<PAGE>
As filed with the Securities and Exchange Commission on December 10, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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MODUS MEDIA INTERNATIONAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
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Delaware 7379 04-3400270
(Primary Standard Industrial (I.R.S. Employer
(State or other Classification Code Number) Identification Number)
jurisdiction of
incorporation or
organization)
690 Canton Street
Westwood, MA 02090
(781) 407-2000
(Address including zip code, and telephone number including area code, of
Registrant's principal executive offices)
-----------
TERENCE M. LEAHY
Chairman of the Board
and Chief Executive Officer
Modus Media International Holdings, Inc.
690 Canton Street
Westwood, MA 02090
(781) 407-2000
(Name, address including zip code and telephone number including area code, of
agent for service)
Copies to:
MARK G. BORDEN, ESQ. KEITH F. HIGGINS, ESQ.
PHILIP P. ROSSETTI, ESQ. Ropes & Gray
Hale and Dorr LLP One International Place
60 State Street Boston, Massachusetts 02110
Boston, Massachusetts 02109 Telephone: (617) 951-7000
Telephone: (617) 526-6000 Telecopy: (617) 951-7050
Telecopy: (617) 526-5000
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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,
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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
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,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed
maximum
aggregate Amount of
Title of each class of offering registration
securities to be registered price(1) fee(2)
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<S> <C> <C>
Common Stock, $.01 par value per share............... $150,000,000 $39,600
- --------------------------------------------------------------------------------
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</TABLE>
(1) 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.
(2) Calculated pursuant to Rule 457(a) based on an estimate of the proposed
maximum aggregate offering price.
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 said
Section 8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and we are not soliciting an offer to buy +
+these securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED , 2000
PROSPECTUS
Shares
[MODUS MEDIA INTERNATIONAL LOGO APPEARS HERE]
Modus Media International Holdings, Inc.
Common Stock
---------
We are selling shares of our common stock. The underwriters named in this
prospectus may purchase up to additional shares of our common stock to
cover over-allotments.
This is an initial public offering of common stock. We currently expect the
initial public offering price to be between $ and $ per share, and have
applied to have the common stock included for quotation on the Nasdaq National
Market under the symbol "EMMI".
---------
Investing in the common stock involves risks. See "Risk Factors" beginning on
page 7.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
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<TABLE>
<CAPTION>
Per Share Total
--------- ------
<S> <C> <C>
Initial Public Offering Price $ $
Underwriting Discount $ $
Proceeds to Modus Media (before expenses) $ $
</TABLE>
The underwriters are offering the shares subject to various conditions. The
underwriters expect to deliver the shares to purchasers on or about ,
2000.
---------
Salomon Smith Barney
Donaldson, Lufkin & Jenrette
Robertson Stephens
Thomas Weisel Partners LLC
, 2000
<PAGE>
You should rely only on the information contained in this prospectus. Modus
Media has not authorized anyone to provide you with different information.
Modus Media is not making an offer of these securities in any state where the
offer is not permitted. You should not assume that the information provided by
this prospectus is accurate as of any date other than the date on the front of
this prospectus.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Special Note Regarding Forward-Looking Statements........................ 15
Use of Proceeds.......................................................... 16
Dividend Policy.......................................................... 16
Capitalization........................................................... 17
Dilution................................................................. 18
Selected Financial Data.................................................. 19
Management's Discussion and Analysis of Results of Operations and Finan-
cial Condition.......................................................... 21
Business................................................................. 29
Management............................................................... 40
Certain Transactions..................................................... 48
Principal Stockholders................................................... 50
Description of Capital Stock............................................. 52
Shares Eligible for Future Sale.......................................... 54
Underwriting............................................................. 56
Validity of Common Stock................................................. 58
Experts.................................................................. 58
Where You Can Find Additional Information................................ 58
Index to Consolidated Financial Statements............................... F-1
</TABLE>
Until 2000, all dealers that buy, sell or trade the common stock,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary highlights information contained in this prospectus
and does not contain all the information that may be important to you. You
should read the entire prospectus carefully, including the section entitled
"Risk Factors" and our financial data and related notes, before making an
investment decision.
Modus Media International
We are a leading, global provider of extended supply chain management
services for the technology industry. We provide a broad range of outsource
services that include content management, software manufacturing, hardware
assembly and order fulfillment. In addition, our services extend to front-end
e-commerce and response center order processing, as well as to back-end
financial management, reporting and customer care. We have been in operation
since 1982 and have built a worldwide infrastructure in 12 countries,
consisting of 20 solution centers and over 4,500 employees. Our clients include
original equipment manufacturers such as Compaq, Dell, Hewlett Packard, IBM and
Sun Microsystems; independent software vendors such as Intuit, Microsoft,
Network Associates and Novell; and leading consumer electronics,
telecommunications and Internet companies such as Sony, AT&T, E-Stamp and
Beyond.com. The length of our relationships with our five leading clients,
based on 1999 revenue, has averaged over ten years.
The market for business process outsourcing has evolved as companies,
particularly in the technology industry, have increasingly sought to outsource
critical non-core functions so that they can focus on their core competencies.
Market demands for increased productivity have led companies to move beyond
outsourcing only their basic production and fulfillment processes to
outsourcing all of the business processes involved in their extended supply
chains. The supply chain consists of the many steps that must occur between the
sourcing of materials for a product to the delivery of that product. The
extended supply chain also includes e-commerce support services and order
management at the front end and customer care and financial transaction
management at the back end. The goal of extended supply chain management is to
link supply and demand as closely as possible in order to reduce costs,
minimize business risk and better meet client expectations for performance and
quality. We believe that the growth of e-commerce is increasing demand for
supply chain outsourcing. According to G2R, a subsidiary of Gartner Group, the
market for supply chain management outsourcing is estimated to grow from $17.0
billion in 1998 to $42.2 billion in 2003, representing a compound annual growth
rate of 20%.
We offer a full range of extended supply chain management services that
provide our clients with a "one-stop shop" for their outsource requirements.
Our capabilities include:
. an integrated end-to-end solution, which enables our clients to link
supply and demand in real time, reducing costs and improving efficiency
and customer satisfaction;
. e-commerce support services, which integrate web ordering with
fulfillment operations;
. flexible production, which allows us to facilitate the customization of
hardware and software products;
. a global presence, which enables us to reduce time to market, integrate
product introductions, and provide local customization, efficient
inventory and logistics management; and
. substantial experience in supply chain management, which has earned us a
reputation as a trusted part of our clients' supply chains.
Our outsource services include content manufacturing solutions and e-
fulfillment solutions. Our content manufacturing solutions consist of supply
chain management services provided to original equipment
3
<PAGE>
manufacturers, or OEMs, and independent software vendors, or ISVs. Our e-
fulfillment solutions extend our content manufacturing solutions by combining
them with additional services that support direct interaction with our clients'
customers, who may be end users or retailers. Orders for products that we
fulfill through
e-fulfillment solutions come directly from end users or retailers, rather than
from our OEM and ISV clients. While a majority of the orders received through
our e-fulfillment solutions currently are submitted by telephone or facsimile,
we expect that an increasing portion will be received over the web as we
provide more e-fulfillment services and the Internet becomes a more prevalent
medium for commerce. To date, we have built more than 40 e-commerce sites for
our clients, ranging from customer store fronts to online tracking and order
information sites, and in some cases have built multiple sites for the same
client.
The following shows our principal outsource services:
<TABLE>
<S> <C>
Content Manufacturing Solutions e-Fulfillment Solutions
. Content management; . Web site design, storefront development
and connection to fulfillment
. Procurement; operations;
. Materials management; . Response centers, including telephone,
facsimile, email and web;
. Manufacturing;
. Online, multi-currency payment
. Assembly; and processing;
. Fulfillment and distribution. . End-user support for product inquiries;
. Returns, refunds and rebates processing;
. Reporting on end-user activity; and
. Electronic license distribution
</TABLE> services.
Our strategy is to take advantage of the market trends towards shorter
product life cycles, mass customization and growth of e-commerce by
implementing strategies to:
. Grow our e-fulfillment solutions business;
. Expand our services to existing clients;
. Leverage our global presence and information
technology infrastructure;
. Continue to achieve high ratings in
outsourcing industry performance
measurements;
. Improve our financial returns from scalable,
higher productivity operations;
. Pursue select, high-growth markets and
expand client base; and
. Pursue strategic acquisitions.
------------
We are a Delaware corporation. Our principal executive offices are located
at 690 Canton Street, Westwood, Massachusetts 02090 and our telephone number is
(781) 407-2000. Our World Wide Web site address is www.modusmedia.com. The
information on our web site is not incorporated by reference into this
prospectus.
4
<PAGE>
The Offering
<TABLE>
<S> <C>
Common stock offered........ shares
Common stock to be
outstanding after this
offering................... shares
Use of proceeds............. For general corporate purposes, including working
capital, payment of debt and potential
acquisitions. See "Use of Proceeds."
Proposed Nasdaq National EMMI
Market symbol..............
</TABLE>
The number of shares that will be outstanding after the offering is based on
the number of shares outstanding as of , 1999 and excludes:
. shares of common stock issuable upon exercise of stock options
outstanding as of , 1999, with a weighted average exercise price
of $ per share, of which options to purchase shares were then
exercisable; and
. shares of common stock reserved for future grant under our stock
option plans.
------------
Unless specifically stated, the information in this prospectus:
. assumes no exercise of the underwriters' over-allotment option;
. assumes an initial offering price of $ per share, the midpoint of our
initial public offering price range;
. reflects a -for- stock split effected which will be effected prior to
this offering;
. assumes the conversion of all shares of non-voting common stock into
common stock; and
. reflects the filing, as of the closing of the offering, of our Second
Amended and Restated Certificate of Incorporation, referred to in this
prospectus as the restated certificate of incorporation, and the
adoption of our Amended and Restated By-Laws, referred to in this
prospectus as the restated by-laws, implementing the provisions
described below under "Description of Capital Stock--Delaware Law and
Certain Charter and By-Law Provisions, Anti-Takeover Effects."
Modus Media and its logo are trademarks of Modus Media.
5
<PAGE>
Summary Consolidated Financial Data
The following summary historical consolidated financial data should be read
along with "Management's Discussion and Analysis of Results of Operations and
Financial Condition" and the consolidated financial statements and related
notes included elsewhere in this prospectus. The as adjusted balance sheet data
gives effect to our receipt of the estimated proceeds from the sale of
shares of common stock we are selling in this offering at an assumed public
offering price of $ per share, after deducting estimated underwriting
discounts and commissions and offering expenses.
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended December 31, September 30,
--------------------------------- ------------------------
1996 1997 1998 1998 1999
--------- --------- ----------- ----------- -----------
(in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue................. $ 811,905 $ 684,523 $ 630,082 $ 418,284 $ 506,235
Gross profit............ 99,716 96,838 118,094 76,148 92,940
Restructuring charges... 100,883 -- -- -- --
Operating income
(loss)................. (107,675) (17,014) 17,172 5,087 14,587
Income (loss) before
income taxes........... (122,107) (29,843) 15,012 3,525 12,664
Net income (loss)....... $(111,096) $ (32,667) $ 10,747 $ 2,524 $ 9,390
========= ========= =========== =========== ===========
Preferred stock
dividends.............. -- 172 5,922 4,369 4,885
----------- ----------- -----------
Net income (loss)
available to common
shareholders........... -- -- $ 4,825 $ (1,845) $ 4,505
=========== =========== ===========
Net income (loss) per
share:
Basic................. -- -- $ 0.38 $ (0.14) $ 0.36
=========== =========== ===========
Diluted............... -- -- $ 0.37 $ (0.14) $ 0.31
=========== =========== ===========
Number of shares used in
per share calculations:
Basic................. -- -- 12,748,733 13,001,593 12,509,622
Diluted............... -- -- 13,072,117 13,001,593 14,502,653
Selected Operating Data:
EBITDA(1)............... $ (84,373) $ 13,005 $ 37,626 $ 20,677 $ 27,756
Capital expenditures.... 15,800 34,032 12,307 7,601 11,325
</TABLE>
<TABLE>
<CAPTION>
As of September 30,
1999
--------------------
Actual As Adjusted
-------- -----------
(in thousands)
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.................................. $ 20,385
Working capital............................................ 40,658
Total assets............................................... 276,966
Total debt................................................. 8,704
Total shareholders' equity................................. 102,345
</TABLE>
- --------
(1) EBITDA is defined as income from operations before depreciation and
amortization. EBITDA is presented because we believe that EBITDA is a
widely accepted financial indicator of an entity's ability to incur and
service debt. EBITDA should not be considered by an investor as an
alternative to net income or income from operations, as an indicator of our
operating performance or other combined operations or cash flow data
prepared in accordance with generally accepted accounting principles, or as
an alternative to cash flows as a measure of liquidity. Our computation of
EBITDA may differ from similarly titled computations of other companies.
6
<PAGE>
RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the risks and uncertainties described below and the other information in this
prospectus before you decide whether to buy our common stock. While these are
the risks and uncertainties we believe are most important for you to consider,
you should know that they are not the only risks or uncertainties facing us or
which may adversely affect our business. If any of the following risks or
uncertainties actually occurs, our business, financial condition and operating
results would likely suffer. In that event, the market price of our common
stock could decline, and you could lose all or part of the money you paid to
buy our common stock.
Risks Related to Our Business
We depend on several key clients, the loss of one or more of which could harm
our business
A limited number of our clients account for a substantial portion of our
revenue and the loss of any one or more of these clients could have a material
adverse effect on our revenue. Our largest eight clients accounted for
approximately 63% of our revenue in 1998 and 66% for the nine months ended
September 30, 1999. Microsoft Corporation accounted for approximately 17% of
our revenue in 1997, 23% in 1998 and 26% in the nine months ended September 30,
1999. IBM accounted for approximately 14% of our revenue in 1997, 12% in 1998
and less than 10% in the nine months ended September 30, 1999. There can be no
assurance that our revenue from key clients will not decline in future periods.
The loss of a significant amount of business with Microsoft, IBM or any other
key client could have a material adverse effect on our business and financial
results.
Developments in the technology sector may adversely affect our ability to
satisfy our clients' outsourcing requirements
Our clients' products are subject to rapid change as new technologies
develop and replace existing products, such as the replacement of CD-ROM
technology with DVD technology. In addition, advances in electronic delivery of
information, such as broadband online data delivery, when fully developed and
accepted in the marketplace, could reduce the need for physical media, which
could in turn adversely affect the demand for our services. Also, new
technologies for distributing licensed software may be less expensive or more
effective than our current services, which could reduce the prices that we are
able to charge and could reduce demand for our content manufacturing services.
In addition, OEMs are increasingly incorporating more options within the
personal computer itself and therefore reducing the number of separate
components that must be included in a shipkit. If we do not successfully
introduce outsource solutions in response to these and other new trends and
technologies, our business and financial results could be seriously harmed.
Our failure to meet client expectations could result in losses and negative
publicity
Many of our engagements involve technology solutions that are critical to
our clients' businesses. Our clients face significant uncertainties in
forecasting the demand for their products, and limitations on the size of our
facilities, number of our personnel and availability of raw materials could
make it difficult for us to respond to their changing product requirements. In
addition, any disruption in our e-fulfillment services could adversely affect
our clients' ability to conduct commerce on their web sites. Any defects or
errors in our solutions, or failure to meet clients' specifications, capacity
requirements or expectations, could result in:
. delayed or lost revenue due to adverse client reaction;
. requirements to provide additional services to a client at no charge;
7
<PAGE>
. negative publicity about us and our services, which could adversely
affect our ability to attract or retain clients; and
. claims for substantial damages against us, regardless of our
responsibility for such failure, which may not be covered by our
insurance policies and which may not be limited by contractual terms of
our engagement.
Our quarterly revenues and operating results may fluctuate in future periods;
any resulting failure to meet market expectations may cause the price of our
common stock to decline
Our quarterly revenues and operating results are difficult to predict and
may fluctuate significantly from quarter to quarter because some of our
products and services are relatively new and the future growth of the
outsourcing market, and the market for our products and services in particular,
is uncertain. If our quarterly revenues or operating results fall below the
expectations of investors or public market research analysts, the price of our
common stock could decline substantially. Factors that are likely to cause
quarterly fluctuations in our operating results include:
. timing of new product introductions or software releases by our clients
or their competitors;
. seasonal fluctuations in demand or fluctuations in production;
. the level of product and price competition that we encounter, including
the frequency of changes in pricing policies;
. temporary shortages in supply from vendors;
. inability to add temporary labor during seasonal peaks;
. our ability to expand our operations and the amount and timing of
expansion-related and infrastructure expenditures;
. political instability or natural disasters in the countries in which we
operate; and
. facility or systems disruption.
Our business could be harmed if Microsoft Corporation were to modify its
authorized replicator program
We have been designated as an Authorized Replicator (AR) for Microsoft
Corporation, which gives us a worldwide license to replicate Microsoft software
products and documentation for OEMs who want to bundle licensed software with
their hardware products. The AR agreement is renegotiated annually, and the
current AR agreement expires on August 31, 2000. Microsoft recently announced
that it intends to modify the AR program during the year 2000 for Windows
operating system software. The modifications could involve a reduction in the
printed materials required by OEMs. There can be no assurance that we will
continue as an AR for Microsoft or that we will continue to derive revenues
under this program at levels comparable with those realized in the past.
Failure to maintain AR status, or to render Microsoft AR-related services to
OEMs, could adversely affect our business, financial condition and results of
operations.
We face substantial competition and may not be able to continue to compete
effectively
The market for our services is very competitive. We expect the intensity of
competition to continue to increase. Our failure to maintain and enhance our
competitive position will limit our ability to maintain and increase our market
share, which would result in serious harm to our business. Increased
competition may also result in price reductions, reduced gross margins and loss
of market share.
8
<PAGE>
We compete against companies engaged in turnkey printing, hardware assembly,
CD and diskette replication and teleservices. In addition to large regional and
global competitors, we face competition from numerous local producers and from
internal departments of our clients and prospective clients. Additionally, we
expect competition to emerge from companies engaged in electronic manufacturing
services and logistics services as they attempt to deliver a broader range of
services. We compete on the basis of quality, performance, service levels,
global capabilities, technology, operational efficiency and price.
Some of our competitors have substantially greater financial,
infrastructure, personnel and other resources than we have. Furthermore, some
of our competitors have well established, large and experienced marketing and
sales capabilities and greater name recognition than we have, including well
established relationships with our current and potential clients. As a result,
our competitors may be in a stronger position to respond quickly to new or
emerging technologies and changes in client requirements. They may also develop
and promote their services more effectively than we do. Also, we may lose
potential clients to competitors for various reasons, including the ability or
willingness of our competitors to offer lower prices and other incentives that
we cannot match. In addition, clients may subject projects to competitive
bidding. Our business could also be adversely affected if two or more of our
competitors consolidate and offer broader products and services than we do. We
may not be able to compete successfully against current and future competitors,
and competitive pressures may seriously harm our business.
We may not be able to establish client sites where requested, or we may fail to
retain key clients at established sites, which could have a material adverse
effect on our business and results of operations
Our clients have, at times, requested that we add capacity or open a
facility in locations near their sites. If we elect not to add required
capacity at sites near existing clients or establish sites near existing or
potential clients, clients may decide to seek alternate outsource suppliers. In
addition, if we lose a significant client of a particular site or open a site
with the expectation of business that does not materialize, our operations at
that site could become uneconomical or significantly less efficient. Any of
these events could have a material adverse effect on our business and financial
results.
A decline in the technology sector would harm our business
A large portion of our revenue comes from clients in the technology sector.
Our business, results of operations and financial condition could be materially
adversely impacted if the overall financial performance of the technology
sector declines, if our clients' products do not gain or do not sustain market
acceptance or if PC market demand declines, or the market share of our
technology clients declines or fails to grow at historical levels.
Our business depends on the growth of the market for extended supply chain
management services
We derive a substantial portion of our revenue from providing extended
supply chain management services. Our business and future growth will depend in
large part on the continued growth of the industry trend towards outsourcing
extended supply chain management and other business processes. If this trend
does not continue, or does not continue at historical levels, our business and
financial results could be materially and adversely affected.
Our growth could be limited if we are unable to attract and retain qualified
personnel
We believe that our success depends largely on our ability to attract and
retain highly skilled technical, consulting, managerial, sales and marketing
personnel. Our industry is very labor-intensive and has experienced high
personnel turnover. If our employee turnover rate increases significantly, our
recruiting and training costs could rise and our operating efficiency and
productivity could decline. We may not be able to hire or retain the
9
<PAGE>
necessary personnel to implement our business strategy. In addition, we may
need to pay higher compensation for employees than we currently expect.
Individuals with the significant experience and technical skills that we
generally require are in very short supply and competition to hire from this
limited pool is intense.
We may not be able to employ a sufficient number of temporary employees during
peak demand periods
Our clients often experience both expected and unexpected surges in demand,
such as upon the introduction of a new product release, following a special
advertising campaign or as a result of seasonal high demand in anticipation of
year end holidays. In order to respond to these surges in demand, we employ a
large number of skilled temporary employees. If we were unable to obtain the
services of such temporary employees, on short notice and in adequate numbers,
we might fail to meet the production and distribution requirements of our
clients on a timely basis. Any such failure could result in the loss of one or
more key clients or could damage our reputation in the industry, which could
have an adverse effect on our business.
Loss of our Chief Executive Officer or other key employees could harm our
business
Our future success depends to a significant degree on the skills, experience
and efforts of our senior management. In particular, we depend upon the
continued services of Terence M. Leahy, our Chief Executive Officer, and other
executive officers. Also, due to the competitive nature of our industry, we may
not be able to retain all of our senior managers. The loss of the services of
any of these individuals could harm our business and operations. In addition,
we have not obtained life insurance benefitting Modus Media on any of our key
employees. If any of our key employees leaves or is seriously injured or unable
to work and we are unable to find a qualified replacement, our business could
be harmed.
Our success depends on our ability to manage and expand our international
operations
We currently conduct business in Taiwan, Singapore, Ireland, the United
Kingdom, the Netherlands and other foreign locations, in addition to our North
American operations. Sales outside North America accounted for 51% and 55% of
our total revenue for 1997 and 1998 and 55% for the nine months ended September
30, 1999. We currently expect international revenue to continue to account for
a significant percentage of our total revenue in the future. We believe that we
must continue to expand our international sales and fulfillment activities in
order to be successful. There are certain risks inherent in conducting
international operations, including:
. added fulfillment complexities in operations, including multiple
languages, currencies, bills of materials and stock keeping units;
. exposure to currency fluctuations;
. longer payment cycles;
. greater difficulties in accounts receivable collections;
. the complexity of ensuring compliance with multiple U.S. and foreign
laws, particularly differing laws on intellectual property rights and
export control; and
. labor practices, difficulties in staffing and managing foreign
operations, political instability and potentially adverse tax
consequences.
There can be no assurance that one or more of these factors will not have a
material adverse effect on our international operations and, consequently, on
our business and results of operations.
10
<PAGE>
Failure to introduce new e-fulfillment solutions or enhancements to existing
solutions would impair our future growth
To be competitive, we must continue to develop and introduce on a timely
basis new services, solutions and enhancements for companies with supply chain
management and e-fulfillment solution needs. Specifically, we are seeking to
expand our e-fulfillment offerings to existing and new clients in areas such as
on-line merchandising, electronic order fulfillment and customer relationship
management. Any failure to expand our e-fulfillment service offerings could
significantly impair our future growth.
We may not be able to forecast our revenue accurately because our sales cycle
is relatively long and variable
Our sales cycle is subject to a number of significant risks, including
internal acceptance reviews and the size, scope and timing of the client's
needs. Consequently, if sales expected from a specific client in a particular
quarter are not realized in that quarter, we are unlikely to be able to
generate revenue from alternate sources in time to compensate for the
shortfall. As a result, due to the relatively large size of particular
projects, a lost or delayed sale could result in revenues that are lower than
expected. Many of our clients evaluate our services in a deliberative and time-
consuming manner, depending on the specific technical capabilities of the
client, the size of the engagement and the complexity of the client's network
environment. We cannot accurately predict the length of a potential client's
pre-purchase evaluation, or whether our investment in pre-purchase time and
resources will result in a sale. Our inability to make such predictions may
adversely affect our operating results.
We may incur substantial inventory expenses if we fail to manage inventory or
accumulate the inventory of clients with unsuccessful businesses
We frequently purchase components of our clients' products based on
contracts, purchase orders and, in some cases, our clients' forecasts. At
times, we purchase inventory based on internal forecasts in advance of client
commitments. We also bear inventory and working capital risk associated with
the financial strength of our clients. If we fail to accurately gauge and
manage our inventory, or if our clients do not perform as expected, we may
accumulate a substantial amount of products or materials that cannot be
profitably disposed of, and our operating results may suffer.
Failure to manage our growth successfully could lead to inefficiencies in
conducting our business, increased expenses or slower growth
Over the past two years, our operations have continued to expand. Our growth
has placed, and will continue to place, a significant strain on our management,
operating and financial systems, as well as sales, marketing and administrative
resources. Additional growth will further strain these resources. If we cannot
manage our expanding operations, we may not be able to continue to grow or we
may grow at a slower rate. To manage any future growth effectively, we must
continue to improve our financial and accounting systems, inventory and
production controls, reporting and procedures, integrate new personnel and
manage expanded operations. If we fail to do so, the quality of our services
and products and our ability to respond to our clients' needs and retain key
personnel would suffer.
Our acquisition strategy could have an adverse effect on our business
A component of our business strategy is the acquisition of, or investment
in, complementary businesses, technologies, services or products. Our ability
to identify and invest in suitable acquisition and investment candidates on
acceptable terms is crucial to this strategy. We may not be able to identify,
acquire or make investments in promising acquisition candidates on acceptable
terms. Competition for these acquisitions or investment targets could also
result in increased cost of acquisitions. An inability to find suitable
acquisition or investment candidates at reasonable prices could slow our growth
rate.
11
<PAGE>
Acquisitions involve a number of risks, including:
. adverse effects on our reported operating results due to accounting
changes associated with the acquisitions;
. difficulties in management and integration of the acquired business;
. increased expenses, including compensation expense resulting from newly
hired employees;
. diversion of management resources and attention; and
. potential disputes with sellers of acquired businesses, technologies,
services or products.
Client dissatisfaction or performance problems with an acquired business,
technology, service or product could also have a material adverse impact on our
reputation as a whole. In addition, any acquired business, technology, service
or product could significantly underperform relative to our expectations.
Our business is exposed to risks under existing client contracts and we do not
have written contracts with some of our clients
We do not have written contracts with many of our clients. We frequently
operate only on the basis of product orders with no minimum requirements.
Accordingly, we may be subject to client cancellation of projects, changes in
specifications or requirements or other client modifications for which no
written agreement exists. These types of cancellations or changes could result
in loss of revenue and/or significant expenditures of resources and funding
that we may be unable to recover. Although we work to sign multi-year contracts
with our clients, our contracts generally:
. permit termination upon relatively short notice by the client;
. contain no minimum purchase requirements;
. do not designate us as the client's exclusive outsource service
provider;
. do not penalize the client for early termination; and
. hold us responsible for products which fail to meet the client's
specifications.
In addition, we may be subject to client claims relating to our services
that are inconsistent with the original scope and understanding of the parties
and we may have no written contract to resolve these claims.
We rely upon contractual provisions and trademark laws to protect our
proprietary rights, which may not be sufficient to protect our intellectual
property
We rely on a combination of laws, such as copyright, trademark and trade
secret laws, and contractual restrictions, such as confidentiality agreements
and licenses, to establish and protect our proprietary rights. We currently
have pending trademark registration applications for our name and logo in the
United States and several foreign countries. Moreover, despite any precautions
that we have taken:
. laws and contractual restrictions may not be sufficient to prevent
misappropriation of our technology or deter others from developing
similar technologies;
. current federal laws that prohibit software copying provide only limited
protection from software piracy, and effective trademark, copyright and
trade secret protection may be unavailable or limited in foreign
countries;
. other companies may claim common law trademark rights based upon state
or foreign laws that precede the federal registration of our marks; and
. policing unauthorized use of our products and trademarks is difficult,
expensive and time-consuming, and we may be unable to determine the
extent of this unauthorized use.
12
<PAGE>
Also, the laws of the countries in which we market our services and
solutions may offer little or no effective protection of our proprietary
technology. Reverse engineering, unauthorized copying or other misappropriation
of our proprietary technology could enable third parties to benefit from our
technology without paying us for it, which would significantly harm our
business.
We may become involved in litigation over proprietary rights, that could be
costly and time consuming
Many of our agreements require us to indemnify our clients for losses from
any claim of misappropriation or theft of their intellectual property while in
our possession. Any litigation, brought by us or others, even if without merit,
can be time consuming and result in the expenditure of significant financial
resources and the diversion of management's time and efforts.
Failure of computer systems and software to be year 2000 compliant could
increase our costs, disrupt our services and reduce demand from our clients
Many currently installed computer systems and software products are coded to
accept or recognize only two digit entries in the date code field. These
systems and software products must be able to accept four digit entries in the
date code field to distinguish 21st century dates from 20th century dates. As a
result, computer systems and/or software used by many companies and
governmental agencies may need to be upgraded to comply with these year 2000
requirements or risk system failure or miscalculations causing disruptions of
normal business activities.
If there is a year 2000 problem with respect to a solution provided by us,
it may be difficult to determine whether the problem relates to services which
we have performed or is due to the software or technology of our clients or the
services of other providers. Any failure of our material systems or our
clients' or vendors' material systems to be year 2000 compliant could have
material adverse consequences for us. We are unable to predict to what extent
our business may be affected if our software, the systems that operate in
conjunction with our software or our internal systems experience a material
year 2000 failure. In addition, we have contractual obligations to some of our
clients which contain year 2000 warranties and provide for damages upon any
breach of such warranty. If we breach these warranties, and are sued, the
damages we might be required to pay could negatively impact our business,
financial condition and results of operations. Moreover, we may be subject to
other year 2000-related lawsuits, whether or not the services that we have
performed are year 2000 compliant. We cannot predict the outcomes of these
types of lawsuits.
International laws and regulations may expose us to potential costs and
litigation
Our plans to expand international operations will increase our exposure to
international laws and regulations. If we cannot comply with foreign laws and
regulations, which are often complex and subject to variation and unexpected
changes, we could incur unexpected costs and potential litigation. For example,
the governments of foreign countries might attempt to regulate our products and
services or levy sales or other taxes relating to our activities. In addition,
foreign countries may impose tariffs, duties, price controls or other
restrictions on foreign currencies or trade barriers, any of which could make
it more difficult to conduct our business. The European Union recently enacted
its own privacy regulations that may result in limits on the collection and use
of certain user information, which, if applied to the sale of our services,
could negatively impact our results of operations.
Our revenues, materials and labor costs in countries outside the U.S. are
denominated in local currency. Therefore, a strengthening of other currencies
versus the U.S. dollar may give us potential exposure for currency fluctuations
in foreign markets. We do not currently engage in currency hedging activities.
We have not yet but may in the future experience foreign exchange rate losses,
especially to the extent that we do not engage in hedging.
13
<PAGE>
We may need additional capital that may not be available to us and, if raised,
may dilute your ownership interest in us
We may need to raise additional funds to develop or enhance our services and
solutions, to fund expansion, to respond to competitive pressures or to acquire
complementary products, businesses or technologies. Additional financing may
not be available on terms that are acceptable to us. If we raise additional
funds through the issuance of equity or convertible debt securities, the
percentage ownership of our stockholders would be reduced and these securities
might have rights, preferences and privileges senior to those of our current
stockholders. If adequate funds are not available on acceptable terms, our
ability to fund our expansion, take advantage of unanticipated opportunities,
develop or enhance products or services, or otherwise respond to competitive
pressures would be significantly limited.
Risks Related to this Offering
Our executive officers and directors will continue to control Modus Media after
this offering and could delay or prevent a change in control
After this offering, our executive officers and directors and their
affiliates will together control approximately % of our outstanding common
stock. As a result, these stockholders, if they act together, will be able to
control all matters requiring approval of a majority of our stockholders,
including the election and removal of directors and any merger, sale of assets
and other significant corporate transactions. This control could have the
effect of delaying or preventing a change in control of Modus Media, could
deprive our stockholders of an opportunity to receive a premium for their
common stock as part of a sale of Modus Media or its assets and might affect
the market price of our common stock.
We have anti-takeover defenses that could delay or prevent an acquisition and
could adversely affect the price of our common stock
After this offering, the board of directors will have the authority to issue
up to million shares of preferred stock and, without any further vote or
action on the part of the stockholders, will have the authority to determine
the price, rights, preferences, privileges and restrictions of the preferred
stock. This preferred stock, if issued, might have preference over the rights
of the holders of common stock and could adversely affect the price of our
common stock. Although the issuance of this preferred stock will provide us
with flexibility in connection with possible acquisitions and other corporate
purposes, this issuance may make it more difficult for a third party to acquire
us or to acquire a majority of our outstanding voting stock. We currently have
no plans to issue preferred stock.
Also, our certificate of incorporation, bylaws and equity compensation plans
include provisions that may deter an unsolicited offer to purchase Modus Media.
These provisions, coupled with the provisions of the Delaware General
Corporation Law, may delay or impede a merger, tender offer or proxy contest
involving Modus Media. For example, our board of directors will be divided into
three classes, only one of which will be elected at each annual meeting.
Directors will only be removable by the affirmative vote of at least 66 2/3% of
all classes of voting stock. These factors may further delay or prevent a
change of control of Modus Media.
Purchasers in this offering will suffer immediate and substantial dilution of
their investment
Purchasers of common stock in this offering will pay a price per share which
substantially exceeds the per share value of our assets after subtracting our
liabilities. In addition, purchasers of common stock in this offering will have
contributed approximately % of the aggregate price paid by all purchasers of
our stock but will own only approximately % of our common stock outstanding
after this offering.
14
<PAGE>
The price of our common stock after this offering may be lower than the price
you pay
If you purchase shares of our common stock in this offering, you will pay a
price that was not established in a competitive market. Rather, you will pay a
price that we negotiated with the representatives of the underwriters based
upon a number of factors. The price of our common stock that will prevail in
the market after this offering may be higher or lower than the price you pay.
Our stock price may be highly volatile which could result in substantial losses
for investors purchasing shares in this offering
The trading price of our common stock is likely to be volatile. The stock
market in general, and the market for technology and Internet-related companies
in particular, has experienced extreme volatility. This volatility has often
been unrelated to the operating performance of particular companies. We cannot
be sure that an active public market for our common stock will develop or
continue after this offering. Investors may not be able to sell their common
stock at or above our initial public offering price. Prices for the common
stock will be determined in the marketplace and may be influenced by many
factors, including variations in our financial results, changes in earnings
estimates by industry research analysts, investors' perceptions of us and
general economic, industry and market conditions.
Future sales by existing stockholders could depress the market price of our
common stock
Sales of a substantial number of shares of our common stock in the public
market after this offering could depress the market price of our common stock
and could impair our ability to raise capital through the sale of additional
equity securities. See "Shares Eligible for Future Sale."
Management will have broad discretion as to the use of proceeds of this
offering and may not use these funds effectively
Our management will retain broad discretion to allocate the proceeds of this
offering. Management's failure to apply these funds effectively could have an
adverse effect on our ability to implement our strategy.
We are at risk of securities class action litigation that could result in
substantial costs and divert management's attention and resources
In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. Due to the potential volatility of our stock price, we may be the
target of securities litigation in the future. Securities litigation could
result in substantial costs and divert management's attention and resources.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve substantial
risks and uncertainties. In some cases you can identify these statements by
forward-looking words such as "anticipate," "believe," "could," "estimate,"
"expect," "intend," "may," "should," "will," and "would" or similar words. You
should read statements that contain these words carefully because they discuss
our future expectations, contain projections of our future results of
operations or of our financial position or state other "forward-looking"
information. We believe that it is important to communicate our future
expectations to our investors. However, there may be events in the future that
we are not able to accurately predict or control. The factors listed above in
the section captioned "Risk Factors," as well as any cautionary language in
this prospectus, provide examples of risks, uncertainties and events that may
cause our actual results to differ materially from the expectations we describe
in our forward-looking statements. Before you invest in our common stock, you
should be aware that the occurrence of the events described in these risk
factors and elsewhere in this prospectus could have an adverse effect on our
business, results of operations and financial position.
15
<PAGE>
USE OF PROCEEDS
We expect the net proceeds from our sale of shares of common stock will
be approximately $ at an assumed initial public offering price of $ per
share and after deducting estimated underwriting discounts and our estimated
offering expenses. If the underwriters' over-allotment option is exercised in
full, we estimate that our net proceeds will be approximately $ .
We expect to use a portion of the proceeds to repay a $12.7 million note,
bearing interest at a rate of 9.5% and maturing upon the closing of this
offering, which was issued to R.R. Donnelley in connection with our repurchase
of shares of preferred stock on October 14, 1999. We expect to use the balance
of the proceeds for general corporate purposes, including working capital and
capital expenditures. We may also use portion of the net proceeds to acquire
businesses, products or technologies that are complementary to ours, although
no specific acquisitions are currently planned and no portion of the net
proceeds has been allocated for any acquisition. Pending such uses of the net
proceeds, we intend to invest these proceeds in investment grade, interest-
bearing securities.
DIVIDEND POLICY
We have never paid or declared any cash dividends on our common stock or
other securities and do not anticipate paying cash dividends in the foreseeable
future. We currently intend to retain all of our future earnings, if any, for
use in the operation of our business. In addition, the terms of our credit
facility restrict our ability to pay dividends.
16
<PAGE>
CAPITALIZATION
The following table sets forth our cash and cash equivalents and
capitalization as of September 30, 1999. This information is presented:
. on an actual basis
. on an as adjusted basis to give effect to our receipt of the estimated
proceeds from the sale of shares of common stock we are selling in
this offering at an assumed public offering price of $ per share,
after deducting estimated underwriting discounts and commissions and
offering expenses.
<TABLE>
<CAPTION>
September 30, 1999
---------------------
Actual As Adjusted
-------- -----------
(in thousands)
<S> <C> <C>
Cash and cash equivalents............................ $ 20,385
======== ===
Long-term debt, net of current portion............... $ 7,341
Shareholders equity:
Preferred stock, $.01 par value, with a liquidation
value of $1,000 per share;
Authorized--120,000
Issued and outstanding--71,744 actual; none as
adjusted........................................ 71,744
Common stock, $.01 par value
Authorized--33,000,000 actual; as adjusted
Issued and outstanding--12,821,340 actual; as
adjusted........................................ 128
Additional paid-in capital......................... 23,671
Retained earnings.................................. 7,797
Other comprehensive income (loss).................. (995)
-------- ---
Total shareholders' equity....................... 102,345
-------- ---
Total capitalization........................... $109,686 $
======== ===
</TABLE>
The number of shares of common stock is based on the number of shares
outstanding as of September 30, 1999 and does not include 1,620,470 shares that
could be issued upon the exercise of options outstanding as of September 30,
1999 at a weighted average exercise price of $0.77 per share.
17
<PAGE>
DILUTION
Our net tangible book value as of September 30, 1999, was approximately
$99.3 million or approximately $7.75 per share of common stock. "Net tangible
book value" per share represents the amount of our total tangible assets less
total liabilities, divided by shares of common stock outstanding. After
giving effect to our issuance and sale of the common stock in this offering (at
an assumed initial public offering price of $ per share and after deducting
the estimated underwriting discounts and commissions and our offering
expenses), our net tangible book value as of September 30, 1999 would have been
$ , or $ per share of common stock. This represents an immediate increase in
net tangible book value of $ per share to existing stockholders and an
immediate dilution of $ per share to new investors. The following table
illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................. $
Net tangible book value per share before this offering......... $
----
Increase in net tangible book value per share attributable to
new investors.................................................
----
Net tangible book value per share after this offering............
Dilution per share to new investors..............................
</TABLE>
The following table summarizes the difference between the number of shares
of common stock purchased from us, the total consideration paid to us, and the
average price per share for shares held by existing stockholders and by new
investors (at an assumed initial public offering price of $ per share
before deduction of estimated underwriting discounts and commissions and our
offering expenses):
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ ------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.. 12,821,340 % $23,799,000 % $1.86
New investors..........
---------- ----- ----------- -----
Total................ 100.0% 100.0%
========== ===== =========== =====
</TABLE>
- --------
The table above assumes no exercise of stock options outstanding at ,
1999. As of , 1999, there were options outstanding to purchase
shares of common stock at a weighted average exercise price of $ per share
and shares reserved for future grants under our stock incentive plan. To
the extent any of these options are exercised, there will be further dilution
to new investors. To the extent all of such outstanding options had been
exercised as of , 1999, net tangible book value per share after this
offering would be $ and total dilution per share to new investors would be
$ .
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<PAGE>
SELECTED FINANCIAL DATA
The consolidated statement of operations data for the fiscal years ended
December 31, 1997 and 1998 and the nine months ended September 30, 1999, and
the consolidated balance sheet data at December 31, 1998 and September 30,
1999, are derived from our consolidated financial statements, which have been
audited by Arthur Andersen LLP, our independent public accountants. These
statements are included elsewhere in this prospectus. The consolidated
statement of operations data and consolidated balance sheet data as of and for
the year ended December 31, 1996 and the consolidated balance sheet data at
December 31, 1997 are derived from our audited consolidated financial
statements, which are not included in this prospectus. The consolidated
statement of operations data and consolidated balance sheet data as of and for
the year ended December 31, 1995 and the consolidated statement of operations
data for the nine months ended September 30, 1998 are derived from our
unaudited consolidated financial statements, which are not included elsewhere
in this prospectus. Our unaudited consolidated financial statements have been
prepared on a basis consistent with our audited consolidated financial
statements, and in the opinion of our management, include all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation
of the consolidated results of operations for these periods. Please be advised
that historical results are not necessarily indicative of the results to be
expected in the future, and results of interim periods are not necessarily
indicative of results of the entire year.
The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" and our consolidated financial statements and related notes,
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended December 31, September 30,
------------------------------------------- ------------------------
1995 1996 1997 1998 1998 1999
--------- --------- --------- ----------- ----------- -----------
(in thousands, except share and per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Revenue................. $ 911,500 $ 811,905 $ 684,523 $ 630,082 $ 418,284 $ 506,235
Cost of revenue......... 751,600 712,189 587,685 511,988 342,136 413,295
--------- --------- --------- ----------- ----------- -----------
Gross profit............ 159,900 99,716 96,838 118,094 76,148 92,940
Selling, general and
administrative
expenses............... 120,100 106,508 113,852 100,922 71,061 78,353
Restructuring charges... -- 100,883 -- -- -- --
Operating profit
(loss)................. 39,800 (107,675) (17,014) 17,172 5,087 14,587
Interest expense........ 8,686 9,534 16,478 3,882 3,172 1,821
Other (income) expense,
net.................... 1,600 4,898 (3,649) (1,722) (1,610) 102
--------- --------- --------- ----------- ----------- -----------
Income (loss) before
income taxes........... 29,514 (122,107) (29,843) 15,012 3,525 12,664
Provision (benefit) for
income taxes........... 13,491 (11,011) 2,824 4,265 1,001 3,274
--------- --------- --------- ----------- ----------- -----------
Net income (loss)....... 16,023 (111,096) (32,667) 10,747 2,524 9,390
Preferred stock
dividends ............. -- -- 172 5,922 4,369 4,885
Net income (loss)
available to common
shareholders........... $ -- $ -- $ -- $ 4,825 $ (1,845) $ 4,505
========= ========= ========= =========== =========== ===========
Net income (loss) per
share:
Basic.................. $ -- $ -- $ -- $ 0.38 $ (0.14) $ 0.36
========= ========= ========= =========== =========== ===========
Diluted................ $ -- $ -- $ -- $ 0.37 $ (0.14) $ 0.31
========= ========= ========= =========== =========== ===========
Number of shares used in
per share calculations:
Basic.................. -- -- -- 12,748,733 13,001,593 12,509,622
Diluted................ -- -- -- 13,072,117 13,001,593 14,502,653
Selected Operating Data:
EBITDA (1) ............. $ 74,400 $ (84,373) $ 13,005 $ 37,626 $ 20,677 $ 27,756
Capital expenditures.... 29,200 15,800 34,032 12,307 7,601 11,325
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
As of December 31, As of
------------------------------------ September 30,
1995 1996 1997 1998 1999
-------- -------- -------- -------- -------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet
Data:
Cash and cash equivalents.. $ 2,386 $ 7,857 $ 29,900 $ 8,447 $ 20,385
Working capital (deficit).. 87,733 (1,993) 23,493 43,602 40,658
Total assets............... 394,977 298,071 256,589 291,210 276,966
Long-term debt, net of
current portion........... 41,770 24,363 21,978 21,641 7,341
Total shareholders'
equity.................... 196,133 82,300 80,989 93,052 102,345
</TABLE>
- --------
(1) EBITDA is defined as income from operations before depreciation and
amortization. EBITDA is presented because we believe that EBITDA is a
widely accepted financial indicator of an entity's ability to incur and
service debt. EBITDA should not be considered by an investor as an
alternative to net income or income from operations, as an indicator of our
operating performance or other combined operations or cash flow data
prepared in accordance with generally accepted accounting principles, or as
an alternative to cash flows as a measure of liquidity. Our computation of
EBITDA may differ from similarly titled computations of other companies.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
The following discussion and analysis should be read in conjunction with our
consolidated financial statements and related notes included elsewhere in this
prospectus.
Overview
Background
We are a leading global provider of extended supply chain management
solutions to the technology industry. In 1982, we began as the Documentation
Services Division of R.R. Donnelley & Sons Company, printing and binding
software manuals in the United States. The division's service offerings evolved
to include software manufacturing and the assembly and packaging of diskettes,
manuals and related hardware accessories into kits. Reflecting its
international expansion, the division was renamed Global Software Services in
1993. In April 1995, the division was merged with Corporate Software, Inc., a
reseller of software products, to create Stream International Holdings, Inc.
In late 1996, we restructured our business to become a global provider of
supply chain management solutions to the technology industry and, at the same
time, we began to reduce our offset printing business by closing or selling
certain of our printing facilities. In December 1997, Stream recapitalized and
contributed the assets related to our business to a separate company called
Modus Media International Holdings, Inc. In January 1998, Stream distributed
all of the capital stock of Modus Media to its stockholders and Modus Media
became an independent company.
Revenue
We derive our revenue primarily from:
. content manufacturing solutions; and
. e-fulfillment solutions.
Our content manufacturing solutions consist of supply chain management
services provided to original equipment manufacturers (OEMs) and independent
software vendors (ISVs). These services include procurement, inventory and
materials management, manufacturing, kitting, assembly and fulfillment.
Billings for our content manufacturing solutions consist primarily of
management fees, per transaction fees and incremental fees added to the cost of
the materials we use in manufacturing and assembly.
Our e-fulfillment solutions extend our content manufacturing solutions by
combining them with additional services that support direct interaction with
our clients' customers, who may be end users or retailers. Orders for products
that we provide through these solutions come directly from end users or
retailers rather than from our OEM and ISV clients. E-fulfillment solutions
revenue consists principally of billings to clients, which may be on the basis
of project or development fees or per transaction fees for outsource services,
including e-commerce storefront development, product order telesales and
customer relationship management. While a majority of the orders that we fill
through our e-fulfillment solutions currently are received by telephone or
facsimile, we expect that orders will increasingly be placed over the web as we
develop more e-commerce storefronts for our clients and the Internet becomes a
more prevalent medium for commerce.
Revenue is recognized for our services when the product is shipped or the
service is performed under contracts or purchase orders from our clients.
Components of Costs and Expenses
Cost of revenue primarily includes salaries and benefits for personnel in
our operations groups, costs of billable third-party contractors, materials and
freight charges, depreciation of property, plant and equipment used in
operations, and other occupancy and operating costs. Materials and freight
charges are variable in
21
<PAGE>
nature and consist primarily of CDs, instruction manuals and computer
peripherals such as keyboards and mouses. We expect materials, printing, CD
duplication, packaging and labor costs to continue to be a key component of our
cost of revenue and expenses.
All operating expenses, including expenses attributable to technology
support, human resource management and other administrative functions that are
not allocable to specific client services, are recorded as selling, general and
administrative expenses.
Inventory
We typically purchase components of our clients' products based on contracts
with, or purchase orders from, our clients and, in some cases, on our clients'
forecasts. At times, we purchase inventory in advance of providing product
assembly, package and fulfillment based on our internal forecasts. We generally
have the right to be reimbursed by our client for unused inventory if purchased
for a contract or a client purchase order. Client-owned inventories are not
reflected on our consolidated balance sheet.
Results of Operations
The following table sets forth for the years ended December 31, 1997 and
1998, and for the nine months ended September 30, 1998 and 1999, the percentage
of consolidated revenue represented by selected items in our consolidated
statements of operations:
<TABLE>
<CAPTION>
Years Ended Nine Months Ended
December 31, September 30,
--------------- ------------------
1997 1998 1998 1999
------ ------ -------- --------
<S> <C> <C> <C> <C>
Revenue.................................... 100.0% 100.0% 100.0% 100.0%
Cost of revenue............................ 85.9 81.3 81.8 81.6
------ ------ -------- --------
Gross profit............................. 14.1 18.7 18.2 18.4
Operating expenses:
Selling, general and administrative...... 16.6 16.0 17.0 15.5
------ ------ -------- --------
Operating income (loss)................ (2.5) 2.7 1.2 2.9
Other expense (income):
Interest expense......................... 2.4 0.6 0.8 0.4
Other (income) expense, net.............. (0.5) (0.3) (0.4) --
------ ------ -------- --------
Income (loss) before taxes............. (4.4) 2.4 0.8 2.5
Provision for income taxes................. 0.4 0.7 0.2 0.6
------ ------ -------- --------
Net income (loss)........................ (4.8)% 1.7% 0.6% 1.9%
====== ====== ======== ========
</TABLE>
Nine Months Ended September 30, 1999 as Compared to Nine Months Ended September
30, 1998
Revenue
Revenue increased $87.9 million, or 21.0%, to $506.2 million for the nine
months ended September 30, 1999 from $418.3 million for the nine months ended
September 30, 1998. This increase was comprised primarily of a 27.9% increase
in revenue from content manufacturing solutions, and a 17.6% increase in
revenue from e-fulfillment solutions offset by a 55.7% decrease in revenue from
offset printing and a deconsolidation of our Japanese and Korean subsidiaries.
As a percentage of revenue during these periods, revenue from content
manufacturing solutions increased from 71.0% to 75.1%, e-fulfillment solutions
revenue decreased from 23.7% to 23.0% and revenue from print services decreased
from 5.3% to 1.9%. Growth in revenue came primarily from new clients and from a
general increase in the demand for our services as a result of continued strong
PC demand and, to a lesser extent, expanding business with existing clients.
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<PAGE>
In December 1998, we sold all of the assets of our wholly owned Korean
subsidiary to Modus Media Korea Ltd. for a 20% equity interest. Additionally,
in December 1998, we sold certain assets from our wholly owned Japanese
subsidiary, Modus Media International Kabushiki Kaisha, to Sasatoku Donnelley
KK and reduced our equity interest in Sasatoku Donnelley from 60% to 40%. In
1998, we consolidated the results of operations of our Korean and Japanese
subsidiaries and, in 1999, we accounted for these entities under the equity
method as minority owned investments. Therefore, our results of operations for
the nine months ended September 30, 1998 include revenue of the Japanese and
Korean joint ventures of $27.5 million; while the results of operations for the
nine months ended September 30, 1999 do not include revenue of the Japanese and
Korean joint ventures.
Cost of Revenue
Cost of revenue increased $71.2 million, or 20.8%, to $413.3 million for the
nine months ended September 30, 1999 from $342.1 million for the nine months
ended September 30, 1998. This increase in costs is comprised of salaries and
benefits, materials and other costs directly related to the increase in
services provided to our clients. As a percentage of revenue, cost of revenue
was relatively unchanged at 81.6% for the nine months ended September 30, 1999
as compared to 81.8% during the same period of 1998.
Gross Profit
As a result of the foregoing factors, gross profit increased $16.8 million,
or 22.1%, to $92.9 million for the nine months ended September 30, 1999 from
$76.1 million for the nine months ended September 30, 1998. As a percentage of
revenue, gross profit increased to 18.4% for the nine months ended September
30, 1999 as compared to 18.2% for the nine months ended September 30, 1998.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $7.3 million, or
10.3%, to $78.4 million for the nine months ended September 30, 1999 from $71.1
million for the nine months ended September 30, 1998. This increase was
primarily attributable to increased staffing and investments in marketing and
information technology to support the continued development of business
solutions for our clients, as well as expenses related to human resources,
including the initiation of our corporate training program, called MMI
University. As a percentage of revenue, selling, general and administrative
expenses decreased to 15.5% for the nine months ended September 30, 1999, as
compared to 17.0% during the same period of 1998. The decline of these expenses
as a percentage of revenue primarily reflects the spreading of these costs over
a larger revenue base.
Interest Expense
Interest expense decreased $1.4 million to $1.8 million for the nine months
ended September 30, 1999 from $3.2 million for the nine months ended September
30, 1998, reflecting a reduction in the average outstanding debt balances,
including capital leases.
Other Income, Net
Other expense was $0.1 million for the nine months ended September 30, 1999
versus other income of $1.6 million for the nine months ended September 30,
1998. This change is primarily related to a $2.1 million gain on the sale of an
investment in a CD replication company recorded in 1998.
Income Taxes
The effective tax rate for the nine months ended September 30, 1999 was
25.9% versus 28.4% for the nine months ended September 30, 1998. The decrease
in the effective tax rates resulted primarily from changes in the geographical
distribution of income and losses. The effective tax rates for the nine months
ended September 30, 1999 and 1998 were lower than the federal statutory rate
primarily due to the Company's continued expansion into markets with lower tax
rates.
23
<PAGE>
Year Ended December 31, 1998 as Compared to Year Ended December 31, 1997
Revenue
Revenue decreased $54.4 million, or 8.0%, to $630.1 million for 1998 from
$684.5 million for 1997. This decrease was comprised primarily of a 7.3%
decrease in revenue from content manufacturing solutions, a 2.0% decrease in
revenue from e-fulfillment solutions and a 34.5% decrease in revenue from
offset printing. The decrease in revenue is primarily related to severe
economic conditions and resulting weaker currencies in Asia as well as the
elimination of unprofitable offset print businesses in North America. As a
percentage of revenue, revenue from content manufacturing solutions increased
from 72.7% in 1997 to 73.3% in 1998, revenue from e-fulfillment solutions
increased from 20.8% in 1997 to 22.2% in 1998 and revenue from offset printing
decreased from 6.5% in 1997 to 4.5% in 1998.
Cost of Revenue
Cost of revenue decreased $75.7 million, or 12.9%, to $512.0 million in 1998
from $587.7 million in 1997. As a percentage of revenue, cost of revenue
decreased to 81.3% in 1998 from 85.9% in 1997. The lower cost as a percentage
of revenue primarily reflects lower revenue in the offset print business, which
has higher costs as a percentage of revenue. In addition, cost of revenue was
decreased by our productivity initiatives, such as increased automation, and
programs to reduce fixed operating costs.
Gross Profit
As a result of the foregoing factors, gross profit increased by $21.3
million, or 22.0%, to $118.1 in 1998 from $96.8 million in 1997. Gross profit
as a percentage of revenue increased to 18.7% as compared to 14.1% during these
periods.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased by $12.9 million, or
11.4%, to $100.9 million for 1998 from $113.9 million for 1997. This decrease
reflects the elimination of costs associated with the discontinuation of offset
printing operations in North America. The decrease also reflects the impact of
an $8.0 million charge for the write-off of accounts receivable in 1997 which
was associated with discontinuing the relationship with a former client in
1996. As a percentage of consolidated revenue, selling, general and
administrative expenses decreased to 16.0% in 1998 as compared to 16.6% in
1997.
Interest Expense
Interest expense decreased $12.6 million to $3.9 million for 1998 from $16.5
million for 1997. The decrease in interest expense was primarily attributable
to a reduction in indebtedness arising from exchanging our debt to our former
parent company, R.R. Donnelley & Sons Company, for preferred stock. In
connection with this exchange, we established a new credit facility and
discontinued our practice of factoring accounts receivable in North America.
During 1997, interest expense included $9.4 million on indebtedness to R.R.
Donnelley and $3.5 million on the factoring of receivables.
Other Income, Net
Other income decreased $1.9 million to $1.7 million for 1998 from $3.6
million for 1997. This decrease reflects foreign currency losses recorded in
1998, primarily in Asia, in contrast to the foreign currency gains recorded in
1997. In 1998, the foreign currency losses were partially offset by a $2.1
million gain on the sale of an investment.
24
<PAGE>
Income Taxes
The effective tax rate for 1998 was 28.4% versus 9.5% for 1997. The increase
in the effective tax rates resulted primarily from changes in the geographical
distribution of income and losses. The effective tax rates for 1998 and 1997
were lower than the federal statutory rate primarily due to our continued
expansion into markets with lower tax rates.
Quarterly Results of Operations
The following table sets forth selected unaudited statement of operations
data for our most recent seven quarterly periods. The lower table presents this
data as a percentage of revenue. The unaudited quarterly information has been
prepared on the same basis as the annual information and, in the opinion of our
management, includes all adjustments necessary to present fairly the
information for the quarters presented.
<TABLE>
<CAPTION>
1998 Quarters Ended 1999 Quarters Ended
---------------------------------------- ----------------------------
March 31 June 30 Sept 30 Dec 31 March 31 June 30 Sept 30
-------- -------- -------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue................. $139,377 $135,892 $143,015 $211,798 $157,492 $172,674 $176,069
Cost of revenue......... 116,614 111,918 113,605 169,851 129,407 142,191 141,697
-------- -------- -------- -------- -------- -------- --------
Gross profit............ 22,763 23,974 29,410 41,947 28,085 30,483 34,372
SG&A expenses........... 22,579 23,078 25,403 29,862 25,799 25,368 27,186
-------- -------- -------- -------- -------- -------- --------
Operating income........ 184 896 4,007 12,085 2,286 5,115 7,186
Other expense (income),
net.................... 1,347 1,309 (1,092) 596 691 1,041 191
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
taxes.................. (1,163) (413) 5,099 11,489 1,595 4,074 6,995
Provision for income
taxes.................. (329) (117) 1,448 3,263 408 1,138 1,728
-------- -------- -------- -------- -------- -------- --------
Net income (loss)..... $ (834) $ (296) $ 3,651 $ 8,226 $ 1,187 $ 2,936 $ 5,267
======== ======== ======== ======== ======== ======== ========
<CAPTION>
1998 Quarters Ended 1999 Quarters Ended
---------------------------------------- ----------------------------
March 31 June 30 Sept 30 Dec 31 March 31 June 30 Sept 30
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue......... 83.7 82.4 79.4 80.2 82.2 82.3 80.5
-------- -------- -------- -------- -------- -------- --------
Gross profit............ 16.3 17.6 20.6 19.8 17.8 17.7 19.5
SG&A expenses........... 16.2 17.0 17.8 14.1 16.4 14.7 15.4
-------- -------- -------- -------- -------- -------- --------
Operating income........ 0.1 0.6 2.8 5.7 1.4 3.0 4.1
Other expense (income),
net.................... 0.9 0.9 (0.8) 0.3 0.4 0.6 0.1
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
taxes.................. (0.8) (0.3) 3.6 5.4 1.0 2.4 4.0
Provision for income
taxes.................. (0.2) (0.1) 1.0 1.5 0.3 0.7 1.0
-------- -------- -------- -------- -------- -------- --------
Net income (loss)..... (0.6)% (0.2)% 2.6% 3.9% 0.7% 1.7% 3.0%
======== ======== ======== ======== ======== ======== ========
</TABLE>
We have historically experienced stronger revenue and earnings in the fourth
quarter. This is largely the result of strong fourth quarter personal computer
hardware and software sales associated with new product launches and holiday
season purchase activity. In addition, we typically experience better operating
efficiencies and gross profit in the third and fourth quarters resulting from
spreading increased revenue over fixed costs. Other factors that may affect the
quarterly results include the following:
. the demand for our products and services;
. the level of product and price competition that we encounter, including
the frequency of changes in pricing policies;
25
<PAGE>
. timing of new product introductions and product enhancements by us or
our competitors; and
. our ability to attract, train and retain qualified personnel in all
areas of our business.
Liquidity and Capital Resources
We have funded our operations and capital expenditures primarily through
cash flows from operations, borrowings under various lines of credit and
capital lease arrangements. Currently, we have available an asset-backed
revolving line of credit of $130 million, secured by selected accounts
receivable, inventory and fixed assets on a borrowing-base formula. This credit
line expires on December 17, 2001. Borrowings under the line of credit bear
interest at rates based on either LIBOR, the lenders' prime rate or the federal
funds rate, plus an applicable margin, with commitment fees on the unused
portion. At September 30, 1999, the borrowing base was $82.1 million and no
borrowings were outstanding. We are required to meet certain financial
covenants and, as of September 30, 1999, we were in compliance with all of
these covenants.
We have entered into several capital leases that are payable under various
terms through 2008. At September 30, 1999, the outstanding lease obligations
were $4.4 million.
Cash provided by operating activities increased by $47.6 million to $38.2
million for the nine months ended September 30, 1999 from $9.4 million used in
operations for the same period of 1998. This increase is mainly attributable to
a decrease in receivables resulting from improved collection efforts. Cash used
in operating activities decreased $59.3 million to $6.4 million in 1998 from
$52.9 million provided by operations for the same period of 1997. The decrease
was attributable to higher working capital requirements resulting from an
increase in receivables caused by the discontinuation of our factoring
arrangement with R.R. Donnelley, offset by an increase in net income.
Cash used in investing activities increased $7.0 million to $11.2 million
for the nine months ended September 30, 1999 from $4.2 million used in
investing activities for the same period of 1998. This increase is attributable
to the increased level of investment in capital improvements such as factory
automation, facility expansion, and installation of an upgraded ERP system. In
addition, 1998's activity reflected $3.3 million in proceeds from the sale of
our investment in a CD-ROM manufacturing company. Cash used in investing
activities decreased $13.4 million to $8.9 million in 1998 from $22.3 million
in 1997. The higher 1997 investment in capital reflects the expansion of
facilities in Ireland and investments in on-demand print equipment in Europe
and Asia.
Cash used in financing activities increased $10.0 million to $14.4 million
for the nine months ended September 30, 1999 from $4.4 million for the same
period of 1998. Cash used in financing activities during 1998 decreased $5.7
million to $5.8 million in 1998 from $11.5 million in 1997. The usage of cash
primarily reflects the pay down of bank debt and capital lease obligations.
Subsequent to September 30, 1999, we repurchased all of our outstanding
preferred stock, which had an aggregate redemption value of $71.7 million, for
$60.2 million. We funded the repurchase with $10.0 million in cash, a note for
$12.7 million and $37.5 million of our existing credit line. We also
repurchased 949,812 outstanding shares of our common stock for a total of $9.8
million.
We believe our current cash and cash equivalents, net proceeds from this
offering, anticipated cash flows from future operations and existing credit
facilities will be sufficient to support our operations, capital expenditures
and various repayment obligations under our debt and lease agreements for the
next 12 months. However, if funds generated from these sources are insufficient
to satisfy our liquidity requirements, we will be required to raise additional
funds through public or private offerings. Such financing may not be available
in amounts or on terms acceptable to us, if at all. If we are unable to obtain
additional financing, we may be required to reduce the scope of our planned
business initiatives, which could harm our business, financial condition and
operating results. Proceeds from this offering will be used, in part, to repay
our outstanding indebtedness.
26
<PAGE>
Year 2000 Readiness Disclosure
The year 2000 issue is the result of computer programs being written using
two digits rather than four digits to define the applicable year. Any systems
that have date sensitive applications may recognize a date using "00" as the
year 1900 rather than the year 2000, which could result in system problems or
failures. Possible year 2000 worst case scenarios include interruption of
significant parts of our business from failures of our and/or third parties'
computer systems. Any such failures may have a material adverse impact on
future results.
Our approach to year 2000 readiness included three main areas:
. Focus on large systems (ERP, finance, email, front-end order entry)
followed by a review of hardware, software, and non-information
technology systems
. Assess vendor and supplier year 2000 readiness
. Engage an independent firm to review our year 2000 readiness plan
As of the end of the third quarter of 1999, we completed an inventory of our
internal IT and non-IT systems, assessed the extent to which these systems will
be affected, determined whether the affected systems should be repaired,
replaced or retired and had begun to develop contingency plans. Our plan was
reviewed by an independent firm.
We have implemented the majority of our remediations and continue to perform
comprehensive tests and to refine contingency plans. Extensive testing has been
performed on major systems and their interfaces according to our plan. During
the balance of 1999, we will work to remedy any year 2000 problems identified
and formulate contingency plans, if appropriate, to reduce risks and exposure
to year 2000 related issues. If we nevertheless experience year 2000 problems,
the results of operations could be materially affected.
As of the end of the third quarter of 1999, we completed an inventory of our
vendors of goods and services. We mailed surveys to these vendors, evaluated
their responses and sent follow-up letters, as necessary. Further, we performed
year 2000 readiness audits of selected key vendors. We have also developed
mitigation and contingency plans for those vendors that are considered critical
to our business operations. These plans, the intent of which is to reduce the
risk of year 2000 business interruption, were substantially complete through
September 30, 1999, but will require ongoing maintenance in relation to
business changes.
During 1999, we substantially completed installing enterprise resource
planning systems in each of our solution centers in order to facilitate year
2000 readiness. Based on our ongoing evaluation of the installation process, we
do not anticipate significant business interruption, although we can give no
assurance that such interruption will not occur.
Recent Accounting Pronouncements
The Financial Accounting Standards Board (FASB) issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. We are required
to adopt SFAS No. 133, as amended by SFAS No. 137, no later than fiscal year
2001. This statement establishes accounting and reporting standards requiring
that every derivative instrument (including certain derivative instruments
embedded in other contracts) be recorded in the balance sheet as either an
asset or a liability measured at its fair value. SFAS No. 133 requires that
changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. Special accounting for
qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
formally document, designate and assess the effectiveness of transactions that
receive hedge accounting. We plan to adopt this statement in fiscal year 2001.
27
<PAGE>
Our management does not believe that the adoption of SFAS No. 133 will have a
material effect on our financial position or results of operations.
Quantitative and Qualitative Disclosure About Market Risk
We are subject to market risk associated with changes in interest rates and
foreign currency exchange rates. Our interest rate exposure is primarily
related to borrowings under our line of credit under which the interest rate
floats with the market. At September 30, 1999, we had no borrowings under the
line.
We are subject to market risk associated with changes in foreign currency
exchange rates. Over 50% of our revenues are derived from international
operations. We currently do not act to mitigate our foreign currency rate risk
although we are considering entering into contracts to do so.
28
<PAGE>
BUSINESS
We are a leading, global provider of extended supply chain management
services for the technology industry. We provide a broad range of outsource
services that include content management, software manufacturing, hardware
assembly and order fulfillment. In addition, our services extend to front-end
e-commerce and response center order processing as well as back-end financial
management, reporting and customer care. We have been in operation since 1982
and have built a worldwide infrastructure in 12 countries, consisting of 20
solution centers and over 4,500 people. Our clients include original equipment
manufacturers such as Compaq, Dell, Hewlett Packard, IBM and Sun Microsystems;
independent software vendors, such as Intuit, Microsoft, Network Associates and
Novell; and leading consumer electronics, telecommunications and Internet
companies such as Sony, AT&T, E-Stamp and Beyond.com. The length of our
relationships with our five leading clients, based on 1999 revenue, has
averaged over ten years.
Industry Overview
The market for business process outsourcing has evolved as companies have
increasingly sought to outsource critical non-core functions so that they can
focus on their core competencies. In the early phase of outsourcing, companies
contracted with third-party manufacturers to perform basic production and
fulfillment processes. More recently, market demands for increased productivity
have led companies to outsource additional business processes to external
providers whose core competencies include those processes. Technology
companies, in particular, have increasingly sought to outsource the business
processes involved in their extended supply chains. The supply chain consists
of the many steps that must occur between the sourcing of materials for a
product to the delivery of that product. These steps include forecasting,
procurement, materials management, manufacturing and assembly, order
fulfillment and distribution. The extended supply chain also includes e-
commerce support services and order management at the front end and customer
care, financial transaction management and reporting at the back end.
The goal of extended supply chain management is to link supply and demand as
closely as possible in order to reduce costs, minimize business risk and better
meet client expectations for performance and quality. By outsourcing one or
more business processes in the extended supply chain, companies seek not merely
to improve their productivity and efficiency, but also to use the outsourced
business processes as a critical part of their overall competitive strategy. In
performing multiple steps of the extended supply chain for its clients, the
outsource provider can expand its role from that of a contractor supplying
products on a transactional basis to that of a business partner whose services
help the client achieve its strategic objectives.
Outsourcing Trends
According to G2R, Inc., a subsidiary of Gartner Group, the market for supply
chain management outsourcing is estimated to grow from $17.0 billion in 1998 to
$42.2 billion in 2003, representing a compound annual growth rate of 20%.
Demand for extended supply chain management services is increasing due to the
following market trends:
. Increased Focus On Core Competencies. The rapid pace of technological
change is resulting in shorter product life cycles, which require
companies to devote more resources to product innovation and
development. By taking advantage of the expertise and technology
infrastructures of outsource providers, companies can focus their own
resources on their core competencies such as product development and
marketing activities and significantly improve their new product
introduction and delivery cycles.
. Increasing Competitive Pressures. As competitive pressures drive down
prices and require improved product performance, companies must improve
their operating efficiencies to maintain or increase profitability.
Companies can reduce their costs by relying on outsource providers, who
can leverage the cost of their infrastructure across multiple products
and clients. In addition, outsource providers
29
<PAGE>
can sell directly to retailers and end users, bypassing the traditional
model of selling to distributors. Direct sales eliminate the costs of a
middleman and provide a manufacturer with valuable end user information.
. Need for Global Capabilities. As companies seek to expand into new
markets, and as the Internet offers the opportunity to reach clients
cost-effectively throughout the world, there is increasing demand for
experienced outsource providers who can offer production and fulfillment
capabilities on a global basis. Companies having or seeking a global
presence need outsource partners who can support their product offerings
and coordinate supply with demand across all geographic markets.
. Need to Improve Customer Satisfaction. To satisfy customer demand for
higher levels of service, companies are providing faster and more
accurate delivery and better customer care programs. Because many
companies are unable to efficiently provide customer care on a global
basis, they are increasingly relying on outsource providers for customer
relationship management.
. Mass Customization. End-users can now order both hardware and software
products that are custom-configured to meet their particular
requirements. For example, end users typically order personal computers
with different keyboard, storage device and memory options and with
different combinations of installed software. Companies selling these
products are thus faced with the challenge of supplying customized
products both quickly and in large or small quantities. To meet this
challenge, companies are increasingly relying on outsource providers
that have the capability to manage the product inventories and software
content necessary to satisfy end-users' build-to-order requirements.
e-Commerce Trends
The growth of e-commerce is also contributing to increased demand for
business process outsourcing. While e-commerce companies typically have core
competencies in on-line merchandising and brand marketing, they often do not
have the capability to provide end-to-end e-commerce solutions that extend to
business processes such as order processing, procurement, materials
management, manufacturing and assembly, fulfillment and customer care. For
example, Jupiter Communications estimates that 46% of e-commerce web sites
lack real-time integration with an inventory management system, 44% lack real-
time integration with call center support and 41% lack real-time integration
with a fulfillment system.
Unlike in the traditional distribution model in which the outsource
provider receives orders from the vendor, in the e-commerce model the
outsource provider receives orders directly from retailers or end users. The
fulfillment of orders placed over the Internet is particularly complex because
e-commerce businesses typically facilitate and encourage end users to
customize their orders. Adding to this complexity, end users purchasing
products through web sites expect that order processing and product delivery
will occur with speed and accuracy. The complexity of commerce on the Internet
creates an opportunity for outsource providers to manage the extended supply
chain for the e-commerce merchant and solidify the merchant's relationships
with its customers. The outsource provider can thus provide an end-to-end
solution and play a critical role in the e-commerce merchant's competitive
strategy.
Outsource Services
In order to meet the needs of both traditional vendors and emerging e-
commerce vendors for the outsourcing of extended supply chain management
processes, an outsource provider must be able to offer services in one or more
of the following areas:
. e-Commerce Support Services, which include website design, storefront
development, transaction management and real-time connection to
fulfillment operations;
. Procurement and Materials Management, which includes procuring materials
at low cost on a just-in-time basis and optimizing levels of inventory
so that a client's production requirements can be met without running
out of stock and with minimal inventory risk;
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<PAGE>
. Manufacturing, which includes producing the ordered products quickly and
accurately, and scaling production to meet planned and unplanned changes
in demand;
. Fulfillment, which includes all of the steps necessary to execute a
transaction, ranging from taking orders to arranging for delivery of the
ordered products quickly and to the correct destination; and
. Customer Relationship Management, which includes providing reliable and
timely information regarding the shipment and status of ordered products
and answering customer questions regarding orders, shipping, billing,
returns and product information.
While many outsource providers offer one or more of these services, there
are few providers that can offer all of these services on a globally integrated
basis. Companies seeking to outsource a significant portion of their business
processes require a provider that has the technological infrastructure and
expertise to seamlessly integrate these complex business processes with their
own operations. Also, because the outsource provider is often a direct link
between two of the most valuable assets of a company, namely its products and
its customers, the outsource provider must have the experience and expertise
necessary to earn and maintain the trust of the company as a reliable and
integral part of its supply chain.
The Modus Media Solution
We offer a broad range of extended supply chain management services that
enable our clients to focus on their core competencies, improve their
productivity and efficiency and tailor their supply chain processes to achieve
competitive differentiation. The Modus Media solution includes the following:
. Integrated Services. We establish strategic relationships with our
clients by providing a full range of integrated services that satisfy
our clients' supply chain management requirements. Our broad portfolio
of services provide a "one-stop shop" to which the client can outsource
its business processes, including e-commerce support services, content
management, procurement, materials management, manufacturing and
assembly, fulfillment and customer relationship management. By providing
an integrated end-to-end solution, we are able to help clients link
supply and demand in real time and thus reduce costs and improve
performance throughout their supply chain. We also offer our clients the
option of choosing individual services to suit their particular needs.
. Global Presence. We have built a worldwide infrastructure in 12
countries, consisting of 20 solution centers, which enables us to offer
production and fulfillment capabilities on a global basis. These centers
are connected by a wide area network and use common technology to store
clients' software content and other intellectual property. Through this
network and standard architecture, we can support simultaneous product
launches in multiple languages and in multiple geographic markets.
. Management of Complex Business Processes. Our experience in designing
and re-engineering supply chain processes provides us with a significant
knowledge base that we use to optimize these processes for our clients.
Our supply chain processes are supplemented by sophisticated information
technologies. Our information technology (IT) infrastructure is built
upon an enterprise resource planning (ERP) system that has been designed
to be flexible so that we can easily modify our supply chain processes
to meet the evolving requirements of our clients. This IT infrastructure
also enables us to provide the complex business processes required to
produce and deliver customized build-to-order hardware and software
products for e-commerce businesses.
. Flexible Production Capacity. Leading OEMs and ISVs increasingly seek to
outsource large-scale manufacturing and assembly programs. These
companies often experience both expected and unexpected surges in
demand, such as upon the introduction of a new product release or
following a special advertising campaign. Our production facilities
throughout the world enable us to meet our clients' time-to-market and
volume requirements during periods of varying demand. In addition, by
shortening production cycles, we can reduce our clients' inventory
requirements and overall production costs. We also use internal
forecasts to anticipate client demand and employ a skilled temporary
labor force to provide quick ramp-ups and ramp-downs in production.
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<PAGE>
. Proven Supply Chain Partner. We have substantial experience in supply
chain management and believe that we have established over this period a
reputation as a trusted part of our clients' supply chain operations. To
maintain our long-term relationships, we must consistently meet their
stringent performance requirements in areas such as inventory turns,
order fill rates and product quality. To strengthen our client
relationships, we have organized our 470 business managers by client and
solution center, with groups of managers representing the same client in
multiple centers. The length of our relationships with our five leading
clients, based on 1999 revenue, has averaged over ten years.
. Management of Content Across Multiple Media. We have implemented a
content management and production system that enables us to store
electronically millions of data files and images that we use to produce
products on demand. Our print on demand capability reduces or eliminates
obsolescence of paper-based media while also enhancing the client's
ability to customize products for specific end users. We also have the
capability to manage and supply content such as software on multiple
types of media, such as diskettes and CDs. In addition, we can manage
complex software licensing programs, including electronic licensing
programs in which we deliver keys over the Internet to enable licensed
users to gain access to installed software.
Strategy
Our objective is to increase revenues and earnings by maintaining and
enhancing our position as a leading, global provider of extended supply chain
management solutions for the technology industry. We believe that we can take
advantage of the market trends towards shorter product life cycles, mass
customization and growth of e-commerce by implementing the following
strategies:
Grow e-Fulfillment Solutions Business. We believe that we have significant
opportunities to expand our e-fulfillment solutions business. E-fulfillment
solutions allow us to expand upon our content manufacturing solutions and to
take on the role of designing, implementing and executing a wider array of
services, including web storefront development, response center and electronic
order processing, fulfillment, financial transaction management, electronic
license distribution and customer relationship management services.
Expand Services to Existing Clients. We have long-standing relationships
with many leading OEMs and ISVs and we believe that they will continue to seek
extended supply chain optimization. We believe that we can take advantage of
the trend toward increasing outsourcing and that we can provide services across
a larger part of our clients' extended supply chain. We plan to continue to
develop and market new offerings and solutions and to provide expanded content
manufacturing and e-fulfillment solutions to our existing clients.
Leverage Global Presence and Information Technology Infrastructure. We offer
significant global capabilities to service the needs of multinational companies
who seek reduced time to market, integrated product introductions, localized
customization and efficient inventory and logistics management. We believe that
our continued implementation of process technologies and just-in-time
manufacturing across our global network of solution centers will provide
important strategic and competitive advantages in the market for globally
integrated, outsourced services. We believe that our ability to offer a single
point of contact, when combined with our globally distributed solutions
centers, is highly valued.
Continue to Achieve High Ratings in Outsourcing Industry Performance
Measurements. We have built our corporate culture on operational efficiency and
excellence. The outsourcing industry has typically benchmarked the performance
of outsource providers using recognized performance measures, such as total
supply chain management cost, upside production flexibility, cash-to-cash cycle
time and delivery performance. We believe that we have performed favorably when
measured against these industry standards and, as a result, that we have
established a reputation as a trusted part of our clients' supply chain. We
believe clients in this industry will continue to place significant importance
on these measurements and we seek to continue to achieve high ratings in
performance measurements for the outsourcing industry.
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Improve Our Financial Returns from Scalable, Higher Productivity
Operations. By maintaining our commitment to technology and by managing our
infrastructure investments and service offering mix, we seek to reduce our
costs, promote operating efficiencies and improve financial returns. In
particular, we seek to provide our clients with high value-added e-fulfillment
services, which generally provide us with improved operating margins. In
addition, we intend to leverage increased revenue over our fixed costs through
the use of temporary employees during peak periods. We seek to use our best of
class operations knowledge and strategic procurement relationships across all
of our solutions centers to achieve improved operating margins and financial
results.
Pursue Select, High-Growth Markets and Expand Client Base. We intend to
pursue clients in addressable high-growth market segments, such as e-commerce
and telecommunications, that are outsourcing their critical non-core
activities. We intend to capitalize on our full range of integrated supply
chain management services to attract clients in these high growth markets and
expand and diversify our client base.
Pursue Strategic Acquisitions. We intend to pursue strategic acquisitions
that will provide us with additional industry expertise, enhance our range of
service offerings, expand our capacity, broaden our client base and expand our
geographical presence. As outsourcing trends require more significant global
and technological capabilities, providers who do not offer a full range of
services are seeking strategic partners. We believe that we can take advantage
of the trend toward consolidation through strategic acquisitions.
Modus Media Services
We offer our clients a diversified range of services to address their
extended supply chain management needs. Our services can be deployed either as
independent solutions to address specific needs within the extended supply
chain or as an end-to-end integrated solution to manage the entire extended
supply chain. Our solutions are depicted in the diagram below.
[GRAPH OF EXTENDED SUPPLY CHAIN MANAGEMENT APPEARS HERE]
Content Manufacturing Solutions
Our content manufacturing solutions consist of the following services:
Content Management. We maintain systems that enable us to respond quickly to
frequent changes in our clients' bills of material and rules that dictate the
specific hardware components and software to be included in shipkits for
different product configurations. We also manage the large amount of data files
and images used to produce our clients' software and documentation in multiple
versions. In addition, we track for our clients the different customized
product configurations that are shipped to our clients' customers.
Procurement. We manage the purchase of raw materials and subassemblies from
vendors selected either by our clients or by us. Our procurement management
services include vendor evaluation, product price negotiation, forecasting
product quantities and managing the timing of purchases.
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Materials Management. By integrating our enterprise resource planning system
with client forecasts, we can provide automated inventory management to assure
real-time stock counts of a client's products, documentation and other items.
We also provide to our clients web-based management information, including
pricing information, reorder levels and inventory values, that supports
consistent and timely stock balances.
Manufacturing. We convert content into various media formats that can be
distributed to our clients or directly to the distributor or retailer. This
content is often intellectual property, such as licensed software products that
are distributed to end users in the form of a diskette, CD or manual. Our
manufacturing services handle the conversion of multiple releases or versions
of software content in various media from a broad variety of input formats.
Assembly. We use a streamlined assembly process to incorporate various
components and parts into a finished product or subassembly, referred to as
kitting. For some products, such as a PC shipkit, we assemble as many as 100
distinct parts and components into a kit. We are increasingly employing
automation to realize efficiency, variable cost management and increased
throughput.
Fulfillment and Distribution. Our fulfillment services include order
processing, picking, packing, warehousing and shipping. We use several semi-
automated packaging and labeling lines for our pick and pack operation. We also
streamline and customize the fulfillment procedures based upon each client's
requirements. In addition, our 20 solution centers facilitate compliance with
export regulations and provide regional shipping efficiencies. We provide
detailed reports on our supply chain activities in multiple currencies and
languages.
Microsoft Authorized Replicator. We have authorized replicator status with
Microsoft, which licenses us to replicate its software products for authorized
Microsoft business partners, primarily OEMs. We have been among a limited
number of authorized replicators of Microsoft products since 1991. We have
historically entered into annual contracts with Microsoft, and our current
contract expires in August 2000.
We offer our content manufacturing services to OEMs and ISVs as follows:
OEM Applications. We provide OEMs with a single source for sub- and final-
assembly, packaging and fulfillment for hardware shipkits. These kits contain
many components, such as a mouse, a keyboard, a network interface card and
other accessories. In addition, shipkits contain intellectual property content
such as software, documentation and other printed material. We manufacture or
purchase all components of the kit to be assembled and packaged for
distribution. For sub-assembly services, we send the shipkits directly to the
OEM's production line on a just-in-time basis as one part number to simplify
the client's production process.
OEM Case Study. Our client, a leading OEM, had experienced
significant growth and was challenged to manage the flow of
accessories, software and documentation required by its production
lines. The client found that it had incurred significant excess
inventory of many items and that it had shut down its production line
on numerous occasions due to parts shortages of other components.
These problems led to decreased customer satisfaction and decreased
profitability. We proposed redesigning the OEM's supply chain and
production process. We took over procurement, production and assembly
of all activities associated with the client's shipkit and implemented
a just-in-time manufacturing model. As a result, the OEM's production
line shutdowns have significantly decreased. In addition, the client's
cash conversion cycle has improved because the client is invoiced when
it receives a shipkit.
ISV Applications. We provide ISVs with flexible, just-in-time delivery
programs allowing software shipments to be closely coordinated with our
clients' inventory and distribution requirements. The content of packaged
software products is typically comprised of software replicated on CD or
diskette, printed documentation, registration, licensing and marketing
materials. We provide a single point of contact to coordinate the production of
packaged software products and the on-time supply of bulk orders either to
distributors or direct to retail stores. Our ISV solutions provide large scale
customization and content
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management as well as adherence to local specifications and languages in
different geographic locations. Our ISV solutions allow our clients to continue
to support a large number of concurrent software versions and configurations.
ISV Case Study. Our client, a leading ISV focused on the desktop,
graphic and Internet design marketplace, had accumulated high levels
of obsolete CDs and related inventory due to forecasting volatility,
inefficient distribution management and excessive lead times in the
manufacturing cycle. The client requested that we provide a solution
to reduce inventory levels, shorten manufacturing lead times and
increase inventory turns. We proposed the implementation of an on-
demand manufacturing model, which eliminated a distribution step and
enabled the ISV to ship directly to retail stores. As a result, the
client's lead-time was reduced, inventory levels decreased, inventory
turns increased, the time necessary to fulfill orders decreased and
retailers had more flexibility in merchandising.
e-Fulfillment Applications
Our e-fulfillment solutions consist of an additional set of services that we
combine with our content manufacturing solutions. These services typically
support direct interaction with our clients' customers, who may be either end
users or retailers. We integrate our content manufacturing solutions with
front-end services, such as e-commerce and response center order processing,
and back-end services, such as financial management, reporting and customer
care, which allow us to provide an end-to-end extended supply chain management
solution. Orders for products that we provide through e-fulfillment solutions
come directly from end users or retailers rather than from our OEM and ISV
clients. While a majority of the orders fulfilled through our e-fulfillment
solutions are currently being received by us via telephone or facsimile, we
expect that orders will increasingly be placed over the web as we develop more
e-commerce storefronts for our clients and the Internet becomes a more
prevalent medium for the transaction of commerce. To date, we have built more
than 40 e-commerce sites for our clients, ranging from customer storefronts to
online tracking and order information sites, and in some cases have built
multiple sites for the same client.
Our e-fulfillment solutions include the following services, which we
typically offer in combination with one or more content manufacturing
solutions:
. Web site design, web storefront development and real-time connection of
web sites to fulfillment operations;
. Response centers, including telephone, facsimile, email and web;
. Accounts receivable collection programs;
. Online, multi-currency payment processing;
. End-user support for product inquiries;
. Returns, refunds and rebates processing;
. Reporting on end user activity; and
. Electronic license distribution services.
Orders for products that we fulfill through our e-fulfillment solutions are
handled in one of six response centers located worldwide. As of September 30,
1999, these centers employed approximately 550 response center representatives.
