the "Tax Sharing Agreement")
among Stream, CST Holdings, CST, Modus Media International Holdings, Inc., a
Delaware corporation ("MMI Holdings"), and Modus Media International, Inc., a
Delaware corporation ("MMI").
1. (a) In order to induce Stream to enter into the Contribution
Agreement and the Tax Sharing Agreement and to effect the Drop-down and in
consideration thereof, Guarantor hereby unconditionally and irrevocably
guarantees to Stream and its subsidiaries and to its successors and/or assigns
the payment as and when due of all the (i) Indemnifiable Losses required to be
paid by CST Holdings or CST pursuant to Section 5.2 of the Contribution
Agreement, (ii) Other Taxes for which CST Holdings or CST has indemnified any
member of the Stream Group (as defined in the Tax Sharing Agreement) or
otherwise agreed to pay to Stream pursuant to the Tax Sharing Agreement (the
obligations described in clauses (i) and (ii) are hereinafter collectively
referred to as the "Guaranteed General Obligations"); and (iii) Income Taxes for
which CST Holdings or CST has indemnified any member of the Stream Group
pursuant to the Tax Sharing Agreement (the "Guaranteed Income Tax Obligations");
provided that Guarantor shall have no obligation to guarantee payment of, or
- --------
pay, any Guaranteed General Obligation to the extent such Guaranteed General
Obligation arises from or relates to (A) a claim asserted by a Claim Notice from
a Stream International Indemnitee pursuant to Section 5.4.5 of the Contribution
Agreement received by CST Holdings or CST after the third anniversary of the
date hereof, (B) a claim asserted by a Third Party Claim Notice from a Stream
International Indemnitee relating to a Third Party Claim pursuant to Section
5.4.1 of the Contribution Agreement received by CST Holdings or CST after the
third anniversary of the date hereof, or (C) a claim asserted by a member of the
Stream Group pursuant to the Tax Sharing Agreement after the third anniversary
of the date hereof; provided, further, that notwithstanding anything in this
-------- -------
Guaranty to the contrary, the maximum aggregate amount Guarantor shall be
required to pay under this Guaranty in respect of Guaranteed General Obligations
and under a similar guaranty dated as of the date hereof in favor of Stream with
respect to MMI Holdings in respect of Guaranteed General Obligations (as defined
<PAGE>
therein), shall be $100,000,000, net of any such amount reimbursed to the
Guarantor by Stream, MMI Holdings, CST Holdings or their Subsidiaries (the
"Maximum Liability"). For purposes of this Guaranty, a Third Party Claim Notice
required pursuant to clause (B) of the preceding sentence is deemed to have been
given as of the date hereof with respect to Liabilities related to State of
--------
Wisconsin Investment Board and Cede & Co. v. Corporate Software, Inc. filed on
- ---------------------------------------------------------------------
May 17, 1994 in the Delaware Court of Chancery regardless of when the case is
ultimately resolved.
(b) The Guaranteed General Obligations and the Guaranteed Income Tax
Obligations are hereinafter collectively referred to as the "Guaranteed
Obligations."
2. Notwithstanding anything in this Guaranty to the contrary, Guarantor
shall not be required to make payment of any particular Guaranteed Obligation
until the earlier of the following shall have occurred: (i) with respect to
such Guaranteed Obligation, the sixtieth (60th) day following the Due Date or
the date payment thereof was due by CST Holdings or CST pursuant to the Tax
Sharing Agreement, as the case may be, shall have elapsed and the Guaranteed
Obligation shall not have been previously paid in full, or (ii) an Event of
Bankruptcy (as defined below) shall have occurred with respect to CST Holdings,
CST or any permitted successor to CST Holdings' or CST's obligations pursuant to
the Contribution Agreement or the Tax Sharing Agreement, as the case may be;
provided, however, that any claim by Stream against the Guarantor with respect
- -------- -------
to any Guaranteed Obligation relating to Taxes shall be accompanied by a writing
from Stream, reasonably satisfactory to the Guarantor, setting forth the
determination of any Tax Benefits (as defined in the Tax Reimbursement
Agreement) with respect to each taxable year or period ended prior to the time
such claim is made (including, without limitation, relevant Tax Returns and
Stream's or any accountant's workpapers, supporting documents or other
information). Upon receipt of any writing described in the foregoing proviso
clause, Stream and the Guarantor shall determine (1) the amount, if any, owing
by the Guarantor under this Guaranty in respect of such claim and (2) assuming
such amount were paid by the Guarantor to Stream, the amount, if any, owing by
Stream to the Guarantor under Section 4 of the Tax Reimbursement Agreement.
Within 30 days of such determinations (but in no event earlier than ten days
prior to the date Stream is required to make payment of such claimed amount to a
taxing authority), the Guarantor shall pay to Stream the excess, if any, of the
amount determined under clause (1) over the amount determined under clause (2).
For purposes of the Tax Reimbursement Agreement, Guarantor shall be treated as
having paid to Stream an amount hereunder with respect to Taxes (in addition to
amounts actually paid to Stream with respect to Taxes hereunder), and Stream
shall be treated as having paid to Guarantor under Section 4(a) of the Tax
Reimbursement Agreement, the amount described in clause (2).
-2-
<PAGE>
3. If Guarantor fails to promptly perform its obligations under this
Guaranty, Stream may from time to time, and without first requiring performance
by CST Holdings or CST, bring any action at law or in equity or both to compel
Guarantor to perform its obligations hereunder and to collect in any such action
compensation for all loss, cost, damage, injury and expense sustained or
incurred by Stream or its subsidiaries as a direct or indirect consequence of
the failure of Guarantor to perform its obligations, together with interest
thereon at the lesser of (a) 10% per annum or (b) the maximum rate permitted by
applicable law.
4. Guarantor hereby waives: (a) any defense based upon any legal
disability or other defense of CST Holdings or its Subsidiaries or any other
Person or by reason of the cessation or limitation of the liability of CST
Holdings or its Subsidiaries from any cause (including improper or impermissible
assignment to or assumption by CST Holdings or its Subsidiaries of any
Guaranteed Obligations) other than full payment of all sums payable in respect
of the Guaranteed Obligations; (b) any defense based upon any lack of authority
of the officers, directors or agents acting or purporting to act on behalf of
CST Holdings or its Subsidiaries or any other Person which may have created any
Guaranteed Obligation or any defect in the formation of CST Holdings or its
Subsidiaries or any other Person which may have created any Guaranteed
Obligation; (c) any defense based upon Stream's election of any remedy against
Guarantor, MMI Holdings, CST Holdings or their Subsidiaries; (d) any defense
based upon Stream's failure to disclose to Guarantor any information concerning
CST Holdings' or CST's financial condition or any other circumstance bearing on
CST Holdings' or CST's ability to pay all sums payable in respect of the
Guaranteed Obligations; (e) any defense based upon any statute or rule of law
which provides that the obligation of a surety must be neither larger in amount
nor in any other respect more burdensome than that of a principal; (f)
presentment, demand, protest and notice of any kind; (g) the benefit of any
statute of limitations affecting the liability of Guarantor hereunder or the
enforcement thereof; and (h) to the extent permitted by applicable law, all
principles or provisions of law which conflict with the terms of this Guaranty.
5. Guarantor warrants and acknowledges that (a) Stream would not have
entered into the Contribution Agreement and the Tax Sharing Agreement but for
this Guaranty; (b) there are no conditions precedent to the effectiveness of
this Guaranty, and this Guaranty shall be in full force and effect and binding
on Guarantor as of the date hereof; (c) Guarantor has established adequate means
of obtaining from sources other than Stream, on a continuing basis, financial
and other information pertaining to CST Holdings' and CST's financial condition
and the status of CST Holdings' and CST's performance of obligations imposed by
the Contribution Agreement and the Tax Sharing Agreement, and Stream has made no
representation to Guarantor concerning any such matters; and (d) Guarantor has
reviewed a copy of the Contribution Agreement and the Tax Sharing Agreement and
is fully informed of the remedies Stream may pursue in the event of a default
thereunder.
-3-
<PAGE>
6. This is a guaranty of payment and not of collection and the
obligations of Guarantor hereunder shall be in addition to and shall not limit
or in any way affect the obligations of Guarantor under any other existing or
future guaranties unless said other guaranties are expressly modified or revoked
in writing. This Guaranty is independent of the obligations of CST Holdings or
CST under the Contribution Agreement and the Tax Sharing Agreement. Stream may
bring a separate action to enforce the provisions hereof against Guarantor
without taking action against CST Holdings, CST or any other party or joining
CST Holdings, CST or any other party as a party to such action.
7. As used in this Guaranty, "Event of Bankruptcy" means as to CST
Holdings, CST or any permitted successor to CST Holdings' obligations under the
Contribution Agreement or the Tax Sharing Agreement (1) the filing of a
voluntary petition in bankruptcy or for reorganization or for the adoption of an
arrangement under the Federal Bankruptcy Code (as now or in the future amended)
or an admission seeking the relief therein provided; (2) the making of a general
assignment for the benefit of its creditors; (3) the consent to the appointment
of a receiver for all or a substantial part of its property; (4) in case of the
filing of an involuntary petition in bankruptcy, the failure to effect a full
dismissal of such petition prior to the earlier of the entry of any order
granting relief sought in the involuntary petition or sixty (60) days after the
date of filing of the petition; (5) the entry of a court order appointing a
receiver or trustee for all or a substantial part of its property without its
consent; or (6) the assumption of custody or sequestration by a court of
competition jurisdiction of all or substantially all of its property.
8. If any attorney is engaged by Stream to enforce or defend any
provisions of the Guaranty, with or without the filing of any legal action or
proceeding, Guarantor shall pay to Stream, immediately upon demand, the amount
of all reasonable attorneys' fees and out-of-pocket costs incurred by Stream in
connection herewith.
9. Guarantor's performance of a portion, but not all, of the
Guaranteed Obligations shall in no way limit, affect, modify or abridge
Guarantor's liability for that portion of the Guaranteed Obligations which are
not performed. Without in any way limiting the generality of the foregoing, in
the event that Stream is awarded a judgment in any suit brought to enforce
Guarantor's covenant to perform a portion of the Guaranteed Obligations, such
judgment shall in no way be deemed to release Guarantor from its covenant to
perform any portion of the Guaranteed Obligations which are not the subject of
such suit.
10. This Guaranty shall be binding upon Guarantor, its representatives,
successors and assigns (including any acquirer of substantially all of
Guarantor's assets) and shall inure to the benefit of and shall be enforceable
by Stream and its successors and assigns. Notwithstanding the foregoing, this
Guaranty may not be
-4-
<PAGE>
assigned by Guarantor without the prior written consent of Stream. Any permitted
assignee and any successor of Guarantor (including any acquirer of substantially
all of Guarantor's assets) must agree in writing to be bound by this Guaranty.
11. This Guaranty shall survive the merger, sale or liquidation of CST
Holdings or CST. This Guaranty shall not be impaired by any modification,
release or other alteration of any portion of the Guaranteed Obligations, nor by
any agreement with, or release of, CST Holdings, CST or any other Person;
provided, however, that the Guarantor shall be released from its obligations
- -------- -------
hereunder to the extent that any such modification, release or other alteration
releases Stream and its Subsidiaries from Liability and; provided, further,
-------- -------
that if Stream releases CST Holdings and CST from any Guaranteed Obligation, the
Guarantor shall be released from its obligations hereunder with respect to such
Guaranteed Obligation to the same extent (but only to the same extent) that
Stream has released CST Holdings and CST from such Guaranteed Obligation.
12. If any provision of this Guaranty shall be determined by a court of
competent jurisdiction to be invalid, illegal or unenforceable, that portion
shall be deemed severed from this Guaranty and the remaining parts shall remain
in full force as though the invalid, illegal or unenforceable portion had never
been part of this Guaranty.
13. This Guaranty shall be governed by, and construed in accordance with,
the laws of the Commonwealth of Massachusetts.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-5-
<PAGE>
IN WITNESS WHEREOF, Guarantor has executed this Guaranty as of the date
appearing on the first page of this Guaranty.
R.R. DONNELLEY & SONS COMPANY, a
Delaware corporation
By: /s/ C. A. Francis
-------------------------------
Name: C. A. Francis
Title: Executive V.P. and Chief
Financial Officer
ACCEPTED AND AGREED:
STREAM INTERNATIONAL INC.
By: /s/ Judith G. Salerno
-----------------------------
Name: Judith G. Salerno
Title: President
-6-
<PAGE>
EXHIBIT 10.17
================================================================================
REGISTRATION RIGHTS AGREEMENT
Dated as of April 21, 1995
among
STREAM INTERNATIONAL INC.
(Formerly Known As
R.R. DONNELLEY GLOBAL SOFTWARE SERVICES CORP.)
R.R. DONNELLEY & SONS COMPANY,
R.R. DONNELLEY INTERNATIONAL, INC.
R.R. DONNELLEY NORWEST INC.,
and
THE INVESTORS BECOMING PARTIES TO THIS AGREEMENT
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
This Table of Contents is not part of the Agreement to which it is attached
but is inserted for convenience only.
Page
<TABLE>
<CAPTION>
<S> <C> <C>
Section 1. Definitions...................................................... 1
Section 2. Demand Registration Rights....................................... 8
(a) Demands for Registration by Qualifying Holders................. 8
(b) Demands for Registration by RRD................................ 9
(c) Demand Registrations Generally................................. 9
(d) Registration Statement Form.................................... 10
(e) Registration Expenses.......................................... 11
(f) Priority in Cutback Registrations.............................. 11
(g) Preemption of Demand Registration.............................. 12
(h) Preemption of Qualifying Holder Demand Registration............ 12
Section 3. Piggyback Registrations.......................................... 13
(a) Right to Include Registrable Securities........................ 13
(b) Registration Expenses.......................................... 14
(c) Priority in Cutback Registrations.............................. 14
Section 5. Underwritten Offerings........................................... 20
(a) Underwritten Offerings in Connection with Demand Registration.. 20
(b) Underwritten Piggyback Offerings............................... 21
Section 6. Holdback Agreements 21
(a) By the Holders................................................. 21
(b) By the Company and Other Security holders...................... 22
Section 7. Indemnification.................................................. 22
(a) Indemnification by the Company................................. 22
(b) Indemnification by the Sellers................................. 23
(c) Notices of Claims.............................................. 24
(e) Indemnification Payments....................................... 25
Section 8. Covenants Relating to Rule 144................................... 26
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Section 9. Other Registration Rights........................................ 26
(a) No Existing Agreements......................................... 26
(b) Future Agreements.............................................. 26
Section 10. Selection of Underwriters........................................ 26
Section 11. Counterparts: Additional Parties................................. 27
Section 12. Miscellaneous.................................................... 27
(a) Notices........................................................ 27
(b) Entire Agreement............................................... 28
(c) Amendment...................................................... 29
(d) Waiver......................................................... 29
(e) Consents and Waivers by Holders................................ 29
(f) No Third Party Beneficiary..................................... 29
(g) Successors and Assigns......................................... 29
(h) Headings....................................................... 29
(i) Invalid provisions............................................. 30
(j) Remedies....................................................... 30
(k) Governing Law: Consent To Jurisdiction........................ 30
(l) Restated Certificate of Incorporation.......................... 31
</TABLE>
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT dated as of April 21, 1995 is made and
entered into by and among Stream International Inc., a Delaware corporation
formerly known as R.R. Donnelley Global Software Services Corp. (the "Company"),
-------
R.R. Donnelley & Sons Company, a Delaware corporation ("RRD"), R.R. Donnelley
---
International, Inc., a Delaware corporation ("RRD International"), R.R.
-----------------
Donnelley Norwest Inc., an Oregon corporation ("RRD Norwest"), and the Investors
-----------
becoming parties to this Agreement. Capitalized terms not otherwise defined
herein have the meanings set forth in Section 1.
---------
WHEREAS, simultaneously herewith, shares of common stock of Software
Holdings, Inc., a Delaware corporation ("SHI"), and certain options to acquire
---
shares of common stock of SHI are being converted into shares of Common Stock of
the Company, as contemplated by the Contribution Agreement and the Merger
Agreement;
WHEREAS, the Company has previously issued shares of Common Stock to RRD
and RRD International, pursuant to the Prior Contribution Agreements, pursuant
to which the Company has agreed to provide RRD and RRD International certain
registration rights;
WHEREAS, simultaneously herewith, the Company is issuing shares of Common
Stock to RRD and RRD Norwest, as contemplated by the Contribution Agreement; and
WHEREAS, in order to induce SHI to enter into the Contribution Agreement
and the Merger Agreement and to induce RRD and RRD Norwest to enter into the
Contribution Agreement, the Company has agreed to provide the Investors and the
RRD Holders certain registration rights, as set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
SECTION 1. DEFINITIONS.
-----------
(a) Except as otherwise specifically indicated, the following terms will
have the following meanings for all purposes of this Agreement:
"AGREEMENT" means this Registration Rights Agreement, as the same shall be
---------
amended from time to time.
<PAGE>
"B-INVESTOR" means a Person (i) to whom shares of Class B-V Common or Class
----------
B-N Common are issued pursuant to the Merger Agreement (whether upon conversion
of the shares of common stock of SHI held by such Person at the Effective Time
or upon conversion at the Effective Time of SHI Rollover Options) or (ii) who
acquires shares of Class B-V Common after the Effective Time upon the exercise
of any Company Management Replacement Options; provided, in each case that such
--------
Person executes and delivers this Agreement on the date hereof or otherwise
becomes a party to this Agreement with respect to the Shares it holds in the
manner required by Section 11.
----------
"BOARD" means the Board of Directors of the Company.
-----
"BUSINESS DAY" means any day (other than a day which is a Saturday or
------------
Sunday) on which banks are open for business in the place where the Company's
principal executive offices are located.
"CLASS A COMMON" means the Class A Common Stock, par value $.01, of the
--------------
Company as constituted on the date hereof;
"CLASS B-N COMMON" means the Class B-N Common Stock, par value $.01, of the
----------------
Company as constituted on the date hereof;
"CLASS B-V COMMON" means the Class B-V Common Stock, par value $.01, of the
----------------
Company as constituted on the date hereof;
"CLOSING" means, with respect to the Initial Public Offering, the time of
-------
payment for and delivery of Shares sold to underwriters in such Initial Public
Offering.
"COMMISSION" means the United States Securities and Exchange Commission, or
----------
any successor governmental agency or authority.
"COMMON STOCK" means (i) the Class A Common, (ii) the Class B-N Common,
------------
(iii) the Class B-V Common, and (iv) shares of capital stock of the Company
issued by the Company in respect of or in exchange for any such shares in
connection with any conversion of any class of Common Stock or any stock
dividend or distribution, stock split-up, recapitalization, recombination or
exchange of the Company generally of shares of Common Stock.
"COMPANY" has the meaning specified in the first paragraph of this
-------
Agreement.
"COMPANY MANAGEMENT REPLACEMENT OPTIONS" means options granted under the
--------------------------------------
1995 Replacement Stock Option Plan of the Company.
-2-
<PAGE>
"CONTRIBUTION AGREEMENT" means the Contribution Agreement, dated April 21,
----------------------
1995, among the Company, SHI and RRD.
"CUTBACK REGISTRATION" means any Demand Registration or Piggyback
--------------------
Registration to be effected as an underwritten Public Offering in which the
Managing Underwriter with respect thereto advises the Company and the Requesting
Holders in writing that, in its opinion, the number of securities requested to
be included in such registration (including securities of the Company whether or
not they are Registrable Securities) exceeds the number which can be sold in
such offering without a reduction in the selling price anticipated to be
received for the securities to be sold in such Public Offering.
"DEMAND FOR REGISTRATION" means a Qualifying Holder Demand for Registration
-----------------------
or a RRD Demand for Registration, as applicable.
"DEMAND REGISTRATION" means any registration of Registrable Securities
-------------------
under the Securities Act effected pursuant to a Qualifying Holder Demand for
Registration in accordance with Section 2(a) or a RRD Demand for Registration in
-----------
accordance with Section 2(b).
-------------
"EFFECTIVE REGISTRATION" means, subject to the last sentence of Section
---------------------- -------
2(g), a Demand Registration which (i) has been declared or ordered effective in
- ----
accordance with the rules of the Commission, and (ii) has been kept effective
and continues to comply with the requirements of the Securities Act for the
period of time contemplated by Section 4(b). Notwithstanding the foregoing, a
------------
registration that does not become effective after it has been filed with the
Commission solely by reason of the refusal of the Holders demanding or
requesting such registration to proceed shall be deemed to be an Effective
Registration for purposes of this Agreement.
"EFFECTIVE TIME" has the meaning specified in the Merger Agreement.
--------------
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and
------------
the rules and regulations promulgated thereunder.
"FORMER SHI STOCKHOLDERS" means the record owners of shares of common stock
-----------------------
of SHI who have exchanged their shares of SHI for shares of Common Stock
pursuant to the Merger Agreement and who have become parties to this Agreement.
"HOLDERS" means the Investors and the RRD Holders, as holders of
-------
Registrable Securities.
"INCENTIVE OPTIONS" means the options issued by the Company on the date
-----------------
hereof pursuant to Section 2.3 of the Merger Agreement and Section 6.9(ii) of
----------- --------------
the Contribution Agreement.
-3-
<PAGE>
"INDEMNIFIED PARTY" means a party entitled to indemnity in accordance with
-----------------
Section 7.
- ----------
"INDEMNIFYING PARTY" means a party obligated to provide indemnification in
------------------
accordance with Section 7.
----------
"INITIAL PUBLIC OFFERING" means the first public offering of Shares
-----------------------
registered under the Securities Act in which shares of Common Stock are
delivered to underwriters in furtherance thereof.
"INSPECTORS" has the meaning specified in Section 4(j).
---------- -------------
"INVESTOR" means a B-Investor, a Money Investor or any other Person, other
--------
than a RRD Holder, (i) who acquires Shares after the Effective Time upon the
exercise of any Incentive Options or (ii) who otherwise acquires Shares after
the Effective Time and is permitted by the Company to become a party to this
Agreement; provided, in each case that such Person becomes a party to this
--------
Agreement with respect to the Shares it holds in the manner required by Section
-------
11.
- ---
"LOSSES" has the meaning specified in Section 7(a).
------ -------------
"MANAGING UNDERWRITER" means, with respect to any underwritten offering,
--------------------
the lead managing underwriter for such offering, selected in accordance with
Section 10.
- -----------
"MATERIAL ADVERSE EVENT" means (i) a domestic or international event, act
----------------------
or occurrence which materially disrupts the securities markets in the United
States, or (ii) the declaration of a banking moratorium by a federal authority.
"MERGER AGREEMENT" means the Agreement and Plan of Merger dated April 21,
----------------
1995 among the Company, SHI and R.R. Donnelley Merger Company.
"MONEY INVESTOR" means a Person who purchases Shares from the Company
--------------
within 30 days following the Effective Time pursuant to the terms of his
employment agreement with the Company; provided, in each case that such Person
--------
becomes a party to this Agreement with respect to the Shares it holds in the
manner required by Section 11.
----------
"NASD" means the National Association of Securities Dealers, Inc.
----
"NOTICE OF DEMAND FOR REGISTRATION" has the meaning specified in Section
--------------------------------- -------
2(a).
- -----
"NOTICE OF PIGGYBACK REGISTRATION" has the meaning specified in Section
-------------------------------- -------
3(a).
- ----
-4-
<PAGE>
"PERMITTED TRANSFEREE" of a Holder means any Person who receives Shares
--------------------
from a Holder in a transfer which does not violate the Company's Restated
Certificate of Incorporation, provided that such transferee has become a party
to and bound by this Agreement as a Holder with respect to the Shares
transferred to it in the manner required by Section 11. "Permitted Transferee"
----------
includes successive transferees in transactions described in the preceding
sentence.
"PERSON" means any natural person, corporation, general or limited
------
partnership, limited liability company, proprietorship, other business
organization, trust, union or association.
"PIGGYBACK REGISTRATION" means any registration of equity securities of the
----------------------
Company under the Securities Act to be sold solely for cash on Form S-1, S-2 or
S-3 (or any successor or replacement form) other than (i) a registration in
respect of a dividend reinvestment or similar plan for stockholders of the
Company or (ii) a registration for a limited purpose, whether for sale for the
account of the Company or for the account of any holder of securities of the
Company (other than Registrable Securities), including a registration by the
Company under the circumstances described in Section 2 (g).
-------------
"PRIOR CONTRIBUTION AGREEMENTS" means the contribution agreements (other
-----------------------------
than the Contribution Agreement) pursuant to which RRD and RRD International
have received shares of Common Stock.
"QUALIFIED INDEPENDENT UNDERWRITER" means an underwriter meeting the
---------------------------------
requirements of Section 2(1) of Schedule E to the NASD By-Laws as the same may
be amended from time to time.
"QUALIFYING HOLDER" means any B-Investor who, alone or together with one or
-----------------
more other B-Investors, holds Registrable Securities acquired pursuant to the
Merger Agreement that at the date of such B-Investor's or B-Investors' making a
Demand for Registration constitute at least seven and one-half percent (7 1/2%)
of the then total issued and outstanding Shares.
"QUALIFYING HOLDER DEMAND FOR REGISTRATION" has the meaning specified in
-----------------------------------------
Section 2(a).
- -------------
"RECORDS" has the meaning specified in Section 4(j).
------- -------------
"REGISTRABLE SECURITIES" means the (i) Shares at any time outstanding and
----------------------
that are owned by any of the Holders, (ii) any shares of Common Stock or other
securities issued as (or issuable upon the conversion or exercise of any
warrant, right, class of common stock or other security which is issued as) a
dividend or other distribution with respect to, or in exchange by the Company
generally for, or in replacement by
-5-
<PAGE>
the Company generally of, such Shares, and (iii) any securities issued in
exchange for Shares in any merger or reorganization of the Company. Once issued,
such securities shall cease to be Registrable Securities when (x) a registration
statement with respect to the sale of such securities shall have become
effective under the Securities Act and such securities shall have been disposed
of in accordance with such registration statement, (y) they shall have been sold
pursuant to Rule 144, or (z) they shall have ceased to be outstanding.
"REGISTRATION EXPENSES" means all expenses incident to the Company's
---------------------
performance of or compliance with its obligations under this Agreement to effect
the registration of Registrable Securities in a Demand Registration or a
Piggyback Registration, including, without limitation, all registration, filing,
securities exchange listing and NASD fees, all registration, filing,
qualification and other fees and expenses of complying with securities or blue
sky laws, all word processing, duplicating and printing expenses, messenger,
shipping and delivery expenses, the fees and disbursements of counsel for the
Company and of its independent public accountants, including the expenses of any
special audits or "cold comfort" letters required by or incident to such
performance and compliance, the reasonable fees and disbursements of a single
counsel retained by the Holders of a majority of the Registrable Securities
being registered, premiums and other costs of any policies of insurance against
liabilities arising out of the Public Offering of the Registrable Securities
being registered obtained by the Company (it being understood that the Company
shall have no obligation to obtain such insurance) and any fees and
disbursements of underwriters customarily paid by issuers or sellers of
securities, but excluding underwriting discounts and commissions and transfer
taxes, if any, in respect of Registrable Securities, which discounts,
commissions and taxes in respect of Registrable Securities shall in any Demand
or Piggyback Registration be payable by the Holders thereof pro rata among such
--- ----
Holders in proportion to the number of Registrable Securities being sold by
them, provided, however, that the Company shall not be required to pay for any
-------- -------
expenses of any registration proceeding begun pursuant to Section 2 if the
---------
registration is subsequently withdrawn (other than by reason of a subsequent
Material Adverse Event) at the request of the Holders of a majority of the
Registrable Securities intended to be registered thereunder (in which case all
Requesting Holders shall bear such expense pro rata), unless, in the case of a
--- ----
Qualifying Holder Demand for Registration, Qualifying Holders whose Registrable
Securities constitute a majority of the Registrable Securities then outstanding
agree that such withdrawn registration shall constitute one of the demand
registrations under Section 2(a).
-------------
"REQUEST FOR REGISTRATION" means a written request by a Holder to the
------------------------
Company in accordance with the terms hereof for registration of Registrable
Securities in response to a Notice of Demand for Registration or a Notice of
Piggyback Registration, as applicable, which request shall specify the
Registrable Securities intended to be disposed of and the intended method of
disposition thereof.
-6-
<PAGE>
"REQUESTING HOLDERS" means, with respect to any registration, the Holders
------------------
entitled to demand or request and which do demand or request to have Registrable
Securities included in a registration in accordance with Section 2 or 3.
--------- -
"RRD" has the meaning specified in the first paragraph of this Agreement.
---
"RRD DEMAND FOR REGISTRATION" has the meaning specified in Section 2(b)
--------------------------- ------------
"RRD HOLDERS" means RRD, RRD Norwest, RRD International, as holders of
-----------
Common Stock, and any Permitted Transferee of any of them.
"RRD INTERNATIONAL" has the meaning specified in the first paragraph of
-----------------
this Agreement.
"RRD NORWEST" has the meaning specified in the first paragraph of this
-----------
Agreement.
"RRD REQUEST FOR REGISTRATION" means a Request for Registration from any
----------------------------
RRD Holder.
"RULE 144" means Rule 144 promulgated by the Commission under the
--------
Securities Act, and any successor provision thereto.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations promulgated thereunder.
"SHARES" means the shares of Common Stock.
------
"SHI" has the meaning specified in the first recital hereof.
---
"SHI ROLLOVER OPTIONS" means the options granted under the 1993 Rollover
--------------------
Stock Option Plan of SHI in the form of SHI 1993 Rollover Stock Option Plan Non-
Incentive Certificates that are outstanding immediately prior to the Effective
Time.
(b) Unless the context of this Agreement otherwise requires, (i) words of
any gender include each other gender; (ii) words using the singular or plural
number also include the plural or singular number, respectively; (iii) the terms
"hereof," "herein," "hereby," "herewith," and derivative or similar words refer
to this entire Agreement; (iv) the term "Section" refers to the specified
Section of this Agreement; (v) the word "or" is not exclusive and the word
"including" means including without limitation; and (vi) any reference to an
agreement shall mean such agreement as amended, supplemented and modified from
time to time to the extent permitted by
-7-
<PAGE>
the applicable provisions thereof. Whenever this Agreement refers to a number of
days, such number shall refer to calendar days unless Business Days are
specified.
SECTION 2. DEMAND REGISTRATION RIGHTS.
--------------------------
(a) DEMANDS FOR REGISTRATION BY QUALIFYING HOLDERS. At any time after the
----------------------------------------------
first anniversary of the date hereof, any Qualifying Holder may demand that the
Company use its reasonable best efforts to effect the registration under the
Securities Act of all or part of such Qualifying Holder's Registrable
Securities. Such demand for registration (a "Qualifying Holder Demand for
----------------------------
Registration") shall be in writing, delivered to the Company in accordance with
- -------------
Section 12(a), and shall specify the number of Registrable Securities to be
- -------------
registered and the intended method of disposition thereof. No later than
fifteen (15) Business Days after receipt of such Qualifying Holder Demand for
Registration, unless the Company receives notice from RRD within such 15-day
period that RRD is exercising its rights pursuant to Section 2(h) with respect
-----------
to such Qualifying Holder Demand for Registration, the Company shall give
written notice (a "Notice of Demand for Registration") of such Qualifying Holder
----------------------------------
Demand for Registration to all other Holders, and as soon as practicable, and in
any event within ninety (90) days after the receipt of a Notice of Demand for
Registration, subject to Section 2(c), the Company shall use its reasonable best
------------
efforts to effect the registration under the Securities Act of:
(i) the Registrable Securities included in the Qualifying Holder
Demand for Registration, and
(ii) all other Registrable Securities as to which any Holder, has
delivered to the Company a Request for Registration within fifteen (15)
Business Days after the giving of the Notice of Demand for Registration,
all to the extent required to permit the disposition of the Registrable
Securities so to be registered in accordance with the methods of disposition
specified. At the request of the Qualifying Holders, the method of disposition
of all Registrable Securities included in such registration shall be an
underwritten offering effected in accordance with Section 5(a).
------------
Notwithstanding anything to the contrary in this Agreement, the Company
shall not be obligated to effect more than two (2) Qualifying Holder Demands for
Registration (excluding any Qualifying Holder Demand for Registration initiating
the Initial Public Offering), regardless of whether or not any particular
Investor exercised its rights hereunder with respect to either or both of such
registrations; provided, however, that a registration of Registrable Securities
-----------------
which shall not have become and remained effective in accordance with Section 4
---------
hereof shall not be deemed to be a Demand for Registration for the purpose of
this sentence unless the registration is withdrawn (other than by reason of a
Material Adverse Event) at the request of the
-8-
<PAGE>
Investors holding a majority of the Registrable Securities held by Investors
which are intended to be registered; and provided, further, that a registration
-------- -------
of Registrable Securities shall not be deemed to be a Demand for Registration
for the purpose of this sentence if (i) such registration has been withdrawn by
reason of a Material Adverse Event prior to being declared or ordered effective
in accordance with the rules of the Commission or (ii) following such
registration being so declared or ordered effective, the distribution of shares
pursuant to such registration is terminated prior to completion due to a
Material Adverse Event.
(b) DEMANDS FOR REGISTRATION BY RRD. At any time after the first
-------------------------------
anniversary of the date hereof, RRD may demand that the Company use its
reasonable best efforts to effect the registration under the Securities Act of
all or part of the RRD Holders' Registrable Securities. Such demand for
registration (a "RRD Demand for Registration") shall be in writing, delivered to
----------------------------
the Company in accordance with Section 12(a), and shall specify the number of
-------------
Registrable Securities to be registered and the intended method of disposition
thereof. No later than fifteen (15) Business Days after receipt of such RRD
Demand for Registration, the Company shall give Notice of Demand for
Registration of such RRD Demand for Registration to all other Holders, and as
soon as practicable, and in any event within ninety (90) days after the receipt
of a Notice of Demand for Registration, subject to Section 2(c), the Company
------------
shall use its reasonable best efforts to effect the registration under the
Securities Act of:
(i) the Registrable Securities included in the RRD Demand for
Registration, and
(ii) all other Registrable Securities as to which any Holder has
delivered to the Company a Request for Registration within fifteen (15)
Business Days after the giving of the Notice of Demand for Registration,
all to the extent required to permit the disposition of the Registrable
Securities so to be registered in accordance with the methods of disposition
specified. At the request of RRD, the method of disposition of the Registrable
Securities included in such registration shall be an underwritten offering
effected in accordance with Section 5(a).
------------
(c) DEMAND REGISTRATIONS GENERALLY. Notwithstanding Sections 2(a) and
------------------------------ ------------
(b), the Company may postpone taking action with respect to a Demand
- ---
Registration or may require that Holders of Registrable Securities cease making
sales under an effective registration for a reasonable period of time (not
exceeding one hundred eighty (180) days, in the case of a Demand Registration
which has not yet become effective under the Securities Act, and not exceeding
ninety (90) days, in the case of an effective registration) if, in the good
faith opinion of the Board, effecting the registration or allowing such sales
would adversely affect a material financing, acquisition, disposition of assets
or stock, merger or other comparable transaction
-9-
<PAGE>
(other than a Qualifying Holder Demand Registration or a RRD Demand
Registration) or would require the Company to make public disclosure of
information the public disclosure of which could reasonably be expected to have
a material adverse effect upon the Company, provided that the Company shall not
--------
delay such action or require such cessation of sales pursuant to this sentence
more than once in any twelve (12) month period.
Subject to Section 2(f), the Company may include in any Demand Registration
------------
Shares or other securities for sale for its own account. Neither the Company
nor any Holder shall have the right to include any securities in a registration
statement to be filed as part of a Demand Registration unless (x) such
securities are of the same class as the Registrable Securities to be included in
the Demand for Registration (or another class of securities is sold by the
Company for its own account and a majority of the demanding Holders consent to
such inclusion in writing), and (y) if such Demand Registration is an
underwritten offering, the Company and such other Holders agree in writing to
sell, subject to Section 2(f), their securities on the same terms and conditions
------------
as apply to the Registrable Securities being sold pursuant to the Demand for
Registration.
Notwithstanding anything herein to the contrary, the Company shall not be
required to honor a Demand for Registration if:
(i) the Registrable Securities to be so registered represent less
than ten percent (10%) of the total Shares then issued and outstanding;
(ii) the proposed aggregate Public Offering price for the Registrable
Securities included in the Demand for Registration is less than $10 million
based on the fair value estimated by the underwriters in the case of the
Initial Public Offering or the then-current market price of the Common
Stock in the case of a Public Offering other than the Initial Public
Offering; or
(iii) such Demand for Registration is received by the Company less
than ninety (90) days following the effective date of any previous
registration of Registrable Securities (other than (x) on Form S-8, Form S-
4 (or successor form thereto), (y) in the case of a Qualifying Holder
Demand for Registration, the previous registration was pursuant to a RRD
Demand for Registration or (z) in the case of a RRD Demand for
Registration, the previous registration was pursuant to a Qualifying Holder
Demand for Registration), regardless of whether the Holder(s) making such
Demand for Registration exercised its rights hereunder with respect to such
registration.
(d) REGISTRATION STATEMENT FORM. Demand Registrations shall be on such
---------------------------
appropriate registration form selected by the Company as shall be reasonably
acceptable to the Holders of a majority of the Registrable Securities to which
such
-10-
<PAGE>
registration relates, and shall permit the disposition of such Registrable
Securities in accordance with the intended method or methods specified by the
Holders participating therein.
(e) REGISTRATION EXPENSES. The Company will pay all Registration Expenses
---------------------
incurred in connection with each Demand Registration.
(f) PRIORITY IN CUTBACK REGISTRATIONS. If a Demand Registration becomes a
---------------------------------
Cutback Registration, the Company shall include in such registration only the
amount of securities which the Managing Underwriter advises the Company can be
sold in such offering without a reduction in the selling price anticipated to be
received for the securities to be sold in such public offering. Securities
shall be included in such offering in the following order of priority:
(i) first, Registrable Securities included in the Qualifying Holder Demand
-----
for Registration (if such Cutback Registration is a Qualifying Holder
Demand for Registration) and in any Requests for Registration of the B-
Investors and the Money Investors relating to such Cutback Registration, to
the extent the number of such Registrable Securities included in such
Demand and Requests exceeds the aggregate number of Registrable Securities
included in the RRD Demand for Registration (if such Cutback Registration
is a RRD Demand for Registration) or in any RRD Requests for Registration
relating to such Cutback Registration,
(ii) second, an equal number of Registrable Securities from (A) Registrable
------
Securities included in the RRD Demand for Registration (if such Cutback
Registration is a RRD Demand for Registration) or in any RRD Requests for
Registration relating to such Cutback Registration, and (B) Registrable
Securities included in the Qualifying Holder Demand for Registration (if
the Cutback Registration is a Qualifying Holder Demand for Registration)
and in any Requests for Registration of the B-Investors and the Money
Investors relating to such Cutback Registration,
(iii) third, the remaining Registrable Securities included in the RRD
-----
Demand for Registration (if such Cutback Registration is a RRD Demand for
Registration) or in RRD Requests for Registration relating to such Cutback
Registration, which are not included in item (ii),
(iv) fourth, Registrable Securities included in any Requests for
------
Registration relating to such Cutback Registration requested by Investors
other than the B-Investors and the Money Investors, and
(v) fifth, the securities of the Company included in such registration by
-----
the Company for sale for its own account;
-11-
<PAGE>
provided, that Registrable Securities of each RRD Holder shall be included in
- --------
the number of Registrable Securities registered in such Cutback Registration
pursuant to the foregoing on a basis determined by RRD and that Registrable
Securities of B-Investors and Money Investors shall be included in the
Registrable Securities registered in such Cutback Registration pursuant to the
foregoing on a pro rata basis in proportion to the number of Registrable
--- ----
Securities included in the Qualifying Holder Demand for Registration (if the
Cutback Registration is a Qualifying Holder Demand for Registration) and the
Requests for Registration of B-Investors and Money Investors relating to such
Cutback Registration.
(g) PREEMPTION OF DEMAND REGISTRATION. Notwithstanding anything to the
---------------------------------
contrary contained herein, and without limitation as to the rights of the
Company to include in a Demand Registration Securities for sale for its own
account as provided in Section 2(c), at any time within fifteen (15) Business
------------
Days after receiving a Demand for Registration, the Company may elect to effect
an underwritten primary registration in lieu of the Demand Registration. If the
Company so elects, the Company shall give prompt written notice to all Holders
of its intention to effect such a registration and shall afford all Holders the
rights contained in Section 3 with respect to Piggyback Registrations; the
---------
Demands for Registration shall be deemed to have been withdrawn and shall not be
deemed to have been requested; and such Company registration shall not be deemed
to be an Effective Registration.
(h) PREEMPTION OF QUALIFYING HOLDER DEMAND REGISTRATION. Notwithstanding
---------------------------------------------------
anything to the contrary contained herein, in the event that a Qualifying Holder
makes a Qualifying Holder Demand for Registration at any time permissible
hereunder after the closing of the Initial Public Offering, RRD (or any
affiliate of RRD designated by RRD other than the Company) shall have the right,
by giving written notice to such Qualifying Holder at any time within twelve
(12) Business Days after receiving a Qualifying Holder Demand for Registration,
to purchase all but not less than all of the Shares specified in such Qualifying
Holder Demand for Registration in lieu of the Qualifying Holder Demand
Registration. Within five (5) Business Days after giving such notice to such
Qualifying Holder, RRD will deliver a notice (a "Purchase Notice") to the other
----------------
Investors of its intentions to purchase the Qualifying Holder's Shares. RRD (or
any such Affiliate of RRD) will purchase all, but not less than all, of the
Shares of any other Investor who requests such purchase within five (5) Business
Days of receiving the Purchase Notice. The Qualifying Holder who made the
Qualifying Holder Demand for Registration giving rise to RRD's rights hereunder
and each Investor requesting purchase of their Shares in accordance herewith
shall be referred to as the "Selling Holders." The purchase price per share to
----------------
be paid by RRD (or any such affiliate of RRD) for the Shares of the Selling
Holders shall be an amount equal to the average of the daily market prices of
the Common Stock for each of twenty (20) consecutive trading days ending on the
date immediately prior to the date of the Qualifying Holder Demand for
Registration. The "daily market price" with respect to Common Stock for a day
------------------
shall mean (A) the
-12-
<PAGE>
last reported sale price regular way for the Common Stock on such day on the
principal exchange on which the Common Stock is then listed or admitted to
trading, (B) if no sale takes place on such day on any such exchange, the
average of the last reported closing bid and asked prices regular way for the
Common Stock on such day as officially quoted on any such exchange, (C) if the
Common Stock is not then listed or admitted to trading on any exchange, the last
reported sale price, or in case no reported sale takes place, the average of the
last reported closing bid and asked prices, on such day on the Nasdaq Stock
Market or any comparable system, or (D) if the Common Stock is not quoted on the
Nasdaq Stock Market or any comparable system, the average of the high bid and
low asked prices, as furnished by any two members of the NASD, one of which
shall be selected by RRD and one of which shall be selected by the Qualifying
Holders who made the Demand for Registration giving rise to RRD's rights
hereunder. If RRD (or any such affiliate of RRD other than the Company) elects
to purchase Shares pursuant to this Section 2(h), the Qualifying Holder Demand
------------
for Registration shall be deemed to have been withdrawn.