Through these response centers we also handle end-user questions or requests,
and billing or credit card transactions with the end user. Related services
provided for our clients generally include collection activities, management of
databases containing end-user information and transaction-based reporting.
Our electronic license administration services are offered through our Open
Channel Solutions division. This division manages complex software licensing
programs, including electronic licensing programs in which we electronically
deliver keys over the Internet to enable licensed users to gain access to
installed software.
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E-Fulfillment Case Study. Our client, a developer of personal
digital assistants, required a business process outsourcing partner
that offered kitting and assembly combined with call center and web-
based ordering capabilities and a distribution infrastructure in
North America. The client also needed a partner with the flexibility
to handle unforeseen increases in demand. Within four weeks, we
developed a web storefront for the client and, within five weeks,
began accepting orders in our response centers. Using a secured
link, we transmit data across our wide area network so that order
management and fulfillment centers in North America can process
nearly 20,000 orders per month.
Clients
We provide solutions to a broad array of original equipment manufacturers,
independent software vendors and e-commerce companies.
The following chart alphabetically lists a representative sample of our
clients and the solutions that we provide to them.
<TABLE>
<CAPTION>
Client Content Manufacturing Solutions e-Fulfillment Solutions
- ------ ------------------------------- -----------------------
<S> <C> <C>
3Com/Palm Computing..... X X
ABN-AMRO................ X
Acer.................... X
AT&T.................... X
Beyond.com.............. X
Compaq.................. X X
Dell.................... X X
E-Stamp................. X
Gateway................. X
Hewlett-Packard......... X X
IBM..................... X X
Intuit.................. X
Macromedia.............. X
Micron.................. X
Microsoft............... X X
Network Associates...... X X
Novell.................. X X
Packard Bell............ X
Sony.................... X X
Sun Microsystems........ X X
</TABLE>
Technology
We believe that automation of internal processes and automated links to our
suppliers, clients and their customers are critical to our business. To provide
a competitive advantage in meeting our clients' demands, we use advanced
technologies enhanced with proprietary applications and the knowledge and
experience of our management and personnel. Our technology infrastructure is
capable of supporting and automating most supply chain management processes,
including on-demand manufacturing capabilities, electronic license
distribution, integrated product introductions and efficient inventory and
logistics management. In addition, we use a communications infrastructure
consisting of digitally linked data centers, which are capable of supporting
various messaging standards and protocols to ensure secure and effective
communication among our solution centers, our clients and their customers, and
our suppliers.
Our technology infrastructure is based on a modular enterprise resource
planning, or ERP, system. We enhance our ERP system with our proprietary
applications to customize processes for our clients' specific needs
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and to provide comprehensive information on all functions and services. In
1999, we completed an infrastructure upgrade on our ERP system to standardize
our manufacturing, finance and distribution platforms. In addition, this system
has been integrated with other applications and technologies, such as customer
relationship management software and content management servers.
We maintain a frame relay network that has enabled our customers to deliver
production ready masters, bills of materials, and other related work orders by
means of a secure network repository, file transfer protocol and electronic
data interchange. This network and server configuration allows clients to
transfer content over the Internet or via private connections to us, enabling
an orderly workflow for master materials within our own internal network. Our
customers can transmit content and work orders to a single network location,
which processes and retransmits this data to the appropriate solution center
for production and distribution. We enable the movement of content, such as
master files of data and digital images, for printing on demand around the
world.
As of September 30, 1999 we employed 179 information technology
professionals in a range of activities, including network management, web
development, internal support and design.
Sales and Marketing
Our services are sold through a worldwide direct sales force, comprised of
approximately 50 full-time, professional sales executives. We have recently
initiated a Global Client Sales group within our direct sales force that is
designed to provide full-time, focused account teams to our leading global
clients. This Global Client Sales organization is complemented by regional
sales teams that provide geographic sales leadership and account management to
our clients.
We have also invested in product marketing, product development and supply
chain design organizations in order to create, support and advance our selling
effort. Our marketing organization assists in the selling and development of
new offerings and is responsible for lead generation, marketing management,
development and marketing of our services, sales tool development and value-
added consulting services. This organization is leading our continued emphasis
on integrating Internet technologies and e-fulfillment capabilities, as well as
the packaging, positioning and enhancement of our extended supply chain
management solutions.
Competition
We participate in a competitive marketplace. However, we believe that no
single competitor presently offers the same full range of technology-enabled,
global and integrated supply chain management services. We compete against
companies engaged in turnkey printing, hardware assembly, CD and diskette
replication and teleservices. Turnkey printing companies such as Banta,
Quebecor and Printech provide document-intensive supply chain solutions to the
same base of clients we presently serve. Hardware assembly companies such as
Logistix also provide solutions to the same base of clients we serve. CD and
diskette replicators, such as Zomax, Bertelsmann, and Technicolor/Nimbus,
provide media-based solutions. Other competitors have emerged from the
teleservices industry, such as StarTek, Sykes and Convergys. This group of
competitors primarily provides front-end capabilities.
In addition to these large regional and global competitors, we face
competition from numerous local producers and from internal departments of our
clients and prospective clients. Additionally, we expect competition to emerge
from companies engaged in electronic manufacturing services and logistics
services as they attempt to deliver a broader range of services. We compete on
the basis of quality, performance, service levels, global capabilities,
technology, operational efficiency and price.
Operations and Solution Centers
Our operations are organized as a "hub and spoke" platform. The "hubs" are
large solution centers in centralized locations worldwide that have significant
economies of scale and offer a full range of our services.
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The "spokes" are satellite solution centers that perform services, other than
large scale manufacturing, such as on-demand manufacturing and fulfillment on a
just-in-time basis to near-site OEMs and ISVs. We typically start a solution
center with an enabling client and then diversify the client representation to
spread risk.
We operate 20 solution centers worldwide with an aggregate square footage of
approximately 2.0 million. All of our solution centers are leased, other than
Singapore and Kildare, Ireland, which are owned. Set forth below is the
location and size for each of our largest solution centers. Each of these
solution centers provides content manufacturing and e-fulfillment solutions.
<TABLE>
<CAPTION>
Facility Location Area (sq. ft.)
----------------- --------------
<S> <C>
North America:
Fremont, CA................................................ 160,000
Raleigh, NC................................................ 140,400
Lindon, UT................................................. 392,500
Salt Lake City, UT......................................... 126,000
Europe:
Dublin, Ireland............................................ 110,000
Kildare, Ireland........................................... 135,000
Apeldoorn, Netherlands..................................... 217,300
Cumbernauld, Scotland...................................... 140,000
Asia:
Singapore.................................................. 129,000
</TABLE>
We also maintain solution centers in Boise, Idaho; Preston, Washington;
Angers, France; Orleans, France; Limerick, Ireland; Willsborough, Ireland;
Sydney, Australia; Shenzhen, China; Ochiai, Japan; and Taipei, Taiwan. In
addition, we are party to two minority owned joint ventures located in Ebina,
Japan and KeyHeung, Korea. In addition, we maintain approximately 550 seats in
our response centers within these solution centers for the resolution of
questions regarding shipping, billing and technical support as well as a
variety of other questions. All of our North American solution centers are
certified as Client Operations Performance Centers (COPC) and all of our major
solution centers are ISO 9002 certified.
Employees
Our success in recruiting, hiring, and training large numbers of full-time,
skilled employees and obtaining large numbers of temporary employees during
peak client demand periods is critical to our ability to provide high quality
outsourced services. We believe that we maintain good employee relations. As of
September 30, 1999 we employed 4,550 employees. The number of temporary
employees varies significantly during the year due to the seasonal variations
of our business. We believe that the demographics surrounding our solution
centers, and our reputation and compensation package, should allow us to
continue to attract and retain qualified employees.
We are committed to training our employees, and we benchmark our training
investment versus the Fortune 500 on a quarterly basis. In 1999, we initiated a
corporate program, MMI University, in which selected employees receive broad
training in a wide variety of functional areas. We provide in-house training
for client care employees on the features of our clients' products and service
offerings as well as our internal systems.
Intellectual Property
Our operations frequently incorporate proprietary and confidential
information. We rely upon a combination of copyright and trademark laws and
non-disclosure and other intellectual property contractual arrangements to
protect our proprietary rights. We have pending trademark registrations on the
name Modus Media International and our logo in the United States, the United
Kingdom, Benelux, Ireland, France, Australia, China, Malaysia, Singapore,
Taiwan, Japan and Korea. In addition, we have pending registrations as
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to certain other marks in the United States and abroad. We seek to limit
disclosure of our intellectual property by requiring employees and consultants
with access to our proprietary information and the proprietary information of
our clients to execute confidentiality agreements with us and by restricting
access to our source code. Due to rapid technological change, we believe that
factors such as the technological and creative skills of our personnel, new
product developments and enhancements to existing products are more important
than the various legal protections of our technology to establishing and
maintaining a technology leadership position.
Legal Proceedings
We are not a party to any material legal proceeding. We are, from time to
time, a party to litigation arising in the normal course of our business.
Management believes that none of these actions, individually or in the
aggregate, will have a material adverse effect on our financial position or
results of operations.
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MANAGEMENT
Executive Officers and Directors
Our executive officers and directors, and their ages and positions as of
November 30, 1999, are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Terence M. Leahy.............. 43 Chairman of the Board of Directors, Chief
Executive Officer and Director
Richard M. Darer.............. 46 Executive Vice President and Chief Financial
Officer
Patrick G. Donnellan.......... 49 Executive Vice President and Chief Operating
Officer
Ronald Leitch................. 40 Executive Vice President and Chief Process
and Technology Officer
Edward D. Rose................ 37 President, Open Channel Solutions Division
W. Kendale Southerland........ 37 Executive Vice President,
Sales/Marketing/Product Development
Mary L. Wilson................ 48 Senior Vice President, General Counsel and
Secretary
Michael J. Dudich............. 42 Senior Vice President, Human Resources
Linwood A. Lacy, Jr........... 53 Director
Jonathan S. Lavine............ 33 Director
Mark E. Nunnelly.............. 41 Director
Robert F. White............... 48 Director
</TABLE>
Terence M. Leahy has served as our Chairman of the Board and Chief Executive
Officer since December 1997. Mr. Leahy also served as Chief Executive Officer
of Stream International Inc. from 1996 to 1997 and oversaw the restructuring of
Stream into three different companies in 1997. From January 1994 to March 1995,
Mr. Leahy served as business unit president of R.R. Donnelley's Global Software
Services division, which merged with Corporate Software Inc. to create Stream
International Holdings, Inc. in 1995. From 1982 to 1994, Mr. Leahy held various
positions at R.R. Donnelley, including positions at the Global Software
Services division since 1993. Mr. Leahy is a graduate of New York University
Journalism School.
Richard M. Darer has served as our Executive Vice President Chief Financial
Officer since September 1998. Prior to joining Modus Media, Mr. Darer served as
Senior Vice President of Finance and Administration and Chief Financial Officer
of Gensym Corporation, an ERP software and services supplier, from April 1997
to August 1998. From June 1996 to March 1997, Mr. Darer served as Chief
Financial Officer and Vice President of Administration at White Pine Software,
an Internet content software developer. From July 1994 to June 1996, Mr. Darer
served as Corporate Controller of Sequoia Systems and then as its Vice
President, Treasurer and Controller after its merger with Texas Microsystems.
Mr. Darer holds a Bachelor of Science in mathematics from Polytechnic
Institute, a Master of Science in industrial engineering from Northeastern
University, and a Master of Business Administration from Harvard Business
School.
Patrick G. Donnellan has served as our Executive Vice President and Chief
Operating Officer since May 1999. Previously, Mr. Donnellan served as President
of Modus Media/North America from September 1997 to April 1999. From July 1995
to August 1997, Mr. Donnellan served as Vice President of Operations at Stream
International/Europe. From December 1994 to June 1995, Mr. Donnellan served as
Director of Business Development for Stream International. Mr. Donnellan holds
a Bachelor of Arts in mathematics and politics from University College, Galway,
Ireland.
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Ronald Leitch has served as Executive Vice President, Chief Technology and
Process Officer since May 1999. From September 1997 to April 1999, Mr. Leitch
served as President of Modus Media/Europe. From April 1996 to August 1997, Mr.
Leitch served as Vice President and General Manager of Stream
International/Northern Europe. From March 1994 to April 1996, Mr. Leitch served
as Managing Director of the Dutch Operations at R.R. Donnelley's Global
Software Services business unit. Mr. Leitch holds a Post Graduate Diploma in
engineering management from the London School of Business and has a Bachelor of
Science in electronics and computing.
Edward D. Rose has served as President of Open Channel Solutions, a division
of Modus Media, since January 1999. From March 1997 to January 1999, Mr. Rose
served in various other capacities for Modus Media including Chief Technology
Officer and Senior Vice President of Marketing and Product Development.
Previously, Mr. Rose served as Vice President of Electronic Commerce for Stream
International from August 1996 to March 1997. From June 1994 to August 1996,
Mr. Rose served as Vice President of Publishing Technology in R.R. Donnelley's
Financial and Information Services Group. Mr. Rose completed his Bachelor of
Fine Arts with honors at Alfred University and attended the Rochester Institute
of Technology for graduate work in electronic imaging.
W. Kendale Southerland has been Executive Vice President, Sales, Marketing
and Product Development since May 1999. From December 1997 to April 1999, Mr.
Southerland served as President of Modus Media/Asia. From June 1997 to December
1997, Mr. Southerland served as Senior Vice President for Modus Media/South
Asia. From August 1994 to June 1997, Mr. Southerland served as General Manager
for our Singapore operations. From 1990 to 1994, Mr. Southerland held various
positions within the Modus Media organization. Mr. Southerland holds a Bachelor
of Science in industrial management from Georgia Institute of Technology.
Mary L. Wilson has served as our General Counsel since December 1997. Prior
to joining Modus Media, Ms. Wilson served as General Counsel at PictureTel
Corporation, a video conferencing solutions developer, from October 1995 to
June 1997. From September 1992 to October 1995, Ms. Wilson was an attorney in
private practice. Ms. Wilson received her Bachelor of Arts in psychology from
Michigan State University and her Juris Doctor from University of Virginia Law
School.
Michael J. Dudich joined Modus Media as Senior Vice President, Human
Resources in November 1999. From September 1998 to October 1999 Mr. Dudich was
Senior Vice President, Human Resources for Cookson Electronics, a leading
provider of assembly materials, equipment and technology solutions to the
printed circuit board industry. From June 1986 to September 1998, Mr. Dudich
served in various human resource capacities for divisions of General Electric
Company. Mr. Dudich received his Bachelor of Science in industrial management
from the University of Akron.
Linwood A. Lacy, Jr. has been a director of Modus Media since August 1998.
In November 1997, Mr. Lacy retired from Micro Warehouse Incorporated where he
had served as President and Chief Executive Officer since October 1996. From
1989 to May 1996, Mr. Lacy served as the Co-Chairman and Chief Executive
Officer of Ingram Micro, Inc. Mr. Lacy holds a Bachelor of Science in chemical
engineering from the University of Virginia and a Master of Business
Administration from the Darden Graduate School of Business Administration at
the University of Virginia. Mr. Lacy also serves as a director of pcOrder.com,
Entex Information Services, Inc. and Earthlink Networks, Inc.
Jonathan S. Lavine has served as a Director of Modus Media since December
1997. Mr. Lavine joined Bain Capital as an investment executive in 1993 and has
been a Managing Director since 1997. He also has been Chief Investment Officer
of Sankaty Advisors, a fixed income affiliate of Bain Capital since 1997. Prior
to joining Bain Capital, Mr. Lavine worked as a consultant at McKinsey &
Company. Previously, Mr. Lavine worked in the Mergers and Acquisitions
Department of Drexel Burnham Lambert. Mr. Lavine received an Master of Business
Administration from Harvard Business School and a B.A. from Columbia College.
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Mark E. Nunnelly has served as a Director of Modus Media since December
1997. Mr. Nunnelly joined Bain Capital as a General Partner in 1990 and has
served as Managing Director since April 1993. Mr. Nunnelly received a Master of
Business Administration, from Harvard Business School and received a Bachelor
of Arts from Centre College. Mr. Nunnelly is also a member of the board of
directors of Dominos, DoubleClick Inc. and Dade International.
Robert F. White has served as a Director of Modus Media since January 1998.
He has been a Managing Director of Bain Capital since its inception in 1984.
Mr. White received his Master of Business Administration from Harvard Business
School, and a Bachelor of Arts in mathematics and economics from Bowdoin
College. He is also a director of Brookstone, Inc.
Executive Officers
Each officer serves at the discretion of our Board of Directors and holds
office until his successor is elected and qualified or until his earlier
resignation or removal. There are no family relationships among any of our
directors or executive officers.
Election of Directors
Following this offering, the board of directors will be divided into three
classes, each of whose members will serve for a staggered three-year term.
Messrs. Nunnelly and Lavine will serve in the class whose term expires in 2001;
Messrs. Lacy and White will serve in the class whose term expires in 2002; and
Mr. Leahy will serve in the class whose term expires in 2003. Upon the
expiration of the term of a class of directors, directors in such class will be
elected for three-year terms at the annual meeting of stockholders in the year
in which such term expires.
Compensation of Directors
We reimburse non-employee directors for reasonable out-of-pocket expenses
incurred in attending meetings of the board of directors. Mr. Lacy received
stock options totalling 20,000 shares of common stock in each of July and
December 1998 at an exercise price of $.58 per share.
Board Committees
The board of directors has established a Compensation Committee and an Audit
Committee. The Compensation Committee, which consists of and , reviews
executive salaries, administers any bonus, incentive compensation and stock
option plans, and approves the salaries and other benefits of our executive
officers. In addition, the Compensation Committee consults with our management
regarding pension and other benefit plans and our compensation policies and
practices. The Audit Committee, which consists of and , reviews the
professional services provided by our independent accountants, the independence
of such accountants from our management, our annual financial statements and
our system of internal accounting controls. The Audit Committee also reviews
such other matters with respect to our accounting, auditing and financial
reporting practices and procedures as it may find appropriate or may be brought
to its attention.
Executive Compensation
The following table sets forth, for the year ended December 31, 1998, the
cash compensation paid and shares underlying options granted to our:
. Chief Executive Officer; and
. four other most highly compensated executive officers who received
annual compensation in excess of $100,000, referred to collectively as
the Named Executive Officers.
42
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Long-term
Compensation
Annual Compensation(1) Awards
-------------------------------- --------------
Other Annual Shares All Other
Name and Salary Bonus Compensation Underlying Compensation
Principal Position ($) ($) ($) Options (#)(2) ($)
------------------ -------- ---------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
Terence M. Leahy........ $340,000 $1,104,850 $ 0 700,000 $20,741(3)
Chairman of the Board
of Directors and Chief
Executive Officer
Richard M. Darer(4)..... 60,000 75,000 0 100,000 375(5)
Executive Vice
President and Chief
Financial Officer
Patrick G. Donnellan.... 264,774 195,129 144,996(6) 147,500 159,304(7)
Executive Vice
President and Chief
Operating Officer
Ronald Leitch........... 160,390 132,191 0 110,000 50,196(8)
Executive Vice
President and Chief
Process and Technology
Officer
W. Kendale Southerland.. 175,752 140,333 117,645(9) 132,500 207,870(10)
Executive Vice
President,
Sales/Marketing/Product
Development
</TABLE>
- --------
(1) In accordance with the rules of the Securities and Exchange Commission,
the compensation set forth in the table does not include medical, group
life or other benefits which are available to all of our salaried
employees, and certain perquisites and other benefits, securities or
property which do not exceed the lesser of $50,000 or 10% of the person's
salary and bonus shown in the table.
(2) We did not make any restricted stock awards, grant any stock appreciation
rights or make any long-term incentive payments during fiscal 1998 to our
executive officers. Options granted to the Named Executive Officers were
granted at fair market value as determined by the board of directors
based on all factors available to them on the grant date.
(3) Comprised of $2,400 of employee retirement and savings plan matching
payments made by us, $10,498 of insurance premiums paid by us and $7,843
for the buyout of unused vacation time.
(4) Mr. Darer became Executive Vice President and Chief Financial Officer of
Modus Media in August 1998.
(5) Comprised of life insurance premiums paid by us.
(6) Comprised of reimbursements for foreign tax liabilities.
(7) Comprised of a $96,762 payment for foreign service and related expenses,
$7,550 for the buyout of unused vacation time, $500 for tax return
preparation services, $45,000 in pension plan contributions, $8,709 in
relocation expenses and $783 of life insurance premiums paid by us.
(8) Comprised of $29,813 in reimbursements for expenses related to foreign
service and $20,383 in pension contributions.
(9) Comprised of reimbursements for foreign tax liabilities.
(10) Comprised of a $173,946 payment for foreign service and related expenses,
$2,400 of employee retirement and savings plan matching payments made by
us, $34,853 in income from the exercise of non-statutory stock options
and $701 of life insurance premiums paid by us.
43
<PAGE>
Stock Options
The following table contains information concerning the grant of options to
purchase shares of our common stock to each of our Named Executive Officers
during the fiscal year ended December 31, 1998:
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed Annual
Rates of Stock
Appreciation for Option
Individual Grants Term(3)
------------------------------------------------ ------------------------
Number of Percent of
Securities Total Options
Underlying Granted To Exercise
Options Employees in Price Expiration
Name Granted (#) Fiscal Year(1) ($/Sh)(2) Date 5% ($) 10% ($)
---- ----------- -------------- --------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Terence M. Leahy........ 300,000(4) 6.7% $0.58 4/17/08 $ 109,428 $ 277,311
160,000(5) 3.6 0.71 4/21/05 16,979 67,241
120,000(5) 2.7 1.19 4/21/05 0 0
120,000(5) 2.7 1.73 4/21/05 0 0
Richard M. Darer........ 85,000(4) 1.9 0.58 11/11/08 31,005 78,572
15,000(4) 0.3 0.58 12/18/08 5,471 13,866
Patrick G. Donnellan.... 100,000(4) 2.2 0.58 4/17/08 36,476 92,437
27,000(5) 0.6 0.58 8/15/05 4,820 10,792
20,500(5) 0.5 0.58 12/16/06 4,840 11,280
Ronald Leitch........... 100,000(4) 2.2 0.58 4/17/08 36,476 92,437
10,000(5) 0.2 0.58 12/16/06 2,361 5,503
W. Kendale Southerland.. 85,000(4) 1.9 0.58 4/17/08 31,005 78,572
26,000(5) 0.6 0.58 7/19/06 5,628 12,939
9,000(5) 0.2 0.58 8/15/05 1,775 4,028
12,500(5) 0.3 0.58 12/16/06 2,951 6,878
</TABLE>
- --------
(1) Includes options granted to employees of Corporate Software & Technology
and Stream International in connection with the reorganization in which
Stream spun off Modus Media and Corporate Software & Technology to its
stockholders (the "Reorganization").
(2) All options were granted at or above fair market value as determined by the
board of directors on the date of grant.
(3) Amounts reported in these columns represent amounts that may be realized
upon exercise of options immediately prior to the expiration of their term
assuming the specified compounded rates of appreciation (5% and 10%) on our
common stock over the term of the options. The potential realizable values
set forth above do not take into account applicable tax and expense
payments that may be associated with such option exercises. Actual
realizable value, if any, will be dependent on the future price of the
common stock on the actual date of exercise, which may be earlier than the
stated expiration date. The 5% and 10% assumed annualized rates of stock
price appreciation over the exercise period of the options used in the
table above are mandated by the rules of the Commission and do not
represent our estimate or projection of the future price of the common
stock on any date. There is no representation either express or implied
that the stock price appreciation rates for the common stock assumed for
purposes of this table will actually be achieved.
(4) These options typically vest over five years. They are comprised of three
grants. The first grant, representing 40% of the total, becomes
exercisable as it vests. The second and third grants, representing 40% and
20% of the total, become exercisable upon the earliest of (a) seven years
after the date of grant, (b) the closing of an initial public offering or
acquisition meeting certain value thresholds to the extent they are vested
or (c) termination without cause or resignation for good reason following
an acquisition.
(5) Options issued in connection with the Reorganization. Options typically
vest over four years, subject to acceleration upon an acquisition of Modus
Media.
44
<PAGE>
Fiscal Year-End Option Values
The following table sets forth information for each of the Named Executive
Officers with respect to the value of options outstanding as of December 31,
1998.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Value
<TABLE>
<CAPTION>
Shares Number of Securities Value of Unexercised In-The-
Acquired Underlying Unexercised Money Options at
on Value Options at Fiscal Year-End (#) Fiscal Year-End ($)(1)
Exercise Realized ------------------------------ ----------------------------
Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
---- -------- -------- ------------------------------ ----------------------------
<S> <C> <C> <C> <C>
Terence M. Leahy........ 136,000 0 204,000/360,000 0/0
Richard M. Darer........ 0 0 0/100,000 0/0
Patrick G. Donnellan.... 30,500 0 0/117,000 0/0
Ronald Leitch........... 0 0 5,000/105,000 0/0
W. Kendale Southerland.. 29,252 0 0/103,248 0/0
</TABLE>
- --------
(1) There was no public trading market for the common stock as of December 31,
1998. Accordingly, as permitted by the rules of the Commission, these
values have been calculated on the basis of the fair market value of our
common stock as of December 31, 1998, of $0.58 per share, as determined by
the board of directors, less the aggregate exercise price.
Employment Agreements
We have an employment agreement with Terence Leahy, dated January 1, 1998.
The initial term of this agreement expires on December 31, 2000. The agreement
provides that Mr. Leahy will receive a minimum base salary of $340,000 per year
subject to increase by annual review of the board, plus certain performance-
based bonuses. The agreement also provides that if Mr. Leahy is terminated
without cause, or resigns for good reason, he will receive monthly severance
payments, each in an amount equal to his monthly base compensation at the time
of his termination or resignation, until 18 months after such termination or
resignation. In addition, in such circumstances Mr. Leahy will receive a pro-
rated bonus for the number of days employed with us during the year of the
termination or resignation as well as any unpaid portion of any bonus for the
year preceding the year of the termination or resignation.
Benefit Plans
1997 Stock Incentive Plan. Our 1997 Stock Incentive Plan was adopted by our
board of directors and approved by our stockholders in December 1997. Up to
2,800,000 shares of our common stock (subject to adjustment in the event of
stock splits and other similar events) may be issued pursuant to awards granted
under the 1997 plan.
The 1997 plan provides for the grant of incentive stock options intended to
qualify under Section 422 of the Internal Revenue Code, nonstatutory stock
options, restricted stock awards and other stock-based awards.
Our officers, employees, directors, consultants and advisors are eligible to
receive awards under the 1997 plan. Under present law, however, incentive stock
options may be granted only to employees. No participant may receive any award
for more than 900,000 shares in any calendar year.
Optionees receive the right to purchase a specified number of shares of our
common stock at a specified option price and subject to such other terms and
conditions as are specified in connection with the option grant. We may grant
options at an exercise price less than, equal to or greater than the fair
market value of our common stock on the date of grant. Under present law,
incentive stock options and options intended to qualify as performance-based
compensation under Section 162(m) of the Internal Revenue Code may not be
granted at an exercise price less than the fair market value of the common
stock on the date of grant or less than 110% of
45
<PAGE>
the fair market value in the case of incentive stock options granted to
optionees holding more than 10% of the voting power of Modus Media. The 1997
plan permits our board of directors to determine how optionees may pay the
exercise price of their options, including by cash, check or in connection with
a "cashless exercise" through a broker, by surrender to us of shares of common
stock, by delivery to us of a promissory note, or by any combination of the
permitted forms of payments.
As of November 30, 1999 approximately 203 persons would have been eligible
to receive awards under the 1997 plan, including eight executive officers and
one non-employee director. The granting of awards under the 1997 plan is
discretionary.
Our board of directors administers the 1997 plan. Our board of directors has
the authority to adopt, amend and repeal the administrative rules, guidelines
and practices relating to the plan and to interpret its provisions. It may
delegate authority under the 1997 plan to one or more committees of the board
of directors and, subject to certain limitations, to one or more of our
executive officers. Subject to any applicable limitations contained in the 1997
plan, our board of directors or a committee of the board of directors or
executive officer to whom our board of directors delegates authority, as the
case may be, selects the recipients of awards and determines:
. The number of shares of common stock covered by options and the dates
upon which such options become exercisable;
. The exercise price of options;
. The duration of options; and
. The number of shares of common stock subject to any restricted stock or
other stock-based awards and the terms and conditions of such awards,
including the conditions for repurchase, issue price and repurchase
price.
In the event of a merger, liquidation or other acquisition event, our board
of directors may (i) provide that all outstanding options or other stock-based
awards will be assumed or substituted for by the successor corporation on such
terms the board determines to be appropriate, (ii) provide that any outstanding
options or awards will terminate, to the extent unexercised, immediately prior
to consummation of the event, (iii) in the event of a cash transaction, provide
that cash consideration in the amount of the acquisition price less the
exercise price be exchanged for termination of options or awards, (iv) provide
that all restricted stock awards outstanding shall become immediately free of
all restrictions upon consummation of the event, or (v) provide for a cash
payment to participants in the event of a transaction in which stockholders
receive cash in exchange for stock.
No award may be granted under the 1997 plan after December 15, 2007, but the
vesting and effectiveness of awards previously granted may extend beyond that
date. Our board of directors may at any time amend, suspend or terminate the
1997 plan, except that no award granted after an amendment of the 1997 plan and
designated as subject to Section 162(m) of the Internal Revenue Code by our
board of directors shall become exercisable, realizable or vested, to the
extent the amendment was required to grant the award, unless and until the
amendment is approved by our stockholders.
The 1999 Management Incentive Plan
Our 1999 Management Incentive Plan was adopted by our board of directors in
January 1999. The objective of the 1999 Management Incentive Plan is to
recognize and reward the achievement of financial and business goals by
management and certain other key employees. The program, in conjunction with
base salary, is designed to offer total cash compensation opportunities that
are competitive with market levels. Eligible employees are assigned a target
payout for the 1999 Management Incentive Plan, expressed as a percentage of
total, regular base earnings, including paid time off and holiday hours. This
percentage represents the potential dollar award that will be earned at 100%
achievement of goals for all three components of the 1999 Management Incentive
Plan. The participant is assigned a target payout for each component, expressed
as a percentage of regular base salary.
46
<PAGE>
The first component relates to performance by an organizational unit, such as
global, regional or Solution Center (or a combination thereof) against budgeted
performance. The second component is similar to the first, but measured and
recorded quarterly. The third component is tied to individual performance
against goals established by the participant and his/her manager. A participant
must be actively employed by Modus Media or a subsidiary of Modus Media through
December 31, 1999 to receive any payout on annual components. There are no
annual payouts under the plan unless we meet certain financial performance
measures.
1999 Employee Stock Purchase Plan
Our 1999 Employee Stock Purchase Plan was adopted by the board of directors
in , 2000. The purchase plan authorizes the issuance of up to a total of
shares of common stock to participating employees. Subject to local laws
and regulations, we intend to broaden participation in this plan to our
employees worldwide.
All of our employees, including our employee-directors, who are customarily
employed by us for more than 20 hours a week and have been employed by us for
more than six months 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 our stock or any subsidiary are not eligible
to participate.
The purchase plan permits eligible employees to purchase common stock
through payroll deductions, which may not exceed 10% of an employee's
compensation, subject to certain limitations. On the first day of a designated
payroll deduction period, referred to as the offering period, we will grant to
each eligible employee who has elected to participate in the purchase plan an
option to purchase shares of common stock. 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. The Compensation Committee
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,
the employee is not entitled to exercise any option, and the amount of the
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 employment 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 which the accumulated payroll deductions in the
participant's account would purchase at the date of death.
47
<PAGE>
CERTAIN TRANSACTIONS
Loans to Officers
In January 1998, in connection with the execution of an employment
agreement, Terence Leahy, our Chief Executive Officer, executed an Amended and
Restated 7.75% Unsecured Promissory Note for the principal sum of $1,000,000
payable to us. This note restated a note to Stream International Inc. which was
assigned to us in connection with the reorganization of Stream International in
1997. The entire principal amount of this note becomes due upon the earlier of
(a) a merger or a sale of Modus Media in which Mr. Leahy receives at least
$3 million for his stock and options, or (b) the termination of Mr. Leahy's
employment by us for cause or by Mr. Leahy without good reason. If we terminate
Mr. Leahy's employment with us for any reason other than for cause, or if Mr.
Leahy resigns for good reason, or if his employment is terminated due to death
or disability, the principal and interest payable under this note will be
forgiven. As of November 30, 1999, the amount outstanding under this loan was
approximately $1.2 million.
In connection with the reorganization of Stream International in 1997, we
assumed a 7.34% Secured Non-Recourse Note for the principal sum of $400,000.
Fifty percent of the principal amount of this loan was forgiven on January 1,
1999. The remaining fifty percent of this loan will be forgiven on January 1,
2000, provided that on December 31, 1999 Mr. Leahy is employed with us. As of
November 30, 1999, the amount outstanding under this loan was approximately
$262,000.
On July 20, 1999, in connection with his relocation from Singapore to the
United States, W. Kendale Southerland executed an Amended and Restated 7.25%
Unsecured Promissory Note payable to us in the principal amount sum of $70,000.
The entire principal amount of the loan becomes due upon the first to occur of
(a) a merger or sale of Modus Media in which Mr. Southerland receives at least
$300,000 for his shares and options, (b) the termination of Mr. Southerland's
employment by us for cause, or by Mr. Southerland, or (c) July 20, 2004. If we
terminate Mr. Southerland's employment with us for any reason other than for
cause, all principal and interest payable under this note will be forgiven. As
of November 30, 1999, the amount outstanding under this loan was approximately
$72,000.
On August 10, 1999, in connection with his relocation from Ireland to the
United States Ronald Leitch executed an Amended and Restated 7.25% Unsecured
Promissory Note payable to us in the principal amount of $62,500. Interest on
the loan accrues at a rate of 7.25% per year. The entire principal amount
becomes due upon (a) a merger or sale of Modus Media in which Mr. Leitch
receives at least 300,000 for his shares and options, (b) the termination of
Mr. Leitch's employment with us for cause, or (iii) August 10, 2004, whichever
event or date occurs first. If we terminate Mr. Leitch for any reason other
than for cause, all principal and interest payable under this note will be
forgiven. As of November 30, 1999, the amount outstanding under this loan was
approximately $64,000.
Contribution Agreement
In December, 1997, Stream International, Inc. effected a reorganization and
contributed the assets and liabilities related to our business to its
subsidiary, Modus Media, in exchange for our common and preferred stock. In
January 1998, Stream distributed all of the capital stock of Modus Media to its
stockholders, and we became an independent company. Stream International
concurrently spun-off another subsidiary, Corporate Software and Technology,
Inc. In connection with the reorganization, R.R. Donnelley & Sons Company,
which was the principal shareholder of Stream International, received shares of
preferred stock of Modus Media, with a redemption value of $40.6 million, in
cancellation of indebtedness owed to it. R.R. Donnelley then exchanged our
common stock for additional shares of preferred stock, valued at approximately
$21.7 million. In October 1999, we repurchased all shares of preferred stock
from R.R. Donnelley, including additional shares issued as dividends thereon,
for a total purchase price of $60.2 million, of which $47.5 million was paid in
cash and $12.7 million was paid by a note that will become due and payable upon
the closing of this offering.
48
<PAGE>
Tax Sharing Agreement
In connection with the reorganization, Modus Media, Stream and an affiliate
of Stream entered into a tax sharing agreement under which we will indemnify
Stream, and Stream will indemnify us, in respect of any taxes relating to our
respective businesses prior to the consummation of the reorganization, after
taking into account the net operating loss carryforwards and other tax
attributes of Stream immediately prior to consummation of the reorganization.
The tax sharing agreement provides rules for determining whether certain items
relate to a particular business and 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. As of November 30,
1999, there were no material claims pending under this agreement.
Management Agreement
In connection with the reorganization, Modus Media paid to Bain Capital,
Inc., for prior services, the sum of $1.7 million, of which $710,000 was paid
in cash and $1.0 million was paid by issuance of 1,722,514 shares of our common
stock. Also in 1997 we entered into a management agreement with an affiliate of
Bain which required us to pay a fee of $1.5 million in each of 1997, 1998 and
1999 in exchange for certain financial and managerial services. This agreement
terminates upon the closing of this offering. Bain Capital is an affiliate of
the Bain Capital Funds, which hold approximately 39% of our common stock. Three
of our directors, Jonathan Lavine, Mark Nunnelly and Robert White, are Managing
Directors of Bain Capital.
49
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of our common stock as of , 1999 and as adjusted to reflect
the sale of the shares in this offering by:
. each person who is known by us to own beneficially more than 5% of the
outstanding shares of common stock;
. each of our directors and Named Executive Officers; and
. all our directors and executive officers as a group.
<TABLE>
<CAPTION>
Shares of Common Stock Shares Beneficially
Beneficially Owned Prior Owned After the
to the Offering(1) Offering(1)
Name and Address of ------------------------------- ----------------------
Beneficial Owner Number Percent Number Percent
------------------- -------------- ------------ --------- ----------
<S> <C> <C> <C> <C>
Bain Capital Funds(2)... 5,024,402 38.8%
c/o Bain Capital, Inc
Two Copley Place
Boston, Massachusetts
02116
Morton H. Rosenthal..... 1,390,766 10.7
97 Lake View Avenue
Cambridge,
Massachusetts 02138
Chemical Equity 1,343,027 10.4
Associates.............
c/o Chase Capital
Partners
380 Madison Avenue
New York, New York
10017
BankAmerica Investment 899,488(3) 6.9
Corporation............
c/o Bank of America
Illinois
231 South LaSalle
Street
Chicago, Illinois 60697
Rory J. Cowan........... 880,937 6.8
281 Fairhaven Hill
Concord, Massachusetts
01742
Directors and Executive
Officers
Terence M. Leahy........ 513,330(4) 3.9
Mark E. Nunnelly........ 1,250,069(5) 9.7
Robert F. White......... 0 0
Jonathan S. Lavine...... 0 0
Linwood A. Lacy, Jr..... 4,000(6) *
Richard M. Darer........ 10,000(7) *
Patrick Donnellan....... 85,375(8) *
W. Kendale Southerland.. 52,876(9) *
Ronald Leitch........... 17,500(10) *
All executive officers
and directors as a
group (12 persons)..... 1,955,400(11) 14.7%
</TABLE>
- --------
* Less than 1% of the outstanding common stock.
(1) The number of shares of common stock deemed outstanding prior to this
offering includes: (i) 12,949,743 shares of common stock outstanding as
of November 30, 1999; and (ii) 383,874 shares issuable pursuant to
options held by the respective person which may be exercised within 60
days after November 30, 1999 set forth below. The number of shares of
common stock deemed outstanding after this offering includes the
shares that we are offering for sale in this offering. Beneficial
ownership is determined in accordance with the rules of the Commission,
and includes voting and investment power with respect to shares. Unless
otherwise indicated below, to our knowledge, all persons named in the
table have sole
50
<PAGE>
voting and investment power with respect to their shares of common stock,
except to the extent authority is shared by spouses under applicable law.
Unless otherwise indicated, the address of each person listed is c/o Modus
Media International, 690 Canton Street, Westwood, MA.
(2) Includes 956,826 shares held by Bain Capital Fund IV, L.P., 1,094,993
shares held by Bain Capital Fund IV-B, L.P., 143,514 shares held by BCIP
Associates, 85,220 shares held by BCIP Trust Associates, 1,021,335
shares held by Information Partners Capital Fund, L.P., and 1,722,514
shares of non-voting common stock held by Bain Capital Fund V, L.P.
(3) Consists of shares of non-voting common stock.
(4) Includes 294,000 shares subject to outstanding stock options that are
exercisable within the 60 day period following November 30, 1999.
(5) Consists of 1,021,335 shares held by Information Partners Capital Fund,
L.P., whose general partner is Information Partners, a Massachusetts
general partnership, of which Mr. Nunnelly is a general partner, 143,514
shares held by BCIP Associates, a Delaware general partnership of which
Mr. Nunnelly is a general partner, and 85,220 shares held by BCIP Trust
Associates, LP, a Delaware limited partnership of which Mr. Nunnelly is
a general partner. Mr. Nunnelly disclaims beneficial ownership of such
shares except to the extent of his pecuniary interest therein.
(6) Consists of shares subject to outstanding stock options that are
exercisable within the 60 day period following November 30, 1999.
(7) Consists of shares subject to outstanding stock options that are
exercisable within the 60 day period following November 30, 1999.
(8) Includes 21,875 shares subject to outstanding stock options that are
exercisable within the 60 day period following November 30, 1999.
(9) Includes 23,624 shares subject to outstanding stock options that are
exercisable within the 60 day period following November 30, 1999.
(10) Consists of shares subject to outstanding stock options that are
exercisable within the 60 day period following November 30, 1999.
(11) Includes 383,874 shares of common stock issuable upon the exercise of
stock options that vest within 60 days after November 30, 1999. See
notes (4) through (10).
51
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Effective upon the closing of this offering, our authorized capital stock
will consist of shares of common stock, $.01 par value per share,
shares of non-voting common stock, and shares of preferred stock, $.01 par
value per share.
The following summary description of our capital stock is not intended to be
complete and is qualified in its entirety by reference to the provisions of
applicable law and to our restated certificate of incorporation and restated
by-laws, filed as exhibits to the registration statement of which this
prospectus is a part.
Common Stock
As of , 1999, there were shares of common stock outstanding held by
stockholders of record and shares of non-voting common stock outstanding
held by stockholders of record. Based upon the number of shares outstanding
as of that date, and giving effect to the issuance of the shares of common
stock offered by us in this offering, there will be shares of common stock
and shares of non-voting common stock outstanding upon the closing of this
offering.
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. Holders of non-voting common stock are not entitled to any votes,
except as required by law. Directors are elected by a plurality of the votes of
the shares present in person or by proxy at the meeting and entitled to vote in
such election. Holders of common stock and non-voting 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. If the board of directors
declares or pays a dividend on common stock, it must declare or pay the same
dividend for the non-voting common stock. If the board of directors declares or
pays a dividend on the non-voting common stock, it must declare or pay the same
dividend on the common stock. Upon the liquidation, dissolution or winding up
of Modus Media, the holders of common stock and non-voting common stock are
entitled to receive ratably our net assets available after the payment of all
our debts and other liabilities, subject to the prior rights of any outstanding
preferred stock. Each share of non-voting common stock is convertible into a
share of common stock. Holders of our common stock have no preemptive,
subscription or redemption rights, nor are they entitled to the benefit of any
sinking fund. The outstanding shares of common stock are, and the shares
offered by us in this offering will be, when issued and paid for, validly
issued, fully paid and nonassessable. The rights, powers, 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 our board of directors may designate and issue in the future.
Preferred Stock
Our board of directors will be authorized, subject to any limitations
prescribed by law, without further stockholder approval, to issue from time to
time up to an aggregate of shares of preferred stock, in one or more series.
Each such series of preferred stock shall have such number of shares,
designations, preferences, voting powers, qualifications and special or
relative rights or privileges as shall be determined by our board of directors,
which may include, among others, dividend rights, voting rights, redemption
provisions, liquidation preferences, conversion rights and preemptive rights.
There are no shares of preferred stock outstanding as of November 30, 1999.
Our stockholders have granted the board of directors authority to issue the
preferred stock and to determine its rights and preferences in order to
eliminate delays associated with a stockholder vote on specific issuances. The
rights of the holders of common stock will be subject to the rights of holders
of any preferred stock issued in the future. The issuance of preferred stock,
while providing desirable flexibility in connection with possible acquisitions
and other corporate purposes, could adversely affect the voting power or other
rights of the holders of common stock, and could make it more difficult for a
third party to acquire, or discourage a third party from attempting to acquire,
a majority of our outstanding voting stock.
52
<PAGE>
Delaware Law and Certain Charter and By-Law Provisions; Anti-Takeover Effects
We are subject to the provisions of Section 203 of the General Corporation
Law of Delaware. 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.
Our restated certificate of incorporation and restated by-laws provide for
the division of the board of directors into three classes, as nearly equal in
size as possible, with staggered three-year terms. See "Management--Election of
Directors." In addition, our restated certificate of incorporation and restated
by-laws provide that directors may be removed only for cause by the affirmative
vote of the holders of at least 75% of the shares of our capital stock entitled
to vote. Under our restated certificate of incorporation and restated by-laws
any vacancy on the board of directors, however occurring, including a vacancy
resulting from an enlargement of the board, may only be filled by vote of a
majority of the directors then in office. The classification of the board of
directors and the limitations on the removal of directors and filling of
vacancies could have the effect of making it more difficult for a third party
to acquire, or of discouraging a third party from acquiring, control of Modus
Media.
Our restated certificate of incorporation and restated by-laws also provide
that, after the closing of this offering, any action required or permitted to
be taken by our stockholders 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. Our restated
certificate of incorporation and restated by-laws further provide that special
meetings of the stockholders may only be called by the Chairman of the board of
directors, our President, or by the board of directors. Under the restated 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 us. 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 our outstanding voting securities. These provisions
may also discourage another person or entity from making a tender offer for our
common stock, because such person or entity, even if it acquired a majority of
our outstanding voting securities, 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.
Limitation of Liability and Indemnification
Our restated certificate of incorporation provides that our directors and
officers shall be indemnified by us to the fullest extent authorized by
Delaware law, as it now exists or may in the future be amended, against all
expenses and liabilities reasonably incurred in connection with the service for
or on our behalf. In addition, our restated certificate of incorporation
provides that our directors will not be personally liable for monetary damages
to us for breaches of their fiduciary duty as directors, unless they violated
their duty of loyalty to us or our stockholders, acted in bad faith, knowingly
or intentionally violated the law, authorized illegal dividends or redemptions
or derived an improper personal benefit from their action as directors.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is American Stock
Transfer & Trust Company.
53
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have shares of common stock
outstanding (assuming no exercise of outstanding options). Of these shares, the
shares ( shares if the over-allotment option is exercised in full) to be
sold in this offering will be freely tradable without restriction or further
registration under the Securities Act of 1933, as amended, except that any
shares purchased by our affiliates, as that term is defined in Rule 144 under
the Securities Act, may generally only be sold in compliance with the
limitations of Rule 144 described below.
Sales of Restricted Shares
The remaining shares of common stock outstanding upon completion of this
offering are deemed "restricted shares" under Rule 144 or Rule 701 under the
Securities Act. Approximately shares of restricted shares will be eligible
for sale in the public market without any limitation on the date of this
prospectus. Upon expiration of the lock-up agreements described below, 180 days
after the date of this prospectus, an additional shares of common stock will
be eligible for sale in the public market pursuant to Rule 144.
In general, under Rule 144, a stockholder who has beneficially owned his or
her restricted shares for at least one year is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of:
. one percent of the then outstanding shares of common stock
(approximately shares immediately after this offering); or
. 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, our affiliates must comply with the restrictions and
requirements of Rule 144, other than the one-year holding period requirement,
in order to publicly sell shares of common stock which are not restricted
securities. A stockholder who is not one of our affiliates and has not been our
affiliate for at least three months prior to the sale and who has beneficially
owned restricted shares for at least two years may resell the shares without
limitation. In meeting the one- and two-year holding periods described above, a
holder of restricted shares can include the holding periods of a prior owner
who was not our affiliate. The one- and two-year holding periods described
above do not begin to run until the full purchase price or other consideration
is paid by the person acquiring the restricted shares from the issuer or one or
our affiliates. Rule 701 provides that currently outstanding shares of common
stock acquired under our employee compensation plans may be resold beginning 90
days after the date of this prospectus by:
. persons, other than our affiliates, subject only to the manner of sale
provisions of Rule 144; and
. our affiliates under Rule 144 without compliance with its one-year
minimum holding period, subject to certain limitations.
Options
Rule 701 also provides that the shares of common stock acquired upon the
exercise of currently outstanding options or pursuant to other rights granted
under our 1997 Stock Incentive Plan may be resold beginning 90 days after the
date of this prospectus by:
. persons, other than our affiliates, subject only to the manner of sale
provisions of Rule 144; and
. our affiliates under Rule 144, without compliance with its one-year
minimum holding period, subject to certain limitations.
54
<PAGE>
At , approximately shares of common stock were issued or issuable
pursuant to vested options or pursuant to other rights granted under our 1997
Stock Incentive Plan of which approximately shares are not subject to lock-
up agreements with the underwriters and will be eligible for sale in the public
market in accordance with Rule 701 under the Securities Act beginning 90 days
after the date of this prospectus.
Following the date of this prospectus, we intend to file one or more
registration statements on Form S-8 under the Securities Act to register up to
shares of common stock issuable under our 1997 Stock Incentive Plan. These
registration statements would become effective upon filing.
Lock-up Agreements
Subject to limited exceptions, we and our executive officers, directors and
stockholders, who collectively own approximately shares of our common stock,
have agreed that, without the prior written consent of Salomon Smith Barney
Inc., during the period ending 180 days after the date of this prospectus, we
will not
. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant for the sale of, or otherwise transfer or dispose of
any shares of our common stock, whether now owned or later acquired by
the person executing the agreement or with respect to which the person
executing the agreement later acquires the power of disposition, or file
any registration statement under the Securities Act relating to any
shares of our common stock for a period of 180 days after the date of
this prospectus, or
. make any demand for or exercise any right with respect to the
registration of any shares of common stock or any security convertible
into or exercisable or exchangeable for common stock,
regardless of whether any such transactions described in the above two clauses
of this paragraph are to be settled by delivery of such common stock or such
other securities, in cash or otherwise. In addition, for a period of 180 days
from the date of this prospectus, except as required by law, we have agreed
that our board of directors will not consent to any offer for sale, sale or
other disposition, or any transaction which is designed or could be expected,
to result in, the disposition by any person, directly or indirectly, of any
shares of common stock without the prior written consent of Salomon Smith
Barney Inc. See "Underwriting."
55
<PAGE>
UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement
dated the date of this prospectus, each underwriter named below has severally
agreed to purchase, and we have agreed to sell to each underwriter, the number
of shares of our common stock set forth opposite its name below:
<TABLE>
<CAPTION>
Number
Name of shares
---- ----------
<S> <C>
Salomon Smith Barney Inc.......................................
Donaldson, Lufkin & Jenrette Securities Corporation............
Robertson Stephens Inc.........................................
Thomas Weisel Partners LLC.....................................
-----
Total........................................................
=====
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in this offering are subject to
approval of legal matters by counsel and to other conditions. The underwriters
are obligated to purchase all the shares, other than those covered by the over-
allotment option described below, if they purchase any of the shares.
The underwriters, for whom Salomon Smith Barney Inc., BancBoston Robertson
Stephens Inc., Donaldson, Lufkin & Jenrette Securities Corporation and Thomas
Weisel Partners, LLC are acting as representatives, propose to offer some of
the shares directly to the public at the public offering price set forth on the
cover page of this prospectus and some of the shares to dealers at the public
offering price less a concession not in excess of $ per share. The
underwriters may allow, and these dealers may reallow, a concession of not in
excess of $ per share on sales to other dealers. If all of the shares are not
sold at the initial offering price, the representatives may change the public
offering price and the other selling terms. The representatives have advised us
that the underwriters do not intend to confirm any sales to any accounts over
which they exercise discretionary authority.
We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to additional shares of our
common stock at the public offering price less the underwriting discount. The
underwriters may exercise this option solely for the purpose of covering over-
allotments, if any, in connection with this offering. To the extent this option
is exercised, each underwriter will be obligated, subject to various
conditions, to purchase a number of additional shares approximately
proportionate to its initial commitment.
We, our officers and directors and substantially all of our existing
shareholders have agreed that, for a period of 180 days from the date of this
prospectus, we and they will not, without the prior written consent of Salomon
Smith Barney Inc., dispose of or hedge any shares of our common stock or
securities convertible or exchangeable for our common stock. Salomon Smith
Barney Inc. in its sole discretion may release any of the securities subject to
these lock-up agreements at any time without notice.
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for the shares will be
determined by negotiations between us and the representatives. Among the
factors to be considered in determining the initial public offering price were
our record of operations, our current financial condition, our future
prospects, our markets, the economic conditions in and future prospects for the
industry in which we compete, our management, and currently prevailing general
conditions in the equity securities markets, including current market
valuations of publicly traded companies considered comparable to us. We cannot
assure you, however, that the prices at which the shares will sell in the
public market after this offering will not be lower than the price at which
they are sold by the underwriters or than an active trading market in our
common stock will develop and continue after this offering.
We have applied to have the common stock included for quotation on the
Nasdaq National Market under the symbol "EMMI".
56
<PAGE>
The following table shows the underwriting discounts and commissions to be
paid to the underwriters by us in connection with this offering. These amounts
are shown assuming both no exercise and full exercise of the underwriters'
option to purchase additional shares of common stock.
<TABLE>
<CAPTION>
Paid by Us
-------------------------
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per share........................................ $ $
Total............................................ $ $
</TABLE>
In connection with the offering, Salomon Smith Barney Inc., on behalf of the
underwriters, may purchase and sell shares of our common stock in the open
market. These transactions may include over-allotment, syndicate covering
transactions and stabilizing transactions. Over-allotment involves syndicate
sales of common stock in excess of the number of shares to be purchased by the
underwriters in the offering, which creates a syndicate short position.
Syndicate covering transactions involve purchases of our common stock in the
open market after the distribution has been completed in order to cover
syndicate short positions. Stabilizing transactions consist of certain bids or
purchases of our common stock made for the purpose of preventing or retarding a
decline in the market price of our common stock while this offering is in
progress.
The underwriters also may impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when
Salomon Smith Barney Inc., in covering syndicate short positions or making
stabilizing purchases, repurchases shares originally sold by that syndicate
member.
Any of these activities may cause the price of our common stock to be higher
than the price that otherwise would exist in the open market in the absence of
such transactions. These transactions may be effected on the Nasdaq National
Market or in the over-the-counter market, or otherwise and, if commenced, may
be discontinued at any time.
We will pay the offering expenses, including registration fees, costs of
printing and engraving and legal and accounting fees, estimated to be
approximately $ , excluding underwriting discounts and commissions.
We have agreed to indemnify the underwriters against various liabilities,
including liabilities under the Securities Act of 1933, or to contribute to
payments the underwriters may be required to make in respect of any of those
liabilities.
At our request, the underwriters have reserved up to five percent of the
common stock offered in this prospectus for sale to our employees and their
family members and to our business associates at the initial public offering
price set forth on the cover page of this prospectus. These persons must commit
to purchase shares no later than the close of business on the day following the
date of this prospectus. The number of shares available for sale to the general
public will be reduced to the extent these persons purchase the reserved
shares.
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since
December 1998, Thomas Weisel Partners has been named as a lead or co-managing
underwriter in 91 filed public offerings of equity securities, of which 73 have
been completed, and has acted as a syndicate member in an additional 48 public
offerings of equity securities. Thomas Weisel Partners does not have any
material relationship with us or any of our officers, directors or other
controlling persons, except with respect to its contractual relationship with
us pursuant to the underwriting agreement entered into in connection with this
offering.
57
<PAGE>
VALIDITY OF COMMON STOCK
The validity of the shares of common stock we are offering will be passed
upon for us by Hale and Dorr LLP, Boston, Massachusetts. Legal matters for the
underwriters will be passed upon by Ropes & Gray, Boston, Massachusetts.
EXPERTS
Our consolidated financial statements and financial statement schedule as of
December 31, 1998 and September 30, 1999 and for the years ended December 31,
1997 and 1998 and the nine-months ended September 30, 1999 included in this
prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 to register the shares of our common stock described in
this prospectus. This prospectus is part of that registration statement, and
provides you with a general description of the common stock being registered,
but does not include all of the information you can find in the registration
statement or the exhibits. You should refer to the registration statement and
its exhibits for more information about Modus Media and the shares of common
stock being registered.
You may read and copy all or any portion of the registration statement or
any reports, statements or other information we file with the Commission at the
Commission's public reference room at 450 Fifth Street, N.W., Judiciary Plaza,
Room 1024, Washington, D.C. 20549, and at the Commission's regional offices
located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511 and 7 World Trade Center, Suite 1300, New York, New York
10048. Copies of such material can also be obtained at prescribed rates by mail
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. In addition, the Commission maintains a website
(http://www.sec.gov) that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
Commission.
58
<PAGE>
MODUS MEDIA INTERNATIONAL HOLDINGS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants................................... F-2
Consolidated Balance Sheets................................................ F-3
Consolidated Statements of Operations...................................... F-4
Consolidated Statements of Shareholders' Equity............................ F-5
Consolidated Statements of Cash Flows...................................... F-6
Notes to Consolidated Financial Statements................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Modus Media International Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of Modus Media
International Holdings, Inc. as of December 31, 1998, and September 30, 1999,
and the related consolidated statements of operations, shareholders' equity and
cash flows for the years ended December 31, 1997 and 1998 and for the nine
months ended September 30, 1999. 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 audits 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 audits provide 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 Modus Media
International Holdings, Inc. as of December 31, 1998, and September 30, 1999
and the results of its operations and its cash flows for the years ended
December 31, 1997 and 1998 and for the nine months ended September 30, 1999, in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
November 12, 1999
F-2
<PAGE>
MODUS MEDIA INTERNATIONAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Amounts)
<TABLE>
<CAPTION>
December 31, 1998 September 30, 1999
----------------- ------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............... $ 8,447 $ 20,385
Receivables, less allowance for doubtful
accounts of $4,402 in 1998 and $5,036
in 1999................................ 135,582 119,202
Inventories, net........................ 49,030 46,450
Prepaid expenses and other current
assets................................. 17,795 13,438
-------- --------
Total current assets.................. 210,854 199,475
Property, plant and equipment, net of
accumulated depreciation............... 70,752 68,010
Other noncurrent assets................. 9,604 9,481
-------- --------
Total assets.......................... $291,210 $276,966
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt....... $ 2,021 $ 1,363
Accounts payable........................ 107,203 99,980
Accrued liabilities..................... 58,028 57,474
-------- --------
Total current liabilities............. 167,252 158,817
Long-term debt, net of current portion.. 21,641 7,341
Deferred income taxes................... 2,482 1,681
Other noncurrent liabilities............ 6,783 6,782
-------- --------
Total liabilities..................... 198,158 174,621
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value, with a
liquidation value of $1,000 per share
Authorized--120,000 in 1998 and 1999
Issued and outstanding--66,959 in 1998
and 71,744 in 1999.................... 66,959 71,744
Common stock, $.01 par value
Authorized--33,000,000 in 1998 and 1999
Issued and outstanding--12,185,278 in
1998 and 12,821,340 in 1999........... 122 128
Additional paid-in capital.............. 22,953 23,671
Retained earnings....................... 3,292 7,797
Other comprehensive loss................ (274) (995)
-------- --------
Total shareholders' equity............ 93,052 102,345
-------- --------
Total liabilities and shareholders'
equity............................... $291,210 $276,966
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
MODUS MEDIA INTERNATIONAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Year Ended Nine Months
December 31, Ended
------------------ September 30,
1997 1998 1999
-------- -------- -------------
<S> <C> <C> <C>
Revenue...................................... $684,523 $630,082 $506,235
Cost of Revenue.............................. 587,685 511,988 413,295
-------- -------- --------
Gross profit............................... 96,838 118,094 92,940
Operating Expenses:
Selling, general and administrative
expenses................................... 113,852 100,922 78,353
-------- -------- --------
Operating income (loss).................... (17,014) 17,172 14,587
Other Expense (Income):
Interest expense............................ 16,478 3,882 1,821
Other expense (income), net................. (3,649) (1,722) 102
-------- -------- --------
Income (loss) before income taxes.......... (29,843) 15,012 12,664
Provision for Income Taxes................... 2,824 4,265 3,274
-------- -------- --------
Net income (loss).......................... (32,667) 10,747 9,390
Preferred Stock Dividends.................... 172 5,922 4,885
-------- -------- --------
Net income (loss) available to common
shareholders.............................. $(32,839) $ 4,825 $ 4,505
======== ======== ========
Net income per share:
Basic.................................... $ -- $ 0.38 $ 0.36
======== ======== ========
Diluted.................................. $ -- $ 0.37 $ 0.31
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
MODUS MEDIA INTERNATIONAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In Thousands, Except Share Amounts)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
--------------------- ----------------------
Net Parent $1,000 Additional Other
Company Number of Liquidation Number of $.01 Paid-In Retained Comprehensive
Investment Shares Value Shares Par Value Capital Earnings Income (Loss) Total
---------- --------- ----------- ----------- --------- ---------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1996................. $131,703 -- $ -- -- $ -- $ -- $ -- $ -- $131,703
-------- ------ ------- ----------- ----- -------- ------- ----- --------
Comprehensive
income--
Net loss............ (31,306) (31,306)
Translation
adjustment
(including taxes of
$287)............... 3,020 -- -- -- -- -- -- -- 3,020
-------- ------ ------- ----------- ----- -------- ------- ----- --------
Total comprehensive
loss................ (28,286) -- -- -- -- -- -- -- (28,286)
Net transfers from
the Parent Company.. (20,895) -- -- -- -- -- -- -- (20,895)
Dividend to the
Parent Company...... (40,646) -- -- -- -- -- -- -- (40,646)
Conversion of Parent
Company debt to
equity.............. 40,646 -- -- -- -- -- -- -- 40,646
Capitalization of
the Company--
Common stock
issued.............. (41,876) -- -- 48,258,737 483 41,393 -- -- --
Preferred stock
issued.............. (40,646) 40,646 40,646 -- -- -- -- -- --
-------- ------ ------- ----------- ----- -------- ------- ----- --------
Balance, December 15,
1997................. -- 40,646 40,646 48,258,737 483 41,393 -- -- 82,522
Net loss............ -- -- -- -- -- -- (1,361) -- (1,361)
9.5% Cumulative
dividends on
preferred stock..... -- -- -- -- -- -- (172) -- (172)
-------- ------ ------- ----------- ----- -------- ------- ----- --------
Balance, December 31,
1997................. $ -- 40,646 $40,646 48,258,737 $ 483 $ 41,393 $(1,533) $ -- $ 80,989
Comprehensive
income--
Net income.......... -- -- -- -- -- -- 10,747 -- 10,747
Translation
adjustment
(including tax
benefits of $73).... -- -- -- -- -- -- -- (274) (274)
-------- ------ ------- ----------- ----- -------- ------- ----- --------
Total comprehensive
income.............. -- -- -- -- -- -- 10,747 (274) 10,473
Conversion of common
stock to preferred
stock............... -- 21,132 21,132 (36,387,466) (364) (20,768) -- -- --
Redemption of
preferred stock..... -- (913) (913) -- -- 913 -- -- --
Contribution of
capital............. -- -- -- -- -- 1,231 -- -- 1,231
Issuance of common
stock under stock
option plans........ -- -- -- 314,007 3 184 -- -- 187
9.5% cumulative
dividends on
preferred stock..... -- 6,094 6,094 -- -- -- (5,922) -- 172
-------- ------ ------- ----------- ----- -------- ------- ----- --------
Balance, December 31,
1998................. $ -- 66,959 $66,959 12,185,278 $ 122 $ 22,953 $ 3,292 $(274) $ 93,052
Comprehensive
income--
Net income.......... -- -- -- -- -- -- 9,390 -- 9,390
Translation
adjustment
(including tax
benefits of $216)... -- -- -- -- -- -- -- (721) (721)
-------- ------ ------- ----------- ----- -------- ------- ----- --------
Total comprehensive
income.............. -- -- -- -- -- -- 9,390 (721) 8,669
Issuance of common
stock under stock
option plans........ -- -- -- 669,562 6 637 -- -- 643
Purchase and
retirement of common
stock............... -- -- -- (33,500) -- (19) -- -- (19)
Redemption of
preferred stock..... -- (100) (100) -- -- 100 -- -- --
9.5% cumulative
dividends on
preferred stock..... -- 4,885 4,885 -- -- -- (4,885) -- --
-------- ------ ------- ----------- ----- -------- ------- ----- --------
Balance, September
30, 1999............. $ -- 71,744 $71,744 12,821,340 $ 128 $ 23,671 $ 7,797 $(995) $102,345
======== ====== ======= =========== ===== ======== ======= ===== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
MODUS MEDIA INTERNATIONAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Year Ended Nine Months
December 31, Ended
------------------- September 30,
1997 1998 1999
--------- -------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).......................... $ (32,667) $ 10,747 $ 9,390
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization.............. 26,370 18,732 13,271
Amortization of deferred financing costs... -- 1,360 965
Loss on disposal of fixed assets........... -- -- 189
Deferred income taxes...................... 2,824 (342) (801)
Gain on sale of investment................. -- (2,088) --
Changes in assets and liabilities--
Receivables, net.......................... 17,814 (59,591) 16,380
Inventories............................... 29,504 (3,133) 2,580
Prepaid expenses and other current
assets................................... (11,935) (2,507) 4,357
Accounts payable.......................... (11,395) 22,501 (7,223)
Accrued liabilities....................... 844 15,872 2,409
Noncurrent assets and liabilities......... (1,025) (562) (2,829)
Intercompany receivable from Stream....... 49,403 -- --
Restructuring reserve..................... (16,837) (7,457) (481)
--------- -------- --------
Net cash provided by (used in) operating
activities.............................. 52,900 (6,468) 38,207
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment......... (34,032) (12,307) (11,325)
Proceeds from sale of investment........... -- 3,288 --
Net proceeds from disposal of fixed
assets.................................... 11,682 119 157
--------- -------- --------
Net cash used in investing activities.... (22,350) (8,900) (11,168)
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of third-party debt............. (18,028) (1,988) (5,722)
Cash paid to secure third-party financing.. (3,369) (1,907) --
Net transfers from Parent Company.......... 7,799 -- --
Increase (decrease) of capital lease
obligations............................... 2,071 (3,334) (9,282)
Purchase and retirement of common stock.... -- -- (19)
Cash proceeds related to pre-Reorganization
tax receivable............................ -- 1,231 --
Exercise of stock options.................. -- 187 643
--------- -------- --------
Net cash used in financing activities.... (11,527) (5,811) (14,380)
--------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS........................... 3,020 (274) (721)
--------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................ 22,043 (21,453) 11,938
CASH AND CASH EQUIVALENTS, BEGINNING OF
YEAR....................................... 7,857 29,900 8,447
--------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR...... $ 29,900 $ 8,447 $ 20,385
========= ======== ========
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING
ACTIVITIES:
Assets acquired through capital lease...... $ 3,738 $ 1,748 $ 46
========= ======== ========
Dividend to the Parent Company............. $ 40,646 $ -- $ --
========= ======== ========
Conversion of Parent Company debt to
preferred stock........................... $ 40,646 $ -- $ --
========= ======== ========
Conversion of Parent Company Investment to
common stock.............................. $ 41,876 $ -- $ --
========= ======== ========
Conversion of common stock to preferred
stock..................................... $ -- $ 21,132 $ --
========= ======== ========
Conversion of cash dividends to preferred
stock..................................... $ -- $ 172 $ --
========= ======== ========
Dividends on preferred stock............... $ 172 $ 5,922 $ 4,885
========= ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest..................... $ 16,448 $ 2,354 $ 771
========= ======== ========
Cash paid for income taxes................. $ 79 $ 4,607 $ 3,683
========= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
MODUS MEDIA INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
(1) Nature of Business
Modus Media International Holdings, Inc. (the Company or MMI) is a global
provider of extended supply chain management services to the technology
industry. The Company offers a full range of outsource services including e-
commerce support services, content management, procurement, materials
management, manufacturing, fulfillment and customer relationship management.
The principal North American operations are located in California, Utah,
Washington, Idaho and North Carolina. Principal European subsidiaries include
operations in Ireland, the United Kingdom, the Netherlands and France.
Principal Asian subsidiaries include operations in Singapore, Taiwan, Australia
and China. In addition, the Company holds minority interests in joint ventures
in Korea and Japan.
(2) The Reorganization
The Company began as a division of R.R. Donnelley & Sons Company (R.R.
Donnelley or the Parent Company). Pursuant to an April 21, 1995 contribution
agreement (the Contribution Agreement), R.R. Donnelley purchased approximately
80% of Corporate Software, Inc. (now known as Corporate Software & Technology
or CS&T) and merged it with the division (now known as Modus Media
International Holdings, Inc., or the Company) to create Stream International
Holdings, Inc. (Stream).
From April 21, 1995 to December 15, 1997, the Company conducted its business
as a unit of Stream. On December 15, 1997, Stream effected a reorganization
(the Reorganization), pursuant to which Stream contributed certain assets and
liabilities to the Company and CS&T. Because the Reorganization occurred
between entities under common control the book basis of assets and liabilities
were not adjusted and have been accounted for on a carryover basis. Effective
with the Reorganization, Stream allocated to the Company approximately $40.6
million of its (intercompany) indebtedness to R.R. Donnelley or 22.2% of the
total Stream debt at September 30, 1997. The debt to R.R. Donnelley was then
exchanged for 40,646 shares of the Company's preferred stock.
On January 9, 1998, Stream distributed to its stockholders all of the
outstanding voting stock, held by Stream, of the Company and CS&T. In addition,
R.R. Donnelley exchanged its equity interest in the Company of approximately
36.4 million shares of the Company's common stock for 21,132 shares of
preferred stock valued at $21.1 million.
Effective with the Reorganization, the Company accounted for all
transactions with R.R. Donnelley, Stream and CS&T as arm's-length transactions.
These financial statements include only the results of the Company.
(3) Summary of Significant Accounting Policies
(a) Basis of Presentation and Consolidation
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 United States dollars in accordance with Statement of
Financial Accounting Standards (SFAS) No. 52, Foreign Currency Translation. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Net operating results through December 15, 1997, the date of the
Reorganization, were recorded as a return of capital to or contributions from
the Parent Company.
F-7
<PAGE>
MODUS MEDIA INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1999
(b) Cash and Cash Equivalents
Cash and cash equivalents include all cash and investments with maturity
dates of three months or less.
(c) Inventories
Inventories include material, labor and overhead and are valued at the
lower of cost or market. Materials include, but are not limited to compact
discs, instruction manuals and computer peripherals such as keyboards and
mice. Substantially all of the Company's domestic inventories are valued using
the first-in, first-out (FIFO) method. The cost of the remaining inventories
is principally determined using a specific identification method.
The components of inventories, net were as follows (in thousands):
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Raw materials.................................... $ 27,223 $ 27,240
Work-in-process.................................. 4,356 3,411
Finished goods and completed components.......... 17,451 15,799
-------- --------
$ 49,030 $ 46,450
======== ========
(d) Property, Plant and Equipment
Property, plant and equipment are stated at cost. The Company provides for
depreciation using the straight-line method over estimated useful lives of 33
to 40 years for buildings and 2 to 12 years for machinery and equipment.
Leasehold improvements are depreciated using the straight-line method over the
remaining lease terms or estimated useful lives, whichever is shorter.
Maintenance and repair costs are charged to operating expenses as incurred.
When properties are retired or otherwise disposed of, the asset cost and
accumulated depreciation are eliminated and the resulting gain or loss, if
any, is included in the consolidated statements of income.
Property, plant and equipment consisted of the following (in thousands):
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Leasehold improvements........................... $ 10,716 $ 11,695
Buildings (including assets under capital lease
of $10,954 in 1998, and $3,339 in 1999)......... 26,034 25,184
Machinery and equipment (including assets under
capital lease of $14,196 in 1998 and $12,027 in
1999)........................................... 140,094 144,804
-------- --------
Total property, plant and equipment............ 176,844 181,683
Less--Accumulated depreciation................... 106,092 113,673
-------- --------
Net property, plant and equipment.............. $ 70,752 $ 68,010
======== ========
</TABLE>
(e) Investments in Joint Ventures
As of September 30, 1999, the Company has investments in two joint ventures
accounted for under the equity method. The affiliates provide a full range of
integrated services including software manufacturing,
F-8
<PAGE>
MODUS MEDIA INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1999
hardware assembly, on-demand manufacturing and response management. At December
31, 1998 and September 30, 1999, the value of these investments was $0.5
million.
(f) Accrued Liabilities
Accrued liabilities consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Accrued compensation and other benefits........... $24,026 $23,330
Accrued taxes..................................... 6,622 6,144
Accrued customer rebates and advances............. 7,299 7,139
Accrued occupancy expenses........................ 7,452 8,098
Other accrued liabilities......................... 12,629 12,763
------- -------
$58,028 $57,474
======= =======
</TABLE>
(g) Income Taxes
The provision for income taxes is based on income before taxes as reported
in the accompanying consolidated statements of income. Deferred tax assets and
liabilities are determined based on the difference between the financial
statement and tax basis of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse. 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
No. 109, Accounting for Income Taxes.
United States federal income taxes are not provided on the unremitted
accumulated earnings of foreign subsidiaries, as such earnings are considered
to be permanently reinvested abroad.
(h) Foreign Currency Translation
Foreign currencies are translated in accordance with SFAS No. 52, Foreign
Currency Translation. Under this standard, assets and liabilities of the
Company's international subsidiaries are translated into United States dollars
at current exchange rates. Income and expense items are translated at average
exchange rates prevailing during the year.
Gains and losses arising from the translation of the Company's international
subsidiaries' financial statements are accounted for in shareholders' equity.
Gains and losses from foreign currency transactions are included in other
expense (income) in the statements of operations.
(i) Revenue Recognition
Revenue is recognized when the product is shipped or the service is
performed under each customer contract. Revenue consists primarily of fees for
e-commerce support services, content management, procurement, materials
management, manufacturing, fulfillment and customer relationship management.
F-9
<PAGE>
MODUS MEDIA INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1999
(j) Fair Value of Financial Instruments
The fair value of cash and cash equivalents, accounts receivable, short-term
debt and accounts payable approximate their carrying value due to the immediate
or short-term maturity of these financial instruments. The fair value of long-
term debt is based on the current rates offered to the Company for debt
instruments of similar risks and maturities and approximates its carrying
value.
(k) 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.
(l) Reclassification and Presentation
Certain reclassifications have been made to prior period amounts to conform
with the current year presentation.
(m) New Accounting Pronouncements
The Financial Accounting Standards Board (FASB) issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133, as
amended by SFAS No. 137, is required to be adopted by the Company no later than
fiscal year 2001. This statement establishes accounting and reporting standards
requiring that every derivative instrument (including certain derivative
instruments embedded in other contracts) be recorded in the balance sheet as
either an asset or a liability measured at its fair value. SFAS No. 133
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
formally document, designate and assess the effectiveness of transactions that
receive hedge accounting. The Company plans to adopt this statement in fiscal
year 2001. Management does not believe that the adoption of SFAS No. 133 will
have a material effect on the Company's financial position or results of
operations.
(4) Related Party Transactions
(a) Accounts Receivable Sold With Recourse
During 1997, pursuant to an agreement with R.R. Donnelley, the Company sold
certain accounts receivable, with recourse, to R.R. Donnelley Receivables, Inc.
(DRI), a wholly owned subsidiary of R.R. Donnelley. The agreement required that
DRI pay the Company weekly amounts based on estimated monthly billings for
eligible domestic receivables, as defined. During the eleven and a half months
ended December 15, 1997, the Company factored $286.4 million of receivables to
DRI and the related factoring charge amounted to $3.5 million. The agreement
was terminated on December 15, 1997, in connection with the Reorganization. The
Company agreed to a final settlement with DRI during 1998 on disputed
receivables, which was not material to the Company's financial position or
results of operations.
F-10
<PAGE>
MODUS MEDIA INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1999
(b) Sales and Purchases with R.R. Donnelley
Prior to the Reorganization, R.R. Donnelley sales representatives sold
products that were produced in the Company's facilities. Such sales amounted to
$13.9 million for the year ended December 31, 1997 and have been included in
revenue in the accompanying statement of income. The Company also purchased
approximately $7.3 million of print related materials from entities affiliated
with R.R. Donnelley during the year ended December 31, 1997.
Effective with the Reorganization on December 15, 1997, all sales to or
purchases from R.R. Donnelley are negotiated and accounted for as arm's-length
transactions.
(c) Loans to Officers
The Company has extended nonrecourse loans to certain officers and former
officers of the Company. The loans, which totaled $3.5 million and $3.7 million
at December 31, 1997 and 1998, and $3.6 million at September 30, 1999, bear
interest at rates ranging from 7.25% to 7.75% and become due in 2000 through
2004 or upon the occurrence of certain events as defined in the loan
agreements. Interest on the loans is due at maturity. The loans and accrued
interest receivable are classified as other noncurrent assets in the
accompanying consolidated balance sheets.
(d) Transactions with Other Related Parties
Effective December 15, 1997, the Company entered into a management agreement
with a current shareholder, which requires the shareholder to provide certain
advisory and other services to the Company and requires the Company to pay an
annual fee of $1.5 million.
As part of the Reorganization, the Company entered into agreements
(collectively, the Transitional Service Agreements) with Stream and CS&T for
certain services formerly shared among such entities. Pursuant to the
Transitional Service Agreements, the Company received certain legal,
information technology and other services and provided certain tax, employee
benefit and financial reporting services. Expenses related to purchased
services were approximately $1.0 million and $0.2 million in 1997 and 1998,
respectively. These expenses were offset by approximately $4.3 million and $0.2
million of charges in 1997 and 1998, respectively, for services performed by
the Company. No such expenses were incurred during the nine months ended
September 30, 1999.
The Company has entered into a tax sharing agreement with Stream and CS&T
under which they will indemnify the Company, and the Company will indemnify
Stream and CS&T, with respect to any taxes relating to their businesses prior
to the Reorganization, after taking into account, under rules set forth in the
tax sharing agreement, the net operating loss carryforwards and other tax
attributes of Stream immediately prior to the Reorganization (and in limited
circumstances losses and other tax attributes of the Company carried back to
periods prior to the Reorganization). The tax sharing agreement also defines
the parties' obligations for filing tax returns, and their rights and
obligations for claims made by the Internal Revenue Service or other taxing
authorities for periods prior to the Reorganization.
In 1998, the Company received a $1.2 million tax refund, arising from its
business operations prior to the April 21, 1995 Contribution Agreement. This
amount was recorded as a contribution of capital in the consolidated statement
of shareholders' equity.
F-11
<PAGE>
MODUS MEDIA INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1999
(5) Debt Financing
Borrowings during the first eleven and a half months of 1997 were in the
form of an intercompany loan with R.R. Donnelley with interest based on LIBOR
plus 35 basis points. Interest expense on this facility was approximately $9.4
million for the period ended December 15, 1997. Effective with the
Reorganization, the Company discontinued all intercompany loan activity with
R.R. Donnelley.
On December 15, 1997, the Company and certain of its international
subsidiaries entered into a credit agreement with a group of banks for a
revolving line of credit of $130 million, expiring on December 17, 2001. The
credit facility is collateralized by and the borrowing base is calculated based
on eligible receivables, inventories and fixed assets. The credit agreement
also contains certain covenants, of which the most restrictive relates to
tangible net worth. As of September 30, 1999 the Company was in compliance with
all debt covenants. Borrowings under the agreement bear interest at rates based
on either LIBOR, the banks' prime rate or the Federal Funds rate, plus an
applicable margin. The interest rate at September 30, 1999 was 9.50%. As of
December 31, 1998 and September 30, 1999, the borrowing base was $81.9 million
and $82.1 million, respectively.
Borrowings under the line of credit have been classified as long-term since
the Company has the ability and intent to maintain such debt on a long-term
basis. Commitment fees are 37.5 basis points on the unused portion of the line
of credit.
Certain of the Company's foreign subsidiaries have additional lines of
credit available to fund local working capital requirements. The lines of
credit are collateralized by certain assets of the local entities.
Approximately $13.6 million and $14.0 million of these facilities were unused
at December 31, 1998, and September 30, 1999, respectively.
The Company's debt was as follows (in thousands):
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Revolving line of credit......................... $ 10,000 $ --
Mortgage payable due in 2004 at an interest rate
of 5.14%........................................ -- 4,268
Capital leases payable in varying amounts through
2008 at a weighted average interest rate of
7.13%........................................... 13,662 4,436
-------- -------
23,662 8,704
Less--Current portion............................ 2,021 1,363
-------- -------
Long-term portion.............................. $ 21,641 $ 7,341
======== =======
</TABLE>
F-12
<PAGE>
MODUS MEDIA INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1999
(6) Commitments and Contingencies
(a) Lease Commitments
The Company leases certain offices, facilities and equipment under
noncancellable leases, which expire at various dates through 2008. Rent expense
for operating leases was $12.4 million, $16.3 million and $12.4 million for the
years ended December 31, 1997 and 1998, and the nine months ended September 30,
1999, respectively. At September 30, 1999, future minimum lease payments for
noncancellable leases were payable as follows (in thousands):
<TABLE>
<CAPTION>
Year Operating Capital
---- --------- -------
<S> <C> <C>
Fourth quarter of 1999.................................... $ 3,997 $ 700
2000...................................................... 14,251 1,871
2001...................................................... 10,550 505
2002...................................................... 8,892 344
2003...................................................... 6,570 336
2004...................................................... 4,075 335
Thereafter................................................ 19,156 1,356
------- -------
Total minimum payments.................................. $67,491 5,447
=======
Less--Amounts representing interest..................... (1,011)
-------
Present value of minimum lease payments................. $ 4,436
=======
</TABLE>
(b) Commitments and Contingencies
Certain key executives are covered by employment agreements, which establish
salaries, certain benefits and incentive compensation and separation terms.
Some key executives in foreign countries are also covered by agreements, which
contain provisions that are typical in those countries.
In connection with the Reorganization, the Company, Stream and CS&T entered
into agreements, which contain general indemnities between the companies. Under
the agreements, each of the companies indemnifies the others for any losses,
liabilities or damages in connection with any liability, claim or action
assumed by such company in the Reorganization.
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 Company's financial position or results of operations.
(c) Significant Customers and Concentration of Credit Risk
For the year ended December 31, 1997, two customers accounted for
approximately 17% and 14% of total Company revenue. For the year ended December
31, 1998, two customers accounted for approximately 23% and 12% of total
Company revenue. For the nine months ended September 30, 1999, one customer
accounted for approximately 26% of total Company revenue. No other customers
accounted for greater than 10% of total Company revenue for the years ended
December 31, 1997 and 1998, or for the nine months ended September 30, 1999.
Financial instruments that subject the Company to concentrations of credit
risk consist primarily of trade receivables with customers in the technology
industry. The large number of customers comprising the
F-13
<PAGE>
MODUS MEDIA INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1999
Company's customer base and their geographic dispersion mitigates this credit
risk. To reduce credit risk, the Company performs ongoing credit evaluations of
its customers' financial condition and maintains allowances for potentially
uncollectible accounts.
(7) Income Taxes
The provision for income taxes was comprised of the following (in
thousands):
<TABLE>
<CAPTION>
Year Ended Nine Months
December 31, Ended
------------- September 30,
1997 1998 1999
------ ------ -------------
<S> <C> <C> <C>
Current:
Domestic...................................... $ -- $ -- $ --
Foreign....................................... -- 4,607 4,075
Deferred........................................ 2,824 (342) (801)
------ ------ ------
$2,824 $4,265 $3,274
====== ====== ======
</TABLE>
Income before income taxes included approximately $6.6 million, $28.0
million and $9.4 million related to foreign operations for the years ended
December 31, 1997 and 1998 and the nine months ended September 30, 1999,
respectively.
The Company's effective tax rate differed from the statutory United States
federal income tax rate as follows:
<TABLE>
<CAPTION>
Year Ended Nine Months
December 31, Ended
--------------- September 30,
1997 1998 1999
------ ------ -------------
<S> <C> <C> <C>
Federal statutory rate........................ (35.0)% 35.0% 35.0%
Foreign tax effect, net....................... (10.0) (40.1) (12.0)
Valuation allowance items..................... 54.5 31.6 1.6
Other......................................... -- 1.9 1.3
------ ------ -----
9.5% 28.4% 25.9%
====== ====== =====
</TABLE>
F-14
<PAGE>
MODUS MEDIA INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1999
The components of the Company's deferred income tax assets and liabilities
were as follows (in thousands):
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Deferred tax assets--
Receivable allowances......................... $ 921 $ 1,445
Inventory adjustments......................... 1,680 1,827
Property, plant and equipment................. 1,397 742
Accrued liabilities........................... 670 2,450
Tax loss carryforwards........................ 7,865 7,664
------- -------
Total deferred tax assets................... 12,533 14,128
Less--Valuation allowance....................... (12,533) (14,128)
------- -------
Deferred tax assets, net of valuation
allowance.................................. $ -- $ --
======= =======
Deferred tax liabilities--
Property, plant and equipment................. $ 2,482 $ 1,681
------- -------
Total deferred tax liabilities.............. 2,482 1,681
------- -------
Net deferred tax liabilities.................... $ 2,482 $ 1,681
======= =======
</TABLE>
Undistributed earnings of foreign subsidiaries included in the consolidated
retained earnings amounted to approximately $26.6 million at September 30,
1999. U.S. federal income taxes are not provided on the unremitted accumulated
earnings of foreign subsidiaries, as such earnings are considered to be
permanently reinvested abroad.
A valuation allowance has been established to fully reserve the tax benefits
associated with certain temporary differences and the net operating loss
carryforwards as the realizability of these tax benefits is uncertain. These
tax loss carryforwards of $19.2 million at September 30, 1999 will generally
expire between 2000 and 2019.
(8) Employee Benefit Plans
(a) Defined Contribution Plans
The Company has a defined contribution 401(k) plan covering substantially
all domestic employees who meet certain eligibility requirements. Participants
may make contributions to the 401(k) plan from 1% to 15% of their compensation,
as defined in the plan. The Company also contributes a certain percentage of
the employee's annual compensation to the 401(k) plan, subject to certain
limitations. Company contributions are fully vested after two years of service.
Contributions and costs attributable to the 401(k) plan amounted to $0.6
million for each of the years ended December 31, 1997 and 1998 and the nine
months ended September 30, 1999, respectively.
Certain of the Company's foreign subsidiaries also have defined contribution
plans covering those employees who meet certain eligibility requirements.
Participants may make contributions to the plans from 1% to 20% of their
compensation, as defined. The Company also contributes a certain percentage of
the employee's annual compensation to the plans, subject to certain
limitations. Contributions attributable to the plans amounted to $1.3 million,
$1.4 million and $0.8 million for the years ended December 31, 1997 and 1998
and the nine months ended September 30, 1999, respectively.