The closing of any such purchase by RRD (or any such affiliate of RRD) of
Shares of Selling Holders pursuant to the option rights granted under this
Section 2(h) shall take place at the principal offices of the Company at 10 a.m.
- ------------
local time on the later of (x) the fifteenth Business Day following the delivery
by RRD (or any such affiliate of RRD) to the Holders (other than the Qualifying
Holder) of a purchase Notice or (y), if applicable, 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, or at such other
time and/or place as the parties to any such purchase may agree. At such
closing, (i) each selling Holder shall assign and transfer to RRD (or any such
affiliate of RRD) good and marketable title to the Shares being purchased, free
and clear of any lien, claim or encumbrance whatsoever, by delivery of the
certificates representing the Shares to be sold and 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 (or any such affiliate of RRD) shall reasonably request; and
(ii) RRD (or any such affiliate of RRD) shall pay to each Selling Holder the
purchase price for the Shares being purchased in cash, by delivery of a
certified or bank check or by wire transfer of immediately available funds to
such account as any such Selling Holder shall direct by written notice delivered
to RRD (or any such affiliate of RRD) not later than two (2) Business Days
before such closing.
SECTION 3. PIGGYBACK REGISTRATIONS.
-----------------------
(a) RIGHT TO INCLUDE REGISTRABLE SECURITIES. Notwithstanding any
---------------------------------------
limitation contained in Section 2, if the Company at any time proposes after the
---------
date hereof to effect a Piggyback Registration, including a registration in lieu
of a Demand Registration pursuant to Section 2(q), it will each such time give
------------
prompt written notice (a "Notice of Piggyback Registration") to all Holders of
---------------------------------
its intention to do so
-13-
<PAGE>
and of such Holders' rights under this Section 3, which Notice of Piggyback
---------
Registration shall include a description of the intended method of disposition
of such securities. If any Holder delivers a Request for Registration to the
Company within fifteen (15) Business Days after the date of the Notice of
Piggyback Registration, the Company will use its reasonable best efforts to
include in the registration statement relating to such Piggyback Registration
all Registrable Securities which the Company has been so requested to register.
Notwithstanding the foregoing, if, at any time after giving a Notice of
Piggyback Registration and prior to the effective date of the registration
statement filed in connection with such registration, the Company shall
determine for any reason not to register or to delay registration of such
securities, the Company may, at its election, give written notice of such
determination to each Holder and, thereupon, (i) in the case of a determination
not to register, shall be relieved of its obligation to register any Registrable
Securities in connection with such registration (but not from its obligation to
pay the Registration Expenses in connection therewith), without prejudice,
however, to the rights of any Requesting Holder entitled to do so to demand that
such registration be effected as a Demand Registration under Section 2, and (ii)
---------
in the case of a determination to delay registering, shall be permitted to delay
registering any Registrable Securities for the same period as the delay in
registering such other securities. No registration effected under this Section
-------
3 shall relieve the Company of its obligations to effect a Demand Registration
- -
under Section 2.
---------
(b) REGISTRATION EXPENSES. The Company will pay all Registration Expenses
---------------------
incurred in connection with each Piggyback Registration.
(c) PRIORITY IN CUTBACK REGISTRATIONS. If a Piggyback Registration
---------------------------------
becomes a Cutback Registration, the Company will include in such registration
only the amount of the securities which the Managing Underwriter advises the
Company can be sold in such offering without a reduction in the selling price
anticipated to be received for the securities to be sold in such Public
Offering. Securities shall be included in such offering in the following order
of priority:
(i) first, the securities proposed by the Company to be sold for its own
-----
account,
(ii) second, Registrable Securities included in the Requests for
------
Registration of the B-Investors and the Money Investors relating to such
Cutback Registration, to the extent the number of such Registrable
Securities included in such Requests exceeds the aggregate number of
Registrable Securities included in RRD Requests for Registration relating
to such Outback Registration,
(iii) third, an equal number of Registrable Securities from (A)
-----
Registrable Securities included in any RRD Requests for Registration
relating to such
-14-
<PAGE>
Cutback Registration, and (B) Registrable Securities included in any
Requests for Registration of the B-Investors and the Money Investors
relating to such Cutback Registration,
(iv) fourth, the remaining Registrable Securities included in RRD Requests
------
for Registration relating to such Cutback Registration, which are not
included in item (iii), and
(v) fifth, Registrable Securities included in any Requests for
-----
Registration relating to such Cutback Registration requested by
Investors other than the B-Investors and the Money Investors;
provided, that Registrable Securities of each RRD Holder shall be included in
- --------
the number of Registrable Securities registered in such Outback Registration
pursuant to the foregoing on a basis determined by RRD and that Registrable
Securities of B-Investors and Money Investors shall be included in the
Registrable Securities registered in such Cutback Registration pursuant to the
foregoing on a pro rata basis in proportion to the number of Registrable
--- ----
Securities included in the Requests for Registration of B-Investors and Money
Investors; provided, further, that in no event shall the amount of securities of
-------- -------
the Requesting Holders included in the offering be reduced below 10% (ten
percent) of the total amount of securities included in such offering, unless
such offering is the initial public offering of the Company's securities, in
which case the Requesting Holders may be excluded if the Managing Underwriter
makes the determination that the registration is a Cutback Registration and no
securities other than those of the Company are included. Any securities so
excluded shall be withdrawn from and shall not be included in such Piggyback
Registration.
SECTION 4. REGISTRATION PROCEDURES. If and whenever the Company is
-----------------------
required to use its reasonable best efforts to effect the registration of any
Registrable Securities under the Securities Act pursuant to Section 2 or Section
--------- -------
3, the Company will use its reasonable best efforts to effect the registration
- -
and sale of such Registrable Securities in accordance with the intended methods
of disposition thereof specified by the Holders participating therein (in the
case of a Demand Registration) or specified by the Company (in the case of a
Piggyback Registration). Without limiting the foregoing, the Company in each
such case will, as expeditiously as practicable:
(a) prepare and file with the Commission (in the case of a Demand
Registration), the requisite registration statement to effect such
registration (including such audited financial statements as may be
required by the Securities Act) and use its reasonable best efforts to
cause such registration statement to become effective; provided, that as
--------
far in advance as practical before filing such registration statement or
any amendment thereto, and in any event at least five (5) days prior to any
such filing, the Company will furnish
-15-
<PAGE>
to counsel for the Requesting Holders copies of reasonably complete drafts
of all such documents proposed to be filed (including any registration
statement and including exhibits), and any such Holder shall have the
opportunity to object to any information pertaining solely to such Holder
that is contained therein and the Company will make the corrections
reasonably requested by such Holder with respect to such information prior
to filing any such registration statement or amendment, provided, however,
-------- -------
that any Holder that reasonably believes it may be subject to controlling
person liability under applicable securities laws with respect to such
registration shall have the absolute and unconditional right to control or
contest disclosure in such registration statement;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and any prospectus used in
connection therewith as may be necessary to maintain the effectiveness of
such registration statement and to comply with the requirements of the
Securities Act with respect to the disposition of all Registrable
Securities included in such registration statement, in accordance with the
intended methods of disposition thereof, until the earlier of (i) such time
as all of such securities have been disposed of in accordance with the
intended methods of disposition by the seller or sellers thereof set forth
in such registration statement and (ii) subject to the provisions of any
applicable underwriting agreement, one hundred eighty (180) days after such
registration statement becomes effective, and in the event that any
Registrable Securities included in a registration statement filed pursuant
to a Demand Registration remain unsold at the end of such period, the
Company may file a post- effective amendment to the registration statement
for the purpose of removing such Registrable Securities from registered
status;
(c) promptly notify each Requesting Holder and the underwriter or
underwriters, if any:
(i) when such registration statement or any prospectus used in
connection therewith, or any amendment or supplement thereto, has been
filed and, with respect to such registration statement or any post-
effective amendment thereto, when the same has become effective;
(ii) of any written request by the Commission for amendments or
supplements to such registration statement or prospectus or for
supplemental information;
(iii) of the notification to the Company by the Commission of
its initiation of any proceeding with respect to the issuance by the
-16-
<PAGE>
Commission of, or of the issuance by the Commission of, any stop order
suspending the effectiveness of such registration statement; and
(iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification of any Registrable
Securities for sale under the applicable securities or blue sky laws
of any jurisdiction;
(d) furnish to each seller of Registrable Securities included in such
registration statement such number of conformed copies of such registration
statement and of each amendment and supplement thereto (in each case
including all exhibits and documents incorporated by reference), such
number of copies of the prospectus contained in such registration statement
(including each preliminary prospectus and any prospectus supplement) and
any other prospectus filed under Rule 424 promulgated under the Securities
Act relating to such Holder's Registrable Securities, and such other
documents, as such seller may reasonably request to facilitate the
disposition of its Registrable Securities;
(e) use its reasonable best efforts to register or qualify all
Registrable Securities included in such registration statement under such
other securities or blue sky laws of such jurisdictions as each Holder
thereof shall reasonably request which request is made within fifteen (15)
days following the original filing of such registration statement and to
keep such registration or qualification in effect for so long as such
registration statement remains in effect, and take any other action which
may be reasonably necessary or advisable to enable such Holder to
consummate the disposition in such jurisdictions of the Registrable
Securities owned by such Holder, except that the Company shall not for any
such purpose be required (i) to qualify generally to do business as a
foreign corporation in any jurisdiction wherein it would not but for the
requirements of this paragraph (e) be obligated to be so qualified, (ii) to
consent to general service of process in any such jurisdiction or (iii) to
subject itself to taxation in any such jurisdiction by reason of such
registration or qualification;
(f) use its best efforts to obtain withdrawal of any order suspending
the effectiveness of a registration statement, or the lifting of any
suspension of qualification (or exemption from qualification) of the offer
and sale of any of the Registrable Securities in any jurisdiction, at the
earliest possible moment;
(g) to the extent any of the following are obtained by or furnished to
the company and are permitted to be given to the Requesting Holders,
furnish to each Requesting Holder a signed counterpart, addressed to such
Requesting Holder (and the underwriters, if any), of:
-17-
<PAGE>
(i) an opinion of counsel for the Company, dated the effective
date of such registration statement (or, if such registration includes
an underwritten Public Offering, dated the date of any closing under
the underwriting agreement); and
(ii) a "cold comfort" letter, dated the effective date of such
registration statement (and, if such registration includes an
underwritten Public Offering, dated the date of any closing under the
underwriting agreement), signed by the independent public accountants
who have certified the Company's financial statements included in such
registration statement;
in each case covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in the
case of the accountants' letter, with respect to events subsequent to the
date of such financial statements, as are customarily covered in opinions
of issuer's counsel and in accountants' letters delivered to the
underwriters in underwritten Public Offerings of securities, provided that
--------
delivery of any such opinion or comfort letter shall be subject to the
recipient furnishing such representations or acknowledgements as are
customarily provided by selling stockholders who receive such opinions or
comfort letters;
(h) notify each Holder whose Registrable Securities are included in
such registration statement, at any time during the period specified in
Section 4(b) when a prospectus relating thereto is required to be delivered
------------
under the Securities Act, of the happening of any event as a result of
which any prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, and at the request of any such Holder promptly
prepare, file with the Commission and furnish to such Holder a reasonable
number of copies of a supplement to or an amendment of such prospectus as
may be necessary so that, as thereafter delivered to the purchasers of such
securities, such prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(i) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the Commission, and make available to
its security holders, as soon as reasonably practicable, an earnings
statement covering the period of at least twelve (12) months beginning with
the first full calendar month after the effective date of such registration
statement, which
-18-
<PAGE>
earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 promulgated thereunder, and not file any
amendment or supplement to such registration statement or prospectus to
which any such seller or any Requesting Holder shall have reasonably
objected on the grounds that such amendment or supplement does not comply
in all material respects with the requirements of the Securities Act;
(j) make available for inspection by any Requesting Holder, any
underwriter participating in any distribution pursuant to such registration
statement, and any attorney, accountant or other agent retained by such
Holder or underwriter (collectively, the "Inspectors"), all financial and
other records, pertinent corporate documents and properties of the Company
(collectively, the "Records") reasonably necessary to enable the Inspectors
-------
to investigate the accuracy or completeness of the registration statement,
and cause the Company's officers, directors and employees to supply all
information reasonably requested by any such Inspector in connection with
such registration statement, provided, however, that information that the
-------- -------
Company determines, in good faith, to be confidential and which the company
advises such Person in writing is confidential, shall not be disclosed
unless such Person signs a confidentiality agreement reasonably
satisfactory to the Company or the related seller of Registrable Securities
agrees to be responsible for such Person's breach of confidentiality in
terms reasonably satisfactory to the Company; and
(k) apply for listing and use its reasonable best efforts to list the
Registrable Securities being registered on any national securities exchange
on which a class of the Company's equity securities is listed or, if the
Company does not have a class of equity securities listed on a national
securities exchange, apply for qualification and use its reasonable best
efforts to qualify the Registrable Securities being registered for
inclusion on the Nasdaq National Market System.
The Company may require each Holder whose Registrable Securities are being
registered to, and each such Holder, as a condition to including Registrable
Securities in such registration, shall, furnish the Company and the underwriters
with such information and affidavits regarding such Holder and the distribution
of such securities as the Company and the underwriters may from time to time
reasonably request in writing and to otherwise cooperate in connection with such
registration. At any time during the effectiveness of any registration statement
covering Registrable Securities offered by a Holder, if such Holder becomes
aware of any change materially affecting the accuracy of the information
contained in such registration statement or the prospectus (as then amended or
supplemented) relating to such Holder, it will immediately notify the Company of
such change.
-19-
<PAGE>
Upon receipt of any notice from the Company of the happening of any event
of the kind described in paragraph (h) of this Section 4, each Holder will
---------
forthwith discontinue such Holder's disposition of Registrable Securities
pursuant to the registration statement relating to such Registrable Securities
until such Holder receives the copies of the supplemented or amended prospectus
contemplated by paragraph (h) of this Section 4 and, if so directed by the
---------
Company, shall deliver to the Company (at the Company's expense) all copies,
other than permanent file copies, then in such Holder's possession of the
prospectus relating to such Registrable Securities current at the time of
receipt of such notice. In the event the Company shall give any such notice,
the period referred to in paragraph (b) of this Section 4 shall be extended by a
---------
number of days equal to the number of days during the period from and including
the giving of notice pursuant to paragraph (h) of this Section 4 and to and
---------
including the date when each Holder whose Registrable Securities are included in
such registration statement receives the copies of the supplemented or amended
prospectus contemplated by paragraph (h) of this Section 4.
---------
SECTION 5. UNDERWRITTEN OFFERINGS. If a Demand for Registration is made
----------------------
pursuant to Section 2(a) or (b), or if the company at any time proposes to
------------ ---
register any of its securities in a Piggyback Registration or otherwise, and, in
either case, the securities included in such registration are to be distributed
by or through one or more underwriters, such securities shall be distributed by
or through, and the Company shall enter into a firm commitment underwriting
agreement in customary form with, (i) a Managing Underwriter and a co-managing
underwriter, each selected in accordance with Section 10, (ii) such other
----------
underwriters, reasonably satisfactory to the Company, as may be selected by the
Managing Underwriter to assist or participate in the distribution, and (iii) if
a Qualified Independent Underwriter is required for such registration pursuant
to Schedule E to the NASD By-Laws or otherwise, a Qualified Independent
Underwriter selected in accordance with Section 10.
----------
(a) UNDERWRITTEN OFFERINGS IN CONNECTION WITH DEMAND REGISTRATION. If a
-------------------------------------------------------------
Demand for Registration is made pursuant to Section 2(a) or (b) and the
------------ ---
distribution of the Registrable Securities included in such Demand for
Registration is to be underwritten, the underwriting agreement shall include,
among other provisions, indemnities to the effect and to the extent provided in
Section 7 and any other indemnification required by the Managing Underwriter.
- ---------
To the extent that there is a conflict between the indemnification provisions of
Section 7 and the indemnification provisions of the underwriting agreement such
- ---------
that performance of obligations under either such provisions will cause the
violation of the other, then the indemnification provisions of the underwriting
agreement will control. No Requesting Holder may participate in such
underwritten offering unless such Holder becomes a party to such underwriting
agreement and agrees to sell its Registrable Securities on the basis provided in
such underwriting agreement and completes and
-20-
<PAGE>
executes all questionnaires, powers of attorney, customary agreements,
indemnities and other documents reasonably required under the terms of such
underwriting agreement. If any Requesting Holder disapproves of the terms of an
underwriting, such Holder may elect to withdraw therefrom and from such
registration by notice to the Company and the Managing Underwriter, and each of
the remaining Requesting Holders shall be entitled to increase the number of
Registrable Securities being registered to the extent of the Registrable
Securities so withdrawn (i) in the case of a Outback Registration, in accordance
with the priorities set forth in Section 2(f) and (ii) in all other cases in the
------------
proportion which the number of Registrable Securities being registered by such
remaining Requesting Holder bears to the total number of Registrable Securities
being registered by all such remaining Requesting Holders.
(b) UNDERWRITTEN PIGGYBACK OFFERINGS. If the Company at any time proposes
--------------------------------
to register any of its securities in a Piggyback Registration and such
securities are to be distributed by or through one or more underwriters, the
Company will, subject to the provisions of Section 3(c), use its reasonable best
------------
efforts, if requested by any Holder whose Registrable Securities are included in
such registration to arrange for such underwriters to include the Registrable
Securities to be offered and sold by such Holder among the securities to be
distributed by such underwriters, and such Holders shall be obligated to sell
their Registrable Securities in such Piggyback Registration through such
underwriters on the same terms and conditions as apply to the other Company
securities to be sold by such underwriters in connection with such Piggyback
Registration. No Requesting Holder may participate in such underwritten
offering unless such Holder becomes a party to such underwriting agreement and
agrees to sell its Registrable Securities on the basis provided in such
underwriting agreement and completes and executes all questionnaires, powers of
attorney, customary agreements, indemnities and other documents reasonably
required under the terms of such underwriting agreement. If any Requesting
Holder disapproves of the terms of an underwriting, such Holder may elect to
withdraw therefrom and from such registration by notice to the Company and the
Managing Underwriter, and each of the remaining Requesting Holders shall be
entitled to increase the number of Registrable Securities being registered to
the extent of the Registrable Securities so withdrawn (i) in the case of a
Cutback Registration, in accordance with the priorities set forth in Section
-------
3(c) and (ii) in all other cases in the proportion which the number of
- ----
Registrable Securities being registered by such remaining Requesting Holder
bears to the total number of Registrable Securities being registered by all such
remaining Requesting Holders.
SECTION 6. HOLDBACK AGREEMENTS.
-------------------
(a) BY THE HOLDERS. Unless the Managing Underwriter (or, in the case of a
--------------
non-underwritten Public Offering, the Company) otherwise consents in writing, no
Holder shall effect any public sale or distribution (including a sale under Rule
144) of any Registrable Securities, or any securities convertible into or
exchangeable or
-21-
<PAGE>
exercisable for Registrable Securities, during the fourteen (14) days prior to
and the ninety (90) days (or in the case of the Initial Public Offering one
hundred and eighty (180) days) after the effective date of any registration
statement filed by the Company in connection with a Public Offering, except as
part of such registration statement, whether or not such Holder participates in
such registration. In order to enforce the foregoing covenant, the Company shall
be entitled to impose stop-transfer instructions with respect to the Registrable
Securities of each Holder until the end of such period.
(b) BY THE COMPANY AND OTHER SECURITY HOLDERS. Unless any Managing
-----------------------------------------
Underwriter otherwise consents in writing, the Company (i) shall not effect any
public sale or distribution of its equity securities, or any securities
convertible into or exchangeable or exercisable for such securities, during the
fourteen (14) days prior to and the ninety (90) days (or in the case of the
Initial Public Offering one hundred and eighty (180) days) after the effective
date of the registration statement filed in connection with an underwritten
offering made pursuant to a Demand Registration or a Piggyback Registration,
except as part of such underwritten registration and except pursuant to
registrations on Form S-4 or Form S-8 promulgated by the Commission (or any
successor or similar forms thereto), and (ii) shall cause each holder of its
equity securities, or of any securities convertible into or exchangeable or
exercisable for such securities, in each case purchased from the Company at any
time after the date of this Agreement (other than in a Public Offering), to
agree not to effect any such public sale or distribution of such securities
(including a sale under Rule 144), during such period, except as part of such
underwritten registration.
SECTION 7. INDEMNIFICATION.
---------------
(a) INDEMNIFICATION BY THE COMPANY. The Company shall, to the full extent
------------------------------
permitted by law, indemnify and hold harmless each seller of Registrable
Securities included in any registration statement filed in connection with a
Demand Registration or a Piggyback Registration, its directors, officers, and
partners, and each other Person, if any, who controls any such seller within the
meaning of the Securities Act, against any losses, claims, damages, expenses or
liabilities, joint or several (together, "Losses"), to which such seller or any
------
such director, officer, partner or controlling Person may become subject under
the Securities Act or otherwise, insofar as such Losses (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any such registration statement, any preliminary
prospectus, final prospectus or prospectus supplement contained therein or filed
with the Commission, or any amendment or supplement thereto, or any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein (in the case of a prospectus, in the
light of the circumstances under which they were made) not misleading, and the
Company will reimburse such seller and each such director, officer, partner and
-22-
<PAGE>
controlling Person for any legal or any other expenses reasonably incurred by
them in connection with investigating or defending any such Loss (or action or
proceeding in respect thereof); provided, that the Company shall not be liable
--------
in any such case to the extent that any such Loss (or action or proceeding in
respect thereof) arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in any such registration
statement, preliminary prospectus, final prospectus, amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company by such seller specifically stating that it is for use in the
preparation thereof. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such seller or any such
director, officer, partner or controlling Person, and shall survive the transfer
of such securities by such seller. The Company shall also indemnify each other
Person who participates (including as an underwriter) in the offering or sale of
Registrable Securities, their officers and directors, and partners, and each
other Person, if any, who controls any such participating Person within the
meaning of the Securities Act to the same extent as provided above with respect
to sellers of Registrable Securities.
(b) INDEMNIFICATION BY THE SELLERS. Each Holder whose Registrable
------------------------------
Securities are included or are to be included in any registration statement
filed in connection with a Demand Registration or a Piggyback Registration, as a
condition to including Registrable Securities in such registration statement,
shall, to the full extent permitted by law, indemnify and hold harmless the
Company, its directors and officers, and each other Person, if any, who controls
the Company within the meaning of the Securities Act, against any Losses to
which the Company or any such director or officer or controlling Person may
become subject under the Securities Act or otherwise, insofar as such Losses (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any such registration statement, any
preliminary prospectus, final prospectus or prospectus supplement contained
therein or filed with the Commission, or any amendment or supplement thereto, or
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein (in the case of a
prospectus, in the light of the circumstances under which they were made) not
misleading, if such untrue statement, alleged untrue statement, omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by such seller specifically stating that it
is for use in the preparation of such registration statement, preliminary
prospectus, final prospectus, amendment or supplement; provided, however, that
-------- -------
the obligation to provide indemnification pursuant to this Section 7(b) shall be
-----------
several, and not joint and several, among such Indemnifying Parties on the basis
of the number of Registrable Securities of each such Indemnifying Party included
in such registration statement and shall be limited to the amount of net
proceeds (after deduction of all underwriter's discounts and commissions paid by
such Holder in connection with the registration in question) received by such
Holder in the offering giving rise to such
-23-
<PAGE>
Loss. The indemnity agreement contained in this Section 7(b) shall not apply to
------------
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Holder, which consent
shall not be unreasonably withheld. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of the Company
or any such director, officer or controlling Person and shall survive the
transfer of such securities by such seller. Such Holders shall also indemnify
each other Person who participates (including as an underwriter) in the offering
or sale of Registrable Securities, their officers and directors and each other
Person, if any, who controls any such participating Person within the meaning of
the Securities Act to the same extent as provided above with respect to the
Company.
(c) NOTICES OF CLAIMS. Promptly after receipt by an Indemnified Party of
-----------------
notice of the commencement of any action or proceeding involving a claim
referred to in the preceding paragraph (a) or (b) of this Section 7, such
---------
Indemnified Party shall, if a claim in respect thereof is to be made against an
Indemnifying Party pursuant to such paragraphs, give written notice to the
latter of the commencement of such action, provided that the failure of any
--------
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under the preceding paragraphs of this
Section 7, except to the extent that the Indemnifying Party is actually
- ---------
prejudiced by such failure to give notice. In case any such action is brought
against an Indemnified Party, the Indemnifying Party shall be entitled to
participate in and, unless, in the reasonable judgment of any Indemnified Party,
a conflict of interest between such Indemnified Party and any Indemnifying Party
exists with respect to such claim, to assume the defense thereof, jointly with
any other Indemnifying Party similarly notified to the extent that it may wish,
with counsel reasonably satisfactory to such Indemnified Party, and after notice
from the Indemnifying Party to such Indemnified Party of its election so to
assume the defense thereof, the Indemnifying Party shall not be liable to such
Indemnified Party for any legal or other expenses subsequently incurred by the
latter in connection with the defense thereof other than reasonable costs of
investigation; provided that the Indemnified Party may participate in such
--------
defense at the Indemnified Party's expense; and provided further that the
-------- -------
Indemnified Party or Indemnified Parties shall have the right to employ one
counsel to represent it or them if, in the reasonable judgment of the
Indemnified Party or Indemnified Parties, it is advisable for it or them to be
represented by separate counsel by reason of having legal defenses which are
different from or in addition to those available to the Indemnifying Party, and
in that event the reasonable fees and expenses of such one counsel shall be paid
by the Indemnifying Party. If the Indemnifying Party is not entitled to, or
elects not to, assume the defense of a claim, it will not be obligated to pay
the fees and expenses of more than one counsel for the Indemnified Parties in a
single jurisdiction with respect to such claim, unless in the reasonable
judgment of any Indemnified Party a conflict of interest may exist between such
Indemnified Party and any other Indemnified Parties with respect to such claim,
in which event the Indemnifying Party shall be
-24-
<PAGE>
obligated to pay the fees and expenses of such additional counsel for the
Indemnified Parties. No Indemnifying Party shall consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to each Indemnified Party
of a release from all liability in respect to such claim or litigation without
the consent of the Indemnified Party. No Indemnifying Party shall be subject to
any liability for any settlement made without its consent, which consent shall
not be unreasonably withheld.
(D) CONTRIBUTION. If the indemnity and reimbursement obligation provided
------------
for in any paragraph of this Section 7 is unavailable or insufficient to hold
---------
harmless an Indemnified Party in respect of any Losses (or actions or
proceedings in respect thereof) referred to therein, then the Indemnifying Party
shall contribute to the amount paid or payable by the Indemnified Party as a
result of such Losses (or actions or proceedings in respect thereof) in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party on the one hand and the Indemnified Party on the other hand in connection
with statements or omissions which resulted in such Losses, as well as any other
relevant equitable considerations; provided, however, that the amount of the
-------- -------
contribution of a Holder shall be limited to the amount of net proceeds (after
deduction of all underwriter's discounts and commissions paid by such Holder in
connection with the registration in question) received by such Holder in the
offering giving rise to such Loss. The contribution agreement contained in this
Section 7(d) shall not apply to amounts paid in settlement of any such loss,
- ------------
claim, damage, liability or action if such settlement is effected without the
consent of the Holder, which consent shall not be unreasonably withheld.
Relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Indemnifying Party or the Indemnified Party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. The parties hereto agree that it would not be
just and equitable if contributions pursuant to this paragraph were to be
determined by pro rata allocation or by any other method of allocation which
--- ----
does not take account of the equitable considerations referred to in the first
sentence of this paragraph. The amount paid by an Indemnified Party as a result
of the Losses referred to in the first sentence of this paragraph shall be
deemed to include any legal and other expenses reasonably incurred by such
Indemnified Party in connection with investigating or defending any Loss which
is the subject of this paragraph.
No Indemnified Party guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from the Indemnifying Party if the Indemnifying Party was not
guilty of such fraudulent misrepresentation.
-25-
<PAGE>
(e) INDEMNIFICATION PAYMENTS. The indemnification required by this
------------------------
Section 7 shall be made by periodic payments of the amount thereof during the
- ---------
course of the investigation or defense, as and when bills are received or Losses
are incurred.
SECTION 8. COVENANTS RELATING TO RULE 144. If at any time the Company is
------------------------------
required to file reports in compliance with either Section 13 or Section 15(d)
of the Exchange Act, the Company will (a) file reports in compliance with the
Exchange Act, (b) comply with all rules and regulations of the Commission
applicable in connection with the use of Rule 144 and take such other actions
and furnish each Holder with such other information as such Holder may request
in order to avail itself of such rule or any other rule or regulation of the
Commission allowing such Holder to sell any Registrable Securities without
registration, and (c) at its expense, forthwith upon the request of any Holder,
deliver to such Holder a certificate, signed by the Company's principal
financial officer, stating (i) the Company's name, address and telephone number
(including area code), (ii) the Company's Internal Revenue Service
identification number, (iii) the Company's Commission file number, (iv) the
number of shares of each class of stock outstanding as shown by the most recent
report or statement published by the company, and (v) whether the Company has
filed the reports required to be filed under the Exchange Act for a period of at
least ninety (90) days prior to the date of such certificate and in addition has
filed the most recent annual report required to be filed thereunder. If at any
time the Company is not required to file reports in compliance with either
Section 13 or Section 15(d) of the Exchange Act, and a Holder is entitled to
sell Registrable Securities pursuant to Rule 144, the company at its expense
will, forthwith upon the written request of such Holder, make available adequate
current public information with respect to the Company within the meaning of
paragraph (c)(2) of Rule 144.
SECTION 9. OTHER REGISTRATION RIGHTS.
-------------------------
(a) NO EXISTING AGREEMENTS. The Company represents and warrants to each
----------------------
other party hereto that there is not in effect on the date hereof any agreement
by the Company (other than this Agreement) pursuant to which any holders of
securities of the Company have a right to cause the Company to register or
qualify such securities under the Securities Act or any securities or blue sky
laws of any jurisdiction.
(b) FUTURE AGREEMENTS. The Company shall not hereafter agree with the
-----------------
holders of any securities issued or to be issued by the Company to register or
qualify such securities under the Securities Act or any securities or blue sky
laws of any jurisdiction unless such agreement specifically provides that (i)
such holder of such securities may not participate in any Demand Registration
except as provided in Section 2; and (ii) the holder of such securities may not
---------
participate in any Piggyback Registration except as provided in Section 3.
---------
-26-
<PAGE>
SECTION 10. SELECTION OF UNDERWRITERS. It is acknowledged and agreed by
-------------------------
the Company and the other parties hereto that for any registration of
Registrable Securities effected pursuant to this Agreement to be sold in a
Public Offering (i) RRD shall be entitled to select the Managing Underwriter of
any such underwritten public offering with the consent of the Former SHI
Stockholders then holding shares of Common Stock (which consent shall not be
withheld if the lead manager selected by RRD is Goldman, Sachs & Co., Lehman
Bothers or Morgan Stanley & Co. Incorporated and shall not be unreasonably
withheld with respect to any other selection of lead manager), and (ii) the
Former SHI Stockholders then holding shares of Common Stock shall be entitled to
select one co-manager with the consent of RRD (which consent shall not be
unreasonably withheld). Any action to be taken by the Former SHI Stockholders
then holding shares of Common Stock under this Section 10 shall be taken by the
----------
Former SHI Stockholders who own in the aggregate more than fifty percent (50%)
of all shares of Common Stock then owned by the Former SHI Stockholders. If any
such underwriter so selected pursuant to clauses (i) or (ii) of the first
sentence of this Section 10 is unable or elects not to act in such capacity, the
----------
Managing Underwriter and/or co-managing underwriter shall be selected in the
manner provided in the first sentence of this Section 10. If a Qualified
----------
Independent Underwriter is required for any registration of Registrable
Securities effected pursuant to this Agreement, such Qualified Independent
Underwriter shall be an investment banking firm, selected by the Managing
Underwriter and reasonably satisfactory to the Company which (i) meets the
criteria for a "qualified independent underwriter" set forth in Section 2(1) of
Schedule E to the NASD By-Laws as the same may be amended from time to time and
any other applicable rule or regulation of the NASD or otherwise, and (ii)
agrees to act in such capacity for compensation and upon other terms and
conditions substantially consistent with the compensation and other terms and
conditions that could reasonably be expected to be required by similar
investment banking firms acting in such capacity in similar transactions.
SECTION 11. COUNTERPARTS; ADDITIONAL PARTIES. This Agreement may be
---------------------------------
executed in any number of counterparts, each of which will be deemed an
original, but all of which together shall constitute a single Agreement. Each
Permitted Transferee and each person becoming an Investor after the Effective
Time shall become a party to this Agreement when a counterpart hereof, or a
supplemental agreement in which such person agrees to become a party to and
bound by all provisions of this Agreement, in each case in form and substance
reasonably satisfactory to the Company, has been executed by such person and
delivered to the Company. Each Holder acquiring Shares which remain or become
subject to this Agreement shall concurrently execute and deliver to the Company
a supplemental agreement confirming that any Shares acquired remain or shall
become subject to the provisions of this Agreement.
-27-
<PAGE>
SECTION 12. MISCELLANEOUS.
-------------
(a) NOTICES. All notices, requests and other communications hereunder
-------
must be in writing and will be deemed to have been duly given only if delivered
personally, by courier or by facsimile transmission or mailed (first class
postage prepaid) to the parties at the addresses or facsimile numbers set forth
below:
(i) in the case of any Holder (other than RRD), to such Holder at
its address set forth in the stock ledger of the Company;
(ii) in the case of the Company, to:
Stream International Inc.
2 Edgewater Drive
Norwood, MA 02062-4637
Facsimile:
-----------
Attention: Chairman
with a copy to:
R. R. Donnelley & Sons company
77 West Wacker Drive
Chicago, IL 60601-1696
Facsimile: (312) 326-7706
Attention: Secretary
(iii) in the case of RRD, RRD International or RRD Norwest, to:
R. R. Donnelley & Sons Company
77 West Wacker Drive
Chicago, IL 60601-1696
Facsimile: (312) 326-7706
Attention: Secretary
All such notices, requests and other communications will (x) if delivered
personally or by courier to the address provided in this Section 12(a), be
-------------
deemed given upon delivery, (y) if delivered by facsimile transmission to the
facsimile number provided in this Section 12(a), be deemed given when receipt of
-------------
transmission has been orally confirmed by the sending party, and (z) if
delivered by first class or registered mail in the manner described above to the
address as provided in this Section 12(a), be deemed given three (3) Business
-------------
Days after deposit in the United States Mail (in each case regardless of whether
such notice, request or other communication is received by any other Person to
whom a copy of such notice is to be delivered pursuant to this Section). Any
party from time to time may change its
-28-
<PAGE>
address, facsimile number or other information for the purpose of notices to
that party by giving notice specifying such change to the other parties hereto.
(b) ENTIRE AGREEMENT. This Agreement represents the entire agreement
----------------
among the Holders and the Company with respect to the matters set forth herein,
and supersedes all prior agreements and understandings between or among any of
the parties hereto with respect to the matters set forth herein, including
without limitation registration rights previously granted to RRD or RRD
International.
(c) AMENDMENT. This Agreement may be amended, supplemented or modified
---------
only by a written instrument (which may be executed in any number of
counterparts) duly executed by or on behalf of each of the Company, the RRD
Holders and the Investors holding a majority of the remaining Registrable
Securities then outstanding or subject to issuance.
(d) WAIVER. Subject to paragraph (e) of this Section 12, any term or
------ ----------
condition of this Agreement may be waived at any time by the party that is
entitled to the benefit thereof, but no such waiver shall be effective unless
set forth in a written instrument duly executed by or on behalf of the party
waiving such term or condition. No waiver by any party of any term or condition
of this Agreement, in any one or more instances, shall be deemed to be or
construed as a waiver of the same term or condition of this Agreement by any
other party or by such waiving party on any future occasion.
(e) CONSENTS AND WAIVERS BY HOLDERS. Any consent of Holders pursuant to
-------------------------------
this Agreement, and any waiver by Holders of any provision of this Agreement,
shall be in writing (which may be executed in any number of counterparts) and
may be given or taken by the RRD Holders and the Investors holding a majority of
the remaining Registrable Securities then outstanding or subject to issuance,
and any such consent or waiver so given or taken will be binding on all the
Holders. Any waiver by Holders of Section 12(l) shall, insofar as they concern
-------------
the provisions in the Restated Certificate of Incorporation relating to the
TARSAP Replacement Plan, also require the consent of the SHI Representative and
the Majority Plan Participants (as such terms are defined in the TARSAP
Replacement Plan).
(f) NO THIRD PARTY BENEFICIARY. The terms and provisions of this
--------------------------
Agreement are intended solely for the benefit of each party hereto and their
respective successors or permitted assigns, and it is not the intention of the
parties to confer third-party beneficiary rights upon any other Person other
than any Person entitled to indemnification under Section 7.
---------
(g) SUCCESSORS AND ASSIGNS. The rights and obligations contained in this
----------------------
Agreement shall be transferable by any Holder to any Person that acquires
Registrable Securities from such Holder and becomes a party to this Agreement
-29-
<PAGE>
(excluding any Person that acquires such Registrable Securities in a transaction
pursuant to which such securities cease to be Registrable Securities).
(h) HEADINGS. The headings used in this Agreement have been inserted for
--------
convenience of reference only and shall not be deemed to be a part of this
Agreement.
(i) INVALID PROVISIONS. If any provision of this Agreement is held to be
------------------
illegal, invalid or unenforceable under any present or future law, and if the
rights or obligations of any party hereto under this Agreement will not be
materially and adversely affected thereby, (i) such provision will be fully
severable, (ii) this Agreement will be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part hereof,
(iii) the remaining provisions of this Agreement will remain in full force and
effect and will not be affected by the illegal, invalid or unenforceable
provision or by its severance herefrom and (iv) in lieu of such illegal, invalid
or unenforceable provision, there will be added automatically as a part of this
Agreement a legal, valid and enforceable provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible.
(j) REMEDIES. Except as otherwise expressly provided for herein, no
--------
remedy conferred by any of the specific provisions of this Agreement is intended
to be exclusive of any other remedy, and each and every remedy shall be
cumulative and shall be in addition to every other remedy given hereunder or now
or hereafter if existing at law or in equity or by statute or otherwise. The
election of any one or more remedies by any party hereto shall not constitute a
waiver by any such party of the right to pursue any other available remedies.
Damages in the event of breach of this Agreement by any party hereto or any
of their respective successors or permitted assigns would be difficult, if not
impossible, to ascertain, and it is therefore agreed that each such Person, in
addition to and without limiting any other remedy or right it may have, will
have the right to an injunction or other equitable relief in any court of
competent jurisdiction, enjoining any such breach, and enforcing specifically
the terms and provisions hereof and each party hereto, on its own behalf and on
behalf of its respective successors and permitted assigns, hereby waives any and
all defenses it may have on the ground of lack of jurisdiction or competence of
the court to grant such an injunction or other equitable relief. The existence
of this right will not preclude any such Person from pursuing any other rights
and remedies at law or in equity which such Person may have.
(k) GOVERNING LAW: CONSENT TO JURISDICTION. THIS AGREEMENT SHALL BE
---------------------------------------
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
WITHOUT REGARD TO ITS CONFLICTS OF LAW DOCTRINE. BY EXECUTION AND DELIVERY OF
THIS AGREEMENT, EACH OF
-30-
<PAGE>
THE HOLDERS ACCEPTS, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE
JURISDICTION OF THE STATE OR FEDERAL COURTS IN NEW YORK IN ANY ACTION OR
PROCEEDING CONCERNING THIS AGREEMENT. EACH PARTY HEREBY IRREVOCABLY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER
HAVE TO THE LAYING OF THE VENUE OF ANY SUCH ACTION, SUIT OR PROCEEDING BROUGHT
IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH ACTION, SUIT OR PROCEEDING BROUGHT
IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. NOTHING HEREIN SHALL
AFFECT THE RIGHT OF ANY PARTY TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED
AGAINST THE OTHER IN ANY OTHER JURISDICTION.
(l) RESTATED CERTIFICATE OF INCORPORATION. Each Investor and each RRD
-------------------------------------
Holder agrees to be bound by the provisions of the Company's Restated
Certificate of Incorporation, as amended from time to time.
-31-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
each party hereto, or the duly authorized officer of each party hereto, as the
case may be, as of the date first above written.
STREAM INTERNATIONAL INC.
By: /s/
-----------------------------
Name:
Title:
R.R. DONNELLEY & SONS COMPANY
By: /s/
-----------------------------
Name:
Title:
R.R. DONNELLEY INTERNATIONAL, INC.
By: /s/
-----------------------------
Name:
Title:
R.R. DONNELLEY NORWEST INC.
By: /s/
-----------------------------
Name:
Title:
-32-
<PAGE>
INVESTORS:
BAIN CAPITAL FUND IV, L.P.
By BAIN Capital Partners IV, L.P. a
Delaware Limited Partnership, its
general partner
By Bain Capital Investors, Inc., its
general partner
By /s/ Date: 5/17/95
------------------------ ---------
Title:
BAIN CAPITAL FUND IV-B, L.P.
By BAIN Capital Partners IV, L.P. a
Delaware Limited Partnership, its
general partner
By Bain Capital Investors, Inc., its
general partner
By /s/ Date: 5/17/95
------------------------ ---------
Title:
BCIP ASSOCIATES
By /s/ Date: 5/17/95
------------------------ ---------
Title: a general partner
BCIP TRUST ASSOCIATES, L.P.
By /s/ Date: 5/17/95
------------------------ ---------
Title: a general partner
-33-
<PAGE>
INFORMATION PARTNERS CAPITAL
FUND, L.P.
By Information Partners, a Massachusetts
general partnership, its general partner
By BAIN Capital Partners IV, L.P., its
general partner
By /s/ Date: 5/22/95
------------------------ ---------------
Title:
RESOURCE HOLDINGS INC.