F-15
<PAGE>
MODUS MEDIA INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1999
(b) Defined Benefit Pension Plans
Certain of the Company's foreign subsidiaries have defined benefit pension
plans for long-term employees. The plans are based on an employee's years of
service and earnings. The retirement plan liabilities and their related costs
are computed in accordance with the laws and appropriate actuarial practices of
the individual countries. The change in benefit obligation and plan assets
consisted of the following (in thousands):
<TABLE>
<CAPTION>
Year Ended Nine Months
December 31, Ended
---------------- September 30,
1997 1998 1999
------- ------- -------------
<S> <C> <C> <C>
Change in Benefit Obligation:
Benefit obligation at beginning of period..... $ 4,148 $ 4,479 $ 4,484
Service cost.................................. (107) (95) (89)
Plan participants' contributions.............. 547 622 640
Benefits paid................................. (109) (522) (331)
------- ------- -------
Benefit obligation at end of period........... $ 4,479 $ 4,484 $ 4,704
======= ======= =======
Change in Plan Assets:
Fair value of plan assets at beginning of
period....................................... $ 2,015 $ 3,651 $ 4,895
Actual return on plan assets.................. 694 586 1,072
Acquisition................................... 79 0 0
Employer contribution......................... 425 558 513
Plan participants' contributions.............. 547 622 640
Benefits paid................................. (109) (522) (331)
------- ------- -------
Fair value of plan assets at end of period.... $ 3,651 $ 4,895 $ 6,789
======= ======= =======
</TABLE>
The net periodic benefit costs were $0.1 million, $0.2 million and $0.3
million for the years ended December 31, 1997 and 1998 and for the nine months
ended September 30, 1999, respectively.
The average rate of compensation increase and the expected return on plan
assets used to account for the plans were 6% and 8%, respectively, for each of
the years ended December 31, 1997 and 1998 and for the nine months ended
September 30, 1999.
(9) Shareholders' Equity
(a) Common Stock
The Company has authorized common stock and nonvoting common stock. The
holders of common stock are entitled to one vote for each share held, and the
holders of nonvoting common stock have no voting rights.
F-16
<PAGE>
MODUS MEDIA INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1999
Common stock consisted of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Common stock, authorized--30,000,000 shares;
shares issued and outstanding................ 9,563,276 10,199,338
Nonvoting common stock, authorized--3,000,000
shares; shares issued and outstanding........ 2,622,002 2,622,002
---------- ----------
Total shares outstanding...................... 12,185,278 12,821,340
========== ==========
</TABLE>
(b) Preferred Stock
The Company has authorized 120,000 shares of 9.50% series senior cumulative
preferred stock. Preferred stock shares issued and outstanding at December 31,
1998, and September 30, 1999 were 66,959 and 71,744, respectively. Preferred
dividends accrue at the rate of $95 per annum per share and are payable in
cash, additional shares, or any combination of the two. At December 31, 1998,
and at September 30, 1999, cumulative preferred dividends in arrears were
approximately $526,000 and $564,000, respectively. Subsequent to September 30,
1999, the Company repurchased all of its outstanding preferred stock. See Note
13.
(c) Stock Option Plans
In connection with the Reorganization on December 15, 1997, the Company
cancelled all options available for grant under option plans previously
administered by Stream. The Company then established the 1997 Stock Incentive
Plan (the Plan), which is administered by the Board of Directors of the
Company. The Plan, as amended by the Board on September 29, 1999, provides for
the issuance of up to 2,800,000 options to purchase shares of common stock, at
exercise prices and vesting periods determined by the Board and defined in the
applicable option agreements. Options can not be issued under the Plan after
December 15, 2007; however, options previously granted under the Plan may still
be exercised beyond that date. The Plan also contains certain provisions for
the option holders in the event of an acquisition, as defined in the Plan.
During 1995, the FASB issued SFAS No. 123, Accounting for Stock Based
Compensation, which defines a fair value based method of accounting for an
employee stock option or similar equity instrument and encourages all entities
to adopt that method of accounting for all of their employee stock compensation
plans. However, it also allows an entity to continue to measure compensation
cost for those plans using the method of accounting prescribed by the
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued
to Employees. Entities electing to remain with the accounting in APB No. 25
must make pro forma disclosures of net income and earnings per share, as if the
fair value based method of accounting defined in SFAS No. 123 had been applied.
The Company has elected to account for its stock-based employee compensation
plans under APB No. 25. However, for pro forma disclosure purposes, the Company
has computed the compensation expense in 1997 and 1998 and for the nine months
ended September 30, 1999 for all options granted, using the Black-Scholes
option pricing model as prescribed by SFAS No. 123. The fair value of the 1997,
1998 and 1999 options granted is estimated on the date of grant using the
following assumptions: a dividend yield of 0%, an expected volatility of 18%
and an expected life of 5 years for each year, and a risk-free interest rate of
6.22%, 5.71% and 5.81%, respectively for 1997, 1998 and 1999.
The method prescribed by SFAS No. 123 has not been applied to the options
granted prior to January 1, 1995, and as a result, the resulting pro forma
compensation expense may not be representative of the amount to
F-17
<PAGE>
MODUS MEDIA INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1999
be expected in future years. The Company's compensation expense is attributable
to options in the Company that Stream and CS&T granted to the Company's
employees and does not reflect any compensation attributable to employees of
Stream or CS&T.
If the Company had accounted for these plans in accordance with SFAS No.
123, the Company's net income would have been reduced and net loss would have
been increased to the following pro forma amounts (in thousands):
<TABLE>
<CAPTION>
Year Ended Nine Months
December 31, Ended
----------------- September 30,
1997 1998 1999
-------- ------- -------------
<S> <C> <C> <C>
Net income (loss)
As reported.............................. $(32,667) $10,747 $9,390
Pro forma................................ (33,298) 10,263 9,163
</TABLE>
On January 9, 1998, the outstanding awards under Stream's stock option plans
were replaced by substitute awards such that for each option then held, the
option holder received an option in the Company, Stream and CS&T. The
substitute awards 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 replaced.
The following table summarizes the status of the Company's stock option
plans and changes to the plans during the periods indicated:
<TABLE>
<CAPTION>
Weighted
Number of Average
Shares Exercise Price
---------- --------------
<S> <C> <C>
Outstanding at December 31, 1996.................. 4,473,162 $0.81
Granted........................................... 191,500 0.95
Exercised......................................... (110,952) 0.12
Forfeited/cancelled............................... (722,832) 0.71
---------- -----
Outstanding at December 31, 1997.................. 3,830,878 0.85
Granted........................................... 1,700,000 0.58
Exercised......................................... (340,158) 0.60
Forfeited/cancelled............................... (1,280,280) 0.81
---------- -----
Outstanding at December 31, 1998.................. 3,910,440 0.69
Granted........................................... 1,197,374 8.54
Exercised......................................... (669,562) 0.97
Forfeited/cancelled............................... (258,290) 0.56
---------- -----
Outstanding at September 30, 1999................. 4,179,962 $2.48
========== =====
Options exercisable at:
December 31, 1997............................... 2,484,714 $0.84
December 31, 1998............................... 1,697,732 0.80
September 30, 1999.............................. 1,620,470 0.77
</TABLE>
F-18
<PAGE>
MODUS MEDIA INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1999
Options available for grant at December 31, 1997 and 1998 and September 30,
1999 were 1,007,512, 100,000 and 257,500, respectively. The following table
summarizes information about stock options outstanding and exercisable at
September 30, 1999:
<TABLE>
<CAPTION>
Weighted Average
Remaining
Range of Outstanding at Contractual Exercisable at
Exercise Prices September 30, 1999 Life (Years) September 30, 1999
--------------- ------------------ ---------------- ------------------
<S> <C> <C> <C>
$ 0.08-0.11 272,975 4.82 272,975
0.58-0.71 2,469,237 7.83 867,495
1.19-1.73 480,000 5.56 480,000
2.30 215,000 9.70 --
10.35 742,750 10.00 --
------------ --------- ----- ---------
$0.08-$10.35 4,179,962 7.85 1,620,470
============ ========= ===== =========
</TABLE>
(10) Earnings Per Share
The following table sets forth the computation of basic and diluted income
per share (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Basic:
Net income available to common shareholders.... $ 4,825 $ 4,505
======= =======
Weighted average shares outstanding............ 12,749 12,510
======= =======
Net income per share........................... $ 0.38 $ 0.36
======= =======
Diluted:
Net income available to common shareholders.... $ 4,825 $ 4,505
======= =======
Weighted average shares outstanding............ 12,749 12,510
Effect of dilutive common stock options........ 323 1,993
------- -------
Total........................................ 13,072 14,503
======= =======
Net income per share........................... $ 0.37 $ 0.31
======= =======
</TABLE>
Prior to the Reorganization, no common shares were outstanding; therefore,
income per share data prior to 1998 is not meaningful and has been excluded.
(11) Segment Information
The Company adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information in fiscal 1999. The Company has three
reportable business segments based on geographic regions: the Americas, Europe
and Asia-Pacific.
The accounting policies of the geographic segments are the same as those
described in the summary of significant accounting policies as described in
Note 3. The Company evaluates the performance of its
F-19
<PAGE>
MODUS MEDIA INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1999
geographic segments based on segment earnings before interest and taxes (EBIT).
Inter-segment revenue and transfers between geographic regions are accounted
for at prices that approximate arm's-length transactions. The table below
presents information about the Company's reportable segments (in thousands):
<TABLE>
<CAPTION>
Year Ended Nine Months
December 31, Ended
------------------ September 30,
1997 1998 1999
-------- -------- -------------
<S> <C> <C> <C>
Revenue:
Americas................................ $337,833 $286,574 $229,543
Europe.................................. 226,228 238,970 195,965
Asia-Pacific............................ 147,125 109,881 83,217
Eliminations............................ (26,663) (5,343) (2,490)
-------- -------- --------
Net customer revenue.................. $684,523 $630,082 $506,235
======== ======== ========
EBIT:
Americas................................ $ (4,237) $ 20,828 $ 8,626
Europe.................................. 13,942 18,834 9,746
Asia-Pacific............................ 1,720 1,396 11,800
Unallocated............................. (24,790) (22,164) (15,687)
-------- -------- --------
Total EBIT............................ (13,365) 18,894 14,485
Interest expense........................ (16,478) (3,882) (1,821)
-------- -------- --------
Income (loss) before income taxes..... $(29,843) $ 15,012 $ 12,664
======== ======== ========
Total property, plant and equipment, net:
Americas................................ $ 16,546 $ 16,230
Europe.................................. 30,600 29,138
Asia-Pacific............................ 22,177 21,765
Unallocated............................. 1,429 877
-------- --------
$ 70,752 $ 68,010
======== ========
Total assets:
Americas................................ $107,418 $106,905
Europe.................................. 126,081 114,401
Asia-Pacific............................ 58,524 72,180
Unallocated............................. 12,527 4,721
Eliminations............................ (13,340) (21,241)
-------- --------
Total assets.......................... $291,210 $276,966
======== ========
</TABLE>
(12) Restructuring Charge
In 1996, management undertook a restructuring of its worldwide manufacturing
operations by exiting its offset printing business and focusing on becoming a
provider of global supply chain management solutions. The Company recorded a
pretax charge of $100.9 million, which included the restructuring of its
operations and the write-down of certain equipment, intangibles and other long-
lived assets. The restructuring charge included approximately $28.3 million for
severance and termination benefits and $7.5 million for the remaining lease
obligations related to the closure of four facilities: two in North America,
one in Europe, and one in Asia.
F-20
<PAGE>
MODUS MEDIA INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 30, 1999
The remaining charge related primarily to impairment losses on long-lived
assets, which were calculated based on the excess carrying amounts of the
assets over the assets' fair values. The fair value of a long-lived asset was
generally determined using undiscounted estimates of the future cash flows
generated by that asset.
At December 31, 1998, the remaining accrual relating to the above-mentioned
charges totaled $0.5 million. At September 30, 1999, there was no remaining
accrual relating to the above-mentioned restructuring charge. Cash expenditures
and non-cash expenditures were $16.8 million and $11.2 million, respectively,
for 1997, $7.5 million and $3.7 million, respectively, for 1998, and $0.5
million and $0, respectively, for the nine months ended September 30, 1999.
(13) Subsequent Event
(a) Preferred Stock Repurchase
During October 1999, the Company repurchased all of its outstanding
preferred stock, 71,744 shares, valued at $71.7 million, for $60.2 million,
comprised of cash and a note for $12.7 million. The preferred stock value in
excess of the repurchase amount of $11.5 million will be added to net earnings
to arrive at net earnings available to common shareholders.
(b) Common Stock Redemption
Subsequent to September 30, 1999, the Company repurchased 949,812 shares of
common stock from non-employees at $10.35 per share for $9.8 million.
F-21
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
Modus Media International Holdings, Inc.
Common Stock
[Logo of Modus Media International appears here]
--------
PROSPECTUS
, 2000
--------
Salomon Smith Barney
Donaldson, Lufkin & Jenrette
Robertson Stephens
Thomas Weisel Partners LLC
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the costs and expenses, other than the
underwriting discount, payable by the Registrant in connection with the sale of
common stock being registered. All amounts are estimates except the SEC
registration fee, the NASD filing fees and the Nasdaq National Market listing
fee.
<TABLE>
<S> <C>
SEC registration fee............................................... $39,600
NASD filing fee.................................................... 15,500
Nasdaq National Market listing fee................................. *
Printing and engraving expenses.................................... *
Legal fees and expenses............................................ *
Accounting fees and expenses....................................... *
Blue Sky fees and expenses (including legal fees).................. *
Transfer agent and registrar fees and expenses..................... *
Miscellaneous...................................................... *
-------
Total............................................................
=======
</TABLE>
--------
* To be completed by amendment.
The Company will bear all expenses shown above.
Item 14. Indemnification of Directors and Officers.
The Registrant's Amended and Restated Certificate of Incorporation (the
"Restated Certificate") provides that, except to the extent prohibited by the
Delaware General Corporation Law (the "DGCL"), the Registrant's directors shall
not be personally liable to the Registrant or its stockholders for monetary
damages for any breach of fiduciary duty as directors of the Registrant. Under
the DGCL, the directors have a fiduciary duty to the Registrant which is not
eliminated by this provision of the Restated Certificate and, in appropriate
circumstances, equitable remedies such as injunctive or other forms of
nonmonetary relief will remain available. In addition, each director will
continue to be subject to liability under the DGCL for breach of the director's
duty of loyalty to the Registrant, for acts or omissions which are found by a
court of competent jurisdiction to be not in good faith or involving
intentional misconduct, for knowing violations of law, for actions leading to
improper personal benefit to the director, and for payment of dividends or
approval of stock repurchases or redemptions that are prohibited by the DGCL.
This provision also does not affect the directors' responsibilities under any
other laws, such as the federal securities laws or state or federal
environmental laws. The Registrant has obtained liability insurance for its
officers and directors.
Section 145 of the DGCL empowers a corporation to indemnify its directors
and officers and to purchase insurance with respect to liability arising out of
their capacity or status as directors and officers, provided that this
provision shall not eliminate or limit the liability of a director: (i) for any
breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) arising under
Section 174 of the DGCL including for an unlawful payment of dividend or
unlawful stock purchase or redemption, or (iv) for any transaction from which
the director derived an improper personal benefit. The DGCL provides further
that the indemnification permitted thereunder shall not be deemed exclusive of
any other rights to which the directors and officers may be entitled under the
corporation's by-laws, any agreement, a vote of stockholders or otherwise. The
Restated Certificate eliminates the personal liability of directors to the
fullest extent permitted by the DGCL and, together with the Registrant's
Amended and Restated By-Laws (the "Restated By-Laws"), provides that the
Registrant shall fully indemnify any 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)
by reason of the fact that such person is or was a director or officer of the
Registrant, or is or was
II-1
<PAGE>
serving at the request of the Registrant as a director or officer of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding. Reference is made to the
Registrant's Form of Amended and Restated Certificate of Incorporation and Form
of Amended and Restated By-Laws filed as Exhibits 3.2 and 3.4 hereto,
respectively.
The Underwriting Agreement provides that the Underwriters are obligated,
under certain circumstances, to indemnify directors, officers and controlling
persons of the Company against certain liabilities, including liabilities under
the Securities Act of 1933, as amended (the "Act"). Reference is made to the
form of Underwriting Agreement to be filed as Exhibit 1.1 hereto.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to which indemnification will be
required or permitted under the Restated Certificate. The Registrant is not
aware of any threatened litigation or proceeding that may result in a claim for
such indemnification.
Item 15. Recent Sales of Unregistered Securities.
Since its incorporation as an independent company in December 1997, the
Company has issued the following securities that were not registered under the
Securities Act as summarized below:
(a) Issuances of Capital Stock. On December 10, 1997, we issued
1,722,514 shares of our non-voting common stock to Bain Capital, Inc. as
partial payment for services rendered to us. On December 15, 1997, we
issued 40,646 shares of our preferred stock to R.R. Donnelley in exchange
for the cancellation of certain inter-company debt assigned to us pursuant
to the reorganization of Stream International Inc. On January 10, 1998, we
were spun off from Stream and, pursuant to that spin-off, our shares were
distributed to the shareholders of Stream. Following the spin-off, R.R.
Donnelley exchanged its shares of our common stock for 21,132 additional
shares of our preferred stock. Dividends on our preferred stock were
accrued and were paid in kind by the issuance of 6,094 additional shares of
our preferred stock in December 1998, less an offset of 913 shares. Our
Board of Directors authorized additional dividends on our preferred stock
during 1999 and such dividends accrued on our books. On October 13, 1999,
we repurchased in full all of the issued and outstanding shares of our
preferred stock. On April 21, 1998, we exchanged 899,488 shares of our
common stock, which were owned by BankAmerica Investment Corporation, for
899,488 shares of our non-voting common stock.
(b) Certain Grants and Exercises of Stock Options. The Company's 1997
stock option plans were adopted by the Board of Directors and sole
stockholder of the Company on December 15, 1997. As of November 30, 1999,
options to purchase 2,074,797 shares of common stock had been exercised for
a consideration of $1.6 million under the Company's 1997 Stock Incentive
Plan and options to purchase 3,235,559 shares of common stock were
outstanding under the Company's 1997 stock option plans.
No underwriters were involved in the foregoing sales of securities. Such
sales were made in reliance upon an exemption from the registration provisions
of the Securities Act set forth in Section 4(2) thereof relative to sales by an
issuer not involving any public offering or the rules and regulations
thereunder, or, in the case of options to purchase common stock, Rule 701 of
the Securities Act. All of the foregoing securities are deemed restricted
securities for the purposes of the Securities Act.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
*1.1 --Form of Underwriting Agreement
3.1 --Amended and Restated Certificate of Incorporation of the
Registrant, as amended
*3.2 --Form of Amended and Restated Certificate of Incorporation of
the Registrant, to be filed prior to the closing of this
offering
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
3.3 --Amended and Restated By-Laws of the Registrant
*3.4 --Form of Second Amended and Restated By-Laws of the Registrant,
to be effective upon the closing of this offering
*4.1 --Specimen common stock certificate
4.2 --See Exhibits 3.1, 3.2, 3.3 and 3.4 for provisions of the
Second Amended and Restated Certificate of Incorporation and
Amended and Restated By-Laws of the Registrant defining the
rights of holders of common stock of the Registrant
*5.1 --Opinion of Hale and Dorr LLP
10.1 --Contribution Agreement, dated as of December 15, 1997, among
Stream International Inc. (f/k/a Stream International Holdings,
Inc.), the Registrant and Modus Media International, Inc.
10.2 --Tax Sharing Agreement, dated as of December 15, 1997, among
Stream International Inc., the Registrant, Modus Media
International, Inc., Corporate Software & Technology Holdings,
Inc. and Corporate Software & Technology, Inc.
10.3 --The Registrant's 1997 Stock Incentive Plan, as amended
10.4 --Forms of Option Grants under the Registrant's 1997 Stock
Incentive Plan
10.5 --The Registrant's 1999 Management Incentive Plan
*10.6 --The Registrant's 1999 Employee Stock Purchase Plan
10.7 --Sublease, dated June 18, 1997, by and between The Travelers
Indemnity Company and Stream International Inc., as amended
10.8 --Lease, dated December 19, 1994, between Lieboch Limited, R.R.
Donnelley Ireland Turnkey Services Kildare and Allied Irish
Banks, p.l.c.
10.9 --Lease, dated December 2, 1996, by and between Housing &
Development Board and Stream International Pte Ltd., as amended
10.10 --Lease, dated December 3, 1994, by and between Novell, Inc. and
R.R. Donnelley & Sons Company, as assigned by Assignment and
Assumption of Lease, dated April 21, 1995, by and between R.R.
Donnelley & Sons Company and Stream International Holdings,
Inc., as amended
10.11 --Amended and Restated 7 3/4 Unsecured Promissory Note, dated
March 7, 1997, by and between Terence M. Leahy, as the
Borrower, and the Registrant
10.12 --7.34% Secured Non-Recourse Promissory Note, dated September
15, 1995, by and between Terence M. Leahy, as the Borrower, and
the Registrant
10.13 --Amended and Restated 7.25% Unsecured Promissory Note, dated
July 20, 1999, by and between W. Kendale Southerland, as the
Borrower, and the Registrant
10.14 --Amended and Restated 7.25% Unsecured Promissory Note by and
between Ronald Leitch, as the Borrower, and the Registrant
10.15 --Employment Agreement, as amended, by and between the
Registrant and Terence M. Leahy dated January 1, 1998
10.16 --Credit Agreement dated as of December 15, 1997, among Modus
Media International, Inc. and Modus Media International
Kabushiki Kaisha, as Borrowers, and the Banks named therein, as
Lenders, as amended
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10.17 --Agreement dated January 20, 1999 between the Industrial
Development Agency (Ireland), Modus Media International
Kildcare and Modus Media International Holdings, Inc.
10.18 --Business Transfer Agreement dated December 28, 1998 by and
between Modus Media International Kabushiki Kaisha and Sasatoku
Donnelley Kabushiki Kaisha
10.19 --Amended and Restated Joint Venture Agreement dated January
1999 by and between Modus Media International, Inc. and
Sasatoku Printing Co. Ltd.
10.20 --Master Agreement dated November 11, 1998 by and among Modus
Media International, Inc., the Korean management team of Modus
Media International Korea, Ltd. ("MMIK") and MMIK
*10.21 --Replication Agreement, dated September 1, 1999, by and between
Microsoft Licensing, Inc. and Modus Media International, Inc.
*11.1 --Statement re Computation of Earnings per Share
21.1 --Subsidiaries of the Registrant
23.1 --Consent of Arthur Andersen LLP
*23.2 --Consent of Hale and Dorr LLP (included in Exhibit 5.1)
24.1 --Powers of Attorney (see page II-5)
27.1 --Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
+ Confidential treatment requested for certain portions of this Exhibit
pursuant to Rule 406 promulgated under the Securities Act, which portions are
omitted and filed separately with the Securities and Exchange Commission
(b) Financial Statement:
Schedule II--Valuation and Qualifying Accounts
Schedule II--Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Additions Balance
Balance at Charged to at End
Beginning Costs and of
Description of Period Expenses Deductions Period
- ----------------------------------- ---------- ---------- ---------- -------
(in thousands)
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts:
Year ended December 31, 1997...... $ 4,909 $9,003 $ (6,799)(a) $ 7,113
Year ended December 31, 1998...... $ 7,113 $2,776 $ (5,487)(a) $ 4,402
Nine months ended September 30,
1999............................. $ 4,402 $1,722 $ (1,088)(a) $ 5,036
Restructuring Reserve:
Year ended December 31, 1997...... $39,744 $ -- $(28,076)(b) $11,668
Year ended December 31, 1998...... $11,668 $ -- $(11,187)(b) $ 481
Nine months ended September 30,
1999............................. $ 481 $ -- $ (481)(b) $ --
</TABLE>
(a) Uncollectible accounts receivable written off against the allowance, net of
recoveries.
(b) Payments and other write-offs for restructuring costs.
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
II-4
<PAGE>
Item 17. Undertakings.
The undersigned registrant hereby undertakes to provide to the Underwriter
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the registrant pursuant to the Delaware General
Corporation Law, the Restated Certificate of the registrant, the Underwriting
Agreement, 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
hereunder, the registrant will, unless in the opinion of 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 that:
(1) For purpose 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 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 Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Westwood, Massachusetts, on this
10th day of December 1999.
MODUS MEDIA INTERNATIONAL HOLDINGS,
INC.
/s/ Terence M. Leahy
By: _________________________________
Terence M. Leahy
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers, directors and authorized representatives of
Modus Media International Holdings, Inc. hereby severally constitute and
appoint Terry Leahy, Mary Wilson and Mark Borden, and each of them singly, our
true and lawful attorneys with full power to them, and each of them singly,
with full powers of substitution and resubstitution, to sign for us and in our
names in the capacities indicated below, the Registration Statement on Form S-1
filed herewith and any and all pre-effective and post-effective amendments to
said Registration Statement, and any subsequent Registration Statement for the
same offering which may be filed under Rule 462(b), and generally to do all
such things in our names and on our behalf in our capacities as officers and
directors to enable Modus Media International Holdings, Inc. to comply with the
provisions of the Securities Act of 1933, as amended, and all requirements of
the Securities and Exchange Commission, hereby ratifying and confirming our
signatures as they may be signed by our said attorneys, or any of them, or
their substitute or substitutes, to said Registration Statement and any and all
amendments thereto or to any subsequent Registration Statement for the same
offering which may be filed under Rule 462(b).
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Terence M. Leahy Chairman of the Board of December 10, 1999
______________________________________ Directors, and Chief
Terence M. Leahy Executive Officer
(Principal Executive
Officer)
/s/ Richard Darer Chief Financial Officer December 10, 1999
______________________________________ (Principal Financial
Richard Darer Officer)
/s/ Linwood A. Lacy, Jr. Director December 10, 1999
______________________________________
Linwood A. Lacy, Jr.
/s/ Jonathan Lavine Director December 10, 1999
______________________________________
Jonathan Lavine
/s/ Mark Nunnelly Director December 10, 1999
______________________________________
Mark Nunnelly
/s/ Robert White Director December 10, 1999
______________________________________
Robert White
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
*1.1 --Form of Underwriting Agreement
3.1 --Amended and Restated Certificate of Incorporation of the
Registrant, as amended
*3.2 --Form of Amended and Restated Certificate of Incorporation of
the Registrant, to be filed prior to the closing of this
offering
3.3 --Amended and Restated By-Laws of the Registrant
*3.4 --Form of Second Amended and Restated By-Laws of the Registrant,
to be effective upon the closing of this offering
*4.1 --Specimen common stock certificate
4.2 --See Exhibits 3.1, 3.2, 3.3 and 3.4 for provisions of the
Second Amended and Restated Certificate of Incorporation and
Amended and Restated By-Laws of the Registrant defining the
rights of holders of common stock of the Registrant
*5.1 --Opinion of Hale and Dorr LLP
10.1 --Contribution Agreement, dated as of December 15, 1997, among
Stream International Inc. (f/k/a Stream International Holdings,
Inc.), the Registrant and Modus Media International, Inc.
10.2 --Tax Sharing Agreement, dated as of December 15, 1997, among
Stream International Inc., the Registrant, Modus Media
International, Inc., Corporate Software & Technology Holdings,
Inc. and Corporate Software & Technology, Inc.
10.3 --The Registrant's 1997 Stock Incentive Plan, as amended
10.4 --Forms of Option Grants under the Registrant's 1997 Stock
Incentive Plan
10.5 --The Registrant's 1999 Management Incentive Plan
*10.6 --The Registrant's 1999 Employee Stock Purchase Plan
10.7 --Sublease, dated June 18, 1997, by and between The Travelers
Indemnity Company and Stream International Inc., as amended
10.8 --Lease, dated December 19, 1994, between Lieboch Limited, R.R.
Donnelley Ireland Turnkey Services Kildare and Allied Irish
Banks, p.l.c.
10.9 --Lease, dated December 2, 1996, by and between Housing &
Development Board and Stream International Pte Ltd., as amended
10.10 --Lease, dated December 3, 1994, by and between Novell, Inc. and
R.R. Donnelley & Sons Company, as assigned by Assignment and
Assumption of Lease, dated April 21, 1995, by and between R.R.
Donnelley & Sons Company and Stream International Holdings,
Inc., as amended
10.11 --Amended and Restated 7 3/4 Unsecured Promissory Note, dated
March 7, 1997, by and between Terence M. Leahy, as the
Borrower, and the Registrant
10.12 --7.34% Secured Non-Recourse Promissory Note, dated September
15, 1995, by and between Terence M. Leahy, as the Borrower, and
the Registrant
10.13 --Amended and Restated 7.25% Unsecured Promissory Note, dated
July 20, 1999, by and between W. Kendale Southerland, as the
Borrower, and the Registrant
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10.14 --Amended and Restated 7.25% Unsecured Promissory Note by and
between Ronald Leitch, as the Borrower, and the Registrant
10.15 --Employment Agreement, as amended, by and between the
Registrant and Terence M. Leahy dated January 1, 1998
10.16 --Credit Agreement dated as of December 15, 1997, among Modus
Media International, Inc. and Modus Media International
Kabushiki Kaisha, as Borrowers, and the Banks named therein, as
Lenders, as amended
10.17 --Agreement dated January 20, 1999 between the Industrial
Development Agency (Ireland), Modus Media International
Kildcare and Modus Media International Holdings, Inc.
10.18 --Business Transfer Agreement dated December 28, 1998 by and
between Modus Media International Kabushiki Kaisha and Sasatoku
Donnelley Kabushiki Kaisha
10.19 --Amended and Restated Joint Venture Agreement dated January
1999 by and between Modus Media International, Inc. and
Sasatoku Printing Co. Ltd.
10.20 --Master Agreement dated November 11, 1998 by and among Modus
Media International, Inc., the Korean management team of Modus
Media International Korea, Ltd. ("MMIK") and MMIK
*10.21 --Replication Agreement, dated September 1, 1999, by and between
Microsoft Licensing, Inc. and Modus Media International, Inc.
*11.1 --Statement re Computation of Earnings per Share
21.1 --Subsidiaries of the Registrant
23.1 --Consent of Arthur Andersen LLP
*23.2 --Consent of Hale and Dorr LLP (included in Exhibit 5.1)
24.1 --Powers of Attorney (see page II-5)
27.1 --Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
+ Confidential treatment requested for certain portions of this Exhibit
pursuant to Rule 406 promulgated under the Securities Act, which portions are
omitted and filed separately with the Securities and Exchange Commission
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
MODUS MEDIA INTERNATIONAL HOLDINGS, INC.
Pursuant to Sections 242 and 245
of the General Corporation Law
of the State of Delaware
MODUS MEDIA 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 was originally Modus Media International,
Inc., and the original Certificate of Incorporation of the Corporation was filed
with the Secretary of State of the State of Delaware on March 5, 1997. On
December 10, 1997, the Corporation filed an Amendment to its Certificate of
Incorporation with the Secretary of State of the State of Delaware changing its
name to Modus Media International Holdings, Inc.
2. This Amended and Restated Certificate of Incorporation amends and
restates the 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 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 the Corporation is Modus Media International Holdings,
Inc.
SECOND. The address of the Corporation's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of the Corporation's registered agent
at such address is The Corporation Trust Company.
-1-
<PAGE>
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. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 62,320,000 shares, consisting of
(i) 60,000,000 shares of Common Stock, $.01 par value per share (the "Common
Stock"), (ii) 2,200,000 shares of non-voting Common Stock, $.01 par value per
share ("Non-Voting Common Stock"), and (iii) 120,000 shares of Preferred Stock,
$.01 par value per share ("Preferred Stock"). The holders of Common Stock, Non-
Voting Common Stock and Preferred Stock of the Corporation are referred to
herein as the "Stockholders." The Common Stock, Non-Voting Common Stock and
Preferred Stock of the Corporation are referred to herein as "Stock."
The following is a statement of the designations and the powers, privileges
and rights, and the qualifications, limitations or restrictions thereof in
respect of each class of capital stock of the Corporation.
A. COMMON STOCK.
------------
1. General. The voting, dividend and liquidation rights of the
-------
holders of the Common Stock and Non-Voting Common Stock are subject to and
qualified by the rights of the holders of any outstanding Preferred Stock.
2. Voting. The holders of the Common Stock are entitled to one vote
------
for each share held at all meetings of Stockholders (and written actions in lieu
of meetings). There shall be no cumulative voting. The holders of the Non-Voting
Common Stock shall have no voting rights.
The number of authorized shares of Common Stock and Non-Voting Common
Stock may be increased or decreased (but not below the number of shares thereof
then outstanding) by the affirmative vote of the holders of a majority of the
stock of the Corporation entitled to vote, irrespective of the provisions of
Section 242(b)(2) of the General Corporation Law of Delaware.
3. Dividends. Dividends may be declared and paid on the Common Stock
---------
and Non-Voting Common Stock from funds lawfully available therefor as and when
determined by the Board of Directors and subject to any preferential dividend
rights of any then outstanding Preferred Stock. No dividend shall be declared or
paid on the Common Stock, unless a per share dividend of like kind and amount is
concurrently declared and paid on the Non-Voting Common Stock, and no dividend
shall be declared or paid on the Non-Voting Common Stock unless a per share
-2-
<PAGE>
dividend of like kind and amount is concurrently declared and paid on the Common
Stock.
4. Liquidation. Upon the dissolution or liquidation of the
-----------
Corporation, whether voluntary or involuntary, holders of Common Stock and Non-
Voting Common Stock will be entitled to receive all assets of the Corporation
available for distribution to its Stockholders, subject to any preferential
rights of any then outstanding Preferred Stock.
B. PREFERRED STOCK.
---------------
Preferred Stock may be issued from time to time in one or more series,
each of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the Corporation as hereinafter provided. Any shares of
Preferred Stock which may be redeemed, purchased or acquired by the Corporation
may be reissued except as otherwise provided by law. Different series of
Preferred Stock shall not be construed to constitute different classes of shares
for the purposes of voting by classes unless expressly provided.
Authority is hereby expressly granted to the Board of Directors from
time to time to issue the Preferred Stock in one or more series, and in
connection with the creation of any such series, by resolution or resolutions
providing for the issue of the shares thereof, to determine and fix such voting
powers, full or limited, or no voting powers, and such designations, preferences
and relative participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, including without
limitation thereof, dividend rights, conversion rights, redemption privileges
and liquidation preferences, as shall be stated and expressed in such
resolutions, all to the full extent now or hereafter permitted by the General
Corporation Law of Delaware. Without limiting the generality of the foregoing,
the resolutions providing for issuance of any series of Preferred Stock may
provide that such series shall be superior or rank equally to or be junior to
the Preferred Stock or any other series to the extent permitted by law. Except
as otherwise provided in this Amended and Restated Certificate of Incorporation,
including any terms of Preferred Stock, no vote of the holders of the Preferred
Stock or Common Stock shall be a prerequisite to the designation or issuance of
any shares of any series of the Preferred Stock authorized by and complying with
the conditions of this Amended and Restated Certificate of Incorporation, the
right to have such vote being expressly waived by all present and future holders
of the capital stock of the Corporation.
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
-3-
<PAGE>
Stock in the Corporation (whether voluntarily, involuntarily or by operation of
law), except that a Stockholder may Transfer any or all of its shares of Stock,
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 of 1933, as amended
(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 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 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."
-4-
<PAGE>
Until the Corporation has received and opinion of counsel reasonably
satisfactory to it that shares of 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 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) (i) 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 of equity securities of the Corporation registered under
the Securities Act (the "Initial Public Offering"), and (ii) shall not apply to
any Transfer of shares of Stock by Stream International Inc. (f/k/a Stream
International Holdings Inc.) to its stockholders.
B. Additional Limitations on Transfer.
----------------------------------
1. Notwithstanding the provisions of Section A above, no Transfer of
the shares of 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 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 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.
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:
-5-
<PAGE>
(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 of Stock (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 forth in the First Offer Notice, provided that such
sale complies with the provisions of Sections A and B hereof.
-6-
<PAGE>
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.
2. If any Stockholder or Stockholders (the "Selling Stockholders"),
having complied with the provisions of Section C(1) with respect to such
proposed
-7-
<PAGE>
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 the Common Stock (the "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
662/3% 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.
-8-
<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 defined in Rule 405 under the
Securities Act) (an "Affiliate") 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. In furtherance of and not in limitation of powers conferred by
statute, it is further provided:
1. Election of directors need not be by written ballot.
2. The Board of Directors is expressly authorized to adopt, amend or
repeal the By-Laws of the Corporation.
SEVENTH. Except to the extent that the General Corporation Law 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.
EIGHTH. The Corporation shall, to the fullest extent permitted by Section
145 of the General Corporation Law of Delaware, as amended from time to time,
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, 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
-9-
<PAGE>
and reasonably incurred by or on behalf of an Indemnitee in connection with such
action, suit or proceeding and any appeal therefrom.
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.
In the event that the Corporation does not assume the defense of any
action, suit, proceeding or investigation of which the Corporation receives
notice under this Article, the Corporation shall pay in advance of the final
disposition of such matter any expenses (including attorneys' fees) incurred by
an Indemnitee in defending a civil or criminal action, suit, proceeding or
investigation or any appeal therefrom; provided however that the payment of such
-------- -------
expenses incurred by 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, which undertaking shall be
accepted without reference to the financial ability of the Indemnitee to make
such repayment; and further provided that no such advancement of expenses shall
------- --------
be made if it is determined that (i) 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, or (ii) with respect to any criminal action
or proceeding, the Indemnitee had reasonable cause to believe his or her conduct
was unlawful.
The Corporation shall not indemnify an Indemnitee seeking indemnification
in connection with a proceeding (or part thereof) initiated by such Indemnitee
unless the initiation thereof was approved by the Board of Directors of the
Corporation. In addition, the Corporation shall not indemnify an Indemnitee to
the extent such Indemnitee is reimbursed from the proceeds of insurance, and in
the event the Corporation makes any indemnification payments to an Indemnitee
and such Indemnitee is subsequently reimbursed from the proceeds of insurance,
such Indemnitee shall promptly refund such indemnification payments to the
Corporation to the extent of such insurance reimbursement.
All determinations hereunder as to the entitlement of an Indemnitee to
indemnification or advancement of expenses shall be made in each instance by (a)
a majority vote 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"), whether or not a quorum, (b) a majority vote of a
quorum of the outstanding shares of stock of all classes entitled to vote for
directors, voting as a
-10-
<PAGE>
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, to the extent permitted by law, be regular legal counsel
to the Corporation), or (d) a court of competent jurisdiction.
The indemnification rights provided in this Article (i) shall not be deemed
exclusive of any other rights to which an Indemnitee may be entitled under any
law, agreement or vote of Stockholders or disinterested directors or otherwise,
and (ii) shall inure to the benefit of the heirs, executors and administrators
of the Indemnitees. 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.
NINTH. 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; provided, however,
-------- -------
that no amendment to this Amended and Restated Certificate of Incorporation
shall amend, alter, change or repeal any provision of any Certificate of
Designation relating to any outstanding series of the Preferred Stock unless the
amendment effectuating such amendment, alteration, change or repeal shall have
received the affirmative vote of the holders of the such affected series (voting
separately as a class) specified in such Certificate of Designation. The
foregoing proviso shall be in addition to any vote of the holders of capital
stock of the Corporation otherwise required by applicable law, this Amended and
Restated Certificate of Incorporation or any agreement or contract to which the
Corporation is a party.
EXECUTED at Westwood, Massachusetts, on 12/15, 1997.
MODUS MEDIA INTERNATIONAL
HOLDINGS, INC.
By: /s/ Terence Leahy
-----------------------------------
Terence Leahy
President
-11-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
MODUS MEDIA INTERNATIONAL, INC.
Modus Media International, Inc., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:
FIRST: That the Board of Directors and sole stockholder of the
Corporation, by joint unanimous written consent, duly adopted resolutions
setting forth an amendment to the Certificate of Incorporation of said
Corporation, declaring said amendment to be advisable and approving said
resolution setting forth the proposed amendment is as follows:
RESOLVED: That Article 1 of the Certificate of Incorporation of the
Corporation, be and hereby is, amended to read as follows:
"The name of the Corporation is Modus Media International
Holdings, Inc."
SECOND: The Board of Directors and sole stockholder of Modus Media
International, Inc. have given written consent to said amendment in accordance
with the provisions of Section 228 of the General Corporation Law of the State
of Delaware.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 and 228 of the General Corporation Law of the State of
Delaware.
<PAGE>
IN WITNESS WHEREOF, said Modus Media International, Inc. has caused its
corporate seal to be hereunto affixed and this Certificate to be signed by its
Secretary this 10th day of December, 1997.
MODUS MEDIA INTERNATIONAL, INC.
By: /s/ Alicia T. Brophey
------------------------------
Alicia T. Brophey
Secretary
<PAGE>
State of Delaware
Office of the Secretary of State
-----------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "MODUS MEDIA INTERNATIONAL HOLDINGS, INC.", FILED IN THIS OFFICE ON THE
TWENTY-FIRST DAY OF APRIL, A.D. 1998, AT 4:30 O'CLOCK P.M.
/s/ Edward J. Freel
------------------------------------
Edward J. Freel, Secretary of State
2720120 8100 AUTHENTICATION: 9038992
981152229 DATE: 04-22-98
<PAGE>
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
MODUS MEDIA INTERNATIONAL HOLDINGS, INC.
Pursuant to Section 242
of the General Corporation Law
of the State of Delaware
MODUS MEDIA INTERNATIONAL HOLDINGS, INC. (hereinafter called the
"Corporation"), organized and existing under and by virtue of the General
Corporation Law of the State of Delaware, does hereby certify:
Pursuant to a Written Consent of Board of Directors of the Corporation
dated as of April 21, 1998, a resolution was duly adopted, pursuant to Sections
141(f) and 242 of the General Corporation Law of the State of Delaware, setting
forth an amendment to the Amended and Restated Certificate of Incorporation of
the Corporation, declaring said amendment to be advisable and submitting said
amendment to the stockholders of the Corporation for consideration thereof. The
holders of a majority of the issued and outstanding shares of the Common Stock
of the Corporation approved said proposed amendment pursuant to a written
consent of stockholders in accordance with Sections 228 and 242 of the General
Corporation Law of the State of Delaware. The resolution setting forth the
amendment is as follows:
<PAGE>
RESOLVED: That the first paragraph of Article FOURTH of the Corporation's
Amended and Restated Certificate of Incorporation be and hereby is
deleted in its entirety and the following paragraph is inserted in
lieu thereof:
"FOURTH. The total number of shares of all classes of stock
which the Corporation shall have authority to issue is 33,120,000
shares, consisting of (i) 30,000,000 shares of Common Stock, $.01 par
value per share (the "Common Stock"), (ii) 3,000,000 shares of non-
voting Common Stock, $.01 par value per share ("Non-Voting Common
Stock"), and (iii) 120,000 shares of Preferred Stock, $.01 par value
per share ("Preferred Stock"). The holders of Common Stock, Non-
Voting Common Sock and Preferred Stock of the Corporation are
referred to herein as the "Stockholders." The Common Stock, Non-
Voting Common Stock and Preferred Stock of the Corporation are
referred to herein as "Stock."
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
hereto affixed and this Certificate of Amendment to be signed by its President
this 21st day of April, 1998.
MODUS MEDIA INTERNATIONAL
HOLDINGS, INC.
By: /s/ Terence M. Leary
--------------------------
Terence M. Leary
President
<PAGE>
EXHIBIT 3.3
AMENDED AND RESTATED
BY-LAWS
OF
MODUS MEDIA INTERNATIONAL HOLDINGS, INC.
<PAGE>
AMENDED AND RESTATED BY-LAWS
TABLE OF CONTENTS
Page
----
ARTICLE 1 - Stockholders..................................................... 1
1.1 Place of Meetings........................................... 1
1.2 Annual Meeting.............................................. 1
1.3 Special Meetings............................................ 1
1.4 Notice of Meetings.......................................... 1
1.5 Voting List................................................. 2
1.6 Quorum...................................................... 2
1.7 Adjournments................................................ 2
1.8 Voting and Proxies.......................................... 2
1.9 Action at Meeting........................................... 3
1.10 Action without Meeting...................................... 3
ARTICLE 2 - Directors........................................................ 3
2.1 General Powers.............................................. 3
2.2 Number; Election and Qualification.......................... 3
2.3 Enlargement of the Board.................................... 4
2.4 Tenure...................................................... 4
2.5 Vacancies................................................... 4
2.6 Resignation................................................. 4
2.7 Regular Meetings............................................ 4
2.8 Special Meetings............................................ 4
2.9 Notice of Special Meetings.................................. 4
2.10 Meetings by Telephone Conference Calls...................... 5
2.11 Quorum...................................................... 5
2.12 Action at Meeting........................................... 5
2.13 Action by Consent........................................... 5
2.14 Removal..................................................... 5
2.15 Committees.................................................. 6
2.16 Compensation of Directors................................... 6
ARTICLE 3 - Officers......................................................... 6
3.1 Enumeration................................................. 6
3.2 Election.................................................... 6
3.3 Qualification............................................... 7
3.4 Tenure...................................................... 7
3.5 Resignation and Removal..................................... 7
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<PAGE>
3.6 Vacancies................................................... 7
3.7 Chairman of the Board and Vice-Chairman of the Board........ 7
3.8 President................................................... 7
3.9 Vice Presidents............................................. 8
3.10 Secretary and Assistant Secretaries......................... 8
3.11 Treasurer and Assistant Treasurers.......................... 8
3.12 Salaries.................................................... 9
ARTICLE 4 - Capital Stock.................................................... 9
4.1 Issuance of Stock........................................... 9
4.2 Certificates of Stock....................................... 9
4.3 Transfers................................................... 10
4.4 Lost, Stolen or Destroyed Certificates...................... 10
4.5 Record Date................................................. 10
ARTICLE 5 - General Provisions............................................... 11
5.1 Fiscal Year................................................. 11
5.2 Corporate Seal.............................................. 11
5.3 Waiver of Notice............................................ 11
5.4 Voting of Securities........................................ 12
5.5 Evidence of Authority....................................... 12
5.6 Certificate of Incorporation................................ 12
5.7 Transactions with Interested Parties........................ 12
5.8 Severability................................................ 13
5.9 Pronouns.................................................... 13
ARTICLE 6 - Amendments....................................................... 13
6.1 By the Board of Directors................................... 13
6.2 By the Stockholders......................................... 13
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<PAGE>
AMENDED AND RESTATED
BY-LAWS
OF
MODUS MEDIA INTERNATIONAL HOLDINGS, INC.,
a Delaware Corporation
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 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 President or by 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
-1-
<PAGE>
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 address as it appears on the
records of the corporation.
1.5 Voting List. The officer who has charge of the stock ledger of the
-----------
corporation shall prepare, at least ten 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
in the Certificate of Incorporation. 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 by
written proxy executed by the
-2-
<PAGE>
stockholder or his 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 shares of stock representing a majority of the votes cast 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 shares of stock of
that class representing a majority of the votes cast 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. When a quorum is present at any meeting, any
election by stockholders shall be determined by a plurality of the votes cast on
the election.
1.10 Action without Meeting. Any action required or permitted to be taken
----------------------
at any annual or special meeting of stockholders of the corporation may be taken
without a meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken, is signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote on such action were present and voted. Prompt notice of the
taking of corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
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 or the
Certificate of Incorporation. 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 stockholders or the Board of Directors, but in no event shall be less
than one. The number of directors may be decreased at any time and from time to
time either by the stockholders or 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
-3-
<PAGE>
stockholders by such stockholders as have the right to vote on such election.
Directors need not be stockholders of the corporation.
2.3 Enlargement of the Board. The number of directors may be increased at
------------------------
any time and from time to time by the stockholders or by a majority of the
directors then in office.
2.4 Tenure. Each director shall hold office until the next annual meeting
------
and until his successor is elected and qualified, or until his earlier death,
resignation or removal.
2.5 Vacancies. Unless and until filled by the stockholders, any vacancy in
---------
the Board of Directors, however occurring, including a vacancy resulting from an
enlargement of the Board, may be filled 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 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
annual meeting of stockholders and until his successor is elected and qualified,
or until his earlier death, resignation or removal.
2.6 Resignation. Any director may resign by delivering his 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.
2.7 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.
2.8 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.
2.9 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
-4-
<PAGE>
notice to such director in person or by telephone at least 48 hours in advance
of the meeting, (ii) by sending a telegram or telex, or delivering written
notice by hand, to his last known business or home address at least 48 hours in
advance of the meeting, or (iii) by mailing written notice to his last known
business or 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.
2.10 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.
2.11 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.
2.12 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.
2.13 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 of proceedings of the Board or committee.
2.14 Removal. Except as otherwise provided by the General Corporation
-------
Law of Delaware, any one or more or all of the directors may be removed, with or
without cause, by the holders of a majority of the shares then entitled to vote
at an election of directors, except that the directors elected by the holders of
a particular class or series of stock may be removed without cause only by vote
of the holders of a majority of the outstanding shares of such class or series.
-5-
<PAGE>
2.15 Committees. The Board of Directors may 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 he 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.
2.16 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 any other meeting.
-6-
<PAGE>
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
successor is elected and qualified, unless a different term is specified in the
vote choosing or appointing him, or until his earlier death, resignation or
removal.
3.5 Resignation and Removal. Any officer may resign by delivering his
-----------------------
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 resignation or removal, or any right to damages on
account of such removal, whether his 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 predecessor and until his successor is elected and qualified, or until his
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 and may designate the Chairman of
the Board as Chief Executive Officer. If the Board of Directors appoints a
Chairman of the Board, he shall perform such duties and possess such powers as
are assigned to him by the Board of Directors. If the Board of Directors
appoints a Vice-Chairman of the Board, he 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 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.
-7-
<PAGE>
Unless otherwise provided by the Board of Directors, he shall preside at all
meetings of the stockholders and, if he 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, 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 by
the Board of Directors or the President. In addition, the Treasurer shall
perform such
-8-
<PAGE>
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, (of if there shall be more than one, the
Assistant Treasurers in the 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 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 an Executive 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
-9-
<PAGE>
laws or any agreement among any number of shareholders 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.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of each certificate representing shares of such
class or series of stock, provided that in lieu of the foregoing requirements
there may be set forth on the face or back of each certificate representing
shares of such class or series of stock a statement that the corporation will
furnish without charge to each stockholder who so requests a copy of the full
text of the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
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 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 to express consent (or dissent) to
corporate action in
-10-
<PAGE>
writing without a meeting, 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 10 days after the date of adoption of a record
date for a written consent without a 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 entitled to
express consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors is necessary, shall be the day on which the
first written consent is properly delivered to the corporation. 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.
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.
-11-
<PAGE>
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 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 or their votes are counted for such purpose, if:
(1) The material facts as to his 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 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
(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.
-12-
<PAGE>
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
------------
is 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. 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 meeting of stockholders, or at
any 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 special meeting.
-13-
<PAGE>
EXHIBIT 10.1
================================================================================
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>
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
19
<PAGE>
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 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
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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 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 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 Salerno
-------------------------------------
Name: Judith 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 10.2
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;
-3-
<PAGE>
(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.
-4-
<PAGE>
"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.
-5-
<PAGE>
"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.
-6-
<PAGE>
"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
MMII, 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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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.
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<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:
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<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:
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<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
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<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
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<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
--------------------------------
Title:
----------------------------
MODUS MEDIA INTERNATIONAL, INC.
By
--------------------------------
Title:
----------------------------
CORPORATE SOFTWARE & TECHNOLOGY HOLDINGS, INC.
By
--------------------------------
Title:
----------------------------
CORPORATE SOFTWARE & TECHNOLOGY, INC.
By
--------------------------------
Title:
----------------------------
-27-
<PAGE>
<TABLE>
<CAPTION>
Tax Sharing Ag't -3.01(d)(vii)
Tax Sharing Agreement
Schedule 3.01(d)(vii)
--------------------------------------------
Separate Tax Items
--------------------------------------------
1995 1996 1997
--------------------------------------------
As filed Post-Audit
-----------------------
<S> <C> <C> <C> <C>
MMI Holdings and MMl (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
--------------------------------------------
<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>
25 (75) 100 (71) 100 -
MMI Holdings and MMl - (50) 75 (54) 75 -
CST Holdings and CST (250) - (150) (100) (150) -
Stream - Operating income (loss) - 300 (225)
Stream - Reorganization Tax income ---------------------------------------------------------------------
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.
-28-
<PAGE>
EXHIBIT 10.3
MODUS MEDIA INTERNATIONAL HOLDINGS, INC.
1997 Stock Incentive Plan
-------------------------
1. Purpose
-------
The purpose of this 1997 Stock Incentive Plan (the "Plan") of Modus Media
International Holdings, Inc., 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 Modus Media International Holdings, 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
subject to Awards and the maximum number of shares for any one Participant to be
made by such executive officers.
<PAGE>
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 1,800,000 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 900,000 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 extent the Board shall determine, in
good faith, that such an adjustment (or substitution) is necessary and
appropriate.
-2-
<PAGE>
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;
(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
-3-
<PAGE>
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.
Adopted by the Board of Directors on
December 15, 1997
Approved by the stockholders on
December 15, 1997
-8-
<PAGE>
MODUS MEDIA INTERNATIONAL HOLDINGS, INC.
Amendment No. 1
to
1997 Stock Incentive Plan
-------------------------
Section 8(e)(i) of the 1997 Stock Incentive Plan of Modus Media
International Holdings, Inc. is hereby restated in its entirety as follows:
"(i) Consequences of Acquisition. In the event of an Acquisition
---------------------------
Event (as defined below), the Board of Directors of the Company, or the
board of directors of any corporation assuming the obligations of the
Company, may, in its discretion, take any one or more of the following
actions as to outstanding Awards: (i) provide that such Awards shall be
assumed, or substantially equivalent Awards shall be substituted, by the
acquiring or succeeding corporation (or an affiliate thereof) on such terms
as the Board determines to be appropriate, (ii) upon written notice to
Participants, provide that all unexercised Options or other Awards will
terminate immediately prior to the consummation of such transaction unless
exercised by the Participant within a specified period following the date
of such notice, (iii) in the event of an Acquisition Event under the terms
of which holders of the Common Stock of the Company will receive upon
consummation thereof a cash payment for each share surrendered in the
Acquisition Event (the "Acquisition Price"), make or provide for a cash
payment to Participants equal to the difference between (A) the Acquisition
Price times the number of shares of Common Stock subject to outstanding
Options or other Awards (to the extent then exercisable at prices not in
excess of the Acquisition Price) and (B) the aggregate exercise price of
all such outstanding Options or other Awards, in exchange for the
termination of such Options and other Awards, (iv) provide that all
Restricted Stock Awards then outstanding shall become immediately free of
all restrictions upon the consummation of the Acquisition Event, and (v)
provide that all or any outstanding Awards shall become exercisable or
realizable in full prior to the effective date 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
<PAGE>
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."
Adopted by the Board of Directors
on April 17, 1998
<PAGE>
EXHIBIT 10.4
FORM OF LEAHY OPTION GRANT #1
MODUS MEDIA INTERNATIONAL HOLDINGS, INC.
Incentive Stock Option Agreement
Granted Under 1997 Stock Incentive Plan
---------------------------------------
1. Grant of Option.
---------------
This agreement evidences the grant by Modus Media International Holdings,
Inc., a Delaware corporation (the "Company"), on April __, 1998 to Terence M.
Leahy, an employee of the Company (the "Participant"), of an option to purchase,
in whole or in part, on the terms provided herein and in the Company's 1997
Stock Incentive Plan, as amended (the "Plan"), a total of [__________________]
shares of common stock, $.01 par value per share, of the Company ("Common
Stock") (the "Shares") at $[__________] per Share. Unless earlier terminated,
this option shall expire on April __, 2008 (the "Final Exercise Date").
It is intended that the option evidenced by this agreement shall be an
incentive stock option as defined in Section 422 of the Internal Revenue Code of
1986, as amended, and any regulations promulgated thereunder (the "Code").
Except as otherwise indicated by the context, the term "Participant", as used in
this option, shall be deemed to include any person who acquires the right to
exercise this option validly under its terms.
2. Vesting Schedule.
----------------
(a) Vesting. This option will become exercisable as to _____ Shares,
-------
representing 25% of the original number of Shares, on the first anniversary of
the date of the grant of this option (the "Grant Date"); _____ Shares,
representing 25% of the original number of Shares, on the second anniversary of
the Grant Date; _____ Shares, representing 20% of the original number of Shares,
on the third anniversary of the Grant Date; _____ Shares, representing 20% of
the original number of Shares, on the fourth anniversary of the Grant Date; and
_____ Shares, representing 10% of the original number of Shares, on the fifth
anniversary of the Grant Date.
(b) Right of Exercise Cumulative. The right of exercise shall be cumulative
----------------------------
so that to the extent the option is not exercised in any period to the maximum
extent permissible it shall continue to be exercisable, in whole or in part,
with respect to all Shares for which it is exercisable until the earlier of the
Final Exercise Date or the termination of this option under Section 3 hereof or
the Plan.
<PAGE>
(c) Accelerated Vesting. Notwithstanding Section 2(a) above, upon the
-------------------
termination of the Participant's employment within six (6) months following an
"Acquisition Event" (as defined in the Plan) for any reason other than by the
Company for Cause (as defined in the Participant's Employment Agreement with the
Company dated as of January 1, 1998 (the "Employment Agreement")) or by the
Participant without Good Reason (as defined in the Employment Agreement), this
option will become exercisable as to 50% of the original number of Shares that
would have otherwise become exercisable on each anniversary of the Grant Date
subsequent to such termination.
(d) Expiration. This option shall expire upon, and will not be exercisable
----------
after, the Final Exercise Date.
3. Exercise of Option.
------------------
(a) Form of Exercise. Each election to exercise this option shall be in
----------------
writing, signed by the Participant, and received by the Company at its principal
office, accompanied by this agreement and payment in full for the Shares
purchased upon such exercise. Common Stock purchased upon the exercise of this
option shall be paid for as follows: (i) in cash or by check, payable to the
order of the Company; (ii) by 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; (iii) by delivery of shares of Common Stock owned by the
Participant valued at their Fair Value (as defined below), which Common Stock
was owned by the Participant at least six months prior to such delivery; (iv) if
permitted by the Board, 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 (v) any combination of the above permitted forms of payment. The
Participant may purchase less than the number of Shares covered hereby, provided
that no partial exercise of this option may be for any fractional Share or for
fewer than ten whole Shares.
(b) Continuous Relationship with the Company Required. Except as otherwise
-------------------------------------------------
provided in this Section 3, this option may not be exercised unless the
Participant, at the time he exercises this option, is, and has been at all times
since the date of grant of this option, an employee, officer or director of, or
consultant or advisor to, the Company or any parent or subsidiary of the Company
as defined in Section 424(e) or (f) of the Code (an "Eligible Participant").
(c) Termination of Relationship with the Company. If the Participant ceases
--------------------------------------------
to be an Eligible Participant for any reason, then, except as provided in
-2-
<PAGE>
paragraphs (d) and (e) below, the right to exercise this option shall terminate
three months after such cessation (but in no event after the Final Exercise
Date), provided that this option shall be exercisable only to the extent that
-------- ----
the Participant was entitled to exercise this option on the date of such
cessation.
(d) Exercise Period Upon Death or Disability. If the Participant dies or
----------------------------------------
becomes "disabled" (as defined in the Employment Agreement) prior to the Final
Exercise Date while he is an Eligible Participant and the Company has not
terminated such relationship for "Cause" (as defined in the Employment
Agreement), this option shall be exercisable, within the period of one year
following the date of death or disability of the Participant, provided that this
-------- ----
option shall be exercisable only to the extent that this option was exercisable
by the Participant on the date of his or her death or disability, and further
provided that this option shall not be exercisable after the Final Exercise
Date.
(e) Discharge for Cause. If the Participant, prior to the Final Exercise
-------------------
Date, is discharged by the Company for "Cause" (as defined in the Employment
Agreement), the right to exercise this option shall terminate immediately upon
the effective date of such discharge.
4. Repurchase Rights.
-----------------
(a) Repurchase. Upon any termination of employment or service of the
----------
Participant with the Company, the Company shall have the right to purchase, for
cash, Shares issued upon exercise of this option, upon the following terms:
(i) Termination for Any Reason Other Than Cause. If the termination
-------------------------------------------
of employment or service of the Participant is for any reason
other than Cause (as defined in the Employment Agreement), the
Company shall have the right to purchase all or any portion of
the Shares issued upon exercise of this option at a price equal
to the Fair Value (as defined below) thereof at the time of
termination.
(ii) Termination for Cause. If the termination of employment or
---------------------
service of the Participant is for Cause (as defined in the
Employment Agreement), the Company shall have the right to
purchase all or any portion of the Shares issued upon exercise of
this option at a price equal to the lesser of (x) Fair Value and
(y) the amount paid by the Participant for such Shares.
(b) Termination. The repurchase rights of the Company set forth in Section
-----------
4(a) shall terminate upon the earliest of (i) the registration of any class
of equity securities of the Company under the Securities Exchange Act of
1934, as amended
-3-
<PAGE>
(the "Exchange Act"), (ii) the closing of the initial public offering of equity
securities of the Company under the Securities Act of 1933, as amended (the
"Securities Act"), or (iii) the closing of an Acquisition Event.
(c) Exercise. The Company must exercise its repurchase rights under this
--------
Section 4, by written notice to the Participant, within 90 days after the
termination of this option. The closing of any purchase pursuant to this Section
4 shall take place as soon as reasonably practicable at the principal office of
the Company, or at such other time and location as the parties to such purchase
may mutually determine. At the closing, the holder of the Shares to be sold
shall deliver to the Company an instrument representing such Shares, duly
endorsed for transfer, and the Company shall pay the purchase price therefor, by
check or wire transfer.
(d) Fair Value. As used in this agreement, the term "Fair Value" shall mean
----------
the fair value of the Shares as of the applicable date as determined in good
faith by the Board of Directors of the Company, which determination shall be
conclusive; provided, however, that, solely for purposes of this Section 4, in
-------- -------
the event of a repurchase by the Company of an aggregate of 100,000 or more
Shares purchased upon the exercise of the Participant's options (as adjusted for
stock splits, stock dividends and similar events), the determination of Fair
Value shall be subject to mutual agreement of the Company and the Participant.
Absent such an agreement, Fair Value shall be determined by calculating the
average of the sum of the determinations of Fair Value made by two independent
investment banking firms, one of which shall be retained by the Company and one
of which shall be retained by the Participant. However, if the determinations of
Fair Value of such two firms differ from one another by more than 15%, the
Company and the Participant shall mutually select a third independent investment
banking firm to make a final determination of Fair Value with respect to the
Shares then being repurchased by the Company.
(e) Legend. The Company may require that each certificate representing
------
Shares of Common Stock subject to the repurchase rights set forth in this
Section 4 shall bear a legend referencing such repurchase rights.
5. Agreement in Connection with Public Offering.
--------------------------------------------
The Participant agrees, in connection with an initial underwritten public
offering of the Company's securities pursuant to a registration statement under
the Securities Act, (i) not to sell, make short sale of, loan, grant any options
for the purchase of, or otherwise dispose of any shares of Common Stock held by
the Participant (other than those shares included in the offering) without the
prior written consent of the Company or the underwriters managing such initial
underwritten public offering of the Company's securities for a period of 180
days from the effective date of such registration statement, and (ii) to execute
any agreement reflecting clause
-4-
<PAGE>
(i) above as may be requested by the Company or the managing underwriters at the
time of such offering.
6. Withholding.
-----------
No Shares will be issued pursuant to the exercise of this option unless and
until the Participant pays to the Company, or makes provision satisfactory to
the Company for payment of, any federal, state or local withholding taxes
required by law to be withheld in respect of this option. Any such withholding
tax requirements may be satisfied by (i) making a payment in cash or by personal
check, certified check, bank draft or money order payable to the order of the
Company, (ii) delivery of an unconditional and irrevocable undertaking by a
broker to deliver to the Company promptly upon the settlement of the sale of the
Shares to be issued sufficient funds to pay the exercise price, (iii) delivery
of whole shares of Common Stock of the Company (which the Participant has held
for at least six months prior to the delivery of such shares or acquired on the
open market and for which the Participant has good title, free and clear of all
liens and encumbrances) having a Fair Value, determined as of the date on which
such withholding obligation must be satisfied, equal to such withholding
obligation or (iv) requesting that the Company withhold from the Shares to be
delivered upon the exercise a number of shares of Common Stock having a Fair
Value, determined as of the date on which such withholding obligation must be
satisfied, equal to such withholding obligation; provided, however, that the
Company shall have sole discretion to disapprove of an election pursuant to any
of clauses (ii), (iii) or (iv), and that in event the Participant is subject to
Section 16 of the Exchange Act, the Company may require that the method of
satisfying such an obligation be in compliance with Section 16 of the Exchange
Act and the rules and regulations thereunder. Shares of Common Stock may be
delivered or withheld having an aggregate Fair Value in excess of the minimum
amount required to be withheld, but not in excess of the amount determined by
applying the Participant's maximum marginal tax rate. Any fraction of a Share
which would be required to satisfy such an obligation shall be disregarded and
the remaining amount due shall be paid in cash by the Participant.
7. Nontransferability of Option.
----------------------------
This option may not be sold, assigned, transferred, pledged or otherwise
encumbered by the Participant, either voluntarily or by operation of law, except
by will or the laws of descent and distribution, and, during the lifetime of the
Participant, this option shall be exercisable only by the Participant.
-5-
<PAGE>
8. Disqualifying Disposition.
-------------------------
If the Participant disposes of Shares acquired upon exercise of this option
within two years from the date of grant of the option or one year after such
Shares were acquired pursuant to exercise of this option, the Participant shall
notify the Company in writing of such disposition.
9. Provisions of the Plan.
----------------------
This option is subject to the provisions of the Plan, a copy of which is
furnished to the Participant with this option.
10. Termination of Management Retention Agreements.
----------------------------------------------
This agreement supersedes in its entirety any Management Retention Agreement
between the Participant and the Company, and, upon the effectiveness of this
agreement, any such Management Retention Agreement shall be of no further force
and effect.
[signature on following page]
-6-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this option to be executed under
its corporate seal by its duly authorized officer. This option shall take
effect as a sealed instrument.
MODUS MEDIA INTERNATIONAL
HOLDINGS, INC.
Dated: April __, 1998 By:
-----------------------------------
Name:
------------------------------
Title:
-----------------------------
-7-
<PAGE>
PARTICIPANT'S ACCEPTANCE
The undersigned hereby accepts the foregoing option and agrees to the terms
and conditions thereof. The undersigned hereby acknowledges receipt of a copy
of the Company's 1997 Stock Incentive Plan.
PARTICIPANT:
-----------------------------
Address:
---------------------
---------------------
-8-
<PAGE>
NOTICE OF STOCK OPTION EXERCISE
Date: ____________
Modus Media International Holdings, Inc.
2 Edgewater Drive
Norwood, MA 02062
Attention: Treasurer
Dear Sir or Madam:
I am the holder of an Incentive Stock Option granted to me under the Modus Media
International Holdings, Inc. (the "Company") 1997 Stock Incentive Plan on
__________ for the purchase of __________ shares of Common Stock of the Company
at a purchase price of $__________ per share.
I hereby exercise my option to purchase _________ shares of Common Stock (the
"Shares"), for which I have enclosed __________ in the amount of ________.
Please register my stock certificate as follows:
Name(s): _______________________
_______________________
Address: _______________________
Tax I.D. #: _______________________
I represent, warrant and covenant as follows:
1. I am purchasing the Shares for my own account for investment only, and not
with a view to, or for sale in connection with, any distribution of the Shares
in violation of the Securities Act of 1933 (the "Securities Act"), or any rule
or regulation under the Securities Act.
2. I have had such opportunity as I have deemed adequate to obtain from
representatives of the Company such information as is necessary to permit me to
evaluate the merits and risks of my investment in the Company.
-9-
<PAGE>
3. I have sufficient experience in business, financial and investment matters
to be able to evaluate the risks involved in the purchase of the Shares and to
make an informed investment decision with respect to such purchase.
4. I can afford a complete loss of the value of the Shares and am able to bear
the economic risk of holding such Shares for an indefinite period.
5. I understand that (i) the Shares have not been registered under the
Securities Act and are "restricted securities" within the meaning of Rule 144
under the Securities Act, (ii) the Shares cannot be sold, transferred or
otherwise disposed of unless they are subsequently registered under the
Securities Act or an exemption from registration is then available; (iii) in any
event, the exemption from registration under Rule 144 will not be available for
at least two years and even then will not be available unless a public market
then exists for the Common Stock, adequate information concerning the Company is
then available to the public, and other terms and conditions of Rule 144 are
complied with; and (iv) there is now no registration statement on file with the
Securities and Exchange Commission with respect to any stock of the Company and
the Company has no obligation or current intention to register the Shares under
the Securities Act.
Very truly yours,
_____________________________
(Signature)
-10-
<PAGE>
EXHIBIT 10.6
FORM OF LEAHY OPTION GRANT #2
MODUS MEDIA INTERNATIONAL HOLDINGS, INC.
Incentive Stock Option Agreement
Granted Under 1997 Stock Incentive Plan
---------------------------------------
1. Grant of Option.
---------------
This agreement evidences the grant by Modus Media International Holdings,
Inc., a Delaware corporation (the "Company"), on April __, 1998 to Terence M.
Leahy, an employee of the Company (the "Participant"), of an option to purchase,
in whole or in part, on the terms provided herein and in the Company's 1997
Stock Incentive Plan, as amended (the "Plan"), a total of [__________________]
shares of common stock, $.01 par value per share, of the Company ("Common
Stock") (the "Shares") at $[__________] per Share. Unless earlier terminated,
this option shall expire on April __, 2008 (the "Final Exercise Date").
It is intended that the option evidenced by this agreement shall be an
incentive stock option as defined in Section 422 of the Internal Revenue Code of
1986, as amended, and any regulations promulgated thereunder (the "Code").
Except as otherwise indicated by the context, the term "Participant", as used in
this option, shall be deemed to include any person who acquires the right to
exercise this option validly under its terms.
2. Vesting Schedule.
----------------
(a) Vesting Upon Liquidity Condition. This option will become exercisable
--------------------------------
("vest") as to (i) _____ Shares, representing 25% of the original number of
Shares, on the first anniversary of the date of the grant of this option (the
"Grant Date"), (ii) _____ Shares, representing 25% of the original number of
Shares, on the second anniversary of the Grant Date, (iii) _____ Shares,
representing 20% of the original number of Shares, on the third anniversary of
the Grant Date, (iv) _____ Shares, representing 20% of the original number of
Shares, on the fourth anniversary of the Grant Date and (v) _____ Shares,
representing 10% of the original number of Shares, on the fifth anniversary of
the Grant Date; provided, however, that this option may be exercised as to
-------- -------
shares that are vested under this Section 2(a) only if the Liquidity Condition
---- --
is met prior to such exercise. The "Liquidity Condition" shall be deemed to have
been met (x) at such time on or after an "Acquisition Event" (as defined in the
Plan) that the holders of shares of, or options for, the Company's Common Stock
and Non-Voting Common Stock, $.01 par value per share ("Non-Voting Common
Stock"), immediately prior to the Acquisition Event receive Liquid Consideration
(as
<PAGE>
defined below) totalling at least $100,000,000 in exchange for their shares of,
or options for, the Company's Common Stock and Non-Voting Common Stock or as a
result of the sale of the shares of capital stock received by such holders in
such Acquisition Event or (y) at such time after the closing of the initial
underwritten public offering of the Company that the value of the outstanding
shares of, or options for, the Company's Common Stock held by holders prior to
the closing is at least $100,000,000. For this purpose, any options for the
Company's Common Stock and Non-Voting Common Stock, and any options issued in
substitution for such options pursuant to an Acquisition Event, shall be valued
net of the applicable option exercise price. "Liquid Consideration" shall mean
cash or shares of capital stock registered under the Securities Act of 1933, as
amended (the "Securities Act"), or eligible for resale pursuant to Rule 144
under the Securities Act.
(b) Right of Exercise Cumulative. The right of exercise pursuant to
----------------------------
Section 2(a) above shall be cumulative so that to the extent the option is not
exercised in any period to the maximum extent permissible it shall continue to
be exercisable, in whole or in part, with respect to all Shares for which it is
vested until the earlier of the Final Exercise Date or the termination of this
option under Section 3 hereof or the Plan.
(c) Other Vesting. Notwithstanding Section 2(a) above, this option will
-------------
become vested and exercisable as to 100% of the original number of Shares upon
the earlier of (i) December 31, 2004, provided that the Participant is employed
by the Company on such date, and (ii) the termination of the Participant's
employment following an Acquisition Event for any reason other than by the
Company for Cause (as defined in the Participant's Employment Agreement with the
Company dated as of January 1, 1998 (the "Employment Agreement")) or by the
Participant without Good Reason (as defined in the Employment Agreement).
(d) Expiration. This option shall expire upon, and will not be
----------
exercisable after, the Final Exercise Date.
3. Exercise of Option.
------------------
(a) Form of Exercise. Each election to exercise this option shall be in
----------------
writing, signed by the Participant, and received by the Company at its principal
office, accompanied by this agreement and payment in full for the Shares
purchased upon such exercise. Common Stock purchased upon the exercise of this
option shall be paid for as follows: (i) in cash or by check, payable to the
order of the Company; (ii) by 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; (iii) by delivery of
-2-
<PAGE>
shares of Common Stock owned by the Participant valued at their Fair Value (as
defined below), which Common Stock was owned by the Participant at least six
months prior to such delivery; (iv) if permitted by the Board, 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 (v) any combination of the above
permitted forms of payment. The Participant may purchase less than the number of
Shares covered hereby, provided that no partial exercise of this option may be
for any fractional Share or for fewer than ten whole Shares.
(b) Continuous Relationship with the Company Required. Except as
-------------------------------------------------
otherwise provided in this Section 3, this option may not be exercised unless
the Participant, at the time he exercises this option, is, and has been at all
times since the date of grant of this option, an employee, officer or director
of, or consultant or advisor to, the Company or any parent or subsidiary of the
Company as defined in Section 424(e) or (f) of the Code (an "Eligible
Participant").
(c) Termination of Relationship with the Company. If the Participant
--------------------------------------------
ceases to be an Eligible Participant for any reason, then, except as provided in
paragraphs (d) and (e) below, the right to exercise this option shall terminate
three months after such cessation (but in no event after the Final Exercise
Date), provided that this option shall be exercisable only to the extent that
-------- ----
the Participant was entitled to exercise this option on the date of such
cessation.
(d) Exercise Period Upon Death or Disability. If the Participant dies or
----------------------------------------
becomes "disabled" (as defined in the Employment Agreement) prior to the Final
Exercise Date while he is an Eligible Participant and the Company has not
terminated such relationship for "Cause" (as defined in the Employment
Agreement), this option shall be exercisable within the period of one year
following the date of death or disability of the Participant, provided that this
-------- ----
option shall be exercisable only to the extent that this option was exercisable
by the Participant on the date of his or her death or disability, and further
provided that this option shall not be exercisable after the Final Exercise
Date.
(e) Discharge for Cause. If the Participant, prior to the Final Exercise
-------------------
Date, is discharged by the Company for "Cause" (as defined in the Employment
Agreement), the right to exercise this option shall terminate immediately upon
the effective date of such discharge.
4. Repurchase Rights.
-----------------
(a) Repurchase. Upon any termination of employment or service of the
----------
Participant with the Company, the Company shall have the right to purchase, for
cash, Shares issued upon exercise of this option, upon the following terms:
-3-
<PAGE>
(i) Termination for Any Reason Other Than Cause. If the termination
-------------------------------------------
of employment or service of the Participant is for any reason
other than Cause (as defined in the Employment Agreement), the
Company shall have the right to purchase all or any portion of
the Shares issued upon exercise of this option at a price equal
to the Fair Value (as defined below) thereof at the time of
termination.
(ii) Termination for Cause. If the termination of employment or
---------------------
service of the Participant is for Cause (as defined in the
Employment Agreement), the Company shall have the right to
purchase all or any portion of the Shares issued upon exercise of
this option at a price equal to the lesser of (x) Fair Value and
(y) the amount paid by the Participant for such Shares.
(b) Termination. The repurchase rights of the Company set forth in
-----------
Section 4(a) shall terminate upon the earliest of (i) the registration of any
class of equity securities of the Company under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), (ii) the closing of the initial public
offering of equity securities of the Company under the Securities Act of 1933,
as amended (the "Securities Act"), or (iii) the closing of an Acquisition Event.
(c) Exercise. The Company must exercise its repurchase rights under this
--------
Section 4, by written notice to the Participant, within 90 days after the
termination of this option. The closing of any purchase pursuant to this Section
4 shall take place as soon as reasonably practicable at the principal office of
the Company, or at such other time and location as the parties to such purchase
may mutually determine. At the closing, the holder of the Shares to be sold
shall deliver to the Company an instrument representing such Shares, duly
endorsed for transfer, and the Company shall pay the purchase price therefor, by
check or wire transfer.
(d) Fair Value. As used in this agreement, the term "Fair Value" shall
----------
mean the fair value of the Shares as of the applicable date as determined in
good faith by the Board of Directors of the Company, which determination shall
be conclusive; provided, however, that, solely for purposes of this Section 4,
-------- -------
in the event of a repurchase by the Company of an aggregate of 100,000 or more
Shares purchased upon the exercise of the Participant's options (as adjusted for
stock splits, stock dividends and similar events), the determination of Fair
Value shall be subject to mutual agreement of the Company and the Participant.
Absent such an agreement, Fair Value shall be determined by calculating the
average of the sum of the determinations of Fair Value made by two independent
investment banking firms, one of which shall be retained by the Company and one
of which shall be retained by the Participant. However, if the determinations of
Fair Value of such two firms differ
-4-
<PAGE>
from one another by more than 15%, the Company and the Participant shall
mutually select a third independent investment banking firm to make a final
determination of Fair Value with respect to the Shares then being repurchased by
the Company.
(e) Legend. The Company may require that each certificate representing
------
Shares of Common Stock subject to the repurchase rights set forth in this
Section 4 shall bear a legend referencing such repurchase rights.
5. Agreement in Connection with Public Offering.
--------------------------------------------
The Participant agrees, in connection with an initial underwritten public
offering of the Company's securities pursuant to a registration statement under
the Securities Act, (i) not to sell, make short sale of, loan, grant any options
for the purchase of, or otherwise dispose of any shares of Common Stock held by
the Participant (other than those shares included in the offering) without the
prior written consent of the Company or the underwriters managing such initial
underwritten public offering of the Company's securities for a period of 180
days from the effective date of such registration statement, and (ii) to execute
any agreement reflecting clause (i) above as may be requested by the Company or
the managing underwriters at the time of such offering.
6. Withholding.
-----------
No Shares will be issued pursuant to the exercise of this option unless and
until the Participant pays to the Company, or makes provision satisfactory to
the Company for payment of, any federal, state or local withholding taxes
required by law to be withheld in respect of this option. Any such withholding
tax requirements may be satisfied by (i) making a payment in cash or by personal
check, certified check, bank draft or money order payable to the order of the
Company, (ii) delivery of an unconditional and irrevocable undertaking by a
broker to deliver to the Company promptly upon the settlement of the sale of the
Shares to be issued sufficient funds to pay the exercise price, (iii) delivery
of whole shares of Common Stock of the Company (which the Participant has held
for at least six months prior to the delivery of such shares or acquired on the
open market and for which the Participant has good title, free and clear of all
liens and encumbrances) having a Fair Value, determined as of the date on which
such withholding obligation must be satisfied, equal to such withholding
obligation or (iv) requesting that the Company withhold from the Shares to be
delivered upon the exercise a number of shares of Common Stock having a Fair
Value, determined as of the date on which such withholding obligation must be
satisfied, equal to such withholding obligation; provided, however, that the
Company shall have sole discretion to disapprove of an election pursuant to any
of clauses (ii), (iii) or (iv), and that in event the Participant is subject to
Section 16 of the Exchange Act, the Company may require that the method of
satisfying such an obligation be in compliance with Section 16 of the Exchange
Act
-5-
<PAGE>
and the rules and regulations thereunder. Shares of Common Stock may be
delivered or withheld having an aggregate Fair Value in excess of the minimum
amount required to be withheld, but not in excess of the amount determined by
applying the Participant's maximum marginal tax rate. Any fraction of a Share
which would be required to satisfy such an obligation shall be disregarded and
the remaining amount due shall be paid in cash by the Participant.
7. Nontransferability of Option.
----------------------------
This option may not be sold, assigned, transferred, pledged or otherwise
encumbered by the Participant, either voluntarily or by operation of law, except
by will or the laws of descent and distribution, and, during the lifetime of the
Participant, this option shall be exercisable only by the Participant.
8. Disqualifying Disposition.
-------------------------
If the Participant disposes of Shares acquired upon exercise of this option
within two years from the date of grant of the option or one year after such
Shares were acquired pursuant to exercise of this option, the Participant shall
notify the Company in writing of such disposition.
9. Provisions of the Plan.
----------------------
This option is subject to the provisions of the Plan, a copy of which is
furnished to the Participant with this option.
10. Termination of Management Retention Agreements.
----------------------------------------------
This agreement supersedes in its entirety any Management Retention
Agreement between the Participant and the Company, and, upon the effectiveness
of this agreement, any such Management Retention Agreement shall be of no
further force and effect.
[signature on following page]
-6-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this option to be executed under
its corporate seal by its duly authorized officer. This option shall take
effect as a sealed instrument.
MODUS MEDIA INTERNATIONAL
HOLDINGS, INC.
Dated: April __, 1998 By: _____________________________
Name: ______________________
Title: _____________________
-7-
<PAGE>
PARTICIPANT'S ACCEPTANCE
The undersigned hereby accepts the foregoing option and agrees to the terms
and conditions thereof. The undersigned hereby acknowledges receipt of a copy
of the Company's 1997 Stock Incentive Plan.
PARTICIPANT:
_____________________________
Address: ____________________
____________________
-8-
<PAGE>
NOTICE OF STOCK OPTION EXERCISE
Date: ____________
Modus Media International Holdings, Inc.
2 Edgewater Drive
Norwood, MA 02062
Attention: Treasurer
Dear Sir or Madam:
I am the holder of an Incentive Stock Option granted to me under the Modus Media
International Holdings, Inc. (the "Company") 1997 Stock Incentive Plan on
__________ for the purchase of __________ shares of Common Stock of the Company
at a purchase price of $__________ per share.
I hereby exercise my option to purchase _________ shares of Common Stock (the
"Shares"), for which I have enclosed __________ in the amount of ________.
Please register my stock certificate as follows:
Name(s): _______________________
_______________________
Address: _______________________
Tax I.D. #: _______________________
I represent, warrant and covenant as follows:
1. I am purchasing the Shares for my own account for investment only, and not
with a view to, or for sale in connection with, any distribution of the Shares
in violation of the Securities Act of 1933 (the "Securities Act"), or any rule
or regulation under the Securities Act.
2. I have had such opportunity as I have deemed adequate to obtain from
representatives of the Company such information as is necessary to permit me to
evaluate the merits and risks of my investment in the Company.
-9-
<PAGE>
3. I have sufficient experience in business, financial and investment matters to
be able to evaluate the risks involved in the purchase of the Shares and to make
an informed investment decision with respect to such purchase.
4. I can afford a complete loss of the value of the Shares and am able to bear
the economic risk of holding such Shares for an indefinite period.
5. I understand that (i) the Shares have not been registered under the
Securities Act and are "restricted securities" within the meaning of Rule 144
under the Securities Act, (ii) the Shares cannot be sold, transferred or
otherwise disposed of unless they are subsequently registered under the
Securities Act or an exemption from registration is then available; (iii) in any
event, the exemption from registration under Rule 144 will not be available for
at least two years and even then will not be available unless a public market
then exists for the Common Stock, adequate information concerning the Company is
then available to the public, and other terms and conditions of Rule 144 are
complied with; and (iv) there is now no registration statement on file with the
Securities and Exchange Commission with respect to any stock of the Company and
the Company has no obligation or current intention to register the Shares under
the Securities Act.
Very truly yours,
_____________________________
(Signature)
-10-
<PAGE>
EXHIBIT 10.6
FORM OF LEAHY OPTION GRANT #3
MODUS MEDIA INTERNATIONAL HOLDINGS, INC.
Incentive Stock Option Agreement
Granted Under 1997 Stock Incentive Plan
---------------------------------------
1. Grant of Option.
---------------
This agreement evidences the grant by Modus Media International Holdings,
Inc., a Delaware corporation (the "Company"), on April __, 1998 to Terence M.
Leahy, an employee of the Company (the "Participant"), of an option to purchase,
in whole or in part, on the terms provided herein and in the Company's 1997
Stock Incentive Plan, as amended (the "Plan"), a total of [__________________]
shares of common stock, $.01 par value per share, of the Company ("Common
Stock") (the "Shares") at $[__________] per Share. Unless earlier terminated,
this option shall expire on April __, 2008 (the "Final Exercise Date").
It is intended that the option evidenced by this agreement shall be an
incentive stock option as defined in Section 422 of the Internal Revenue Code of
1986, as amended, and any regulations promulgated thereunder (the "Code").
Except as otherwise indicated by the context, the term "Participant", as used in
this option, shall be deemed to include any person who acquires the right to
exercise this option validly under its terms.
2. Vesting Schedule.
----------------
(a) Vesting Upon Liquidity Condition. This option will become exercisable
--------------------------------
("vest") as to (i) _____ Shares, representing 25% of the original number of
Shares, on the first anniversary of the date of the grant of this option (the
"Grant Date"), (ii) _____ Shares, representing 25% of the original number of
Shares, on the second anniversary of the Grant Date, (iii) _____ Shares,
representing 20% of the original number of Shares, on the third anniversary of
the Grant Date, (iv) _____ Shares, representing 20% of the original number of
Shares, on the fourth anniversary of the Grant Date and (v) _____ Shares,
representing 10% of the original number of Shares, on the fifth anniversary of
the Grant Date; provided, however, that this option may be exercised as to
-------- -------
shares that are vested under this Section 2(a) only if the Liquidity Condition
---- --
is met prior to such exercise. The "Liquidity Condition" shall be deemed to have
been met (x) at such time on or after an "Acquisition Event" (as defined in the
Plan) that the holders of shares of, or options for, the Company's Common Stock
and Non-Voting Common Stock, $.01 par value per share ("Non-Voting Common
Stock"), immediately prior to the Acquisition Event receive Liquid Consideration
(as
<PAGE>
defined below) totalling at least $200,000,000 in exchange for their shares of,
or options for, the Company's Common Stock and Non-Voting Common Stock or as a
result of the sale of the shares of capital stock received by such holders in
such Acquisition Event or (y) at such time after the closing of the initial
underwritten public offering of the Company that the value of the outstanding
shares of, or options for, the Company's Common Stock held by holders prior to
the closing is at least $200,000,000. For this purpose, any options for the
Company's Common Stock and Non-Voting Common Stock, and any options issued in
substitution for such options pursuant to an Acquisition Event, shall be valued
net of the applicable option exercise price. "Liquid Consideration" shall mean
cash or shares of capital stock registered under the Securities Act of 1933, as
amended (the "Securities Act"), or eligible for resale pursuant to Rule 144
under the Securities Act.