By /s/ Date: May 17, 1995
------------------------ ---------------
Title:
CHEMICAL EQUITY ASSOCIATES, A
CALIFORNIA LIMITED PARTNERSHIP
By /s/ Date:
------------------------ ---------------
Thomas M. Neustaetter, as
attorney-in-fact for Chemical
Venture Partners, its general
partner
CONTINENTAL ILLINOIS COMMERCIAL
CORPORATION
BY /s/ Date: 5/16/95
------------------------ ---------------
Title:
-34-
<PAGE>
STREAM INTERNATIONAL INC.
FORM OF REGISTRATION RIGHTS AMENDMENT
Amendment and Waiver to Registration Rights Agreement dated as of April 21,
1995 among Stream International Inc. (f/k/a Stream International Holdings Inc.)
(the "Company"), R.R. Donnelley & Sons Company, R.R. Donnelley International,
Inc., R.R. Donnelley Norwest Inc. and the Investors becoming parties to such
agreement (the "Registration Rights Agreement").
1. No Holder, other than the RRD Holders (who are selling Common Stock in
the Offering pursuant to Section 3 of the Registration Rights Agreement), shall
have any right under the provisions of Section 3 or any other provision of the
Registration Rights Agreement to include any shares in the Offering.
2. "Registrable Securities" as defined in Section 1(a) of the
Registration Rights Agreement shall be deemed to include any shares of Common
Stock transferred from the RRD Holders to the Investors pursuant to the sharing
agreement(s) to be entered into among certain of such parties, as described in
the Letter to Stockholders.
3. The following paragraph is added as paragraph (iv) of Section 2(c) to
the Registration Rights Agreement:
"or (iv) such Demand for Registration is received by the Company
within 180 days following the effective date of the registration
statement relating to the Initial Public Offering."
4. Section 2(h) of the Registration Rights Agreement, captioned
"Preemption of Qualifying Holder Demand Registration," is hereby deleted in its
entirety.
5. This Amendment and Waiver and the Letter to Stockholders shall be
deemed to satisfy the Company's notice requirements under the provisions of
Section 3(a) and any other notice provision of the Registration Rights
Agreement, and any failure of the Company to comply with any notice provision of
the Registration Rights Agreement with respect to the Offering is hereby waived.
6. Notwithstanding Section 3(b) of the Registration Rights Agreement, the
Company shall not be required to pay the fees and disbursements of counsel for
the RRD Holders in connection with the Offering.
7. Section 4(a) of the Registration Rights Agreement is hereby amended to
delete the following language contained therein: ", and in any event at least
five (5) days prior to any such filing,".
<PAGE>
8. The provisions of Section 10 of the Registration Rights Agreement
shall not apply with respect to the Offering. It is hereby acknowledged that
the Managing Underwriters of the Offering are expected to be BT Alex. Brown
Incorporated and Lehman Brothers Inc.
9. Other than as set forth above, any and all rights of any Holder to
participate in the Offering are hereby waived and the Company is hereby released
therefrom.
10. Any provision of the Registration Rights Agreement that is
inconsistent with the foregoing or with the Letter to Stockholders is hereby
waived.
<PAGE>
EXHIBIT 10.20
TAX REIMBURSEMENT AGREEMENT
---------------------------
TAX REIMBURSEMENT AGREEMENT dated as of December 15, 1997 (this
"Agreement"), between R.R. Donnelley & Sons Company, a Delaware corporation
---------
("RRD"), and Stream International Inc., a Delaware corporation (f/k/a Stream
---
International Holdings, Inc.) (the "Company").
-------
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, in connection with an initial public offering of common stock
of the Company, the Company intends to (i) contribute the MMI Business (as
defined below) to Modus Media International Holdings Inc., a Delaware
corporation ("MMI Holdings"), in exchange for voting common stock and preferred
------------
stock of MMI Holdings and the assumption by MMI Holdings of certain liabilities
associated with the MMI Business in accordance with the terms of the MMI
Contribution Agreement, as defined below (the "MMI Drop Down"); (ii) immediately
-------------
thereafter cause MMI Holdings to transfer the MMI Business (other than certain
specified indebtedness) to Modus Media International, Inc., a Delaware
corporation and a wholly-owned subsidiary of MMI Holdings ("MMI") in accordance
---
with the terms of the MMI Contribution Agreement; (iii) concurrently with the
contribution described in clause (i), cause Stream International Services Corp.,
a Delaware corporation and a wholly owned subsidiary of the Company (f/k/a
Stream International Inc.) ("SISC"), to contribute the CST Business (as defined
----
below) to Corporate Software & Technology Holdings Inc., a Delaware corporation
("CST Holdings"), in exchange for voting common stock of CST Holdings and the
------------
assumption by CST Holdings of certain liabilities associated with the CST
Business in accordance with the terms of the CST Contribution Agreement, as
defined below (the "CST Drop Down"); (iv) immediately thereafter cause CST
-------------
Holdings to transfer the CST Business (other than certain specified
indebtedness) to Corporate Software & Technology, Inc., a Delaware corporation
and a wholly owned subsidiary of CST Holdings ("CST") in accordance with the
---
terms of the CST Contribution Agreement; (v) thereafter cause SISC to distribute
all of its stock of CST Holdings to the Company as a dividend; and (vi) not
later than January 10, 1998, distribute all of the voting common stock of MMI
Holdings and CST Holdings owned by the Company to the shareholders of the
Company as a dividend (such distribution, the "Distribution" and all the
------------
foregoing collectively referred to as the "Reorganization"); and
--------------
WHEREAS, RRD is entering into this Agreement in its capacity as a
shareholder of the Company and a recipient in the Distribution.
NOW, THEREFORE, in consideration of the agreements and mutual
covenants contained herein, the parties hereto agree as follows:
Section 1. Definitions; Related Rules. As used in this Agreement,
--------------------------
the following terms shall have the following meanings:
<PAGE>
"Affiliate" means, with respect to any entity, any other
---------
individual, corporation, partnership, joint venture, limited liability
company, association, joint-stock company, trust or unincorporated
organization which directly or indirectly controls, is controlled by or is
under common control with such entity; provided, however, that RRD (and its
-------- -------
subsidiaries that are not also subsidiaries of the Company) and the Company
(and its subsidiaries) shall not be treated as Affiliates for purposes of
this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended, and
----
corresponding provisions of subsequently enacted federal Tax law.
"Company Payment Date" means, for each taxable year or period
--------------------
ending in any Post-Drop Down Tax Period for each Taxing Jurisdiction, the
date 30 business days following the due date (excluding extensions) for
filing Income Tax Returns for such taxable year or period with respect to
such Taxing Jurisdiction.
"CST Business" has the meaning given to such term in the CST
------------
Contribution Agreement.
"CST Contribution Agreement" means the Contribution Agreement
--------------------------
dated as of the date hereof, among the Company, SISC, CST Holdings and CST.
"Deferred Reorganization Tax Item" shall mean any Tax Item
--------------------------------
directly related to one or more steps included in the Reorganization that
is recognized or otherwise taken into account in computing income or loss
(or, in the case of a credit, a Tax liability) for Income Tax purposes with
respect to a taxable year or period other than the taxable year or period
in which the step giving rise to such Tax Item occurred (it being
understood that such Tax Items shall include, without limitation, losses
deferred under the federal income tax consolidated return regulations,
Section 267 of the Code and the regulations thereunder, or other similar
provisions of federal, state, local or foreign law).
"Distribution Date" means the date on which the Distribution
-----------------
occurs.
"Drop Down Date" means the date on which the MMI Drop Down and
--------------
the CST Drop Down occur.
"Final Determination" has the meaning given to such term in the
-------------------
Tax Sharing Agreement.
"Guarantees" means the two Guarantees, each dated as of the date
----------
hereof, pursuant to which RRD guarantees the payment to the Company in
respect of certain obligations of MMI and MMI Holdings, in one case, and
CST and CST Holdings, in the other case, under the MMI Contribution
Agreement, the CST Contribution Agreement, and the Tax Sharing Agreement.
2
<PAGE>
"Income Tax" has the meaning given to such term in the Tax
----------
Sharing Agreement.
"Income Tax Return" means any Tax Return required to be filed
-----------------
with respect to any Income Tax.
"Jurisdiction Closing NOL Amount" means, for a Taxing
-------------------------------
Jurisdiction, (i) the NOLs for such Taxing Jurisdiction as of the close of
the Drop Down Date, as initially determined pursuant to Section 5(a), (b),
and (c), (ii) as revised from time to time pursuant to Section 5(d)
(relating to Final Determinations after the Drop Down Date), and (iii) as
revised from time to time pursuant to Section 5(e) (relating to adjustments
to take into account certain Deferred Reorganization Tax Items).
"Loss Item" means a Tax Item that is both (i) a Deferred
---------
Reorganization Tax Item (or would be a Deferred Reorganization Tax Item if
the portion of a Straddle Period beginning at the beginning of the day
after the Drop Down Date were a separate taxable year or period under
applicable law) and (ii) a loss, deduction, credit, or other Tax Item that
is of a type that generally decreases Income Taxes paid or payable.
"Master Agreement" means the Agreement dated as of the date
----------------
hereof between RRD and Bain Capital, Inc..
"MMI Business" has the meaning given to such term in the MMI
------------
Contribution Agreement.
"MMI Contribution Agreement" means the Contribution Agreement
--------------------------
dated as of the date hereof among the Company, MMI Holdings and MMI.
"NOLs" means, for a Taxing Jurisdiction and as of the end of any
----
taxable year or period, the (i) net operating losses that, under the laws
of such Taxing Jurisdiction, may be carried forward or back for possible
use in future or prior taxable years or periods, (ii) net capital losses
that, under the laws of such Taxing Jurisdiction, may be carried forward or
back for possible use in future or prior taxable years or periods, (iii)
alternative minimum tax credits that, under the laws of such Taxing
Jurisdiction, may be carried forward or back for possible use in future or
prior taxable years or periods, and (iv) other credits that, under the laws
of such Taxing Jurisdiction, may be carried forward or back for possible
use in future or prior taxable years or periods, in each case to the extent
related to Income Taxes imposed by such Taxing Jurisdiction.
"Post-Drop Down Tax Period" means any taxable year or period
-------------------------
beginning after the Drop Down Date and, with respect to any Straddle
Period, the portion of such Straddle Period beginning immediately after the
Drop Down Date.
3
<PAGE>
"Proceeding" means any audit, action, suit, investigation, claim,
----------
assessment, litigation or other administrative or judicial proceeding.
"Reorganization Taxes" means the excess, if any, of (a) the
--------------------
aggregate amount of Income Taxes imposed on the Company or SISC for the
taxable year or period of the Company or SISC, as the case may be, in which
the Drop Down occurs over (b) the aggregate amount of Income Taxes that
----
would have been imposed on the Company or SISC for the taxable year or
period of the Company or SISC, as the case may be, in which the Drop Down
occurs if Income Taxes for such taxable year or period had been computed by
excluding all Tax Items directly related to the steps included in the
Reorganization. For purposes of the foregoing, it is agreed that:
(v) NOLs primarily related to the Stream Business, the MMI
Business or the CST Business (determined separately under the rules
set forth in Section 3.01 of the Tax Sharing Agreement) carried over
(other than from a Post-Drop Down Tax Period) to the taxable year or
period in which the Drop Down occurs and net operating losses, net
capital losses, alternative minimum tax credits and other credits
primarily related to the Stream Business, the MMI Business or the CST
Business (determined separately under the rules set forth in Section
3.01 of the Tax Sharing Agreement, and determined without double-
counting Tax Items directly related to the steps included in the
Reorganization) incurred in such taxable year or period, in each case
shall be considered as Tax Items directly related to the steps
included in the Reorganization (see examples in Annex A);
(w) Straddle Periods shall be treated in a manner consistent
with the rules set forth in the definition thereof;
(x) the amount of NOL carried back from a Post-Drop Down Tax
Period (in accordance with Section 3(c)) shall be treated as a Tax
Item directly related to the steps included in the Reorganization to
the extent such NOL does not exceed the Loss Items recognized or
otherwise taken into account in computing income or loss (or, in the
case of credits, Taxes) in such Post-Drop Down Tax Period (see
examples in Annex A);
(y) Loss Items that are (or, if the portion of the Straddle
Period beginning at the beginning of the day after the Drop Down Date
were a separate taxable year or period under applicable law, would be)
recognized or otherwise taken into account in computing income or loss
(or, in the case of credits, Taxes) for the portion of a Straddle
Period beginning at the beginning of the day after the Drop Down Date
shall be treated as being recognized or otherwise so taken into
account in the portion of such Straddle Period ending at the end of
the Drop Down Date; and
4
<PAGE>
(z) without limitation, Tax Items related to any of the
following shall not be treated as being directly related to the steps
included in the Reorganization: (i) any reduction in tax basis of (or
any creation of, or increase in, an excess loss account with respect
to) the Company's stock in SISC; (ii) the amendment to the Operating
Agreement dated April 21, 1995 among RRD, R.R. Donnelley Receivables
Inc. and Stream International Holdings, Inc. referred to in Section
5.7(d) of the Master Agreement; (iii) the purchase by RRD of the
Portland Assets, as described in Section 9 of the Master Agreement;
(iv) any exchange of debt held by RRD (or any Affiliate of RRD) for
stock of, or other rights with respect to, MMI Holdings, MMI, CST
Holdings, CST or the Company; (v) any failure to make any required
deductions or withholdings or payments with respect to such deductions
or withholdings; (vi) any liquidation of Software Holdings, Inc.; and
(vii) any actual or deemed liquidation of SISC.
"Straddle Period" means any taxable year or period beginning
---------------
before and ending after the close of the Drop Down Date. For all purposes
of this Agreement, any Straddle Period shall be treated as two taxable
years or periods, one ending at the end of the Drop Down Date and the other
beginning at the beginning of the day after the Drop Down Date, in all
cases with Tax Items allocated to one such taxable year or period or the
other determined on a "closing of the books" basis at the end of the Drop
Down Date (except that items computed on an annual basis, such as
depreciation, shall be allocated on a daily basis). Except where indicated
otherwise, for all purposes of this Agreement the portion of the Straddle
Period ending at the end of the Drop Down Date and the portion of the
Straddle Period beginning at the beginning of the day after the Drop Down
Date shall each be treated as a "taxable year or period". NOLs that are
carried to a Straddle Period under applicable law shall, for purposes of
the Agreement, first be allocated solely to the portion of the Straddle
Period ending at the end of the Drop Down Date as if such portion were a
separate taxable year or period and then to other relevant taxable years or
periods; provided, however, that the foregoing rule shall not affect any
carryback or carryover period allowed by applicable law.
"Stream IPO" means the initial underwritten public offering of
----------
common stock of the Company.
"Subsidiaries" means any corporation that is 50% or greater owned
------------
(directly or indirectly) by the Company.
"Tax" has the meaning given such term in the Tax Sharing
---
Agreement determined, however, by deleting the words "upon the Stream
Group, the MMI Group, the CST Group or any of their respective members or
divisions or branches" which appear at the end thereof.
"Tax Benefits" means, for each Post-Drop Down Tax Period and each
------------
Taxing Jurisdiction, the excess, if any, of (a) the aggregate amount of
Income Taxes that
5
<PAGE>
would be payable by the Company and all Subsidiaries (and all successors of
the Company or any Subsidiary or of any successor of any such successor) to
such Taxing Jurisdiction with respect to such Post-Drop Down Tax Period if
the Jurisdiction Closing NOL Amount for each Taxing Jurisdiction were zero,
over (b) the aggregate amount of Income Taxes payable by the Company and
----
all Subsidiaries (and all successors of the Company or any Subsidiary or of
any successor of any such successor) to such Taxing Jurisdiction with
respect to such Post-Drop Down Tax Period. Except as otherwise indicated in
this Agreement, in determining the amount of any Tax Benefit for a Post-
Drop Down Tax Period and a Taxing Jurisdiction, all NOLs (including, but
not limited to, Jurisdiction Closing NOL Amounts) for such Taxing
Jurisdiction shall be deemed to be carried forward to such Post-Drop Down
Tax Period to the extent permitted by applicable law. For the avoidance of
doubt, it is understood that Tax Benefits may arise in years subsequent to
the years to which the Jurisdiction Closing NOL Amounts are carried (e.g.,
where NOLs included in a Jurisdiction Closing NOL Amount are fully utilized
in a Post-Drop Down Tax Period in lieu of using post-Drop Down losses, a
Tax Benefit may arise in later years when the post-Drop Down losses are
used). The aggregate amount of Tax Benefits shall be increased by the
amount, if any, that the Company is required to reimburse to MMI Holdings,
MMI, or any Affiliate thereof or to CST Holdings, CST or any Affiliate
thereof pursuant to the terms of the Tax Sharing Agreement (or would be so
required if the terms of the Tax Sharing Agreement remained unamended and
in full force and effect following its execution) but does not so
reimburse.
"Tax Items" has the meaning given to such term in the Tax Sharing
---------
Agreement.
"Taxing Jurisdiction" means any country, state, county or city
-------------------
(or any political subdivision of any thereof) with respect to which Income
Taxes are separately payable.
"Tax Return" has the meaning given to such term in the Tax
----------
Sharing Agreement.
"Tax Sharing Agreement" means the Tax Sharing Agreement dated as
---------------------
of the date hereof among the Company, CST Holdings, CST, MMI Holdings, and
MMI.
Section 2. Effective Time of this Agreement. This Agreement shall not
--------------------------------
be binding, and shall have no force or effect, prior to the Drop Down Date.
Section 3. RRD Tax Reimbursement. (a) Subject to, and in the manner
---------------------
described in, Section 3(b) below, RRD shall pay, or reimburse the Company for,
all Reorganization Taxes.
(b) Any claim by the Company against RRD under Section 3(a) shall be
accompanied by a writing from the Company, reasonably satisfactory to RRD,
setting forth the determination of any Tax Benefits with respect to each taxable
year or period ended prior to the
6
<PAGE>
time such claim is made (including, without limitation, relevant Tax Returns and
the Company's or any accountant's workpapers, supporting documents or other
information). Upon receipt of such writing, the Company and RRD shall determine
(1) the amount, if any, owing by RRD under Section 3(a) in respect of such claim
and (2) assuming such amount were paid by RRD to the Company, the amount, if
any, owing by the Company to RRD under Section 4. Within 30 days of such
determinations (but in no event earlier than ten days prior to the date the
Company is required to make payment of such claimed amount to a taxing
authority), RRD shall pay to the Company (as a payment pursuant to Section 3(a))
the excess, if any, of the amount determined under clause (1) over the amount
----
under clause (2). For purposes of this Agreement, RRD shall be treated as having
paid to the Company under Section 3(a) (in addition to amounts actually paid),
and the Company shall be treated as having paid to RRD under Section 4(a), the
amount described in clause (2).
(c) If in any Post-Drop Down Tax Period for a Taxing Jurisdiction,
the Company or SISC (or any Affiliate thereof) recognizes or otherwise takes
into account in computing income or loss a Loss Item and has an NOL as of the
close of such Post-Drop Down Tax Period that includes such Loss Item, then the
Company shall (to the extent permitted by law) carry back such NOL. Such
carryback shall be treated as reducing Reorganization Taxes in accordance with
the definition thereof. For purposes of this Section 3(c), Straddle Periods
shall be treated in a manner consistent with the rules set forth in the
definition thereof. Without the express written consent of RRD, neither the
Company nor SISC (nor any Affiliate thereof) shall make any election (including,
without limitation, an election under Section 172(b)(3) of the Code), adopt any
accounting method, or otherwise take any action that would preclude such a
carryback.
(d) If it is determined (as evidenced by a claim made by RRD or the
Company) that RRD has either overpaid or underpaid the amount owing under
Section 3(a) of this Agreement (by reason of the filing of a final Tax Return
for the taxable year or period in which the Reorganization Taxes were incurred,
the application of Section 3(c), or otherwise) the Company shall pay to RRD (in
the case of an overpayment) or RRD shall pay to the Company (in the case of an
underpayment) the amount of such overpayment or underpayment, as the case may
be, in each case as an adjustment to amounts paid or received under Section
3(a), within 30 days of the resolution of such claim by RRD or the Company, as
the case may be; provided that this Section 3(d) shall be coordinated with
Section 4(e), with payments offset against each other to the maximum extent
possible.
(e) [INTENTIONALLY OMITTED.]
(f) All payments by RRD under this Section 3 shall be treated by the
parties hereto to the maximum extent allowable under applicable Tax laws, as an
adjustment to the amount received by RRD pursuant to the Distribution. The
amount of each payment by RRD under this Section 3 shall be computed after
taking into account all Tax consequences to the Company, or any Affiliate, of
(i) the receipt of (or the right to receive) the payment and (ii) the event or
the incurrence of the liability that gave rise to the right to receive the
payment. In determining the Tax consequences to the Company or any Affiliate
for purposes of this Section 3(f), any Tax
7
<PAGE>
detriment, in the case of a payment, and any Tax benefit, in the case of an
event or the incurrence of a liability, shall be taken into account in the
taxable years or periods in which the Company, or any Affiliate, is required to
pay additional Taxes by reason of the payment, or is entitled to a refund of Tax
or a reduction in the amount of Taxes it would otherwise be required to pay by
reason of such event or the incurrence of the liability.