(b) Right of Exercise Cumulative. The right of exercise pursuant to
----------------------------
Section 2(a) above shall be cumulative so that to the extent the option is not
exercised in any period to the maximum extent permissible it shall continue to
be exercisable, in whole or in part, with respect to all Shares for which it is
vested until the earlier of the Final Exercise Date or the termination of this
option under Section 3 hereof or the Plan.
(c) Other Vesting. Notwithstanding Section 2(a) above, this option will
-------------
become vested and exercisable as to 100% of the original number of Shares upon
the earlier of (i) December 31, 2004, provided that the Participant is employed
by the Company on such date, and (ii) the termination of the Participant's
employment following an Acquisition Event for any reason other than by the
Company for Cause (as defined in the Participant's Employment Agreement with the
Company dated as of January 1, 1998 (the "Employment Agreement")) or by the
Participant without Good Reason (as defined in the Employment Agreement).
(d) Expiration. This option shall expire upon, and will not be exercisable
----------
after, the Final Exercise Date.
3. Exercise of Option.
------------------
(a) Form of Exercise. Each election to exercise this option shall be in
----------------
writing, signed by the Participant, and received by the Company at its principal
office, accompanied by this agreement and payment in full for the Shares
purchased upon such exercise. Common Stock purchased upon the exercise of this
option shall be paid for as follows: (i) in cash or by check, payable to the
order of the Company; (ii) by 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; (iii) by delivery of
-2-
<PAGE>
shares of Common Stock owned by the Participant valued at their Fair Value (as
defined below), which Common Stock was owned by the Participant at least six
months prior to such delivery; (iv) if permitted by the Board, 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 (v) any combination of the above
permitted forms of payment. The Participant may purchase less than the number of
Shares covered hereby, provided that no partial exercise of this option may be
for any fractional Share or for fewer than ten whole Shares.
(b) Continuous Relationship with the Company Required. Except as otherwise
-------------------------------------------------
provided in this Section 3, this option may not be exercised unless the
Participant, at the time he exercises this option, is, and has been at all times
since the date of grant of this option, an employee, officer or director of, or
consultant or advisor to, the Company or any parent or subsidiary of the Company
as defined in Section 424(e) or (f) of the Code (an "Eligible Participant").
(c) Termination of Relationship with the Company. If the Participant
--------------------------------------------
ceases to be an Eligible Participant for any reason, then, except as provided in
paragraphs (d) and (e) below, the right to exercise this option shall terminate
three months after such cessation (but in no event after the Final Exercise
Date), provided that this option shall be exercisable only to the extent that
-------- ----
the Participant was entitled to exercise this option on the date of such
cessation.
(d) Exercise Period Upon Death or Disability. If the Participant dies or
----------------------------------------
becomes "disabled" (as defined in the Employment Agreement) prior to the Final
Exercise Date while he is an Eligible Participant and the Company has not
terminated such relationship for "Cause" (as defined in the Employment
Agreement), this option shall be exercisable within the period of one year
following the date of death or disability of the Participant, provided that
-------- ----
this option shall be exercisable only to the extent that this option was
exercisable by the Participant on the date of his or her death or disability,
and further provided that this option shall not be exercisable after the Final
Exercise Date.
(e) Discharge for Cause. If the Participant, prior to the Final Exercise
-------------------
Date, is discharged by the Company for "Cause" (as defined in the Employment
Agreement), the right to exercise this option shall terminate immediately upon
the effective date of such discharge.
4. Repurchase Rights.
-----------------
(a) Repurchase. Upon any termination of employment or service of the
----------
Participant with the Company, the Company shall have the right to purchase, for
cash, Shares issued upon exercise of this option, upon the following terms:
-3-
<PAGE>
(i) Termination for Any Reason Other Than Cause. If the termination
-------------------------------------------
of employment or service of the Participant is for any reason
other than Cause (as defined in the Employment Agreement), the
Company shall have the right to purchase all or any portion of
the Shares issued upon exercise of this option at a price equal
to the Fair Value (as defined below) thereof at the time of
termination.
(ii) Termination for Cause. If the termination of employment or
---------------------
service of the Participant is for Cause (as defined in the
Employment Agreement), the Company shall have the right to
purchase all or any portion of the Shares issued upon exercise of
this option at a price equal to the lesser of (x) Fair Value and
(y) the amount paid by the Participant for such Shares.
(b) Termination. The repurchase rights of the Company set forth in Section
-----------
4(a) shall terminate upon the earliest of (i) the registration of any class of
equity securities of the Company under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), (ii) the closing of the initial public offering of
equity securities of the Company under the Securities Act of 1933, as amended
(the "Securities Act"), or (iii) the closing of an Acquisition Event.
(c) Exercise. The Company must exercise its repurchase rights under this
--------
Section 4, by written notice to the Participant, within 90 days after the
termination of this option. The closing of any purchase pursuant to this Section
4 shall take place as soon as reasonably practicable at the principal office of
the Company, or at such other time and location as the parties to such purchase
may mutually determine. At the closing, the holder of the Shares to be sold
shall deliver to the Company an instrument representing such Shares, duly
endorsed for transfer, and the Company shall pay the purchase price therefor, by
check or wire transfer.
(d) Fair Value. As used in this agreement, the term "Fair Value" shall
----------
mean the fair value of the Shares as of the applicable date as determined in
good faith by the Board of Directors of the Company, which determination shall
be conclusive; provided, however, that, solely for purposes of this Section 4,
-------- -------
in the event of a repurchase by the Company of an aggregate of 100,000 or more
Shares purchased upon the exercise of the Participant's options (as adjusted for
stock splits, stock dividends and similar events), the determination of Fair
Value shall be subject to mutual agreement of the Company and the Participant.
Absent such an agreement, Fair Value shall be determined by calculating the
average of the sum of the determinations of Fair Value made by two independent
investment banking firms, one of which shall be retained by the Company and one
of which shall be retained by the Participant. However, if the determinations of
Fair Value of such two firms differ
-4-
<PAGE>
from one another by more than 15%, the Company and the Participant shall
mutually select a third independent investment banking firm to make a final
determination of Fair Value with respect to the Shares then being repurchased by
the Company.
(e) Legend. The Company may require that each certificate representing
------
Shares of Common Stock subject to the repurchase rights set forth in this
Section 4 shall bear a legend referencing such repurchase rights.
5. Agreement in Connection with Public Offering.
--------------------------------------------
The Participant agrees, in connection with an initial underwritten public
offering of the Company's securities pursuant to a registration statement under
the Securities Act, (i) not to sell, make short sale of, loan, grant any options
for the purchase of, or otherwise dispose of any shares of Common Stock held by
the Participant (other than those shares included in the offering) without the
prior written consent of the Company or the underwriters managing such initial
underwritten public offering of the Company's securities for a period of 180
days from the effective date of such registration statement, and (ii) to execute
any agreement reflecting clause (i) above as may be requested by the Company or
the managing underwriters at the time of such offering.
6. Withholding.
-----------
No Shares will be issued pursuant to the exercise of this option unless and
until the Participant pays to the Company, or makes provision satisfactory to
the Company for payment of, any federal, state or local withholding taxes
required by law to be withheld in respect of this option. Any such withholding
tax requirements may be satisfied by (i) making a payment in cash or by personal
check, certified check, bank draft or money order payable to the order of the
Company, (ii) delivery of an unconditional and irrevocable undertaking by a
broker to deliver to the Company promptly upon the settlement of the sale of the
Shares to be issued sufficient funds to pay the exercise price, (iii) delivery
of whole shares of Common Stock of the Company (which the Participant has held
for at least six months prior to the delivery of such shares or acquired on the
open market and for which the Participant has good title, free and clear of all
liens and encumbrances) having a Fair Value, determined as of the date on which
such withholding obligation must be satisfied, equal to such withholding
obligation or (iv) requesting that the Company withhold from the Shares to be
delivered upon the exercise a number of shares of Common Stock having a Fair
Value, determined as of the date on which such withholding obligation must be
satisfied, equal to such withholding obligation; provided, however, that the
Company shall have sole discretion to disapprove of an election pursuant to any
of clauses (ii), (iii) or (iv), and that in event the Participant is subject to
Section 16 of the Exchange Act, the Company may require that the method of
satisfying such an obligation be in compliance with Section 16 of the Exchange
Act
-5-
<PAGE>
and the rules and regulations thereunder. Shares of Common Stock may be
delivered or withheld having an aggregate Fair Value in excess of the minimum
amount required to be withheld, but not in excess of the amount determined by
applying the Participant's maximum marginal tax rate. Any fraction of a Share
which would be required to satisfy such an obligation shall be disregarded and
the remaining amount due shall be paid in cash by the Participant.
7. Nontransferability of Option.
----------------------------
This option may not be sold, assigned, transferred, pledged or otherwise
encumbered by the Participant, either voluntarily or by operation of law, except
by will or the laws of descent and distribution, and, during the lifetime of the
Participant, this option shall be exercisable only by the Participant.
8. Disqualifying Disposition.
-------------------------
If the Participant disposes of Shares acquired upon exercise of this option
within two years from the date of grant of the option or one year after such
Shares were acquired pursuant to exercise of this option, the Participant shall
notify the Company in writing of such disposition.
9. Provisions of the Plan.
----------------------
This option is subject to the provisions of the Plan, a copy of which is
furnished to the Participant with this option.
10. Termination of Management Retention Agreements.
----------------------------------------------
This agreement supersedes in its entirety any Management Retention Agreement
between the Participant and the Company, and, upon the effectiveness of this
agreement, any such Management Retention Agreement shall be of no further force
and effect.
[signature on following page]
-6-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this option to be executed under
its corporate seal by its duly authorized officer. This option shall take
effect as a sealed instrument.
MODUS MEDIA INTERNATIONAL
HOLDINGS, INC.
Dated: April __, 1998 By:__________________________
Name:_____________________
Title:____________________
-7-
<PAGE>
PARTICIPANT'S ACCEPTANCE
The undersigned hereby accepts the foregoing option and agrees to the terms
and conditions thereof. The undersigned hereby acknowledges receipt of a copy
of the Company's 1997 Stock Incentive Plan.
PARTICIPANT:
__________________________________
Address:__________________________
__________________________
-8-
<PAGE>
NOTICE OF STOCK OPTION EXERCISE
Date: ____________
Modus Media International Holdings, Inc.
2 Edgewater Drive
Norwood, MA 02062
Attention: Treasurer
Dear Sir or Madam:
I am the holder of an Incentive Stock Option granted to me under the Modus Media
International Holdings, Inc. (the "Company") 1997 Stock Incentive Plan on
__________ for the purchase of __________ shares of Common Stock of the Company
at a purchase price of $__________ per share.
I hereby exercise my option to purchase _________ shares of Common Stock (the
"Shares"), for which I have enclosed __________ in the amount of ________.
Please register my stock certificate as follows:
Name(s): _______________________
_______________________
Address: _______________________
Tax I.D. #: _______________________
I represent, warrant and covenant as follows:
1. I am purchasing the Shares for my own account for investment only, and
not with a view to, or for sale in connection with, any distribution of the
Shares in violation of the Securities Act of 1933 (the "Securities Act"), or any
rule or regulation under the Securities Act.
2. I have had such opportunity as I have deemed adequate to obtain from
representatives of the Company such information as is necessary to permit me to
evaluate the merits and risks of my investment in the Company.
-9-
<PAGE>
3. I have sufficient experience in business, financial and investment
matters to be able to evaluate the risks involved in the purchase of the Shares
and to make an informed investment decision with respect to such purchase.
4. I can afford a complete loss of the value of the Shares and am able to
bear the economic risk of holding such Shares for an indefinite period.
5. I understand that (i) the Shares have not been registered under the
Securities Act and are "restricted securities" within the meaning of Rule 144
under the Securities Act, (ii) the Shares cannot be sold, transferred or
otherwise disposed of unless they are subsequently registered under the
Securities Act or an exemption from registration is then available; (iii) in any
event, the exemption from registration under Rule 144 will not be available for
at least two years and even then will not be available unless a public market
then exists for the Common Stock, adequate information concerning the Company is
then available to the public, and other terms and conditions of Rule 144 are
complied with; and (iv) there is now no registration statement on file with the
Securities and Exchange Commission with respect to any stock of the Company and
the Company has no obligation or current intention to register the Shares under
the Securities Act.
Very truly yours,
_____________________________
(Signature)
-10-
<PAGE>
Exhibit 10.5
- --------------------------------------------------------------------------------
[LOGO]
M O D U S
M E D I A
I N T E R N A T I O N A L
1999 Management Incentive Plan
- --------------------------------------------------------------------------------
<PAGE>
Modus Media International
1999 Management Incentive Plan
- --------------------------------------------------------------------------------
Modus Media International, Inc.
1999 Management Incentive Plan (MIP)
Plan Document
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Section Page
----------------------------------------------------
I. Purpose 3.
II. Effective Date of Plan 3.
III. Eligibility 3.
IV. MIP Target Payouts 3.
V. Measurement 3.
VI. Transition Issues 5.
VII. Administration 6.
VIII. Management By Objectives 7.
Appendix A -- Plan Participant Notification Form
re: Goals and Payouts
- --------------------------------------------------------------------------------
Page 2.
<PAGE>
Modus Media International
1999 Management Incentive Plan
- --------------------------------------------------------------------------------
Modus Media International
1999 Management Incentive Plan (MIP)
Plan Document
- --------------------------------------------------------------------------------
I. Purpose
-------
The objective of the 1999 Management Incentive Plan (MIP) is to recognize
and reward the achievement of financial and business goals. This program,
in conjunction with base salary, is designed to offer key employees of
Modus Media International, Inc. and its subsidiaries (the "Company") total
cash compensation opportunities that are fully competitive with market
levels.
II. Effective Date of Plan
----------------------
The effective date for implementation of the Plan shall be January 1, 1999.
The Plan may be modified or terminated at any time by the executive
management of the Company.
III. Eligibility
-----------
Certain designated employees whose role and responsibilities are deemed by
executive management to be critical to operations and who have direct
responsibility for achieving the financial results of the Company, are
eligible for participation in the 1999 Management Incentive Plan. Target
percentage, plan components and component weightings are defined by
position.
Proposed participation in the MIP Plan for new participants must be
approved by the CEO of the Company. All Participants will be notified of
eligibility in writing as well as individual MIP components, as shown in
Appendix A.
IV. MIP Target Payout
-----------------
Eligible employees will be assigned a target payout for the MIP, expressed
as a percentage of total, regular W-2 base earnings, including paid time
off and holiday hours, (or equivalent outside the U.S.). This percentage
represents the potential dollar award that will be earned at 100%
achievement of goals for all Plan components. The target payout percentage
will vary according to the Participant's position. Actual earnings will
vary by performance.
V. Measurement
-----------
The Management Incentive Plan consists of three components. The Participant
will be assigned a target payout for each component, expressed as a
percentage of regular base salary, which is used to calculate an amount
(i.e. 10% of $50,000 base earnings equals $5,000). The weightings of the
components and the resultant target percentages will vary according to the
Participant's position, but will always total 100% and be equal to the
total MIP target payout described in the previous section.
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Page 3.
<PAGE>
Modus Media International
1999 Management Incentive Plan
- --------------------------------------------------------------------------------
The Components are:
1. Annual EBITDA minus Capital Expenditures (CapEx)
------------------------------------------------
The first component relates to performance by an organizational unit such
as global, regional, or Solution Center (or a combination thereof) against
budgeted performance. (In all cases, "budget" refers to the original budget
and not to forecasts or QBR results.) The Participant's position determines
which unit or units will apply.
EBITDA minus CapEx is defined as:
"Earnings before Interest and Taxes, Depreciation and Amortization,
minus Capital Expenditures."
REBITDA minus CapEx is defined at a Regional or a Solution Center Level as:
"Earnings before Regional Assessments, Interest and Taxes,
Depreciation and Amortization, minus Capital Expenditures."
This component is measured on an annual basis with payout determined at
year-end after close of the Company's financial reporting. The unit's
performance against the budgeted goal(s), expressed as a percentage,
generates a payout which is expressed as a percentage of the base salary as
shown in Appendix A. This payout percentage is multiplied by the component
weighting and then the base salary, for actual payout.
A minimum achievement or "threshold" of EBITDA performance, before CapEx,
is applied to determine payout.
A Participant must be actively employed in the eligible position on
December 31st of the plan year to receive any payout under this component.
All annual awards are capped at 120% of target for the Annual EBITDA minus
CapEx component.
2. Quarterly EBITDA minus CapEx
----------------------------
The second component is similar to the first, but measured and recorded
quarterly. The same definitions of EBITDA minus CapEx and REBITDA minus
CapEx as shown above apply.
This component is measured on a quarterly basis with payout determined at
quarter-end after close of the company's financial reporting. The unit's
performance against the budgeted goal, expressed as a percentage generates
a payout which is expressed as a percentage of the base salary as shown in
Appendix A. This payout percentage is multiplied by the component weighting
and then multiplied by the base salary for actual payout. For this
component, the dollar target is determined using regular base salary for
quarter.
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Page 4.
<PAGE>
Modus Media International
1999 Management Incentive Plan
- --------------------------------------------------------------------------------
A Participant must be actively employed in the eligible position for at
least two out of the three months of the quarter, and be employed with
Modus Media through the last day of the applicable fiscal quarter to
receive any payout under this component.
All Quarterly awards are capped at 120% of target.
3. Personal MBOs (Management By Objectives)
----------------------------------------
The third component is tied to individual performance against goals
established by the participant and his/her manager. The Participant will
generally be assigned at least three personal MBOs. These objectives may be
adjusted throughout the year based on business needs.
Performance against the assigned MBOs will be evaluated by the
Participant's manager and an overall rating between 0-100% in 5% increments
will be assigned at year end. The payout details will be as shown in
Appendix A, expressed as a percentage of the annual base, and multiplied by
the component weighting and then actual base salary for actual payout. The
weighting of the various MBOs is determined by the rating manager.
This component is measured on an annual basis with payout determined at
year-end. For there to be any payout on this MBO component, the EBITDA
threshold for your location must be met as shown in Appendix A.
A Participant must be actively employed in the eligible position on
December 31st to receive any payout under this component.
Awards on MBO targets cannot exceed 100% of target amounts.
VI. Transition Issues
-----------------
A Participant in the Plan must be actively employed by the Company through
December 31, 1999 to receive any payout on annual components. Since the
annual components are calculated on regular base salary W-2 earnings (or
local country equivalent), payouts for annual components will be pro-rated
for those eligible Participants who are hired, promoted or transferred into
an eligible position prior to 10/01/99 during fiscal year 1999. Employees
who transfer out of an eligible position during the year into a
non-eligible position in the Company but who are still employed as of
December 31 of that year, will be considered for an award based on the
number of weeks in the eligible position and earnings accrued during those
weeks as a ratio to the full year.
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Page 5.
<PAGE>
Modus Media International
1999 Management Incentive Plan
- --------------------------------------------------------------------------------
A Participant who is promoted into a higher level position prior to
10/01/99, which results in a higher Plan target and/or different Plan
components, targets, and goals, will have future quarterly and year-end
component calculations based on the new plan. A promotion on 10/01/99 or
later, will result in pro-rated payout calculations according to actual
time spent under each plan. Employees hired or promoted for the first time
into bonus eligible positions after 10/01/99 will not be eligible to
participate in any component of the 1999 Plan.
Changes in base salary due to promotional, merit or other increases will be
included in a year end base earnings total which will be used for the
actual Plan and component targets, and payout calculations. Retroactive pay
adjustments will be applied as earnings in the quarter received for
quarterly purposes and will not be applied to previous quarters.
Participants who live and work in a non-United States location will have
their MIP payout calculations performed in their local currency.
VII. Administration
--------------
The adoption of this Plan shall not be deemed to give any employee the
right to be retained in the employ of Modus Media International or its
subsidiaries or to interfere with the right of the Company to discharge any
employee at any time, nor shall it be deemed to give the Company the right
to require any employee to remain in its employ.
The financial targets assigned and recognized as goals on any of the
performance factors may be revised or otherwise modified by the executive
management of the Company at any time, to account for any material change
in the business or the Company. Any such revisions or modifications will be
made in writing to all Participants as soon as possible after the need for
such change is determined.
A Participant's right to receive payment of an award under the Plan shall
be no greater than the right of an unsecured general creditor of the
Company. All awards under the Plan shall be paid from the general funds of
the Company, and no special or separate fund shall be established and no
segregation of assets shall be made to assure payment of such awards.
The Plan shall be governed by and construed in accordance with the laws of
the Commonwealth of Massachusetts.
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Page 6.
<PAGE>
Modus Media International
1999 Management Incentive Plan
- --------------------------------------------------------------------------------
1999 Management by Objectives (MBO) Process
-Overview & Instructions -
- --------------------------------------------------------------------------------
Overview:
The 1999 Management Incentive Plan incorporates an annual Management By
Objectives component (MB0). The MBO component is weighted such that it accounts
for 20% of a participant's targeted MIP award. All bonus eligible employees will
be accountable for delivery against key strategic business objectives. Employees
will generally have 3 objectives but may have more or less depending on their
position.
This MBO process will be instrumental in focusing and driving individual
performance and the business toward attainment of 1999 objectives. The 1999 MBO
process requires Managers to link all MBOs to MMI's overall 1999 business
strategy and goals.
All MBOs should support MMI's one or more of the four Strategic Sine Qua Nons:
Growth
5% EBIT
World Class IT
Unparalleled Execution
For North America when appropriate, the MBO process should strengthen the
- -----------------
connection between MBOs and continuous improvement, based on the nature of the
participant's role. Participants whose performance directly impacts external
customers should have quality and service MBOs that tie to these customers.
Managers of these individuals should ensure that:
- -- At least one MBO is based on actions to be taken to improve the quality of
products and services MMI provides.
- -- At least one MBO is based on actions to be taken to improve the
performance levels of the services MMI provides.
The third MBO may be based on asset management, qualitative performance, or
team based accomplishments.
For Asia and Europe, or any participants whose performance does not directly
impact external customers, MBOs may be strategic or operational depending on the
nature and level of their position. Managers of these individuals should ensure
that MBOs are measurable and may be based on asset management, qualitative
performance, or team based accomplishments.
Or, when appropriate, managers may also choose to develop quality and service
MBOs that tie to the participant's internal customers at MMI. The content of
MBOs is at the discretion of the manager.
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Page 7.
<PAGE>
Modus Media International
1999 Management Incentive Plan
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Instructions:
1) Communicate the overall strategy and objectives of the company and specific
---------------------------------------------------------------------------
objectives of function. An individual's objectives must tie directly into
----------------------
the broader business plan. Communicating this link explicitly helps to
enhance the individual's understanding of the overall business and of the
climate/environment in which his/her own objectives are set.
2) Develop approximately 3 strategic or major business-related objectives for
--------------------------------------------------------------------------
the position. Work with the participant to develop objectives that may be
------------
quality or service-related, or strategic or operational in nature,
depending on the participant's position. MBOs should involve significant
positive change beyond the core responsibilities of the position, i.e.,
continuous improvement, enhanced service accuracy or timeliness, new or
improved processes/systems, new business/product opportunities, etc.
Clearly identify:
-----------------
a) The goal in measurable terms (e.g., reduction of defects, improvements
in service timeliness or accuracy, improved financial performance);
b) The time-frames and essential milestones to meet; and
c) Specific factors/behaviors likely to influence achievement of the
objective. These may be internal or external in nature.
3) Discuss how and when the individual's performance against the MBOs will be
--------------------------------------------------------------------------
reviewed and measured. Establish specific follow-up dates for progress
---------------------
reviews, at which time, you need to craft any changes necessary and
resubmit them to the contacts below for approval.
4) Discuss the year-end evaluation process. Review the MBO rating scale and
---------------------------------------
impact of each MBO as it relates to determining the percentage payout
achieved. Note that in 1999 there is no incremental payout for exceeding
MBOs; awards are capped at 100% of target. Additionally, any payout for the
MBO component is contingent upon meeting the EBITDA threshold for the
participant's location.
MBO Process Steps For Managers:
1. Draft individual MBOs with each bonus eligible individual on your team.
2. Submit the final MBOs to Raymund Chua (for Asia), Mike McHale (for North
America), Pat Doyle (for Europe), and Diane Condon (for Corporate and OCS)
by March 15, 1999.
3. Meet with employee when final approval is received to discuss any changes
and/or to confirm MBOs.
4. Complete a mid-year MBO review with employee and submit any changes to the
initial MBO plan with reason adjustment as necessary.
5. Conduct a year-end evaluation process and submit final ratings to the
contacts previously named.
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Page 8.
<PAGE>
Modus Media International
1999 Management Incentive Plan
- --------------------------------------------------------------------------------
1999 Management By Objective (MBO) Plan
Quantitative, Qualitative and Team Based Objectives: Identify approximately 3
- ---------------------------------------------------
major objectives that are Strategic (or operational), Measurable, Achievable,
- ----- - - -
Results oriented, and Timebound (SMART). These objectives should differentiate
- - -
from your core responsibilities in that they involve significant change
objectives in the areas of continuous quality and service improvement, research
or implementing new processes or systems, developing new product/business
opportunities, etc.
What to Accomplish Success Factors
And Time-frame/Milestones Internal External
- --------------------------------------------------------------------------------
1.
Timing: Weighting
---------
Year-end Achievement: Year-end Rating
---------------
--------------------
Express in a percent
0-100%
- --------------------------------------------------------------------------------
2.
Timing: Weighting
---------
Year-end Achievement: Year-end Rating
---------------
--------------------
Express in a percent
0-100%
- --------------------------------------------------------------------------------
Page 9.
<PAGE>
Modus Media International
1999 Management Incentive Plan
- --------------------------------------------------------------------------------
3.
Timing: Weighting
---------
Year-end Achievement: Year-end Rating
---------------
--------------------
Express in a percent
0-100%
- --------------------------------------------------------------------------------
Individual MBO Rating
---------------------
MBO #1
-------
MBO #2
-------
MBO #3
-------
VIII. Below, designate an overall 1999 final rating for MBO performance
-----------------------------------------------------------------
1999 Overall MBO Rating
-----------------------
Express in a percentage 0-100% in 5% increments.
------------
- --------------------------------------------------------------------------------
Page 10.
<PAGE>
Modus Media International
1999 Management Incentive Plan
- --------------------------------------------------------------------------------
1999 Management By Objective (MBO) Plan
SAMPLE ONLY FOR ROLES THAT TIE TO EXTERNAL CUSTOMERS
Quantitative, Qualitative and Team Based Objectives: Identify 3 major objectives
- --------------------------------------------------- -----
that are Strategic (or operational), Measurable, Achievable, Results oriented,
- - - -
and Timebound (SMART). These objectives should differentiate from your core
-
responsibilities in that they involve significant Change objectives in the areas
of continuous quality and service improvement, researching or implementing new
processes or systems, developing new product/business opportunities, etc.
<TABLE>
<CAPTION>
Success Factors
Goal - What to Accomplish ---------------------------------------
And Time-frame/Milestones Internal External
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. (Quality) Improve accuracy of month-end reporting to five Team Agreement with
top customers to 99.5%. Current accuracy level is 98.2% commitment customer on
reporting accuracy
Timing: Process documentation and improvement action Clear objectives definition and
plans implemented by 2/1/99. metrics
Displayed VVA's and additional measurement systems in place Defined processes
by 2/15/99. Continuous improvement in reporting accuracy
metrics, resulting in a sustained accuracy level of 99.5%
during and after the 3rd quarter of 1999.
Year-end Achievement: Year-end Rating
- --------------------- ---------------
- -------------------------------------------------------------------------------------------------------
2. (Service Levels) Improve on-time delivery levels to 99%. Cross-functional Confirm customer
work/projects definitions of "On-
time"
Timing: Opportunity identified, communicated and initiated Defined processes
by 6/1/97 Establish regular
Daily metrics performance
feedback process
Problem
prevention
Year-end Achievement: Year-end Rating
- --------------------- ---------------
</TABLE>
- --------------------------------------------------------------------------------
Page 11.
<PAGE>
Modus Media International
1999 Management Incentive Plan
- --------------------------------------------------------------------------------
<TABLE>
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
3. Support and participate in the successful certification of Project timeline Support from ISO
ISO 9002 for the Raleigh facility. Organizational
priority
Resources to
manage needs
Timing: Final certification by 10/31/99
Year-end Achievement: Year-end Rating
--------------------- ---------------
- --------------------------------------------------------------------------------------------------------
</TABLE>
Individual MBO Rating
---------------------
MBO #1
-------
MBO #2
-------
MBO #3
-------
IX. Below, designate an overall 1999 final rating for MBO performance
-----------------------------------------------------------------
1999 Overall MBO Rating
-----------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Page 12.
<PAGE>
Weekly Reporting Template
Solution Center: OCS Worldwide
Week Ended: 10/22/1999
<TABLE>
<CAPTION>
Software Hardware On-Demand Resp Mgmt Channel Offset US$
Mfg. Assembly Mfg. & Fulfill Prog Mgmt OCS Print Total
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Month To Date:
1. Billings
---------------------------------------------------------------------------------
2. GL Revenue 0
---------------------------------------------------------------------------------
3. Shipments $472,812 472,812
---------------------------------------------------------------------------------
</TABLE>
Notes
- --------------------------------------
Input information only in yellow areas
- --------------------------------------
Definitions
1. Billings Include only the net amount of invoices billed to third parties
for the current calendar month
2. GL Revenue Balance in your general ledger for third party sales (Acct
4000XX) for the current calendar month
3. Shipments Net value of any items shipped to third parties (billed or
unbilled) for the current calendar month
<PAGE>
EXHIBIT 10.7
SUBLEASE
THIS SUBLEASE (this "Sublease") is made and entered into this 18th day of
June, 1997, by and between THE TRAVELERS INDEMNITY COMPANY, a Connecticut
corporation, (the "Sublessor"), and STREAM INTERNATIONAL INC., a Delaware
corporation (the "Sublessee").
WITNESSETH:
WHEREAS, pursuant to that certain lease dated the 12th day of October, 1993, as
amended by a First Amendment to Lease dated June 10, 1994, a Second Amendment to
Lease dated August 1, 1994 and a Third Amendment to Lease dated May 9, 1995, by
and between Beacon Properties, L.P. (successor in interest to The Travelers
Insurance Company) as Landlord (the "Master Landlord") and Sublessor (successor
by assignment to The Travelers Insurance Company) as tenant (the "Lease"), a
copy of which Lease is attached hereto and made a part hereof as Exhibit A
---------
(LEASE), the Master Landlord leased to Sublessor approximately 62,972 rentable
square feet of office space (the "Premises"), situated in the Building known as
Westwood Business Centre, located at 690 Canton Street, Westwood, Massachusetts
02090 (the "Building"), upon and subject to the terms and conditions set forth
in the Lease;
WHEREAS, said Lease is and continues to be in full force and effect, and to the
best of Sublessor's knowledge, Sublessor is not in default of any term or
condition thereof; and
WHEREAS, Sublessor desires to sublease to Sublessee approximately 23,682
rentable square feet of said Premises, situated on the first (1st) floor, as
shown in cross hatching on the floor plan attached hereto and made a part
hereof, as Exhibit B (PLAN OF SUBLEASED PREMISES), hereinafter (the "Subleased
---------
Premises").
NOW THEREFORE, in consideration of the mutual covenants and agreements herein
contained, the Sublessor hereby subleases to Sublessee and Sublessee hereby
subleases from Sublessor the Subleased Premises, subject to the Lease and on the
terms, covenants and conditions hereinafter provided:
1. INCORPORATION BY REFERENCE
This Sublease is subject and subordinate to all of the terms and conditions of
the Lease by and between Sublessor and Master Landlord, as the same may be
modified or amended, except as specifically set forth herein. In the event of
any conflicts between the terms of the Sublease and the terms of the Lease, for
all purposes hereof, the terms of the Sublease shall control; however, to the
extent that an issue is not addressed in the Sublease, and also not specifically
excluded herein, the terms of the Lease shall control. Sublessee, its successors
and permitted assigns, shall perform the obligations to be performed by the
tenant in the Lease, as set forth therein, to the extent such terms and
conditions are applicable to the Subleased Premises, as set forth herein. The
terms, provisions, covenants, and conditions of the Lease are incorporated
herein by reference on the following mutually accepted understandings:
(a) In any case where the Master Landlord reserves the right to enter the
Premises pursuant to the Lease, said right shall inure to the benefit of
the Master Landlord as well as to Sublessor with respect to entry onto the
Subleased Premises.
<PAGE>
(b) With respect to the performance of any other obligations required of Master
Landlord under the Lease, including, but not limited to; work, services,
repairs, repainting and restoration, Sublessor's sole obligation shall be
to act on Sublessee's behalf in requesting the performance of the same of
Master Landlord, after first receiving a request in writing from Sublessee,
and to use its best efforts in order to obtain the performance of the same
from Master Landlord. In the event that Master Landlord does not perform
any obligation which "Landlord" is required to perform pursuant to the
terms and conditions of the Lease and such affects the Subleased Premises,
or if an incident arises which affects the Subleased Premises, Sublessee
shall notify Sublessor in writing detailing the specific incident or
describing the obligation which Master Landlord has breached and how such
affects the Subleased Premises. Sublessor hereby agrees to notify the
Master Landlord of such occurrence. In the event such incident or breach is
not cured or remedied by the Master Landlord in the period of time as
provided for under the terms of the Lease, Sublessee shall promptly notify
Sublessor of the same, and if there is self-help remedy provided to the
Tenant under the Lease and Sublessor reasonably determines that such should
be exercised, then Sublessor shall exercise such remedy against the Master
Landlord, and in such an event, Sublessee may exercise such same remedy
against Sublessor. In the event of an incident affecting the use and
occupancy of the Subleased Premises whereby the Lease provides the option
of termination as a remedy in the event that Master Landlord has not cured
the same, Sublessee shall only exercise such option to terminate this
Sublease in the event that Sublessor mutually agrees to such action and
Sublessor shall be exercising the same action (for the same incident)
against Master Landlord.
(c) In connection with any alterations, as defined in Article 4.02 of the Lease
(ALTERATIONS), which are desired to be made by Sublessee, during the Term
of this Sublease, the terms of Article 4.02 shall be applicable to this
Sublease, except as provided to the contrary herein. The Sublessee shall
obtain the Sublessor's written consent prior to the making of any such
alterations, which consent the Sublessor agrees not to unreasonably
withhold. All plans and specifications for such work shall be prepared by
Sublessee, at Sublessee's sole cost and expense, and in accordance with all
applicable Laws (as defined herein), and in a good and workmanlike manner
by Sublessee or its contractors or subcontractors. Sublessee shall
indemnify and hold Sublessor and Master Landlord harmless from any and all
cost, expenses, injury, loss, damages, claims, demands or liability
(including reasonable attorney fees) which may arise out of Sublessee's
construction of any such alterations. Sublessee shall be solely responsible
for any permits and licenses in order to complete the same.
Sublessee agrees to employ contractors and subcontractors who will
guarantee to use first-class materials and workmanship and Sublessee shall
not permit any lien to be placed on record with respect to any part of the
Building, or Subleased Premises for work or materials furnished or
obligations incurred by or for Sublessee. Sublessee shall not permit any
lien to be placed upon the Subleased Premises or the Building as a result
of any alterations or improvement work made by it, and Sublessee hereby
agrees that if any such lien is filed on account of the acts of Sublessee,
Sublessee shall discharge any such lien by payment, bond or otherwise,
within ten (10) days of recordation of the same.
Upon Sublessor's receipt of Sublessee's request for any such alterations,
Sublessor shall also notify Sublessee as to whether Sublessor will require
such alterations to be removed upon
2
<PAGE>
the expiration of the Sublease term pursuant to the terms and conditions of
the Lease, and the Subleased Premises restored to the same condition and
configuration as when delivered to Sublessee, normal wear and tear, fire and
casualty excepted. Any alterations completed by Sublessee shall be completed
in accordance with all applicable Laws, including Environmental Laws (as
defined herein) and Sublessee hereby agrees not to use any Hazardous
Materials (as defined herein) for such alterations, which shall include,
however, not be limited to, the use of asbestos containing materials.
(d) The terms and conditions of Article 4.01 of the Lease (SUBLEASING AND
ASSIGNMENT), shall not be applicable to this Sublease and the rights of the
tenant under such Article of the Lease shall not inure to the benefit of
Sublessee herein. Sublessee acknowledges and agrees that no sublease,
assignment, mortgage, pledge or encumbrance of this Sublease or the
Subleased Premises shall be permitted.
However, notwithstanding the foregoing to the contrary, Sublessee may, in
accordance with the terms hereof and Article 4.01 of the Lease, except as
provided to the contrary herein, assign this Sublease, or further sublease
all or a portion of the Subleased Premises to a third party or an Affiliate
(as hereafter defined). It is hereby agreed that Sublessee may assign this
Sublease or sublease all or a portion of the Subleased Premises to a third
party with the prior written consent of Sublessor, which consent shall not
be unreasonably withheld or delayed, and that Sublessee may assign this
Sublease or sublease all or a portion of the Subleased Premises to an
Affiliate, without necessity of Sublessor's prior consent, but with thirty
(30) days prior written notice to Sublessor, provided that (i) the assignee
or sublessee is a bona fide entity, (ii) in the event of an assignment, the
assignee assumes all of the obligations of Sublessee, as set forth in this
Sublease; (iii) Sublessee is not in default (beyond any applicable notice or
cure periods as provided in this Sublease) of any term or condition of this
Sublease at the time that it provides notice to Sublessor of such assignment
or sublet; (iv) any sublease is not in conflict with any of the terms or
conditions of this Sublease or the Lease; (v) any assignment is subject to
all of the terms of this Sublease; and (vi) Sublessee herein shall remain
liable for all of the obligations and covenants under this Sublease.
For purposes of this section 1(d) an "Affiliate" shall mean a general or
limited partnership in which Tenant or its parent or successor owns a
general partnership interest and has the right to manage the partnership
business, or an entity in which Tenant owns one hundred percent (100%) of
the equity interests, and owns or has the right to cast the votes
attributable to a majority of the voting interests, or any entity with which
Tenant may merge or consolidate, any entity that purchases or owns
substantially all of the assets or stock of Tenant, any parent of Tenant, or
any parent or subsidiary of Tenant's parent.
In the event of an assignment of this Sublease or further sublet of all or
any portion of the Subleased Premises to a third party, Sublessor's consent
shall not be unreasonably withheld or delayed by Sublessor and Sublessor
hereby agrees to provide its consent, provided that (i) the assignee or
sublessee is a bona fide entity, (ii) in the event of an assignment, the
assignee assumes all of the obligations of Sublessee, as set forth in this
Sublease; (iii) Sublessee is not in default (beyond any applicable notice or
cure periods as provided in this Sublease) of any term or condition of this
Sublease at the time that it requests such consent; (iv) any sublease is not
in conflict with any of the terms or conditions of this Sublease or the
Lease; (v) any assignment is subject to all of the terms of this Sublease;
and (vi) Sublessee herein shall remain liable for all of the obligations and
covenants under this Sublease.
3
<PAGE>
Sublessor hereby agrees to provide its consent or denial to Sublessee,
within twenty (20) days of receipt of Sublessee's request, provided that
such request includes the following information in order for Sublessor to
provide its determination; (i) the name and address of the proposed
assignee or sublessee; (ii) the nature of the proposed assignee's or
sublessee's business which it will conduct or operate in the Subleased
Premises; (iii) the terms of the proposed assignment or sublease; and (iv)
reasonable financial information so that Sublessor can evaluate the
proposed assignee. Notwithstanding the foregoing, Sublessor's consent to
one assignment or sublease, does not waive the consent requirement for
future assignments.
(e) Notwithstanding anything in this Sublease or the Lease to the contrary,
Sublessee agrees that Sublessor shall not be obligated to furnish for or to
Sublessee any service of any nature whatsoever, including, without
limitation, those expressly referred to in Article 3.01 of the Lease
(SERVICES PROVIDED BY LANDLORD). However, in accordance with provision (b)
above, Sublessor shall act on Sublessee's behalf in requesting the
performance of and furnishing of such services for the Subleased Premises
by Master Landlord pursuant to the terms of the Lease. In the event that
Master Landlord does not provide those services as described in such
Article 3.01 or in the manner as provided for therein, Sublessee shall have
those certain rights in such an event as set forth in Section 1(a) above.
(f) The Sublease shall not incorporate any provision of the Lease nor shall
Sublessee benefit from the rights or privileges contained in any provision
of the Lease, which, pursuant to and in accordance with its particular
terms and conditions, is not applicable to subleases or assignments, or any
provision of the Lease, which by its nature or pursuant to a specified
prohibition contained in the Lease, is personal to Sublessor or would not
convey or transfer by a sublease or assignment of all or a portion of the
Premises. In accordance with the foregoing, this exclusion shall include
the following Articles, which shall therefore not inure to or benefit
Sublessee: 1.04 (Premises), 1.05 (Area Verification and Measurement), 1.07
(Lease Term), 1.08 (Improvements), 2.01 (Rent), 4,01 (Subleasing and
Assignment), 4.04 (Space Adjustment Options), 4.05 (Right of First
Refusal/Offer), 4.06 (Renewal Option), 4.07 (Holding Over), 4.08 (Earth
Satellite Station), 7.03 (Recording of Lease) and 9.08 (Broker's Warranty).
Sublessee acknowledges and agrees that the provisions specifically set
forth in this provision (g) are personal to Sublessor, and those provisions
of the Lease, which would by their nature be personal to the tenant under
the Lease, shall continue to inure to and benefit Sublessor with respect to
the Lease, this Sublease, the Premises and the Subleased Premises.
2. TERM
The term of this Sublease shall be for seven (7) years and one (1) month (the
"Term") and shall commence on the 1st day of July, 1997 (the "Sublease
Commencement Date") and shall expire on the last day of July, 2004 (the
"Sublease Expiration Date"), unless sooner terminated pursuant to any provision
of the Lease or this Sublease. Sublessor and Sublessee acknowledge and agree
that it is the intent of the parties hereto, that, in no event shall the Term of
this Sublease extend for a period longer than the term of the Lease, as such
Lease term may be canceled, terminated or reduced, pursuant to such Lease, by
agreement between Master Landlord and Sublessor, or otherwise. Notwithstanding
the foregoing to the contrary, and provided that Sublessee is not in default of
any term or condition of this Sublease, beyond any grace or cure periods, as
provided for herein, Sublessor hereby agrees (i) not to enter into any voluntary
agreements with Master Landlord in order to terminate the Lease or to surrender
any portion of the Subleased Premises prior to the Sublease
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Expiration Date, except as expressly provided for under the terms of the Lease
nor (ii) to modify any provision of the Lease to the extent that such
modification would have an adverse affect on Sublessee's rights or obligations
under this Sublease or Sublessee's use or occupancy of the Subleased Premises.
Pursuant to the foregoing, Sublessor hereby covenants not to surrender any
portion of the Subleased Premises (provided that this Sublease is in full force
and effect) in the event that Sublessor exercises its option(s) to surrender
space as expressly provided in Article 4.04 (B) (SURRENDER OF SPACE) of the
Lease.
Upon the early termination or expiration of this Sublease, Sublessee shall
surrender the Subleased Premises to Sublessor in as good condition and order as
at the Sublease Commencement Date, reasonable wear and tear excepted. If the
Subleased Premises are not surrendered upon the termination or expiration of
this Sublease, Sublessee shall and does hereby indemnify and hold Sublessor
harmless from any claims or demands which may arise out of Sublessee's continued
occupancy of the Subleased Premises, including any liability accruing to Master
Landlord under the Lease. Sublessee's obligations under this provision shall
survive the expiration or earlier termination of this Sublease.
Any personal property owned by Sublessee, if any, which shall remain on the
Subleased Premises after the expiration or early termination of this Sublease
and the removal of Sublessee from the Subleased Premises may, at the option of
Sublessor, be deemed to have been abandoned by Sublessee, In such event,
Sublessor shall have the right to either retain such personal property as its
sole property or to remove and dispose of such personal property without
accountability at the expense of Sublessee, as Sublessor sees fit. If Sublessee
fails to remove any property from the Subleased Premises or repair any damage
caused by such removal, which removal or repair is required pursuant to any
provision of this Sublease, then Sublessor may so remove or repair the same and
Sublessee shall reimburse Sublessor for all reasonable and necessary costs
Sublessor incurs therefrom.
3. RENT
Sublessee shall pay to Sublessor monthly base rent (the "Base Rent") in
accordance with the base rent schedule attached hereto and made a part hereof as
Exhibit C (BASE RENT SCHEDULE), plus any applicable sales or other tax (other
- ---------
than an income tax) which may now or hereafter come into effect. The Base Rent
shall be paid in advance on the first day of each month, commencing on the
Sublease Commencement Date, without notice or demand and without abatement,
deduction or offset, except as expressly provided for in this Sublease, and will
be sent to The Travelers Indemnity Company, Corporate Real Estate and Services,
4400 North Point Parkway, Alpharetta, Georgia 30202, ATTN: CRE/Accounting. The
first month's Base Rent installment (and any other sum due hereunder as of the
Sublease Commencement Date) shall be paid upon the execution of this Sublease.
In the event that the Term of this Sublease begins or ends on any day other than
the first day of a calendar month, then the rental payments for such periods
shall be prorated on a per diem basis.
A five percent (5%) late charge may, at Sublessor's sole option, be charged as
additional rent for any rental payments that arrive later than the fifth (5th)
day of the month. All rental payments and any other payments due to Sublessor
hereunder shall bear interest, when not received by the fifth (5th) day of the
month, from the date due until paid at a rate per annum equal to the prime rate
published from time to time in the Wall Street Journal plus two percent (2%).
When any provision of this Sublease requires the payment of any sums of money
other than Base Rent or the Sublessee
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Escalation (as hereinafter defined), such sums of money shall be deemed
additional rent, and shall be immediately due and payable, unless otherwise
provided for in this Sublease.
Sublessee agrees to pay Sublessor Sublessee's Proportionate Share, as such term
is hereinafter defined, of any amounts payable by Sublessor pursuant to Article
2.02 (ESCALATION) of the Lease (hereinafter, the Sublessee Escalation"), over a
base year of calendar year 1997 for Operating Cost Escalation, and over a base
year of fiscal year 1997-1998 for Real Estate Tax Escalation, as respectively
defined therein. The Building Operating Costs shall be capped in accordance with
the terms of Subsection 2.02(A)(4) (CPI CAP) of the Lease. Pursuant to the terms
of Subsection 2.02(A) of the Lease, Sublessee's liability for Operating Cost
Escalation shall commence to accrue as of January 1, 1998, and Sublessor shall
invoice Sublessee for Sublessee's Proportionate Share of the same in accordance
with the terms of such Subsection 2.02(A) (and after Sublessor's receipt of
Master Landlord's invoice for the same). Pursuant to the terms of Subsection
2.02(B)(7) of the Lease, Sublessee's liability for Real Estate Tax Escalation
shall commence to accrue as of July 1, 1998, and Sublessor shall invoice
Sublessee for Sublessee's Proportionate Share of the same in accordance with the
terms of such Subsection 2.02(B)(7) (and after Sublessor's receipt of Master
Landlord's invoice for the same). Sublessee will pay Sublessor such Sublessee
Escalation within fifteen (15) days of receipt of an invoice, accompanied by
reasonable documentation evidencing the same. Any abatements or other reductions
in Building Operating Costs or Real Estate Taxes which Master Landlord passes on
to Sublessor pursuant to the terms of Article 2.02 of the Lease, Sublessor
agrees to also pass on to Sublessee. As used herein, "Sublessee's Proportionate
Share" shall be the percentage calculated by dividing the total rentable square
footage of the Subleased Premises by the total rentable square footage of the
Premises. For purposes of this Sublease, Sublessee's Proportionate Share shall
be deemed to be 37.61%.
4. USE AND SUBLESSEE'S COMPLIANCE WITH LAWS
Sublessee shall use the Subleased Premises for general office use consistent
with the terms and conditions of the Lease and this Sublease, and for no other
purpose without the prior written consent of Sublessor and the Master Landlord.
Notwithstanding the foregoing, in no event shall any use be made of the
Subleased Premises by or for the benefit of any party in a business which is in
competition with Sublessor's property casualty insurance business.
Notwithstanding anything in the Lease or in this Sublease to the contrary, from
and after the Sublease Commencement Date, Sublessee shall comply with all
statutes, rules, ordinances, orders, codes and regulations, and legal
requirements and standards issued thereunder, including, but not limited to The
Americans With Disabilities Act of 1990 (the "ADA"), as the same may be enacted
and amended from time to time (collectively referred to in this Sublease as the
"Laws"), to the extent the same are applicable to Sublessee's use or manner of
use of the Subleased Premises.
In the event that Sublessee's use or manner of use of the Subleased Premises
violates any provision of Laws, including but not limited to the ADA, Sublessee
shall bear all expense, cost and liability for compliance with such Laws.
Sublessee hereby agrees to indemnify, defend and hold Sublessor harmless from
all loss, cost, liability or expense, including reasonable attorney fees,
resulting from its failure to comply with all Laws relating to Sublessee's use
or manner of use of the Subleased Premises.
In addition, Sublessee shall (i) comply with all Environmental Laws (as
hereinafter defined); (ii) not cause or permit any Hazardous Materials (as
hereinafter defined) to be treated, stored, disposed of,
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generated, or used in the Subleased Premises, provided, however, that Sublessee
may store, use or dispose of products customarily found in offices and used in
connection with the operation and maintenance of property if Sublessee complies
with all Environmental Laws and does not contaminate the Subleased Premises or
environment; (iii) promptly after receipt, deliver to Sublessor, any
communication concerning any past or present, actual or potential violation of
Environmental Laws, or liability of either party for environmental damages.
"Environmental Laws" means all applicable present and future statutes,
regulations, rules, final administratively approved unappealable guidelines,
ordinances, codes, permits, or orders of all governmental agencies, departments,
commissions, boards, bureaus, or instrumentalities of the United States, states
and their political subdivisions and all applicable judicial, administrative and
regulatory decrees and judgments relating to the protection of the public health
or safety of the environment. "Hazardous Materials" include substances (a) which
require remediation under Environmental Laws; or (b) which are or become defined
as a hazardous waste, hazardous substance, pollutant or contaminant under any
Environmental Laws; or (c) which are toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic or mutagenic; or (d) which contain
petroleum hydrocarbons, polychlorinated byphenyls, asbestos, asbestos containing
materials or urea formaldehyde.
Sublessor hereby covenants to Sublessee, that (i) Sublessor will perform all of
the monetary obligations as the tenant under the Lease in accordance with the
terms of the Lease, and that (ii) Sublessor shall perform all of the other
obligations of the Lease, as the tenant thereunder, in accordance with the terms
of the Lease; however, subject to the acts, actions or inaction's of any other
subtenants of Sublessors', within the Premises.
5. IMPROVEMENTS
Sublessee accepts the Subleased Premises in an "as is" condition and
acknowledges that no representation with respect to the condition thereof has
been made to it and that Sublessor has no responsibility of improving the space
for Sublessee.
Notwithstanding the foregoing, Sublessor shall provide Sublessee with an
allowance of up to Five and 00/100 Dollars ($5.00) per rentable square feet (the
"Allowance") which shall be applied towards the improvements which Sublessee is
to construct in the Subleased Premises in order to prepare the same for its
occupancy (hereafter the "Sublessee Improvements"). The amount of the Allowance
which is used by Sublessee for the Sublessee Improvements, shall be amortized
into the Base Rent over the Term of the Sublease at an interest rate of ten
percent (10%). Any construction in and to the Subleased Premises, to be
performed by Sublessee, in order to prepare the same for its occupancy, shall be
done in accordance with the terms and conditions of Section 1 (c) (INCORPORATION
BY REFERENCE) hereof, and in a good and workmanlike manner by Sublessee or its
contractors or subcontractors and shall be performed and comply at the time of
completion, with all applicable laws, ordinances, regulations and orders of the
federal, state, county or other governmental authorities having jurisdiction
thereof Sublessee shall indemnify and hold Sublessor and Master Landlord
harmless from any and all cost, expenses, injury, loss, damages, claims, demands
or liability (including reasonable attorney fees) which may arise out of
Sublessee's construction of any such improvements. Sublessee shall be solely
responsible for any permits and licenses in order to complete the same.
Sublessor shall make payment to Sublessee within thirty (30) days of receipt of
invoices evidencing the same. Once all of the Sublessee Improvements have been
completed, Sublessee shall notify Sublessor in writing and an amendment to this
Sublease shall be drafted modifying the Base Rent in order to incorporate the
actual used portion of the Sublessee Allowance (in the method describe above)
for the Term of the Sublease. Sublessee's construction of the
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Sublessee Improvements shall in no way delay the Sublease Commencement Date as
set forth in this Sublease.
Notwithstanding anything contained herein to the contrary, Sublessee may have
access to the Subleased Premises as of June 1, 1997 (provided that this Sublease
is fully executed between the parties), in order to prepare the same for its
occupancy. In the event that Sublessee occupies the Subleased Premises prior to
the Sublease Commencement Date, as set forth herein, all terms and conditions of
this Sublease shall apply, to both parties, except for the payment of Base Rent
and any other sums due hereunder, and Sublessor shall not be obligated to
furnish any services (or request the provision thereof by Master Landlord) to
the Subleased Premises until the actual Sublease Commencement Date, except to
the extent required in order for Sublessee to install its trade fixtures. In the
event that Sublessee commences its business operations on the Subleased Premises
prior to the Sublease Commencement Date, the Sublease Commencement Date shall be
deemed to have occurred as of such time, and Sublessee shall be obligated to
commence all rent payments as of such date.
Sublessee agrees to employ contractors and subcontractors who will guarantee to
use first-class materials and workmanship and Sublessee shall not permit any
lien to be placed on record with respect to any part of the Building, or
Subleased Premises for work or materials furnished or obligations incurred by or
for Sublessee. Sublessee shall discharge any such lien by payment, bond or
otherwise, within ten (10) days of recordation of the same.
6. PARKING
Throughout the Term of this Sublease, as long as Sublessee shall have performed
within the applicable notice periods all of the agreements on Sublessee's part
to be performed, Sublessor shall make available to Sublessee parking spaces, on
a non-exclusive basis, based on the ratio of four (4) parking spaces for every
1,000 square feet of rentable area of the Subleased Premises. Of these parking
spaces, one (1) covered parking space, located in the parking garage below the
Building, shall be provided, per every 2,100 square feet of rentable area, as
further described on Exhibit E (PLAN OF PARKING GARAGE PARKING), attached hereto
---------
and made a part hereof. The remaining parking spaces shall be located in the
paved surface parking lot adjacent to the Building. All parking spaces shall be
provided (and utilized) in accordance with the terms and conditions of the
Lease. At any time during the Term of this Sublease, if Sublessee or its
invitees use more than the specified number of spaces, Sublessee shall, within
five (5) days of receipt of a notice from Sublessor cease and desist immediately
from using said additional spaces. Failure to so comply with this requirement
shall constitute a default of this Sublease.
7. SIGNAGE
Notwithstanding the terms of Article 4.03 (TENANT SIGNAGE) of the Lease to the
contrary, Sublessor shall provide Sublessee with Building standard directory
and suite entry signage, at the sole cost and expense of Sublessee. No other
terms or conditions of such Article 4.03 of the Lease shall be applicable to
this Sublease.
8. DEFAULT BY SUBLESSEE
If (i) Sublessee does not fulfill any of the terms, covenants, or agreements of
the Lease or this Sublease to be performed by Sublessee, including, but not
limited to, the payment of the Base Rent, the Sublessee Escalation or
additional rent, and such breach shall not have been remedied (or proper
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corrective measures to cure the breach have not commenced) within five (5) days
after written notice from Sublessor; or (ii) Sublessee commits any event of
default as described in Article 8.01 of the Lease (DEFAULT BY TENANT), as herein
incorporated, and such is not cured within the notice and cure period provided
for therein; or (iii) Sublessee causes Sublessor to be put into default under
the terms of the Lease; or (iv) Sublessee is the subject of an attachment,
execution or other judicial seizure of substantially all of Sublessee's assets
located at the Subleased Premises or of Sublessee's interest in this Sublease;
or (v) Sublessee assigns this Sublease or sublets all or any portion of the
Subleased Premises, except as expressly provided for in Section 1 (d) of this
Sublease, and such assignment or sublet is not amended, modified or terminated
within twenty (20) days after written notice from Sublessor to Sublessee, which
notice shall set forth how such assignment or sublet is in violation of the
terms of this Sublease; or (vi) Sublessee is the subject of the filing of a
petition in any bankruptcy or other insolvency proceeding, by or against
Sublessee, or Sublessee commences an act seeking any relief under any state or
federal debtor relief law, or Sublessee is the subject of the filing, by or
against Sub lessee, for the reorganization or modification of Sublessee's
capital structure, or a trustee or receiver is appointed to take possession of
substantially all of Sublessee's assets or the leasehold; however, if such a
filing or petition is filed against Sublessee by non-affiliated third parties,
then such filing shall not be a Sublessee Default unless Sublessee fails to have
the proceedings initiated by such petition dismissed within sixty (60) days
after filing thereof; or (vii) Sublessee admits or indicates an admission that
it cannot meet its obligations as they become due; or (viii) or Sublessee makes
an assignment for the benefit of its creditors; then such failure or occurrence
or any such events as set forth in (i) through (viii) shall constitute a
Sublessee event of default hereunder (a Sublessee Default").
Upon the occurrence of any Sublessee Default which is not cured by Sublessee
within the grace periods specified in this Section, Sublessor shall have the
following rights and remedies, in addition to all other rights and remedies
available to Sublessor pursuant to the Lease, or in law or in equity:
(a) Sublessor may give written notice to Sublessee specifying such
Sublessee Default or Defaults and stating that this Sublease and the Term hereby
demised shall expire and terminate on the date specified in such notice, and
upon the date specified in such notice, this Sublease and the Term hereby
demised and all rights of Sublessee under the Sublease shall expire and
terminate. Upon any termination of this Sublease, Sublessee shall quit and
peaceably surrender the Subleased Premises, and all portions thereof, to
Sublessor, and Sublessor, upon or at any time after any termination, may, to the
extent permitted by law, without further notice, enter upon and reenter the
Subleased Premises, and all portions thereof, and possess and repossess itself
thereof by force, summary proceeding, ejectment or otherwise, and may dispossess
Sublessee and remove Sublessee and all other persons and property from the
Subleased Premises and the right to receive all rental and other income of and
from the same.
(b) Sublessor may elect not to terminate this Sublease, and Sublessor may
instead terminate Sublessee's right of possession and may repossess the
Subleased Premises by forcible entry and detainer suit, by taking peaceful
possession or otherwise, without terminating this Sublease, in which event
Sublessor shall exert commercially reasonable efforts to mitigate it damages and
relet the Subleased Premises for the account of Sublessee, for such rent and
upon such terms as shall be reasonably satisfactory to Sublessor. Sublessor
shall not be required to accept any sublessee offered by Sublessee or observe
any instruction given by Sublessee about such reletting or do any act or
exercise any care or diligence with respect to such reletting or to the
mitigation of damages. For the purpose of such reletting, Sublessor may decorate
or make any repairs, changes, improvements,
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alterations, or additions in or to the Subleased Premises to the extent deemed
by Sublessor desirable or convenient (the "Reletting Alterations").
(c) No such termination of Sublessee's right to possess the Subleased
Premises under this Section shall relieve Sublessee of its liabilities and
obligations under this Sublease (as if such right of possession had not been so
terminated or expired), and such liabilities and obligations shall survive any
such termination of possession. In the event of any such termination of
Sublessee's right of possession, whether or not the Subleased Premises, or any
portion thereof, shall have been relet, Sublessee shall pay the Sublessor a sum
equal to the Base Rent, and the Sublessee Escalation and any other charges
required to be paid by Sublessee up to the time of such termination of such
right of possession and thereafter Sublessee, until the end of the Term of this
Sublease, shall be liable to Sublessor for and shall pay to Sublessor: (i) the
equivalent of the amount of the Base Rent and the Sublessee's Escalation payable
under this Sublease, less (ii) the net proceeds of any reletting effected
----
pursuant to the provisions of this Section after deducting all of Sublessor's
reasonable expenses in connection with such reletting, including, without
limitation, all reletting costs, brokerage commissions, attorneys' fees, the
costs of Reletting Alterations for the Subleased Premises, or any portion
thereof. Sublessee shall pay such amounts in accordance with the terms of this
Section as set forth in a written statement thereof from Sublessor to Sublessee
(hereinafter, the "Deficiency") to Sublessor in monthly installments on the days
on which the Base Rent is payable under this Sublease, and Sublessor shall be
entitled to recover from Sublessee each monthly installment of the Deficiency as
the same shall arise. Sublessee agrees that Sublessor may file suit to recover
any sums that become due under the terms of this Section from time to time, and
all reasonable costs and expenses of Sublessor, including attorneys' fees and
costs incurred in connection with such suits shall be payable by Sublessee on
demand.
(d) At any time after a Sublessee Default and the termination of the
Sublease by Sublessor, whether or not Sublessor shall have collected any monthly
Deficiency as set forth in this Section, Sublessor shall be entitled to recover
from Sublessee, and Sublessee shall pay to Sublessor, on demand, as and for
final damages for such Sublessee Default and in lieu of any subsequent
Deficiency (but without limitation of the provisions of subsection (f) hereof):
(i) all the Base Rent and the Sublessee Escalation and other sums
due and payable by Sublessee on the date of termination; plus
----
(ii) the costs of curing the Sublessee Default existing at or prior
to the date of termination, including the cost of any attorney fees
incurred by Sublessor; plus
----
(iii) the cost of recovering possession of the Subleased Premises and
preparation for reletting, including, without limitation, Reletting
Alterations, brokerage and management commissions, operating expenses,
attorney's fees, rent concessions and alteration costs; plus
____
(iv) the amount by which the then present worth of the aggregate of
the Base Rent and Sublessee's Escalation and any other charges to be
paid by Sublessee hereunder for the then unexpired Term of this
Sublease (assuming this Sublease had not been so terminated) is
greater than the then present worth of the then aggregate fair market
rent of the Subleased Premises which can be reasonably expected during
the same period (taking into account rentals received by Sublessor
under a replacement Sublease of the Subleased Premises). In the
computation of present
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worth, a discount at the then market discount rate as reasonably
determined by Sublessor shall be employed.
(e) Any and all property belonging to Sublessee or to which Sublessee is
or may be entitled which may be removed from the Subleased Premises by Sublessor
pursuant to the authority of this Sublease or applicable law, may be handled,
removed or stored in a commercial warehouse or otherwise by Sublessor at
Sublessee's risk and expense and Sublessor shall in no event be responsible for
the value, preservation or safekeeping thereof. Sublessee shall pay to
Sublessor, upon demand, any and all expenses incurred in such removal and all
storage charges for such property so long as the same shall be in Sublessor's
possession or under Sublessor's control.
(f) Sublessor shall have the right of injunction, in the event of a breach
or threatened breach by Sublessee of any of the agreements, conditions,
covenants or terms hereof, to restrain the same and the right to invoke any
remedy allowed by law or in equity, whether or not other remedies, indemnity or
reimbursements are herein provided. The rights and remedies given to Sublessor
in this Sublease are distinct, separate and cumulative remedies; and no one of
them, whether or not exercised by Sublessor, shall be deemed exclusive of any of
the others.
Sublessor may collect and receive any rent due from Sublessee, and the payment
thereof shall not constitute a waiver of or affect any notice or demand given,
suit instituted or judgment obtained by Sublessor, or be held to waive, affect,
change, modify or alter the rights or remedies that Sublessor has against
Sublessee in equity, at law, or by virtue of this Sublease. No receipt or
acceptance by Sublessor from Sublessee of less than the monthly rent herein
stipulated shall be deemed to be other than a partial payment on account for any
due and unpaid stipulated rent; no endorsement or statement on any check or any
letter or other writing accompanying any check or payment of rent to Sublessor
shall be deemed an accord and satisfaction, and Sublessor may accept and
negotiate such check or payment without prejudice to Sublessor's rights to (i)
recover the remaining balance of such unpaid rent, or (ii) pursue any other
remedy provided in this Sublease.
Nothing herein shall limit or prejudice the right of Sublessor to prove for and
obtain in proceedings for bankruptcy or insolvency by reason of any such
termination, an amount equal to the maximum allowed by any statute or rule of
law in effect at the time when, and governing the proceedings in which the
damages are to be proved, whether or not the amount be greater, equal to or less
than the amount of the loss or damage referred to above.
9. INSURANCE
Pursuant to Article 5.01 (INSURANCE) of the Lease, Sublessor may self-insure the
coverages provided for therein. This self-insurance option is personal to
Sublessor and such right shall not be extended to nor inure to the benefit of
Sublessee and Sublessee shall be required to maintain, at its expense, during
the Term of this Sublease: Commercial General Liability Insurance, including
contractual liability coverage, with minimum limits of not less than $1,000,000
per occurrence and $4,000,000 in excess per occurrence; all-risk property damage
insurance for all of Sublessee's personal property up to the full replacement
value thereof; applicable Worker's Compensation Insurance with statutory minimum
limits; and Employer's Liability Insurance with minimum limits of not less than
$1,000,000. All such insurance policies shall be issued by insurance companies
licensed to do business in the state where the Subleased Premises is located,
shall name Sublessor and Master Landlord as additional insureds, as their
interests may appear, and shall provide that the insurance shall not be canceled
or materially changed in the scope or amount of coverage unless
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fifteen (15) days advance notice is given to Sublessor. Prior to the Sublease
Commencement Date, Sublessee shall provide Sublessor with a certificate of
insurance, evidencing such coverages and naming Sublessor and Master Landlord as
additional insureds.
10. INDEMNIFICATION
Sublessee shall and hereby does indemnify and hold Master Landlord and Sublessor
harmless from and against any and all actions, claims, demands, damages,
liabilities and expenses (including, without limitation, reasonable attorney's
fees) asserted against, imposed upon or incurred by Sublessor or Master Landlord
by reason of; (i) any violation caused, suffered or permitted by Sublessee, its
agents, servants, employees or invitees, of any of the applicable terms,
covenants, conditions of the Lease or of this Sublease; (ii) any damage or
injury to persons or property occurring upon or in connection with the use or
occupancy of the Subleased Premises (and/or any other facility accessed and used
by Sublessor, whether within the Premises or on or about the Building as defined
in the Lease, which use shall also be extended to Sublessee), the Premises or
the Building, except to the extent caused by the negligence or willful
misconduct of Master Landlord or Sublessor, or their respective agents,
employees or invitees; and (iii) any damage or injury to persons or property
which is caused by the negligence or willful misconduct of Sublessee, its
agents, employees, contractors or invitees.
Sublessor shall and hereby does indemnify and hold Sublessee harmless from and
against any and all actions, claims, demands, damages, liabilities and expenses
(including, without limitation; reasonable attorney's fees) asserted against,
imposed upon or incurred by Sublessee by reason of (i) any breach or default by
Sublessor, or its employees, agents or contractors of any of the applicable
terms, covenants, conditions of this Sublease, or (ii) any damage or injury to
persons or property which is caused by the negligence or willful misconduct of
Sublessor, its agents, employees, contractors or invitees.
11. NOTICES
All notices with respect to this Sublease will be sent in writing through
certified mail, or via a nationally recognized carrier of overnight mail (e.g.
Federal Express), postage prepaid, to Sublessee and to Sublessor at the
following addresses or to such other addresses which may be designated in
writing from time to time.
Sublessee: Stream International Inc.
690 Canton Street
Westwood, Massachusetts 02090
with a copy to: Hale and Dorr, LLP.
60 State Street
Boston, Massachusetts 02109
Attn: Joel H. Sirkin, Esquire
Sublessor: The Travelers Indemnity Company
One Tower Square, 1 MSA
Hartford, CT 06183-7130
Attn: Corporate Real Estate & Services
12
<PAGE>
With a copy to: The Travelers Indemnity Company
Corporate Real Estate & Services
Senior Manager
4400 North Point Parkway
Alpharetta, Georgia 30202
12. BROKERS
Sublessor and Sublessee warrant and represent that they have dealt with no real
estate broker in connection with this Sublease other than Trammell Crow Company
and Spaulding and Slye, and that no other real estate broker is entitled to any
commission on account of this Sublease. Each of Sublessor and Sublessee will
indemnify and hold the other harmless from any loss, cost, damage or expense,
including reasonable attorney fees, which the other shall incur on account of
the falsity of the maker's foregoing representation and warranty when made.
13. SECURITY DEPOSIT
As security for the faithful performance and observance by Sublessee of the
terms, provisions, and conditions of this Sublease, Sublessee shall deliver to
Sublessor simultaneously with the execution of this Sublease, an irrevocable
letter of credit running in favor of Sublessor, issued by Citicorp Services,
Inc., in the amount of Six Hundred Thirty-One Thousand Five Hundred Twenty and
00/100 Dollars ($631,520.00). A copy of such letter of credit shall be attached
hereto as Exhibit D. The letter of credit shall be irrevocable for the term
thereof and shall provide that it is automatically renewable for a period ending
not earlier than sixty (60) days after the expiration of the term hereby demised
without any action whatsoever on the part of Sublessor. In addition, Sublessor
hereby agrees to allow for a reduction in the amount of the letter of credit, at
a rate of 25% (of the initial amount) per year. Such letter of credit shall
therefore run in favor of Sublessor in the following amounts:
<TABLE>
<S> <C>
July 1, 1997 - July 31, 2000: $631,520.00
August 1, 2000 - July 31, 2001: $473,640.00
August 1, 2001 - July 31, 2002: $315,760.00
August 1, 2002 - July 31, 2003: $157,880.00
August 1, 2003 - July 31, 2004: $ 39,470.00 (equal to one (1) months
rent until the end of the Sublease Term)
</TABLE>
The form and terms of the letter of credit (and the bank issuing the same) shall
be acceptable to Sublessor and shall provide, among other things, in effect
that:
(1) As a condition to payment, thereon, Sublessor shall certify that a
default by Sublessee under the Sublease has occurred, and that such
default remains uncured after the expiration of the applicable default
or cure period provided in the Sublease;
(2) Sublessor shall have the right to draw down on an amount up to the face
amount of the letter of credit, upon the presentation to the issuing
bank of Sublessor's statement that such amount is due to Sublessor under
the terms and conditions of this Sublease, it being understood that if
Sublessor is a corporation, then such statement shall be signed
13
<PAGE>
by an officer of such corporation. If Sublessor does draw down on any
amount of the letter of credit, upon presentation to the issuing bank of
the foregoing, the issuing bank shall wire transfer, in United States
dollars, the amount to be drawn down to the bank of Sublessor's choice
as stated in its notice;
(3) The letter of credit will be honored by the issuing bank without inquiry
as to the accuracy thereof and regardless of whether the Sublessee
disputes the content of such statement;
(4) In the event of a transfer of Sublessor's interest in the Lease of which
the Sublease is a part, Sublessor shall have the right to transfer the
letter of credit to the transferee and thereupon the Sublessor shall,
without any further agreement between the parties, be released by
Sublessee from all liability therefore, and it is hereby agreed that the
provisions hereof shall apply to every transfer or assignment of said
letter of credit to a new Sublessor.
(5) Sublessee further covenants that it will not assign or encumber said
letter of credit or any part thereof and that neither Sublessor nor its
successors or assigns will be bound by any such assignment, encumbrance,
attempted assignment or attempted encumbrance;
(6) Without limiting the generality of the foregoing, if the letter of
credit expires earlier than sixty (60) days after the expiration of the
term of the Sublease, or the issuing bank notifies Sublessor that it
shall not renew the letter of credit, Sublessor will accept a renewal
thereof or substitute letter of credit (such renewal or substitute
letter of credit to be in effect not later than thirty (30) days prior
to the expiration thereof), irrevocable and automatically renewable as
above provided to sixty (60) days after the end of the term of this
Sublease upon the same terms and conditions as the expiring letter of
credit or such other terms as may be acceptable to Sublessor.
14. WAIVER OF CONSEQUENTIAL DAMAGES
Pursuant to Article 8.06 (WAIVER OF CONSEQUENTIAL DAMAGES) of the Lease, and to
the extent provided for therein, neither Sublessor nor Sublessee shall be liable
to the other under or in connection with this Sublease for any consequential
damages and both Sublessor and Sublessee waive, to the full extent permitted by
law, any claim for consequential damages.
15. SUBLESSOR'S RIGHT TO PERFORM SUBLESSEE'S COVENANTS
If Sublessee shall at any time fail to pay any amounts due under this Sublease
or to obtain, pay for, maintain or deliver any of the insurance policies
provided for hereunder, or shall fail to perform any other act on its part to be
made or performed hereunder, then Sublessor, after twenty (20) days notice to
Sublessee, except when other notice is expressly provided for in this Sublease
(or without notice in case of an emergency as may in Sublessor's opinion exist),
and without waiving or releasing Sublessee from any obligation of Sublessee
contained in this Sublease, may (but shall be under no obligation to):
(a) Pay any amount payable by Sublessee pursuant to this Sublease; or
14
<PAGE>
(b) Obtain, pay for and maintain any of the insurance policies provided for
herein to be furnished by Sublessee; or
(c) Make any other payments or perform any act on Sublessee's part to be
made or performed as provided in this Sublease.
Sublessor may enter upon the Subleased Premises for any such purpose, and take
all such action thereon as may be necessary therefor.
All sums so paid by Sublessor and all costs and expenses incurred by Sublessor
in connection with the performance of any such act, together with interest
thereon at the rate per annum which is two percentage points above the Prime
Rate published in the Wall Street Journal from the respective dates of
Sublessor's making of each such payment or incurring of each such cost and
expense, shall be paid by Sublessee to Sublessor on demand as additional rent
hereunder, and Sublessor shall not be limited in the proof of any damages which
Sublessor may claim against Sublessee arising out of or by reason of Sublessee's
failure to provide and keep in force insurance as aforesaid to the amount of the
insurance premium or premiums not paid or incurred by Sublessee and which would
have been payable upon such insurance, but Sublessor shall also be entitled to
recover as damages for such breach the uninsured amount of any loss, to the
extent of any deficiency in the minimum amount of insurance required by the
provisions of this Sublease, and damages, costs and expenses of suit suffered or
incurred by reason of damage to, or destruction of, and part of the premiums
occurring during any period when Sublessee shall have failed or neglected to
provide such insurance as required. Upon the expiration or termination of this
Sublease, the unearned premiums upon any such insurance policies lodged with
Sublessor by Sublessee shall belong to Sublessor.
16. ENTIRE AGREEMENT
This Sublease, the Exhibits attached hereto and the applicable terms and
conditions of the Lease which have been incorporated herein by reference,
contain the entire agreement between the parties concerning the Subleased
Premises and shall supersede any other agreements between the parties concerning
this matter, whether oral or written. This Sublease shall not be modified,
canceled or amended except by written agreement, signed by both parties.
17. SUCCESSORS AND ASSIGNS
The obligations of this Sublease shall bind and benefit the successors and
permitted assigns of the parties with the same effect as if mentioned in each
instance where a party hereto is named or referred to.
18. TIME IS OF THE ESSENCE
Time is of the essence with respect to the performance of all conditions,
obligations and elections of Sublessee hereunder.
19. CAPTIONS
The captions appearing in this Sublease are inserted only as a matter of
convenience and in no way define, limit, construe or describe the scope or
intent of such sections of this Sublease nor in any way affect this Sublease.
15
<PAGE>
20. EXHIBITS
The following exhibits (the "Exhibits") were attached to this Sublease and made
a part hereof prior to the execution of this Sublease:
Exhibit A Lease
Exhibit B Plan of Subleased Premises
Exhibit C Base Rent Schedule
Exhibit D Letter of Credit
Exhibit E Plan of Parking Garage Parking
16
<PAGE>
IN WITNESS WHEREOF, Sublessor and Sublessee have executed this Sublease as of
the day and year first above written.
WITNESS: SUBLESSOR:
THE TRAVELERS INDEMNITY COMPANY
/s/ Ann Buske
- --------------------
/s/ [ILLEGIBLE] By: /s/ Wayne E. Mills
- -------------------- --------------------------
Wayne E. Mills
Its Vice President
SUBLESSEE:
/s/ [ILLEGIBLE] STREAM INTERNATIONAL INC.
- --------------------
6.13.97 By: /s/ [ILLEGIBLE]
- -------------------- --------------------------
Its President
17
<PAGE>
ACKNOWLEDGMENT OF SUBLESSOR:
STATE OF CONNECTICUT)
) ss. _______________
COUNTY OF HARTFORD )
On this 3rd day of July, 1997, before me, the undersigned officer, personally
appeared Wayne E. Mills, known to me to be the Vice President of The Travelers
Indemnity Company, a corporation, and that he as such Vice President, duly
authorized, executed the foregoing instrument as his free act and deed on
behalf of the corporation for the purposes therein contained.
IN WITNESS WHEREOF, I have hereunto set my hand.
/s/ [ILLEGIBLE]
--------------------------------
Notary Public/
My commission expires: ___________
ACKNOWLEDGMENT OF SUBLESSEE:
STATE OF )
) ss. ________________
COUNTY OF )
On this ____ day of ______________, 199_, before me, the undersigned officer,
personally appeared ___________________, known to me to be the _________________
of _______________________, a ________________________, and that he/she as such
_____________________, duly authorized, executed the foregoing instrument as
his/her free act and deed on behalf of _______________________ for the purposes
therein contained.
IN WITNESS WHEREOF, I have hereunto set my hand.
/s/ Terese Foley-Groppi
--------------------------------
Notary Public/
Commissioner of the Superior Court
My commission expires: 8/23/2002
----------
18
<PAGE>
(PLAN OF SUBLEASED PREMISES)
SCHEDULE 1
[DRAWING APPEAR HERE]
<PAGE>
EXHIBIT C
BASE RENT SCHEDULE
Rentable Rental Monthly Annual
Period Area Rate Rent Rent
- ------ ---- ---- ---- ----
7/1/97-
8/31/98 23,682 $20.00 $ 39,470.00 $473,640.00
8/1/98-
7/31/99 23,682 $20.50 $ 40,456.75 $485,481.00
8/1/99-
7/31/2000 23,682 $20.75 $ 40,950.13 $491,401.50
8/1/00-
7/31/2001 23,682 $21.00 $ 41,443.50 $497,322.00
8/1/01-
7/31/2002 23,682 $21.25 $ 41,936.88 $503,242.50
8/1/02-
7/31/2003 23,682 $21.50 $422,430.25 $509,163.00
8/1/03-
7/31/2004 23,682 $21.75 $ 42,923.63 $515,083.50
19
<PAGE>
EXHIBIT D
LETTER OF CREDIT
CITICORP SERVICES, INC.
Citibank, N.A.
NORTH AMERICAN TRADE FINANCE
JUNE 24, 1997
THE TRAVELERS INDEMNITY COMPANY
4400 NORTH POINT PARKWAY
SUITE 170
ALPHARETTA, GA 30202
REF: IRREVOCABLE LETTER OF CREDIT NO. NY-00689-30021370
GENTLEMEN:
BY ORDER OF OUR CLIENT, STREAM INTERNATIONAL, INC., 105 ROSEMONT ROAD,
WESTWOOD, MA 02090, WE HEREBY OPEN OUR IRREVOCABLE LETTER OF CREDIT NO.
NY-00689-30021370 IN YOUR FAVOR FOR AN AMOUNT NOT TO EXCEED IN THE AGGREGATE US
DOLLARS 631,520.00 (SIX HUNDRED THIRTY ONE THOUSAND FIVE HUNDRED TWENTY AND
00/100 US DOLLARS), EFFECTIVE AUGUST 1, 1997 AND EXPIRING AT OUR 111 WALL
STREET OFFICE, NEW YORK N.Y. 10043, OR SUCH OTHER OFFICE AS WE MAY ADVISE FROM
TIME TO TIME, WITH OUR CLOSE OF BUSINESS ON SEPTEMBER 30, 1998, OR ANY FUTURE
EXPIRATION DATE AS DESCRIBED HEREIN.
FUNDS HEREUNDER ARE AVAILABLE TO YOU AGAINST PRESENTATION OF YOUR SIGHT
DRAFT(S) DRAWN ON US MENTIONING THEREON OUR LETTER OF CREDIT NUMBER
NY-00689-30021370, ACCOMPANIED BY YOUR PURPORTEDLY SIGNED STATEMENT
CERTIFYING THAT THE APPLICANT OF CREDIT IS IN DEFAULT OF THE LEASE
AGREEMENT ENTERED INTO BETWEEN THE TRAVELERS INDEMNITY COMPANY AND STREAM
INTERNATIONAL, INC., FOR THE PREMISES LOCATED AT 690 CANTON STREET,
WESTWOOD, MA 02109 AND THAT THE APPLICABLE NOTICES HAVE BEEN GIVEN AND THE
CURE PERIOD EXPIRED.
IT IS A CONDITION OF THIS LETTER OF CREDIT THAT THE AVAILABLE BALANCE UNDER THIS
LETTER OF CREDIT WILL AUTOMATICALLY REDUCE WITHOUT AMENDMENT BASED UPON THE
FOLLOWING SCHEDULE IF THIS LETTER OF CREDIT IS RENEWED FOR THOSE PERIODS:
DATE OF REDUCTION AMOUNT AVAILABLE UNDER LETTER OF CREDIT
AUGUST 1, 2000: $473,640.00
AUGUST 1, 2001: $315,760.00
AUGUST 1, 2002: $157,880.00
AUGUST 1, 2003: $ 39,470.00 (ONE MONTH'S RENT TO END OF TERM
SEE NEXT PAGE
<PAGE>
EXHIBIT D
LETTER OF CREDIT PAGE 2
________________________________________________________________________________
CITICORP SERVICES, INC.
Citibank, N.A.
IT IS A CONDITION OF THIS LETTER OF CREDIT THAT IT SHALL BE DEEMED
AUTOMATICALLY EXTENDED WITHOUT AMENDMENT FOR 12 MONTHS FROM THE PRESENT OR
ANY FUTURE EXPIRATION DATE HEREOF, UNLESS 60 DAYS PRIOR TO ANY SUCH DATE
WE SHALL NOTIFY YOU BY REGISTERED MAIL THAT WE ELECT NOT TO CONSIDER THIS
LETTER OF CREDIT RENEWED FOR ANY SUCH ADDITIONAL PERIOD, HOWEVER THIS
LETTER OF CREDIT WILL NOT BE EXTENDED BEYOND THE FINAL EXPIRATION DATE OF
JULY 31, 2004. UPON RECEIPT BY YOU OF SUCH NOTICE, YOU MAY DRAW HEREUNDER
BY MEANS OF YOUR DRAFT ON US AT SIGHT ACCOMPANIED BY YOUR WRITTEN
STATEMENT THAT THE FUNDS WILL BE RETAINED AND USED BY YOU TO MEET ANY OF
YOUR OBLIGATION(S) IN RELATION TO THE LEASE AGREEMENT BY AND BETWEEN THE
TRAVELERS INDEMNITY COMPANY AND STREAM INTERNATIONAL, INC., AND FURTHER,
THAT IN THE EVENT THE OBLIGATION(S) ARE SATISFIED, YOU WILL REFUND TO US
THE AMOUNT PAID BY US TO YOU HEREUNDER.
WE HEREBY ENGAGE WITH YOU IF WE RECEIVE YOUR DRAFT AND STATEMENT, AS
MENTIONED ABOVE, HERE AT OUR OFFICE AT 111 WALL STREET, NORTH AMERICA
TRADE FINANCE, 16TH FLOOR, ZONE 9, NEW YORK, NEW YORK 10043, OR SUCH OTHER
OFFICE AS WE MAY ADVISE FROM TIME TO TIME, ON OR PRIOR TO OUR CLOSE OF
BUSINESS ON SEPTEMBER 30, 1998 OR ANY FUTURE EXPIRATION DATE AS DESCRIBED
HEREIN, WE WILL PROMPTLY HONOR YOUR DRAFT.
SHOULD YOU HAVE OCCASION TO COMMUNICATE WITH US REGARDING THIS LETTER OF
CREDIT, PLEASE DIRECT YOUR CORRESPONDENCE TO US AT 111 WALL STREET, 16TH
FLOOR, ZONE 9, NEW YORK NY 10043, ATTN: NATF LC DEPT., OR SUCH OTHER
OFFICE AS WE MAY ADVISE FROM TIME TO TIME, MAKING SPECIFIC MENTION OF THE
LETTER OF CREDIT NUMBER INDICATED ABOVE.
THIS LETTER OF CREDIT IS SUBJECT TO THE UNIFORM CUSTOMS AND PRACTICE FOR
DOCUMENTARY CREDITS (1993 REVISION) INTERNATIONAL CHAMBER OF COMMERCE
PUBLICATION #500, AND AS TO MATTERS NOT GOVERNED BY THE UCP, SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK AND APPLICABLE U.S. FEDERAL LAW, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW.
CITIBANK N.A.
/S/ [ILLEGIBLE]
AUTHORIZED SIGNATURE.
<PAGE>
STREAM INTERNATIONAL ASSIGNED PARKING SPACES: #`s 10-14, 39-44
EXHIBIT E
PLAN OF PARKING GARAGE PARKING
[DRAWING APPEARS HERE]
<PAGE>
EXHIBIT A
Westwood Business Centre
Westwood, Massachusetts
THIRD AMENDMENT TO LEASE
------------------------
Date: May 9, 1995
LANDLORD: Beacon Properties, L.P., successor-in-interest to The
Travelers Insurance company
TENANT: The Travelers Insurance Company
LEASE
EXECUTION
DATE: As of October 12, 1993
PREVIOUS
LEASE
AMENDMENTS: First Amendment to Lease dated June 10, 1994 Second
Amendment to Lease dated as of August 1, 1994
WHEREAS, the parties have agreed to modify Tenant's termination right with
respect to the "Premier Premises" on the second (2nd) floor of the Building.
NOW THEREFORE, the above-referenced lease, as previously amended
(collectively, the "Lease") , is hereby further amended as follows. All
capitalized terms used herein shall have the same definitions as used in the
Lease.
1. MODIFICATION TO PREMIER PREMISES TERMINATION RIGHT
--------------------------------------------------
The first sentence of Section 4.04D of the Lease (which was added to the
Lease by Paragraph 8C of the First Amendment to Lease dated June 10, 1994) is
hereby deleted in its entirety and replaced by the following:
In addition to Tenant's rights under Section 4.04B hereof, Tenant
shall have the option to surrender the Premier Premises as of the last
day of any month between July 1, 1998 and December 31, 1998 upon
giving Landlord written notice on or before the date six (6) months
prior to the last day of the month in question.
2. HEADINGS
--------
Titles and paragraph headings are for reference purposes and for
convenience of the parties only and shall have no bearing upon nor force or
effect in respect of the interpretation and
<PAGE>
application of the substantive provisions contained in this Third Amendment.
As hereby amended, the Lease is ratified, confirmed and approved in all
respects.
EXECUTED UNDER SEAL as of the date first above-written.
LANDLORD: TENANT:
BEACON PROPERTIES, L.P. THE TRAVELERS INSURANCE
COMPANY
By: Beacon Properties Corporation,
General Partner
By:/s/ Lionel P. Fortin By: /s/ Andy F. Bessette
-------------------------- -----------------------------
Lionel P. Fortin Name: ANDY F. BESSETTE
Senior Vice President Title: NATIONAL DIRECTOR
Hereunto Duly Authorized Hereunto Duly Authorized
Date Signed: 11/22/95 Date Signed: Oct. 18, 1995
---------------------- ---------------------
<PAGE>
_____________
Beacon
- -------------
Management
- -------------
Company
- -------------
65 William Street Wellesley, Massachusetts 02181 617 235-5140
October 11, 1995
Mr. Franklin L. Hill
Regional leasing Manager
The Travelers Insurance Company
1100 Abernathy Road
Building 500, Suite 1417
Atlanta, Georgia 30328
Re: Westwood Business Centre, 690 Canton Street, Westwood MA
Lease Dated October, 1993, as amended by First Amendment dated June 10,
1994, as amended by Second Amendment dated August 1, 1994, by and between
The Travelers Insurance Company and Beacon Properties, LP.
Dear Mr. Hill:
In accordance with Article 4.80 of the above Lease, I am writing to inform you
of a proposed installation of an antenna at the above property; and I am seeking
your approval.
I have been informed by two independent operators that the proposed antenna
installation would not interfere with your satellite installation. According to
these experts, your system operates in the megahertz range while the proposed
antenna operates in the gigahertz range which are two different areas of the
spectrum. Also, the proposed installation would not be located in the same area
of the roof as yours, and would also be pointed in an opposite direction.
Thank you for your cooperation in this matter.
Very truly yours,
/s/ J. Duncan Gratton
- --------------------------
J. Duncan Gratton
Director of Leasing
cc: B. Baker
K. Baker
K. LaShoto
R. Mack
ACCEPTED BY:
The Travelers
By: /s/ [ILLEGIBLE] Title: Regional Manager
--------------------- ---------------------
Date: 10/12/95
-------------------
<PAGE>
Westwood Business Centre
Westwood, Massachusetts
SECOND AMENDMENT TO LEASE
-------------------------
Date: As of August 1, 1994
LANDLORD: Beacon Properties, L.P., successor-in-interest to
The Travelers Insurance Company
TENANT: The Travelers Insurance Company
LEASE
EXECUTION
DATE: As of October 12, 1993
PREVIOUS
LEASE
AMENDMENTS: First Amendment to Lease dated June 10, 1994
WHEREAS, Tenant has, by letter dated July 14, 1994, a copy of which is
attached hereto, exercised its right, pursuant to Section J of Article 3.01 of
the above-referenced lease, not to utilize a shuttle bus service;
WHEREAS, all of the Base Building Improvements and Tenant Improvements
required to be made by Landlord under the Lease have been completed and the
actual costs thereof have been determined; and
WHEREAS, the parties desire to confirm the rental and certain other terms
of said lease.
NOW THEREFORE, the above-referenced lease, as previously amended
(collectively, the "Lease"), is hereby further amended as follows. All
capitalized terms used herein shall have the same definitions as used in the
Lease.
1. LEASE COMMENCEMENT DATE
-----------------------
The parties hereby confirm and agree that the Lease Commencement Date is
August 1, 1994.
2. LEASE EXPIRATION DATE
---------------------
The parties hereby confirm and agree that the Lease Expiration Date is July
31, 2004.
<PAGE>
3. SHUTTLE BUS SERVICE
-------------------
Since Tenant has exercised its right, pursuant to Section J of Article 3.01
of the Lease, not to use the shuttle bus service, as described in said Section
J, the parties hereby agree that:
A. Said Section J is hereby deleted from the Lease in its entirety and is
of no further force of effect;
B. Effective as of August 1, 1994, Tenant's Base Rent shall be reduced by
$.52 per rentable square foot of the Premises. Such reduction in
Tenant's Base Rent is reflected in the Revised Base Rent Schedule
which is attached hereto as Revised Exhibit G; and
C. Subparagraph A(2)(k) of Section 2.02 of the Lease is hereby deleted
from the Lease in its entirety and is of no further force or effect.
4. ADJUSTMENTS ON ACCOUNT OF BUILD-OUT
-----------------------------------
The parties hereby confirm and agree that the Base Building Improvements
and Tenant Improvements required to be made by Landlord under the Lease have
been completed, and that the total cost of the same was $1,268,963.14.
Accordingly, the parties hereby further confirm and agree that:
A. Since the Allowance exceeds the costs of the Base Building
Improvements and Tenant Improvements, Tenant's Base Rent, in
implementation of the last sentence of Section 2.03 of Exhibit D to
the Lease, shall be reduced by $3,935.31 per month effective from and
after March 1, 1995. Such reduction in Tenant's Base Rent is reflected
in the Revised Base Rent Schedule which is attached hereto as Revised
Exhibit G; and
B. Since Tenant incurred $198,439.14 on account of the Tenant
Improvements for which it was not reimbursed from the Allowance,
Landlord hereby agrees to pay such sum of $198,439.14 to Tenant.
Tenant acknowledges and agrees that, upon implementation of the rent
reduction provided for in Paragraph 4A above and payment by Landlord to Tenant
of the sum set forth in Paragraph 4B above, Landlord shall be deemed to have
fully satisfied its obligations to Tenant under the Lease with respect to the
Allowance.
5. REVISED BASE RENT SCHEDULE
--------------------------
In implementation of Paragraphs 3 and 4 above, effective August 1, 1994
Exhibit G to the Lease is hereby deleted in its
<PAGE>
entirety and the Revised Exhibit G, a copy of which is attached hereto and made
a part hereof, is substituted in its place.
As hereby amended, the Lease is ratified, confirmed and approved in all
respects.
EXECUTED UNDER SEAL as of the date first above-written.
LANDLORD:
BEACON PROPERTIES, L.P.
By: Beacon Properties Corporation,
General Partner
By: /s/ Lionel P. Fortin
-----------------------------
Lionel P. Fortin
Senior Vice President
Hereunto Duly Authorized
Date Signed: 8/11/95
-------------------------
TENANT:
THE TRAVELERS INSURANCE COMPANY
By /s/ Andy F. Bessette
----------------------------------
Name: Andy F. Bessette
Title: National Director
Hereunto Duly Authorized
Date Signed: _____________________
<PAGE>
[LOGO OF THE TRAVELERS]
Corporate Real Estate & Services
The Travelers Companies
One Tower Square
Hartford, CT 06183
203 277-2747
FAX: 203 954-2819
July 14, 1994
Mr. Claude Hoopes, Leasing Director
Beacon Management Company
The Wellesley Office Park
65 William Street, Suite 100
Wellesley, Massachusetts 02181-3899
Re: Lease Agreement by and between Beacon Properties L.P. (successor in
interest to The Travelers Insurance Company) as "Landlord", and The
Travelers Insurance Company as "Tenant", dated October 12, 1993, as amended
(the "Lease") for certain premises, as further described in the Lease,
located at 690 Canton Street, Westwood, Massachusetts (the "Premises").
Dear Mr. Hoopes:
Pursuant to Article 3.01 (SERVICES PROVIDED BY LANDLORD) of the Lease, this
letter shall serve as notice that The Travelers Insurance Company as Tenant will
not be utilizing the "shuttle bus service", as further described in Section (J)
thereof. In accordance with the terms of Section J of Article 3.01, Tenant's
Base Rent shall be reduced by $ .52 per rentable square foot and Tenant' s Base
Year for Operating Costs, and the calculation of such subsequent years' costs,
as further described in Article 2.02 of the Lease, shall also be adjusted
accordingly.
This change shall be effective as of the Commencement Date of the Lease, August
1, 1994 and the monthly rent payments shall be adjusted accordingly. In
addition, Exhibit G (BASE RENT SCHEDULE) of the Lease shall also be modified in
the following manner.
Period Base Rental
------ Rate Per RSF
------------
Year 1-3 $17.94
Year 4-5 $18.44
Year 6-7 $19.19
Year 8 $19.69
Year 9-10 $20.19
<PAGE>
Please review the revised Base Rent Schedule and have this notice executed by or
on behalf of Beacon Properties, L.P. as provided below, in order to acknowledge
your agreement with the same.
Sincerely. AGREED AND ACCEPTED:
BEACON PROPERTIES, L.P.
/s/ Andy F. Bessette
Andy F.Bessette
National Director, Leasing & Facilities Mgmt. _______________________________
AFB/cd
<PAGE>
<TABLE>
<CAPTION>
REVISED EXHIBIT G
-----------------
Revised Base Rent Schedule -- The Travelers
TOTAL AREA: 62,972 square feet
<S> <C> <C>
Period Annual Base Rent Monthly Installment
- ------ ---------------- -------------------
August 1, 1994 - $1,129,717.68 $(94,143.14)
February 28, 1995
March 1, 1995 - $1,082,493.96 $(90,207.83)
July 31, 1997
August 1, 1997 - $1,113,979.92 $(92,831.66)
July 31, 1999
August 1, 1999 - $1,161,208.92 $(96,767.41)
July 31, 2001
August 1, 2001 - $1,192,695.00 $(99,391.25)
July 31, 2002
August 1, 2002 - $1,224,180.96 $102,015.08
July 31, 2004
</TABLE>
<PAGE>
- ----------
Beacon
- ----------
Management
- ----------
Company
- ----------
65 William Street Wellesley, Massachusetts 02181 617 235-5140
February 23, 1995
Mr. Lee Eighmy
Corporate Real Estate Manager
The Travelers Insurance Company
90 Merrick Avenue
Eastmeadow, NY 11554
Re: Westwood Business Centre, 890 Canton Street, Westwood MA
Lease Dated October, 1993, as amended by First Amendment dated June 10,
1994, as amended by Second Amendment dated August 1, 1994, by and between
The Travelers Insurance Company and Beacon Properties, L.P.
Dear Lee:
In accordance with Article 4.08 of the above Lease, I am writing to inform you
of a proposed installation of an antenna at the above property; and I am seeking
your approval.
I have been informed by two independent operators that the proposed antenna
installation would not interfere with your satellite installation. According to
these experts, your system operates in the megahertz range while the proposed
antenna operates in the gigahertz range which are two different areas of the
spectrum. Also, the proposed installation would not be located in the same area
of the roof as yours, and would also be pointed in an opposite direction.
Thank you for your cooperation in this matter.
Very truly yours,
/s/ Paula P Renkas
Paula P. Renkas
Property Manager
cc: B. Baker
D. Gratton
K. LaShoto
S. Murphy
ACCEPTED BY:
The Travelers
BY: /s/ (ILLEGIBLE) Title: Manager - Corporate Real Estate
------------------------- --------------------------------
Date: 2/28/95
----------
<PAGE>
- ----------
Beacon
- ----------
Management
- ----------
Company
- ----------
Wellesley Office Park Associates
July 18, 1994
Mr. Lee Eighmy
Corporate Real Estate Manager
The Travelers
90 Merrick Avenue
Eastmeadow, NY 11554
Re: Lease dated October 12, 1993 / by and between The Travelers Insurance
Company and The Beacon Corporation.
Dear Mr. Eighmy:
I would like to take this opportunity to wish you well in your new premises at
690 Canton Street, Westwood, MA.
For record purposes, we wish to confirm that The Travelers Insurance
Company has leased 62,972 square feet on the first, second, and third floors of
Westwood Business Centre, 690 Canton Street, Westwood, MA.
I also wish to confirm that your entire premises is substantially complete *
and a partial move in took place June 24, 1994 and the completed move occured
July 8, 1994. The Term Commencement Date August 1,1994 and Termination Date
July 31, 2004.
If the above accurately states your understanding of the above referenced Lease
dates please counter sign below and return one copy to me at Beacon Management
Company. We suggest that you file the second copy with your Lease for future
reference. Thank you.
-------
Very truly yours * as defined in the Lease AB
-------
/s/ Paula P. Renkas
Paula P. Renkas
Property Manager
PPL/ikm
cc: Claude Hoopes
Suzanne King
Jennifer O'Keefe
Barbara Schnepp
AGREED AND CONSENTED TO:
The Travelers Insurance Company
By: /s/ Andy F. Bessette Title National Director
--------------------------- ------------------
(hereunto duly authorized)
Date 8/4/94
--------
65 William Street Wellesley Massachusetts 02181 617 235-5140
<PAGE>
Westwood Business Centre
Westwood, Massachusetts
FIRST AMENDMENT TO LEASE
------------------------
This First Amendment to Lease (this "Amendment") made this 7th day of June,
1994 by and between Beacon Properties, L.P. (the "Landlord") and The Travelers
Insurance Company (the "Tenant") amends that certain Lease Agreement by and
between The Travelers Insurance Company, as Landlord, and The Travelers
Insurance Company, as Tenant, dated as of October 12, 1993 (the "Original
Lease"). Capitalized terms used herein without definition which are defined in
the Original Lease shall have the meanings ascribed to them therein.
WHEREAS, Landlord has, as of the date of this Amendment, purchased the Land
and Building from Tenant;
WHEREAS, the parties hereto desire to amend the Original Lease so as to
modify certain of Tenant's rights thereunder and to accommodate certain of
Landlord's concerns in connection with the operation and management of the
Building;
NOW, THEREFORE, the parties hereto hereby agree the Original Lease is
amended as follows (the Original Lease, as amended by this Amendment, being
hereinafter referred to as the "Lease"):
1. Amend Building Description. Section 1.03 A. if the Original Lease is hereby
--------------------------
amended by inserting at the end thereof, provided that the rentable area of the
Building shall be subject to remeasurement as provided on Schedule 2.
2. Clarification of Premises. Sections 1.04 and 1.05, the second sentence of
-------------------------
Paragraph A of Section 4.04 (relating to the so-called "6-1-95 Option Space"),
and Exhibit A-3 of the Original Lease are hereby deleted in their entirety and
the following is substituted in their place:
1.04. PREMISES
The Premises consist of the portions of the first, second and third floors
of the Building outlined by cross-hatching on Schedule 1 attached to this
Amendment and incorporated in the Lease by this reference. The portion of
the Premises located on the second floor of the Building, containing 9,354
rentable square feet, which is labelled as "Premier Premises" on Schedule
1, is hereinafter referred to as the "Premier Premises." Wherever in the
Lease there is a reference to Exhibit A-3, such reference shall be deemed
to
<PAGE>
be made to Schedule 1 attached to this Amendment. Each portion of the
Premises contains the rentable square footage and usable square footage set
forth on Schedule 2 attached to this Amendment and incorporated in the
Lease by this reference, and, for the purposes of Section 2.02 of the
Lease, the Tenant's Proportionate Share applicable to each portion of the
Premises is as set forth on said Schedule 2, subject to adjustment as
provided in said Schedule 2.
3. Changes Outside of the Premises. The last sentence of Section 1.03 of the
-------------------------------
Original Lease is hereby deleted in its entirety and the following is inserted
in its place:
Notwithstanding anything to the contrary in this Lease contained, but
subject to Landlord's obligation, as set forth in Section 3.02 hereof, to
maintain the Building in first-class condition, Landlord shall have the
right, at any time and from time to time, to make alterations,
improvements, and repairs to the Building and/or the Common Area Facilities
and the services provided by Landlord therein, provided that no such
alteration, improvement or repair (collectively a "Landlord Alteration"):
(i) materially adversely affects Tenant's use of, or access to, the
Premises, (ii) reduces Tenant's parking rights under the Lease, or (iii)
subject to the last sentence of this paragraph, decreases the rentable area
of the Building for the purposes of determining Tenant' s Proportionate
Share. Notwithstanding the foregoing, if the rentable area of the Building
has been previously increased as the result of a Landlord Alteration, then,
for the purposes of determining Tenant's Proportionate Share, the rentable
area of the Building may be decreased (but not below the rentable area of
the Building as of the Lease Commencement Date) as the result of subsequent
Landlord Alterations.
4. Force Majeure Extension of Scheduled Lease Commencement
-------------------------------------------------------
Date. Section 1.07 of the Original Lease is hereby amended by
- ----
inserting the words "subject to extension pursuant to Section
9.01 hereof" after the words "August 1, 1994."
5. Exercise Room. Paragraph L Section 3.01 of the Original Lease is hereby
-------------
amended by deleting the words "equipment fitness center" and inserting in their
place the words "exercise room."
6. Tenant Work; Allowance.
----------------------
Section 2.03 of Exhibit D of the Original Lease is hereby deleted in its
entirety and the following inserted in its place:
2.03 PAYMENT FOR THE TENANT IMPROVEMENTS; SCHEDULED LEASE COMMENCEMENT
DATE
-2-
<PAGE>
A. Landlord shall provide Tenant with an allowance of $25.00 per rentable
square foot (the "Allowance") to be allocated to the cost of
performing all Base Building Improvements and Tenant Improvements
required to be made by Landlord under the provisions of Section 1.08
of the Lease, Exhibit C of the Lease and this Exhibit D, including
without limitation the following (collectively the "Tenant Work"):
(1) All work shown on the plans listed on Schedule 3 attached to this
Amendment and incorporated in the Lease by this reference;
(2) All overtime costs required to be incurred by Landlord in the
performance of the Tenant Improvements and Base Building
Improvements, to the extent that such costs are required as the
result of the fault or delay of Tenant or Tenant's contractors;
(3) Any Building security necessary to protect Tenant's furniture,
equipment and other personal property during construction and
Tenant's move into the Building;
(4) Obtaining a Certificate of Occupancy after the completion of the
Tenant Improvements;
(5) All punchlist work and any liquidated damages, within the meaning
of Section 3.03 of this Exhibit D to which Tenant may be entitled
in the event that the punchlist items are not completed on a
timely basis, to the extent that such costs are incurred as the
result of the fault or delay of Tenant or Tenant's contractors;
(6) Any amounts which Landlord is required to reimburse Tenant,
pursuant to Section 3.05 of this Exhibit D in event that the
Premises are not Substantially Complete by the Scheduled Lease
Commencement Date, to the extent that such costs are incurred as
the result of the fault or delay of Tenant or Tenant's
contractors;
(7) All telecommunications wiring and cabling;
(8) All design services;
(9) Moving expenses;
(10) The cost of remeasurment of the rentable area of the Building as
provided on Schedule 2; and
(11) The cost of re-stripping the parking area.
Up to the amount of the Allowance, Landlord shall pay all costs
associated with the Tenant Work. If Tenant shall incur any costs for
such Tenant Work, Tenant shall submit to Landlord applications for
payment or reimbursement from the Allowance, in the amount of the costs
of the Tenant Work performed or for services
-3-
<PAGE>
provided. Landlord will make payment to the appropriate vendor or to
the Tenant, at Tenant's option, within fifteen (15) days after
Landlord's receipt of such application for payment. As soon as all the
subject work has been performed, Landlord and Tenant shall make a
final computation of the application of the Allowance. In the event
that any such costs ("Excess Costs") are incurred by Landlord or
Tenant which would require Landlord to pay any amount in excess of the
Allowance, Tenant, and not Landlord, shall bear such cost. If Landlord
is required to incur any such Excess Costs, Tenant shall within ten
(10) days of billing therefor, after the Substantial Completion of the
Premises, reimburse Landlord, as additional rent, for such Excess
Costs. If any portion of the Allowance has not been spent, the Base
Rental Rate shall be decreased based upon the portion of the Allowance
remaining, such decrease to be calculated based upon the amortization
on a straight-line basis over ten (10) years utilizing an interest
rate of 8.5% of such remainder (the "Base Rental Rate Adjustment");
provided, however that the amount of the Base Rental Rate Adjustment
shall not exceed $1.19 per square foot of rentable area.
7. Certain Uncontrollable Operating Costs. Subparagraph (4) of Paragraph A of
--------------------------------------
Section 2.02 of the Original Lease is hereby amended by deleting the word
"utilities" appearing in fourth line and inserting in its place the words
"Uncontrollable Operating Costs, as hereinafter defined," and by adding the
following at the end thereof:
"Uncontrollable Operating Costs" shall mean sewer, water, gas, and electric
utility rates and charges, and any other energy-related costs; insurance;
taxes; and snow removal.
8. Space Adjustment Option Adjustments.
-----------------------------------
A. The first sentence of Section 4.04 of the Original Lease is hereby
amended by deleting the word and numeral "six (6)" appearing in the first line
and inserting in its place the word and numeral "nine (9)."
B. Paragraph A of said Section 4.04 is hereby amended by deleting the word
"On" appearing in the first line thereof and inserting in its place the words
"Within the Window Period applicable to, as hereinafter defined," by deleting
the words "as outlined on Exhibit A-2" appearing in the third and fourth lines
-----------
thereof, and by adding the following sentence after the first sentence thereof:
-4-
<PAGE>
The "Window Period" applicable to any anniversary date shall be the six (6)
month period commencing on the date three months prior to such anniversary
date and expiring on the date three months after such anniversary date.
C. Said Section 4.04 is hereby further amended by adding the following
additional paragraphs at the end thereof:
C. Limitation On Options.
(1) Tenant's rights under Section 4.04 A hereof are subject and
subordinate, in all respects, to the rights of any other tenant
(an "Existing Tenant") in the Building whose lease (an "Existing
Lease") was executed prior to the date of this Amendment,
including without limitation any renewal, extension or expansion
rights provided for in any such Existing Lease, all as set forth
on Schedule 4 attached to this Amendment and incorporated in the
Lease by this reference. Without limiting the foregoing, Tenant
shall have no right to lease any portion of the Building pursuant
to either Section 4.04 or 4.05 of the Lease for any time period
during which an Existing Tenant who is identified on Schedule 4
has the right, pursuant to its lease with Landlord, to lease such
premises.
(2) If at the time of exercise of any option under Section 4.04 A
hereof there is more than one "contiguous area of additional
space" which could be leased to Tenant, then Landlord shall have
the right to select which area shall be leased to Tenant.
(3) If a "contiguous area of additional space" contains more than 10%
of Tenant's then existing rentable area, Landlord shall have no
obligation to subdivide such contiguous area if such subdivision
would leave Landlord with unleased premises which are not, in
Landlord's reasonable judgment, of a size, configuration and
location which is reasonably marketable (a "Disadvantageous
Subdivision"). If Landlord shall determine that the exercise of
Tenant's option will result in such a Disadvantageous
Subdivision, Landlord shall notify Tenant of its determination
within ten (10) days after notice from Tenant of its option to
lease space, which notice shall specify the size, configuration,
and location of premises which would eliminate such condition
(the "Substitute
-5-
<PAGE>
Configuration"), which Substitute Configuration may contain between
90% and 110% of the amount of space which was the subject of
Tenant's election. In such event, Tenant shall have the right,
exercisable by notice to Landlord within ten (10) days after the
receipt of Landlord's notice, to lease the Substitute
Configuration. Failure by Tenant to exercise such right shall
constitute a waiver of its option to lease a "contiguous area of
additional space" on such anniversary date.
(4) Any space surrendered pursuant to Section 4.04 B shall, in
Landlord's reasonable judgment, be of a size, configuration and
location which is reasonably marketable.
(5) If Tenant shall have exercised its right pursuant to Section 4.04 B
to surrender any portion of the Premises as of an anniversary date,
or shall have failed to exercise a right to lease additional space
pursuant to Section 4.04 A as of an anniversary date, then any
additional space which Tenant has the right to lease under Section
4.04 A need not be contiguous with the Premises then demised
hereunder.
(6) Tenant may not exercise rights under both Paragraphs A and B of
Section 4.04 as of the same anniversary date.
D. Surrender of Premier Premises.
In addition to Tenant's rights under Section 4.04 B hereof, Tenant shall
have the option, upon giving Landlord written notice on or before the
date six (6) months prior to the second anniversary of the Lease
Commencement Date, to surrender the Premier Premises as of the second
anniversary of the Lease Commencement Date. If Tenant timely exercises
its surrender right under this Section 4.04 D:
(1) The Base Rent, Operating Cost Escalation, Real Estate Tax
Escalation, and Tenant's Proportionate Share shall be
proportionately reduced;
(2) The number of unreserved parking spaces and underground parking
spaces provided to Tenant in Section 3.03 shall be proportionately
reduced;
(3) Tenant shall pay to Landlord the unamortized portion of the
Premier Premises Excess Allowance,
-6-
<PAGE>
as hereinafter defined, which shall be amortized on a straight-
line basis over ten (10) years utilizing an interest rate of 8.5%.
For the purposes hereof, the "Premier Premises Excess Allowance"
shall be defined as the amount by which the cost incurred by
Landlord on account of the Allowance exceeds the product of (x)
Seventeen ($17.00) Dollars per rentable square foot of the Premier
Premises multiplied by (y) the rentable square feet of the Premier
Premises.
9. First Refusal Adjustments.
-------------------------
A. Section 4.05 of the Original Lease is hereby amended by adding the
words "which Landlord is willing to accept" after the word "Building" appearing
in the third line thereof.
B. Said Section 4.05 is hereby further amended by inserting the words "or,
with respect to the space shown on Exhibit A-5 (the "A-5 Space") without regard
to Tenant's Proportionate Share," after the word "25%" appearing in the first
line thereof, and by substituting the words "A-5 Space" for the words "First
Offer Space" wherever they appear.
C. Said Section 4.05 is hereby further amended by adding the following at
the end of the first paragraph thereof:
For the purposes of this Section 4.05, an area shall not be deemed to be
"available" unless and until Landlord determines that the existing tenant
(or anyone claiming by, through, or under such existing tenant) of such
area will vacate such area, and Landlord is willing to market such area to
third parties. If Tenant does not timely exercise its right to lease an
available space hereunder, Landlord shall have no further obligation to
Tenant under this Section 4.05 with respect to such available space unless
(i) while such space remains so available, Landlord shall receive an Offer
for such space which Landlord is willing to accept on economic terms
(giving effect to rent, term, tenant improvement costs and other
inducements) which is lower than the Offer previously submitted by more
than ten percent (10%), or (ii) such space again becomes available at the
expiration or other termination of a new lease of such available space.
D. Said Section 4.05 is hereby further amended by deleting the word
"reduce" appearing in the last line of the first paragraph of said Section 4.05
and inserting in its place the word "affect."
-7-
<PAGE>
E. The second paragraph of Section 4.05 of the Lease is hereby deleted in
its entirety.
10. Renewal Option Adjustments.
--------------------------
A. The first sentence of Section 4.06 of the Original Lease is hereby
amended by deleting the words "up to" appearing in the second line thereof.
B. The fourth sentence of said Section 4.06 is hereby amended by deleting
the word and numeral "twelve (12)" and inserting in its place the word and
numeral "fourteen (14)" appearing in the second line thereof.
C. The fifth sentence of said Section 4.06 is hereby amended by deleting
the words "March 1, 2004" and inserting in their place the words "November 1,
2003."
11. Force Majeure for Construction. Section 9.01 of the Original Lease is
------------------------------
hereby amended by deleting the words "After the Lease Commencement Date""
appearing in the first line thereof, and by inserting at the end of the
paragraph the words "which occurs after the date as of which The Beacon
Corporation or its designee acquires title to the Property."
12. Lease Ratified. The Lease is hereby ratified, confirmed continues in full
--------------
force and effect.
EXECUTED UNDER SEAL as of the date first above written.
LANDLORD:
BEACON PROPERTIES, L.P.
By: Beacon Properties Corporation,
General Partner
By:______________________________
Robert J. Perriello,
Senior Vice President -
Finance and Asset Management
Hereunto Duly Authorized
TENANT:
THE TRAVELERS INSURANCE COMPANY
By /s/ Andy F. Bessette
-----------------------------------
(Name) (Title)
Hereunto Duly Authorized
Andy F. Bessette
National Director of Leasing & Finance
-8-
<PAGE>
SCHEDULE 1
----------
[FLOOR PLAN APPEARS HERE]
LEVEL ONE
<PAGE>
[FLOOR PLAN APPEARS HERE]
LEVEL TWO-North & South Wings
<PAGE>
[FLOOR PLAN APPEARS HERE]
LEVEL THREE-North Wing
<PAGE>
SCHEDULE 2
----------
Portion of Rentable Floor Usable Floor
- ---------- -------------- ------------
Premises Area Area
-------- ---- ----
First floor 46,026 square feet 41,776 square feet
Second floor 14,900 square feet 12,243 square feet
Third floor 2,046 square feet 1,900 square feet
TOTAL 62,972 square feet 55,919 square feet
Tenant's
--------
Proportionate Share
-------------------
First Floor 30.02%*
Second Floor 9.72%*
Third Floor l.33%*
TOTAL 41.07%*
The Proportionate Shares set forth on this Schedule 2 have been calculated
by using 153,296 square feet as the rentable area of the Building. Prior to the
Scheduled Lease Commencement Date, the Landlord shall cause the rentable area of
the Building to be recalculated in accordance with the Building Owners and
Management Association (BOMA) Method, American National Standard
(ANSI Z65.1-1980, reaffirmed 1989), Landlord and Tenant agreeing that under such
BOMA Method, rentable area means the sum of the rentable areas of all of the
floors in the Building. Upon such remeasurement, the Proportionate Share set
forth herein shall be recalculated using the rentable area so recalculated.
-9-
<PAGE>
SCHEDULE 3
----------
EXHIBIT "A"
PLANS AND SPECIFICATIONS - PHASE II
THE TRAVELERS AT WESTWOOD BUSINESS CENTER
The following documents have been prepared by Fuller Associates Architects, 286
congress Street, Boston, MA 02210.
<TABLE>
<CAPTION>
No. Description Date Rev. No. Date
- --- ----------- ---- -------- ----
<S> <C> <C> <C>
Al North Wing Level One Construction Plan 1/21/94
A2 South Wing Level One Construction Plan 1/21/94
A3 North Wing Level Two Construction Plan 1/21/94
A4 South Wing Level Two Construction Plan 1/21/94
A5 North Wing Level Three Plans 1/21/94
A6 North Wing Level One Reflected Ceiling Plan 1/21/94
A7 South Wing Level One Reflected Ceiling Plan 1/21/94
A8 North Wing Level Two Reflected Ceiling Plan 1/21/94
A9 South Wing Level Two Reflected Ceiling Plan 1/21/94
A10 Level One, Two, and Three Sections and Details 1/21/94
All North Wing Level One Finish Plan 1/21/94
A12 South Wing Level One Finish Plan 1/21/94
A13 North Wing Level Two Finish Plan 1/21/94
A14 South Wing Level Two Finish Plan 1/21/94
P-1 Plumbing and Sprinkler Plan West Wing 1/21/94
P-2 Plumbing and Sprinkler Plan East Wing 1/21/94
P-3 Second and Third Floor Sprinkler and Plumbing Plan 1/21/94
P-4 Plumbing and Sprinkler Details and Notes 1/21/94
M-1 Mechanical Floor Plan West Wing 1/21/94
M-2 Mechanical Floor Plan East Wing 1/21/94
M-3 Second and Third Floor Mechanical 1/21/94
M-2 General Notes and Specifications Mechanical 1/21/94
E-1 Lighting Floor Plan West Wing Electrical 1/21/94
E-2 Lighting Floor Plan North Wing Electrical 1/21/94
E-2 Power Floor Plan West Wing Electrical 12/17/93 1 1/21/94
E-4 Power Floor Plan East Wing Electrical 1/21/94
E-5 Second and Third Floor Lighting Electrical 1/21/94
E-6 Second and Third Floor Power Electrical 1/21/94
E-7 Legend, Notes, and Schedule 1/21/94
Specifications: Entitled "The Travelers Companies Westwood
Business Center; Project Manual: Phase II" 1/21/94
Memo: Issued by Zbigniew M. Wozny of Q&W 2/1/94
<CAPTION>
No. Description Date Rev. No. Date
- -- ----------- ---- ------- ----
<S> <C> <C> <C> <C>
</TABLE>
<PAGE>
LEASE AGREEMENT
BY AND BETWEEN
THE TRAVELERS INSURANCE COMPANY, as Landlord
AND
THE TRAVELERS INSURANCE COMPANY, as Tenant
WESTWOOD BUSINESS CENTRE
WESTWOOD, MASSACHUSETTS
<PAGE>
TABLE OF CONTENTS
Section Heading Page
ARTICLE I. BASIC LEASE PROVISIONS
1.01 Date and Parties........................................ 1
1.02 Notices................................................. 1
1.03 Building and Land....................................... 2
1.04 Premises................................................ 2
1.05 Area Verification and Measurement....................... 3
1.06 Use..................................................... 3
1.07 Lease Term.............................................. 4
1.08 Improvements............................................ 4
ARTICLE II. TENANT'S OBLIGATION TO PAY RENT
2.01 Rent.................................................... 4
2.02 Escalation.............................................. 5
ARTICLE III. LANDLORD'S OBLIGATIONS
3.01 Services Provided By Landlord........................... 16
3.02 Repairs and Maintenance................................. 18
3.03 Parking................................................. 19
3.04 Life Safety and Security Requirements................... 19
3.05 Building Rules and Regulations.......................... 20
ARTICLE IV. TENANT'S RIGHTS AND OPTIONS
3.06 Non-Solicitation........................................ 20
4.01 Subleasing and Assignment............................... 20
4.02 Alterations............................................. 21
4.03 Tenant Signage.......................................... 21
4.04 Space Adjustment Options................................ 21
4.05 Right of First Refusal.................................. 23
4.06 Renewal Option.......................................... 23
4.07 Holding Over............................................ 24
4.08 Earth Satellite Station................................. 25
ARTICLE V. LIABILITY
5.01 Insurance............................................... 25
5.02 Environmental Compliance................................ 27
5.03 Requirements of Law..................................... 32
ARTICLE VI. LOSS OF PREMISES
6.01 Damages................................................. 33
6.02 Eminent Domain.......................................... 34
<PAGE>
Section Heading Page
ARTICLE VII. NON-DISTURBANCE
7.01 Subordination, Attornment and
Non-Disturbance ..................... 35
7.02 Estoppel Certificate.................................... 36
7.03 Recording of Lease...................................... 36
7.04 Quiet Enjoyment......................................... 36
ARTICLE VIII. DISPUTES
8.01 Default by Tenant....................................... 37
8.02 Default by Landlord..................................... 37
8.03 Reduction of Services................................... 38
8.04 Arbitration............................................. 39
8.05 Governing Law........................................... 40
8.06 Waiver of Consequential Damages......................... 40
ARTICLE IX. MISCELLANEOUS
9.01 Force Majeure .......................................... 40
9.02 End of Term............................................. 40
9.03 Entire Agreement........................................ 41
9.04 Non-Discrimation........................................ 41
9.05 Binding on Successors................................... 41
9.06 Ambiguities............................................. 41
9.07 First-Class Building.................................... 41
9.08 Broker's Warranty....................................... 41
9.09 Partial Invalidity...................................... 42
9.10 Captions................................................ 42
9.11 Non-Merger of Parties................................... 42
9.12 Survival................................................ 42
9.13 Attachments............................................. 43
<PAGE>
LEASE AGREEMENT
ARTICLE I. BASIC LEASE PROVISIONS
1.01. DATE AND PARTIES
This Lease Agreement ("Lease") is entered into as of the 12th day of
October, 1993, by and between THE TRAVELERS INSURANCE COMPANY, a
corporation organized and existing under the laws of Connecticut,
having its principal offices at ONE TOWER SQUARE, 13 SHS, HARTFORD, CT
06183 ("Landlord"), and THE TRAVELERS INSURANCE COMPANY, a corporation
organized and existing under the laws of the state of Connecticut,
having its principal offices at One Tower Square, Hartford, CT 06183-
7130 ("Tenant").
1.02. NOTICES
All notices and notifications required or permitted under this Lease
shall be in writing and sent by a nationally recognized private carrier
of overnight mail (e.g., Federal Express) or by United States Certified
Mail, return receipt requested and postage prepaid, to the parties at
the following addresses or at such other addresses as the parties may
designate by notice from time to time:
Landlord: The Travelers Insurance Company
C/O Travelers Realty Investment Company
125 High Street, 15th Floor
Boston, MA 02110
Tenant: The Travelers Insurance Company
Corporate. Real Estate
One Tower Square, 2-30CR
Hartford, CT 06183-7130
with a copy to:
The Travelers Insurance Company
Corporate Real Estate
Regional Manager
One Tower Square, 2-3OCR
Hartford, CT 06183
All notices shall be deemed effective three (3) days after the date of
mailing or on the date of actual receipt, if sooner.
Form Revised 8/1/93 1
<PAGE>
1.03. BUILDING AND LAND
Landlord leases to Tenant, upon the terms and conditions contained in
this Lease, the Premises (as defined in Section 1.04) together with the
right, in common with others, to use the Common Area Facilities (as
hereinafter defined) of the Building (as hereinafter defined) and of
the Land (as hereinafter defined) on which the Building is located. As
used in this Lease, the "Common Area Facilities" shall include all
freight and passenger elevators, loading docks, sidewalks, parking
areas, driveways, hallways, stairways, public restrooms, common
entrances, lobby, cafeteria, fitness center, emergency systems and
other similar public areas and access ways of the Building and the
Land.
A. The "Building" means the building containing 160,000 rentable
square feet, with a name and address as follows:
Westwood Business Centre
690 Canton Street
Westwood, MA 02090
B. The "Land" means the property described in the legal description
attached as Exhibit A-1 and the tax assessor's plan attached as
-----------
Exhibit A-2. The Land contains 1.25 acres, more or less.
-----------
Landlord shall make no change to the Building configuration that
increases Tenant's Proportionate Share (as defined in Section
2.02) or that materially affects Tenant's use of or access to the
Premises without Tenant's prior written consent.
1.04. PREMISES
The Premises consist of the floor area outlined by cross-hatching on
Exhibit A-3. Tenant may increase or decrease the rentable area of
-----------
Tenant's Premises above or below the range stated in subsection A
hereof, and the corresponding rent as described in Exhibit G (BASE RENT
---------
SCHEDULE), by up to 10% based upon Tenant's final "design intent"
drawings referred to in Exhibit D (WORK LETTER AGREEMENT).
---------
Landlord represents and warrants that:
A. The net rentable area of the Premises shall be determined by
Tenant's final "design intent" drawings and shall be between
48,500 and 60,000 rentable square feet of office space
located on the first, second and third floors of the Building.
B. The usable area of the Premises shall be determined by Tenant's
final "design intent" drawings and shall be based on BOMA
measurements of rentable/usable area.
2
<PAGE>
1.05. AREA VERIFICATION AND MEASUREMENT
For purposes of this Lease, the Premises and the Building shall be
measured in accordance with the Building Owners and Management
Association (BOMA) Method, American National Standard (ANSI Z65.1-1980,
reaffirmed 1989), with modifications as noted on Exhibit L, attached
---------
hereto. All references to rentable area and usable area as used in this
Lease shall refer to rentable and usable area calculations derived by
the application of BOMA. Landlord shall provide, upon Tenant's request,
the calculations which show how the rentable area of the Building and
Premises were derived.
If the net rentable area of the Premises is equal to or exceeds 25,000
square feet, Landlord shall provide Tenant with a certified survey
performed by a licensed or registered surveyor, as to the rentable and
usable area of the Premises and the rentable area of the Building (the
"Survey"), at Landlord's sole cost and expense. The Survey shall bear
the surveyor's seal and certification.
If the net rentable area of the Premises is less than 25,000 square
feet, Landlord shall provide Tenant with an architect's certification
as to the rentable and usable area of the Premises and the rentable
area of the Building (the "Certification"), at Landlord's sole cost and
expense.
In addition to the Survey or Certification, as applicable, Landlord
shall provide Tenant with final as-built plans of the Premises. The
final as-built plans shall indicate the rentable and usable area of the
Premises and shall indicate how the rentable area was calculated. Upon
request, at any time during the Lease Term, as defined in Section 1.07,
Tenant or its authorized representatives shall have the right to access
and review the final as-built plans for the Building.
The Base Rent (as defined in Section 2.01) and Tenant's Proportionate
Share shall be equitably adjusted if the Survey/Certification or the
final as-built plans indicate that the net rentable area of the
Building or the Premises differs from the numbers set forth in Section
1.03 (BUILDING AND LAND) or Section 1.04 (PREMISES). The
Survey/Certification shall be received by Tenant prior to Tenant's
first monthly rental payment under this Lease.
Tenant may, at any time during the Lease Term and at Tenant's sole cost
and expense, retain a licensed or registered surveyor to measure the
rentable and usable area of the Premises and the rentable area of the
Building. If such re-measurement reveals a material difference between
the net rentable area of the Premises or the Building from what is
stated in this Lease or in the Survey/Certification, the Base Rent and
Tenant's Proportionate Share as defined in Section 2.02 (ESCALATION)
shall be equitably adjusted on a retroactive basis.
1.06. USE
Tenant may use the Premises for general office use, or for any other
uses related to general office use.
Form Revised 8/1/93 3
<PAGE>
1.07. LEASE TERM
The initial term of this Lease is for ten (10) years and is scheduled
to begin no sooner than August l, 1994, (the "Scheduled Lease
Commencement Date"). The initial term of this Lease shall commence on
the date when the entire Premises are Substantially Complete in
accordance with Article 3.02 of Exhibit D (WORK LETTER AGREEMENT); the
---------
inspection and the preparation of the punchlist have been completed in
accordance with Section 3.03 of Exhibit D (WORK LETTER AGREEMENT);
---------
Landlord is ready, willing and able to deliver actual possession of the
Premises and the Scheduled Lease Commencement Date has passed (the
"Lease Commencement Date"). However, if the Lease Commencement Date
would be a Saturday, Sunday or holiday, the Lease Commencement Date
shall be the first business day following that Saturday, Sunday or
holiday. The initial term of this Lease shall end on the day which is
the tenth year anniversary date of the Lease Commencement Date if the
Lease Commencement Date is the first day of any month (the "Lease
Expiration Date"). If the Lease Commencement Date is any day other than
the first day of any month, the Lease Expiration Date shall be the last
day of the month in which the tenth year anniversary date of the Lease
Commencement Date falls. The initial term of this Lease, as extended or
renewed in accordance with Section 4.06 (RENEWAL OPTION) of this Lease,
shall be referred to as the "Lease Term".
Within fifteen (15) days after the Lease Commencement Date, Landlord
and Tenant shall execute and be bound by a Commencement Date Agreement,
the form of which is attached as Exhibit H.
---------
1.08. IMPROVEMENTS
Prior to the Lease Commencement Date, Landlord shall make all Base
Building Improvements and Tenant Improvements in a first-class and
workmanlike manner in accordance with Exhibit C (BASE BUILDING
---------
IMPROVEMENTS) and Exhibit D (WORK LETTER AGREEMENT). All Tenant
---------
Improvements shall immediately become the property of Landlord upon
completion unless otherwise agreed to in writing.
ARTICLE II. TENANT'S OBLIGATION TO PAY RENT
2.01. RENT
Tenant agrees to pay to Landlord base rent (the "Base Rent") in monthly
installments in the amounts set forth in Exhibit G (BASE RENT
---------
SCHEDULE), in advance, prior to the tenth business day of each month of
the Lease Term. If the Lease Term commences or ends on a day other than
the first day or last day of a calendar month, or if the Base Rent for
any calendar month is to be prorated for any reason, the monthly
installment of the Base Rent shall be prorated on a per diem basis
based on the number of days in the calendar month. The monthly
installments of the Base Rent shall be made either by check and sent to
Spaulding & Slye, 690 Canton Street, P.O. Box 7247-7953, Philadelphia,
PA 19170-7953 or by electronic direct deposit, at Tenant's option.
Landlord shall designate a bank account and shall furnish Tenant with a
Direct Deposit Authorization in the form of Exhibit F. Landlord
---------
Form Revised 8/1/93 4
<PAGE>
shall give tenant notice if the address or bank account for rental
payments changes.
The Base Rent shall be calculated on a "gross lease" basis which
includes Building Operating Costs, Real Estate Taxes, Services and
utilities, each as hereinafter defined.
2.02. ESCALATION
For purposes of calculating the portion of any increases in the
operating costs and the real estate taxes for the Building, the Common
Area Facilities and the Land which Tenant shall pay Landlord, as set
forth in this Section 2.02, "Tenant's Proportionate Share" means the
percentage obtained by dividing the total rentable area of the Premises
by the total rentable area of the Building.
A. Operating Cost Escalation
(1) This Operating Cost Escalation provision is intended to assure
that Tenant pays only for Tenant's Proportionate Share of all
inflationary-type increases in the costs of operating and
maintaining the Building over the costs of the Base Year (as
hereinafter defined). It is also intended that the Base Rent
shall include all building services normally provided in first-
class office buildings.
In addition to the Base Rent, Tenant shall pay the Building
Operating Cost Escalation (as hereinafter defined). The
"Operating Cost Escalation" means the difference between
Tenant's Proportionate Share of the Building Operating Costs
(as hereinafter defined) for the Base Year and Tenant's
Proportionate Share of Building Operating Costs for the
calendar year in question.
For purposes of the Operating Cost Escalation, the "Base Year"
means the first full calendar year of the Lease Term.
In Landlord's and Tenant's reasonable discretion, the Building
Operating Costs for the Base Year shall be adjusted, if
necessary, to a level of a 95% occupied and fully operational
first-class office building at cost levels prevailing in the
geographic market in which the Building is located for an
entire year. This adjustment shall include (a) when building
systems are under warranty during the Base Year, an adjustment
for the cost of service contracts and other expenses that would
have been incurred in the absence of such warranties; (b) an
adjustment for all other expenses that are not incurred if the
Building is new and start-up discounts or similar savings have
been achieved; and (c) adjustments for all other atypical costs
that occur or do not occur during the Base Year other than
those costs which would occur in the Base Year in the ordinary
course of business. The purpose
Form Revised 8/11/93 5
<PAGE>
of these adjustments is to include in the Building Operating
Costs for the Base Year all reasonable cost components that
occur or are likely to occur in later years.
If at any time during the Lease Term, less than 95% of the
total rentable, area of the Building is occupied by tenants, or
the Landlord is not supplying services to 95% of the total
rentable area of the Building at any time during any calendar
year, the Building Operating Costs for such calendar year shall
be reasonably determined to be an amount equal to the expenses
that would normally be expected to be incurred had such
occupancy been 95% of the total rentable area of the Building
and had Landlord been supplying services to 95% of the total
rentable area of the Building throughout the calendar year. The
only costs which shall be adjusted in this manner shall be
variable expenses where the amount is directly related to the
level of occupancy or square foot area receiving a particular
service. Landlord will indicate which expenses were adjusted in
this manner on Exhibit B-1. Landlord will provide specific
-----------
calculations detailing this adjustment upon Tenant's request.
If a new category of expense is incurred after the Base Year,
the first full year's expense for such item shall be added to
the Building Operating Costs for the Base Year commencing with
the first full calendar year that such expense is incurred, so
that Tenant shall only be required to pay subsequent increases
in such expense. The expense incurred for such item during the
first year shall be subject to the adjustments described in the
immediately preceding paragraphs.
Where Landlord allocates Building Operating Costs to the
Building, Common Area Facilities or the Land, which Building
Operating Costs are shared with other buildings; (i) the costs
so allocated must be clearly identified on the Operating Cost
Escalation invoice; (ii) the rational and the underlying method
of allocation must be set forth in detail; and (iii) the
benefit enuring to Tenant quantified. Absent the foregoing -
disclosure, allocated costs shall, in no event, be deemed
Building Operating Costs. Tenant reserves the right to
challenge the propriety of all allocated costs.
For the first full calendar year following the Base Year, the
Operating Cost Escalation shall be billed as a one-time charge
at the close of the year and shall be paid by Tenant within
sixty (60) days after receipt of the bill. For the second full
calendar year following the Base Year, and all subsequent full
or partial calendar years during the Lease Term, Tenant shall
pay Landlord, on account, with its monthly installments of Base
Rent in accordance with Section 2.01 (RENT), a sum equal to
one-twelfth (1/12) of the prior year's
6
<PAGE>
Operating Cost Escalation, less any non-recurring expenses
("Operating Cost Escalation Paid on Account").
Landlord shall provide Tenant with a bill for the Operating
Cost Escalation in the form and calculated as shown in Exhibit
-------
B-1 after the close of each calendar year. Tenant shall, within
---
sixty (60) days of the Tenant's receipt of a bill, pay Landlord
the difference between the Operating Cost Escalation Paid on
Account and the final amount due as set forth in such bill. An
example of how Exhibit B-1 is to be completed is attached as
-----------
Exhibit B-2.
-----------
If for any calendar year the Operating Cost Escalation Paid on
Account exceeds the actual Operating Cost Escalation, the
excess shall be (i) treated as a prepayment of the next due
installment of Base Rent; Operating Cost Escalation Paid on
Account or (ii) refunded to Tenant, at Tenant's option.
(2) "Building Operating Costs" shall be limited to the following
reasonable expenses which are paid or incurred for operating
and maintaining the Building, the Common Area Facilities and
the Land in a first-class manner:
(a) Cleaning Expenses
All expenses for routine cleaning, including public areas,
atriums, elevators, rest rooms and windows. Cleaning
expenses shall include maintenance of cleaning equipment,
supplies, contract service and trash removal.
(b) Repairs and Maintenance
All expenses for general repair and maintenance, including
contracted services, elevator, electrical, roof, plumbing,
fire and life safety expenses, and other building
maintenance supplies.
(c) Roads, Grounds and Security
Expenses related to exterior maintenance (e.g.,
landscaping, snow removal, parking lot repairs, site
signage and site lighting) and expenses for security. If
separate fees are charged for parking, all parking area
maintenance and operating costs and Real Estate Taxes
(which taxes shall also be excluded from the Real Estate
Tax Escalation) shall be excluded from Building Operating
Costs.
(d) Heating, Ventilation and Air Conditioning
Expenses for labor and supplies necessary to operate and
maintain air conditioning, heating and ventilating
systems, including the cost of
7
<PAGE>
contracted services. No replacement costs for major
components of the heating, ventilation or air conditioning
systems or energy costs are included in this category.
(e) Insurance
All expenses for insurance of the Building. Excluded from
Building Operating Costs shall be any comprehensive
general liability insurance coverage with minimum limits
in excess of $10,000,000.
(f) Salaries
All salaries, wages, medical, surgical, union and general
welfare benefits (including group life insurance), and
pension payments of persons employed by Landlord to the
extent such employees are directly engaged in the repair,
operation and maintenance of the Building, Common Area
Facilities and the Land, together with payroll taxes,
workers' compensation insurance premiums, uniforms and
related expenses pertaining to such employees, to the
extent such expenses are competitive and commercially
reasonable. Excluded from such salaries is the salary and
benefits of the Building Manager, which is included in
Subsection (g) below.
(g) Management Fee
A management fee which in no event shall exceed 4% of the
gross rental income from the Building, as adjusted below.
Management fees for the Base Year and the Lease Term shall
be computed as if the vacant areas of the Building were
fully rented at Tenant's Base Rent, including reasonably
anticipated amounts for escalations and other rents,
without regard to rent abatements or other concessions,
that would have been collected had the Building been fully
occupied. After the Base Year, management fees shall be
computed by substituting the actual base rents, including
reasonably anticipated amounts for escalations and other
rents, without regard to rent abatements or other
concessions, of tenants for so long as they occupy areas
vacant during Tenant's Base Year.
(h) Utilities
Expenses for utility services, including electricity, gas,
fuel oil, steam, chilled water coal and water/sewer.
Utilities for tenant areas shall not be in excess of that
for typical office use.
8
<PAGE>
(i) Certain Capital Expenditures
The annual amortization over its useful life with a
reasonable salvage value on a straight-line basis of the
costs of any equipment or capital improvements made by
Landlord after the Lease was signed, as a labor-saving
measure or to accomplish other savings in operating,
repairing, managing or maintaining of the Building, but
only to the extent of the savings.
(j) Administration Expenses
Any expenditures pertaining to administration of the
Building, Common Area Facilities and the Land including
payroll and payroll-related expenses associated with
administrative and clerical personnel and general office
expenditures. However, such administrative expenses shall
only be included to the extent that they are not included
in the management fee as described in subsection (g)
above, and to the extent that such expenses or any
associated fees are not allocated to a leasing agent.
(k) Shuttle Bus
The costs of providing the shuttle bus service as
described in Section 3.01(J) of this Lease.
(3) Exclusions
Building Operating Costs shall not include any expenses or
costs incurred or paid by Landlord for the following items:
(a) Capital expenditures, including any capital replacement,
capital repair or capital improvement made to the
Building, the Common Area Facilities or the Land and any
other expense which would be deemed to be a capital
expenditure under generally accepted accounting
principles, consistently applied, except as permitted
pursuant to subsection (2)(i) above. Replacement of an
item or of a major component of an item and major repairs
to such items in lieu of replacement shall each be
considered a Capital Expenditure if the original item or a
subsequent improvement to such item was, or could have
been, capitalized.
Capital Expenditures of $1,000 or less may be included in
Building Operating Costs. For purposes of this clause, a
group of expenditures related to the same capital project
shall be considered a single expenditure;
9
<PAGE>
(b) Depreciation or amortization of the Building or its
contents or components;
(c) Expenses for the preparation of space or other work which
Landlord performs for any tenant or prospective tenant of
the Building;
(d) Expenses for repairs or other work which is caused by
fire, windstorm, casualty or any other insurable
occurrence, including costs subject to Landlord's
insurance deductible;
(e) Expenses incurred in leasing or obtaining new tenants or
retaining existing tenants, including leasing commissions,
legal expenses, advertising or promotion;
(f) Legal expenses incurred in enforcing the terms of any
Lease;
(g) Interest, amortization or other costs, including legal
fees, associated with any mortgage, loan or refinancing of
the Land, Building, or Common Area Facilities;
(h) Expenses incurred for any necessary replacement of any
item to the extent that it is covered under warranty;
(i) Actual cost of any special electrical, heating,
ventilation or air conditioning or any other service
required by any tenant that exceeds normal building
standards or is required during times other than Business
Hours, (as defined in Section 3.01, SERVICES FURNISHED BY
LANDLORD), whether or not Landlord is reimbursed by such
tenant;
(j) Accounting and legal fees relating to the ownership,
construction, leasing, sale or any litigation relating to
the Building, the Common Area Facilities or the Land;
(k) Any interest or penalty incurred due to the late payment
of any Building Operating Costs;
(1) The cost of any item or service which Tenant separately
reimburses Landlord or pays to third parties, or that
Landlord provides selectively to one or more tenants of
the Building, other than Tenant, whether or not Landlord
is reimbursed by such other tenant(s);
(m) Any amount paid to an entity or individual related to
Landlord which exceeds the amount which would be paid for
similar goods or services on an arms-length basis between
unrelated parties;
10
<PAGE>
(n) The cost of correcting defects in the construction of the
Building, the Common Area Facilities or the Land; repairs
resulting from ordinary wear and tear shall not be deemed
to be defects;
(o) The amount of any reimbursement or credit received or
receivable by Landlord with respect to an item of cost that
is included in Building Operating Costs. The intent of this
Subsection (o) is that Building Operating Costs shall be
calculated on a "net" basis;
(p) The initial cost of tools and small equipment used in the
operation and maintenance of the Building, the Common Area
Facilities and the Land;
(q) The initial cost or the replacement cost of any permanent
landscaping or the regular landscaping maintenance for any
property other than the Land;
(r) Any penalty or fine incurred for noncompliance with
applicable building or fire codes;
(s) Any costs of complying with or correcting violations of any
governmental laws, rules, regulations, or other
requirements applicable to the Land, the Building, the
Common Area Facilities or the Premises.
(t) Any ground rent, air space rent or other rent incurred for
the Land;
(u) Any costs incurred to test, survey, cleanup, contain abate,
remove or otherwise remedy Hazardous Materials, as defined
in Section 5.02 (ENVIRONMENTAL COMPLIANCE) or asbestos
containing materials from the Building, the Common Area
Facilities or the Land;
(v) Any personal property taxes of Landlord for equipment or
items not used directly in the operation or maintenance of
the Building;
(w) Other--administrative expenditures (including expenditures
for travel, entertainment, dues, subscriptions, donations,
data processing, errors and omissions insurance, automobile
allowances, political donations and professional fees of
any kind unless specifically enumerated as Building
Operating Costs).
(4) CPI Cap
Notwithstanding any provision of this Lease to the contrary,
Tenant shall not be obligated to pay for any annual increases
in Building Operating Costs (however, excluding utilities) that
exceed the percentage increase, if any, for such year in the
national
11
<PAGE>
consumer Price Index for All Urban consumers ("CPIU"), U.S.
City Average, published by the Bureau of Labor Statistics of
the U.S. Department of Labor, All Items Less Food and Energy.
If the CPIU is not published for any year during the Lease
Term, the cap on the Operating Cost Escalation shall be
determined by substituting a comparable index reasonably
selected and mutually agreed to by Landlord and Tenant, which
index shall reflect the purchasing power of the consumer dollar
and is published by the Bureau of Labor Statistics of the U.S.
Department of Labor. If such an index is not published by the
Bureau of Labor Statistics, Landlord and Tenant shall select a
comparable index published by a nationally recognized
responsible financial periodical. The cap on the Operating Cost
Escalation shall be determined by comparing the index for the
last month of the prior year to that of the last month of the
escalation year in question. For example, in determining the
1995 escalation, the index for December 1994 is to be compared
to the index for December 1995. The percentage increase in such
indices is then to be added to the allowable Building Operating
Costs for the prior year and the sum shall be compared to the
allowable Building Operating Costs for 1995. The lesser of the
two numbers shall be deemed to be the allowable Building
Operating Costs for 1995. This limitation shall be calculated
each year for which the Operating Cost Escalation is payable. A
further example is included in Exhibit B-2.
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B. Real Estate Tax Escalation
(1) This real estate tax escalation provision requires Tenant to
pay Tenant's Proportionate Share of increases in Real Estate
Taxes (as hereinafter defined) over Real Estate Taxes for the
Base Tax Year (as hereinafter defined).
(2) In addition to the Base Rent, Tenant shall pay the Real Estate
Tax Escalation (as hereinafter defined). The "Real Estate Tax
Escalation" means the difference between Tenant's Proportionate
Share of Real Estate Taxes for the Base Tax Year and Tenant's
Proportionate Share of Real Estate Taxes for such Tax Year (as
hereinafter defined).
(3) "Real Estate Taxes" means all real estate taxes levied or
assessed against the Building, the Common Area Facilities and
the Land as finally determined to be legally payable by legal
proceedings or otherwise after taking into account any
available discount, excluding any interest or penalty for late
payment and any transfer, sales, use or rent taxes. Real Estate
Taxes shall include any and all costs and expenses (including
attorney's fees) incurred by Landlord in connection with
seeking or obtaining reductions in and refunds of Real Estate
Taxes and shall be reduced by the amount of
12
<PAGE>
any reductions or refunds actually received by Landlord. If
Landlord is successful in obtaining any reductions or refunds
in Real Estate Taxes, Tenant shall receive its share thereof
when such is actually obtained by Landlord.
(4) "Tax Year" means the full fiscal period for each levied or
assessed Real Estate Tax.
(5) "Base Tax Year" means the later to occur of (i) the first Tax
Year which falls entirely within the Lease Term and for which
Real Estate Taxes are levied or assessed, or (ii) the first Tax
Year of the Lease Term during which the Building is 100% fully
assessed and 100% fully taxed as a 100% completed structure.
(6) "Base Real Estate Taxes" means Real Estate Taxes for the Base
Tax Year.
(7) For the first Tax Year following the Base Tax Year, the Real
Estate Tax Escalation shall be billed as a one-time charge at
the close of the year and shall be paid by Tenant within thirty
(30) days after receipt of the bill.
Commencing with the second Tax Year following the Base Tax
Year, and all subsequent Tax Years, no sooner than sixty (60)
days prior to the earliest due date of the tax bill to the
taxing authority, Tenant shall pay Landlord, on account, within
sixty (60) days after receiving an invoice therefore, a sum
equal to the Real Estate Tax Escalation for the prior Tax Year
(the "Real Estate Tax Escalation Paid on Account").
Notwithstanding the foregoing, if Landlord is required by its
lender to escrow Real Estate Taxes on a monthly basis, Tenant
shall pay Landlord on account each month, commencing with the
second Tax Year following the Base Tax Year, a sum equal to
one-twelfth (1/12) of the prior year's Real Estate Tax
Escalation as Real Estate Tax Escalation Paid on Account.
Landlord shall provide Tenant with an invoice for the Real
Estate--Tax Escalation at the close of each Tax Year, after the
tax bills have been paid by Landlord, in the form and
calculated as shown in Exhibit B-3 and Landlord shall provide
-----------
Tenant with copies of paid Real Estate Tax bills. Tenant shall,
within sixty (60) days of the Tenant's receipt of such invoice,
pay Landlord the difference between the Real Estate Tax
Escalation Paid on Account and the final amount due as set
forth in such invoice.
If for any Tax Year the Real Estate Tax Escalation Paid on
Account exceeds the Real Estate Tax Escalation, the excess
shall be (i) applied to reduce the Operating Cost Escalation
due pursuant to this Lease, (ii) treated as a prepayment of the
next due installments of
13
<PAGE>
the Base Rent, Operating Cost escalation Paid on Account or
(iii) refunded to Tenant, at Tenant's option.
(8) This Real Estate Tax Escalation provision is intended to assure
that Tenant pays Tenant's Proportionate Share of ordinary
increases in Real Estate Taxes due to ordinary jurisdiction-
wide increases in tax rates and changes in the Building, Common
Area Facilities and Land assessments due to changes in local
market values. It is also intended that the Base Rent shall
include all Real Estate Taxes applicable to the Land and the
fully completed Building and Common Area Facilities at normal
tax rate and assessment levels as of the Base Tax Year.
Accordingly:
(a) Tenant shall not be responsible for any increase in Real
Estate Taxes which results solely from the creation of
additional rentable area on the Land or in the Building or
from improvements or alterations made by Landlord or other
tenants.
Tenant shall pay the full amount of any increase in Real
Estate Taxes which are solely due to improvements to the
Premises made by Tenant or requested by Tenant and
provided by Landlord. If Tenant seeks to dispute any
increase in Real Estate Taxes on its improvements, the
burden of proof with respect thereto shall fall solely upon
Tenant and Landlord shall give Tenant the necessary
authority to challenge any such assessment on Landlord's
behalf, and Tenant shall bear the full cost and expense of
any such challenge.
(b) If (i) there is a tax abatement program in effect at any
time during the Lease Term which reduces Real Estate Taxes,
or (ii) Real Estate Taxes are "phased in" during the Lease
Term, Real Estate Taxes for the Base Tax Year shall be
adjusted so that they are computed on the same basis as
Real Estate Taxes for the Tax Year(s) during which the tax
abatement or phase-in is in effect.
For example, if Real Estate Taxes for the Base Tax Year are
reduced by 50% as part of a tax abatement program and Real
Estate Taxes are reduced by 25% for the next Tax Year (year
2) and are not reduced at all for the following Tax Year
(year 3), for purposes of computing the increase for year
2, the Base Year Real Estate Taxes shall be recomputed as
if there were a 25% abatement in effect, and for purposes
of computing the increase for year 3, the Base Real Estate
Taxes shall be computed as if there were no abatement in
effect.
(c) If Landlord contests the assessment for Tenant's Base Tax
Year, then Landlord, at Landlord's sole
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<PAGE>
cost and expense, shall take reasonable steps to contest
the assessment in later Tax Years as well. If Tenant's
Proportionate Share is equal to or greater than 25%, and
Landlord is not contesting the assessment for a Tax Year
during the Lease Term, Tenant may bring, at Tenant's
option, appropriate proceedings in Landlord's name or
Tenant's name, or both, for contesting the assessment for
such Tax Year; provided that Tenant gives Landlord ten (10)
days written notice of its intention to contest such
assessment. The net amount of taxes recovered as a result
of such proceedings (e.g., the amount recovered after
payment of all sums necessary to attain such recovery)
shall be shared between Landlord and Tenant with Tenant
receiving Tenant's Proportionate Share thereof; provided
that Tenant shall pay one hundred percent (100%) of any
increase in Real Estate Taxes (and all costs and expenses
in connection with such contest) resulting from Tenant's
contest of the assessment for any Tax Year during the Lease
Term. Landlord shall cooperate with Tenant with respect to
the proceedings so far as is reasonably necessary.
(d) Any increase in Real Estate Taxes for the Building
resulting from a refinancing or sale shall be
added to the Base Real Estate Taxes.
(e) Other adjustments shall be made to the Real Estate Tax
Escalation as necessary in order to preserve
the intent of this Subsection 9 B (8).
(9) Subject to the cure rights of any lender of record, Tenant may,
at its option, pay any delinquent Real Estate Taxes which are
in default for a period of thirty (30) days and such payments
shall be deducted from the Base Rent.
C. Escalation General Provisions
(1) Landlord shall provide Tenant with copies of bills, cancelled
checks or contracts relative to the Building Operating Costs upon
request. Landlord shall maintain accurate books and records for the
Building Operating Costs and Real Estate Taxes in accordance with
generally accepted accounting principles consistently applied,
however, adjustments to Building Operating Costs and Real Estate
Taxes shall be made as provided in this Lease. Landlord shall
maintain such books and records and keep copies of the actual paid
bills, cancelled checks and copies of any applicable contracts for
each year including the Base Year, for the duration of the Lease
Term, as extended, and for three (3) years thereafter. The Building
Operating Costs, including those for the Base Year, may be audited
by Tenant or Tenant's authorized representative during normal
business hours, upon reasonable prior notice to Landlord. If Tenant
challenges Landlord's computations of the Base Year Building
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Operating Costs, Base Real Estate Taxes; or the amount of the
Operating Cost Escalation or Real Estate Tax Escalation, Tenant
shall give Landlord notice stating Tenant's objections. If an
independent audit performed on behalf of Tenant verifies that
Landlord's computations of the Building Operating Costs or Real
Estate Taxes for the Base Year are incorrect or that Tenant was
overcharged for the Operating Cost Escalation or Real Estate Tax
Escalation, Tenant shall give Landlord notice and Landlord shall
promptly repay all such overpayments to Tenant and adjust Tenant's
Base Year or Base Tax Year within thirty (30) days of receiving
Tenant's notice. If Landlord does not respond to Tenant's notice,
Tenant may withhold from its rental payments in the amount of such
overcharges or errors from its monthly rental payments until they
are resolved, through good faith negotiations or through arbitration
as per Section 8.04 (ARBITRATION) of this Lease. If Tenant's
internal or independent audit of the Building Operating Costs for
the Base Year or Base Real Estate Taxes, or any subsequent year
indicates that Tenant was overcharged for the Operating Cost
Escalation or Real Estate Tax Escalation by an amount which is
greater than or equal to 3% of the amount which should have been
paid by Tenant, Landlord shall promptly reimburse Tenant for all of
Tenant's travel expenses and audit fees incurred for the audit.
(2) Landlord agrees to waive any defense of statute of limitations until
after Tenant's receipt of the final Real Estate Tax or Operating
Cost Escalation after the Lease Expiration Date.
(3) The escalation payments for the last year of the Lease shall be
based upon the number of actual months Tenant occupied the Premises
during that year and shall be prorated accordingly.
(4) If there is a change in ownership of the Building, Landlord agrees
to give complete copies of all records affecting Building Operating
Costs and Real Estate Taxes to the subsequent owner. Any successor
to Landlord's interest shall, by collecting rent under this Lease,
be liable to Tenant for any overcharges in the Real Estate Tax
Escalation or the Operating Cost Escalation.
(5) In no event will the Base Rent be reduced if the Building Operating
Costs or Real Estate Taxes for any year during the Lease Term are
less than the Base Year amounts.
ARTICLE III. LANDLORD'S OBLIGATIONS
3.01. SERVICES PROVIDED BY LANDLORD
Landlord shall provide Tenant with the following services (the
"Services") at Landlord's sole cost and expense. Landlord shall provide
these services, in a first-class manner using first-class materials and
workmanship, Monday through Friday from 7 a.m. to 7 p.m. and Saturday
from 8 a.m. to 1 p.m. (the "Business Hours"), or as specified below.
Landlord shall not be required to provide
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services on the following holidays: New Year's Day, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day (the
"Holidays").
A. A heating, ventilation and air conditioning ("HVAC") system for the
Premises, as described In Exhibit C (BASE BUILDING IMPROVEMENTS),
---------
fully equipped and of sufficient capacity to achieve maximum
efficiency and conserve energy in its operation for Tenant's
employees and business machinery and equipment. The HVAC system
shall maintain the temperature in the Premises at not less than 72
(degree) F based upon a "dry-bulb" measurement (and 55 (degree) F
based upon a "wet-bulb" measurement) in the winter and not more than
76 (degree) F based upon a "dry-bulb" measurement (and 60 (degree) F
based upon a "wet-bulb" measurement) in the summer.
B. Electrical current to the Premises for ordinary office use, lighting
and the HVAC system. Ordinary office use shall include, but shall
not be limited to, the operation of office equipment, typewriters,
word processors, personal computers, telephones, telecopy machines
and photocopy machines.
C. Complete Janitorial and Office Service and Supplies, as described in
Exhibit E, which shall include all costs of the replacement of
---------
lighting tubes, lamp ballasts, and bulbs.
0. Hot and cold water sufficient for drinking, lavatory, toilet and
ordinary cleaning purposes.
E. Security Service shall be provided in a manner comparable to other
"first-class buildings" (as defined in Section 9.07, FIRST-CLASS
BUILDINGS), and consistent with reasonably prudent standards of
maintaining a safe operating environment and the deterrence of
activities opposing this objective. Landlord reserves the right to
use public or private security personnel and services to provide
such security. Landlord hereby represents that such security shall
include guard service during non-Business Hours.
F. Automatic passenger elevators and freight elevators as described in
Exhibit C (BASE BUILDING IMPROVEMENTS), which shall provide access
---------
to the Premises twenty-four (24) hours a day, seven (7) days a week,
including Holidays and when Tenant moves into and out of the
Premises.
G. Extermination and pest control when necessary.
H. Maintenance of and service to all the Common Area Facilities to
maintain the same in a first-class condition. The maintenance and
service shall include cleaning, HVAC, electrical current and
illumination, snow shoveling, de-icing, repairs, replacements, lawn
care, trash hauling and landscaping.
I. Electrical current and HVAC for the telecommunications rooms as
described Exhibit D (WORK LETTER AGREEMENT) shall be
---------
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provide twenty-four (24) hours a day seven (7) days a week.
J. Shuttle Bus Service between the Building and the Quincy, MA MTA
Station, which service shall be provided at least two (2) times per
day arriving at the Building prior to 9:00 am and twice departing
the Building after 4:00 pm, excluding Holidays. In the event Tenant
chooses not utilize the shuttle bus service, Tenant shall give
Landlord thirty (30) days notice and thereafter Tenant's Base Rent
shall be reduced by $.52 per rentable square foot of the Premises
and Tenant's Base Year for Operating Cost Escalation shall be
adjusted and shuttle bus charges shall no longer be part of the
Building Operating Costs. Tenant shall have the option to request
Landlord to add one (1) additional van to the shuttle bus service
upon giving Landlord thirty (30) days notice and thereafter Tenant's
Base Rent shall be increased by $.31 per rentable square foot of
Premises and Tenant's Base Year for Operating Cost Escalation shall
be adjusted to reflect two (2) vans being in operation rather than
one (1).
K. Cafeteria and food vending on the first floor substantially similar
to the cafeteria in operation as of the date of this Lease.
L. An equipment fitness center with showers and changing rooms at no
cost for Tenant's use.
Tenant shall have the right to request any or all of the Services
outside of the Business Hours or the Holidays, and the same shall be
supplied upon advance notice, at Tenant's expense. If more than one
tenant directly benefits from these services then the cost of providing
the services during non-Business Hours shall be allocated
proportionately between or among the benefiting tenants based upon the
amount of time each tenant benefits and the square footage of each
tenant's premises. The cost for these additional Services shall, in no
event, exceed Landlord's actual costs. The cost for additional HVAC and
electrical services shall be $18.00 per hour per zone, and shall be
allocated as described above.
3.02. REPAIRS AND MAINTENANCE
Tenant shall keep the Premises and Tenant's fixtures in good order
during the Lease Term and make repairs and replacements to the Premises
which are necessary due to Tenant's misuse or negligence.
Except for repairs and replacements that Tenant is required to make due
to its misuse or negligence, Landlord shall pay for and make all other
repairs and replacements to the Premises, the Common Area Facilities and
the Building, including the Building structure, systems, fixtures and
equipment. Landlord shall make all repairs and replacements necessary to
maintain the Building in a first-class condition.
Landlord may obtain reasonable access to the Premises to perform repairs
to the Building, the Common Area Facilities and the Premises at
reasonable times upon twenty-four (24) hours prior
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notice to tenant. Landlord or Tenant may make emergency repairs without
giving the other party prior notice. to Tenant makes emergency repairs
without giving Landlord prior notice9 Landlord shall be obligated to
reimburse Tenant for the cost of such emergency repairs. Any repairs or
replacements which Landlord is required to make shall be made within a
reasonable period of time after receiving notice or having actual
knowledge of the need for such repair or replacement. When making
repairs, Landlord shall take all necessary actions to protect Tenant's
property and personnel from loss, damage and injury and to avoid
disrupting Tenant's use and occupancy of the Premises.
3.03. PARKING
Landlord shall provide, at no additional cost to Tenant, four (4)
parking spaces for every 1,000 rentable square feet of the Premises. Of
the parking spaces provided, one covered parking s ace for every 2,100
rentable square feet of the Premises shall be located in the parking
garage below the Building and the remaining spaces shall be located In
the paved surface parking lot adjacent to the Building on a non-
exclusive basis in common with other Building tenants. The parking areas
are shown on Exhibit A-4 and shall be available for Tenant's use during
-----------
the Business Hours. In addition, Landlord shell reserve a minimum of
fifteen (15) guest and visitor parking spaces which shall be shared in
common with other Building visitors.
Dir ectional signs for public identification shill be provided, and the
parking area shall be adequately striped and lighted and secured red to
provide for the safety of Tenant's employees and guests. Tenant reserves
the right to identify and segregate such parking spaces, at Tenant's
expense. The parking spaces and associated lighting shall be available
for Tenant's use at no additional cost in the event that Tenant conducts
a second shift operation. Landlord shall maintain the parking area in
first -class condition and repair at all times during the Lease Term,
Landlord shall only allow parking for vehicles consistent with the
typical and reasonable tenant composition of an office building.
If Tenant's number of parking spaces as identified above shall be
reduced subsequent to an occurrence as set forth in sections 6.01
(DAMAGES) or 6.02 (EMINENT DOMAIN), Landlord shall provide Tenant with
comparable alternate parking spaces in order to maintain Tenant's ratio
of parking spaces as set forth above.
Three (3) additional underground parking spaces in the Building parking
garage shall be designated and identified with proper signage, at
Landlord's expense, for Tenant's Drive-In Claim operations and an
appraisal office to be located adjacent to the parking spaces in the
lower level of the Building, as described in Exhibit D, (WORK LETTER
---------
AGREEMENT)
3.04. LIFE SAFETY AND SECURITY REQUIREMENTS
Landlord shall maintain the Life Safety and Security systems described
in Exhibit C (BASE BUIL WING IMPROVEMENTS) and shall
---------
<PAGE>
comply with all requirements of all prevailing governmental authorities
having or claiming jurisdiction over the Building, the Common Area
Facilities and the Land. Landlord shall, prior to the Lease Commencement
Date, provide to Tenant a written emergency evacuation plan in
accordance with OSHA (as defined in Section 5.02.) standards or any
comparable standard if OSHA should be superseded.
Landlord shall conduct at least two (2) evacuation drills for the
Building per calendar year. Any problems discovered during these drills
shall be resolved jointly by Landlord and Tenant.
3.05. BUI WING RULES AND REGULATIONS
Landlord shall enforce uniformly and on a non-discriminatory basis the
Building Rules and Regulations, attached to this Lease as Exhibit J,
---------
upon all tenants in the Building. The purpose of the Building Rules and
Regulations shall be to ensure the safety, care, order or cleanliness of
the Building and Common Area Facilities. If any of the Building Rules or
Regulations conflicts with or is inconsistent with any provision of this
Lease, the Lease provision shall control. If Landlord modifies or
supplements the Building Rules and Regulations, Landlord shall provide
Tenant with advanced written notification of such modification or
supplement.
3.06 NON-SOLICITATION
Landlord shall implement, maintain and enforce a policy which prohibits
solicitation, canvassing, peddling, demonstrations, public protests, or
any other activity which would be disruptive to tenants in the Building,
from occurring in the Common Area Facilities. Landlord shall post
written notification of such policy in all the public Common Area
Facilities, as is reasonably practicable.
ARTICLE IV. TENANT'S RIGHTS AND OPTIONS
4.01 SUBLEASING AND ASSIGNMENT
Tenant may, upon notice to Landlord, sublease all or any part of the
Premises or assign this Lease, subject to Section 1.06 (USE).
Notwithstanding the foregoing, Tenant may sublease all or any portion of
the Premises or assign this Lease to its subsidiaries, affiliates and/or
independent contracted insurance agents without first notifying
Landlord. Any assignment or subleasing shall not release Tenant from
liability under this Lease except if the creditworthiness of the
proposed sub lessee or assignee is approved by Landlord to be
sufficient, which approval shall not be unreasonably withheld or
delayed. In order for Landlord to make such determination, Tenant shall
provide Landlord, within thirty (30) days of the anticipated sublease
commencement date; (i) the name and address of the proposed subtenant or
assignee; ( ii) the nature of the proposed subtenant's or assignee's
business; (iii) the terms of the proposed sublease or assignment and
(iv) reasonable financial information so that Landlord can evaluate the
proposed subtenant or assignee. If Landlord and Tenant cannot agree as
to the adequacy of such sub lessee's or
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assignee's creditworthiness, such matter shall be subject to arbitration
in accordance with Section 8.04 (ARBITRATION). Notwithstanding any of
the foregoing to the contrary, Tenant may not assign this Lease or
sublease any portion of the Premises if Tenant is in Default (as defined
in Section 8.01.) under this Lease either on the date Tenant provides
Landlord with the information set forth above or, unless waived in
writing by Landlord, on the proposed commencement date of such sublease
or assignment.
4.02 ALTERATIONS
Tenant may make improvements, additions, installations, decorations and
changes ("Alterations") of a non-structural nature to the Premises
without Landlord's prior written approval. Non-structural Alterations
means any Alterations which do not affect any of the major Building
systems or structural components. All non-structural Alterations shall
become Landlord's property at the expiration of the Lease Term unless
otherwise agreed to in writing. Systems furniture and Tenant trade
fixtures, including moveable partitions, panels, screens, and HVAC
systems provided by Tenant, are Tenant's property and shall remain
Tenant's property at the expiration of the Lease Term, unless otherwise
so elected by Tenant.
Tenant shall employ contractors who guarantee to use first-class
materials and workmanship and who shall comply with all local building
codes. Tenant shall not permit any lien to be placed on record with
respect to any part of the Building for work or materials provided or
obligations incurred by or for Tenant. Tenant shall discharge any such
lien of record within thirty (30) days.
4.03. TENANT SIGNAGE
Landlord shall provide Tenant with identification and signage in
accordance with Tenant's specifications as described in Exhibit C
---------
(BASE BUILDING IMPROVEMENTS).
Landlord shall obtain Tenant's prior written consent if any insurance,
managed care or financial services competitor of Tenant requests
approval to display any exterior sign. Tenant's withholding of consent
shall not be unreasonably withheld or delayed. In no event shall the
signage of any competitor of Tenant be more prominent than Tenant's
signage.
4.04. SPACE ADJUSTMENT OPTIONS
Tenant shall have the option, upon giving Landlord six (6) months prior
notice, to acquire or surrender space as follows:
A. Acquiring Additional Space
On the 3rd, 5th and 7th anniversary date(s) of the Lease
Commencement Date, Tenant may lease a contiguous area of additional
space, up to 10% of Tenant's then existing rentable area on the 1st
or 2nd floor(s) as outlined on Exhibit A-2. In addition, on or
-----------
before June 1, 1995 Tenant
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may lease up to 7,400 rentable square ?/feet, as outlined on
Exhibit A-2 as the "6-1-95 Option Space". Any additional space
-----------
shall be leased to Tenant upon the same terms and conditions as
provided in this Lease (including pro-rated Tenant Improvement,
Moving, Design and other allowances) for the remainder of the Lease
Term and shall be at the net effective Base Rent Rate as described
in Section 2.01 (RENT), adjusted for Real Estate Tax Escalation and
Operating Cost Escalation.
(1) Landlord shall provide the additional space with all Base
Building Improvements provided in Exhibit C and a pro-rata
---------
share, based on the remaining Lease Term of the Tenant
Improvement Allowance as provided in Exhibit D.
---------
(2) Tenant shall be entitled to additional parking spaces on the
same basis as described in Section 3.03 (PARKING). This does
not apply to Drive-In Claim parking spaces.
(3) Tenant may not acquire this additional space if Tenant is in
Default under this Lease either on the date Tenant exercises
its option to Lease the additional space or, unless waived in
writing by Landlord, on the proposed commencement date for the
additional space.
B. Surrender of Space
On the 3rd, 5th and 7th anniversary date(s) of the Lease Commencement
Date, Tenant may surrender up to 10% of Tenant's then existing rentable
area and thereupon the Base Rent, Operating Cost Escalation, Real Estate
Tax Escalation and Tenant's Proportionate Share shall be proportionately
reduced. In addition, the number of unreserved parking spaces and
underground parking spaces provided to Tenant in Section 3.03 (PARKING)
above shall be proportionately reduced.
(1) If Tenant surrenders space on the 3rd anniversary date, Tenant
shall pay Landlord the cost of the unamortized Tenant Improvements
for such surrendered area which shall be amortized on a straight-
line basis over ten (10) years utilizing an interest rate of 8.5%.
(2) If Tenant surrenders space on the 5th anniversary date, Tenant
shall pay Landlord the cost of the unamortized Tenant Improvements
for such surrendered area which shall be amortized on a straight-
line basis over ten (10) years utilizing an interest rate of 8.5%.
(3) If Tenant surrenders space in response to Landlord's request,
Tenant shall be relieved of all obligations to pay Base Rent, the
Operating Cost Escalation and the Real Estate Tax Escalation with
respect to the surrendered portion of the Premises.
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4.05. RIGHT OF FINAL REFUSAL/OFFER
If Tenant's Proportionate Share is equal to or exceeds 25%, and Landlord
shall receive a bona fide offer (the "Offer") from any third party to
lease any available space in the Building, at any time during the Lease
Term, Landlord shall notify Tenant of such Offer through written notice,
enclosing a copy of the Offer, and Tenant may, within ten (10) days,
accept the terms of the Offer in writing and within thirty (30) days
thereafter lease the available space under the terms and conditions
specified in the Offer, including without limitation, the rental rate
which the third party accepted and would have paid if such third party
had entered into a lease with Landlord for such space. This right of
first refusal is in addition to Tenant's option to acquire additional
space under Section 4.04 (SPACE ADJUSTMENT OPTIONS). Any space acquired
under this right of first refusal shall not reduce Tenant's ability to
acquire space under said Section 4.04.
Notwithstanding the foregoing, if Tenant's Proportionate Share is
less than 25%, and the space shown on Exhibit A-5 (the "Right of First
-----------
Offer Space") shall become available, Landlord shall notify Tenant, in
writing of its availability. Tenant shall have ten
(10) days from its receipt of Landlord's notice to notify Landlord of
its desire to Lease such Right of First Offer Space. Within thirty (30)
days of Tenant's notice to Landlord, Landlord and Tenant shall enter
into a Lease for such space upon the same terms and conditions as this
Lease, including the Base Rent.
Notwithstanding the foregoing, Tenant may not exercise either (a) its
right of first refusal or (b) its option to lease the right of First
Offer Space if Tenant is in Default under this Lease either on the date
Tenant exercises its option to Lease the space described in the Offer or
the Right of First Offer Space, as the case may be, or, unless waived in
writing by Landlord, on the proposed commencement date for such space.
4.06. RENEWAL OPTION
Tenant shall have the option to renew this Lease (the "Renewal Option")
for an additional term of up to 5 years, upon the same terms and
conditions as in the initial Lease Term except that the Base Rent for
the renewal term shall be at a mutually agreed upon negotiated rate,
which rate shall not exceed ninety-five percent (95%) of the Fair
Market Rate at that time. The Base Year for Building Operating Costs and
the Base Tax Year shall be updated to the calendar year or the Tax Year,
as appropriate, which immediately follows the calendar year in which the
renewal term commences. "Fair Market Rate" shall mean the average of the
annual rental rates then being charged in the office market sector of
the area where the Building is situated, for comparable space for leases
commencing on or about the time of the commencement of the lease term to
which this definition applies, taking into consideration use, location
and floor level of the applicable building, the location, quality and
age of the building, leasehold improvements or allowances provided,
rental concessions (such as abatements, lease assumptions or takeovers
and moving expenses), the date that the particular rate under
consideration became effective, the term of the lease under
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consideration, the extent of services provided thereunder, applicable
distinctions between "gross" leases and "net" leases, base year figures
for escalation purposes, brokerage fees saved due to the renewal, the
period for which space would be vacant if Tenant were to vacate the
space rather than to renew, the creditworthiness and quality of Tenant,
and other adjustments to the base rental and any other relevant term or
condition in making such evaluation, including bonfide written offers
made to Landlord by unrelated third parties at an arms-length basis to
lease the same comparable space. Tenant shall determine the amount of
space that shall be subject to renewal and Tenant shall give Landlord no
less than twelve (12) months notice of Tenant's space requirements prior
to the expiration of the then initial term. Landlord shall notify Tenant
of the Base Rent for the renewal term within one (1) month of receiving
Tenant's notice. Landlord and Tenant shall agree upon the Base Rent and
renewal terms by March 1, 2004, or this Lease shall automatically expire
upon the Lease Expiration Date. If this Renewal Option is exercised, the
Lease Expiration Date shall mean the last day of the renewed Lease Term.