Section 4. Company Payments for Use of Closing NOL Amount. (a)
----------------------------------------------
Subject to the limitation set forth in Section 4(b), on each Company Payment
Date the Company shall pay to RRD an amount equal to the Tax Benefits for the
relevant Taxing Jurisdiction and for the Post-Drop Down Tax Period to which the
Company Payment Date relates. Each payment shall be accompanied by a detailed
computation of the amount of such payment along with information regarding the
determination of such Tax Benefits (including, without limitation, relevant Tax
Returns and the Company's or any accountant's workpapers, supporting documents
or other information). If, as of a Company Payment Date the final Tax Returns
have not been filed for the Post-Drop Down Tax Period to which the Company
Payment Date relates, such payment by the Company, if any, shall be determined
based on all available information (including, without limitation, the Tax
computations reflected on the financial statements and its affiliates prepared
for the period(s) that include such Post-Drop Down Tax Period). Amounts paid
under this Section 4(a) are subject to adjustment under section 4(e).
(b) The Company shall not be required to make a payment under Section
4(a) to the extent such payment would cause the aggregate amount paid (or
treated as having been paid) by the Company pursuant to Section 4(a) to exceed
the sum of (x) the aggregate amount previously paid (or treated as having been
paid) by RRD with respect to Taxes pursuant to the Guarantees, plus (y) the
aggregate amount previously paid (or treated as having been paid) by RRD with
respect to Reorganization Taxes pursuant to Section 3 of this Agreement. Any
amount not paid to RRD by reason of the limitation set forth in this Section
4(b) shall be carried forward and paid to RRD on future dates when permitted in
accordance with the terms of this Section 4(b).
(c) Not later than January 31 of each calendar year beginning after
the date RRD is first required to make a payment with respect to Taxes pursuant
to the Guarantees or Reorganization Taxes pursuant to Section 3(a) (until RRD is
obligated under neither the Guarantees nor Section 3(a)), the Company shall
provide to RRD a schedule of the Company Payment Dates falling within such
calendar year.
(d) Upon the written request of RRD, following the date RRD is first
required to make a payment with respect to Taxes pursuant to the Guarantees or
Reorganization Taxes pursuant to Section 3(a), the Company shall provide, or
cause to be provided, to RRD information regarding the determination of any Tax
Benefit (including, without limitation, relevant Tax Returns and the Company's
or any accountant's workpapers, supporting documents or other information).
8
<PAGE>
(e) If, as a result of (t) the filing of a final Tax Return for a
taxable year or period to which a Company Payment Date relates, (u) the filing
of any amended Tax Return, (v) a Final Determination described in Section 5(d),
(w) an occurrence described in Section 5(e), or (x) a Final Determination
relating to any Tax Item of the Company or any Affiliate thereof in respect of
any Post-Drop Down Tax Period (each such event, a "True-up Event"), there is a
change in the Tax Benefit for any Post-Drop Down Tax Period relative to the Tax
Benefit for such Post-Drop Down Tax Period as most recently determined before
such change, (i) the Company shall pay RRD an amount equal to the excess (if
any) of the amount the Company is required to pay RRD pursuant to Section 4(a)
as of the date of such True-up Event (determined after taking such change into
account) over the amount the Company has actually paid (or is treated as having
----
paid) RRD pursuant to Section 4(a) prior to such True-up Event (determined
before taking such change into account), and (ii) RRD shall repay the Company an
amount equal to the excess (if any) of the amount the Company has paid (or is
treated as having paid) RRD pursuant to Section 4(a) prior to such True-up Event
(determined before taking such change into account) over the amount the Company
----
is required to pay RRD pursuant to Section 4(a) as of the date of such True-up
Event (determined after taking such change into account). All payments under
this Section 4(e) shall be made within 30 days of the relevant True-up Event;
provided that this Section 4(e) shall be coordinated with Section 3(d), with
payments offset against each other to the maximum extent possible.
Section 5. NOL Amount. (a) Not later than 45 days following the
----------
filing of the Company's federal income Tax Return for the taxable year of the
Company in which the Drop Down occurred, the Company shall deliver to RRD a
schedule setting forth, for each Taxing Jurisdiction, its determination of the
Jurisdiction Closing NOL Amount (determined in accordance with the definition
thereof) for the Company and each Subsidiary as of the close of Drop Down Date
(such schedule, the "Preliminary NOL Schedule" and each amount set forth on such
------------------------
schedule, a "Preliminary Jurisdiction Closing NOL Amount"), along with a writing
-------------------------------------------
from the Company setting forth the determination of each Jurisdiction Closing
NOL Amount including, without limitation, the Company's, any Subsidiary's or any
accountant's workpapers, supporting documents, other information and, upon the
request of RRD after receipt of the Preliminary NOL Schedule, relevant Tax
Returns.
(b) Each Preliminary Jurisdiction Closing NOL Amount set forth on the
Preliminary NOL Schedule shall be conclusive as to the parties' agreement of the
Jurisdiction Closing NOL Amount for the relevant Taxing Jurisdiction unless,
within 60 days after the delivery of the Preliminary NOL Schedule, RRD notifies
the Company in writing (a "Dispute Notice") that it disputes any of the
--------------
Preliminary Jurisdiction Closing NOL Amounts (in which case a Dispute Notice
shall be deemed to have been delivered with respect to all Preliminary
Jurisdiction Closing NOL Amounts). The parties shall in good faith attempt to
resolve all disputes with respect to the determination of such amounts. If the
parties do not reach agreement resolving all disputes with respect to such
amounts within twenty (20) days after delivery of the Dispute Notice relating
thereto, such disputes shall be resolved under procedures that resemble as
closely as possible the procedures of Section 5.4.9. of the CST Contribution
Agreement; provided; however, that in all cases the designated arbitrator shall
be a nationally recognized independent certified public
9
<PAGE>
accountant that has not had a material relationship with either RRD or any of
its Affiliates or the Company or any of its Affiliates within the preceding two
years. The fees, costs and expenses of the arbitration shall be paid one-half by
RRD and one-half by the Company. The Jurisdiction Closing NOL Amount for each
Taxing Jurisdiction, as used herein, shall mean the Preliminary Jurisdiction
Closing NOL Amounts initially set forth in the Preliminary NOL Schedule
delivered to RRD if there is no Dispute Notice timely delivered with respect
thereto, or if a Dispute Notice is timely delivered, then such amounts, as
agreed by resolution of the parties or the arbitration, as the case may be, in
accordance with the procedures set forth above.
(c) The amounts initially set forth in the Preliminary NOL Schedule
delivered to RRD if there is no Dispute Notice timely delivered with respect
thereto, or if a Dispute Notice is timely delivered with respect thereto, then
such amounts as agreed by resolution of the parties or the arbitration, as the
case may be, in accordance with Section 5(b) shall be set forth on a schedule
(the "Closing NOL Schedule") which shall be signed by both RRD and the Company
--------------------
certifying that such amounts were determined in accordance with the foregoing
procedures. Subject to Section 5(d), and Section 5(e), the Jurisdiction Closing
NOL Amounts set forth on the Closing NOL Schedule shall be final and binding on
the parties and the Company shall, and shall cause its Subsidiaries to, file all
Tax Returns consistent with the Closing NOL Schedule.
(d) If, as a result of any Proceeding or amended Tax Return, there is
a Final Determination changing a Tax Item which change causes a change in a
Jurisdiction Closing NOL Amount set forth on the Closing NOL Schedule, the
Company shall prepare and, within 45 days of such Final Determination, deliver
to RRD a schedule setting forth the Company's redetermination of the
Jurisdiction Closing NOL Amounts based upon such Final Determination or amended
Tax Return. The redetermination of such amounts shall be governed by the
procedures set forth in Section 5(b). Within 10 days following the
redetermination of such amounts, the parties shall redetermine the amounts set
forth on the Closing NOL Schedule. The redetermined amounts shall be set forth
on a schedule (the "Revised Closing NOL Schedule") which shall be signed by both
----------------------------
RRD and the Company certifying that such amounts were determined in accordance
with the foregoing procedures. Subject to any further redeterminations pursuant
to this Section 5(d) and Section 5(e), the Revised NOL Schedule shall be final
and binding on the parties.
(e) If, in any Post-Drop Down Tax Period (including, without
limitation, the portion of any Straddle Period beginning at the beginning of the
day after the Drop Down Date) for a Taxing Jurisdiction, the Company or SISC (or
any Affiliate thereof) recognizes or otherwise takes into account in determining
income or loss (or, in the case of credits, Taxes) a Loss Item, such Loss Item
shall, for purposes of determining the relevant Jurisdiction Closing NOL Amount
and related Tax Benefits for any Post-Drop Down Tax Period, be treated as
increasing the relevant Jurisdiction Closing NOL Amount by the amount of such
Loss Item; provided, however, that the aggregate amount of such Loss Items for
-------- -------
such Post-Drop Down Tax Period so treated shall not exceed the excess, if any,
of (x) the aggregate amount of Loss Items so recognized or otherwise taken into
account in such Post-Drop Down Tax Period over (y) the amount of the NOL with
----
respect to such Post-Drop Down Tax Period described in Section 3(c) that is
carried
10
<PAGE>
back in accordance with Section 3(c); provided, further, that the
-------- -------
limitations in the foregoing proviso shall not apply to Loss Items that are (or,
if the portion of a Straddle Period beginning at the beginning of the day
following the Drop Down Date were a separate taxable year or period, would be)
recognized or otherwise taken into account in determining income or loss (or, in
the case of credits, Taxes) for such portion of a Straddle Period. Upon any
event described in this Section 5(e), or any event changing the amount of Loss
Items so treated, the Company shall prepare and, within 45 days of such event,
deliver to RRD a schedule setting forth the Company's redetermination of the
Jurisdiction Closing NOL Amounts based on such event. The redetermination of
such amounts shall be governed by the procedures set forth in Section 5(b) and
5(d). (See examples in Annex A.)
Section 6. Income Tax Returns. RRD shall be entitled promptly upon
------------------
(but in no event later than ten days after) any request by RRD, to review any
Income Tax Return relating to any taxable year or period with respect to which
RRD makes (or is treated as having made) a payment (or is requested to make a
payment) with respect to Taxes under the Guarantees or Reorganization Taxes
under Section 3(a), or relating to any prior or subsequent taxable year or
period.
Section 7 Contest Rights. (a) Notice. Whenever a party hereto or
-------------- ------
any Affiliate thereof (the "Notified Party") becomes aware of any Proceeding
that could reasonably be foreseen to result in a redetermination or other
adjustment to any Tax Item or Deferred Reorganization Tax Item directly related
to the steps included in the Reorganization (hereinafter, a "Reorganization
Issue"), the Notified Party shall promptly give notice to each other party
hereto of such Reorganization Issue. The failure of any Notified Party to give
such notice shall not relieve the Indemnitor of its obligations under this
Agreement except to the extent such Indemnitor or any of its Affiliates is
actually prejudiced by such failure to give notice.
(b) General Control Rights. Subject to the other provisions of this
----------------------
Section 7, with respect to any Proceeding relating, in whole or in part, to a
Reorganization Issue, RRD and the Company shall have shared control over such
Proceeding, prior to the assumption of exclusive control by RRD or the Company
under the circumstances described elsewhere in this Agreement, under the
following rules: (i) RRD shall promptly deliver to the Company complete copies
of all written notices, requests, or other information received from any taxing
authority or judicial or similar body that relate to such Proceeding, and the
Company shall promptly deliver to RRD complete copies of all written notices,
requests, or other information received from any taxing authority or judicial or
similar body that relate to such Proceeding; (ii) RRD shall not provide any
documents or other information to any taxing authority or judicial or similar
body in connection with the Proceeding without obtaining the Company's prior
consent (which consent shall not be unreasonably withheld) and the Company shall
not provide any documents or other information to any taxing authority or
judicial or similar body that relate to such Proceeding without RRD's prior
consent (which consent shall not be unreasonably withheld); (iii) the submission
of any written response or other written work to any taxing authority or
judicial body (hereinafter, "Written Response") shall be coordinated by the
Company and RRD acting in good faith; provided, however, that the content of any
Written Response to the extent not related to any
11
<PAGE>
Reorganization Issue shall be exclusively controlled by the Company and the
content of any Written Response to the extent related to any Reorganization
Issue shall be exclusively controlled by RRD; (iv) the Company and RRD shall
each have equal control over any Proceeding and shall both have the right to
fully participate in any Proceeding; provided, however, that in any Proceeding
the Company shall have sole control over any discussion relating to any issue
that is not a Reorganization Issue (and may exclude RRD from participating in
such discussion, but not from attending such Proceeding) and RRD shall have sole
control over any discussion relating to any Reorganization Issue (and may
exclude the Company from participating in such discussion, but not from
attending such Proceeding); (v) the Company and RRD shall each consult in good
faith with each other with respect to all aspects of any action or position to
be taken by the Company or RRD, respectively, relating to the Proceeding and
take the party's interest into account; (vi) neither the Company nor RRD shall
adopt positions in any proceeding that unfairly compromise a Reorganization
Issue or non-Reorganization Issue, respectively, so as to gain any advantage
with respect to any non-Reorganization Issue or Reorganization Issue,
respectively; which is the subject of the same or a related Proceeding; (vii) if
a Proceeding consists solely of non-Reorganization Issues, the Company shall
have exclusive control over such Proceeding, and if a Proceeding consists solely
of Reorganization Issues, RRD shall have exclusive control over such Proceeding
(subject, in all cases, to the other party's rights of participation) and (viii)
except in the circumstances described below, neither the Company nor RRD shall
make any settlement offer to any taxing authority, discuss any settlement offer
with any taxing authority, or accept any settlement offer in respect of such
Proceeding.
(c) Settlements. With respect to any settlement offer that relates,
-----------
in whole or in part, to any Reorganization Issue, the following rules shall
apply: (i) no settlement offer shall be made by either the Company or RRD to
any taxing authority except in writing and with the other party's consent and in
such case the amount offered with respect to any Reorganization Issue shall be
determined solely by RRD (as indicated in a written notice to the Company) and
the amount offered with respect to any non-Reorganization Issue shall be
determined solely by the Company (as indicated in a written notice to RRD); (ii)
in the case of any settlement offer made by a taxing authority that is not in
response to a written settlement offer, the Company shall, if it desires or if
requested by RRD, make a written settlement offer (i.e., a counter offer) to the
- -
taxing authority in accordance with the foregoing rules; and (iii) in the case
of any settlement offer made by a taxing authority not described in clause (ii):
(A) with the consent of RRD, the Company may make a written
settlement offer (i.e., a counter offer) to the taxing authority in
accordance with the foregoing rules;
(B) with the consent of RRD, the Company may choose not to
accept the settlement offer from the taxing authority and instead choose to
litigate the issues reflected in such settlement offer, in which case the
Company shall litigate the Reorganization Issues and non-Reorganization
Issues, which litigation shall be conducted subject to the rules of
paragraph (b) of this Section 4.02;
12
<PAGE>
(C) either the Company or RRD (the "Accepting Party") may notify
the other party of the Accepting Party's proposal that such settlement
offer be accepted and entered into and request the other party's consent to
doing so and, upon (x) the written consent to such settlement offer by the
other party, (y) a failure of the other party to respond to such proposal
by the Accepting Party within thirty days after receipt by the other party
of such notice from the Accepting Party, or (z) a failure of the other
party to withhold its consent to such settlement offer in accordance with
subparagraph (D) below, the Company shall accept and enter into such
settlement offer; or
(D) the other party (hereinafter, the "non-Accepting Party") may
withhold its consent to a settlement offer that the Accepting Party has
indicated under subparagraph (C) it will accept, if the non-Accepting Party
(x) notifies the Accepting Party in writing within such thirty-day period
that the non-Accepting Party does not consent to the proposed settlement,
and (y) provides the Accepting Party with an opinion from tax counsel
selected by the non-Accepting Party and reasonably satisfactory to the
Accepting Party to the effect that there is a reasonable possibility that
the Company will prevail on the merits with respect to one or more
Reorganization Issues or non-Reorganization Issues (where the non-Accepting
Party is RRD or the Company, respectively) with an aggregate value of not
less than the lesser of $1 million or 25% of the amount at issue for the
non-Accepting Party (including Tax and, without duplication, interest
and/or penalties) in a tribunal with jurisdiction to adjudicate such
Reorganization Issue(s) or non-Reorganization Issue(s), as the case may be.
(E) if the non-Accepting Party provides the Accepting Party with
written notification withholding consent in accordance with subparagraph
(D) above, then:
(i) The non-Accepting Party shall fully indemnify and hold
harmless the Accepting Party from and against any and all liabilities
(other than liability for payments to the non-Accepting Party
hereunder) for Taxes and other costs and expenses (including, without
limitation, additional attorneys' and accountants' fees) over and
above the payments that the Accepting Party would have been liable for
if the Accepting Party had entered into the proposed settlement; and
(ii) The Accepting Party shall select one of the following
alternatives:
(1) enter into a closing agreement or other final
resolution with the relevant taxing authority with respect to all
issues in accordance with the proposed settlement other than
Reorganization Issues or non-Reorganization Issues (where the
non-Accepting Party is RRD or the Company, respectively) if doing
so would not preclude litigation or other judicial proceedings
with respect to the Reorganization Issues or non-Reorganization
Issues, respectively; provided that (i) such closing agreement or
--------
other final resolution
13
<PAGE>
specifically provides that it does not apply to the
Reorganization Issues or non-Reorganization Issues (where the
non-Accepting Party is RRD or the Company, respectively) and (ii)
the Accepting Party agrees to give the non-Accepting Party and
its representatives control over the relevant Proceedings, and
specifically agrees that (x) if the Accepting Party is the
Company, the Company agrees to give RRD control over the relevant
Proceedings, and specifically agrees that the Company will take
such actions requested by RRD or its representatives to continue
to contest or if permitted by applicable law to permit RRD to
contest (through administrative proceedings or litigation, which
proceedings or litigation shall be conducted pursuant to the
provisions of this Section 7(b), using counsel selected by RRD to
the fullest extent possible) (y) if the Accepting Party is RRD,
that the Company may continue such contest free of the rights of
RRD under paragraph (b) of this Section 7, and (z) in all cases
permit the non-Accepting Party, if successful or if a deposit is
released, to obtain the full monetary benefit of such success or
release; or
(2) settle all issues with the relevant taxing authority in
accordance with the proposed settlement, in which case the
Accepting Party and non-Accepting Party each shall, with respect
to its share thereof, pay any additional liability for Taxes as
provided for in such proposed settlement provided that the
--------
Accepting Party may choose this alternative (2) only if (i) such
settlement shall specifically provide that it shall not preclude
a refund claim from being filed with respect to the
Reorganization Issues or the non-Reorganization Issues (where the
non-Accepting Party is RRD or the Company, respectively) and (ii)
the Accepting Party agrees to give the non-Accepting Party and
its representatives control over the relevant Proceedings, and
specifically agrees that (x) if the Accepting Party is the
Company, the Company agrees to give RRD control over the relevant
Proceedings, and specifically agrees that the Company will take
such actions requested by RRD or its representatives to continue
to contest or if permitted by applicable law to permit RRD to
contest (through administrative proceedings or litigation, which
proceedings or litigation shall be conducted pursuant to the
provisions of this Section 7 using counsel selected by RRD to the
fullest extent possible) (y) if the Accepting Party is RRD, that
the Company may continue such contest free of the rights of RRD
under paragraph (b) of this Section 7, and (z) in all cases
permit the non-Accepting Party, if successful or if a deposit is
released, to obtain the full monetary benefit of such success or
release; or
14
<PAGE>
(3) pay to the non-Accepting Party, or deposit in escrow any
additional liability for Taxes, interest and penalties as
provided for in such settlement to the extent that such liability
relates to Reorganization Issues or non-Reorganization Issues
(where the non-Accepting Party is the Company or RRD,
respectively) and the Accepting Party agrees to give the non-
Accepting Party and its representatives control over the relevant
Proceedings, and specifically agrees that (x) if the Accepting
Party is the Company, the Company agrees to give RRD control over
the relevant Proceedings, and specifically agrees that the
Company will take such actions requested by RRD or its
representatives to continue to contest or if permitted by
applicable law to permit RRD to contest (through administrative
proceedings or litigation, which proceedings or litigation shall
be conducted pursuant to the provisions of this Section 7 using
counsel selected by RRD to the fullest extent possible) (y) if
the Accepting Party is RRD, that the Company may continue such
contest free of the rights of RRD under paragraph (b) of this
Section 7, and (z) in all cases permit the non-Accepting Party,
if successful or if a deposit is released, to obtain the full
monetary benefit of such success or release.
(d) Payments to Stop Interest. Either party may, at its election,
-------------------------
pay to or deposit with the relevant taxing authority an amount of additional Tax
for which it would be liable hereunder if such payment or deposit would have the
effect of stopping the accrual of interest with respect to such Tax liability.
Such party shall have no further responsibility hereunder for interest with
respect to any amount so deposited or paid for so long as such deposit or
payment stops the accrual of interest; provided, however, that any such payment
or deposit does not affect any right of the other party or any other liability
of the first party hereunder; provided that the other party shall pay to the
first party the amount of any Tax and interest received by (or credited to the
account of) the other party as a result of a determination that such payment or
deposit resulted in an overpayment of Tax with respect to the first party's
issues.
(e) Termination. Notwithstanding the foregoing provisions of this
-----------
Section 7, either RRD or the Company may (in its sole discretion by written
notice to the other party) refrain from contesting (through administrative or
judicial proceedings) any Reorganization Issue or non-Reorganization Issue,
settle any Reorganization Issue or non-Reorganization Issue with the relevant
taxing authority without the consent of the other party, or conduct any
Proceeding free of the other party's rights under paragraph (b) of this Section
7. In any such event: in the case of RRD taking such action, it shall
reimburse the Company for all Taxes for which the Company is liable as a result
of such action and (ii) in the case of the Company taking such action, the
Company shall be deemed to have unconditionally waived its rights to indemnity
with respect to all Reorganization Issues (and other Reorganization Issues which
are related to the Reorganization Issue) with respect to which the Company took
such action pursuant to this paragraph (e).
15
<PAGE>
(f) RRD Rights under Tax Sharing Agreement. Whenever the Company or
--------------------------------------
any Affiliate thereof becomes aware of, or otherwise receives written or oral
notice of, any Indemnity Issue (as defined in Section 4.02 of the Tax Sharing
Agreement) or any Proceeding described in clause (i) below, the Company shall
promptly give notice to RRD of such Indemnity Issue or Proceeding, and keep RRD
advised as to the status of any Proceedings related to such Indemnity Issue or
Proceeding described in (i) below, as the case may be. In addition to the
rights granted to RRD under this Section 7, in the following circumstances RRD
shall have, at is sole option, the rights in accordance with those set forth in
Section 4.02 of the Tax Sharing Agreement (subject to the conditions thereof) as
if RRD were the Indemnitor and the Company were the Responsible Party and
Indemnitee: (i) whether or not relating to an Indemnity Issue, a Proceeding
that would, if the taxing authority's initial adjustment were upheld, reduce the
Jurisdiction Closing NOL Amount for any Taxing Jurisdiction by more than 20%
(after taking into account all prior reductions in such Jurisdiction Closing NOL
Amount) and by more than $2 million (after taking into account all prior
reductions in such Jurisdiction Closing NOL Amount), or (ii) a Proceeding that
would, if the taxing authority's initial adjustment were upheld, require either
MMI Holdings, MMI, CST Holdings, or CST to make a payment to the Company or any
Affiliate thereof under the Tax Sharing Agreement, provided, however, that RRD
shall not have the right described in this clause (ii) if MMI Holdings, MMI, CST
Holdings, or CST (as the case may be), out of its own assets pays such amount to
the relevant taxing authority or pays such amount to an escrow account out of
which the tax liability will be paid (it being understood that no such payment
shall be required prior to the tenth day after notice from RRD to MMI Holdings
or CST Holdings, as the case may be, of RRD's intention to exercise its rights
under this clause (ii), which notice may not be given prior to the completion of
the audit for the first taxable year in which the Indemnity Issue arises).
Section 8. Agreed Tax Reporting; Valuation. (a) The Company agrees
-------------------------------
to report (and to cause its Affiliates to report) for federal income tax
purposes each of the MMI Drop-Down and the CST Drop Down as a transaction
governed by Section 1001 of the Code, and not as a transaction governed by
Section 351 of the Code.
(b) The Company further agrees to report (and to cause its Affiliates
to report) any Loss Items deferred under the federal income tax consolidated
return regulations or Section 267 of the Code and the regulations thereunder as
being recognized and otherwise taken into account in determining income or loss
(or, in the case of credits, Taxes) for federal income tax purposes not later
than the time of the sale by RRD of Stream Common Stock (as defined in the
Master Agreement) so that RRD's beneficial ownership of Stream Common Stock (as
so defined) after such sale is below 50% on a primary basis.
(c) Except as agreed otherwise in writing by the Company and RRD, the
Company agrees to report (and to cause its Affiliates to report), for all
federal, state, local and other Income Tax purposes, the value, as of the Drop
Down Date, of the CST and MMI Assets (as defined in the CST Contribution
Agreement and MMI Contribution Agreement) and each indicated category thereof in
a manner consistent with the values set forth in one or more mutually acceptable
appraisals.
16
<PAGE>
(d) Except as agreed otherwise in writing by the Company and RRD, the
Company agrees to report (and to cause its Affiliates to report), for all
federal, state, local and other Income Tax purposes, the value, as of the
Distribution Date of the stock of CST Holdings and MMI Holdings distributed in
the Distribution as having an aggregate value as set forth in a mutually
acceptable appraisal.
Section 9. Assistance and Cooperation. (a) After the Drop Down Date,
--------------------------
each of RRD and the Company shall (and shall cause their respective Affiliates
to): (a) cooperate fully in preparing for any audits of, or disputes with,
taxing authorities regarding, any Income Tax Returns of the Company and each
Subsidiary; and (b) make available to the other and to any Taxing authority as
reasonably requested all information, records, and documents relating to Income
Taxes of the Company and each Subsidiary.
(b) The Company shall not agree to any modification to, or amendment
of, the Tax Sharing Agreement without the express written consent of RRD, which
consent shall not be unreasonably withheld.
Section 10. General Provisions.
------------------
(a) Entire Agreement; Binding Effect. This Agreement and the Tax
--------------------------------
Sharing Agreement (i) constitutes the entire agreement and supersedes all other
agreements and understandings, both written and oral, between the parties with
respect to the subject matter hereof and (ii) shall not be assigned by either
party (by operation of law or otherwise) without the prior written consent of
the other party.
(b) Severability. In case any one or more of the provisions
------------
contained in this Agreement should be invalid, illegal or unenforceable, the
enforceability of the remaining provisions hereof will not in any way be
affected or impaired thereby.
(c) Applicable Law. This Agreement shall be governed by and be
--------------
construed in accordance with the laws of the Commonwealth of Massachusetts,
without giving effect to the principles thereof relating to conflicts of laws.
(d) Notices. All notices, requests and other communications
-------
hereunder shall be in writing and shall be deemed given if delivered personally,
if telecopied (only if confirmed), if sent by FedEx or other overnight courier
or delivery service or if mailed by registered or certified mail (postage
prepaid, return receipt requested) to the parties at the following addresses or
facsimile numbers:
17
<PAGE>
(a) If to RRD:
R.R. Donnelley & Sons Company
77 West Wacker Drive
Chicago, IL 60601
Facsimile No.: (312) 326-8708
Attention: Paul F. Grossman, Director
Federal & International Taxes
(b) If to the Company:
Stream International, INC.
275 Dan Road
Canton, Massachusetts 02021
Facsimile No.: (781) 830-7465
Attention: Treasurer
The address or facsimile number of a party, for the purposes of this Section
10(d), may be changed by giving written notice to the other party of such change
in the manner provided herein for giving notice. Unless and until such written
notice is received, the addresses and facsimile numbers provided herein shall be
deemed to continue in effect for all purposes hereunder.
(e) Amendment and Waiver. No amendment of any provision of this
--------------------
Agreement shall in any event be effective unless the same shall be in writing
and signed by the parties hereto. Any failure of any party to comply with any
obligation, agreement or condition hereunder may only be waived in writing by
the other party, but such waiver shall not operate as a waiver of, or estoppel
with respect to, any subsequent or other failure. No failure by any party to
take any action against any breach of this Agreement or default by the other
party shall constitute a waiver of such party's right to enforce any provision
hereof or to take any such action.
(f) Parties in Interest. This Agreement shall be binding upon and
-------------------
inure solely to the benefit of each party hereto and their respective successors
and assigns, and nothing in this
18
<PAGE>
Agreement, express or implied, is intended to confer upon any other person
(including, without limitation, CST Holdings, CST, MMI Holdings, MMI and the
shareholders of the Company) any rights or remedies of any nature whatsoever
under or by reason of this Agreement.
(g) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be deemed an original, but all of
which together shall constitute one and the same instrument.
(h) Headings; Pronouns and Conjunctions. The section and other
-----------------------------------
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. Unless
otherwise indicated herein or the context otherwise requires, the singular shall
include the plural and the plural shall include the singular. The word "or"
shall not be deemed inclusive.
[REMAINDER OF THE PAGE INTENTIONALLY LEFT BLANK]
19
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
R.R. DONNELLEY & SONS COMPANY
By: /s/ C A Francis
---------------------------------
Name: C A Francis
Title: Exec V.P. & Chief
Financial Officer
STREAM INTERNATIONAL INC.
By: /s/ Judith G. Salerno
----------------------------------
Name: Judith G. Salerno
Title: Chief Operating Officer
and President
<PAGE>
Tax Reimbursement Agreement
Annex A (FOOTNOTES APPLICABLE FOR ALL TABLES)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
PRE-DROP POST-DROP
TABLE 1 1995 1996 1997 1997 1998
- -----------------------------------------------------------------------
Actual (Net Tax Items)
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MMI -50 75 75
- -----------------------------------------------------------------------
CST -50 50 75
- -----------------------------------------------------------------------
STREAM-ORD -100 -150 100 -50
- -----------------------------------------------------------------------
REORG - 300 -400
- -----------------------------------------------------------------------
-200 -25 550 -450
- -----------------------------------------------------------------------
Use of Current Period NOLs and
Carryforwards/1/
- -----------------------------------------------------------------------
MMI 0 0 75
- -----------------------------------------------------------------------
CST 0 0 75
- -----------------------------------------------------------------------
STREAM-ORD 0 0 100 -50
- -----------------------------------------------------------------------
REORG 75 -400
- -----------------------------------------------------------------------
0 0 325 0 -450
- -----------------------------------------------------------------------
Use of Carrybacks/2/
- -----------------------------------------------------------------------
MMI 0 0 0
- -----------------------------------------------------------------------
CST 0 0 0
- -----------------------------------------------------------------------
STREAM-ORD 0 0 0 -50
- -----------------------------------------------------------------------
REORG 0 -75
- -----------------------------------------------------------------------
0 0 0 0 -125
- -----------------------------------------------------------------------
REMAINING REORG GAIN 0
AFTER '98
- ----------------------------------------
INCREASE IN JURIS 75
CLOSING NOL REFLECTING
ADJUSTMENTS THRU '98/3/
- ----------------------------------------
TAX BENEFIT THRU '98/4/ 0
- -----------------------------------------------------------------------
</TABLE>
- ------------------------------
/1/ Solely for purposes of determining liability under the Tax Sharing
Agreement ("TSA") and Tax Reimbursement Agreement ("TRA"), the net Tax Items
after allocating current period NOLs and NOL carryforwards under the terms of
the TSA and TRA. (Numbers do not reflect allocations of 1998 net Tax Items.
See below). See TSA, (S) 3.01(d)(vii); TRA, "Reorg. Taxes" def. par. (v).
---
/2/ Same as above but, solely for purposes of determining liability under the
TSA and TRA, showing the net Tax Items after allocating NOL carrybacks under the
terms of the TSA and TRA. (Although numbers reflect net Tax Items remaining in
1998 under the TSA and TRA, 1998 numbers do not reflect netting of Tax Items
remaining in 1998). See TSA, (S) 3.01(d)(vi); TRA, "Reorg. Taxes" def. par.
---
(x); TRA, (S)(S)3(c), 3(d).
/3/ TRA, (S) 5(e).
/4/ TRA, (S)(S) 5(e), 4(a), 4(e).
21
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
PRE-DIST POST-DIST
TABLE 2 1995 1996 1997 1997 1998
- -----------------------------------------------------------------------
Actual (Net Tax Items)
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MMI -50 75 75
- -----------------------------------------------------------------------
CST -50 50 75
- -----------------------------------------------------------------------
STREAM-ORD -100 -150 100 +50
- -----------------------------------------------------------------------
REORG - 300 -400
- -----------------------------------------------------------------------
-200 -25 550 -350
- -----------------------------------------------------------------------
Use of Current Period NOLs and
Carryforwards
- -----------------------------------------------------------------------
MMI 0 0 75
- -----------------------------------------------------------------------
CST 0 0 75
- -----------------------------------------------------------------------
STREAM-ORD 0 0 100 +50
- -----------------------------------------------------------------------
REORG - - 75 -400
- -----------------------------------------------------------------------
0 0 325 0 -350
- -----------------------------------------------------------------------
Use of Carrybacks
- -----------------------------------------------------------------------
MMI 0 0 0
- -----------------------------------------------------------------------
CST 0 0 0
- -----------------------------------------------------------------------
STREAM-ORD 0 0 0 +50
- -----------------------------------------------------------------------
REORG - - 0 -75
- -----------------------------------------------------------------------
0 0 0 0 -25
- -----------------------------------------------------------------------
REMAINING REORG GAIN 0
AFTER '98
- ----------------------------------------
INCREASE IN JURIS
CLOSING NOL REFLECTING
ADJUSTMENTS THRU '98 75
- ----------------------------------------
TAX BENEFITS THRU '98 50
- -----------------------------------------------------------------------
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
PRE-DIST POST-DIST
TABLE 3 1995 1996 1997 1997 1998
- -----------------------------------------------------------------------
Actual (Net Tax Items)
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MMI -50 75 75
- -----------------------------------------------------------------------
CST -50 50 75
- -----------------------------------------------------------------------
STREAM-ORD -100 -150 100 +125
- -----------------------------------------------------------------------
REORG - 300 -100
- -----------------------------------------------------------------------
-200 -25 550 +25
- -----------------------------------------------------------------------
Use of Current Period NOLs and
Carryforwards
- -----------------------------------------------------------------------
MMI 0 0 75
- -----------------------------------------------------------------------
CST 0 0 75
- -----------------------------------------------------------------------
STREAM-ORD 0 0 100 +125
- -----------------------------------------------------------------------
REORG - - 75 -100
- -----------------------------------------------------------------------
0 0 325 0 +25
- -----------------------------------------------------------------------
Use of Carrybacks
- -----------------------------------------------------------------------
MMI 0 0 75
- -----------------------------------------------------------------------
CST 0 0 75
- -----------------------------------------------------------------------
STREAM-ORD 0 0 100 +125
- -----------------------------------------------------------------------
REORG - - 75 -100
- -----------------------------------------------------------------------
0 0 325 0 +25
- -----------------------------------------------------------------------
REMAINING REORG GAIN
AFTER '98 75
- ----------------------------------------
INCREASE IN JURIS
CLOSING NOL REFLECTING
ADJUSTMENTS THRU '98 100
- ----------------------------------------
TAX BENEFITS THRU '98 100
- -----------------------------------------------------------------------
</TABLE>
23
<PAGE>
<TABLE>
- -----------------------------------------------------------------------
PRE-DIST POST-DIST
TABLE 4 1995 1996 1997 1997 1998
- -----------------------------------------------------------------------
Actual (Net Tax Items)
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MMI -50 75 75
- -----------------------------------------------------------------------
CST -50 50 75
- -----------------------------------------------------------------------
STREAM-ORD -100 -150 100 +100
- -----------------------------------------------------------------------
REORG - 300 -125
- -----------------------------------------------------------------------
-200 -25 550 -25
- -----------------------------------------------------------------------
Use of Current Period NOLs and
Carryforwards
- -----------------------------------------------------------------------
MMI 0 0 75
- -----------------------------------------------------------------------
CST 0 0 75
- -----------------------------------------------------------------------
STREAM-ORD 0 0 100 +100
- -----------------------------------------------------------------------
REORG - - 75 -125
- -----------------------------------------------------------------------
0 0 325 0 -25
- -----------------------------------------------------------------------
Use of Carrybacks
- -----------------------------------------------------------------------
MMI 0 0 75
- -----------------------------------------------------------------------
CST 0 0 75
- -----------------------------------------------------------------------
STREAM-ORD 0 0 100 +100
- -----------------------------------------------------------------------
REORG - - 50 -100
- -----------------------------------------------------------------------
0 0 300 0 0
- -----------------------------------------------------------------------
REMAINING REORG GAIN
AFTER '98 50
- ----------------------------------------
INCREASE IN JURIS
CLOSING NOL REFLECTING
ADJUSTMENTS THRU '98 100
- ----------------------------------------
TAX BENEFITS THRU '98 100
- -----------------------------------------------------------------------
</TABLE>
24
<PAGE>
<TABLE>
- -----------------------------------------------------------------------
PRE-DIST POST-DIST
TABLE 5 1995 1996 1997 1997 1998
- -----------------------------------------------------------------------
Actual (Net Tax Items)
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MMI -50 75 75
- -----------------------------------------------------------------------
CST -50 50 75
- -----------------------------------------------------------------------
STREAM-ORD -100 -150 100 -50
- -----------------------------------------------------------------------
REORG - 300 -40
- -----------------------------------------------------------------------
-200 -25 550 -90
- -----------------------------------------------------------------------
Use of Current Period NOLs and
Carryforwards
- -----------------------------------------------------------------------
MMI 0 0 75
- -----------------------------------------------------------------------
CST 0 0 75
- -----------------------------------------------------------------------
STREAM-ORD 0 0 100 -50
- -----------------------------------------------------------------------
REORG - - 75 -40
- -----------------------------------------------------------------------
0 0 325 0 -90
- -----------------------------------------------------------------------
Use of Carrybacks
- -----------------------------------------------------------------------
MMI 0 0 75
- -----------------------------------------------------------------------
CST 0 0 75
- -----------------------------------------------------------------------
STREAM-ORD 0 0 50 0
- -----------------------------------------------------------------------
REORG - - 35 0
- -----------------------------------------------------------------------
0 0 235 0
- -----------------------------------------------------------------------
REMAINING REORG GAIN
AFTER '98 35
- ----------------------------------------
INCREASE IN JURIS
CLOSING NOL REFLECTING
ADJUSTMENTS THRU '98 0
- ----------------------------------------
TAX BENEFITS THRU '98 0
- -----------------------------------------------------------------------
</TABLE>
25
<PAGE>
<TABLE>
- -----------------------------------------------------------------------
PRE-DIST POST-DIST
TABLE 6 1995 1996 1997 1997 1998
- -----------------------------------------------------------------------
Actual (Net Tax Items)
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MMI
- -----------------------------------------------------------------------
CST
- -----------------------------------------------------------------------
STREAM-ORD
- -----------------------------------------------------------------------
REORG
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
Use of Current Period NOLs and
Carryforwards
- -----------------------------------------------------------------------
MMI 0 30 0
- -----------------------------------------------------------------------
CST 0 30 0
- -----------------------------------------------------------------------
STREAM-ORD 0 20 30 -50
- -----------------------------------------------------------------------
REORG - - 30 -70
- -----------------------------------------------------------------------
0 80 60 -120
- -----------------------------------------------------------------------
Use of Carrybacks
- -----------------------------------------------------------------------
MMI 10 0
- -----------------------------------------------------------------------
CST 10 0
- -----------------------------------------------------------------------
STREAM-ORD 0 0 0
- -----------------------------------------------------------------------
REORG 0 0
- -----------------------------------------------------------------------
20 0 0
- -----------------------------------------------------------------------
REMAINING REORG GAIN
AFTER '98 0
- -----------------------------------------
INCREASE IN JURIS
CLOSING NOL REFLECTING
ADJUSTMENTS THRU '98 0
- -----------------------------------------
TAX BENEFITS THRU '98 0
- -----------------------------------------------------------------------
</TABLE>
26
<PAGE>
EXHIBIT 10.21
MODUS MEDIA INTERNATIONAL, INC.
Guaranty
--------
This Guaranty (the "Guaranty") is made jointly and severally as of December
15, 1997 by Modus Media International Holdings, Inc., a Delaware corporation
("MMI Holdings") and Modus Media International, Inc., a Delaware corporation
("MMI") (MMI Holdings and MMI shall each be referred to herein as a "Guarantor"
and collectively as the "Guarantors"), in favor of Stream International Inc., a
Delaware corporation (f/k/a Stream International Holdings Inc.) ("Stream").
Capitalized terms used herein but not otherwise defined shall have the
respective meanings ascribed to them in that certain Contribution Agreement
dated as of the date hereof (the "Contribution Agreement") among Stream
International Services Corp., a Delaware corporation, Corporate Software &
Technology, Inc., a Delaware corporation ("CST") and Corporate Software &
Technology Holdings, Inc., a Delaware corporation ("CST Holdings").
1. In order to induce Stream to enter into the Contribution Agreement,
the Contribution Agreement dated as of the date hereof among Stream, MMI and MMI
Holdings (the "MMI Contribution Agreement") and the Tax Sharing Agreement and to
effect the Drop-down and the Distribution, and in consideration thereof,
Guarantors hereby unconditionally and irrevocably and jointly and severally
guarantee to Stream and the Stream International Indemnities (i) the payment as
and when due of all the Indemnifiable Losses required to be paid by CST Holdings
or its Subsidiaries pursuant to Section 5.2 of the Contribution Agreement, (ii)
the payment as and when due of all Other Taxes (as defined in the Tax Sharing
Agreement) for which CST Holdings or CST has indemnified any member of the
Stream Group (as defined in the Tax Sharing Agreement) or otherwise agreed to
pay to Stream pursuant to the Tax Sharing Agreement (the obligations described
in clauses (i) and (ii) are hereinafter collectively referred to as the
"Guaranteed General Obligations"), and (iii) the payment as and when due of all
Income Taxes (as defined in the Tax Sharing Agreement) for which CST Holdings or
CST has indemnified any member of the Stream Group (as defined in the Tax
Sharing Agreement) pursuant to the Tax Sharing Agreement (the "Guaranteed Tax
Obligations", and collectively with the Guaranteed General Obligations, the
"Guaranteed Obligations").