4.07. HOLDING OVER
If Tenant desires to continue to use the Premises, or any part of the
Premises, after the expiration of either the Lease Term or any renewal
of this Lease, Tenant will give Landlord ninety (90) days' prior written
notice of Tenant's intention to do so which notice shall specify the
portion of the Premises with respect to which Tenant intends to hold-
over (the "Hold-over Space"). If Tenant timely gives Landlord notice as
aforesaid, Landlord shall give Tenant notice within ten (10) days of
receipt of Tenants notice (i) specifying whether or not Landlord has
previously executed a lease for all or a portion of the Hold-over Space
and (ii) upon execution thereafter of a lease for all or a portion of
any Hold-over Space specifying such Hold-over Space subject to lease.
Tenant may hold-over in any Hold-over Space with respect to which
Landlord has not executed a lease, for so long as Landlord shall not
have executed a lease with respect thereto, provided that: (i) such
tenancy shall be on a month-to-month basis and will not be construed as
a tenancy at sufferance and (ii) Tenant will pay Landlord monthly rent
during such tenancy the same as the last month's rent of the expiring
term, plus the allocable Real Estate Tax and Operating Cost Escalation
applicable to the month in question. Such month-to-month tenancy shall
not exceed six (6) months in duration (the "Maximum Hold-over Period").
Landlord may not evict Tenant from the Hold-over Space during the
Maximum Hold-over Period.
Tenant may not hold-over in any Hold-over Space with respect to which
Landlord has executed a lease and Tenant must surrender such Hold-over
Space in accordance with this Lease.
If Tenant should hold-over without the right to do so as provided
herein, Tenant shall be responsible for monthly, the Base Rent equal to
one and one-half (1 1/2) times the monthly installment of the Base Rent
for the last full month of the Lease Term.
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4.08. EARTH SATELLITE STATION
At any time during the term of this Lease, at no additional rental cost,
Tenant shall have the right to install, operate and maintain a
satellite-earth communications station (antenna and associated
equipment), microwave equipment and/or an FM antenna on the Building or
the Land in an area designated by Landlord, which area shall be
conducive to the operation of an satellite-earth station.
The satellite station or microwave equipment will be connected to
communications equipment located within the Premises via cable. Adequate
cable distribution and conduits will be made available to Tenant, at
Tenant's expense.
Tenant agrees to comply with all applicable federal, state or local
regulations, and shall obtain Landlord's approval for final equipment
locations prior to its installation, which approval shall not be
unreasonably withheld or delayed. Landlord will support Tenant's efforts
to acquire local zoning permits, if such are required for this purpose.
The installation and required maintenance of this equipment shall be at
Tenant's sole cost and expense and shall in no way deface or adversely
alter the appearance of the Premises, the Building or the Land. Tenant
will be responsible for removing the installation at the end of its
tenancy, if Tenant so elects or if Landlord so requires, and Tenant will
repair any damage caused by its removal.
Landlord will cooperate with Tenant regarding the installation,
maintenance, repair and removal of the satellite station by Tenant.
No other tenant may place a satellite station on the Building or on the
Land without Tenant's approval, which shall only be withheld if Tenant's
reception or transmittals will be adversely impaired.
ARTICLE V. LIABILITY
5.01. INSURANCE
A. Landlord's Insurance
Landlord shall maintain in full force and effect during the Lease
Term all-risk property damage insurance for the Building, the
Common Area Facilities and the Land and all improvements on the
Land, including the Tenant Improvements described in Exhibit C
---------
(BASE BUILDING IMPROVEMENTS) and Exhibit D (WORK LETTER
---------
AGREEMENT), in the amounts of the full replacement values
thereof, as the values may exist from time to time; Boiler and
Machinery Insurance; Comprehensive General Liability Insurance,
including Contractual Liability, on an occurrence basis with
limits of not less than $5,000,000 per occurrence; Worker's
Compensation and Employer's Liability Insurance for all of
Landlord's agents, employees and contractors; Automobile
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Liability Insurance for any automobiles or vehicles operated by
Landlord, its agents, employees contractors in connection with
the operation or maintenance of the Building, the Common Area
Facilities and the Land, with limits of not less than $1,000,000.
Notwithstanding the foregoing, the originally-named Landlord
shall have the right to self insure or to insure with a blanket
policy of insurance. Landlord's insurance shall be issued by
insurance companies licensed to do business in the state where
the Building is situated, with a general policyholder rating of
at least A- and a financial rating of at least XV in the most
current Best Insurance Report available at the time of execution
of this Lease. If the Best's ratings are changed or discontinued,
Landlord and Tenant shall agree to an equivalent method of rating
insurance companies.
Landlord's insurance policies shall be primary in the event of a
loss or claim occurring in the Common Area Facilities which is
not due to the negligence of Tenant, its agents, contractors,
employees or invitees.
B. Tenant's Insurance
Tenant shall maintain in full force and effect during the Lease
Term all-risk property damage insurance for Tenant's personal
property and trade fixtures; Worker's Compensation Insurance for
all of Tenant's employees working on the Premises and
Comprehensive General Liability Insurance with limits of not less
than $2,000,000 per occurrence, for injuries, losses, claims or
damages to persons or property occurring on the Premises, and due
to Tenant's use or occupancy of the Premises or to the negligence
or willful misconduct of Tenant, its agents, contractors,
employees or invitees.
Tenant reserves the right to self-insure or to insure with a
blanket policy of insurance the liabilities and casualties
specified in this Lease. Therefore, Tenant shall not be required
to provide Landlord with any certificates or policies of
insurance; however, Tenant shall provide Landlord with a letter
confirming such insurance, if requested by Landlord.
C. Indemnification
Landlord shall indemnify, defend and hold Tenant harmless (with
counsel approved by the Tenant) from any liabilities, claims,
damages, expenses, costs, losses, actions, fines, penalties, or
lawsuits for personal injury, death, and/or property damage
including, without limitation, court costs, reasonable attorney
fees, and other reasonable costs of litigation arising from any
incidents occurring in or about the Common Area Facilities or the
Land except that Landlord shall not so indemnify Tenant to the
extent the subject injury, death or damage is caused by the
negligence or willful misconduct of Tenant or its agents,
employees, contractors or invitees.
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Tenant will indemnify, defend and hold landlord harmless (with
counsel approved by Landlord) from any liabilities, claims,
damages, expenses, costs, losses, actions, fines, penalties, or
lawsuits for personal Injury, death and/or property damage
including, without limitation, court costs, reasonable attorney
fees, and other reasonable costs of litigation for any incidents
occurring in or about the Premises except that Tenant shall not
so indemnify Landlord to the extent the subject injury, death or
damage is caused by the negligence or willful misconduct of
Landlord or its agents, employees, contractors or invitees.
5.02. ENVIRONMENTAL COMPLIANCE
A. Environmental Site Assessment
Prior to the Lease Commencement Date, Landlord, at Landlord's sole
cost and expense, shall provide Tenant with a Phase I Environmental
Site Assessment ("ESA") conducted by a reputable and licensed firm
in the industry, if one is available. Such ESA shall include an
assessment of possible indoor asbestos containing material. If a
Phase II Environmental Site Assessment has been conducted, Landlord
shall also provide Tenant with the results of the same. If an ESA
(or subsequent Phase II) is not available, Landlord shall provide
Tenant with an "Asbestos Survey" of possible asbestos containing
material in the Building, conducted by a licensed and certified
Industrial Hygienist or Environmental Consultant.
B. Use of Asbestos and PCB's
Landlord represents and warrants to, and covenants with Tenant as
follows:
(1) If the Building is being constructed or if any modifications
or renovations are to be done now or at any time during the
Lease Term, Landlord or Landlord's contractors shall not use
asbestos containing material for fireproofing or other
purposes in such construction.
(2) If the results of the ESA or Asbestos Survey, or the actual
knowledge of Landlord, or its contractors, employees or
Tenant, confirm that asbestos containing material is present
in the Premises, Landlord agrees to remove all such asbestos
containing material and any debris from the Premises, at
Landlord's sole cost and expense prior to the Lease
Commencement Date. Such removal shall be completed in
accordance with all applicable federal, state and local laws
and regulations concerning the removal of asbestos, and
completed in accordance with methods approved by the
Environmental Protection Agency ("EPA") and the Occupational
Safety and Health Administration ("OSHA"), and performed by
licensed industrial hygienists. Landlord will prosecute the
work diligently to completion. After the removal procedure,
Landlord will
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monitor the air quality of the Premises by performing post
abatement air clearance tests. Such tests shall be performed
in accordance with procedures which meet the more stringent
of the Asbestos Hazard Emergency Response Act ("AHERA") or
state or local guidelines. If the results of such tests show
an asbestos fiber count exceeding .01 fibers/cc (TEN)
("Acceptable Air Quality"), the Lease Commencement Date
shall be delayed and Tenant will not occupy the Premises or
commence the payment of Rent, until the situation has been
remediated and the results of air sample testing verify an
Acceptable Air Quality. Landlord will use due diligence to
achieve such results. In no event shall remediation occur
later than thirty (30) days following the Lease Commencement
Date.
(3) If the results of any ESA or the Asbestos Survey, or the
actual knowledge of Landlord, or its contractors, employees
or Tenant confirm that asbestos containing material is
present in other areas of the Building or the Common Area
Facilities, such areas shall be identified in the Operations
and Maintenance Program attached hereto as Exhibit N. If the
---------
results of any ESA's, an Asbestos Survey, or the actual
knowledge of Landlord or its contractors, employees or
Tenant, confirms that any such asbestos or asbestos
containing material is friable, prior to the Lease
Commencement Date or within a reasonable period of time
thereafter, Landlord shall encapsulate such asbestos or
asbestos containing material in accordance with all
applicable federal, state and local laws and regulations
concerning the encapsulation of asbestos containing material
and in accordance with methods approved by the EPA and OSHA.
After the encapsulation procedure, Landlord will monitor the
air quality of the Premises and the Common Area Facilities
directly serving the Premises, by performing post abatement
air clearance tests. Such tests shall be performed in
accordance with procedures which meet the more stringent of
the AHERA or state or local guidelines. If the results of
such tests show an asbestos fiber count exceeding the
Acceptable Air Quality, the Lease Commencement Date shall be
delayed and Tenant will not occupy the Premises or commence
the payment of Rent, until the situation has been remediated
and the results of air sample testing verify an Acceptable
Air Quality. Landlord will use due diligence to achieve such
results. In no event shall remediation occur later than
thirty (30) days following the Lease Commencement Date.
After the completion of the initial asbestos removal from
the Premises, or the encapsulation of any asbestos
containing material in the Building or the Common Area
Facilities, Landlord hereby agrees to implement and maintain
throughout the Lease Term, as renewed or extended, or until
one (1) year after all asbestos containing material has been
removed from the Building
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and the Common area Facilities and such removal properly
documented, at Landlord's sole cost and expense and without
cost to Tenant, an on-going Operations and Maintenance
Program (the "O&M Program"). The terms and requirements of
O&M Program shall be attached hereto as EXHIBIT M. The
O&M Program shall include periodic hazard assessments and
inspections of any asbestos containing material. Upon
Tenant's request, the results of the periodic hazard
assessments shall be made available to Tenant. If any such
assessment indicates that any asbestos containing material
has become friable, or if any friable asbestos containing
has become dangerous, or if a possible disturbance of any
asbestos containing material is planned, or if previously
undisclosed friable asbestos containing material is
discovered, Landlord will notify Tenant and initiate
immediate encapsulation or removal of the material in the
same manner set forth herein and aforementioned. Such
remediation procedures shall be at the sole cost and expense
of Landlord, unless, however, such is necessitated due to an
act of Tenant. Tenant shall be notified in writing, in
advance, of the remediation procedure which will occur. Such
notice shall set forth the contemplated procedure, and the
dates and times in which such procedure will be performed.
The procedure will in no event be performed during the
Business Hours without the written consent of Tenant. In the
event Tenant objects to the time of the procedure because
Tenant or its employees intend to be in the vicinity of the
procedure during the time which it is to be performed,
Tenant shall notify Landlord in writing within five (5) days
of Tenant's receipt of Landlord's notice regarding the
procedure. Tenant's failure to so notify Landlord shall
constitute Tenant's approval of the timing of the procedure.
If Tenant objects as aforesaid to the timing of the
procedure, Landlord and Tenant shall mutually determine a
reasonably appropriate time for such procedure. Before,
during and after any asbestos abatement procedures, Landlord
shall monitor the air quality of the Premises and the Common
Area Facilities and the results of such tests will be
provided to Tenant. If the results of the air monitoring
tests show an asbestos fiber count exceeding the Acceptable
Air Quality in the Premises, the Building or the Common Area
Facilities, including during or after a disturbance or
remediation procedure, and such is due to an act of
Landlord, its agents, employees or contractors, Tenant's
rent will be abated and Tenant will vacate the Premises and
Landlord will pay for the relocation of Tenant to acceptable
alternate office space, reasonable for the conduct of
Tenant's business, until Tenant can safely return to the
Premises and the results of all air quality testing are in
accordance with the standards set forth herein. if the
hazardous situation cannot be cured or the Acceptable Air
Quality standard reached within ninety (90) days, or within
a reasonable period of time thereafter if Landlord is
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Pursuing a cure with due diligence, but in no event later
than one hundred-eighty (180) days thereafter, or if as per
the assessment of a licensed industrial hygienist the
situation is uncurable and constitutes a material danger of
bodily harm to Tenant, its employees or invitees, Tenant
shall notify Landlord of its intention to terminate this
Lease, without penalty or default and thereafter Tenant will
have no further obligations under the Lease (including no
further obligations to pay the annual Base Rent or Operating
Cost and Real Estate Tax Escalations) after the date which
Tenant vacates the Premises.
(4) None of the electrical transformers or capacitors that
directly serve the Building or the Common Area Facilities or
that are located on the Land contain polychlorinated
biphenyls ("PCB's") or, if they do, Landlord shall promptly
notify Tenant of (i) Landlord's plan for their removal, (ii)
all action which has been taken to prevent contamination of
the Premises should a fire or accidental release of PCB
fluid occur, and (iii) all action which has been taken to
insure that health hazards do not and shall not exist at any
time during the Lease Term.
(5) In the event that Tenant's files, property or equipment are
contaminated by asbestos or PCB's found in the Building by a
source other than Tenant, Landlord shall pay for the cost of
decontamination, removal and reproduction of such items.
C. Hazardous Materials
Except as otherwise specifically provided for herein, Landlord
represents and warrants and covenants with Tenant as follows:
(1) The Land, the Building and the Common Area Facilities and
its existing uses comply with, and Landlord is not violation
of has not in the past violated, and will not violate in the
future, any federal, state, county or local statutes, laws,
regulations, rules, ordinances, codes or permits of any
governmental authorities relating to environmental matters
("Environmental Laws").
(2) Landlord, its agents, contractors and employees have, and
shall continue at all times in the future to receive,
handle, use, store, treat, transport and dispose of all
hazardous substances, as to be defined hereinafter, in
compliance with all Environmental Laws. Hazardous Substances
shall not include incidental quantities which are commonly
used in offices, such as copier fluid, typewriter correction
fluids and ordinary cleaning solvents, provided that such
are at all times used, kept and stored in a manner which
complies with all Environmental Laws. Hazardous Substances
shall mean and include the following, or as later defined
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under any Environmental Laws, including mixtures thereof:
any hazardous substance, pollutant, contaminant, waste, by-
product or constituent regulated under the Comprehensive
Environmental Response, Compensation and Liability Act. 42
U.S.C Section 9601 et seq.; oil and petroleum products and
-------
natural gas, natural gas liquids, liquefied natural gas and
synthetic gas usable for fuel; pesticides regulated under
the Federal Insecticide, Fungicide, and Rodenticide Act.
Section 136 et seq.; asbestos and asbestos-containing
-------
materials; PCBs; substances regulated under the Toxic
Substances Control Act. 15 U.S.C Section 2601 et seq.;
-------
source material, special nuclear material, by-product
material and any other radioactive materials or radioactive
wastes, however produced, regulated under the Atomic Energy
Act or the Nuclear Waste Policy Act; chemicals subject to
the OSHA Hazard Communication Standard. 29 C.F.R (1910.1200
et seq.; and industrial process and pollution control wastes
-------
whether or not hazardous within the meaning of the Resource
Conservation and Recovery Act, 42 U.S. C. Section 6901 et
---
seq., as amended by the Hazardous and Solid Waste Amendments
----
of 1984.
(3) During the period in which Landlord has owned the Building,
there have been no decrees, injunctions, judgements, orders
or writs of an environmental nature relating to the
Building, or the Land or their uses, and there are no
current lawsuits, claims, proceedings or investigations of
an environmental nature relating to the Land, the Building,
or the Common Area Facilities or their uses.
(4) There are no indoor air pollution or air quality problems in
the Building, the Common Area Facilities or in the HVAC
system(s). Landlord shall notify Tenant if any indoor air
quality problem is discovered or reported in the Building or
relating to the HYAC system(s) and immediately undertake to
correct such problem.
(5) If an ESA confirms any environmental hazards, on the Land or
affecting the Land, or in the Building or the Common Area
Facilities, or if Landlord defaults under any of the
provisions of this Section 5.02 (C), and such default
imposes a material danger to the health or safety of
Tenant's employees, then Landlord shall have thirty (30)
days following written notice from Tenant to initiate action
to cure the same and remove such danger and shall thereafter
proceed diligently to complete such cure and remove such
danger. In the event that Landlord fails to commence its
action within thirty (30) days, or fails to diligently
proceed thereafter with such action, and cure the same to
completion within ninety (90) days following any such
written notice from Tenant, then Tenant may, if it so
elects, cancel this Lease after written notice to Landlord,
whereupon Tenant shall have no further
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obligations under the Lease (including no further
obligations to pay the annual Base Rent or Operating Cost
and Real Estate Tax Escalations) after the date which Tenant
vacates the Premises.
D. Tenant's Environmental Compliance
Tenant at its expense, shall comply with all Environmental Laws,
present or future related to environmental conditions in, at or
about the Premises or Tenant's use of the Premises, including
without limitation, all reporting requirements and the
performance of any cleanups required by any governmental
authorities which are necessary due to an act of Tenant.
E. Indemnification
Landlord and Tenant shall each indemnify, defend and hold the
other harmless from any costs and expenses (including reasonable
attorney fees and consultant fees), fines, suits, claims,
actions, damages, liabilities asserted against or sustained by
any such person or entity, or any other person or entity, and
arising out of or in any way connected with Landlord's or
Tenant's failure to comply with its obligations under this
Section 5.02.
5.03. REQUIREMENTS OF LAW
A. Landlord's Compliance with Laws
Landlord shall be responsible for compliance, at Landlord's sole
cost and expense, with all statutes, rules, ordinances, orders,
codes and regulations, and legal requirements and standards
issued thereunder, as the same may be enacted and amended from
time to time (collectively referred to in this Lease as the
"Laws"), which are applicable to all or any part of the physical
condition and occupancy of the Building, the Common Area
Facilities or the Land or additions thereto.
Landlord represents and warrants that the Building, the Common
Area Facilities and the Land are in compliance with the Laws as
of the Lease Commencement Date.
Landlord shall also obtain, at Landlord's sole cost and expense,
any permit, license, certificate or other authorization required
for the lawful and proper use and occupancy by Tenant or any
other party of all or any part of the Premises and shall exhibit
the same to Tenant upon Tenant's request.
Landlord shall notify Tenant of any violation notices or waivers
of building, OSHA or life safety codes or outstanding insurance
carrier recommendations with respect to the Building, the Common
Area Facilities or the Land. Tenant shall notify Landlord of any
OSHA violation notices with respect to the Premises.
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Except to the extent affected by Tenants particular use of the
Premises, Landlord shall be responsible for the compliance of the
Common Area Facilities with applicable laws relating to
architectural barriers to the disabled, including but not limited
to the law commonly known as the "Americans with Disabilities Act
of 1990" (the "ADA"). Landlord hereby agrees to indemnify, defend
and hold Tenant harmless from all loss, cost, liability or
expense, including reasonable attorney fees, resulting from its
failure to comply with all Laws relating to the Premises and
condition of the Common Area Facilities, including but not
limited to the ADA.
8. Tenant's Compliance with Laws
Tenant shall be responsible for compliance with all the Laws,
which are applicable to Tenant's particular use and manner of use
of the Premises and the Common Area Facilities.
In the event that Tenant's particular use of the Premises and the
Common Area Facilities violate any provision of the Laws,
including but not limited to the ADA, Tenant shall bear all
expense, cost and liability for compliance with such Laws,
including but not limited to the ADA. Tenant hereby agrees to
indemnify, defend and hold Landlord harmless from all loss, cost,
liability or expense, including reasonable attorney fees,
resulting from its failure to comply with all the Laws relating
to its occupancy of the Premises and use of the Common Area
Facilities, including but not limited to the ADA.
Further, notwithstanding the identity of the party incurring the
expense of such Tenant Improvements described in Section 1.08
(IMPROVEMENTS) and per Exhibit D (WORK LETTER AGREEMENT), it
shall be the obligation of Tenant to verify that all plans,
specifications and finished improvements prepared and completed
in connection with such construction comply with all applicable
Laws, including but not limited to the ADA. Additionally, if any
construction, modification or renovation is necessary in or to
the Premises as a result of applicable Laws, including, but not
limited to the ADA, such construction, modification or renovation
shall be the responsibility of Tenant and Tenant hereby agrees to
indemnify, defend and hold Landlord harmless from any loss, cost,
liability or damage resulting from the failure of any plans,
specifications or finished improvements to comply with all
applicable Laws, including but not limited to the ADA.
ARTICLE VI. LOSS OF PREMISES
6.01. DAMAGES
If the Premises or the Building are totally destroyed by fire or any
other casualty, this Lease shall automatically terminate as of the
date of such destruction. If the Building, the Common Area Facilities
or the Premises are damaged to the extent that Tenant cannot use the
same to conduct its business for at least ninety (90) days, Tenant may
terminate this Lease as of the date of damage by notice to Landlord
within thirty (30) days after such date. If the Building or any
portion of the Common Area Facilities or the
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Premises are damaged by fire, casualty, or any other cause, and
Tenant, at the time of such fire, casualty or other cause, was
physically leasing greater than twenty percent (20%) of the rentable
area of the Building and was not in Default under this Lease, then,
except as provided below, the damage shall be promptly repaired by and
at the sole cost and expense of Landlord, which obligation to restore
shall be limited to the insurance proceeds available to Landlord for
such restoration. Until such repairs and restoration are completed,
the Base Rent, the Building Operating Cost Escalation and the Real
Estate Tax Escalation shall be abated in proportion to the portion of
the Premises or the Common Area Facilities which is unusable by Tenant
in the conduct of its business by virtue of such casualty. If such
damage can be repaired within ninety (90) days and Landlord fails to
repair or restore such damage within such period, Tenant may, upon
thirty (30) days notice to Landlord, in addition to all other remedies
Tenant may have under this Lease, at law or in equity, terminate this
Lease. If such damage cannot be repaired within ninety (90) days and
Tenant terminates this Lease, as provided above, then Landlord shall
not be obligated to repair or restore such damage. If Tenant was
leasing twenty percent (20%) or less of the rentable area of the
Building or was in Default under this Lease, as of the date of such
fire, casualty or other cause, Landlord shall not be obligated to
repair and restore such damage and Landlord may terminate this Lease
of the date of damage by notice to Tenant within thirty (30) days
after such date. If any such damage which causes any portion of the
Premises to become unusable by Tenant in the conduct of its business
occurs during the last nine (9) months of the Lease Term, Tenant may,
upon thirty (30) days notice to Landlord, terminate this Lease.
6.02. EMINENT DOMAIN
A. If all of the Land, the Building, the Common Area Facilities, or
Premises are taken by eminent domain or condemnation, (the
"Taking") this Lease shall terminate immediately upon the
effective date of the Taking.
B. If there is a partial Taking of the Land, the Building, the
Common Area Facilities or the Premises, Tenant may terminate this
Lease by notice to Landlord if the remaining Premises, the
Building, or the Common Area Facilities are not, in Tenant's
judgment, adequate for the conduct of Tenant's business.
If Tenant does not terminate this Lease, Landlord shall proceed
with due diligence to make all necessary repairs to the Land, the
Building, the common Area Facilities, or the Premises in order to
render and restore the same to the condition that they were prior
to the Taking. Tenant shall remain in possession of the portion
of the Premises not taken as long as use of the Common Area
Facilities is not materially impaired, upon the same terms and
conditions of this Lease, except that the Base Rent, Tenant's
Proportionate Share of Operating Cost Escalation and Real Estate
Tax Escalation and Tenant's Proportionate Share shall be reduced
in direct proportion to the area of the Premises and the Common
Area Facilities subject to the Taking.
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If Tenant Is not able to access or occupy the Premises or any
portion thereof not taken, or is not able to use the Common Area
Facilities, while Landlord is making the required repairs, the
Base Rent, Operating Cost Escalation and Real Estate Tax
Escalation shall be abated in proportion to the portion of the
Premises or the Common Area Facilities which are unusable by
Tenant in the conduct of its business.
C. Damages awarded to Landlord for any Taking shall belong to
Landlord, whether or not the damages are awarded as compensation
for loss or reduction in value of the Land, the Building, the
Common Area Facilities, or the Premises; however, nothing shall
restrict or limit Tenant from asserting a claim for any
additional damages resulting from the Taking for any unamortized
leasehold improvements paid for by Tenant, Tenant's moving
expenses, or Tenant's trade fixtures and equipment, provided such
claim does not reduce Landlord's award.
ARTICLE VI. NON-DISTURBANCE
7.01. SUBORDINATION, ATTORNMENT AND NON-DISTURBANCE
A. If this Lease is subordinate to any existing fee or leasehold
mortgages, ground or air space leases or deeds of trust covering
the Land, the Building or the Common Area Facilities, Landlord,
prior to the Lease Commencement Date, shall obtain, have executed
and shall deliver to Tenant, a Subordination, Non-Disturbance and
Attornment Agreement by and between the Tenant and such prior
party, in the form of Exhibit I attached to this Lease.
---------
B. Subject to the provision of Subsection (1) below, this Lease
shall be subordinate and subject to any future fee or leasehold
mortgages, ground leases and deeds of trust covering the Land,
the Building, or the Common Area Facilities.
(1) If any mortgage is foreclosed or ground lease or air space
lease terminated, then:
(a) This Lease shall continue in full force and effect, and
(b) Tenant's quiet enjoyment shall not be disturbed if
Tenant is not in default of this Lease, and
(c) Tenant shall attorn to and recognize the mortgagee,
purchaser at a foreclosure sale or ground or other
lessor ("Successor Landlord") as Tenant's landlord for
the remaining Lease Term; and
(d) Successor Landlord shall not be bound by:
(i) any payment of the Base Rent, Operating Cost
Escalation or Real Estate Tax Escalation for more
than one month in advance, except for any free rent
or other rent abatement specified in
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this Lease, or as otherwise provided In Section
2.02 (ESCALATION).
(ii) any amendment, modification, or termination of the
Lease without Successor Landlord's consent, after
Successor Landlord's name is given to Tenant,
unless the amendment, modification, or ending Is
specifically authorized by this Lease and does not
require Successor Landlord's prior agreement or
consent.
(2) This Section B is self-operating; however, Landlord or
Tenant shall cause a Subordination, Attornment and Non-
Disturbance Agreement in the form of Exhibit I to be
---------
executed and delivered if either party so requests.
7.02. ESTOPPEL CERTIFICATE
Each party hereby agrees, from time to time, upon not less than thirty
(30) days prior notice, to execute and deliver an estoppel certificate
(the "Estoppel Certificate"). The Estoppel Certificate may be relied
upon by Landlord or Tenant, as appropriate, and any third party with
whom Landlord or Tenant Is dealing, and shall certify the following, as
of the date thereof:
A. The accuracy of this Lease;
B. The Lease Commencement Date and the Lease Expiration Date;
C. That this Lease is unmodified and in full force and effect or in
full force and effect as modified, stating the date and nature of
all modifications;
D. Whether to the executing party's knowledge the other party is in
default or whether the executing party has any claims or demands
against the other party and, if so, specifying the claim or demand;
and
E. To other correct and reasonably ascertainable facts that are
covered by the terms of this Lease.
7.03. RECORDING OF LEASE
At the request of either party, the parties shall promptly execute and
record, at the cost of the requesting party, a short form memorandum
setting forth the names of the parties to this Lease, the date of
execution, the Lease Term, the Lease Commencement Date, the Lease
Expiration Date, a description of the Premises, any outstanding options
and any other information the parties agree to include or is required by
statute governing such short form memoranda. A form of short form
memorandum is attached hereto as Exhibit K.
---------
7.04. QUIET ENJOYMENT
Tenant shall have the peaceful and quiet enjoyment and possession of the
Premises without any interference from Landlord or any person claiming
by, through or under Landlord.
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ARTICLE VIII. DISPUTES
8.01. DEFAULT BY TENANT
Tenant shall be considered in default ("Default") of this Lease if (i)
Tenant fails to pay the Base Rent within fifteen (15) days after Tenant
receives notice from Landlord that the Base Rent was not received; or
(ii) Tenant fails to perform any of its other obligations under this
Lease within thirty (30) days or within a reasonable period of time
thereafter if a cure cannot be accomplished with thirty (30) days after
receiving written notice from Landlord specifying that such Default
exists, setting forth in reasonable detail the nature and extent of the
Default and identifying the applicable Lease section(s).
If Tenant is in Default as stated above, Landlord, in addition to the
remedies given in this lease or under the law, may end this Lease after
giving Tenant thirty (30) days notice of its intention to do so and in
accordance with any laws governing such termination, and Tenant shall
then surrender the Premises to Landlord; or Landlord may enter and take
possession of the Premises, in accordance with any laws governing such
repossession, and remove Tenant, with or without having ended the Lease.
Landlord's exercise of any of its remedies or its receipt of Tenant's
keys shall not be considered an acceptance or surrender of the Premises
by Tenant. A surrender must be agreed to in writing signed by both
parties.
If Landlord terminates this Lease or terminates Tenant's right to
possess the Premises because of a Tenant Default, Landlord may hold
Tenant liable for the difference between (i) the Base Rent and other
indebtedness that otherwise would have been payable by Tenant to
Landlord prior to the Lease Expiration Date, and (ii) any sums Landlord
receives by reletting the Premises during the remainder of the Lease
Term. Tenant shall pay any such sums due within thirty (30) days of
receiving Landlord's proper and correct invoice for the amounts.
Landlord is not entitled to accelerate the Base Rent or any other
amounts which would become due from Tenant to Landlord. During each
collection action, Landlord shall be limited to the amount of the Base
Rent due that would have accrued had the Lease not been terminated.
Landlord shall mitigate its damage by making best efforts to relet the
Premises on reasonable terms.
8. 02. DEFAULT BY LANDLORD
If Landlord fails to perform any of its obligations under this Lease and
such failure is not a result of an act or omission of Tenant or the
occurrence of one or more of the events stated in Section 9.01 (FORCE
MAJEURE) below (a "Landlord Default"), Tenant shall give Landlord notice
specifying the Landlord Default. A Landlord Default must be cured (i)
within fifteen (15) days after receiving notice from Tenant; or (ii) if
the Landlord Default can not be cured within fifteen (15) days, within a
reasonable period of time thereafter in order to cure such Landlord
Default as long as Landlord has commenced a cure with due diligence
after receiving notice from Tenant (the "Cure Period"). If the Landlord
Default is not corrected within the Cure Period, then in addition to all
rights, powers or remedies permitted by law, Tenant may:
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A. Upon the first occurrence of any Landlord Default, correct the
Landlord Default and deduct the cost from the Base Rent and other
sums payable; provided, that (a) Tenant shall give Landlord at
least 10 business days' prior written notice before commencing to
correct the Landlord Default, which notice shall describe in
reasonable detail the work Tenant intends to perform and shall
include copies of all relevant plans, sworn statements, permits,
certificates of insurance, names of contractor and any other
information reasonably required by Landlord, (b) Tenant shall
only use those contractors and subcontractors to perform such
work which shall not create disharmony with existing trades in
the Building, (c) Tenant is not in Default under this Lease, and
(d) Tenant agrees to indemnify, defend and hold Landlord harmless
from and against any and all claims, actions, damages, costs and
expenses (including, without limitation, court costs and
attorneys' fees for personal injury, property damage or loss of
business, asserted against or sustained by Landlord and arising
out of any work performed by or on behalf of Tenant hereunder,
and provided such work is the proximate cause of any such claim,
action, damage, costs, and/or expense;
B. Upon the second and any subsequent occurrence of any Landlord
Default, withhold payment of the Base Rent and other sums
payable, if any, due to Landlord until Landlord has corrected the
specified Landlord Default; or
C. Upon the third occurrence of any Landlord Default or upon the
failure of Landlord to cure any Landlord Default within ninety
(90) days, Tenant shall have the right to seek the judicial
remedy of specific performance or to terminate this Lease by
providing Landlord with notice of such termination.
Tenant agrees to simultaneously give Landlord's mortgagee or deed of
trust holders (the "Holder") a copy of any notice of a Landlord Default
which Tenant serves upon Landlord, to any address which Landlord has
provided to Tenant.
The Holder shall have the right to cure a Landlord Default within the
Cure Period.
8.03. REDUCTION OF SERVICES
The Base Rent is based in part upon Services which Landlord shall
provide as described in Section 3.01, (SERVICES PROVIDED BY LANDLORD).
If, as a result of an act or omission of Landlord or any employee, agent
or contractor of Landlord (as distinguished from an act or omission of
Tenant or the occurrence of one or more of the events stated in Section
9.01 (FORCE MAJEURE) below), Landlord does not provide any or all of the
Services or does not provide the Services in the manner described
therein for more than five (5) consecutive days following notice from
Tenant of such failure, interruption or reduction, the Base Rent, the
Operating Cast Escalation and the Real Estate Tax Escalation payable
for such portion of the Premises shall be abated on a per diem basis
for the period of interruption beginning with the date the failure,
38
<PAGE>
interruption or reduction in services began and ending when the services
are fully restored.
Tenant may also withhold the payment of the Base Rent, the Building
Operating Cost Escalation and the Real Estate Tax Escalation after
giving Landlord notices of two (2) failures to provide a particular
service as a result of an act or omission of Landlord or any employee,
agent or contractor of Landlord (as distinguished from an act or
omission of Tenant or the occurrence of one or more of the events stated
in Section 9.01 (FORCE MAJEURE) below) within a twelve (12) month period
until the problem with that service has been adequately corrected, so as
to provide Tenant with reasonable assurance that such interruption shall
not occur again during the Lease Term. Upon the third occurrence within
a twelve (12) month period, of any failure to provide a particular
service, Tenant may, at its sole option, seek the judicial remedy of
specific performance or terminate this Lease by notice to Landlord.
8.04. ARBITRATION
If Landlord and Tenant cannot reach agreement upon the interpretation of
any of the following described terms or conditions of this Lease, the
dispute shall be subject to arbitration as provided in this Lease. Each
party shall choose an impartial arbitrator. If the two arbitrators
cannot agree, then the parties shall choose a third impartial
arbitrator. The arbitrators will have minimum of ten (10) years
experience in a profession related to the subject matter of the dispute
and the then prevailing Commercial Arbitration Rules of the American
Arbitration Association shall govern the proceeding. Both parties shall
continue performing their Lease obligations pending the determination of
the arbitration proceeding, except as otherwise provided for in this
Lease. The arbitrators shall have no power to change the Lease
provisions and the arbitrators shall base their decisions upon the
provisions of this Lease and, as appropriate, shall apply the law stated
in Section 8.05 (GOVERNING LAW) of this Lease. The arbitrators shall
submit their findings In writing, signed by each of them, within thirty
(30) days. The findings of the arbitrators shall be binding on both
Landlord and Tenant and the expense of the arbitration shall be shared
equally by Landlord and Tenant. If the arbitrators shall err in the
application of law or shall fail to base their judgment on this Lease,
the case may be entered into any court having jurisdiction for decision.
The following disputes shall be subject to arbitration:
a. any dispute which the parties mutually agree to submit to
arbitration;
b. the date when the Premises was Substantially Complete;
c. the amount of any abatement of Rent because of damages or eminent
domain;
d. the amount of any Operating Cost Escalation or Real Estate Tax
Escalation or any component part of the calculation;
39
Form Revised 8/1/93
<PAGE>
e. which party must comply with any applicable laws;
f. whether the services furnished by Landlord are being provided in
the manner described in this Lease;
g. whether Tenant is entitled to an abatement of Rent and Operations
Cost Escalation and Real Estate Tax Escalation as provided in this
Lease;
h. whether Landlord's or Tenant's withholding of consent is
unreasonable or unduly delayed;
i. whether either party has the right to cancel this Lease as provided
in this Lease; or
j. whether or not a proposed assignee or sublessee has adequate
creditworthiness and whether Tenant's continued liability under
this Lease would be required in light of such assignment or
sublease.
8.05. GOVERNING LAW
This Lease, and the rights and obligations of the parties hereto, shall
be construed and enforced in accordance with the laws of the
Commonwealth of Massachusetts.
8.06. WAIVER OF CONSEQUENTIAL DAMAGES
Neither Landlord nor Tenant shall be liable to the other under or
in connection with this Lease for any consequential damages and both
Landlord and Tenant waive, to the full extent permitted by law, any
claim for consequential damages.
ARTICLE IX. MISCELLANEOUS
9.01. FORCE MAJEURE
After the Lease Commencement Date, neither party shall be responsible to
the other for any losses resulting from the failure to perform any terms
or provisions of this Lease if the party's failure to perform is
attributable to war, riot, acts of God or the elements or any other
unavoidable act not within the control of the party whose performance is
interfered with and which by reasonable diligence such party is unable
to prevent. However, neither party shall be excused from the timely
performance of its obligations under this Lease for a period of time
greater than ninety (90) days on account of force majeure.
9.02. END OF TERM
Upon the termination of this Lease, Tenant shall return the Premises in
the same condition as when Tenant took possession, excluding ordinary
wear and tear, loss from fire or other casualty, removal of
communications cabling and the restoration of the Premises to its
condition prior to any Tenant Improvements or Alterations made to it
during the Lease Term.
40
<PAGE>
9.03. ENTIRE AGREEMENT
This Lease and all of its written and attached Exhibits, riders,
addendums, modifications, and amendments constitutes the entire
agreement between Landlord and Tenant with respect to the Premises and
the Common Area Facilities and may be amended or altered only by written
agreement executed by both parties. Landlord warrants that it owns the
Building and the Land as described herein, and each party warrants that
it is authorized to enter into this Lease.
9.04. NON-DISCRIMINATION
Landlord and Tenant shall not discriminate on the basis of race, age,
color, religion, sex, national origin, disability or veteran's status in
the use or occupancy of the Premises or the Building.
Landlord and Tenant shall not discriminate on the basis of race, age,
color, religion, sex, national origin, disability or veteran's status in
their employment or choice of contractors, subcontractors, or suppliers
of materials for or used for the installation of any improvements in the
Premises or the Building.
9.05. BINDING ON SUCCESSORS
This Lease shall bind the parties heirs, successors, representatives and
permitted assigns.
9.06. AMBIGUITIES
Any rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not apply to the
interpretation of this Lease or any amendments or exhibits hereto.
9.07. FIRST-CLASS BUILDING
Whenever in this Lease the phrase or phrases "first-class building",
"first-class manner", "first-class condition" or phrases of similar
import are used, said phrases mean that the Building, the Common Area
Facilities, the Land and the Premises are to be maintained, repaired,
operated and generally treated in the manner and custom consistent with
that used for other buildings which are substantially similar to the
Building in geographic location, use, size, type, age, and amenities and
services provided.
9.08. BROKER'S WARRANTY
Landlord and Tenant warrant and represent that they have dealt with no
real estate broker in connection with this Lease and that no broker is
entitled to any commission on account of this Lease. The party who
breaches this warranty shall defend, hold harmless and indemnify the
other from any loss, cost, damage or expense, including reasonable
attorney fees, arising from the breach. Landlord is solely responsible
for paying the commission of said broker in accordance with a separate
agreement.
41
<PAGE>
9.09. PARTIAL INVALIDITY
If any Lease provision is or becomes invalid or unenforceable to
any extent, then that provision and the remainder of this Lease shall
continue in effect and be enforceable to the fullest extent permitted by
law.
9.10. CAPTIONS
The captions appearing in this Lease are inserted only as a matter of
convenience and in no way define, limit, construe or describe the scope
or intent of such sections of the Lease nor in any way affect the Lease.
9.11. NON-MERGER OF PARTIES
Unless subsequently or otherwise provided in a written agreement
executed by both of the undersigned parties, neither Landlord nor Tenant
hereunder intend that there be, and there shall not in any event be, by
operation of law or otherwise, a merger of the tenancy with the fee
title or any other interest or estate of Landlord by virtue of this
Lease. The parties hereto expressly agree that the estate of each
Landlord and Tenant shall be and remain at all times separate and
distinct. The foregoing shall be binding upon all successors and assigns
of Landlord and Tenant, it being expressly intended that there shall be
no such merger upon any subsequent assignment or transfer of any type,
whether by operation of law or otherwise.
9.12. SURVIVAL
The following provisions or Sections, as appropriate, of this Lease and
Landlord's and Tenant's obligations thereunder shall survive the Lease
Expiration Date or any earlier termination of this Lease by either
Landlord or Tenant:
A. For a period of one (1) year, Tenant's obligation to pay the
Building Operating Cost Escalation and the Real Estate Tax
Escalation for the Lease Term, subject to any termination of this
Lease by Tenant due to a Landlord Default;
B. Landlord's obligation to refund to Tenant any excess payment of the
Base Rent, the Building Operating Cost Escalation and the Real
Estate Tax Escalation;
C. All indemnifications, hold harmless agreements, representations,
warranties and covenants made by Landlord, including those
representations set forth in Section 5.02
(ENVIRONMENTAL COMPLIANCE);
D. Any representation or warranty regarding either Landlord's or
Tenant's use of a broker or agent and any fee or commission which
may be due or owing to said broker or agent;
E. Any reimbursement or payment obligation from Landlord to Tenant
with respect to Tenant's rent or other expenses for leasing other
premises prior to the Lease Commencement Date or for leasing
substitute or alternate premises;
42
<PAGE>
F. Any indemnification or hold harmless agreement or obligation of
either Landlord or Tenant;
G. Any remedy of Landlord or Tenant pursuant to any provision of this
Lease.
9.13. ATTACHMENTS
The following exhibits are part of this Lease and were attached before
this Lease was signed by the parties:
Exhibits: A-1. Legal Description of Land
A-2. Tax Assessor's Plan of Land
A-3. Plan of Premises
A-4. Plan of Parking Areas
A-5. Right of First Offer Space
B-1. Operating Cost Information Form
B-2. Operating Cost Example
B-3. Real Estate Tax Information Form
C. Base Building Improvements
D. Work Letter Agreement
E. Janitorial Service and Supplies
F. Direct Deposit Form
G. Base Rent Schedule
H. Commencement Date Agreement
I. Subordination, Non-Disturbance and
Attornment Agreement
J. Building Rules and Regulations
K. Short Form Memorandum
L. BOMA Modifications
43
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease, as of the date
first above written.
LANDLORD: THE TRAVELERS INSURANCE CO. TENANT: THE TRAVELERS INSURANCE CO.
BY /s/ [ILLEGIBLE] BY /s/ Andy F. Bessette
-------------------------- ----------------------------
Andy F. Bessette
Title Assistant Secretary Title National Director of
----------------------- -------------------------
Leasing & Finance
IDENTIFYING NUMBER
_________________________________________
For Reporting to U.S. Treasury Department
Internal Revenue Service
44
<PAGE>
EXHIBIT A-1
WESTWOOD BUSINESS CENTRE
Business Plan
August 7, 1992
- --------------------------------------------------------------------------------
LEGAL DESCRIPTION OF LOT
A certain parcel of land situated in Westwood Norfolk County, Massachusetts,
shown as two contiguous lots numbered Lot 83 and Lot 83A on a plan designated
as:
"PLAN OF LAND IN WESTWOOD, MASS.", dated September 17, 1981 by Ernest W.
Branch Inc., civil Engineers, said plan being recorded in the Land Court
Engineer's Office as Plan 26294-3 ("Plan No. 26294-3") and more particularly
described as follows:
. Beginning at a point on the northeasterly sideline of Canton Street at the
southerly corner of Lot 83A as shown on said plan;
. thence running N 38 degrees 22' 19" E a distance of 77.00 feet by land now
or formerly of Blue Hills Realty Trust to a point;
. thence running by an arc having a radius of 128.00 feet in a general
northeasterly direction a distance of 91.04 feet by Land now or formerly of
Blue Hills Realty Trust to a point;
. thence running N 79 degrees 07' 19" E a distance of 44.00 feet by land now
or formerly of Blue Hills Realty Trust to a point;
. thence turning and running S 10 degrees 52' 41" E a distance of 20.00 feet
by land now or formerly of Blue Hills Realty Trust to a point;
. thence turning and running N 73 degrees 27' 19" E a distance of 74.00 feet
by land now or formerly of Blue Hills Realty Trust to a point;
. thence turning and running N 47 degrees 54' 15" E a distance of 272.76 feet
by land now or formerly of Blue Hills Realty Trust to a point;
. thence turning and running S 54 degrees 26' 46" E a distance of 125.36 feet
by land now or formerly of Blue Hills Realty Trust to a point;
<PAGE>
WESTWOOD BUSINESS CENTRE
Business Plan
August 7, 1992
- --------------------------------------------------------------------------------
LEGAL DESCRIPTION OF LOT (Continued)
. thence running in the same direction S 54 degrees 26' 46" E, a distance of
114.88 feet by land now or formerly of Blue Hills Realty Trust so a point;
. thence turning and running N 37 degrees O5' 11" E a distance of 123.11 feet
by land now or formerly of MBZ Trust so a point;
. thence running N 43 degrees 30' 43" E a distance of 140.00 feet by land now
or formerly of MBZ Trust so a point
. thence running N 44 degrees 28' 43" E a distance of 297.16 fees by land now
or formerly or MBZ Trust so a point;
. thence running N 44 degrees 43' 43" E a distance of 101.44 feet by land now
or formerly of MBZ Trust to a point;
. thence turning and running N 70 degrees 31' x 17" W a distance of 110.56
feet by land now or formerly of the Boston Company to a point;
. thence turning and running S 44 degrees 43' 43" W a distance of 54.58 feet
by land now or formerly of LIX Corporation to a point;
. thence running S 44 degrees 28' 43" W a distance of 215.85 feet by land now
or formerly of LIX Corporation to a point;
. thence turning and running N 52 degrees 25' 14" W a distance of 364.03 feet
by land now or formerly of LIX Corporation to a point;
. thence turning and running N 87 degrees 40' 53" W a distance of 349.02 feet
by land now or formerly of LIX Corporation to a point;
. thence turning and running S 56 degrees 13' 15" W a distance of 665.00 feet
by land now or formerly of LIX Corporation to a point;
<PAGE>
WESTWOOD BUSINESS CENTRE
Business Plan
August 7, 1992
- --------------------------------------------------------------------------------
LEGAL DESCRIPTION OF LOT (Continued)
. thence turning and running by an arc having a radius of 2000.00 feet in a
general southeasterly direction a distance of 363.22 feet along the
northeasterly sideline of Canton Street to a point;
. thence running S 51 degrees 37' 41" E a distance of 167.20 feet along the
northeasterly sideline of Canton Street to the point and place of
beginning.
. Containing according to said plan 12.465 +/- acres.
. REGISTERED LAND: A portion of the above-described premises consists of a
registered land shown as LOT 83 on the aforesaid plan dated September 17,
1981, said plan being filed in the Land Court Engineer's Office as Plan
No. 26294-3.
. Said Lot 83 is bounded and described as follows:
. Southwesterly by Lot 82, 114.88 feet;
. Southeasterly by Los 59, 661.71 feet;
. Northeasterly by Lot 79 as shown on Land Court Plan 26294-1, 110.56 feet;
. Northwesterly by Lot 1, 270.51 feet;
. Northwesterly again by Lot 83A, 361.29 feet.
<PAGE>
EXHIBIT B-1
OPERATING COST INFORMATION
A. CATEGORY
- ---------------------------
BASE YEAR CURRENT
Year 19X1 Year 19X2
Cleaning ------- -------
Repairs & Maintenance ------- -------
Roads/Grounds/Security ------- -------
Heating/Ventilating/Air Cond. ------- -------
Insurance ------- -------
Administration ------- -------
*Utilities ------- -------
Capital Expenditures
======= =======
Total ------- -------
* Utilities shall be excluded from the calculation of CPICAP
B. CALCULATION OF CPI CAP
- ----------------------------
Year Index
Prior Year = _______ = _______ **
Current Year = _______ = _______ **
(**) - All Items less Food and Energy
CPI CAP = ------- = -------
CAP Amount = X Prior Year Allowable
Building Operating Costs
(less utilities)
= ------- X -------- = (CAP Amt.)
CURRENT Year Expenses = ----------
(less utilities)
CAP Amount Expenses = ----------
Total Allowable Expenses (lesser of
CURRENT Year or CAP Amt. Expenses) -----------
<PAGE>
EXHIBIT 8-1
Page 2
C. CALCULATION OF TRAVELERS PROPORTIONATE SHARE:
- -------------------------------------------------
Premises - Rentable Sq. Ft.
--------- = %
---------
Building - Rentable Sq. Ft. (Tenant's Proportionate Share)
D. CALCULATION OF ESCALATION DUE:
- ----------------------------------
Step 1
- ------
Total Allowable Operating Expenses (section B) $-------
Utilities $-------
Less: BASE YEAR Total Operating Expenses (-------)
Increase Over BASE YEAR $-------
Step 2
- ------
Increase over BASE YEAR $------
Multiplied: Tenant's Proportionate Share X
(Section C) ======
TOTAL AMOUNT DUE ------
E. CALCULATION OF "OPERATING COSTS ESCALATION PAID ON ACCOUNT" (OCEPOA) :
- --------------------------------------------------------------------------
Year 19X3
Total Allowable Expenses (section B) $-------
Utilities $-------
Less: BASE YEAR Expenses (-------)
=======
Total Expenses -------
Tenant's Proportionate Share =======
Tenant's OCEPOA Expenses $-------
Monthly OCEPOA Amount Due $-------
<PAGE>
EXHIBIT B-2
OPERATING COST INFORMATION
(Sample Only)
A. CATEGORY
- -----------------------
BASE YEAR CURRENT
Year 1990 Year 1991
Cleaning S125,000 $135,000
Repairs & Maintenance $100,000 $105,000
Roads/Grounds/Security $ 85,000 $ 85,000
Heating/Ventilating/Air Cond. $ 75,000 $ 75,000
Insurance $ 50,000 $ 55,000
Administration $ 65,000 $ 75,000
*Utilities $100,000 $110,000 *
Capital Expenditures $ 20,000 $ 25,000
======== ========
Total $620,000 $665,000
* Utilities shall be excluded from the calculation of CPI CAP.
B. CALCULATION OF CPI CAP
- ----------------------------
Year Index
---- -----
Prior Year = 1990 = 100 ** **
Current Year = 1991 = 104 ** **
(**) - All Items less Food and Energy
104
CPICAP = ------ = 1.04
100
CAP Amount = 1.04 X Prior Year Allowable Building
Operating Costs (less utilities)
= 1.04 X $520,000 = $540,800 (CAP Amt.)
CURRENT Year Expenses = $555,000
(less utilities)
CAP Amount Expenses = $540,800
Total Allowable Expenses (lesser of
CURRENT Year or CAP Amt. Expenses) $540,800
C. CALCULATION OF TRAVELERS PROPORTIONATE SHARE:
- --------------------------------------------------
Premises-Rentable Sq. Ft. 25,000 = 25%
-------
Building-Rentable Sq. Ft. 100,000 (Tenant's Proportionate Share)
<PAGE>
EXHIBIT B~2
Page 2
SAMPLE ONLY
D. CALCULATION OF ESCALATION DUE:
- ----------------------------------
Step 1
- ------
Total Allowable Operating Expenses (section B) $540,800
Utilities $110,000
Less: BASE YEAR Total Operating Expenses ($620,000)
========
Increase Over BASE YEAR $ 30,800
Step 2
- -----
Increase over BASE YEAR $ 30,800
Multiplied : Proportionate Share (Section C) X 25%
----------
TOTAL AMOUNT DUE $ 7,700
E. CALCULATION OF "OPERATING COST ESCALATION PAID ON ACCOUNT" (OCEPOA) :
- --------------------------------------------------------------------------
Year 1992
Total Allowable Expenses (section B) $540,800
Utilities $110,000
Less: BASE YEAR Expenses (620,000)
--------
Total Expenses 30,800
Travelers' Proportionate Share 25X
--------
Travelers OCEPOA Expenses $ 7,700
Monthly OCEPOA Amount Due $ 641.67
<PAGE>
EXHIBIT B-3
REAL ESTATE TAX ESCALATION
A. CALCULATION OF REAL ESTATE TAX ESCALATION
- ----------------------------------------------
Current Real Estate Taxes $________
Base Year Real Estate Taxes ($________)
Increase Over Base Year Taxes $________
Multiplied: Tenant's Proportionate Share (section B) X________
CURRENT AMOUNT DUE
B. CALCULATION OF TRAVELERS PROPORTIONATE SHARE:
- -------------------------------------------------
Premises-Rentable Sq. Ft. _________ = ________% Tenant's
Proportionate
Share
Building-Rentable Sq. Ft.
C. COPIES OF REAL ESTATE TAX RECEIPTS ARE ATTACHED
- ----------------------------------------------------
<PAGE>
EXHIBIT C
BASE BUILDING IMPROVEMENTS
The Base Building improvements and systems as described below shall be
furnished by Landlord at Landlord's sole cost and expense. These include:
1. The Building structure will be designed for a minimum floor load of
80 lb. live load plus a 20 lb. partition dead load.
2. The Building shell will include a built out and finished interior
core, stairwell enclosures and exterior perimeter walls and all
building columns. The interior core on each floor will include men's
and women's rest room facilities, one drinking fountain per floor,
electrical, telephone, Janitorial and mechanical closets, stairways
and an elevator lobby. All walls adjacent to public traffic areas
will be finished. There are two (2) restrooms per floor with nine
(9) toilets per restroom. At least one handicapped accessible water
closet will be provided for both men and women on each floor, as
required per applicable laws or building codes.
3. A concrete floor will be installed with a smoothed trowel finish for
installation of glued-down carpet. The floor will be poured level and
finished in accordance with current ACI Standard Specifications
117. A topping of Gyp-Crete 2000 or an approved equivalent shall be
used to level the floor to within 1/4" overall.
4. The Ground-level building lobby will be fully finished.
5. A Life Safety system will be installed in accordance with the more
stringent of applicable national, state and local codes or the
Americans with Disabilities Act Regulations, throughout the Building,
including all corridors and stairwells. It shall consists of
sprinklers, smoke detectors, internal fire alarm and annunciator
system, emergency lighting, self-illuminating exit signs and
extinguishers as required by applicable codes or Tenant's safety
requirements. Smoke detectors will also be installed in the ceiling
of any telecommunication room with both smoke and water detectors
installed under the raised floor. The sprinkler system will have an
approved water flow alarm connection and tamper-proof detection
device, connected to a central station or direct to the fire/police
departments. It will include all distribution of mains, laterals,
uprights and upright heads. Finished heads or "armovers" will be
configured to Tenant's space layout.
<PAGE>
Exhibit C
Page Two
6. Electrical distribution will be provided to the main panel boxes in
the electrical closet on each floor. The electrical system shall be
sized for 7 1/2 watts per usable square foot for Tenant's
consumption.
7. A suspended, revealed edge acoustical ceiling will be installed. It
will be listed by Underwriter's Laboratories, Inc. (Materials List)
as to Fire Hazard Classification and will have a minimum thickness of
3/4" with a foil back. The ceiling height will be a minimum of 8'6"
and a maximum of 9'6". Fissured acoustical tile will be installed on
a 2' x 2' mechanically suspended grid system. It will have a minimum
noise reduction coefficient of .65, a minimum sound transmission
classification rating of 40, and a minimum combustibility rating of
Class I or equal to that of local code requirements, whichever is
greater.
8. Modern fluorescent lighting will be installed in accordance with the
most recent edition of the Illuminating Engineering Society Lighting
Handbook. A maintained minimum of 60 foot candles will be furnished
at desk height and the fixtures will be arranged so as to provide an
even distribution of light. The light fixtures will be 2' x 4', 3
lamp fixtures. Recessed parabolic fixtures will be provided with
parabolic 18 cell or 78 cell louvers. Lamps are to be of the "warm
white" energy saving type. Ballasts shall also be energy efficient,
high power factor U.L. listed, class P, and have a sound rating of
`A'. All fixtures will have two-level switching. The ceiling grid
will be configured to Tenant's space layout.
9. The Building will be equipped with a variable air volume (VAV)
heating, ventilation and air conditioning system. The system will
contain polyester air filters with an efficiency of no less than 35%.
The fan system shall run continuously during business hours, no duty
cycling. All ducts shall be separately zoned by floor, with
individual controls provided within Tenant's Premises. These
individual zones, thermostatically controlled, shall be preset and
tamper proof. The minimum allowable rate is one (1) thermostat and
VAV box per 5000 rentable square feet for exterior zone and one (1)
thermostat per 2,500 rentable square feet for interior zones, and a
minimum of one (1) diffuser for each 200 square feet of usable areas.
The location of these thermostats and diffusers will be configured
according to Tenant's final space plan. The system will be designed
to maintain a space temperature between 72 - 76 degrees F, based upon
a dry bulb measurement, on a year-round basis, based on a maximum
average occupancy of one (1) person for each 120 square feet of
usable area. The requirements for ventilation shall comply with
present ASHRAE (American Society of Heating, Refrigeration and
Air-Conditioning Engineers) standard 62-1989 as a minimum
requirement.
<PAGE>
Exhibit C
Page Three
10. Telephone service, as provided by the local utility, will be brought
to Tenant's main telephone room. If conduit or sleeves are required
by local code, Base Building will include necessary conduit/sleeves
to distribute data and telephone cables between floors.
11. Vertical window blinds will be installed on all windows.
12. Two (2) automatic passenger elevators and zero (0) freight elevators
will be provided. If no freight elevator is provided, one passenger
elevator will be designed to serve both as passenger and freight
elevator and will be equipped to carry supplies and furniture when
necessary. Elevator cabs will be equipped with an emergency
communications/alarm system, including a bell annunciator, connected
to the building security guard station or to a central alarm system.
The elevator controls will have Braille lettering for eyesight
impaired persons.
13. A loading dock will be provided, with maximum tractor/van clearance.
14. An electronically controlled card access building security system, or
equivalent system will be provided. This system will control all
entry areas to Tenant's Premises from elevator lobbies on full floors
which Tenant occupies or at suite entrances from public corridors.
This system will control main building systems to ensure that
Tenant's employees and property are adequately safeguarded. Each card
is to be separately coded for individual employee access and the
system will be configured for a multitude of authorized access
levels.
15. Demising walls, including common corridor walls and walls between
tenant suite will be provided. These walls will include tenant entry
doors from public corridors. Demising walls will be
soundproofed/insulated to the floor deck above.
16. Carpeting will be installed in elevator lobbies and in common
corridors on all multiple-tenancy floors, in color and type as
selected by Landlord.
17. All roadways necessary for Tenant's access to and egress from the
Building will be completed.
<PAGE>
Exhibit C
Page Four
18. A directory shall be provided in the lobby of the Building and Tenant
shall be allowed space on the directory in proportion to the total
rentable area which Tenant occupies in the Building. Landlord shall
also provide exterior signs on or adjacent to the Building in
accordance with Tenant's specifications, which specifications shall
be provided to the Landlord. Such signs shall comply with all
applicable local sign ordinances. Landlord shall be fully responsible
for all costs and liability pertaining to the erection, maintenance
and removal of such signs as necessary.
Landlord shall allow Tenant to place its name and logo on the
monument sign which identifies the Building and the address at the
entrance of the Building driveway, at Tenant's expense. In addition,
Landlord shall provide signage for Tenant on the monument sign
adjacent to the Building identification sign, at Landlord's expense.
Landlord shall obtain any necessary zoning permits or approvals for
such identification, at Landlord's expense. If Landlord is unable to
obtain such zoning approval, Landlord shall provide similar monument
signage for Tenant's use on the Land, in an area which will be
visible to traffic entering the Building driveway.
<PAGE>
EXHIBIT D
WORK LETTER AGREEMENT
THIS WORK LETTER AGREEMENT is entered into as of the 12/th/ day of October,
1993, by and between The Travelers Insurance Co., A Connecticut corporation
("Landlord") and THE TRAVELERS INSURANCE COMPANY, A Connecticut Corporation
("Tenant").
ARTICLE I
RECITALS:
1.01 Concurrently with the execution of this Work Letter Agreement,
Landlord and Tenant have entered into a lease (the "Lease") covering
certain premises (the "Premises") which is more specifically
specified and defined in the Lease.
1.02 This Work Letter has been executed for the purpose of describing and
providing the requirements, standards, and specifications and a
timetable for Landlord's performance of the work for the Premises to
render it suitable for the use and occupancy of Tenant.
1.03 In order to induce Tenant to enter into the Lease (which is hereby
incorporated by reference) and in consideration of the mutual
covenants hereinafter contained, Landlord and Tenant hereby agree as
follows:
ARTICLE II
PLANS AND SPECIFICATIONS:
2.01 TENANT IMPROVEMENTS
References to "Tenant Improvements" or "Work" shall include all work to be
done in the Premises pursuant to Tenant's plans and drawings as described
below. Landlord shall provide all Tenant Improvements on a "turn-key" basis
at Landlord's sole cost and expense and these improvements are itemized in
Tenant Specifications attached hereto as Schedule 1 and shown on the plans
----------
attached hereto as Schedule 3.
----------
2.02 COMPLIANCE WITH APPLICABLE LAW
Landlord, at its sole cost and expense, shall comply with and shall be
solely responsible for compliance with all applicable laws relative to the
build-out of the Premises, the filing of any construction or engineering
documents with, and obtaining any required approvals or permits from any
applicable federal, state, county or local governmental body or agency; and
Landlord shall do so in accordance with any timetable established herein.
<PAGE>
Exhibit D
Page 2
2.03 PAYMENT FOR THE TENANT IMPROVEMENTS
Landlord shall provide Tenant with an allowance of $25.00 per rentable
square foot to be allocated to the cost of performing the Tenant
Improvements, telecommunications wiring and cabline, design services, and
to offset moving expenses (the "Allowance"). Landlord shall pay all costs
associated with the Tenant Improvements and in addition, Tenant shall
submit to Landlord, applications for payment or reimbursement from the
Allowance, in the amount of the costs of the work performed or for services
provided. Landlord will make payment to the appropriate vendor or to the
Tenant, at Tenant's option, within fifteen (15) days after Landlord's
receipt of such application for payment. As soon as all the subject work
has been performed, Landlord and Tenant shall make a final computation of
the application of the Allowance and for any portion of the Allowance that
remains or which has been overspent, the Base Rental Rate shall be either
decreased or increased, respectively by the portion of the Allowance
remaining or that has been excluded (the "Base Rental Rate Adjustment").
2.04 BUILDING PLANS
At Landlord's sole cost and expense, Landlord shall provide Tenant with the
building specifications and a complete and detailed set of CAD generated,
architecturally dimensioned drawings of the Premises on intergraph,
compatible electronic media no later than October 4, 1993. If Landlord
fails to provide these plans by this date, then Tenant may apply the
remedies provided for in Section 3.05 of this Work Letter Agreement.
From Landlord's complete set of fully dimensioned and detailed
architectural drawings, Tenant shall develop Tenant's office layout plans
and provide Landlord with "design intent" drawings which are not intended
for construction. The design intent drawings shall include dimensioned,
full height partition, electrical/cabling plans based on furniture layout,
furniture and finish plans. Tenant shall submit the design intent drawings
to Landlord no later than December 17, 1993. Landlord, at Landlord's sole
cost and expense, shall be responsible for any necessary stamped contract
documents or any additional drawings required for construction.
Any additional architectural work necessary to complete the Premises in
accordance with the plans which Tenant submits, shall be at Landlord's sole
cost and expense.
ARTICLE III
TIMETABLE
3.01 SCHEDULE OF COMPLETION
The design and construction of the Premises shall be substantially
completed in accordance with the dates shown in the "Schedule of
Completion" attached hereto as Schedule 2.
----------
<PAGE>
Exhibit D
Page 3
Tenant and Tenant's agents, contractors and employees may enter the
Building, the Common Area Facilities and the Premises prior to the Lease
Commencement Date for purposes of installing Tenant's equipment, furniture
and supplies. Landlord shall be responsible for the coordination of such
installations with Tenant and shall, at Landlord's sole cost and expense,
provide elevator service at reasonable hours and other facilities and work
conditions satisfactory to Tenant and Tenant's agents, contractors and
employees.
Any overtime costs incurred by Landlord in order to complete the Building
and the Premises in accordance with the Schedule of Completion shall be
paid by Landlord and shall not be considered part of the Tenant Improvement
Allowance. At Landlord's sole cost and expense, Landlord shall provide
Building security prior to the Lease Commencement Date adequate to protect
Tenant's furniture, equipment and supplies as they are installed in the
Premises.
3.02 SUBSTANTIAL COMPLETION
Landlord shall use its best efforts to substantially complete the Premises
by the Scheduled Lease Commencement Date. "Substantially Complete" means:
(1) The improvements described in this Work Letter Agreement, and the
Base Building Improvements described in Exhibit C of the Lease have
been completed so that Tenant can use the Premises for their intended
purposes without material interference to Tenant conducting its
ordinary business activities;
(2) The only incomplete items are minor or insubstantial details of
construction, mechanical adjustments or finishing touches like touch-
up plastering or painting as identified on a punchlist prepared by
Tenant in accordance with Section 3.03 of this Work Letter Agreement.
(3) Landlord has secured a permanent certificate of occupancy or the
equivalent, as required by the appropriate governmental authority
having jurisdiction over the Building, permitting the Building, the
Common Area Facilities and the Premises to be occupied by Tenant,
other tenants of the Building or by the public, as appropriate, in
accordance with all public health, safety and building codes;
(4) Tenant, its employees, agents and invitees, have ready access to and
egress from the Building and the Premises through the lobby,
entranceways, elevators and hallways and such areas are installed,
clean, free of construction equipment and materials and are in good
working order;
<PAGE>
Exhibit
Page 4
(5) All major building systems, including the electrical, heating,
ventilation and air conditioning systems, plumbing, utilities, and
elevators are installed and are in good working order;
(6) The Premises are broom clean.
3.03 INSPECTION AND PUNCHLIST
Prior to the Lease Commencement Date Tenant shall inspect the Premises,
Landlord shall demonstrate all systems and Landlord and Tenant shall
prepare and execute a punchlist. The punchlist shall list incomplete, minor
and insubstantial details of construction, necessary mechanical
adjustments, and needed finishing touches. Landlord shall complete the
punchlist items within thirty (30) days after the Lease Commencement Date.
Landlord will promptly correct any latent defects as they become known to
Landlord or if Tenant notifies Landlord within thirty (30) days after
Tenant first learns of the defect. If Landlord fails to complete the
punchlist items, Landlord shall pay Tenant, as liquidated damages, a sum
equivalent to the cost to complete or correct such items, as reasonably
estimated by Tenant. If Tenant so elects, Tenant shall have the option to
withhold the liquidated damages from its monthly rental payments.
3.04 EARLY OCCUPANCY
Tenant shall have the option to move into, occupy and conduct business in
all or a portion of the Premises prior to the Scheduled Lease Commencement
Date (August 1, 1994). Tenant shall exercise such option by: (i) giving
Landlord ninety (90) days prior notice; (ii) specifying such area of space
to be occupied; and (iii) providing Landlord with final "design intent"
drawings for such space. Landlord shall substantially complete (pursuant to
Section 3.02 hereof) the Tenant Improvements for such area within ninety
(90) days of Tenant's notice. If Tenant does occupy all or a portion of the
Premises prior to the Scheduled Lease Commencement Date, such occupancy
shall be subject to the terms and conditions of the Lease and Tenant shall
not be obligated to pay Base Rent until the Lease Commencement Date. There
shall be no limit as to the number of notices Tenant may give Landlord
pursuant to this provision.
<PAGE>
Exhibit D
Page 5
3.05 DELAYED OCCUPANCY
If the Premises shall not be Substantially Complete prior to the Scheduled
Lease Commencement Date, Landlord shall notify Tenant at least sixty (60)
days prior to the Scheduled Lease Commencement Date. Commencing with the
Scheduled Lease Commencement Date and continuing until the Premises are
Substantially Complete, Landlord shall reimburse Tenant, without penalty or
default, for the following amounts incurred:
(1) Any amount of rent in excess of the Base Rent which Tenant must pay
for temporary or alternate premises, or for Tenant's continued
occupancy in the Tenant's present location; and
(2) Any additional expenses which Tenant incurs in continuing to occupy
space beyond the expected lease expiration date of Tenant's present
location or in moving to a temporary location; and
(3) Any cost or damages, including attorney's fees, caused by such
delay in occupancy.
If the Premises are not Substantially Completed within forty-five (45) days
after the Scheduled Lease Commencement Date, Tenant shall have the option
to terminate this Lease upon giving written notice to Landlord.
3.0.6 MOVE-IN PROCEDURES
Tenant shall have access to the Building on Fridays and weekends for
purposes of moving into the Building. During the move, Tenant shall have
exclusive use of both sets of double doors on either side of the first
floor atrium, for purposes of loading and unloading its moving trucks.
IN WITNESS WHEREOF, this Work Letter Agreement is executed as of the date
first above written.
LANDLORD: THE TRAVELERS INS. CO. TENANT: THE TRAVELERS INS. CO.
By /s/ [ILLEGIBLE] By /s/ Andy F. Bessette
--------------------------- ---------------------------
Title Assistant Secretary Title Andy F. Bessette
-------------------------- --------------------------
National Director of
Leasing & Finance
<PAGE>
SCHEDULE 1
TENANT SPECIFICATIONS
Tenant Improvements as described below shall be furnished by Landlord in
accordance with Section 1.08 (IMPROVEMENTS) and the Work Letter Agreement.
1. Substitution for Building Standard Improvements
Tenant may substitute materials, equipment and fixtures for installation
in the Premises instead of those specified as building standard, provided:
A. All substituted items are of a quality which are equal to or exceed
building standard; and
B. All substituted items are purchased, delivered and installed properly
without unnecessarily delaying the completion of the Premises.
2. Tenant Improvements
A. Partitions
(1) The Partitions will be 3 3/4" thick, consisting of 2 1/2" metal
studs, a sound attenuation blanket between the exterior of a 5/8"
thick gypsum board and will have a 4" high vinyl contrasting
resilient base. Tenant will select the wall finishes.
(2) On entire floors which Tenant occupies, vinyl wall covering on
elevator lobbies and common corridor walls will be used.
B. Doors, Door Frames and Hardware
(1) Solid core, flush white oak veneer doors -- 36" wide, with
painted hollow metal frames will be provided. Interior doors in
the Premises will be equipped with latch sets, door stops and
closers. Double glass entrance doors with aluminum joinery will
be provided, where indicated. A Dutch door will be provided,
where indicated. A Dutch door will be provided in the mail and
supply room.
(2) All doors will be equipped with lever-style latch sets. locks
will be furnished on doors in the mail and supply rooms, security
closets and double-glass entrance doors. All locks will be master
keyed. Simplex locks will be installed on all cable closets and
telecommunication room doors.
(3) Entrance doors to the rest rooms will be equipped with Simplex
locks, as requested by Tenant.
<PAGE>
Schedule 1
Page 2
C. Electrical Outlets
(1) Landlord will furnish duplex electrical outlets per the approved
construction drawings.
(2) Landlord will furnish wall light switches per the approved
construction drawings.
D. Telephone/Data Outlets
Landlord will furnish telephone/data outlets per the approved
construction drawings.
E. Flooring
(1) Vinyl tile will be installed per the approved construction
drawings.
(2) Broadloom carpeting, or carpet tile, and base selected by Tenant
will be installed per the approved construction drawings.
3. Plumbing
Plumbing in the employee lunch room to accommodate vending machines and a
sink with hot and cold water and a cabinet will be supplied.
4. Telecommunications Room and Cable Closets
A. A telecommunications room, designed by Tenant to accommodate Tenant's
specified voice and data communications equipment, will be provided.
This room will be fully demised, secured, environmentally controlled
and will typically include the following requirements, based upon
final Tenant Specifications:
(1) Separately controlled HVAC and electrical current to be
operational seven days a week, 24 hours a day;
(2) Dedicated electrical service terminating at a separate
electrical panel installed within the telecommunications room;
(3) Dedicated electrical circuits for all equipment and access to a
cold water ground;
(4) Raised floor with a minimum clearance of seven inches. Floor will
utilize 24" x 24" uncarpeted access floor tile with entry ramp,
railing and tile cutouts as specified by Tenant;
<PAGE>
Schedule 1
Page 3
(5) 3/4" x 4' x 8' plywood telephone backboards in specified
locations;
(6) Entry door with minimum width of 36" and equipped with push
button Simplex type combination lock with key bypass;
(7) Smoke detectors and, where potential water retention exists,
water detectors will be provided under raised floor; and
(8) Standard office lighting.
B. Cable closets will be fully demised and provided on each full or
partial floor occupied by Tenant. Built to Tenant's specifications,
these rooms will house data and/or voice cable racks and connections.
3/4" x 4' x 8' plywood telephone backboards will be wall mounted. Each
room will have a raised floor with a minimum 7" clearance, and a 36"
entry door equipped with a push button (Simplex type) combination lock
with key bypass. The size of each closet, typically one per floor,
will range from 56 sq. ft. to 104 sq. ft. depending on Tenant
Specifications.
5. Drive-in Claims parking enclosure
Reserved underground parking spaces with a suitable office facility to be
occupied by claims personnel will be provided for the inspection of
automobiles and minor damage appraisal. This structure will conform with
the architectural design of the Building and will be located as to allow
reasonable public identification and access. The enclosure will have a
minimum overhead clearance of 9' and will be equipped with overhead
lighting. The area will be provided with a conduit sufficient for the
installation of telephone cables from the Building. The area will also have
an all weather duplex electrical outlet. Additional Tenant Specifications
will be dependent upon geographic location, proximity to the Building and
local zoning requirements.
<PAGE>
SCHEDULE 2
SCHEDULE OF COMPLETION
1. Landlord will provide Tenant with building specifications as described in
Section 2.04 of the Work Letter Agreement on or before 10/04/93.
2. Tenant will submit "design intent" drawings to Landlord as described in
Section 2.04 of the Work Letter Agreement on or before 12/17/93.
3. The area(s) designated for Tenant's telecommunications room and cable
closet will be completed on or before 04/01/94.
4. The Premises will be sufficiently completed to accommodate the installation
of Tenant's modular furniture systems on or before 06/20/94.
<PAGE>
EXHIBIT E
JANITORIAL AND OFFICE SERVICE AND SUPPLIES
DAILY CLEANING AND MAINTENANCE
1. At least twice daily check main building entr vator
cabs for cleanliness.
2. At least twice daily check ladies' rest rooms
tissue, paper towel and sanitary supplies dispensers and remove trash as
necessary.
3. At least twice daily, check men's lavatories. Fill soap, and paper
towel dispensers and remove trash as necessary.
4. Keep all stairwells clean; wash stairs as necessary.
5. Properly maintain appearance of building exterior at ground level,
including building entrance areas.
OFFICE AREAS - NIGHTLY
1. Sweep all hard flooring.
2. Vacuum all carpeting and rugs, moving light furniture and office equipment.
3. Empty and wipe clean all wastebaskets, ashtrays, etc.
4. Dust and wipe clean all furniture, equipment, fixtures and window sills.
5. Clean all glass furniture tops as necessary.
6. Dust baseboards, moldings and trim.
7. Wet mop and/or vacuum lunch and lounge room.
LAVATORIES - NIGHTLY
1. Sweep and wash all flooring.
2. Wash and polish mirrors, shelves and bright work.
3. Wash and disinfect all basins, bowls, urinals and both sides of toilet
seats.
4. Dust and wipe clean all partitions, tile walls and dispensers.
<PAGE>
Exhibit E
Page 2
OFFICE AREAS - PERIODIC
At least every three months:
1. Dust all pictures, wall hangings, etc. not reached in nightly cleaning.
2. Dust all venetian blinds, ventilating louvers, grills, lighting fixtures,
partitions and other surfaces not reached in nightly cleaning. Replace
blinds and/or Building standard drapes as necessary.
3. Remove fingerprints and other marks from all elevators, stairways and
office doors.
4. Wash all non-carpeted areas as applicable.
5. Furnish and replace light tubes and ballasts, as necessary.
6. Shampoo and spot clean carpeting. Replace worn or discolored carpet as
necessary.
7. Repaint ceilings and door frames as necessary.
WINDOW AND GLASS CLEANING
1. Wash entrance doors, lobby glass and glass in directory daily.
2. At least once every three months wash inside and outside of office area
windows.
3. Clean all interior glass and normal amount of partition glass at least once
a month.
<PAGE>
[LOGO OF THE TRAVELERS APPEARS HERE]
EXHIBIT F
OFFICE RENT PAYMENTS - ELECTRONIC DIRECT DEPOSIT
Please type or print all requested information in the spaces provided at the
bottom of this form.
1. Enter current monthly rent amount.
2. Check box for either Checking or Savings Account. If checking account,
attach a copy of your deposit slip. If savings account, enter number
here:_____________________________
3. Enter Bank Name, Address, Branch and City.
4. Enter name account is under, and the Federal Taxpayer Identification number
or Social Security number for the account. Date and sign the authorization.
5. Return both copies of authorization to us, the `Depositors's copy will be
returned to you.
AUTHORIZATION AGREEMENT FOR AUTOMATIC DEPOSITS (CREDITS)
I (We) Hereby Authorize The Travelers. Hereinafter Called COMPANY. To Make
Payment of___________. Owing To Me (Either Of Us) For Instalment Payments
And The Bank Indicated Below, Hereinafter Called BANK. To Credit With The
Amounts Thereof My (Our') [_] Checking [_] Savings Account Indicated Below.
--------------------------------------------------------------------------
BANK ADDRESS*
NAME
--------------------------------------------------------------------------
BRANCH CITY*
--------------------------------------------------------------------------
This Authority Is To Remain In Full Effect Until COMPANY Or BANK Has
Received Written Notification From Me (Or Either Of Us) Of Its Termination
In Such Time And Manner As To Afford COMPANY Or BANK A Reasonable
Opportunity To Act On it. Or Until COMPANY Or BANK Has Sent Me (Either Of
Us) Ten (10) Day Written Notice Of COMPANY Or BANK'S Termination Of This
Arrangement.
---------------------------------------------------------------------------
NAME IDENTIFICATION NUMBER
---------------------------------------------------------------------------
DATE* SIGNED* SIGNED*
---------------------------------------------------------------------------
SECTION BELOW TO BE COMPLETED BY COMPANY
---------------------------------------------------------------------------
COMPANY COMPANY
NAME The Travelers ID NUMBER 06-0566090
---------------------------------------------------------------------------
TRANSIT A
TRANSIT ROUTING NUMBERS CHECK DIGIT ACCOUNT NUMBER INFORMATION
-------------------------- ----- -------------------------------
-------------------------- ----- -------------------------------
TRANSIT ASA
DESIGNATED BY
FEDERAL RESERVE
<PAGE>
EXHIBIT G
BASE RENT SCHEDULE
Period Base Rental
------ Rate per RSF
------------
Year 1-3 $18.46
Year 4-5 $18.96
Year 6-7 $19.71
Year 8 $20.21
Year 9-10 $20.71
<PAGE>
EXHIBIT H
COMMENCEMENT DATE AGREEMENT
LEASE DATED ___________
BETWEEN ________________________ ("LANDLORD")
AND THE TRAVELERS INSURANCE COMPANY ("TENANT")
THIS COMMENCEMENT DATE AGREEMENT IS MADE THIS _____ DAY OF ______________,
19 ____ BY AND BETWEEN Landlord and Tenant pertaining to certain space (the
"Premises") in _____________________________________ (the "Building").
WITNESSETH:
WHEREAS, by Lease executed the _____________ day of _______________ 19___,
Landlord leased to Tenant the Premises known as Suite/Floor __________________,
located in the Building; and the Scheduled Lease Commencement Date was
______________________.
WHEREAS, Landlord and Tenant now desire to establish the Lease Commencement
and Lease Expiration Dates of the Lease.
NOW, THEREFORE, Landlord and Tenant hereby agree as follows:
1. The Lease Commencement Date shall be __________, 19__ and the Lease
Expiration Date shall be _________________, 19__, unless sooner
terminated or extended as provided by the Lease.
2. By execution hereof, Tenant hereby acknowledges that all improvements
required of Landlord have been satisfactorily performed and Tenant
does hereby accept the Premises delivered by Landlord as being in full
compliance with the terms of the Lease except for the items contained
in the punch list, or otherwise as provided in the Lease.
3. Except as hereby amended, the Lease shall continue in full force and
effect.
4. This Agreement shall be binding upon the parties hereto, their heirs,
executors, successors and assigns.
<PAGE>
EXHIBIT I
AGREEMENT OF SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT
This AGREEMENT is entered into on ________________, 19__, by and between
___________________________________________ ("Lender"), a
________________________________________________ corporation having an office at
_____________________________________ and THE TRAVELERS INSURANCE COMPANY
("Tenant"), a Connecticut corporation having an office at One Tower Square,
Hartford, Connecticut 06183, on the basis that:
A. THE TRAVELERS INSURANCE COMPANY and _______________________,
("Landlord") entered into a Lease dated_____________________, 19___,
for premises described in that Lease as __________________________
(the "Premises").
B. Lender holds a mortgage which encumbers the Premises and other
property the ("Mortgage").
C. Tenant has agreed that the Lease shall be subject and subordinate to
the Mortgage.
D. Lender and Tenant wish to recognize Tenant's right to occupy the
Premises according to the terms and conditions of the Lease.
IT IS HEREBY AGREED, in consideration of the promises and covenants contained
herein, that during the term of the Lease and any extension thereof:
1. So long as Tenant is not in default in the performance of the terms,
covenants or conditions of the Lease, Lender shall not terminate
Tenant's interest in the Premises under the Lease because of any
default under the Mortgage and Lender shall not disturb Tenant's
possession or any other right of Tenant under the Lease.
2. Tenant agrees that if the interests of Landlord shall be transferred
to and owned by Lender by reason of foreclosure or by any other legal
manner, then Tenant shall attorn to Lender or the then owner and
recognize Lender or the then owner (the "Successor Landlord") as the
Landlord under the Lease.
3. If the Mortgage is foreclosed, the Lease shall continue in full force
and effect, except that the Successor Landlord shall not:
(a) be bound by any prepayment of more than one month's rent (except
for any free rent or other rent abatement which shall have
accrued);
<PAGE>
Exhibit I
Page 2
(b) be bound by any amendment, modification or termination of the
Lease made without the Successor Landlord's name, after the
foreclosure, unless the amendment, modification or ending is
specifically authorized by this Lease and does not require prior
agreement or consent by Landlord.
4. Lender agrees no property owned or removable by Tenant shall be
subject to the lien of the Mortgage held by Lender or any mortgage
made paramount to the Lease by means of this Agreement.
5. The terms of this Agreement shall not be affected by the renewal,
modification, amendment, replacement or extension of the Lease.
6. This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns.
LENDER: TENANT: THE TRAVELERS INSURANCE
COMPANY
By: _________________________ By: _________________________
Its _________________________ Its _________________________
<PAGE>
EXHIBIT "J"
RULES AND REGULATIONS
---------------------
This Exhibit "F" is attached to and made a part of that Agreement of Lease
dated ________________, 19___ (the "Lease"), between THE TRAVELERS INSURANCE
COMPANY (hereinafter called "Landlord"), and , (hereinafter called "Tenant").
Unless the context otherwise requires, the terms used in this Exhibit that are
defined in the Lease shall have the same meaning as provided in the Lease.
The following rules and regulations have been formulated for the safety and
well-being of all tenants of the Building and to insure compliance with
governmental and other requirements. Strict adherence to these rules and
regulations is necessary to guarantee that each and every tenant will enjoy a
safe and undisturbed occupancy of its premises in the Building.
Landlord may, upon request of any tenant, waive the compliance by such
tenant of any of the following rules and regulations, provided that (i) no
waiver shall be effective unless signed by Landlord's authorized agent, (ii) any
such waiver shall not relieve such tenant from the obligation to comply with
such rule or regulation in the future unless otherwise agreed to by Landlord,
(iii) no waiver granted to any tenant shall relieve any other tenant from the
obligation of complying with these rules and regulations, unless such other
tenant has received a similar written waiver from Landlord, and (iv) any such
waiver shall not relieve such tenant from any liability to Landlord for any loss
or damage occasioned as a result of such tenant's failure to comply.
1. The sidewalks, entrances, passages, courts, elevators, vestibules,
stairways, corridors, roof, halls and other parts of the Building not
exclusively occupied by any tenant shall not be obstructed or
encumbered by any tenant or used for any purpose other than ingress
and egress to and from each tenant's premises. Landlord shall have the
right to control and operate the public portions of the Building, and
the facilities furnished for common use of the tenants, in such manner
as Landlord deems best for the benefit of the tenants generally. No
tenant shall permit the visit to its premises of persons in such
numbers or under such conditions as to interfere with the use and
enjoyment of the entrances, corridors, elevators and other public
portion or facilities of the Building by other tenants.