2. Notwithstanding anything in this Guaranty to the contrary, Guarantors
shall not be required to make payment of any particular Guaranteed Obligation
until the earlier of the following shall have occurred: (i) the sixtieth (60th)
day following the Due Date or the date payment thereof was due by CST Holdings
or CST pursuant to the Tax Sharing Agreement, as the case may be, shall have
elapsed and the Guaranteed Obligation shall not have been paid in full, or (ii)
an Event of Bankruptcy (as defined below) shall have occurred with respect to
CST Holdings, CST or any permitted successor to CST Holdings' obligations
pursuant to the Contribution Agreement or the Tax Sharing Agreement, as the case
may be. In
<PAGE>
addition, notwithstanding anything in this Guaranty to the contrary, Guarantors
shall not be required to make any payment of any particular Guaranteed
Obligation to the extent written notice of such claim is first delivered to
Guarantors following the closing of (a) the sale of all or substantially all of
the assets of a Guarantor, (b) a merger or consolidation which results in the
voting securities of a Guarantor outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving or acquiring entity) less than 50% of
the combined voting power of the voting securities of such Guarantor or such
surviving or acquiring entity or its parent outstanding immediately after such
merger or consolidation (but in no event including any transaction required to
effect the Distribution); or (c) the initial public offering of equity
securities of a Guarantor under the Securities Act of 1933, as amended.
3. If Guarantors fail to promptly perform their obligations under this
Guaranty, Stream may from time to time, and without first requiring performance
by CST Holdings, CST or any other Person, bring any action at law or in equity
or both to compel Guarantors to perform their obligations hereunder and to
collect in any such action compensation for all loss, cost, damage, injury and
expense sustained or incurred by Stream or its subsidiaries as a direct or
indirect consequence of the failure of Guarantors to perform their obligations,
together with interest thereon at the lesser of (a) 10% per annum or (b) the
maximum rate permitted by applicable law.
4. Guarantors hereby waive: (a) any defense based upon any legal
disability or other defense of CST Holdings or its Subsidiaries or any other
Person or by reason of the cessation or limitation of the liability of CST
Holdings or its Subsidiaries from any cause (including improper or impermissible
assignment to or assumption by CST Holdings or its Subsidiaries of any
Guaranteed Obligations) other than full payment of all sums payable in respect
of the Guaranteed Obligations; (b) any defense based upon any lack of authority
of the officers, directors or agents acting or purporting to act on behalf of
CST Holdings or its Subsidiaries or any other Person which may have created any
Guaranteed Obligation or any defect in the formation of CST Holdings or its
Subsidiaries or any other Person which may have created any Guaranteed
Obligation; (c) any defense based upon Stream's election of any remedy against a
Guarantor, CST Holdings, CST or any other Person or any or all of them; (d) any
defense based upon Stream's failure to disclose to a Guarantor any information
concerning CST Holdings' or CST's financial condition or any other circumstance
bearing on CST Holdings' or CST's ability to pay all sums payable in respect of
the Guaranteed Obligations; (e) any defense based upon any statute or rule of
law which provides that the obligation of a surety must be neither larger in
amount nor in any other respect more burdensome than that of a principal; (f)
presentment, demand, protest and notice of any kind; (g) the benefit of any
statute of limitations affecting liability of Guarantors hereunder or the
enforcement thereof; and
-2-
<PAGE>
(h) to the extent permitted by applicable law, all principles or provisions of
law which conflict with the terms of this Guaranty.
5. Guarantors warrant and acknowledge that (a) Stream would not enter
into the Contribution Agreement, the MMI Contribution Agreement and the Tax
Sharing Agreement but for this Guaranty; (b) there are no conditions precedent
to the effectiveness of this Guaranty, and this Guaranty shall be in full force
and effect and binding on Guarantors as of the date hereof; (c) Guarantors have
established adequate means of obtaining from sources other than Stream, on a
continuing basis, financial and other information pertaining to CST Holdings'
and CST's financial condition and the status of CST Holdings' and CST's
performance of obligations imposed by the Contribution Agreement and the Tax
Sharing Agreement, and Stream has made no representation to Guarantors
concerning any such matters; and (d) Guarantors have reviewed a copy of the
Contribution Agreement and the Tax Sharing Agreement and are fully informed of
the remedies Stream may pursue in the event of a default thereunder.
6. This is a guaranty of payment and not of collection and the
obligations of Guarantors hereunder shall be in addition to and shall not limit
or in any way affect the obligations of Guarantors under any other existing or
future guaranties unless said other guaranties are expressly modified or revoked
in writing. This Guaranty is independent of the obligations of CST Holdings and
its Subsidiaries under the Contribution Agreement and the Tax Sharing Agreement.
Stream may bring a separate action to enforce the provisions hereof against
Guarantor without taking action against CST Holdings or its Subsidiaries or any
other party or joining CST Holdings or its Subsidiaries or any other party as a
party to such action.
7. As used in this Guaranty, "Event of Bankruptcy" means as to CST
Holdings, CST or any permitted successor to CST Holdings' obligations under the
Contribution Agreement, (1) the filing of a voluntary petition in bankruptcy or
for reorganization or for the adoption of an arrangement under the Federal
Bankruptcy Code (as now or in the future amended) or an admission seeking the
relief therein provided; (2) the making of a general assignment for the benefit
of its creditors; (3) the consent to the appointment of a receiver for all or a
substantial part of its property; (4) in case of the filing of an involuntary
petition in bankruptcy, the failure to effect a full dismissal of such petition
prior to the earlier of the entry of any order granting relief sought in the
involuntary petition or sixty (60) days after the date of filing of the
petition; (5) the entry of a court order appointing a receiver or trustee for
all or a substantial part of its property without its consent; or (6) the
assumption of custody or sequestration by a court of competition jurisdiction of
all or substantially all of its property.
8. If any attorney is engaged by Stream to enforce or defend any
provisions of the Guaranty, with or without the filing of any legal action or
-3-
<PAGE>
proceeding, Guarantors shall pay to Stream, immediately upon demand, the amount
of all reasonable attorneys' fees and out-of-pocket costs incurred by Stream in
connection herewith.
9. Guarantors' performance of a portion, but not all, of the Guaranteed
Obligations shall in no way limit, affect, modify or abridge Guarantors'
liability for that portion of the Guaranteed Obligations which are not
performed. Without in any way limiting the generality of the foregoing, in the
event that Stream is awarded a judgment in any suit brought to enforce a
Guarantor's covenant to perform a portion of the Guaranteed Obligations, such
judgment shall in no way be deemed to release the Guarantors from their covenant
to perform any portion of the Guaranteed Obligations which are not the subject
of such suit.
10. This Guaranty shall be binding upon Guarantors, their representatives,
successors and assigns (including any acquirer of substantially all of either
Guarantor's assets) and shall inure to the benefit of and shall be enforceable
by Stream and its successors and assigns. Neither Guarantor may assign or
delegate its obligations hereunder except to a Person that acquires all or
substantially all of the assets or business of such Guarantor (whether by
merger, consolidation, sale of assets, sale of stock or otherwise). Each
Guarantor agrees that it will not transfer all or substantially all of its
assets unless the transferee agrees in writing to be bound by this Guaranty.
11. This Guaranty shall not be impaired by any modification, release or
other alteration of any portion of the Guaranteed Obligations, nor by any
agreement with, or release of, CST Holdings, CST or any other Person; provided,
--------
however, that the Guarantors shall be released from their obligations hereunder
- -------
to the extent that any such modification, release or other alteration releases
Stream and its Subsidiaries from Liability and; provided, further, that the
-------- -------
Guarantors shall be released from their obligations hereunder with respect to
any Guaranteed Obligation to the same extent that Stream releases CST Holdings
from such Guaranteed Obligation.
12. If any provision of this Guaranty shall be determined by a court of
competent jurisdiction to be invalid, illegal or unenforceable, that portion
shall be deemed severed from this Guaranty and the remaining parts shall remain
in full force as though the invalid, illegal or unenforceable portion had never
been part of this Guaranty.
13. This Guaranty shall be governed by, and construed in accordance with,
the laws of the Commonwealth of Massachusetts.
-4-
<PAGE>
IN WITNESS WHEREOF, Guarantors have executed this Guaranty as of the date
appearing on the first page of this Guaranty.
MODUS MEDIA INTERNATIONAL HOLDINGS, INC.,
a Delaware corporation
By: /s/ Terence M. Leahy
-----------------------------------------
Terence M. Leahy
Chief Executive Officer and President
MODUS MEDIA INTERNATIONAL, INC.,
a Delaware corporation
By: /s/ Terence M. Leahy
-----------------------------------------
Terence M. Leahy
Chief Executive Officer and President
ACCEPTED AND AGREED:
STREAM INTERNATIONAL INC.
By: /s/ Judith G. Salerno
---------------------
Name: Judith G. Salerno
Title: President
-5-
<PAGE>
EXHIBIT 10.22
CORPORATE SOFTWARE & TECHNOLOGY, INC.
Guaranty
--------
This Guaranty (the "Guaranty") is made jointly and severally as of December
15, 1997 by Corporate Software & Technology Holdings, Inc., a Delaware
corporation ("CST Holdings"), and Corporate Software & Technology, Inc., a
Delaware corporation ("CST") (CST Holdings and CST shall each be referred to
herein as a "Guarantor" and collectively as the "Guarantors"), in favor of
Stream International Inc., a Delaware corporation (f/k/a Stream International
Holdings Inc.) ("Stream"). Capitalized terms used herein but not otherwise
defined shall have the respective meanings ascribed to them in that certain
Contribution Agreement dated as of the date hereof (the "Contribution
Agreement") among Stream, Modus Media International, Inc., a Delaware
corporation ("MMI") and Modus Media International Holdings, Inc., a Delaware
corporation ("MMI Holdings").
1. In order to induce Stream to enter into the Contribution Agreement,
the Contribution Agreement dated as of the date hereof among Stream, CST
Holdings, CST and Stream International Services Corp., a Delaware corporation
(the "CST Contribution Agreement"), and the Tax Sharing Agreement and to effect
the Drop-down and the Distribution, and in consideration thereof, Guarantors
hereby unconditionally and irrevocably and jointly and severally guarantee to
Stream and the Stream International Indemnities (i) the payment as and when due
of all the Indemnifiable Losses required to be paid by MMI Holdings or its
Subsidiaries pursuant to Section 5.2 of the Contribution Agreement, (ii) the
payment as and when due of all Other Taxes (as defined in the Tax Sharing
Agreement) for which MMI Holdings or MMI has indemnified any member of the
Stream Group (as defined in the Tax Sharing Agreement) or otherwise agreed to
pay to Stream pursuant to the Tax Sharing Agreement (the obligations described
in clauses (i) and (ii) are hereinafter collectively referred to as the
"Guaranteed General Obligations"), and (iii) the payment as and when due of all
Income Taxes (as defined in the Tax Sharing Agreement) for which MMI Holdings or
MMI has indemnified any member of the Stream Group (as defined in the Tax
Sharing Agreement) pursuant to the Tax Sharing Agreement (the "Guaranteed Tax
Obligations", and collectively with the Guaranteed General Obligations, the
"Guaranteed Obligations").
2. Notwithstanding anything in this Guaranty to the contrary, Guarantors
shall not be required to make payment of any particular Guaranteed Obligation
until the earlier of the following shall have occurred: (i) the sixtieth (60th)
day following the Due Date or the date payment thereof was due by MMI Holdings
or MMI pursuant to the Tax Sharing Agreement, as the case may be, shall have
elapsed and the Guaranteed Obligation shall not have been paid in full, or (ii)
an Event of Bankruptcy (as defined below) shall have occurred with respect to
MMI Holdings, MMI or any permitted successor to MMI Holdings' obligations
pursuant to the Contribution Agreement or the Tax Sharing Agreement, as the case
may be. In
<PAGE>
addition, notwithstanding anything in this Guaranty to the contrary, Guarantors
shall not be required to make any payment of any particular Guaranteed
Obligation to the extent written notice of such claim is first delivered to
Guarantors following the closing of (a) the sale of all or substantially all of
the assets of a Guarantor, (b) a merger or consolidation which results in the
voting securities of a Guarantor outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving or acquiring entity) less than 50% of
the combined voting power of the voting securities of such Guarantor or such
surviving or acquiring entity or its parent outstanding immediately after such
merger or consolidation (but in no event including any transaction required to
effect the Distribution); or (c) the initial public offering of equity
securities of a Guarantor under the Securities Act of 1933, as amended.
3. If Guarantors fail to promptly perform their obligations under this
Guaranty, Stream may from time to time, and without first requiring performance
by MMI Holdings, MMI or any other Person, bring any action at law or in equity
or both to compel Guarantors to perform their obligations hereunder and to
collect in any such action compensation for all loss, cost, damage, injury and
expense sustained or incurred by Stream or its subsidiaries as a direct or
indirect consequence of the failure of Guarantors to perform their obligations,
together with interest thereon at the lesser of (a) 10% per annum or (b) the
maximum rate permitted by applicable law.
4. Guarantors hereby waive: (a) any defense based upon any legal
disability or other defense of MMI Holdings or its Subsidiaries or any other
Person or by reason of the cessation or limitation of the liability of MMI
Holdings or its Subsidiaries from any cause (including improper or impermissible
assignment to or assumption by MMI Holdings or its Subsidiaries of any
Guaranteed Obligations) other than full payment of all sums payable in respect
of the Guaranteed Obligations; (b) any defense based upon any lack of authority
of the officers, directors or agents acting or purporting to act on behalf of
MMI Holdings or its Subsidiaries or any other Person which may have created any
Guaranteed Obligation or any defect in the formation of MMI Holdings or its
Subsidiaries or any other Person which may have created any Guaranteed
Obligation; (c) any defense based upon Stream's election of any remedy against a
Guarantor, MMI Holdings, MMI or any other Person or any or all of them; (d) any
defense based upon Stream's failure to disclose to a Guarantor any information
concerning MMI Holdings' or MMI's financial condition or any other circumstance
bearing on MMI Holdings' or MMI's ability to pay all sums payable in respect of
the Guaranteed Obligations; (e) any defense based upon any statute or rule of
law which provides that the obligation of a surety must be neither larger in
amount nor in any other respect more burdensome than that of a principal; (f)
presentment, demand, protest and notice of any kind; (g) the benefit of any
statute of limitations affecting liability of Guarantors hereunder or the
enforcement thereof; and
-2-
<PAGE>
(h) to the extent permitted by applicable law, all principles or provisions of
law which conflict with the terms of this Guaranty.
5. Guarantors warrant and acknowledge that (a) Stream would not enter
into the Contribution Agreement, the CST Contribution Agreement and the Tax
Sharing Agreement but for this Guaranty; (b) there are no conditions precedent
to the effectiveness of this Guaranty, and this Guaranty shall be in full force
and effect and binding on Guarantors as of the date hereof; (c) Guarantors have
established adequate means of obtaining from sources other than Stream, on a
continuing basis, financial and other information pertaining to MMI Holdings'
and MMI's financial condition and the status of MMI Holdings' and MMI's
performance of obligations imposed by the Contribution Agreement and the Tax
Sharing Agreement, and Stream has made no representation to Guarantors
concerning any such matters; and (d) Guarantors have reviewed a copy of the
Contribution Agreement and the Tax Sharing Agreement and are fully informed of
the remedies Stream may pursue in the event of a default thereunder.
6. This is a guaranty of payment and not of collection and the
obligations of Guarantors hereunder shall be in addition to and shall not limit
or in any way affect the obligations of Guarantors under any other existing or
future guaranties unless said other guaranties are expressly modified or revoked
in writing. This Guaranty is independent of the obligations of MMI Holdings and
its Subsidiaries under the Contribution Agreement and the Tax Sharing Agreement.
Stream may bring a separate action to enforce the provisions hereof against
Guarantor without taking action against MMI Holdings or its Subsidiaries or any
other party or joining MMI Holdings or its Subsidiaries or any other party as a
party to such action.
7. As used in this Guaranty, "Event of Bankruptcy" means as to MMI
Holdings, MMI or any permitted successor to MMI Holdings' obligations under the
Contribution Agreement, (1) the filing of a voluntary petition in bankruptcy or
for reorganization or for the adoption of an arrangement under the Federal
Bankruptcy Code (as now or in the future amended) or an admission seeking the
relief therein provided; (2) the making of a general assignment for the benefit
of its creditors; (3) the consent to the appointment of a receiver for all or a
substantial part of its property; (4) in case of the filing of an involuntary
petition in bankruptcy, the failure to effect a full dismissal of such petition
prior to the earlier of the entry of any order granting relief sought in the
involuntary petition or sixty (60) days after the date of filing of the
petition; (5) the entry of a court order appointing a receiver or trustee for
all or a substantial part of its property without its consent; or (6) the
assumption of custody or sequestration by a court of competition jurisdiction of
all or substantially all of its property.
8. If any attorney is engaged by Stream to enforce or defend any
provisions of the Guaranty, with or without the filing of any legal action or
-3-
<PAGE>
proceeding, Guarantors shall pay to Stream, immediately upon demand, the amount
of all reasonable attorneys' fees and out-of-pocket costs incurred by Stream in
connection herewith.
9. Guarantors' performance of a portion, but not all, of the Guaranteed
Obligations shall in no way limit, affect, modify or abridge Guarantors'
liability for that portion of the Guaranteed Obligations which are not
performed. Without in any way limiting the generality of the foregoing, in the
event that Stream is awarded a judgment in any suit brought to enforce a
Guarantor's covenant to perform a portion of the Guaranteed Obligations, such
judgment shall in no way be deemed to release the Guarantors from their covenant
to perform any portion of the Guaranteed Obligations which are not the subject
of such suit.
10. This Guaranty shall be binding upon Guarantors, their representatives,
successors and assigns (including any acquirer of substantially all of either
Guarantor's assets) and shall inure to the benefit of and shall be enforceable
by Stream and its successors and assigns. Neither Guarantor may assign or
delegate its obligations hereunder except to a Person that acquires all or
substantially all of the assets or business of such Guarantor (whether by
merger, consolidation, sale of assets, sale of stock or otherwise). Each
Guarantor agrees that it will not transfer all or substantially all of its
assets unless the transferee agrees in writing to be bound by this Guaranty.
11. This Guaranty shall not be impaired by any modification, release or
other alteration of any portion of the Guaranteed Obligations, nor by any
agreement with, or release of, MMI Holdings, MMI or any other Person; provided,
--------
however, that the Guarantors shall be released from their obligations hereunder
- -------
to the extent that any such modification, release or other alteration releases
Stream and its Subsidiaries from Liability and; provided, further, that the
-------- -------
Guarantors shall be released from their obligations hereunder with respect to
any Guaranteed Obligation to the same extent that Stream releases MMI Holdings
from such Guaranteed Obligation.
12. If any provision of this Guaranty shall be determined by a court of
competent jurisdiction to be invalid, illegal or unenforceable, that portion
shall be deemed severed from this Guaranty and the remaining parts shall remain
in full force as though the invalid, illegal or unenforceable portion had never
been part of this Guaranty.
13. This Guaranty shall be governed by, and construed in accordance with,
the laws of the Commonwealth of Massachusetts.
-4-
<PAGE>
IN WITNESS WHEREOF, Guarantors have executed this Guaranty as of the date
appearing on the first page of this Guaranty.
CORPORATE SOFTWARE & TECHNOLOGY
HOLDINGS, INC., a Delaware corporation
By: /s/ Howard S. Diamond
-------------------------------------
Name: Howard S. Diamond
Title: Chief Executive Officer and President
CORPORATE SOFTWARE & TECHNOLOGY,
INC., a Delaware corporation
By: /s/ Howard S. Diamond
-------------------------------------
Name: Howard S. Diamond
Title: Chief Executive Officer and President
ACCEPTED AND AGREED:
STREAM INTERNATIONAL INC.
By: /s/ Judith G. Salerno
-------------------------
Name: Judith G. Salerno
Title: President
-5-
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
The following is a list of the names and jurisdictions of incorporation of
the subsidiaries of the Registrant upon the closing of this offering and the
Reorganization (as defined in the Registration Statement to which this document
is an exhibit):
<TABLE>
<CAPTION>
NEW NAME TO BE ADOPTED IN JURISDICTION OF
CURRENT NAME CONNECTION WITH THE REORGANIZATION INCORPORATION
------------ ----------------------------------- ---------------
<S> <C> <C>
Corporate Software Stream International Europe B.V. Netherlands
Europe B.V.
Stream International n/a United Kingdom
(NI) Limited
Corporate Software Stream International Securities Massachusetts
Securities Corporation Corporation
Stream International Stream International Services Corp. Delaware
Inc.
Stream International n/a Nevada
Inc.
</TABLE>
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Stream International
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
December 23, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1997 SEP-30-1997
<CASH> 1,142 11,102
<SECURITIES> 0 0
<RECEIVABLES> 35,636 35,406
<ALLOWANCES> 304 277
<INVENTORY> 0 0
<CURRENT-ASSETS> 39,785 52,199
<PP&E> 59,232 60,433
<DEPRECIATION> 22,415 27,526
<TOTAL-ASSETS> 76,987 86,982
<CURRENT-LIABILITIES> 19,875 29,811
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 52,663 52,976
<TOTAL-LIABILITY-AND-EQUITY> 76,987 86,982
<SALES> 155,498 139,308
<TOTAL-REVENUES> 155,498 139,308
<CGS> 117,309 99,476
<TOTAL-COSTS> 117,309 99,476
<OTHER-EXPENSES> 43,610 36,583
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 188 124
<INCOME-PRETAX> (5,609) 3,125
<INCOME-TAX> (924) 1,783
<INCOME-CONTINUING> (4,685) 1,342
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (4,685) 1,342
<EPS-PRIMARY> (.72) .21
<EPS-DILUTED> 0 0
</TABLE>