2. No awnings or other projections shall be attached to the outside walls
of the Building without the prior
<PAGE>
Exhibit 10.8
LIEBOCH LIMITED
R.R. DONNELLEY IRELAND TURNKEY SERVICES KILDARE
- and -
ALLIED IRISH BANKS, p.l.c.
LEASE
-----
WILLIAM FRY
Solicitors
Fitzwilton House
Wilton Place
Dublin 2
0031-241-JFW:1237JFW
<PAGE>
TABLE OF CONTENTS
-----------------
SECTION 1.0 - COMMENCEMENT
--------------------------
1.1 Date..................................................... -1-
1.2 Parties.................................................. -1-
1.3 Definitions.............................................. -1-
1.4 Interpretation........................................... -4-
1.5 Captions................................................. -5-
SECTION 2.0 - DEMISE RENT AND COVENANTS
---------------------------------------
2.1 Demise, Rent and Covenants............................... -5-
2.2 Certificate.............................................. -6-
2.3 Assent to Registration................................... -6-
SECTION 3.0 - GUARANTEE
-----------------------
3.1 Covenant and Indemnity by Guarantor...................... -7-
3.2 Guarantor jointly and severally liable
with Tenant.............................................. -7-
3.3 Waiver by Guarantor...................................... -7-
3.4 Postponement of claims by Guarantor
against Tenant........................................... -8-
3.5 Postponement of participation by
Guarantor in security.................................... -8-
3.6 No release of Guarantor.................................. -8-
3.7 Disclaimer or Forfeiture of Lease........................ -10-
3.8 Benefit of Guarantee..................................... -11-
FIRST SCHEDULE
--------------
Part One
--------
The Premises.................. -11-
Part Two
--------
The Term and Initial Rent........... -11-
SECOND SCHEDULE
---------------
Part One
--------
Rights granted to the Tenant
----------------------------
1. Passage of Services for the Tenant..................... -15-
2. Support for the Premises............................... -16-
<PAGE>
Part Two
--------
Rights excepted and reserved
----------------------------
to the Landlord and Others
--------------------------
1. Passage of Services for the Landlord....................... -16-
2. Entry...................................................... -16-
3. To Rebuild adjoining buildings............................. -17-
4. Mines and Minerals......................................... -17-
5. Easements and Privileges................................... -17-
6. Repairs.................................................... -17-
THIRD SCHEDULE
--------------
Covenants by the Tenant
-----------------------
1. Payments by the Tenant..................................... -18-
(a) Rent............................................... -18-
(b) Rates and Taxes.................................... -18-
(c) Legal and Other Charges............................ -18-
(e) Stamp duty......................................... -19-
(f) V.A.T.............................................. -19-
2. Repair and Maintenance..................................... -20-
(a) Repair of Premises................................. -20-
(b) Works.............................................. -20-
(c) Statutory Notices.................................. -20-
3. Use of the Premises........................................ -21-
(a) Authorized Use..................................... -21-
(b) Use and Insurance.................................. -21-
(c) Nuisance use restriction........................... -21-
(d) Insurance use restriction.......................... -21-
(e) Safety use restriction............................. -21-
(f) Storage use restriction............................ -22-
(g) Planning use restriction........................... -22-
(h) Services use restriction........................... -22-
(i) Buildings and additions prohibition................ -22-
(j) Removal of unauthorised structures................. -22-
4. Alienation................................................. -23-
(a) No assignment or underlettering without consent.... -23-
(b) Sub-Letting........................................ -23-
(c) Alienation conditions.............................. -23-
(d) Applications for consent to alienate............... -25-
(e) Notice of alienation............................... -26-
5. Insurance.................................................. -26-
(a) To insure.......................................... -26-
(b) Premiums and policy................................ -27-
(c) Failure to insure.................................. -27-
(d) Third party liability.............................. -28-
6. Miscellaneous.............................................. -28-
(a) To permit entry for inspection, repair............. -28-
<PAGE>
(b) Destruction - insurance irrevocable................ -29-
(c) Accident on the Premises........................... -29-
(d) Covenants under Head Lease......................... -29-
(e) Compliance with agreements......................... -30-
FOURTH SCHEDULE
---------------
(Covenants by the Landlord)
---------------------------
1. Quiet Possession........................................... -30-
FIFTH SCHEDULE
--------------
Provisos matters and things agreed and
--------------------------------------
declared by and between the parties
-----------------------------------
1. Re-Entry................................................... -30-
2. Section 40 Deasy's Act 1860................................ -31-
3. Interest................................................... -31-
4. Arbitration................................................ -32-
5. Consents of Landlord to be in writing...................... -32-
6. Planning Permission........................................ -32-
7. Payments to be treated as Rent............................. -32-
8. Notice..................................................... -33-
9. To yield up................................................ -33-
10. Indemnity.................................................. -33-
11. Payments Gross............................................. -35-
<PAGE>
SECTION 1.0 - COMMENCEMENT
--------------------------
1.1 DATE.
----
This Lease is made on 19 December 1994
1.2 Parties.
-------
BETWEEN:
LIEBOCH LIMITED
having its registered office
at Bankcentre, Ballsbridge, Dublin 4
(hereinafter called the "Landlord")
R.R. DONNELLEY IRELAND TURNKEY
SERVICES KILDARE
having its registered office
at Clonshaugh, Industrial Estate,
Clonshaugh, Dublin 17
(hereinafter called the "Tenant")
- and -
ALLIED IRISH BANKS, p.l.c.
having its registered office
at Bankcentre, Ballsbridge,
Dublin 4
(hereinafter called the "Guarantor")
NOW THIS INDENTURE WITNESSETH as follows:-
1.3 Definitions. For the purposes of this lease the following words and
-----------
expressions shall have the following meanings and interpretations:-
(a) "Act of the Oireachtas", any act of Parliament or act of the
Oireachtas or law of the European Union now in force in the State
and any such act or law which may hereinafter be passed which has
force in the State including (without prejudice to the generality
of the foregoing) any instrument directive regulation or bye-law
made thereunder.
<PAGE>
(b) "Building" the building constructed by the Landlord on the Premises.
(c) "Determination of the Term", the determination of the Term whether by
effluxion of time re-entry under the provisions hereof duly accepted
notice of surrender or any other means or cause whatsoever.
(d) "Instalment Days", each of the nineteenth days of December, March,
June and September of the Term.
(e) "Insured Perils", fire explosion lightning impact earthquake aircraft
flood storm tempest riots civil commotion and malicious damage
bursting or overflowing of water tanks apparatus drains sewers and
pipes and other risks perils expenses losses as the Landlord in its
sole discretion may require or as may be agreed between the Landlord
and the Tenant.
(f) "Interest Rate", the rate (to apply as well after as before any
judgment) equal to the rate from time to time charged by Allied Irish
Banks, p.l.c. as its Prime Rate or any rate replacing the same
increased by 2%. If at any time during the currency of this demise it
shall not be possible to calculate the said rate of interest payable
by the Tenant the matter shall be referred to Arbitration in
accordance with the provisions of paragraph 4 of the Fifth Schedule
hereto.
- 2 -
<PAGE>
(g) "Planning Acts", the Local Government (Planning and Development)
Acts 1963 to 1993 and any statutory modification or re-enactment
thereof for the time being in force and any regulations or orders
made thereunder.
(h) "Guarantor", the party of the Third Part which expression shall
include its successors and assigns.
(i) "Head Lease", the Lease dated 5 May 1994 made between Forfas and the
Landlord relating to the Premises.
(j) "Landlord", the party hereto of the First Part, the successors and
assigns of the Landlord being the owner for the time being of the
reversion immediately expectant on the Determination of the Term.
(k) "Premises", the land and the rights hereby demised and any part or
parts thereof and all buildings and works now or hereafter erected
or constructed thereon and all additions thereto and alterations
thereof (but excluding Tenant's fixtures and fittings).
(l) "Rent", the rent from time to time hereby reserved including where
the context so admits or requires the Rent as varied from time to
time upon revision.
(m) "Tenant", the party hereto of the Second Part, its successors and
permitted assigns.
-3-
<PAGE>
(n) "Term", the term of years created by this Lease.
1.4 Interpretation.
--------------
(a) Any reference in this Lease to any Act of the Oireachtas shall be
deemed to include any amendment modification or re-enactment thereof
for the time being in force.
(b) Any covenant in this Lease by the Landlord or the Tenant not to do
any act or thing shall extend to its not suffering or permitting the
doing of that act or thing.
(c) Any reference in this Lease to the doing or permitting of any act or
thing by the Landlord or Tenant shall be deemed to include the doing
or permitting of that act or thing by the workmen servants or other
employees or duly authorised agent of the Landlord or of the Tenant.
(d) All rights of entry exercisable hereunder by the Landlord shall
extend to and include the Architects Engineers Surveyors Servants
Contractors Agents Licensees and Employees of the Landlord.
(e) The masculine gender shall include the feminine and neuter and the
singular number shall include the plural and vice versa and words
importing persons shall include firms or companies.
(f) Words such as "hereunder" "hereto" "hereof" and "herein" and other
words commencing with "here" shall unless the context clearly
- 4 -
<PAGE>
indicates to the contrary refer to the whole of this Lease and not to
any particular section paragraph or sub-paragraph thereof.
(g) Any reference to a section, paragraph or sub-paragraph shall be a
reference to the Section, Clause, paragraph or sub-paragraph of the
provision in which the reference occurs unless from the context it is
clear that some other provision is intended.
(h) Any interest due hereunder by the Tenant to the Landlord shall accrue
from day to day as well after as before any judgment.
1.5 Captions. The Section headings and captions to the Clauses and the Index
--------
in this lease are for convenience of referece only and shall not be
considered a part of or affect the construction or interpretation of this
Lease.
SECTION 2.0 - DEMISE RENT AND COVENANTS
---------------------------------------
2.1 Demise, Rent and Covenants.
--------------------------
(a) The Landlord hereby demises unto the Tenant the Premises described in
Part One of the First Schedule for the Term at the Rent set out in
Part Two of the First Schedule with the revisions set out in Part
Three of the First Schedule.
(b) The Premises are demised together with the rights but excepting and
reserving as set out in Parts One and Two respectively of the Second
Schedule hereto.
- 5-
<PAGE>
(c) The Tenant convenants with the Landlord in manner set out in the
Third Schedule hereto.
(d) The Landlord convenants with the Tenant in the manner set out in the
Fourth Schedule hereto.
(e) The demise made is subject to the provisions matters and things set
out in the Fifth Schedule hereto which are hereby agreed and declared
by and between the Landlord and the Tenant.
2.2 Certificate.
-----------
(a) It is hereby certified that an appropriate consent has been obtained
under Section 45 Land Act, 1965.
(b) It is hereby certified that an appropriate consent has been obtained
under Section 12 of the Land Act 1965.
(c) For the purposes of stamping this Lease it is certified that the
provisions of Section 112 Finance Act 1990 do not apply hereto for
the reason that it is a lease of a completed building.
2.3 Assent to Registration. The Landlord hereby assents to the registration
----------------------
of this Lease as a burden on the Folio mentioned in Part One of the First
Schedule hereto.
- 6 -
<PAGE>
SECTION 3.0 GUARANTEE
---------------------
3.1 Covenant and Indemnity by Guarantor. The Guarantor hereby covenants
-----------------------------------
with the Landlord, as a primary obligation, that the Tenant or the
Guarantor shall at all times during the Term (including any continuation
or renewal of this Lease) duly perform and observe all the covenants on
the part of the Tenant contained in this Lease, including the payment of
the rents and all other sums payable under this Lease in the manner and at
the times herein specified, and the Guarantor hereby indemnifies the
Landlord against all claims, demands, losses, damages, liability, costs,
fees and expenses whatsoever sustained by the Landlord by reason of or
arising in any way directly or indirectly out of any default by the Tenant
in the performance and observance of its obligations or the payment of any
rent and other sums.
3.2 Guarantor jointly and severally liable with Tenant. The Guarantor hereby
--------------------------------------------------
further covenants with the Landlord that the Guarantor is liable with the
Tenant (whether before or after any disclaimer by a liquidator or trustee
in bankruptcy) for the fulfilment of all the obligations of the Tenant
under this Lease and agree that the Landlord, in the enforcement of its
rights hereunder, may proceed against the Guarantor as if the Guarantor
was named as the Tenant in this Lease.
3.3 Waiver by Guarantor. The Guarantor hereby waives any right to require the
-------------------
Landlord to proceed against the Tenant or to pursue any other remedy
whatsoever which may be available to the Landlord before proceeding
against the Guarantor.
- 7 -
<PAGE>
3.4 Postponement of claims by Guarantor against Tenant. The Guarantor
--------------------------------------------------
hereby further covenants with the Landlord that the Guarantor shall not
claim in any liquidation, bankruptcy, composition or arrangement of the
Tenant in competition with the Landlord and shall remit to the Landlord
the proceeds of all judgments and all distributions they may receive from
any liquidator, trustee in bankruptcy or supervisor of the Tenant and
shall hold for the benefit of the Landlord all security and rights the
Guarantor may have over assets of the Tenant whilst any liabilities of the
Tenant or the Guarantor to the Landlord remain outstanding.
3.5 Postponement of participation by Guarantor in security. The Guarantor
------------------------------------------------------
shall not be entitled to participate in any security held by the Landlord
in respect of the Tenant's obligations to the Landlord under this Lease or
to stand in the place of the Landlord in respect of any such security
until all the obligations of the Tenant or the Guarantor to the Landlord
under this Lease have been performed or discharged.
3.6 No release of Guarantor. None of the following, or any combination
-----------------------
thereof shall release, determine, discharge or in any way lessen or affect
the liability of the Guarantor as principal debtor under this Lease or
otherwise prejudice or affect the right of the Landlord to recover from
the Guarantor to the full extent of this guarantee;
(a) any neglect, delay or forbearance of the Landlord in endeavoring to
obtain payment of the rents or any part or parts thereof and/or the
amounts required to be paid by the Tenant or in enforcing the
performance
-8-
<PAGE>
or observance of any of the obligations of the Tenant under this
Lease;
(b) any refusal by the Landlord to accept rent tendered by or on behalf
of the Tenant at a time when the Landlord was entitled (or would
after the service of a notice under Section 14 of the 1881 Act have
been entitled) to re-enter the Premises;
(c) any extension of time given by the Landlord to the Tenant;
(d) any variation of the terms of this Lease (including any reviews of
the rent payable under this Lease) or the transfer of the Landlord's
reversion or the assignment of this Lease;
(e) any change in the constitution, structure or powers of the Guarantor,
the Tenant or the Landlord or the liquidation, administration or
bankruptcy (as the case may be) of either the Tenant or the
Guarantor;
(f) any legal limitation, or any immunity, disability or incapacity of
the Tenant (whether or not known to the Landlord) or the fact that
any dealings with the Landlord by the Tenant may be outside or in
excess of the powers of the Tenant;
(g) any other act, omission, matter or thing whatsoever whereby, but for
this provision, the Guarantor would be exonerated either wholly or in
part (other than a release
- 9 -
<PAGE>
under seal given by the Landlord).
3.7 Disclaimer or Forfeiture of Lease. The Guarantor hereby further
---------------------------------
covenants with the Landlord that:-
(a) if a liquidator or trustee in bankruptcy shall disclaim or surrender
this Lease; or
(b) if this Lease shall be forfeited; or
(c) if the Tenant shall cease to exist:-
THEN the Guarantor, if the Landlord by notice in writing given to
the Guarantor within six (6) months after such disclaimer or other
event so requires, accept from and execute and deliver to the
Landlord a new lease of the Premises subject to and with the
benefit of this Lease (if the same shall still be deemed to be
extant at such time) for a term commencing on the date of the
disclaimer or other event and continuing for the residue then
remaining unexpired of the Term, such new lease to be at the cost
of the Guarantor and to be at the same covenants, conditions and
provisions as are contained in this Lease;
(d) If the Landlord shall not require the Guarantor to take a new lease,
the Guarantor shall nevertheless upon demand pay to the Landlord a sum
equal to the rents and other sums that would have been payable under
this Lease but for the disclaimer or other event in respect of the
period from and including
-10-
<PAGE>
the date of such disclaimer or other event until the expiration of six
(6) months therefrom or until the Landlord shall have granted a lease
of the Premises to a third party (whichever shall first occur).
3.8 Benefit of Guarantee. This guarantee shall enure for the benefit of the
--------------------
successors and assigns of the Landlord under this Lease without the
necessity of any assignment thereof.
IN WITNESS whereof the parties hereto have entered into these presents the day
and year first herein written.
FIRST SCHEDULE
--------------
Part One
--------
The Premises
------------
All that the property shown outlined in red on the map annexed to Lease dated 5
May 1994 made between Forfas of the one part and Lieboch Limited of the other
part being part of the lands comprised in Folios 8860F, 7877 and 277 of the
Register County of Kildare together with all buildings erected thereon and now
registered on Folio 4560L of the Register County Kildare.
Part Two
--------
The Term and Initial Rent
-------------------------
THE TERM
- --------
35 years less one day commencing on 19 December, 1994 terminating on 18
December, 2029.
-11-
<PAGE>
THE RENT
- --------
1. The Rent payable under this Lease for the first twelve months of the term
hereby granted shall be the sum or IR(pounds)190,995.76 which sum is payable
quarterly in advance, the first payment being made on the date of
commencement of the Term herein for the period up to the next Instalment Day
and each subsequent payment being made on each succeeding Instalment Day in
amounts of IR(pounds)47,748.94.
2. The said Rent has been calculated on the assumptions set out in paragraph
5 below.
3. In the event that what is assumed in any of the assumptions changes, the
Rent shall be recalculated in accordance with the revised assumptions and
the formula relating thereto and in accordance with the pricing model and
formula agreed between the parties hereto prior to signing hereof a copy of
the workings of which the parties have signed prior to the execution hereof
for identification purposes.
4. The intention is that the quarterly Rent payments calculated in accordance
with the terms of this Lease will be sufficient to reduce the Investment of
the Landlord (as hereinafter defined) to IR(pounds)2.84 million (two
million, eight hundred and forty thousand Irish pounds) within a period of
12 1/2 years from the commencement date of this Lease and to maintain the
Investment of the Landlord at IR(pounds)2.84 million from such date to a
date which is 25 years after the date of commencement of this Lease.
5. The assumptions upon which the foregoing Rent has been calculated, as set
out above, are as follows:
-12-
<PAGE>
(a) the Investment of the Landlord is IR(pounds)3,787,236 reducing in
accordance with the formula hereinafter set out;
(b) the amount expended on construction of the Building, together with
relevant costs and expenses upon which capital allowances may be
claimed is the sum of IR(pounds)3,528,638;
(c) the funding cost on the Investment of the Landlord for the first
eighteen months of the Term, including reserve asset cost and a
margin of 1.5% is 9.15% per annum, payable quarterly in arrears,
commencing three months after the commencement date of this Lease. At
the end of the said eighteen months and at the end of each succeeding
Review Period (as hereinafter defined), the funding cost will be re-
fixed for a further period to be agreed between the parties (the
"Review Period") at the prevailing cost of funds for such Review
Period as certified by Allied Irish Banks, p.l.c. on an amount equal
to the Investment of the Landlord, plus RAC, if applicable or any
substitution thereof, plus a margin of 1.5%;
(d) corporation tax being at a rate of 40% per annum;
(e) the tax payment date of the Landlord being six months after the end of
the financial year of the Landlord;
(f) tax relief on the funding cost of the Investment of the Landlord set
out above
- 13 -
<PAGE>
being at a rate of 40% per annum;
(g) corporation tax payable on Rent receivable by the Landlord being at a
rate of 40% per annum;
(h) if there are any other taxes introduced on income in addition to or in
substitution for corporation tax, or if there shall be any
disallowance of interest costs these shall be taken into account in
the calculation of the Rent aforesaid.
6. In the event of what is contained in any of the foregoing assumptions
changing at any time during the period of this Lease, the Rent payable under
this Lease shall be amended as and from the next Instalment Day so as to
ensure that the Investment of the Landlord is reduced to the figure of
IR(pounds)2.84 million within a time of 12 1/2 years from the creation of
this Lease as set out aforesaid.
7. In calculating the Investment of the Landlord at any time during the period
of this Lease, the following formula shall apply:-
I = C - R + F + TC - TR - CA
Where:-
I = the Investment of the Landlord calculated in accordance with the above
formula;
C = the total cost of constructing the Building, including all expenses and
land costs in relation thereto, as set out in Clause 5 (a) above;
-14-
<PAGE>
R = the sum of all quarterly rentals received under the Lease;
F = the total gross funding cost of the Landlord incurred since the
commencement of the Lease on the Investment of the Landlord as
specified in Clause 5 (c) above;
TC = the total liability to corporation tax arising in respect of rents
receivable by the Landlord under the Lease;
TR = the total amount of the cash value of the tax relief available to the
Landlord or the AIB Group on Funding Costs, as set out in 5(c) above
less the margin;
CA = the total amount of cash value of the tax relief received or
receivable for the capital allowances in respect of the Building.
SECOND SCHEDULE
---------------
Part One
--------
Rights granted to the Tenant
----------------------------
1. Passage of Services for the Tenant. The free and uninterrupted passage and
----------------------------------
running of water soil gas electricity and other non-deleterious matter (in
common with the Landlord and the other tenants of the Landlord and all other
persons thereto entitled) through the appropriate sewers drains pipes wires
watercourses and channels now or
-15-
<PAGE>
hereafter during the Term constructed upon the land belonging to the
Landlord for the service of the Premises.
2. Support for the Premises. Full rights of support from all adjoining and
------------------------
neighbouring land of the Landlord and of shelter support and protection
from all other buildings of the Landlord capable of providing the same.
Part Two
--------
Rights excepted and reserved
----------------------------
to the Landlord and Others
--------------------------
1. Passage of Services for the Landlord. The free and uninterrupted passage and
------------------------------------
running of water and soil gas electricity and other non-deleterious matter
from and to any adjoining or neighbouring buildings or structures (now or
hereafter constructed) or land through the appropriate sewers drains pipes
wires watercourses and channels which now are or may hereafter during the
Term or any extension of the Term or any renewal of the Lease be upon in or
over the Premises;
2. Entry. The full and free right and liberty to the Landlord to enter (after
-----
at least two days notice except in the case of emergency) upon the Premises
at all reasonable times for the purpose of connecting laying inspecting
repairing cleansing maintaining amending altering replacing relaying or
renewing any sewer drain main pipe wire cable watercourse channel conduit
or subway and to erect construct or lay in over under or across the Premises
any sewers drains mains pipes wires cables poles structures fixtures or
other works for the drainage of or for the supply of water, gas,
electricity, telephone, heating, steam, radio
-16-
<PAGE>
and television signals and other services to other premises causing as
little inconvenience as possible to the Tenant.
3. To rebuild adjoining buildings. The right to rebuild or alter any of the
----------------------------
buildings now or hereafter adjoining or near to the Premises and to build
upon or use any land now or hereafter belonging to the Landlord other than
the Premises at any time or times and for any purpose whatsoever causing as
little inconvenience interference or damage as possible to the Premises or
the access and the enjoyment of light or air whether to the existing or any
future windows or apertures of any structures of any description for the
time being on the Premises is hereby agreed to be enjoyed under the express
consent of the Landlord who may interfere with such access and enjoyment
without any formal revocation of such consent.
4. Mines and Minerals. All mines and minerals in on or under the Premises with
------------------
full powers of working and getting the same (reasonable compensation being
made for any damage thereby occasioned to the Premises).
5. Easements and Privileges. All rights easements and privileges now belonging
------------------------
to or enjoyed by any adjoining or neighbouring property of the Landlord.
6. Repairs. The rights to enter and carry out repairs to the Premises for which
-------
the Tenant is responsible under the terms of this Lease and which the Tenant
has failed to carry out after due notice.
-17-
<PAGE>
THIRD SCHEDULE
--------------
Covenants by the Tenant
-----------------------
1. Payments by the Tenant
----------------------
(a) Rent. To pay the Rend specified herein and in accordance with the
----
provisions hereof to the Landlord on the Instalment Days in each year
without any deduction, set off or counter-claim whatsoever and so
proportionately for any fraction of a year.
(b) Rates and Taxes. To pay and discharge all rates taxes assessments
---------------
impositions duties charges and outgoings whatsoever whether
parliamentary local or otherwise which are now or may hereafter become
payable in respect of the Premises whether by the owner or occupier
thereof.
(c) Legal and Other Charges. To pay on demand to the Landlord from time to
-----------------------
time all solicitors surveyors and other charges incurred by the
Landlord in or in contemplation of any application to the Landlord for
any consent pursuant to the covenants herein and of any notice or
proceedings under Section 14 of the Conveyancing and Law of Property
Act 1881 by the Landlord notwithstanding that forfeiture shall be
avoided otherwise than by relief granted by the Court and of the
preparation and service of any schedule of dilapidations served during
or after the Determination of the Term and to keep the Landlord fully
indemnified in respect thereof.
-18-
<PAGE>
(d) Repair Costs. If from time to time and at any time the Tenant shall be
------------
in breach of the Tenant's obligations to repair and maintain as
hereinafter set out and after due notice the Landlord shall exercise
the Landlord's rights hereunder and remedy such breach or breaches
then the Tenant shall pay to the Landlord on demand the amount or
amounts expended by the Landlord in effecting such remedy and on such
demand such amount shall be deemed to be a liquidated debt due by the
Tenant to the Landlord and recoverable as such, as rent.
(e) Stamp duty. To pay the stamp duty on the original and on the
----------
counter-part of this Lease (and any documents recording a rent
revision hereunder) and to register this Lease in the Land Registry or
Registry of Deeds as appropriate.
(f) V.A.T. To pay to the Landlord on demand (subject to the appropriate
-----
invoicing procedures):-
(i) the amount or amounts of Value Added Tax (if any) payable in
respect of this Lease on the granting thereof;
(ii) the amount of Value Added Tax (if any) from time to time
payable upon the Rent; and
(iii) the amount of Value Added Tax (if any) from time to time
payable upon any services or works supplied to the Tenant or
effected to or for the benefit of the Premises by the
-19-
<PAGE>
Landlord in accordance with the terms hereof.
2. Repair and Maintenance.
----------------------
(a) Repair of Premises. To repair maintain keep and preserve the Premises
------------------
(including all fences sewers drains pipes and cables belonging thereto)
in good and substantial repair order and condition and in such
condition to deliver up the Premises to the Landlord at the
Determination of the Term together with the Landlord's fixtures. It is
hereby AGREED that for the purposes of this Clause the Tenant accepts
that its obligations under this Clause shall be deemed to include the
carrying out of any repairs which may arise from any latent or
fundamental defect in the Premises or in the design or construction
thereof.
(b) Works. To do all such works as may be directed or required by any
-----
statutory authority or by any public or other authority to be done
during the Term in respect of the Premises whether by the owner or
occupier or landlord or tenant thereof and to indemnify and keep
indemnified the Landlord against all claims and liabilities in respect
thereof.
(c) Statutory Notices. To comply at the Tenant's own expenses with any
-----------------
statutory notice lawfully served by any local or public authority upon
the Tenant concerning the Premises.
- 20 -
<PAGE>
3. Use of the Premises.
-------------------
(a) Authorised Use. Not to use exercise or carry on or permit to be used
--------------
exercised or carried on, on any part of the Premises any trade or
business whatsoever other than that permitted by the Head Lease but
subject always to and within the limits of the other provisions of this
Lease.
(b) Use and Insurance. Not to carry on upon the Premises any trade or
-----------------
occupation nor to do any other thing which may make void or voidable
the insurance of the Premises against the Insured Perils.
(c) Nuisance use restriction. Not to do about the Premises anything which
------------------------
may be immoral or illegal or a nuisance or an annoyance or a
disturbance to the Landlord or any of its Tenants or the neighbourhood.
(d) Insurance use restriction. Not to do on the Premises anything which may
-------------------------
render payable any increased or extra premium for any insurance which
the Tenant has covenanted to effect pursuant to the terms of this Lease
without the prior consent of the Landlord (which consent may be subject
to conditions).
(e) Safety use restriction. Not to do or permit any act to be done upon the
----------------------
Premises which may endanger the safety or stability of the Premises or
the adjoining property of the Landlord or any neighbouring property.
-21-
<PAGE>
(f) Storage use restriction. Not to store or place any inflammable
-----------------------
dangerous or explosive substance liquid or gas upon the Premises other
than in a container or building properly constructed for the purpose
and having obtained the prior written consent of the Landlord and the
approval of the Local Authority.
(g) Planning use restriction. Not to contravene or permit to be contravened
------------------------
the Planning Acts by any act or omission.
(h) Services use restriction. Not to overload any part of the Premises or
------------------------
the supplies and services thereto.
(i) Buildings and additions prohibition. Not to erect any new building on
-----------------------------------
the Premises nor to make any addition to or alteration in the plans
elevation or construction of any building comprised in the Premises
without the consent of the Landlord.
(j) Removal of unauthorised structures. Forthwith on demand to pull down
----------------------------------
and remove any erection addition or structure made in breach of the
foregoing clauses and also upon such demand to amend restore replace or
rebuild the Premises according to the original plans and elevation
thereof.
(k) Compliance with legislation. To comply with all relevant requirements
---------------------------
of the Factories Act 1916 to 1955 or any similar Act of the Oireachtas
affecting the use of the Premises.
-22-
<PAGE>
4. Alienation.
----------
(a) No assignment or underletting without consent. Not without the prior
---------------------------------------------
consent of the Landlord (such consent not to be unreasonably withheld
but which may be subject to reasonable conditions) to assign or part
with or share possession or occupation of the whole of the Premises.
(b) Sub-Letting. The Tenant shall be entitled to sub-let the whole or any
-----------
part of the Premises as it thinks fit Provided However that it shall
notify the Landlord prior to entering into any such sub-lettings.
(c) Alienation conditions. The Landlord may in addition to such other
---------------------
conditions which the Landlord considers appropriate as the conditions
of giving consent to the assignment of the Premises require:-
(i) an express covenant by the Assignee to observe and perform the
covenants herein contained including a covenant not further
assign sublet or part with the possession of the whole or any
part of the Premises without such consent as aforesaid;
(ii) in the case of an assignment to a limited liability company that
not less than two directors thereof shall join in the assignment
as sureties for the company and shall covenant with the Landlord
to make good to the Landlord all losses costs and expenses
sustained by the
-23-
<PAGE>
Landlord through the default of the company and to observe and
perform the Lessee's covenants and conditions contained herein;
(iii) in the case of an assignment to a subsidiary body corporate that
its holding body corporate shall join in the assignment as
surety for the subsidiary body corporate and shall covenant with
the Landlord that in the event of the subsidiary body corporate
going into liquidation and the liquidator disclaiming this Lease
that the holding body corporate shall itself accept a new lease
of the Premises in the terms hereof for the then unexpired
balance of the Term;
(iv) in the case of an assignment to an individual that an
independent surety shall be procured by the proposed assignee to
guarantee the payment of the rent and the due performance of the
covenants and conditions herein contained by the Tenant;
(v) that adequate security for the payment of the Rent and the due
performance and observance of the covenants on the Tenant's
part (whether with or without surety) in a form suitable to the
Landlord shall be provided by the proposed assignee.
-24-
<PAGE>
(d) Applications for consent to alienate. Each application for consent to
------------------------------------
assign the Premises shall be accompanied by the following:-
In the case of a company by:
(i) the memorandum and articles of association of the company;
(ii) a banker's reference for such company;
(iii) at least two trade references for such company by parties
acceptable to the Landlord;
(iv) three years audited accounts of such company for the most recent
period;
(v) full particulars of the proposed use of the Premises;
(vi) an acceptable undertaking to pay Landlord's legal (on a
solicitor and own client basis) and other costs of the
application whether consent is granted or not.
and in the case of an individual by:
(i) a bank reference for such individual;
(ii) at least two trade references for such individual by parties
acceptable to the Landlord;
-25-
<PAGE>
(iii) the names and full particulars of two acceptable sureties with
bank references;
(iv) a description of the nature of the business of the Tenant;
(v) full particulars of the proposed use of the Premises;
(vi) an acceptable undertaking to pay the Landlord's legal (on a
solicitor and own client basis) and other costs of the
application whether consent is granted or not.
(e) Notice of alienation. Without prejudice to the other provisions of this
--------------------
Clause 4.00 not later than one month after any assignment underletting
or devolution of the Premises to produce to the Landlord for
registration the relevant instrument with a copy for retention by it
and to pay to the Landlord the sum of Five Pounds as a registration
fee.
5. Insurance.
---------
(a) To insure. To insure and to keep the Premises insured in the joint
---------
names of the Landlord and the Tenant against loss or damage by the
Insured Perils or any of them in a sum which from time to time will
equal the reinstatement value (due allowance being made for inflation
from time to time) of the Premises together with provision for
architects' engineers' surveyors' fees stamp duty on building contracts
estimated
-26-
<PAGE>
demolition and site clearance costs and three years loss of the Rent
(or 3 years then current market rent of the Premises whichever shall
be the greater) in an Insurance Office licensed to transact business in
the State and if and so long as required to be so licensed of good
repute and in the event of the Premises being destroyed or damaged by
any of the Insured Perils with all reasonable speed to pay out in
repairing reinstating the same in a good and substantial manner all
moneys received by virtue of such insurance other than insurance
against loss of rent and in the event of the said moneys being
insufficient for such purposes the difference shall be made good by the
Tenant out of its own money.
(b) Premiums and policy. The Tenant shall pay all premiums necessary for
-------------------
the insurance of the Premises as outlined above on the due date for
payment and shall produce to the Landlord on demand the policy
and/or policies of insurance effected by the Tenant hereunder and the
receipts for premiums paid under the said policy or policies.
(c) Failure to insure. In the event of the Tenant failing or refusing to
-----------------
insure or under insuring the Premises at any time then the Landlord may
insure the Premises and the Tenant shall pay to the Landlord on demand
the cost to the Landlord of maintaining sufficient, insurance cover in
accordance with the Tenants obligations hereunder and any moneys
payable under this Clause shall be deemed to be a liquidated debt due
by the
-27-
<PAGE>
Tenant to the Landlord as and from the date of such demand and
recoverable as such.
(d) Third party liability. The Tenant shall effect or cause to be effected
---------------------
insurance in the joint names of the Landlord and the Tenant at the
Tenant's expense against third party liability in an amount of not less
than IR(pounds)1,000,000 single limit per occurrence or, subject to
availability, such greater amount as the Landlord shall reasonably
specify from time to time.
6. Miscellaneous.
-------------
(a) To permit entry for inspection, repair.
--------------------------------------
(i) To permit the Landlord at all reasonable times at a convenient
hour and by prior appointment except in emergency to enter the
Premises to clear drains or repair any adjoining buildings or
for any other proper purposes as often as required.
(ii) To permit the Landlord at all reasonable times at a convenient
hour and by prior appointment except in emergency to enter the
Premises to view the same to ensure that nothing has been done
therein constituting a breach of any of the covenants herein and
also to examine the condition of the Premises and of all such
breaches of covenant for which the Tenant may be liable to give
to the Tenant notice in writing
-28-
<PAGE>
to remedy the same within two calendar months thereafter.
(iii) In case of default by the Tenant in so doing it shall be
lawful for the Landlord to enter the Premises to remedy such
breaches.
(b) Destruction - insurance irrevocable. In the event of the buildings
-----------------------------------
included in the Premises or any of them or any part thereof being
destroyed or damaged by any of the Insured Perils to rebuild and
reinstate at the Tenant's expense the buildings so destroyed or damaged
to the satisfaction of the Landlord; and in so doing to apply to the
cost of such rebuilding and reinstatement the amount (if any) actually
received in respect of such destruction or damage under the insurance
policy or policies effected by the Tenant on foot of its obligations
herein contained.
(c) Accident on the Premises. To indemnify the Landlord against all actions
------------------------
claims costs damages and expenses arising out of any accident happening
or injury suffered by the Tenant, its invitees, licensees, servants,
agents, officials or any other person or persons on, at or near the
Premises arising through the neglect omission or default of the Tenant.
(d) Covenants under Head Lease. The Tenant hereby further covenants with
--------------------------
the Landlord to observe and perform all the obligations imposed on the
Landlord in the Head Lease in the manner therein set out as if the same
-29-
<PAGE>
were set out herein ad longum and the Tenant hereby covenants to
indemnify and keep indemnified the Landlord against any failure to
perform the said obligations.
(e) Compliance with agreements. The Tenant hereby further covenants with the
--------------------------
Landlord to comply with the provisions of all agreements entered into
between the Landlord, the Tenant and the Guarantor, or any of them.
FOURTH SCHEDULE
---------------
(Covenants by the Landlord)
---------------------------
1. Quiet Possession. That the Tenant upon paying the Rent and observing and
----------------
performing the Tenant's covenants herein contained shall and may peaceably
hold and enjoy the Premises during the term without any interruption or
disturbance from or by the Landlord or any person lawfully claiming by
through or under or in trust for the Landlord.
FIFTH SCHEDULE
--------------
Provisos matters and things agreed and
--------------------------------------
declared by and between the parties
-----------------------------------
1. Re-Entry. If the Rent or any part thereof shall remain unpaid for twenty one
--------
days after becoming payable (whether formally demanded or not) or if any of
the covenants on the part of the Tenant or conditions herein contained shall
not be performed or observed or if the Tenant being a company shall enter
into liquidation (whether compulsory or
-30-
<PAGE>
voluntary) save for the purpose of amalgamation or reconstruction or if the
Tenant being an individual shall enter into a composition with his creditors
or commit any act of bankruptcy or have a receiving or adjudication order
made against him or if the Tenant shall suffer any execution or attempted
execution to be made against any of the Tenants effects then and in any of
the said cases it shall be lawful for the landlord at any time thereafter to
re-enter upon the Premises or any part thereof in the name of the whole and
thereupon this demise shall absolutely determine but without prejudice to
the right of action of the Landlord in respect of any arrears of Rent or any
antecedent breach of covenant.
2. Section 40 Deasy's Act 1860. In case the Premises or any part thereof shall
---------------------------
be destroyed or become ruinous and uninhabitable or incapable of beneficial
occupation or enjoyment by or from any of the Insured Risks the Tenant
hereby absolutely waives and abandons its rights (if any) to surrender this
Lease under the provisions of section 40 of the Landlord and Tenant Law
Amendment Act, Ireland 1860 or otherwise.
3. Interest. Without prejudice to any other right or remedies of the Landlord
--------
on foot of these presents or otherwise all sums payable by the Tenant to the
Landlord hereunder whether in respect of the Rent (including the Rent
increased upon revision) or payments for maintenance and services costs of
insurance costs of repairs or otherwise shall bear interest from the
respective dates on which they shall fall due at the Interest Rate such
interest to apply after as well as before any judgment.
-31-
<PAGE>
4. Arbitration. All disputes or differences which may arise touching the
-----------
provisions of this Lease or the operation or construction hereof or the
rights or liabilities of the parties hereto (other than the determination of
the Rent persuant to Part Two of the First Schedule hereof) shall be
referred to arbitration by a single arbitrator to be appointed by agreement
between the parties or in default of agreement to be appointed on the
application of either party by the President for the time being of the
Incorporated Law Society of Ireland.
5. Consents of Landlord to be in writing. Any approval licence or consent or
-------------------------------------
notice or request by the Landlord for any of the purposes of this Lease
shall be in writing and shall be sufficient as regards the Landlord if it
purports to be signed by a duly authorised officer and the giving of the
same shall be at the expense of the Tenant.
6. Planning Permission. No warranty is given or implied by the Lease or by the
-------------------
Landlord or otherwise that the use to which the Tenant proposes now or
hereafter to put the Premises or any alterations or additions which the
Tenant may now or hereafter desire to carry out will not require Planning
Permission under the Planning Acts and the Tenant will indemnify and keep
indemnified the Landlord against all costs claims actions proceedings
compensation demands or charges which may arise directly or indirectly under
the said Acts in respect of the Premises.
7. Payments to be treated as Rent. All payments due hereunder by the Tenant to
------------------------------
the Landlord shall for the purpose of recovery thereof be deemed to be Rent
and recoverable as such.
-32-
<PAGE>
8. Notice. Any document or notice requiring to be served on the Landlord or
------
on the Tenant may be served on the Landlord by delivering it or by
sending it by pre-paid registered post addressed to the Landlord at the
Landlord's registered office or such other address as the Landlord shall
notify the Tenant in writing and may be served on the Tenant by delivering
it at or by sending it by pre-paid registered post to the Premises and any
documents so posted shall be deemed to have reached the party to whom it
was addressed in the usual course of the post.
9. To yield up. At the expiration or sooner determination of this Lease
-----------
peaceably and quietly to yield up to the Landlord all of the Premises in
such repair, condition, decoration and otherwise as provided by the
Tenant's covenants herein contained together with all fixtures and
Landlord's plant and machinery and fittings which are at the commencement
of this Lease or shall be at any time during the Term fixed into or about
the Premises except the Tenant's own fixtures and trade fixtures which the
Tenant shall be at liberty to remove before the expiration or Determination
of the Term and to make good all damage to the Premises caused by the
removal of the Tenant's fixtures and trade fixtures as aforesaid AND the
---
Tenant shall indemnify and keep indemnified the Landlord against any loss,
damage or expense incurred by the Landlord by reason of the Tenant failing
to yield up the Premises in accordance with this Clause.
10. Indemnity. Excepting that which may be due to the Landlord's negligence,
---------
wilful misconduct or omission, the Tenant agrees to indemnify and keep
indemnified the Landlord against all and any
-33-
<PAGE>
expenses, costs, claims, demands, damages and other liabilities whatsoever
in respect of the injury or death of any person or damage to any property
howsoever arising directly or indirectly out of:-
(a) the state of repair or condition of the Premises; or
(b) the existence of any alteration thereto or the state of repair or
condition of such alteration; or
(c) the user of the Premises; or
(d) any work carried out or in the course of being carried out; or
(e) anything now or hereafter attached to or projecting therefrom; or
(f) any other cause save the Insured Risks; or
(g) any breach by the Tenant of the terms and conditions of the Superior
Lease;
AND fully and effectually to indemnify the Landlord against the breach, non
---
observance or non performance by the Tenant of any of the covenants or
conditions on the part of the Tenant herein contained or of the provisos or
stipulations herein contained and intended to be performed and observed by
the Tenant and against any actions, costs, claims, expenses and demands
whatsoever or howsoever arising in respect of or as a consequence (whether
direct or indirect) of any such breach, non performance or non observance.
- 34 -
<PAGE>
11. Payments Gross. All payments to be made by the Tenant hereunder shall be
--------------
made in Irish Pounds. The obligation of the Tenant to make all payments
under this Lease is absolute, irrevocable and unconditional under all
circumstances and shall not be affected or discharged by any circumstance
whatsoever including without limitation or prejudice to the generality of
the foregoing:-
(a) any set-off, counter-claim or other right whether by virtue of this
Lease or otherwise;
(b) any defect in the construction of any buildings on the Premises or any
part thereof or any materials used in connection therewith or any
installations fixtures or fittings therein or thereon or the unfitness
or unsuitability thereof for the occupation of or any particular
purpose;
(c) any total or partial destruction of or damage to any building comprised
on the Premises or any interruption of or cessation in the use or
possession of the Premises or any part thereof by the Tenant for any
reason whatsoever or for whatever duration;
(d) the ineligibility of the Premises or any part thereof to be used for
any purpose or the loss of any right to use the Premises or any part
thereof for any purpose whether by reason of breach of law or
otherwise;
(e) any failure to complete or delay in the completion of the Premises or
any part thereof for any reason whatsoever;
-35-
<PAGE>
PRESENT when the common seal of
LIEBOCH LIMITED was affixed hereto:
/s/ signatures illegible
- ------------------------
PRESENT when the common seal of
R.R. DONNELLEY IRELAND TURNKEY
SERVICES KILDARE was affixed hereto:
/s/ signatures illegible
- ------------------------
PRESENT when the common seal of
ALLIED IRISH BANKS, p.l.c. was
affixed hereto:
/s/ Karen Kavanagh
----------------------------
Authorised Signatory
/s/ Tanya Sack
-----------------------------
Authorised Signatory
<PAGE>
EXHIBIT 10.9
----------------------
VL 1 Ver 1
----------------------
----------------------
----------------------
(For Official use only)
THE LAND TITLES ACT
VARIATION OF LEASE
<TABLE>
<CAPTION>
DESCRIPTION OF LAND
- -------------------
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CT Property Address
Whole or part lot (If part lot,
MK TS Lot No to state appd new lot/strata
lot or to annex plan and give
details)
Vol Fol
- ------------------------------------------------------------------------------------------------
458 196 23 - 4406 Whole.
(New 51 Ubi Avenue 3
format Singapore 408858
Lot
4406A)
- ------------------------------------------------------------------------------------------------
</TABLE>
------
REGISTERED LEASE NO: 1/125L
- ------------------- ------
LESSOR
- ------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
<S> <C>
Name: HOUSING & DEVELOPMENT BOARD
- ------------------------------------------------------------------------------------------------
Address: HDB Centre, 3451 Jalan Bukit Merah,
(within Singapore Singapore 159459
for service of Notice)
- ------------------------------------------------------------------------------------------------
</TABLE>
AND
LESSEE
- ------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
<S> <C>
ID/Co reg no: 198903169H
- ------------------------------------------------------------------------------------------------
Name: MODUS MEDIA INTERNATIONAL PTE LTD
(formerly known as STREAM INTERNATIONAL PTE LTD)
- ------------------------------------------------------------------------------------------------
Place of Singapore
Incorporation:
- ------------------------------------------------------------------------------------------------
Address: 1 Tomasek Avenue
(within Singapore #27-01 Millenia Tower
for service of Notice) Singapore 039192
- ------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
----------------------
L 1 Ver 1
----------------------
----------------------
----------------------
(For Official use only)
DUPLICATE
THE LAND TITLES ACT
LEASE
<TABLE>
<CAPTION>
DESCRIPTION OF LAND
- -------------------
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
*CT Property Address
Whole or part lot (If part lot,
MK TS Lot No to state appd new lot/strata
lot or to annex plan and give
details)
Vol Fol
- ------------------------------------------------------------------------------------------------
392 173 23 - 4406 Whole.
51 Ubi Avenue 3
Singapore
- ------------------------------------------------------------------------------------------------
</TABLE>
LESSOR:
- ------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
<S> <C>
Name: HOUSING & DEVELOPMENT BOARD
- ------------------------------------------------------------------------------------------------
Address: 3451 Jalan Bukit Merah, HDB Centre
(within Singapore Singapore 159459
for service of Notice)
- ------------------------------------------------------------------------------------------------
</TABLE>
(the registered proprietor) HEREBY LEASES the registered estate or interest in
the land above described (hereinafter referred to as "the said land") to:
LESSEE
- ------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
<S> <C>
/Co reg no: 198903169H
- ------------------------------------------------------------------------------------------------
Name: STREAM INTERNATIONAL PTE LTD
- ------------------------------------------------------------------------------------------------
Place of Singapore
Incorporation:
- ------------------------------------------------------------------------------------------------
Address: 24 Raffles Place #26-05 Clifford Centre
(within Singapore Singapore 048621
for service of Notice)
- ------------------------------------------------------------------------------------------------
To hold as
- ------------------------------------------------------------------------------------------------
Manner of Holding
- ------------------------------------------------------------------------------------------------
* To complete where there are co-owners. To delete if not applicable.
</TABLE>
<PAGE>
2
FOR TERM OF LEASE:
- -----------------
as tenant for the term of thirty (30) years commencing from 1st January 1990,
YIELDING AND PAYING therefor the yearly rent of Dollars Four Hundred Seventy-
Seven Thousand Nine Hundred and Twenty only ($477,920/-) without deductions and
in advance every quarterly without demand on 1st January 1990 and shall be at
the rate of $40/- per square metre per annum from 1st January 1990 (hereinafter
referred to as "the Initial Rent") which rate shall be subject to revision on
1st January 1991 to a rate based on the market rent on the date of such revision
determined in the manner following but so that the increase shall not exceed 7.6
per cent of the yearly rent. The yearly rent so revised in 1991 shall be subject
to revision every year from 1st January 1991 and shall be at the rate based on
the market rent on the respective dates determined in the manner following but
so that the increase shall not exceed 7.6 per cent of the yearly rent for each
immediately preceding year. The market rent in this context shall mean the rent
per square metre per annum of the said land excluding the buildings and other
structures erected thereon and shall be determined by the Lessor on or about the
dates mentioned and the decision of the Lessor shall be final.
SUBJECT TO:
PRIOR ENCUMBRANCES (to state "nil" if there are none):
- -----------------------------------------------------
- --------------------------------------------------------------------------------
NIL
- --------------------------------------------------------------------------------
AND the following:-
COVENANTS AND CONDITIONS
- ------------------------
(a) the covenants, conditions and powers implied by law in instruments of lease
(or to such of them as are not hereinafter expressly negatived or
modified);
(b) the covenants and conditions set forth in the Memorandum of Lease filed in
the Registry of Titles as ML/24 (which Memorandum is hereinafter called
"ML/24") subject to the variations as provided below.
SPECIAL COVENANTS AND CONDITIONS
- --------------------------------
1. The provisions of ML/24 shall apply hereto, subject to the variations
thereof as provided in the following clauses, and in the application thereof to
this Lease, each and every reference in ML/24 to the words or expressions set
out in the first column below shall have the meanings set forth in the second
column respectively:
<PAGE>
3
Word/Expression Meaning
--------------- -------
"this Lease" : this Instrument of Lease.
"the Lessee" : the Lessee as hereinbefore named.
"the Lessor" : the Lessor as hereinbefore named.
"the said land" : the land above described.
"the said term" : the term of tenancy as above recited.
2. Clause 1 of ML/24 in its application to this Lease is hereby amended as
follows:-
(a) by deleting sub-clauses (vi), (vii) and (xiv) thereof and renumbering
the remaining sub-clauses in their running order to sub-clauses (i) to
(xi) (both inclusive);
(b) by inserting the following new sub-clauses thereto:-
"(xii) Not to use or to permit or suffer the said land or any building
thereon or any part of the said land and building thereof to be
used otherwise than as a factory for printing, binding, assembly,
packaging and other operations related to documentation services
subject to the approval of the competent authority appointed
under Section 3 of the Planning Act.
(xiii) Not to use the said land or any building thereon or any part
thereof for any illegal or immoral purpose and not to carry on or
permit or suffer to be carried on in or upon the said land or any
part of the building thereon any noxious, noisy, dangerous or
offensive trade or business or manufacture whatsoever which may
be or become a nuisance, annoyance or inconvenience to the
owners, tenants or occupiers of premises neighbouring, adjoining
or adjacent thereto or to the Lessor.
(xiv) Not to erect, permit or suffer to be carried out any construction
of chimneys or ducts of any kind whatsoever in or at any part of
the buildings on the said land for the purpose of discharging
smoke gas fume or any other substance connected directly or
indirectly with the manufacturing processes.
(xv) Not to demise, transfer, assign, mortgage, let, sublet, underlet,
license or part with the possession of the said land or any
building thereon or any part thereof in whatsoever manner
<PAGE>
4
and not to effect any form of reconstruction howsoever brought
about including any form of amalgamation or merger with or
take-over by another company, firm or body or party, without
first obtaining the consent of the Lessor in writing. Section 17
of the Conveyancing and Law of Property Act (Chapter 61) shall
not apply. Any consent, if granted by the Lessor shall be given
on such terms and conditions as the Lessor may in its entire and
unfettered discretion deem fit to impose and shall include:-
(a) full revision of the rental to the prevailing market rate
from the date of assignment;
(b) payment of such administrative fee as determined by the
Lessor.
(xvi) On or before the execution of this Lease, the Lessee shall
supply to the Lessor in writing a list of names of its existing
shareholders and particulars of classes of shares held by each
and every shareholder and the value thereof and such list shall
be duly certified to be correct by a director of the Lessee.
(xvii) Not without the consent in writing of the Lessor to affix or
exhibit or erect or paint or permit or suffer to be affixed or
exhibited or erected or painted on or upon any part of the
exterior of any buildings on the said land or of the external
walls or rails or fences thereof any nameplate, signboard,
placard, poster or other advertisement or hoarding.
(xviii) To make reasonable provision against and be responsible for
all loss, injury or damage to any person or property including
that of the Lessor for which the Lessee may be held liable
arising out of or in connection with the occupation and use of
the said land and any buildings thereon and to indemnify the
Lessor against all proceedings, claims, costs and expenses which
it may incur or for which it may be held liable as a result of
any act, neglect or default of the Lessee, its servants,
contractors or agents.
(xix) Not to effect a change of name without first informing the
Lessor of such change of name PROVIDED THAT such change of name
is not tantamount to an assignment or it will be subject to the
same terms referred to in clause (xv).
<PAGE>
5
(xx) Not to install and/or use any electrical installations,
machines or apparatus that may cause or causes heavy power surge,
high frequency voltage and current, airborne noise, vibration or
any electrical or mechanical interference or disturbance
whatsoever which may prevent or prevents in any way the service
or use of any communication system or affects the operation of
other equipment, installations, machinery, apparatus or plants of
other lessees and in connection therewith, to allow the Lessor or
any authorised persons to inspect at all reasonable times, such
installations, machines or apparatus in the said land and any
buildings thereon to determine the source of the interference or
disturbance and thereupon, to take suitable measures, at the
Lessee's own expense, to eliminate or reduce such interference or
disturbance to the Lessor's satisfaction, if it is found by the
Lessor or such authorised person that the Lessee's electrical
installations, machines or apparatus is causing or contributing
to the said interference or disturbance.
(xxi) To indemnify the Lessor against any claims, proceedings, action,
losses, penalties, damages, expenses, costs, demands which may
arise in connection with sub-clause (xx) above.
(xxii) To make good and sufficient provision for the safe and
efficient disposal of all waste including but not limited to
pollutants generated at the said land and any buildings thereon
to the requirements and satisfaction of the Lessor and other
relevant government authorities PROVIDED THAT in the event of any
default by the Lessee under this covenant the Lessor may carry
out such remedial measures as it thinks necessary and all costs
and expenses incurred thereby shall be recoverable forthwith from
the Lessee as a debt.
(xxiii) To pay interest at the rate of eight point five per cent
(8.5%) per annum or such higher rate as may be determined from
time to time by the Lessor in respect of any arrears of rent or
other outstanding sums due and payable under this Lease from the
above due dates thereof until payment in full is received by the
Lessor.
(xxiv) At the termination of the said term or at the earlier
determination thereof to yield up to the Lessor the said land
together with all buildings, structures and fixtures therein in
good and tenantable repair.
<PAGE>
6
3. Clause 2 of ML,/24 in its application to this Lease is hereby amended by
inserting the words "and buildings thereon" after the words "the said land" in
line 4 and substituting the word "person" and "it" for the words "persons" and
"him" in lines 4 and 5 respectively.
4. Clause 3 of ML/24 in its application to this Lease is hereby amended by
inserting after the word "Lessor" in line 8 thereof the words "to impose such
--------------
penalties as it deems fit as well as for the Lessor".
- ----------------------------------------------------
5. In addition to Clauses 2 and 3 of ML/24 the Lessor further covenants with
the Lessee that he shall at the written request of the Lessee made not less than
twelve (12) months before the expiry of the said term but not earlier than the
twenty-eighth (28th) year of the said term grant to the Lessee a lease of the
said land for a further term of 30 years (hereinafter referred to as "the
further term") which shall commence from the date immediately following the
expiration of the said term on the same terms and conditions and containing the
like covenants as are herein contained with the exception of the present
covenant for renewal or such variations or modifications as shall be imposed by
the Lessor PROVIDED that:--
(i) there be no existing breach(es) or non-observance(s) of any of the
covenants and conditions herein contained on the part of the Lessee to
be observed or performed.
(ii) the rental payable for the further term shall be as set out
hereunder: --
(a) The yearly rent for the further term commencing on the 1st day of
January 2020 shall be at the rate based on the market rent at the
commencement of the further term (hereinafter referred to as "the
Second Initial Rent") which rate shall however be subject to a
revision on the 1st day of January 2021 to a rate based on the
market rent on the date of such revision determined in the manner
following but so that the increase shall not exceed seven point
six per cent (7.6%) of the Second Initial Rent.
(b) The yearly rent so revised shall be subject to revision every
year from 1st day of January 2021 and shall be at the rate based
on the market rent on the respective dates determined in the
manner following but so that the increase shall not exceed seven
point six per cent (7.6%) of the yearly rent for each immediately
preceding year.
(c) The market rent and the time of payment of the yearly rent shall
be as aforesaid.
(d) Any demise, transfer, assignment or parting of
<PAGE>
7
possession of the said land or any buildings thereon or any part
thereof by the Lessee in whatsoever manner within 5 years of the
commencement of the further term will be approved by the Lessor
only upon payment by the Lessee of a fee (hereinafter called
"the additional fee") which shall be equivalent to the value of
the buildings and there shall also be a full revision of the
rental to the prevailing market rate from the date of assignment
and payment of such administrative fee as determined by the
Lessor as provided under Clause 1 of ML/24. The value of the
buildings shall be determined by the Lessor alone and the
Lessor's assessment shall be final and conclusive and not
subject or open to review by the Lessee. PROVIDED THAT the
Lessee shall not be required to pay the additional fee for any
demise, transfer, assignment or parting with possession of the
said land or any buildings thereon or any part thereof by the
Lessee in whatsoever manner after the aforesaid 5 years period.
(e) All costs, expenses, charges, legal or otherwise including stamp
duty and the Lessor's legal costs of or connected with the
preparation, completion and registration of the lease for the
further term of 30 years shall be borne by the Lessee.
(iii) The interest chargeable shall be at the rate of eight point five per
cent (8.5%) per annum or such higher rate as may be determined from
time to time by the Lessor in respect of any arrears of rent or other
outstanding sums due and payable under the Lease from the due dates
thereof until payment in full is received by the Lessor.
6. The Lessor further covenants with the Lessee that the Lessee may determine
this Lease anytime after the expiration of the tenth (10th) year of this Lease
by giving to the Lessor not less than three (3) months previous notice in
writing which notice shall be sent by registered post addressed to the Lessor.
The Lessee hereby covenants with the Lessor that in exercising the rights
contained in this Clause, the Lessee shall not be entitled to any compensation,
indemnification, restoration, damages or settlement of any nature from the
Lessor in respect of early termination of this Lease thereof, but without
prejudice to the rights and remedies of the Lessor against the Lessee in respect
of any antecedent claim or breach of covenant and the Lessee shall have no
further claim interest right of title whatsoever in respect of this Lease at the
expiration of the three (3) months notice period.
7. All sums payable under this Lease are exclusive of Goods and Services Tax.
The Lessee, shall pay and indemnify the Lessor against Goods and Services Tax
chargeable in respect of any payment made by the Lessee under the terms of or in
connection with this Lease or in respect of any payment by the Lessor where the
Lessee hereby agrees in this Lease to reimburse the Lessor for such payment.
<PAGE>
8
DATE OF LEASE: 2nd December 1996
- ------------- ----------------------------------------
EXECUTION BY LESSOR
- -------------------
The Common Seal of the HOUSING)
)
& DEVELOPMENT BOARD was )
)
hereunto affixed in the )
)
presence of:- )
/s/ Gan Eng Oon
--------------------
MEMBER
Mr Gan Eng Oon
/s/ Teoh See See
--------------------
OFFICER
Teoh See See
EXECUTION BY LESSEE
- -------------------
The Common Seal of STREAM )
)
INTERNATIONAL PTE LTD was )
)
hereunto affixed in the )
)
presence of:- )
(signature illegible)
--------------------------------
DIRECTOR
(signature illegible)
--------------------------------
DIRECTOR/SECRETARY
<PAGE>
9
(I) CERTIFICATE PURSUANT TO THE RESIDENTIAL PROPERTY ACT AND THE LAND TITLES
------------------------------------------------------------------------
RULES AND PRACTICE CIRCULARS:
----------------------------
SIMILAR INTEREST CONFIRMATION (if any)
--------------------------------------
CERTIFICATE OF CORRECTNESS
--------------------------
I, the Solicitor for the Lessor hereby certify that this instrument is
correct for the purposes of the Land Titles Act.
/s/ Richard Tan Ming Kirk RICHARD TAN MING KIRK
------------------------------------------------------
NAME & SIGNATURE OF SOLICITOR FOR THE LESSOR
I, the Solicitor for the Lessee hereby certify that this instrument is
correct for the purposes of the Land Titles Act.
/s/ Sylvia Soo Tian Low SYLVIA SOO TIAN LOW
------------------------------------------------------
NAME & SIGNATURE OF SOLICITOR FOR THE LESSEE
<PAGE>
FOR OFFICE USE ONLY
- ---------------------------------------------------------------------
EXAMINED REGISTERED ON
Date: Initials of
Signing Officer: REGISTRAR OF TITLES
- ---------------------------------------------------------------------
M/S SHOOK LIN & BOK
ADVOCATES & SOLICITORS
1 ROBINSON ROAD
#18-00 AIA TOWER
SINGAPORE 048542
RT/955639/HDB
<PAGE>
HOUSING & DEVELOPMENT BOARD TAX INVOICE
HDB Centre 3451 Jalan Bukit Merah, Singapore 159459
Tel No: 1800-2782208
- -----------------------------------
MODUS MEDIA INTERNATIONAL PTE LTD GST Reg No: MB-8100007-1
PROPERTY ADDRESS: HDB Ref: 600-62-
39 UBI AVE 3 SINGAPORE 408615 Invoice No: 0199 / 67460014100
Date: 11 JANUARY 99
- -----------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Description Amount GST @ 3% Total
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
RENT FOR JAN 1999 $53,755.00 $1,612.65 $55,367.65
RENT FOR FEB 1999 $53,755.00 $1,612.65 $55,367.65
RENT FOR MAR 1999 $53,755.00 $1,612.65 $55,367.65
RENT FOR APR 1999 $53,755.00 $1,612.65 $55,367.65
RENT FOR MAY 1999 $53,755.00 $1,612.65 $55,367.65
RENT FOR JUN 1999 $53,755.00 $1,612.65 $55,367.65
RENT FOR JUL 1999 $53,755.00 $1,612.65 $55,367.65
RENT FOR AUG 1999 $53,755.00 $1,612.65 $55,367.65
RENT FOR SEP 1999 $53,755.00 $1,612.65 $55,367.65
RENT FOR OCT 1999 $53,755.00 $1,612.65 $55,367.65
RENT FOR NOV 1999 $53,755.00 $1,612.65 $55,367.65
RENT FOR DEC 1999 $53,755.00 $1,612.65 $55,367.65
Note: The rent is due on the 1st day
of the respective months.
- -----------------------------------------------------------------------------------------
TOTAL $645,060.00 $19,351.80 $664,411.80
- -----------------------------------------------------------------------------------------
Note: You may wish to retain this for claiming GST from IRAS
- -----------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit 10.10
LEASE AGREEMENT
---------------
THIS LEASE AGREEMENT (this "Lease"), dated this 3rd day of December, 1994,
but effective as of the 4th day of December, 1994, is by and between NOVELL,
INC., a Delaware corporation ("Landlord"), and R.R. DONNELLEY & SONS COMPANY, a
Delaware corporation ("Tenant").
W I T N E S S E T H:
l. Leased Premises.
---------------
A. In consideration of the obligation of Tenant to pay rent as
hereinafter provided, and in consideration of the other terms, provisions, and
covenants hereof, Landlord hereby demises and leases to Tenant, and Tenant
hereby accepts and leases from Landlord, all those certain lots, parcels or
pieces of land situated in Lindon, Utah, as the same are more particularly
described in Exhibit A attached hereto and made a part hereof (the "Land"),
---------
together with the buildings containing in the aggregate approximately 338,008
square feet (less the Labeltech Space (as hereinafter defined) until such time
as the requirements of Paragraph 1(B) hereof have been satisfied) located on the
Land and commonly known as Buildings l, 1.5, 2, 2.5 and 3, 500 South 500 West,
Lindon, Utah 84042 (collectively, the "Building"), and all appurtenances,
fixtures and improvements now or hereafter erected on the Land, including,
without limitation, all walkway, road and parking improvements and facilities
and all other facilities used in connection with the operation or occupancy of
the Land (collectively, the "Leased Premises").
B. Landlord and Tenant acknowledge that a portion of the 338,008
square feet included within the Leased Premises is or was formerly leased by
Landlord to Labeltech, Inc. ("Labeltech") pursuant to a lease agreement between
Landlord and Labeltech (the "Labeltech Lease"). The area covered by the
Labeltech Lease consists of approximately two thousand two hundred seventy-nine
(2,279) square feet as more fully described in the Labeltech Lease and as
depicted on Exhibit A-1 attached hereto and made a part hereof (the "Labeltech
-----------
Space"). Landlord and Tenant agree to determine the exact square footage of the
Labeltech Space, promptly after the date hereof, and to confirm such
determination in writing. Landlord and Tenant expressly acknowledge that,
notwithstanding anything to the contrary contained herein, the Leased Premises
shall not include the Labeltech Space, and Tenant shall have no obligations or
liabilities whatsoever with respect thereto, whether arising under this Lease or
otherwise, including, without limitation, the obligation to pay Rent thereon,
unless and until (i) the Labeltech Lease has been terminated, (ii) all equipment
and materials associated with the operations of Labeltech have been removed from
the Labeltech Space, (iii) all chemicals, hazardous substances, hazardous
materials, hazardous wastes and solid wastes have been properly removed from the
Labeltech Space, and (iv) the Labeltech Space has been inspected and approved by
Tenant in writing. Upon the satisfaction of the foregoing requirements, the
Labeltech Space will be automatically added to the Leased Premises without the
necessity of an amendment to this Lease, provided that Landlord and Tenant agree
to execute such an amendment upon the request of either party.
2. Condition of Leased Premises. Tenant acknowledges that the Leased
----------------------------
Premises are in satisfactory condition and that no promises to decorate, alter,
repair or improve the Leased Premises have been made by Landlord or its agents
to Tenant, except as expressly set forth herein. Tenant accepts the Leased
Premises "AS IS" with no representations respecting the condition thereof except
as expressly set forth herein or in the Purchase Agreement (as hereinafter
defined).
<PAGE>
3. Term.
----
A. Tenant shall have and hold the Leased Premises unto itself, its
successors and assigns, for a term of three (3) years, commencing on December 4,
1994 (the "Commencement Date"), and ending on the date which is three (3) years
after the Commencement Date (the "Termination Date"), or such other date as this
Lease may be terminated or extended pursuant to any provision hereof (the "Lease
Term").
B. Provided there is no ongoing Event of Default (as hereinafter
defined) hereunder at the time Tenant exercises the option, Tenant shall have an
option to renew this Lease for one (1) additional term of two (2) years (the
"Renewal Term"), exercisable by giving Landlord written notice not less than
ninety (90) days prior to the Termination Date, upon the same terms and
conditions as provided in this Lease, except that Base Rent (as hereinafter
defined) for the Renewal Term shall be the then fair market rental, determined
as follows:
Within twenty (20) days following Tenant's exercise of the renewal option,
Landlord and Tenant shall attempt to agree on the fair market rental of the
Leased Premises. Absent an agreement as to the fair market rental of the
Leased Premises within such twenty (20) day period, Landlord and Tenant
shall, within ten (10) days thereafter, each choose an appraiser (qualified
by an "M.A.I." designation). Within fifteen (15) days after the appraisers
have been selected, the two appraisers shall each make their respective
determination as to the fair market rental of the Leased Premises, and fair
market rental for the Renewal Term shall be determined by averaging the
appraisals of each of the two appraisers.
4. Base Rent.
---------
A. Tenant covenants and agrees to pay to Landlord for the Leased
Premises base rent ("Base Rent") at the rate of thirty-four cents (34 cents) per
square foot per month (the "Base Rent Rate"), in advance, in equal monthly
installments of $114,147.86 per month ($1,369,744.32 per year). Landlord and
Tenant acknowledge that the foregoing monthly and annual amounts are based on
the assumption that the Labeltech Space constitutes 2,279 square feet. At the
time Landlord and Tenant determine the actual square footage of the Labeltech
Space as provided in Paragraph 1(B) above, the monthly and annual Base Rent
amounts will be adjusted accordingly. Further, at such time as the Labeltech
Space is added to the Leased Premises in accordance with the provisions of
Paragraph 1(B), Tenant will pay Base Rent with respect thereto at the Base Rent
Rate. Base Rent shall be payable, in lawful money of the United States, on or
before the first day of each calendar month during the Lease Term, except that
the rental payment for any fractional calendar month at the commencement or end
of the Lease Term shall be prorated.
B. All sums, charges and other payments to be made by Tenant under
any of the provisions of this Lease other than Base Rent shall be deemed to be
supplemental rent ("Supplemental Rent"). Base Rent and Supplemental Rent shall
be collectively referred to herein as "Rent".
C. All Rent payable to Landlord shall be paid by Tenant to Landlord
at Landlord's address specified herein, or to such other person and/or at such
other address as Landlord may direct by notice to Tenant.
D. It is the purpose and intent of Landlord and Tenant that the Rent
payable hereunder shall be absolutely net to Landlord and that Tenant shall pay,
without notice or demand
2
<PAGE>
(except as otherwise provided herein) and without abatement or set-off, all
costs, Impositions (subject to the provisions of Paragraph 5 hereof), insurance
premiums, water, gas and electric light and power bills, and other utilities,
taxed, levied or charged against the Leased Premises for and during the Lease
Term and any extensions thereof, and all other expenses and obligations of any
kind and nature relating to the Leased Premises, except to the extent expressly
provided herein.
5. Impositions.
-----------
A. Tenant shall pay, as Supplemental Rent, all Impositions (as
hereinafter defined), or cause the same to be paid, as and when the same become
due and before any fine, penalty, interest or cost may be added thereto for the
nonpayment thereof. As used herein, the term "Impositions" shall mean all
general and special taxes, duties, assessments, water and sewer rents, rates and
charges, charges for public utilities, excises, levies, license and permit fees,
parking surcharges and other charges of governmental authorities which at any
time during the Lease Term may have been or may be laid, assessed, levied,
confirmed, imposed upon, or arise or become due or payable out of or in respect
of or become a lien on, the Leased Premises or any part thereof;
provided, however, that:
- -------- -------
i. If any Imposition relating to a fiscal period of a taxing
authority, all of which period is included within the Lease Term, may,
at the option of the taxpayer be paid in installments, Tenant may,
subject to Landlord's approval (which shall not be unreasonably
withheld), pay such Impositions in installments;
ii. Any Imposition with respect to a fiscal period of a taxing
authority part of which is included within the Lease Term and part of
which is not included within the Lease Term shall be prorated between
Landlord and Tenant as of the Termination Date; and
iii. Impositions shall not include (i) income taxes assessed
against Landlord, (ii) any capital levy, corporation franchise, excess
profits, estate, succession, inheritance or transfer taxes of
Landlord, or (iii) any mechanics' or materialmen's lien or other lien
or charge created or suffered by or through Landlord, all of the
foregoing being the sole obligation of Landlord.
Landlord represents and warrants to Tenant that it has no notice or knowledge of
any pending or threatened special assessment or other Imposition with respect to
the Leased Premises.
B. Upon request of Landlord, Tenant shall deliver to Landlord within
twenty (20) days of such request, copies of all bills for such Impositions,
showing such Imposition to be paid in accordance with the terms thereof.
C. Tenant shall have the right, subject to Landlord's approval (which
shall not be unreasonably withheld) and at Tenant's own expense, to contest the
amount or validity, in whole or in part, of any Imposition, by appropriate
proceedings. Upon termination of any such proceedings, it shall be the
obligation of Tenant to pay the amount of such Imposition or part thereof as
finally determined in such proceedings to the extent applicable to the Lease
Term. Landlord agrees that whenever Landlord's cooperation is required in any
proceedings brought by Tenant as aforesaid, Landlord will cooperate therein.
6. Use of Premises. Tenant shall use the Leased Premises for light
---------------
manufacturing and for general office purposes and other ancillary uses. Tenant
shall have access to the Leased Premises 24 hours per day, 7 days per week, 52
weeks per year. Tenant will not occupy or use, nor permit any portion of Leased
Premises to be occupied or used, for any use or purpose which is
3
<PAGE>
unlawful, nor permit anything to be done which will render void or in any way
increase the rate of any insurance on the Building or its contents.
7. Surrender of Leased Premises. Tenant shall and will upon the expiration
----------------------------
of this Lease surrender and deliver up the Leased Premises (except Tenant's
trade fixtures, as herein provided) into the possession of Landlord without
delay, broom clean and in at least as good condition as on the Commencement Date
of the Lease Term, ordinary wear and tear excepted.
8. Alterations. Any Alteration (as hereinafter defined) which Tenant
-----------
elects to make shall be made at the cost and expense of Tenant and, with respect
to individual Alterations the cost of which exceeds $50,000.00, in accordance
with plans and specifications which have been previously submitted to and
approved in writing by Landlord (which approval shall not be unreasonably
withheld). As used herein, the term "Alteration" shall mean any demolition,
repair, addition, betterment, improvement or rebuilding of the Leased Premises,
excluding structural, mechanical or electrical modifications which shall require
the approval of Landlord in all instances. All Alterations erected by Tenant
shall be and remain the property of Tenant during the term of this Lease. Upon
the Termination Date or upon earlier termination of this Lease or vacating of
the Leased Premises, such Alterations shall become the property of Landlord,
with the exception of Tenant's trade fixtures which shall remain the property of
Tenant and shall be removed by Tenant at the termination of this Lease, and
Tenant shall repair any damage to the Leased Premises caused by such removal.
Any Alteration requiring Landlord's prior approval shall, at Landlord's request
(which request shall be given at the time Landlord approves such Alteration), be
removed upon the termination of this Lease, and the Leased Premises shall be
restored to their original condition.
9. Maintenance of Leased Premises.
------------------------------
A. Tenant shall, at its sole cost and expense, maintain the Leased
Premises (including all fixtures installed by Tenant but excluding those areas
or items to be maintained by Landlord under Paragraph 9(B) hereof) in good
repair, reasonable wear and tear excepted, and in a generally clean and
healthful condition in accordance with the standards set forth in Exhibit B
---------
attached hereto and made a part hereof. Any repairs or replacements shall be
with materials and workmanship of the same character, kind and quality as the
original.
B. Landlord shall, at its sole cost and expense, maintain the roof,
foundation, exterior walls (excluding windows, window glass and plate glass) and
any structural components of the Building in good condition and repair, except
for any damage or repairs occasioned by Tenant. Any damage or repairs occasioned
by Tenant shall be promptly corrected by Tenant at Tenant's sole expense. Tenant
shall promptly notify Landlord of the need for repairs to any of the foregoing
matters, and Landlord shall proceed promptly to make such repairs at Landlord's
expense. Landlord represents and warrants to Tenant that, to the best of
Landlord's knowledge, the plumbing, electrical, HVAC systems and elevator are in
good working order and condition.
10. Prohibition Against Liens. Tenant shall not permit any lien or claim
-------------------------
for lien of any mechanic, laborer or supplier to be filed against the Land
arising out of the performance of any repairs or replacements made by or on
behalf of Tenant. If any lien or claim for lien is filed, Tenant, at Tenant's
sole expense, shall within thirty (30) days after written request from Landlord,
either (i) have such lien or claim for lien released of record, (ii) deliver to
Landlord a bond in form, content and amount reasonably satisfactory to Landlord,
protecting Landlord from all liability resulting from such lien or claim for
lien, or (iii) establish a title indemnity agreement with Landlord's title
insurer whereby such title insurer agrees to insure title in the Land over such
lien.
11. Compliance with Laws. Tenant shall comply with all applicable laws,
--------------------
ordinances, orders, rules, and regulations with respect to Tenant's occupancy of
the Leased Premises. Landlord represents and warrants to Tenant that Landlord
has no knowledge of any violations of
4
<PAGE>
any applicable laws or orders (excluding laws or orders governing Hazardous
Substances as hereinafter defined) applicable to the Leased Premises and
Landlord's operations therein as of the date of this Lease, with the exception
of the elevator in Building 3. Landlord acknowledges that Tenant's proposed use
of the Leased Premises, as represented by Tenant to Landlord, is substantially
the same as that of Landlord as of the date of this Lease. Notwithstanding
anything to the contrary contained herein, in the event that any alterations,
including but not limited to structural or capital improvements, to the Leased
Premises are required in order to comply with any applicable laws or orders,
including, without limitation, the Americans with Disabilities Act (any such
alteration being hereinafter referred to as a "Compliance Alteration"), Landlord
and Tenant agree to proceed as follows:
A. If a Compliance Alteration is required solely as a result of a
change in Tenant's use of the Leased Premises from that currently represented to
Landlord, such Compliance Alteration shall be at Tenant's sole cost and expense.
B. If it is unclear or disputed that a Compliance Alteration falls
within the parameters of Paragraph 11(A) above, the cost of such Compliance
Alteration shall be amortized over the useful life of such Compliance Alteration
(as such useful life is determined in accordance with Internal Revenue Code of
1986, as amended), and Tenant shall be responsible for only that portion of such
amortized cost as falls within the then remaining balance of the Lease Term (and
any extensions thereof, if Tenant has exercised the same).
C. Any Compliance Alterations costing less than Ten Thousand Dollars
($10,000.00) in the aggregate over the Lease Term (and any extensions thereof)
shall be at Tenant's sole cost and expense, regardless of the cause therefor.
Tenant shall have the right, upon Landlord's prior consent (which shall not be
unreasonably withheld or delayed) to contest by appropriate legal proceedings
the validity or application of any laws or orders, and Landlord shall, upon
request from Tenant, execute and deliver any appropriate papers which may be
necessary or proper to permit Tenant to so contest the validity or application
of any such law or order.
12. Inspections. Landlord shall have the right to enter the Leased
-----------
Premises, at any reasonable time following reasonable notice to Tenant (provided
that no such notice shall be required in the event of an emergency), to
ascertain the condition of the Leased Premises or to make such repairs as may be
required or permitted to be made by Landlord under the terms of this Lease.
During the nine (9) months prior to the Termination Date, Landlord shall have
the right to enter the Leased Premises at any time during business hours for the
purpose of showing the Leased Premises to prospective tenants. Notwithstanding
the foregoing, Landlord must be accompanied by Tenant, or Tenant's authorized
employees or representatives during any non-emergency inspections or entries,
including, without limitation, during any showing of the Leased Premises to
prospective tenants as aforesaid.
13. Assignment and Subletting. Tenant shall not have the right to assign
-------------------------
or pledge this Lease or to sublet the whole or any part of the Leased Premises,
whether voluntarily or by operation of law, or permit the use or occupancy of
the Leased Premises by anyone other than Tenant (any of the foregoing, a
"Transfer"), without the prior written consent of Landlord which shall not be
unreasonably withheld, qualified or delayed, and such restrictions shall be
binding upon any assignee or subtenant to which Landlord has consented.
Landlord's consent will be deemed to have been reasonably withheld if the
proposed assignee or sublessee does not have a financial condition reasonably
acceptable to Landlord. No such Transfer (including a Permitted Transfer as
hereinafter defined) shall release Tenant from its obligations hereunder.
Notwithstanding anything to the contrary contained herein, Tenant shall have the
right to assign this Lease or to sublet all or any part of the Leased Premises,
without the consent of Landlord, to (a) any entity resulting from a
5
<PAGE>
merger or consolidation with Tenant, (b) any entity succeeding to the assets of
Tenant, or (c) any entity controlled by, controlling or under common control
with Tenant (any of the foregoing, a "Permitted Transfer").
14. Fire and Casualty Damage.
------------------------
A. If the Leased Premises are rendered partially or wholly
untenantable by fire or other casualty, and if such damage cannot be materially
restored within one hundred twenty (120) days of such damage, then either
Landlord or Tenant may terminate this Lease as of the date of such fire or
casualty. Landlord or Tenant shall exercise the option to terminate provided
herein by written notice to the other within thirty (30) days of such fire or
other casualty. For purposes hereof, the Building or Leased Premises shall be
deemed to be "materially restored" if they are in such condition as would not
prevent or materially interfere with Tenant's use of the Leased Premises for the
purpose for which it was then being used, which condition shall be as near as
feasibly possible to the condition thereof immediately prior to such fire or
casualty.
B. If this Lease is not terminated pursuant to Paragraph 14(A), then
Landlord shall proceed with all due diligence to repair and restore the Leased
Premises within such one hundred twenty (120) day period; provided that Tenant
shall make available to Landlord for such repair and restoration the proceeds of
the insurance policies maintained by Tenant pursuant to Paragraph 15(A) hereof.
In no event shall Landlord be required to rebuild, repair or replace any part of
the partitions, fixtures, additions and other improvements which may have been
placed in or about the Leased Premises by Tenant or to advance funds beyond the
amount of the proceeds provided by Tenant's insurance policies.
C. If this Lease shall be terminated pursuant to Paragraph 14(A), the
term of this Lease shall end on the date of such damage as if that date had been
originally fixed in this Lease as the Termination Date. If this Lease shall not
be terminated by Landlord or Tenant pursuant to Paragraph 14(A) and if the
Leased Premises are untenantable in whole or in part following such damage, the
rent payable during the period in which the Leased Premises are untenantable
shall be reduced on a pro rata basis. In the event that Landlord should fail to
complete such repairs and material restoration within one hundred twenty (120)
days after the date of such damage, Tenant may at its option, terminate this
Lease by delivering written notice to Landlord, whereupon this Lease shall end
on the date of such notice as if the date of such notice were the date
originally fixed in this Lease as the Termination Date.
D. Whenever (a) any loss, cost, damage or expense resulting from
fire, explosion or any other casualty or occurrence is incurred by either
Landlord or Tenant in connection with the Leased Premises or the Building, and
(b) such party is then covered in whole or in part by insurance with respect to
such loss, cost, damage or expense, then the party so insured hereby releases
the other party from any liability it may have on account of such loss, cost,
damage or expense to the extent of any amount recovered by reason of such
insurance, and waives any right of subrogation which might otherwise exist in or
accrue to any person on account thereof, provided that such release of liability
and waiver of the right of subrogation shall not be operative in any case where
the effect thereof is to invalidate such insurance coverage or increase the cost
thereof (provided, that in the case of increased cost, the other party shall
have the right within thirty (30) days following notice to pay such increased
cost, thereupon keeping such release and waiver in full force and effect). Each
of Landlord and Tenant agrees that it will request its insurance carriers to
include in its policies such a clause or endorsement.
15. Insurance. Tenant, during the term hereof and any extensions, renewals
---------
and/or modifications shall provide, at its sole cost and expense, and
continuously maintain in full force and effect policies of insurance covering:
6
<PAGE>
A. Loss or damage to the Leased Premises (including windows, window
glass and plate glass) by fire, lightning, vandalism and malicious mischief, and
those risks now or hereafter normally covered by the term "extended coverage" in
an amount equal to the full replacement value thereof;
B. Tenant's personal property in an amount equal to its actual cash
value;
C. Workers Compensation and Occupational Disease insurance as
required by law, and Employers Liability with limits of $500,000.00 per
occurrence for Tenant's employees;
D. Comprehensive General Liability insurance, including contractual
liability, insuring against any loss, liability or damage on, about or relating
to the Leased Premises, or any portion thereof, with limits of not less than
$2,000,000.00 combined single limit, per occurrence and aggregate, for bodily
injury and property damage, naming Landlord as an additional insured and
containing a Cross Liability (severability of interests) clause which provides
that the insurance afforded applies separately to each insured against whom a
claim is made or a suit is brought, or comparable language, the effect of which
is that coverage shall be provided with respect to Landlord for injury to
employees or other insureds or loss or damage to property in the custody of
other insureds; and
E. Comprehensive Automobile Liability insurance, covering all owned
or rented vehicles, each with limits of not less than $1,000,000.00 per
occurrence for bodily injury and $1,000,000.00 per occurrence for property
damage.
The Comprehensive General Liability insurance and the Comprehensive Automobile
Liability insurance referenced above shall be written on a contractual basis so
that Tenant's insurance carrier is bound by Tenant's undertakings set forth
herein and coverage is extended under such policies to all liability assumed by
Tenant hereunder. Tenant shall obligate his insurers to notify Landlord at least
30 days prior to any significant changes in Tenant's insurance coverage. All
policies of insurance shall be written by Utah licensed companies reasonably
acceptable to Landlord. Tenant shall cause to be inserted in the policy or
policies of insurance required above, a Waiver of Subrogation clause as to
Landlord, except to the extent that such policies specifically name Landlord as
an additional insured. Notwithstanding the foregoing, Tenant shall have the
option to self-insure in accordance with the terms and conditions as stated
herein or to effect any insurance provided for in this Paragraph 15 by a blanket
policy or policies.
16. Liability and Indemnification.
-----------------------------
Tenant shall hold Landlord harmless from and defend Landlord against
any and all claims, liability or damages (but excluding any special or
consequential damages) relating to any injury or damage to any person or
property whatsoever occurring during the Lease Term in, on or about the Leased
Premises or any part thereof when such injury or damage shall be caused by the
act, neglect, fault of, or omission of any duty with respect to the same by
Tenant, its agents, servants and employees or any failure on the part of Tenant
to perform or comply with any of the provisions contained in this Lease on its
part to be performed or complied with. Landlord shall hold Tenant harmless and
defend Tenant against any and all claims, liability or damages (but excluding
any special or consequential damages) relating to any injury or damage to any
person or property whatsoever occurring in, on or about the Leased Premises or
any part thereof, when such injury or damage shall be caused by the act,
neglect, fault of, or omission of any duty with respect to the same by Landlord,
its agents, servants and employees or any failure on the part of Landlord to
perform or comply with any of the provisions contained in this Lease on its part
to be performed or complied with. The provisions of this Paragraph 16 shall
survive the expiration or termination of this Lease with respect to any claims
or liability occurring prior to such expiration or termination.
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17. Condemnation.
------------
A. If any part of the Leased Premises should be taken for any public
or quasi-public use under governmental law, ordinance or regulation, or by right
of eminent domain, or by private purchase in lieu thereof (any of the foregoing
being a "Taking") and the Taking would prevent or materially interfere with
Tenant's use of the Building or the Leased Premises for the purpose for which it
is then being used, this Lease shall terminate effective when the Taking shall
occur in the same manner as if the date of such Taking were the date originally
fixed in this Lease as the Termination Date. Tenant shall be entitled to make a
claim against a condemning authority for moving expenses, the unamortized
balance of leasehold improvements done at Tenant's expense and the value of the
unexpired term of Tenant's leasehold estate so long as such claim does not have
a preclusive effect on any award made to Landlord.
B. In the event of any such Taking, and if this Lease is not
terminated as provided in Paragraph 17(A), this Lease shall not terminate but
the rent payable hereunder during the unexpired portion of this Lease shall be
reduced on a pro rata basis, and Landlord shall undertake to restore the
Building and Leased Premises to a condition suitable for Tenant's use, as near
to the condition thereof immediately prior to such taking as is reasonably
feasible under the circumstances, within ninety (90) days of such Taking. In the
event that Landlord should fail to complete such repairs and material
restoration within ninety (90) days after the date of such Taking, Tenant may at
its option, terminate this Lease by delivering written notice to Landlord,
whereupon this Lease shall end on the date of such notice as if the date of such
notice were the date originally fixed in this Lease as the Termination Date.
C. In the event of any such Taking, Landlord and Tenant shall each be
entitled to receive and retain such separate awards and/or portion of lump sum
awards as may be allocated to their respective interests in any condemnation
proceedings.
18. Holding Over. Tenant will, at the termination of this Lease by lapse
------------
of time or otherwise, yield up immediate possession to Landlord. If Tenant
retains possession of the Leased Premises or any part thereof after such
termination, then Landlord may, at its option, serve written notice upon Tenant
that such holding over constitutes the creation of a tenancy at sufferance upon
the terms and conditions set forth in this Lease; provided, however, that rent
shall, in addition to all other sums which are to be paid by Tenant hereunder,
be equal to 150% of the Base Rent being paid to Landlord under this Lease
immediately prior to such termination (prorated on the basis of a 365 day year
for each day Tenant remains in possession). The provisions of this paragraph
shall not constitute a waiver by Landlord of any right of re-entry as herein set
forth; nor shall receipt of any rent or any other act in apparent affirmance of
the tenancy operate as a waiver of the right to terminate this Lease for a
breach of any of the terms, covenants, or obligations herein on Tenant's part to
be performed.
19. Quiet Enjoyment. Landlord represents and warrants to Tenant that
---------------
Landlord has full right and authority to enter into this Lease and that Tenant,
while paying the rent and performing its other covenants and agreements herein
set forth, shall peaceably and quietly have, hold and enjoy the Leased Premises
for the term hereof without hindrance or molestation from Landlord. Landlord
shall provide Tenant with non-disturbance agreements, in form and content
reasonably acceptable to Tenant, from any present or future mortgagee or holders
of other superior interests, if any.
20. Events of Default. The following events shall be deemed to be events
-----------------
of default by Tenant under this Lease (each, an "Event of Default"):
A. Tenant shall fail to pay when or before due any installment of
Rent, and such failure shall continue for a period of five (5) days after
written notice from Landlord; or
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B. Tenant shall fail to comply with any term, provision or covenant
of this Lease other than the payment of Rent, and shall not cure such failure
within thirty (30) days after written notice thereof from Landlord (or, if such
cure requires more than thirty (30) days, Tenant shall fail to commence such
cure within thirty (30) days after written notice from Landlord and thereafter
shall fail to diligently prosecute such cure to completion); or
C. Tenant shall fail to vacate the Leased Premises immediately upon
termination of this Lease, by lapse of time or otherwise, or upon termination of
Tenant's right to possession only; or
D. Tenant shall make a transfer in fraud of creditors; file or have
filed against it a petition under any appropriate federal or state bankruptcy or
insolvency law which petition is not dismissed within sixty (60) days of its
filing; be adjudged bankrupt or insolvent; fail or admit it cannot meet its
financial obligations as and when they become due; or a receiver or trustee
shall be appointed for all or substantially all of the assets of Tenant and such
appointment is not vacated within sixty (60) days thereof.
21. Remedies. Upon the occurrence of any Event of Default by Tenant,
--------
Landlord may pursue any and all remedies which it may then have hereunder or at
law or in equity, including, without limitation, any one or more of the
following, in each case, without any notice or demand:
A. Terminate this Lease, in which event Tenant immediately shall
surrender the Leased Premises to Landlord, and if Tenant fails to do so,
Landlord may, without prejudice to any other remedy which it may have for
possession or any arrearage in Rent, enter upon and take possession of the
Leased Premises. Tenant agrees to pay to Landlord on demand the amount of all
loss, cost, expense and damage which Landlord may suffer or incur by reason of
such termination, whether through inability to relet the Premises on
satisfactory terms or otherwise, including the following:
(i) the worth at the time of award of any unpaid Rent which had
been earned at the time of such termination; plus
(ii) the worth at the time of award of the amount by which the
unpaid Rent which would have been earned after termination until the
time of award exceeds the amount of such rental loss which Tenant
proves could have been reasonably avoided; plus
(iii) the worth at the time of award of the amount by which the
unpaid Rent for the balance of the term after the time of award
exceeds the amount of such rental loss that Tenant proves could have
been reasonably avoided; plus
(iv) any other amount, including court costs, or costs of
reletting (including leasing and refitting costs), necessary to
compensate Landlord for all detriment proximately caused by Tenant's
failure to perform Tenant's obligations under this Lease; plus
(v) all reasonable attorneys' fees incurred by Landlord relating
to the default and termination of this Lease.
All Rent shall be computed on the basis of the amount thereof which was due and
payable to Landlord for the month immediately prior to the default. As used in
subparagraph (iii) above, the "worth at the time of award" is to be computed by
discounting such amount at the discount rate of the Federal Reserve Bank of New
York at the time of the award plus one percent (1%).
9
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B. Enter upon and take possession of the Leased Premises by virtue of
the laws of the State of Utah for summary proceedings for possession of real
estate or such other proceeding as may be applicable, and use reasonable efforts
to relet all or any part of the Leased Premises on such terms as Landlord shall
deem advisable (including, without limitation, such concessions and free rent as
Landlord deems necessary or desirable) and receive and retain all of the rent
therefor; and Tenant agrees (i) to pay to Landlord on demand any deficiency that
may arise by reason of such reletting for the remainder of the Lease Term (or
any extension thereof, if the event of default occurs during the Renewal Term),
and (ii) that Tenant shall not be entitled to any rents or other payments
received by Landlord in connection with such reletting even if such rents and
other payments are in excess of the amounts that would otherwise be payable to
Landlord under this Lease. Tenant shall be liable immediately to Landlord for
all costs Landlord incurs in reletting the Premises, including, without
limitation, brokers' commissions, reasonable attorneys' fees incurred in
connection with the reletting and in connection with Tenant's default hereunder,
expenses of repairing, altering and remodeling the Premises required by the
reletting and like costs.
C. Make such payments or enter upon the Leased Premises, and perform
whatever Tenant is obligated to pay or perform under the terms of this Lease;
and Tenant agrees to reimburse Landlord on demand for any expenditures and
expenses which Landlord may make or incur in thus affecting compliance with
Tenant's obligations under this Lease.
D. Receive from Tenant all sums, the payment of which may have been
waived or abated by Landlord or which may have been paid by Landlord pursuant to
any agreement to grant Tenant a rental abatement or other monetary inducement or
concession, including but not limited to any tenant finish allowance or moving
allowance, it being agreed that any such concession or abatement was made on the
basis that Tenant fully perform all obligations and covenants under the Lease
for the entire Lease Term.
E. Collect, from time to time, by suit or otherwise, each installment
of Rent or other sum as it becomes due hereunder, or to enforce, from time to
time, by suit or otherwise, any term or provision hereof on the part of Tenant
required to be kept or performed.
F. No re-entry or taking possession of the Leased Premises by
Landlord shall be construed as an election on Landlord's part to terminate this
Lease, unless a written notice of such intention be given to Tenant.
Notwithstanding any such reletting or re-entry or taking possession, Landlord
may at any time thereafter terminate this Lease for a previous default. Pursuit
of any remedy set forth herein shall not preclude pursuit of any other remedy
provided herein or available at law, nor shall pursuit of any remedy constitute
a forfeiture or waiver of any Rent due to Landlord hereunder or of any damage
suffered by Landlord because of the violation of any term of this Lease.
Landlord's acceptance of any Rent following an Event of Default hereunder shall
not waive such Event of Default. No payment by Tenant or receipt by Landlord of
any amount less than the amounts due by Tenant hereunder shall be deemed to be
other than on account of the amounts due by Tenant hereunder, nor shall an
endorsement or statement on any check or document accompanying any payment be
deemed an accord and satisfaction.
G. If Landlord takes possession of the Leased Premises as permitted
herein, Landlord may keep in place and use all furniture, fixtures and equipment
at the Leased Premises, including that which is owned by Tenant at all times
prior to any foreclosure thereon by Landlord. Landlord also may remove from the
Leased Premises (without the necessity of obtaining a distress warrant, writ of
sequestration or other legal process, to the extent permitted by applicable law)
all or any portion of such furniture, fixtures, equipment and other property
located thereon and store same at any premises within the City of Lindon, Utah.
In such event, Tenant shall pay to Landlord all costs incurred by Landlord in
connection with such removal and storage and shall indemnify and hold Landlord
harmless from all loss, damage, cost, expense and liability in connection with
such removal and storage. Landlord's rights herein are in addition to any and
all other rights which
10
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Landlord has or may hereunder have at law or in equity. Tenant agrees that the
rights herein granted Landlord are commercially reasonable.
H. If Landlord must notify Tenant of any failure (monetary or
nonmonetary) of Tenant to comply with any provision of this Lease, that
obligation to notify Tenant shall terminate following the second such notice
delivered to Tenant within any twelve-month period during the Lease Term.
22. Notices. Any notice or other document required or permitted to be
-------
delivered hereunder shall be addressed to the parties hereto at the respective
addresses set out below, or at such other address as they have theretofore
specified by written notice delivered in accordance herewith and shall be deemed
to be delivered (i) upon personal delivery thereof, (ii) three (3) days after
deposit in the continental United States Mail, postage prepaid, certified or
registered mail, (iii) the next business day after given by a nationally
recognized overnight delivery service, or (iv) upon confirmation of complete
receipt if given by telecopy during normal business hours (or the next business
day if not confirmed during normal business hours):
If to Tenant: R.R. Donnelley & Sons Company
77 West Wacker Drive
Chicago, Illinois 60601
Attention: General Counsel
Telecopy: 312/326-7706
with a copy to: Jones, Day, Reavis & Pogue
77 West Wacker Drive, Suite 3500
Chicago, Illinois 60601-1692
Attention: James C. Hagy, Esq.
Telecopy: 312/782-8585
If to Landlord: Novell, Inc.
1555 North Technology Way
Orem, Utah 84057
Attention: Real Estate Department
Telecopy: 801/228-8676
with a copy to: Novell, Inc.
1555 North Technology Way
Orem, Utah 84057
Attention: Legal Department
Telecopy: 801/228-7077
All parties included within the terms "Landlord" and "Tenant," respectively,
shall be bound by notices given in accordance with the provisions of this
paragraph to the same effect as if each had received such notice.
23. Signage/Identification. Upon Landlord's prior consent (which shall not
----------------------
be unreasonably withheld) Tenant, at Tenant's sole cost and expense, shall be
permitted to erect exterior building and/or monument signage identifying
Tenant's presence in the Building, which signage shall be in compliance with all
applicable codes and ordinances. In addition, Tenant shall have the right to use
its standard graphics at the entrance to the Leased Premises. Upon the
expiration or earlier termination of this Lease, Tenant shall remove such
signage, at Tenant's expense, and restore the Building and/or landscaping to
substantially the same condition as existed prior to the erection of such signs.
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24. Environmental Matters.
---------------------
A. Tenant hereby agrees that, during the term of this Lease, Tenant
shall conduct no activities on the Leased Premises that shall produce or Release
any Hazardous Substance or Contaminant, except for such activities that are part
of Tenant's ordinary course of business and are conducted in accordance with
applicable law. Tenant shall indemnify, defend and hold harmless Landlord and
its agents, contractors, employees, invitees and customers, from and against all
fines, suits, claims, actions, damages, liabilities, costs and expenses
(including reasonable attorney's and consultant's fees) asserted against or
sustained by any such person arising out of Tenant's failure to comply with its
obligations under this Paragraph 24(A).
C. The provisions of this Paragraph 24 shall survive the expiration
or termination of this Lease with respect to any claims or liability occurring
prior to such expiration or termination. As used herein, the term "Hazardous
Substance" shall include, without limitation, flammables, explosives,
radioactive materials, asbestos containing materials, polychlorinated biphenyls,
pollutants, contaminants, hazardous wastes, toxic substances, petroleum and
petroleum products, chloroflurocarbons and substances declared to be hazardous
or toxic under any federal, state or local law, ordinance or regulation.
25. Option to Purchase.
------------------
A. Landlord hereby grants to Tenant the option to purchase the Leased
Premises (the "Option") at any time during the Lease Term or any extensions
thereof. To exercise the Option, Tenant must give written notice ("Tenant's
Notice") to Landlord of its intent to purchase the Leased Premises on a date
specified in Tenant's Notice, which date shall be at least ninety (90) days from
the date of Tenant's Notice. The option price payable with respect to the Leased
Premises (the "Option Price") shall be the fair market value of the Leased
Premises as of the date Tenant exercises the Option, which fair market value
shall be determined in accordance with Paragraph 25(l) hereof. Notwithstanding
the foregoing, Tenant shall receive a credit against the Option Price in an
amount equal to fifty percent (50%) of the Base Rent paid by Tenant to Landlord
pursuant to this Lease from the Commencement Date through the first to occur of
(i) the Closing Date (as hereinafter defined), or (ii) the expiration of the
Initial Term (the "Rent Credit").
B. Notwithstanding anything to the contrary contained herein, Tenant
shall not be entitled to exercise the Option unless, at the time of the exercise
thereof, this Lease shall be in full force and effect and no uncured Event of
Default shall exist hereunder.
C. If Tenant elects to exercise the Option, the closing of such
purchase shall take place on later to occur of (i) the date set forth in
Tenant's Notice, or (ii) fifteen (15) days after the Option Price has been
determined in accordance with the procedures set forth in Paragraph 25(l) hereof
(the "Closing Date") at the offices of the Title Insurer (as hereinafter
defined) at a mutually agreeable time on such Closing Date. Landlord shall
deliver a general warranty deed, in form proper for recording and sufficient to
convey marketable title to the Leased Premises, free and clear of all mortgages,
liens, encumbrances, restrictions, easements and other defects in title other
than general real estate taxes not yet due and payable and those title matters
approved by Tenant pursuant to Paragraph 25(F) hereof (collectively, the
"Permitted Exceptions").
D. Landlord shall furnish, not later than thirty (30) days prior to
the Closing Date, a commitment for an ALTA Owner's Title Insurance Policy (the
"Commitment"), issued by a title company licensed to do business in Utah (the
"Title Insurer") in the amount of the Option Price, showing marketable and
insurable title to the Leased Premises to be solely in Landlord, and including
an extended coverage endorsement, a zoning 3.1 endorsement and such other
endorsements as Tenant may reasonably require. Landlord shall also deliver with
the Commitment legible copies of all title exceptions shown or referenced in the
Commitment.
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E. Landlord shall also furnish, not later than thirty (30) days prior
to the Closing Date, a survey of the Leased Premises prepared by a Utah licensed
surveyor in accordance with the 1992 "Minimum Standard Detail Requirements for
ALTA/ACSM Surveys", dated as of a date not more than six (6) months prior to the
Closing Date and certified to Tenant and the Title Insurer (the "Survey").
F. Tenant shall have ten (10) days after receipt of both the
Commitment and the Survey in which to review the same. In the event that the
Commitment or the Survey shall show any exceptions to, or matters affecting,
Landlord's title to the Leased Premises which are unacceptable to Tenant, Tenant
shall notify Landlord within such ten (10) day period. Any matters as to which
Tenant does not so notify Landlord shall be deemed to be "Permitted Exceptions".
Landlord shall have twenty (20) days after receipt of such notice from Tenant to
cause such unpermitted exceptions to be removed from the Commitment or
affirmatively insured over by endorsement to the Commitment. If Landlord is
unwilling or unable to cure such unpermitted exceptions, Tenant shall have the
right, at its option, to elect not to proceed with the exercise of the option or
to accept title subject to such unpermitted exceptions. Notwithstanding the
foregoing, Landlord covenants that Landlord shall remove all title exceptions
pertaining to liens or encumbrances of a definite or ascertainable amount which
may be removed by the payment of money or otherwise at closing (but excluding
matters payable by Tenant pursuant to this Lease).
G. At closing, Landlord, at Landlord's expense, shall cause the Title
Insurer to issue and deliver to Tenant an ALTA Form B-1970 Owner's Title
Insurance Policy, insuring Tenant's title to the Leased Premises in the amount
of the Option Price, subject only to the Permitted Exceptions and with the
endorsements specified in Paragraph 25(D) hereof.
H. All Rent and Impositions shall be prorated as of the Closing Date.
State, county and local transfer taxes, if any, shall be paid by the party
designated in the statute or ordinance creating such tax. Either party may elect
to close through an escrow, the cost of which shall be divided equally between
them.
I. Within thirty (30) days following Tenant's exercise of the Option,
Landlord and Tenant shall attempt to agree on the fair market value of the
Leased Premises. Absent an agreement as to the fair market value of the Leased
Premises within such thirty (30) day period, Landlord and Tenant shall, within
ten (10) days thereafter, jointly choose an appraiser (qualified by an "M.A.I."
designation) (the "Appraiser"), or, if Landlord and Tenant are unable to jointly
choose the Appraiser within such ten (10) day period, Landlord and Tenant shall
each choose an appraiser and the two appraisers shall jointly choose the
Appraiser. Thereafter, within fifteen (15) days after the Appraiser has been
selected, Landlord and Tenant shall each submit to the Appraiser their
respective proposals of the fair market value of the Leased Premises (each, a
"FMV Proposal"). Within fifteen (15) days after the Appraiser has received the
FMV Proposals, the Appraiser shall select either Landlord's FMV Proposal or
Tenant's FMV Proposal as the closest to the fair market value of the Leased
Premises, and the decision of the Appraiser and the FMV Proposal selected shall
be conclusive and binding upon both Landlord and Tenant. Notwithstanding the
foregoing, Landlord or Tenant shall have the right to terminate negotiations by
giving the other party written notice if the difference between Option Price as
determined by the Appraiser and such party's FMV Proposal is greater than five
percent (5%). Such notice of termination shall be delivered within ten (10) days
after the date the Appraiser has determined the Option Price in accordance with
this Paragraph 25(l).
J. Upon the closing of the sale of the Leased Premises, this Lease
shall terminate. If the term of this Lease expires while the closing of the
purchase is pending, this Lease shall be extended from day to day at the then
existing monthly Base Rent (expressed as a per diem amount) until such closing
has occurred, not to exceed thirty (30) days. Landlord and Tenant agree
13
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to cooperate in the closing of any sale and purchase of the Leased Premises
within the time periods provided herein and prior to the expiration of this
Lease.
K. Tenant shall be permitted to record a Memorandum of Purchase
Option, in substantially the form as Exhibit C attached hereto and made a part
---------
hereof, against the Leased Premises.
26. Right of First Refusal.
----------------------
A. In addition to the Option provided in Paragraph 25 hereof, Tenant
shall have a continuing right of first refusal with respect to any proposed
sales of the Leased Premises to any third party during the Lease Term or any
extension thereof. In the event that Landlord receives an offer to purchase the
Leased Premises which Landlord intends to accept, Landlord shall, prior to
accepting such offer, furnish Tenant with written notice of the material terms
and conditions of such offer ("Landlord's Notice"). Tenant shall have thirty
(30) days from the date of Landlord's Notice within which to notify Landlord in
writing that Tenant desires to purchase the Leased Premises on the substantially
same terms and conditions contained in Landlord's Notice, except that Tenant
shall receive the Rent Credit. If Tenant gives timely notice of its desire to
purchase the Leased Premises on the terms and conditions contained in Landlord's
Notice, Landlord shall be obligated to sell the Leased Premises to Tenant on
substantially the same terms and conditions (but subject to the Rent Credit),
and the sale shall close within forty-five (45) days after Tenant's written
exercise of such right.
B. If Tenant fails to exercise such right within such thirty (30) day
period, Landlord may proceed to sell the Leased Premises to such third party
within ninety (90) days thereafter (the "Sale Period") on substantially the same
terms and conditions contained in Landlord's Notice, subject to Tenant's
occupancy and all of Tenant's other rights under this Lease (other than the
Option), and this right of first refusal shall then terminate. Landlord hereby
covenants to Tenant that if Landlord has not sold the Leased Premises to such
third party within the Sale Period (or such longer period as may be necessary
provided that Landlord is diligently prosecuting such sale) or if the terms and
conditions of such sale will not be substantially the same as those contained in
Landlord's Notice, Landlord shall resubmit Landlord's Notice to Tenant pursuant
to the procedures set forth in Paragraph 26(A) hereof with respect to any
modified or additional proposed sales of the Leased Premises.
27. Landlord's Right to Subdivide. Landlord and Tenant acknowledge that
-----------------------------
the Land included within the Leased Premises is part of a larger, unsubdivided
tract of land owned by Landlord ("Landlord's Land"). Landlord shall have the
right to subdivide the Land from the remainder of Landlord's Land, provided that
(A) as a result of such subdivision, the Land shall become a single, separately
subdivided lot, (B) such subdivision shall not operate to increase the monetary
obligations of Tenant hereunder or affect Tenant's operations at the Leased
Premises in any manner whatsoever, and (C) such subdivision shall be at
Landlord's sole cost and expense. Tenant shall, upon request from Landlord,
execute and deliver any appropriate papers or otherwise cooperate with Landlord
(provided that such cooperation shall be at no cost to Tenant) as may be
necessary to permit Landlord to so subdivide Landlord's Land. The parties hereto
further acknowledge that, as a result of such subdivision, Landlord and Tenant
may be required to enter into a cross easement agreement to permit Landlord and
its respective agents, customers and invitees to have non-exclusive rights of
ingress and egress over such private drives as may be from time to time located
on the Land and to permit Tenant and its respective agents, customers and
invitees to have non-exclusive rights of ingress and egress over such private
drives as may be from time to time located on the balance of Landlord's Land.
14
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28. Landlord's Liability. Landlord shall not be in default under this
--------------------
Lease solely with respect to matters or conditions existing exclusively within
the Leased Premises unless and until it has failed to perform its obligation
hereunder with respect to such matters or conditions within thirty (30) days
after written notice by Tenant to Landlord specifying the obligation which
Landlord has not performed. However, if Landlord's obligation reasonably
requires more than thirty (30) days for its performance, Landlord shall not be
in default if it commences performance within such thirty-day period and uses
reasonable diligence to complete the same. Tenant has no right to claim any
nature of lien against the Leased Premises or to withhold, deduct from or offset
against any Rent or other sums to be paid to Landlord hereunder. All obligations
of Landlord are binding upon Landlord only during the period of its ownership of
the Leased Premises. The term "Landlord" means only the owner of the Leased
Premises. In the event of a transfer by such owner of its interest in the Leased
Premises, such owner shall thereupon be released and discharged from all
covenants and obligations of Landlord thereafter accruing (except to the extent
expressly provided herein to the contrary), but such covenants and obligations
shall be binding during the Lease Term upon each new owner for the duration of
such owner's ownership. Any liability of Landlord to Tenant relating to this
Lease shall be limited to the interest of Landlord in the Leased Premises, and
Landlord shall not be personally liable for any deficiency.
29. Subordination and Non-Disturbance.
---------------------------------
A. Landlord represents and warrants to Tenant that, as of the date of
this Lease, there is no deed of trust, mortgage or other instrument of security
(any of the foregoing, a "Security Instrument") covering the Leased Premises or
any part thereof or any interest of Landlord therein. Landlord hereby expressly
reserves the right, at its option, to place Security Instruments on and against
any of the Leased Premises or any interest of Landlord therein. Provided that
Tenant has been provided with a non-disturbance agreement in form and substance
reasonably acceptable to Tenant from the holder (a "Holder") of any Security
Instrument, this Lease shall be subject to and subordinate to any Security
Instruments that hereafter cover any of the Leased Premises or any interest of
Landlord therein. The foregoing subordination shall be self-operative and no
further instrument of subordination need be required; however, upon the
reasonable request of a Holder, Tenant shall execute any instrument intended to
evidence the subordination of this Lease to any such Security Instrument.
B. In the event of the enforcement by a Holder of the remedies
provided for by law or by such Security Instrument and provided that Tenant has
been provided with a non-disturbance agreement in form and substance reasonably
acceptable to Tenant from such Holder, Tenant will attorn to and automatically
become the tenant of such successor in interest without change in the terms or
other provisions of this Lease and this Lease shall continue in full force and
effect; provided, however, that such successor in interest shall not be bound by
or liable for (i) any payment of Rent for more than one month in advance, or
(ii) any offset, claim or cause of action which Tenant may have against Landlord
relating to the period which is prior to the time Tenant becomes the tenant of
such successor in interest. Upon reasonable request of any Holder, Tenant shall
execute and deliver an instrument confirming the attornment provided for herein.
C. Provided that Tenant has been notified in writing of the existence
and address or any Holder, Tenant agrees to deliver by certified mail to any
such Holder a copy of any written notice of nonperformance given by Tenant to
Landlord, specifying the alleged failure to perform in reasonable detail. Tenant
further agrees that if Landlord fails to cure any nonperformance within the time
provided for in this Lease, then any such Holder shall have an additional thirty
(30) days within which to cure such nonperformance, or if such nonperformance
cannot be cured within that time, then such additional time as may be necessary
for cure if, within such thirty day period, such Holder has commenced
performance of such obligation and diligently pursues the same to completion,
including, but not limited to commencement of foreclosure proceedings necessary
to effect such cure.
15
<PAGE>
30. Estoppel Certificates. Tenant agrees to furnish to Landlord from time
---------------------
to time, when requested by Landlord or a Holder or prospective Holder or
purchaser of the Leased Premises, a certificate in the form attached hereto as
Exhibit D, signed by Tenant, within twenty (20) days of Tenant's receipt of such
- ---------
request. If Tenant fails to return a fully executed copy of such certificate to
Landlord within said twenty (20) day period, then Tenant conclusively shall be
deemed to have approved and confirmed the matters contained in such certificate.
31. Relationship to Purchase Agreement. Landlord and Tenant expressly
----------------------------------
acknowledge that nothing in this Lease is intended to limit or preclude any of
the rights or obligations of either R.R. Donnelley & Sons Company or Novell,
Inc. arising under that certain Asset Purchase Agreement of even date herewith
between R.R. Donnelley & Sons Company and Novell, Inc. (the "Purchase
Agreement"). Further, nothing in the Purchase Agreement is intended to limit or
preclude the rights or obligations of R.R. Donnelley & Sons Company or Novell,
Inc. arising under this Lease. All capitalized terms not otherwise defined in
this Lease shall have the meaning ascribed to such terms in the Purchase
Agreement.
32. Miscellaneous.
-------------
A. Words of any gender used in this Lease shall be held and construed
to include any other gender, and words in the singular number shall be held to
include the plural, unless the context otherwise requires.
B. The terms, provisions and covenants and conditions contained in
this Lease shall apply to, inure to the benefit of, and be binding upon, the
parties hereto and upon their respective heirs, legal representatives,
successors and permitted assigns, except as otherwise expressly provided herein.
C. The captions inserted in this Lease are for convenience only and in
no way define, limit or otherwise describe the scope or intent of this Lease, or
any provision hereof.
D. This Lease may not be altered, changed or amended except by an
instrument in writing signed by both parties hereto.
E. If any clause, phrase, provision or portion of this Lease or the
application thereof to any person or circumstance shall be invalid or
unenforceable under applicable law, such event shall not affect, impair or
render invalid or unenforceable the remainder of this Lease nor any other
clause, phrase, provision or portion hereof, nor shall it affect the application
of any clause, phrase, provision or portion hereof to other persons or
circumstances, and it is also the intention of the parties to this Lease that in
lieu of each such clause, phrase, provision or portion of this Lease that is
invalid or unenforceable, there be added as a part of this Lease contract a
clause, phrase, provision or portion as similar in terms to such invalid or
unenforceable clause, phrase, provision or portion as may be possible and be
valid and enforceable.
F. Each of the parties (i) represents and warrants to the other that
it has not dealt with any broker or finder in connection with this Lease; and
(ii) indemnifies and holds the other harmless from any and all losses,
liability, costs or expenses (including attorneys' fees) incurred as a result of
an alleged breach of the foregoing warranty.
G. This Lease shall be construed and enforced in accordance with and
governed by the laws of the State of Utah.
H. This Lease may be executed in any number of counterparts, each of
which shall be deemed an original and all of which taken together shall
constitute one and the same instrument.
16
<PAGE>
I. If either party commences or becomes a party to any action arising
out of or in connection with this Lease, the prevailing party shall be entitled
to have and recover from the non-prevailing party expenses incurred in
connection therewith, including but not limited to reasonable attorney's fees,
cost of suit, investigation and discovery costs and costs of appeal.
J. Each of Landlord and Tenant hereby waives trial by jury in any
action, proceeding or counterclaim brought by or against the other in connection
with any matter arising out of or in any way connected with this Lease.
K. Landlord and Tenant acknowledge that this Lease is a negotiated
agreement and the interpretation of any provision will not be construed against
either party as the drafter thereof.
L. Any approval by Landlord or Landlord's architects and/or engineers
of any of Tenant's drawings, plans and specifications that are prepared in
connection with any construction of improvements in the Leased Premises shall
not in any way be construed or operate to bind Landlord or to constitute a
representation or warranty of Landlord as to the adequacy or sufficiency of such
drawings, plans and specifications or the improvements to which they relate, for
any use, purpose, or condition, but such approval shall merely be the consent of
Landlord as may be required hereunder.
M. Tenant shall deliver to Landlord upon execution of this Lease a
Secretary's Certificate certifying the standing resolutions of the executive
committee of Tenant's board of directors naming the officers who are authorized
to execute this Lease on behalf of Tenant.
N. Any signature on this Lease transmitted by telecopy shall be
treated in all manner and respects as an original signature of such party.
[Remainder of page intentionally left blank]
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Lease to be
executed on the date and year first written above.
TENANT:
R.R. DONNELLEY & SONS COMPANY
By: /s/ [Signature illegible]
-----------------------------
Title Senior Vice President
--------------------------
LANDLORD:
NOVEL, INC.
By: /s/ [Signature illegible]
-----------------------------
Title Executive Vice President
-------------------------
18
<PAGE>
EXHIBIT A
---------
LAND
<PAGE>
EXHIBIT A-1
-----------
LABLETECH SPACE
<PAGE>
EXHIBIT B
---------
MAINTENANCE SCHEDULE
Page 1 of 6
- --------------------------------------------------------------------------------
JANUARY
1. Lube all air handlers and mechanical room equipment.
2. Check all condenser fan motors and fuses.
3. Check all air pressure bleed off valves on boilers and dry coolers.
4. Clean all mechanical rooms.
5. Clean all drinking fountain condensers.
- --------------------------------------------------------------------------------
FEBRUARY
1. Check all pre-filters and change as needed.
2. Change Data-Aire filters and lube.
3. Do 6 month check-up on all Data Aires. (refer to check-up form)
4. Change fan powered VAV box filters in building #1.
5. Clean all condensers at food services.
6. Clean and maintain ice machines.
- --------------------------------------------------------------------------------
MARCH
1. Lube and oil all pumps and motors.
2. Change filters on all air conditioning units outside.
3. Change fan powered VAV box filters in building #2.
4. Oil and lube fan powered VAV boxes.
- --------------------------------------------------------------------------------
APRIL
1. Clean and inspect boilers. (refer to form)
2. Wash all condensing and evaporator coils.
3. Change fan powered VAV box filters in building #3.
4. Check the glycol on the close loop systems for temperature and rust
inhibitor.
5. Check all fan belts.
6. Check all condenser fan motors and fuses.
- --------------------------------------------------------------------------------
MAY
1. Lube all roof-top units.
2. Clean return air grills.
3. Clean all condensers on refrigerators.
4. Tighten all nuts and bolts in mechanical rooms.
- --------------------------------------------------------------------------------
JUNE
1. Check all pre-filters and change as needed.
2. Change filters on all air conditioning units outside.
3. Leak check all air conditioning units.
4. Check all condenser fan motors.
5. Change fan powered VAV box filters in building #1.
<PAGE>
EXHIBIT B
---------
MAINTENANCE SCHEDULE
Page 2 of 6
- --------------------------------------------------------------------------------
JULY
1. Lube all air handlers and mechanical room equipment.
2. Check all condenser fan motors and fuses.
3. Check all air pressure bleed off valves on boilers and dry coolers.
4. Change fan powered VAV box filters in building #2.
- --------------------------------------------------------------------------------
AUGUST
1. Take acid test on all compressors.
2. Change fan powered VAV box filters in building #3.
3. Do 6 month check-up on all Data Aires. (refer to check-up form)
4. Change Data-Aire filters and lube.
5. Clean all condensers at food services.
6. Clean and maintain ice machines.
- --------------------------------------------------------------------------------
SEPTEMBER
1. Lube and oil all pumps and motors.
2. Check all condenser fan motors.
3. Change filters on all air conditioning units outside.
4. Wash all condensing and evaporator coils outside.
- --------------------------------------------------------------------------------
OCTOBER
1. Check all pre-filters and change as needed.
2. Change fan powered VAV box filters in building #1.
3. Check all fan belts.
4. Clean all air grills in restrooms and check motors.
5. Check all condenser fan motors and fuses.
- --------------------------------------------------------------------------------
NOVEMBER
1. Change fan powered VAV box filters in building #2.
2. Lube all roof-top units.
3. Clean and inspect boilers. (refer to form)
4. Oil and lube fan powered VAV boxes.
- --------------------------------------------------------------------------------
DECEMBER
1. Change fan powered VAV box filters in building #3.
2. Change filters on all air conditioning units outside.
3. Leak check all air conditioning units.
<PAGE>
EXHIBIT B
---------
Page 3 of 6
================================================================================
Data Air unit Comments
- --------------------------------------------------------------------------------
Temperature setpoint
- --------------------------------------------------------------------------------
Humidity setpoint
- --------------------------------------------------------------------------------
Dehumidify setpoint (deadband)
- --------------------------------------------------------------------------------
Water changeover temperature
- --------------------------------------------------------------------------------
Inspect filters
- --------------------------------------------------------------------------------
Inspect belts for wear
- --------------------------------------------------------------------------------
Check belt tension
- --------------------------------------------------------------------------------
Check all fuses
- --------------------------------------------------------------------------------
Tighten all connections
- --------------------------------------------------------------------------------
Check humidifier
- --------------------------------------------------------------------------------
Check heating elements
- --------------------------------------------------------------------------------
Calibrate temperature sensor
- --------------------------------------------------------------------------------
Calibrate humidity sensor
- --------------------------------------------------------------------------------
Check blower bearings
- --------------------------------------------------------------------------------
Amperage draw blower motor
- --------------------------------------------------------------------------------
Operating pressure compressor #1
- --------------------------------------------------------------------------------
Sightglass condition comp. #1
- --------------------------------------------------------------------------------
Amperage draw compressor #1
- --------------------------------------------------------------------------------
Superheat compressor #1
- --------------------------------------------------------------------------------
Check crankcase heater comp. #1
- --------------------------------------------------------------------------------
Operating pressure compressor #2
- --------------------------------------------------------------------------------
Sightglass condition comp. #2
- --------------------------------------------------------------------------------
Amperage draw compressor #2
- --------------------------------------------------------------------------------
Superheat compressor #2
- --------------------------------------------------------------------------------
Check crankcase heater comp. #2
- --------------------------------------------------------------------------------
Check for refrigerant leaks
================================================================================
Name______________________________
Date______________________________
Location__________________________
<PAGE>
EXHIBIT B
---------
Page 4 of 6
Boilers
Annual Open and Inspect
================================================================================
Fire boiler to check all safeties
- --------------------------------------------------------------------------------
Blow down low water cutoff -- should stop burner
- --------------------------------------------------------------------------------
Test operating controls
- --------------------------------------------------------------------------------
Test limit controls
- --------------------------------------------------------------------------------
Test relief valve
- --------------------------------------------------------------------------------
Shuts off boiler and let cool down
- --------------------------------------------------------------------------------
Lockout tagout all important areas
- --------------------------------------------------------------------------------
Dismantle boiler for internal inspection
- --------------------------------------------------------------------------------
Inspect burner for dirt, lint, etc.
- --------------------------------------------------------------------------------
Check burner ports and passages for obstructions
- --------------------------------------------------------------------------------
Inspect for complete combustion--soot buildup
- --------------------------------------------------------------------------------
Check linkage -- tighten if required
- --------------------------------------------------------------------------------
Examine all exposed metal surfaces for scale,
corrosion, cracks on seams, etc.
- --------------------------------------------------------------------------------
Check fire surfaces for bulging, blistering, and
leaks and cracks
- --------------------------------------------------------------------------------
Check manholes and shell plates thoroughly for
cracks, leakage, or any other distress
- --------------------------------------------------------------------------------
Check ligaments for leakage or breakage
- --------------------------------------------------------------------------------
Check pipe connections and fittings for leaks
- --------------------------------------------------------------------------------
Check fire brick for breakage or large cracks
- --------------------------------------------------------------------------------
Check flue collector and barometric damper
- --------------------------------------------------------------------------------
Check spacing of flame rod and ignition electrodes
- --------------------------------------------------------------------------------
Check low water cutoff piping, make sure it is clear
- --------------------------------------------------------------------------------
Dismantle low water cutoff and inspect bowl for
sediment or other hard deposits
- --------------------------------------------------------------------------------
Check float, make sure it isn't waterlogged
================================================================================
<PAGE>
EXHIBIT B
---------
Page 5 of 6
================================================================================
Check mecury bulb for separation, discoloration
- -------------------------------------------------------------------------------
Make sure water isn't leaking into wiring box
- -------------------------------------------------------------------------------
Tighten all electrical connections
- --------------------------------------------------------------------------------
Clean tubes as required
- --------------------------------------------------------------------------------
Check relief valve for any accumulation of rust, scale
- --------------------------------------------------------------------------------
Check annodes
- --------------------------------------------------------------------------------
Reassemble boiler
- --------------------------------------------------------------------------------
Remove all lockout tagout devices
- --------------------------------------------------------------------------------
Check ventilation air to mechanical room
- --------------------------------------------------------------------------------
Check water chemistry
- --------------------------------------------------------------------------------
Check operation of makeup water
- --------------------------------------------------------------------------------
Light off boiler -- if refractory got wet, step fire
burner to dry it out
- --------------------------------------------------------------------------------
Check supply gas pressure
- --------------------------------------------------------------------------------
Check manifold pressure
- --------------------------------------------------------------------------------
Check main and pilot burner flames
- --------------------------------------------------------------------------------
Test operating controls
- --------------------------------------------------------------------------------
Test limit controls
- --------------------------------------------------------------------------------
Test relief valve
- --------------------------------------------------------------------------------
Observe boiler operation until it gets up to
temperature and cycles a few times
================================================================================
Comments
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Date
---------------------------
Signature
----------------------
<PAGE>
EXHIBIT B
---------
Page 6 of 6
Electrical Preventative Maintenance at the Manufacturing Facility:
Building 1 UPS System
.UPS Battery Systems -3 months - individual battery test.
.UPS Control Cabinet -6 months - visual check, check connections, check display
readings against meter readings.
All Buildings
.Panels, Disconnects & Transforms/Yearly - visual check and heat test.
.Emergency Lighting - 6 months - test all lights.
.Fire Alarm System - 6 months - clean smoke detector sensors.
.Halon System - 6 months - have system checked by Firetrol.
<PAGE>
EXHIBIT C
MEMORANDUM OF OPTION TO PURCHASE
THIS MEMORANDUM, is made as of December ___, 1994, by R.R. DONNELLEY &
SONS COMPANY, a Delaware corporation ("Tenant").
In consideration of the covenants to be performed by Tenant as set
forth in that certain unrecorded Lease Agreement dated December ____, 1994 by
and between Novell, Inc., a Delaware corporation ("Landlord"), and Tenant (the
"Lease"), Landlord has granted Tenant, according to the terms of the Lease, an
option to purchase the real property commonly known as 500 South 500 West,
Lindon, Utah, and legally described on Exhibit A attached hereto and made a part
hereof (the "Property").
Tenant's option to purchase expires automatically on the earlier to
occur of (i) the termination of the Lease, or (ii) the recording of a deed
conveying the Property from Landlord to Tenant or to any other third party, but
in any event by July l, 2000.
The purpose of this instrument is to give notice of the option and all
of its terms, covenants and conditions to the same extent as if the Lease were
fully set forth herein.
IN WITNESS WHEREOF, Tenant has executed this instrument as of the day
and year first above written.
TENANT:
R.R. DONNELLEY & SONS COMPANY
By:_________________________________________
Title:______________________________________
C-1
<PAGE>
EXHIBIT D
ESTOPPEL CERTIFICATE
[DATE]
- ---------------------
- ---------------------
- ---------------------
- ---------------------
Re: 500 South 500 West, Lindon, Utah
Gentlemen and Mesdames:
The undersigned, as Tenant under that certain Lease dated December ____,
1994, by and between Novell, Inc., as Landlord and R.R. Donnelley & Sons
Company, as Tenant, [as amended by that certain _______________________________]
(the "Lease") covering the premises therein described and referenced above,
hereby certifies:
1. Tenant is in possession of the Leased Premises.
2. The Lease is in full force and effect and has not been amended or
modified except as above stated.
3. The Lease term commenced December 4, 1994, and shall continue to
December 3, 1997, subject to Tenant's right to renew as set forth in the terms
of the Lease.
4. Tenant pays monthly rent which has been paid through ______________.
5. Tenant has paid no security deposit.
6. As of this date, as far as can be ascertained, without due inquiry,
Tenant does not have any offsets against the payment of rent under the terms of
the Lease.
7. As of this date, as far as can be ascertained, without due inquiry, all
improvements and work required under the terms of the Lease to be done by
Landlord have been completed to the satisfaction of Tenant.
OR
As of this date, as far as can be ascertained, without due inquiry, all
improvements and work required under the terms of the Lease to be done by
Landlord have not been completed to the satisfaction of Tenant. Please note
______________________________________________
______________________________________________________________________________.
Very truly yours,
R.R. DONNELLEY & SONS COMPANY
By _______________________________
D-1
<PAGE>
STATE OF _____________ )
)ss.
County of ____________ )
On the ___ day of December, 1994, personally appeared before me
FRANK J. UVENA who being by me duly sworn, did say, for himself, that he is the
SENIOR VICE PRESIDENT of R.R. DONNELLEY & SONS COMPANY, a Delaware corporation,
and that the within and foregoing instrument was signed in behalf of said
corporation by authority of the written consent of the Executive Committee of
its Board of Directors, and said SENIOR VICE PRESIDENT duly acknowledged to me
that said corporation executed the same.
-------------------------------------
Notary Public
Seal
This instrument prepared by
and upon recording return to:
Susan I. Matejcak
JONES DAY REAVIS & POGUE
77 West Wacker
Chicago, Illinois 60601-1692
C-2
<PAGE>
Personal Property Lease
This Personal Property Lease ("Lease") is made by and between Novell, Inc.,
("Lessor") and R.R. Donnelley & Sons Company ("Lessee") to be effective the 5th
day of December, 1994.
1. Property and Rent
In consideration at the covenants and promises contained
in this Lease, Lessor hereby leases to Lessee the personal property
("Equipment") at the rental rate listed in this paragraph 1 commencing
December 4, 1994. Rent shall be paid at the office of Lessor in advance on
the first day of the month. Payment for the months of December, 1994,
January, 1995, and March 1995 shall be due upon execution hereof by both
parties. The term of this Lease shall run with the term of that certain
Real Property Lease between the parties dated December 3, 1994 and
effective December 4, 1994. Termination of the Real Property Lease shall
constitute termination hereof. Lessee shall have the option to purchase the
phone switch at any time during time term hereof, or at termination, at a
price to be determined by the parties to be its fair market value at the
time of the purchase.
Equipment
---------
a. Phone switch, including:
i. ROLM Model 8751
ii. Software revision 9005
iii. Phone rectifier equipment
iv. Uninterruptible Power Supply System
Lease Amount: $285,000 (based upon a three-year term.)
b. Pallet Racking, including
i. 9,066 standard pallet positions
ii. 312 push back pallet positions
Lease Amount: $51,158 (based upon a three-year term)
-------
Total Lease Amount: $336,158 payable in monthly installments of
--------
$9,337.72.
2. Delivery and Return
Lessor acknowledges that the Equipment has been delivered and as of the
date of commencement hereof is in possession of the Equipment. No later
than the end of the term hereof, Lessee shall return possession of the
Equipment to Lessor in as good condition as exists at the commencement
hereof, reasonable wear and tear excepted. The Equipment shall be subject
to inspection by Lessor before being returned to Lessor and in case a
reasonable price for restoring the Equipment to such condition cannot be
agreed upon, each party will appoint an appraiser, and the two appraisers
appoint a third. The price of recondition as fixed by the three appraisers
shall be binding upon both parties.
3. Taxes
Lessee agrees that, during the term hereof, in addition to the rent to be
paid, it will promptly pay all taxes, assessments and other governmental
charges levied or assessed upon the interest of the Lessee in the Equipment
or upon the use or operation thereof or on the earnings arising therefrom,
and as additional rent will promptly pay or reimburse the Lessor for all
taxes, assessments and other governmental charges levied or assessed
against and paid by the Lessor on account of it ownership of the Equipment
or any part thereof, or the use or operation thereof to the
<PAGE>
Lessee, of the rent herein provided for or the earning arising therefrom.
4. Compliance With Laws, Insurance
Lessee agrees, at its own expense:
a. To pay all charges and expenses in connection with the operation of
each item of Equipment;
b. To comply with all governmental laws, ordinances, regulations,
requirements and rules with respect to the use, maintenance and
operation of the Equipment;
c. To maintain at all times public liability, property damage, fire,
theft and comprehensive insurance in an amount satisfactory to Lessor,
protecting Lessor's interest as it may, delivering to Lessor evidence
of such insurance coverage; and
d. To make all repairs and replacements required to be made to maintain
the Equipment in good condition, reasonable wear and tear excepted.
5. Reservation of Title
Title to the Equipment shall at all times remain in the Lessor and Lessee
will at all times protect and defend, at is own cost and expense, the title
of the Lessor from and against all claims liens and legal processes of
creditors of the Lessee and keep the Equipment free and clear from all such
claims, liens and processes. The Equipment is and shall remain personal
property.
6. Default
There shall be deemed to be a breach of this Lease (a) if Lessee shall
default in the payment of any rent hereunder and such default shall
continue for a period of 10 days, (b) if Lessee shall default in the
performance of any other covenants herein and such default shall continue
uncured for 15 days after written notice thereof to Lessee by Lessor, or
(c) if Lessee ceases doing business as a going concern, or if a petition is
filed by or against Lessee under the Bankruptcy Act or any amendment
thereto, or (d) if Lessee attempts to remove or sell or transfer or
encumber or sublet of part with possession of the Equipment or any party
thereof without prior written consent of Lessor. In the event of a breach
of this Lease, the Equipment shall upon Lessor's demand forthwith be
delivered to Lessor at Lessee's expense at such place as Lessor shall
designate and Lessor may, without notice or liability or legal process,
enter into any premises of or under control of Lessee where the Equipment
may be and repossess all or any part of the Equipment.
7. Right of Inspection
Lessor shall have the right from time to time during reasonable business
hours to enter upon the Lessee's premises for the purpose of confirming the
existence, condition and the proper maintenance of the Equipment.
8. Location and Use
Lessee shall use the Equipment only at the manufacturing facility in
Lindon, Utah and shall not at any time remove the same from the place
except in returning the same to Lessor or except as may be permitted by
Lessor by consent thereto in writing. Lessee shall use Equipment at all
times in a workmanlike manner and in such manner as will not injure the
same except by the ordinary wear and tear of such Equipment when in good
workmanlike use and shall at Lessee's cost and expense replace with new
parts any and/or all parts which may require replacement during the term of
this lease. In the installation, location and use of the Equipment, Lessee
shall comply fully with all the laws of the State of Utah and with all
county or municipal ordinances likewise appertaining.
9. Indemnification of Lessor
Lessee shall and does hereby agree to protect and save Lessor harmless
against any an all losses on damage to the Equipment by fire, flood,
explosion, tornado or theft and Lessee shall and does hereby assume all
liability to any person whomsoever arising from the location, condition or
use of the Equipment, and shall indemnify and does indemnify Lessor
<PAGE>
of and from all liability, claim, and demand whatsoever arising from the
location, condition, or use of the Equipment whether in operation or not,
and growing out of any cause, including allege imperfect or defective
Equipment, and from every other liability, claim and demand whatsoever
during the term of this lease or arising while the Equipment is in the
possession of Lessee. Lessee also agrees to promptly reimburse Lessor, in
cash, for any and all personal property taxes levied against the Equipment
and paid by Lessor.
10. Waiver
Lessor's waiver of or failure to enforce strict performance by Lessee of
any terms, warranties, covenants and promises herein shall not be construed
as a waiver of any terms or conditions contained herein.
11. Assignment
The rights of Lessee under this Agreement shall not be assignable by Lessee
without the written consent of Lessor except to an affiliate of Lessee,
provided that the assignee shall assume in writing all of Lessee's
obligations to Lessor hereunder. For purposes of this Lease, affiliate
shall mean any person or entity which directly controls, is controlled by,
or is under common control with such person or entity. Lessee shall not
lease, sublease, transfer or otherwise encumber or remove the Equipment
from the Lindon site or part with possession thereof without the written
consent of Lessor.
Lessor may assign this Lease and such Assignee shall succeed to the rights
of Lessor upon notification of such assignment, all payments required
hereunder shall be made directly to Lessor's assignee.
12. Choice of Law
This Lease shall be deemed to have been executed and entered into in the
State of Utah and shall be construed, enforce and performed in accordance
with the laws thereof.
13. Entire Agreement
This Lease contains the entire understanding at the parties with respect to
the lease of the Personal Property. No oral or other statements, shall be
binding upon the parties except in writing subsequent to this Lease.
In witness whereof, the parties have caused this Lease to be executed effective
the date above,
NOVELL, INC. R. R. DONNELLEY & SONS COMPANY
/s/ Cheryl Coppens /s/ Richard Barbee
- ------------------------------- -------------------------------
Authorized Signature Authorized Signature
Cheryl Coppens Richard Barbee
- ------------------------------- -------------------------------
Name Printed Name Printed
VP Operations Sr. VP OPS/Stream Intl.
- ------------------------------- -------------------------------
Title Title
<PAGE>
ASSIGNMENT AND ASSUMPTION OF LEASE
----------------------------------
FOR VALUABLE CONSIDERATION, the receipt and sufficiency of which are
hereby expressly acknowledged, R.R. DONNELLEY & SONS COMPANY, a Delaware
corporation ("Assignor"), hereby assigns, transfers and conveys to STREAM
INTERNATIONAL INC., a Delaware corporation (formerly known as R.R. Donnelley
Global Software Services Corp.) ("Assignee"), all of Assignor's right, title and
interest of Assignor in and to that certain lease described on Schedule 1
----------
attached to this Assignment, as the same may have been modified or amended (the
"Lease").
Assignee hereby assumes and agrees to keep, perform and fulfill all of
Assignor's obligations arising on or after the date of this Assignment as lessee
or tenant under the Lease.
This Assignment and Assumption of Lease may be executed in any number
of counterparts, all of which constitute one and the same document.
IN WITNESS WHEREOF, Assignor and Assignee have executed this
Assignment and Assumption of Lease as of April 21, 1995.
R.R. DONNELLEY & SONS COMPANY, a
Delaware corporation
By: [illegible signature]
---------------------------
Its: Vice President
--------------------------
STREAM INTERNATIONAL INC., a
Delaware corporation
By: [illegible signature]
---------------------------
Its: Vice President
--------------------------
<PAGE>
500 S 500 West
Lindon, UT
Schedule 1
----------
Lease Agreement dated December 2, 1994, but effective as of December 4, 1994,
between Novell, Inc., as Landlord, and Assignor, as Tenant.
<PAGE>
HALE AND DORR LLP
COUNSELLORS AT LAW
6O State Street, Boston, Massachusetts 02109
617-526-6000 . FAX 617-526-5000
Douglas L. Burton
617-526-6270
[email protected]
May 7, 1997
BY FEDERAL EXPRESS AND
CERTIFIED MAIL, RETURN
RECEIPT NUMBER Z 759 387 823
- ----------------------------
Novell, Inc.
1555 North Technology Way
Orem, Utah 84057
Attention: Real Estate Department
Re: Lease dated December 3, 1994 by and between Novell,
Inc. ("Landlord") and R.R. Donnelley & Sons Company, as
assigned by Assignment and Assumption of Lease dated
April 21, 1995 by and between R.R. Donnelley & Sons
Company and Stream International Holdings, Inc.,
formerly known as Stream International Inc. ("Tenant"),
of premises located at 500 South 500 West, Lindon, Utah
(the "Lease")
--------------------------------------------------------
Ladies and Gentlemen:
This letter serves to notify you that Tenant soon will undergo a corporate
restructuring (the "Restructuring"). The Restructuring will involve (a) the
merger of Tenant with one of its wholly-owned subsidiary corporations, (b) the
contribution by Tenant to a newly-formed subsidiary corporation, Modus Media
International, Inc. ("Modus"), of certain assets related to the business being
conducted at the Premises, (c) the assignment of the Lease by Tenant to Modus,
its wholly-owned subsidiary, (d) the contribution of stock in Modus by Tenant to
a limited liability company (the "LLC"), all of the membership interests in
which, at that time, will be held by Tenant, (e) the distribution by Tenant to
various current shareholders of Tenant of the membership interests in the LLC,
and (f) the subsequent initial public offering of stock in Tenant. Following the
Restructuring, the tenant under the Lease will be Modus. There will be no change
in the business conducted at the Premises.
WASHINGTON, DC BOSTON, MA LONDON, UK*
- --------------------------------------------------------------------------------
HALE AND DORE LLP INCLUDES PROFESSIONAL CORPORATIONS
*BROBECK HALE AND DORR INTERNATIONAL (AN INDEPENDENT JOINT VENTURE LAW FIRM)
<PAGE>
Novell, Inc.
May 7, 1997
Page 2
I enclose for your information the form of Assignment of Lease that will be
used in connection with the Restructuring.
Landlord's consent may be required for the transactions constituting the
Restructuring. Please indicate your consent to the Restructuring by signing and
returning the counterpart of this letter in the enclosed Federal Express
envelope at your earliest convenience. We would be pleased to answer any
questions you may have concerning the Restructuring; call me if I may be of any
assistance.
Thank you for your cooperation.
Very truly yours,
/s/ Douglas L. Burton
Douglas L. Burton
cc: Novell, Inc.
1555 North Technology Way
Orem, Utah 84057
Attention: Legal Department
Eric A. Blumsack, Esq.
Paul Jakubowski, Esq.
CONSENT GRANTED:
NOVELL, INC.
By: Ronald K. Talbor
-------------------------
Name: Ronald K. Talbor
Its: Director, Corporate Real Estate
<PAGE>
FIRST AMENDMENT OF LEASE
FIRST AMENDMENT OF LEASE dated as of December 4, 1997, by and between
NOVELL, INC., a Delaware Corporation, having an office at 1555 North Technology
Way, Orem, Utah, 84097, ("Landlord") and MODUS MEDIA INTERNATIONAL, Inc., a
Delaware Corporation (formerly a business unit of STREAM INTERNATIONAL, Inc., a
Delaware Corporation), ("Tenant") with Tenant having an office at 690 Canton
Street, Westwood, Massachusetts, 02090-2318.
WITNESSETH:
WHEREAS, Landlord and R.R. Donnelley & Sons Company, a Delaware
Corporation, ("Donnelley") entered into said Lease Agreement dated effective as
of the 4th day of December, 1994 (the "Lease"), with respect to all those
certain lots, parcels or pieces of land, including the facilities located
thereon (the "Leased Premises") situated in Lindon, Utah which premises are more
particularly shown and described in the original Lease; and
WHEREAS, Donnelley assigned all of its right, title and interest in the
Lease to Stream International, Inc., a Delaware Corporation, as Tenant in the
Lease, which is hereby acknowledged, agreed, and accepted by the parties hereto,
and
WHEREAS, Stream International, Inc., a Delaware Corporation, assigned all
of its right, title and interest in the Lease to Tenant, Modus Media
International, a Delaware Corporation, which is hereby acknowledged, agreed, and
accepted by the parties, and
WHEREAS, Landlord and Tenant desire to amend the original Lease on the
terms and conditions hereafter set forth,
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein the foregoing recitals, which are deemed contractual, and other
good and valuable consideration, the receipt and sufficiency of which is
conclusively acknowledged, the parties hereto agree as follows:
1. Definitions, All capitalized terms used but not defined herein shall have
-----------
the respective meanings ascribed to them in the original Lease as amended
by this First Amendment. The original Lease as amended by this First
Amendment, is sometimes referred to herein as the "Lease".
2. Lease Term, Upon and subject to the terms, provisions and conditions
----------
contained in the original Lease, as amended by this First Amendment, and in
consideration of the rent to be paid, Landlord does hereby deliver, lease,
demise and let unto Tenant the Premises commencing on December 4, 1997 (the
"Commencement Date") and ending on December 31, 1999 (the "Termination
Date"), or such other date as this Lease may be terminated or extended
pursuant to any provision thereof or any provision of this First Amendment.
<PAGE>
3. Base Rent, Tenant covenants and agrees to pay to Landlord for the Leased
---------
Premises base rent ("Base Rent") at the rate of thirty-four cents ($.34)
per square foot per month (the "Base Rent Rate"), in advance, in equal
monthly installments of $114,922.72 per month during the period beginning
December 4, 1997 and ending December 31, 1997. Tenant covenants and agrees
to pay to Landlord for the Leased Premises Base Rent at the rate of thirty-
seven ($.37) per square foot per month, in advance, in equal monthly
installments of $l25,063 per month beginning January 1, 1998 and continuing
until the Termination Date.
4. Termination, After July 1, 1998 and upon six (6) months written notice to
-----------
the Tenant, Landlord may terminate this Lease. Landlord may only exercise
this right on the condition of having received a signed Letter of Intent or
Offer to Purchase the property from a third party. Tenant has the right to
extend the notice period an additional three (3) months upon five (5)
business days written notice to the Landlord.
5. Option to Renew, Tenant shall have the right, at Tenant's option, to extend
---------------
the Lease Term upon the same terms and conditions contained in the Lease as
herein amended, except the Base Rent, for three (3) additional periods of
one (1) year each (the "Extension Periods"), exercisable by providing
Landlord written notice not less than three (3) months prior to the
expiration of the Lease Term as extended by one or more Extension Periods.
The renewal Base Rent Rate during any of the Extension Periods shall be
negotiated by the parties; upon the failure of the parties to mutually
agree the rent will be determined in accordance with the provisions of the
Lease.
6. Option to Purchase, The Option to Purchase in the Lease was not exercised
------------------
and is now declared to be null and void.
7. Right of First Refusal, Tenant shall have a right of first refusal with
----------------------
respect to any proposed sale of the Leased Premises to any third party
during the Lease Term and any of the Extension Periods. In thc event that
Landlord receives a signed Letter of Intent or Offer to Purchase, Landlord
shall, prior to accepting such offer, furnish Tenant with written notice of
the material terms and conditions of such offer ("Landlord's Notice").
Tenant shall have thirty (30) days from the date of Landlord's Notice
within which to notify Landlord in writing that Tenant desires to purchase
the Leased Premises on at least the same terms and conditions contained in
Landlord's Notice. If Tenant does not exercise its right of first refusal
within the thirty (30) day period, the right of first refusal contained in
this Amendment and in Paragraph 26(B) of the Lease terminates. Landlord may
proceed to sell the Leased Premises without any further first refusal
obligations to the Tenant. All other rights and obligations of the parties
shall be determined according to the Lease.
<PAGE>
8. Notification to Show, Landlord or Landlord's agent shall have the right to
--------------------
show the Leased Premises during normal business hours. Landlord or
Landlord's agent shall give reasonable notice (24 hours if possible) to
Tenant that Landlord will show the Leased Premises.
9. For Sale Signage, Landlord covenants and agrees that no "For Sale" sign
----------------
shall be placed anywhere on the property without written consent of Tenant,
which consent shall not unreasonably be withheld.
10. Financial Statements of Tenant, Landlord acknowledges and agrees that prior
------------------------------
to execution of this First Amendment it has reviewed and approved copies of
Tenant financial statements.
11. Subdivision of the Property, Landlord retains the right to subdivide the
---------------------------
property according to the terms of the Lease.
12. Commissions, Landlord shall be responsible to pay any commission earned by
-----------
any real estate broker engaged by Landlord. Landlord shall not be
responsible for the commission earned by any real estate broker engaged by
any other party.
13. Representation, Landlord is represented by Mansell Commercial Real Estate
--------------
Services, Inc. Tenant is represented by themselves.
14. Notice, In addition to the notice information provided in the Lease,
------
Landlord shall also give notice to Tenant as follows:
To: Modus Media International, Inc.
500 West 500 South
Lindon, Utah 84042
Telecopy: 801-431-4058
Attention: Mike Kirkham, General Manager
With a Copy to: Modus Media International, Inc.
690 Canton Street
Westwood, Massachusetts 02090-2318
Telecopy: 781-407-3831
Attention: General Counsel
15. Personal Property Lease Extension, The parties acknowledge that certain
---------------------------------
Personal Property Lease dated effective December 5, 1994 between Novell,
Inc. as Landlord and R.R. Donnelley & Sons Company. That Personal Property
Lease also deemed amended, as to parties and terms, consistent with this
First Amendment, and is extended on its same terms to run with the terms of
this Lease and First Amendment, its extension, renewal or termination. Any
extension beyond the term (as extended by one or more Extension Periods) of
the Lease as herein amended, shall be separately negotiated; otherwise the
Personal Property Lease terminates when the Lease (as extended by one or
more Extension Periods), as herein amended, terminates.
<PAGE>
16. Release, Landlord hereby forever releases and discharges Donnelley from any
-------
liability or obligation whatsoever (whether as tenant, guarantor or
otherwise) under the Lease. Landlord further agrees that it will execute
any and all documents requested by Tenant to confirm such release and
discharge, subject to the review and approval of Landlord's legal and real
estate departments.
17. Financing Consent, In good faith, Landlord agrees that it will execute any
-----------------
and all bank consent letters and similar documents required by Tenant's
financing institutions, subject to the review and approval of Landlord's
legal and real estate departments.
18. Property Taxes, Landlord and Tenant acknowledge that Tenant is responsible
--------------
for paying the real property taxes on the Leased Premises when the same
become due and before any fine, penalty, interest or cost may be added
thereto for the nonpayment thereof. The parties hereby acknowledge that the
real property taxes on the Leased Premises for the years 1995, 1996 and
1997 have been paid by the Landlord and the Tenant has reimbursed the
Landlord for same. This action does not change, diminish or set any
precedent as to Tenant's present or future responsibility to pay the real
property taxes on the Leased Premises when the same become due.
19. Miscellaneous, Landlord and Tenant confirm and agree that (i) except as
-------------
amended by this First Amendment, the original Lease is unmodified, (ii) the
Lease is in full force and effect in accordance with its terms, and (iii)
to the best knowledge of Landlord and Tenant the other party is not in
default in the performance of any of its obligations under the Lease.
IN WITNESS WHEREOF, Landlord and Tenant have executed this First Amendment
as of the day and year first above written.
NOVELL, INC., MODUS MEDIA INTERNATIONAL, Inc.,
A DELAWARE CORPORATION A DELAWARE CORPORATION
By: [illegible signature] By: [illegible signature]
------------------------- --------------------------
Its: V.P. Its: Senior VP-North America
------------------------- --------------------------
<PAGE>
EXHIBIT 10.11
AMENDED AND RESTATED
7 3/4 UNSECURED PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned, Terence M. Leahy (the "Borrower"),
hereby promises to pay to Modus Media International Holdings, Inc., a Delaware
corporation (the "Company"), or to the legal holder of this Unsecured
-------
Promissory Note at the time of payment, the principal sum of one million dollars
($1,000,000) in lawful money of the United States of America, and to pay simple
interest (computed on the basis of a 365 or 366 day year, as the case may be) on
the principal amount hereof from and after March 7, 1997 until the entire
principal amount hereof has been paid in full, at the rate of 7 3/4% per annum.
The entire principal amount of indebtedness evidenced by this Unsecured
Promissory Note shall be repaid on the Maturity Date. Each payment of principal
shall be accompanied by payment of any accrued and unpaid interest thereon.
If the date set for any payment or prepayment of principal or interest
hereunder is a Saturday, Sunday or legal holiday, then such payment or
prepayment shall be made on the next preceding business day.
This Amended and Restated Promissory Note restates in its entirety the
7 3/4% Unsecured Promissory Note of Borrower dated March 7, 1997 to Stream
International Inc. (which Note has been assigned to the Company) and is in
addition to the Secured Non-Recourse Note referred to in the Employment
Agreement, dated as of April 21, 1995, between Stream International Holdings
Inc., a Delaware corporation, and the parent of the Company (the "Parent") and
the Borrower. Capitalized terms used herein and not otherwise defined shall have
the meanings ascribed to them in the Employment Agreement dated as of January 1,
1998 between Borrower and the Company (the "Employment Agreement").
As used in this Note:
(a) The term "Maturity Date" means the earlier of (i) a Liquidity Event,
-------------
or (ii) the termination of the Borrower's employment with the Company
or any successor thereto by the Company for "Cause" (as defined in the
Employment Agreement) or by resignation of the Borrower without "Good
Reason" (as defined in the Employment Agreement).
(b) The term "Liquidity Event" means an Acquisition Event (as defined in
---------------
the Employment Agreement) in which Borrower receives, in exchange for
his shares of capital stock of the Borrower ("Shares") and/or his
options to purchase shares of capital stock of the Borrower
("Options"), Liquid Consideration (as defined in the Employment
Agreement) having a fair market value (as determined pursuant to
Section 3(d)) equal to at least $3,000,000. For this purpose, options
issued in substitution or
<PAGE>
exchange for the Options pursuant to an Acquisition Event shall be
considered Liquid Consideration if the shares underlying such options
constitute Liquid Consideration and shall be valued as the difference
between the exercise price of such options and the fair market value of
such underlying shares. If any consideration received by the Borrower
pursuant to an Acquisition Event in exchange for his Shares or Options does
not constitute Liquid Consideration having a fair market value equal to at
least $3,000,000, such Acquisition Event shall be deemed to be a Liquidity
Event at such later time (if any) that such consideration becomes Liquid
Consideration having a value at least equal to $3,000,000. If the
consideration payable in an Acquisition Event includes an earn-out, the
amount of such earn-out shall be taken into account at the time the
earn-out is actually earned and paid in determining whether the Borrower
has received at least $3,000,000 of Liquid Consideration.
Interest on the principal amount hereof outstanding from time to time shall
accrue but shall not be payable until the Maturity Date.
This Unsecured Promissory Note is subject to the following further terms
and conditions:
1. Payment and Prepayment: All payments of principal and interest on this
----------------------
Unsecured Promissory Note shall be made to the Company or its order,
or to the legal holder of this Unsecured Promissory Note or such
holder's order, in lawful money of the United States of America at the
principal offices of the Company (or at such other place as the holder
hereof shall notify the Borrower in writing).
2. Events of Default. Upon the occurrence of any of the following events
-----------------
("Events of Default"):
-----------------
(a) Failure to pay the principal of this Unsecured Promissory Note,
which shall be unremedied for five days following the date when
such payment was originally due hereunder; or
(b) Failure to pay any interest installment due under this Unsecured
Promissory Note which shall remain unremedied for five days
following the date when such installment was originally due
hereunder;
then, and in any such event, the holder of this Unsecured
Promissory Note may declare, by notice of default given to the
Borrower, the entire principal amount of this Unsecured
Promissory Note to be forthwith due and payable, whereupon the
entire principal amount of this
- 2 -
<PAGE>
Unsecured Promissory Note outstanding and any accrued and unpaid
interest hereunder shall become due and payable without
presentment, demand, protest, notice of dishonor and all other
demands and notices of any kind, all of which are hereby
expressly waived. Upon the occurrence of an Event of Default, the
accrued and unpaid interest hereunder shall thereafter bear the
same rate of interest as on the principal hereunder, but in no
event shall such interest be charged which would violate any
applicable usury law. If an Event of Default shall occur
hereunder, the Borrower shall pay costs of collection, including
reasonable attorneys' fees, incurred by the holder in the
enforcement hereof.
No delay or failure by the holder of this Unsecured Promissory
Note in the exercise of any right or remedy shall constitute a
waiver thereof, and no single or partial exercise by the holder
hereof of any right or remedy shall preclude other or future
exercise thereof or the exercise of any other right or remedy.
3. Forgiveness, Etc.
----------------
(a) Notwithstanding any other provision of this Note, if the
employment of the Borrower with the Company or any successor
terminates for any reason other than termination by the
Company or such successor with "Cause" or resignation by the
Borrower without "Good Reason" (as such terms are defined in
the Employment Agreement), or if such employment terminates
by reason of death or disability (as defined in the
Employment Agreement), all payment and interest under this
Note shall be forgiven and this Note shall be of no further
force or effect.
(b) Notwithstanding any other provision of this Note, upon the
occurrence of a Maturity Date as a result of the resignation
of the Borrower as an employee of the Company or any
successor without "Good Reason", the Borrower shall be
obligated to surrender to the Company, in full payment of
principal and interest due under this Note, Shares and/or
Options (selected by the Borrower) having a then fair market
value equal to such principal and interest and, if the fair
market value of all Shares and Options then held by the
Borrower is less than the amount of such principal and
interest, the Company shall forgive the balance of such
principal and interest in excess of such fair market value.
(c) Notwithstanding any other provision of this Note, upon the
occurrence of a Maturity Date as a result of a Liquidity
Event, Borrower shall have the right to pay the principal
and interest due under this Note in cash
- 3 -
<PAGE>
or by surrender to the Company of Liquid Consideration
having a fair market value equal to such principal and
interest.
(d) For purposes of this Note, "fair market value" shall be
determined by agreement of the Company and the Borrower or,
if no such agreement is reached within 30 days after a
determination of fair market value is required under this
Note, by an investment banking firm selected by the Board of
Directors of the Company with the approval of the Borrower,
which approval shall not be unreasonably withheld.
4. Transfers. While this Note is outstanding, Borrower shall not sell or
---------
otherwise transfer any of his Shares or Options (other than pursuant
to an Acquisition Event) unless the transferee agrees in writing to be
bound by the provisions of Section 3(b) of this Note as if such
transferee were the Borrower.
5. Miscellaneous.
-------------
(a) The provisions of this Unsecured Promissory Note shall be
governed by and construed in accordance with the laws of the
Commonwealth of Massachusetts, without regard to the conflicts of
law rules thereof.
(b) This Unsecured Promissory Note may be assigned by the Company or
any assignee of the Company without the consent of, or notice to,
the Borrower.
(c) All notices and other communications hereunder shall be in
writing and will be deemed to have been duly given to the Company
if delivered or mailed in accordance with the Employment
Agreement, and to the Borrower if addressed as follows:
Terence M. Leahy
------------------------------
------------------------------
(d) The headings contained in this Unsecured Promissory Note are for
reference purposes only and shall not affect in any way the
meaning or interpretation of the provisions hereof.
- 4 -
<PAGE>
IN WITNESS WHEREOF, this Unsecured Promissory Note has been duly executed
and delivered by the Borrower on the date first above written.
/s/ Terence M. Leahy
--------------------------------
(Signature of Borrower)
Witness:
/s/ Ann E. Tyryar
- --------------------------------
- 5 -
<PAGE>
Exhibit 10.12
7.34% SECURED NON-RECOURSE PROMISSORY NOTE
("SECURED NON-RECOURSE NOTE")
-------------------------
(September 15, 1995)
FOR VALUE RECEIVED, the undersigned, Terence M. Leahy (the "Borrower"),
--------
hereby promises to pay to Corporate Software Incorporated, A Delaware
corporation (the "Company"), or to the legal holder of this Secured Non-Recourse
-------
Note at the time of payment, the principal sum of four hundred thousand dollars
($400,000) in lawful money of the United States of America, and to pay simple
interest (computed on the basis of a 365 or 366 day year, as the case may be) on
the principal amount hereof from and after the date of this Secured Non-Recourse
Note until the entire principal amount hereof has been paid in full, at the rate
of 7.34% per annum. The entire principal amount of indebtedness evidenced by
this note, to the extent not theretofore prepaid as provided herein, shall be
repaid on the Maturity Date. Each payment of principal shall be accompanied by
payment of any accrued and unpaid interest thereon.
If the date set for any payment or prepayment of principal or interest
hereunder is a Saturday, Sunday or legal holiday, then such payment or
prepayment shall be made on the next preceding business day.
This Secured Non-Recourse Note has been delivered to evidence indebtedness
of the Borrower to the Company arising out of a loan made to the Borrower in
connection with his purchase of shares of Class A Common Stock, par value $.01
per Share, of Stream International Inc., a Delaware corporation and the parent
of the Company (the "Parent") in accordance with the terms of the Employment
------
Agreement, dated as of April 21, 1995 (the "Employment Agreement"), between
--------------------
Stream International Inc. and the Borrower, and this Secured Non-Recourse Note
is the "Note" of the Borrower referred to in Section 4 of the Employment
----
Agreement. Capitalized terms used herein and not otherwise defined shall have
the meanings ascribed to them in the Employment Agreement. Payment of the
principal of and interest on this Secured Non-Recourse Note is secured pursuant
to the terms of a Stock Pledge Agreement, dated as of April 21, 1995, between
the Borrower and the Company (the "Pledge Agreement"), reference to which is
----------------
made for a description of the collateral
<PAGE>
provided thereby and the rights of the Company and any subsequent holder of this
Secured Non-Recourse Note in respect of such collateral.
Recourse of the holder of this Note for payment of the principal of
and interest on this Note or any claim based thereon shall be limited solely to
the collateral held pursuant to the Pledge Agreement, and the holder of this
Note shall have no recourse to any other assets of the Borrower for such
payment, whether before or after an Event of Default.
As used in this Note:
(a) the term "Maturity Date" means the earliest of (i) April 21, 2000
-------------
or, at the election of the Parent's Board of Directors and as a result of the
completion of any public offering of shares of the Parent registered under the
Securities Act of 1933, as amended, in connection with which the Borrower is
given an opportunity to sell shares having a value equal to or greater than the
amount of borrowings evidenced by this Secured Non-Recourse Note outstanding at
the time of such offering, provided, that, such offering is completed prior to
-------- ----
April 21, 2000, and (ii) the first date on which a Liquidity Event (as defined
below) shall occur; and
(b) the term "Liquidity Event" means any of the following: (i) any
---------------
sale of a majority of the capital stock or assets of the Parent (including
without limitation a sale of a majority of the capital stock resulting from a
Disposition (as defined in the Parent's Restated Certificate of Incorporation)
or Total Disposition (as defined in the Parent's Restated Certificate of
Incorporation) by R.R. Donnelley & Sons which triggers certain Tag Along (as
defined in the Parent's Restated Certificate of Incorporation) and Drag Along
Rights (as defined in the Parent's Restated Certificate of Incorporation), the
exercise by any stockholder of the Put Right (as defined in the Parent's
Restated Certificate of Incorporation) or the exercise by the Parent of its Call
Right (as defined in the Parent's Restated Certificate of Incorporation) all in
accordance with the provisions of Article Fifth of the Parent's Restated
Certificate of Incorporation), (ii) any liquidation or winding-up of the Parent
or distribution of a majority of the Parent's assets, other than to an Affiliate
of the Parent or (iii) any merger, consolidation or similar business combination
with or into any entity other than an entity controlled by Bain Capital Fund IV,
L.P., Bain Capital Fund IV-B, L.P. and Information Partners Capital Fund, L.P.
(collectively, the "Funds") or by R.R. Donnelley & Sons Company.
-----
-2-
<PAGE>
Interest on the principal amount hereof outstanding from time to time shall
be payable quarterly on the last business day of March, June, September and
December of each year commencing June 30, 1995 and on the Maturity Date;
provided, however, that, so long as the Borrower remains an employee of the
- -------- -------
Parent and no Event of Default (as hereinafter defined) has occurred, interest
shall continue to accrue but shall not be payable until the Maturity Date.
This Secured Non-Recourse Note is subject to the following further terms
and conditions:
1. Mandatory Prepayments. If at any time the Borrower receives any proceeds
---------------------
from the sale by the Borrower of Shares to anyone (including the Company), the
proceeds from such sale of Shares shall be applied to the prepayment first, of
the prepayment of the accrued and unpaid interest on the Tax Loan Note and then
to the unpaid principal thereof and second, to the prepayment of the accrued and
unpaid interest hereon and then to the unpaid principal hereof. For purposes of
this Section 1, the term "sale" in the context of a sale of Shares shall
include, in addition to any direct sale of Shares, any transaction (including,
without limitation, a merger, consolidation or recapitalization) pursuant to
which Shares are converted into a right to receive, in whole or partial exchange
or substitution for Shares, cash or cash equivalents.
In addition, until such time as the entire principal amount of this Secured
Non-Recourse Note is paid in full, together with all accrued and unpaid
interest, the Borrower shall pay to the Company, for application against such
principal and interest, 30% of any and all Bonus amounts that become payable to
the Borrower under the Employment Agreement.
The right of the Borrower to receive proceeds upon the sale of Shares is
subject to the prior right of the Company (or other holder of this Secured Non-
Recourse Note) (i) in the case of a sale of Shares to the Company (or other
holder of this Secured Non-Recourse Note), in lieu of the Company (or such other
holder) paying the proceeds from such sale to the Borrower or his heirs,
successors or permitted assigns to set off against this Secured Non-Recourse
Note an amount equal to the Net Proceeds of such sale, or (ii) in the case of a
sale of Shares to any other person or entity (collectively, the "Transfer
--------
Parties"), in lieu of any of such Transfer Parties paying the purchase price
- -------
-3-
<PAGE>
therefor to the Borrower or his heirs, successors or permitted assigns, to
direct such Transfer Parties to pay an amount equal to the Net Proceeds of such
sale to the Company (or other holder of this Secured Non-Recourse Note) which
shall set off such amount against this Secured Non-Recourse Note.
Concurrently with any prepayment (including by set-off) of any portion of
the principal amount of this Secured Non-Recourse Note pursuant to this Section
1 or Section 2 hereof, the Company (or other holder of this Secured Non-Recourse
Note) shall make a notation of such payment hereon. If full payment of the
principal of and accrued and unpaid interest on this Secured Non-Recourse Note
is made, this Secured Non-Recourse Note shall be cancelled. Any partial
prepayment (including by reason of set-off) shall be applied first to accrued
and unpaid interest hereon and then to the unpaid principal hereof.
If at any time, or from time to time, after the date hereof and following
the occurrence and during the continuance of an Event of Default (as hereinafter
defined), the Borrower shall receive or shall otherwise become entitled to
receive from the Company (or other holder of this Secured Non-Recourse Note) any
cash payments, cash dividends or other cash distributions in respect of any
Shares, then and in each case, the Borrower or any of his heirs, successors or
permitted assigns to whom such distribution may be made shall, upon the receipt
thereof, return to the Company (or other holder of this Secured Non-Recourse
Note) such payments, dividends and distributions, and the Company (or other
holder of this Secured Non-Recourse Note) shall apply such amount to the
prepayment of the accrued and unpaid interest on and unpaid principal of this
Secured Non-Recourse Note in the manner set forth in the first paragraph of this
Section 1, and the Company (or other holder of this Secured Non-Recourse Note)
shall not be obligated to make any such cash payment, cash dividend or other
cash distribution not theretofore made to which the Borrower or any of his
heirs, successor or permitted assigns are otherwise entitled in respect of their
Shares and may, in lieu of paying such amount to the Borrower, set off the
amount of such cash payment, cash dividend or other cash distribution against
the accrued and unpaid interest on and unpaid principal of this Secured Non-
Recourse Note in the manner set forth in the third paragraph of this Section 1.
2. Payment and Prepayment. All payments and prepayments of principal of and
----------------------
interest on this Secured Non-Recourse Note shall be made to the Company or its
-4-
<PAGE>
order, or to the legal holder of this Secured Non-Recourse Note or such holder's
order, in lawful money of the United States of America at the principal offices
of the Company (or at such other place as the holder hereof shall notify the
Borrower in writing). The Borrower may, at his option, prepay this Secured Non-
Recourse Note in whole or in part at any time or from time to time without
penalty or premium. Any prepayments of any portion of the principal amount of
this Secured Non-Recourse Note shall be accompanied by payment of all interest
accrued but unpaid hereunder. Upon final payment of principal of and interest on
this Secured Non-Recourse Note it shall be surrendered for cancellation. THE
PLEDGE AGREEMENT REQUIRES PAYMENT OR PREPAYMENT OF ALL OBLIGATIONS UNDER THIS
SECURED PROMISSORY NOTE AS A CONDITION PRECEDENT TO THE RELEASE OF, OR TRANSFER
OF THE BORROWER'S INTERESTS IN, THE COLLATERAL SUBJECT TO THE PLEDGE AGREEMENT,
ALL AS DESCRIBED MORE FULLY IN THE PLEDGE AGREEMENT.
3. Events of Default. Upon the occurrence of any of the following events
-----------------
("Events of Default"):
-----------------
(a) Failure to pay the principal of this Secured Non-Recourse Note,
including any prepayments required hereunder or under the Pledge Agreement which
shall remain unremedied for ten days following the date when such principal
payment was originally due hereunder;
(b) Failure to pay any interest installment due under this Secured
Non-Recourse Note which shall remain unremedied for ten days following the date
when such installment was originally due hereunder; or
(c) Failure of the Borrower to perform the Borrower's obligations (i)
under the Employment Agreement which shall remain unremedied for ten days
following notice from the Company or the Parent or (ii) under the Pledge
Agreement;
then, and in any such event, the holder of this Secured Non-Recourse Note may
declare, by notice of default given to the Borrower, the entire principal amount
of this Secured Non-Recourse Note to be forthwith due and payable, whereupon the
entire principal amount of this Secured Non-Recourse Note outstanding and any
accrued and unpaid interest hereunder shall become due and payable without
presentment, demand, protest, notice of dishonor and all other demands and
notices of any kind, all
-5-
<PAGE>
of which are hereby expressly waived. Upon the occurrence of an Event of
Default, the accrued and unpaid interest hereunder shall thereafter bear the
same rate of interest as on the principal hereunder, but in no event shall such
interest be charged which would violate any applicable usury law. If an Event of
Default shall occur hereunder, the Borrower shall pay costs of collection,
including reasonable attorneys' fees, incurred by the holder in the enforcement
hereof.
No delay or failure by the holder of this Secured Non-Recourse Note in the
exercise of any right or remedy shall constitute a waiver thereof, and no single
or partial exercise by the holder hereof of any right or remedy shall preclude
other or future exercise thereof or the exercise of any other right or remedy.
4. Miscellaneous.
-------------
(a) The provisions of this Secured Non-Recourse Note shall be governed
by and construed in accordance with the laws of the Commonwealth of
Massachusetts, without regard to the conflicts of law rules thereof.
(b) All notices and other communications hereunder shall be in writing
and will be deemed to have been duly given if delivered or mailed in accordance
with the Employment Agreement.
(c) The headings contained in this Secured Non-Recourse Note are for
reference purposes only and shall not affect in any way the meaning or
interpretation of the provisions hereof.
-6-
<PAGE>
IN WITNESS WHEREOF, this Secured Non-Recourse Note has been duly executed
and delivered by the Borrower on the date first above written.
/s/ Terence Leahy
---------------------------------
(Signature of Borrower)
Witness
/s/ Alicia Brophey
- ---------------------------
-7-
<PAGE>
STOCK PLEDGE AGREEMENT
STOCK PLEDGE AGREEMENT dated as of September 14, 1995 (this "Stock Pledge
Agreement"), between Terence M. Leahy (the "Pledgor") and Corporate Software
Incorporated, a Delaware corporation (the "Company").
WITNESSETH
----------
WHEREAS, Stream International Inc., a Delaware corporation and the parent
of the Company (the "Parent"), has entered into an agreement, dated as of April
21, 1995 (the "Employment Agreement"), between the Parent and the Pledgor
pursuant to which the Parent has agreed to sell shares of Class A Common Stock,
par value $.01 per share, of the Parent (the "Purchased Shares") to the
Pledgor. Capitalized terms used and not otherwise defined herein shall have the
meanings ascribed to them in the Employmcnt Agreement, and the Pledgor hereunder
is the "Executive" as such term is defined in the Employment Agreement;
WHEREAS, in connection with the sale of the Purchased Shares to the
Pledgor, the Company has lent to the Pledgor $400,000. on a non-recourse basis
and, as evidence of the indebtedness created by such loan, the Pledgor is
delivering to the Company a duly executed 7.34% Secured Promissory Note (the
"Note") of the Pledgor in the principal amount of $400,000, dated as of the date
hereof;
WHEREAS, pursuant to the Employment Agreement, the Company has agreed to
make additional advances to the Pledgor to cover certain future tax obligations
of the Pledgor and the Pledgor has agreed to deliver to the Company a duly
executed 7.34% Secured Promissory Note (the "Tax Loan Note") on the date the
first installment of the Tax Loan is advanced;
WHEREAS, the Pledgor wishes to grant further security and assurance to the
Company in order to secure the payment of the principal of and interest on the
Note and the Tax Loan Note (hereinafter collectively referred to as the "Note
Obligations") to pledge to the Company the Purchased Shares to be acquired by
such Pledgor pursuant to the Employment Agreement, the New Options to be granted
to Pledgor pursuant to the Employment Agreement, certain additional shares of
and/or options to purchase additional shares of the Parent's capital stock and
certain
<PAGE>
Publicly Traded Securities described as to issuer, type and number of shares on
Exhibit A hereto, all as more particularly described herein;
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
1. Pledge. As collateral security for the full and timely payment of the
------
principal of and interest on the Note Obligations and all other amounts payable
by the Pledgor thereunder or under this Stock Pledge Agreement (including,
without limitation, any and all reasonable fees and expenses, including
reasonable legal fees and expenses, incurred by the Company in connection with
any exercise of its rights under the Note Obligations or hereunder), the Pledgor
hereby delivers, deposits, pledges, transfers and assigns to the Company, in
form transferable for delivery, and creates in the Company a security interest
in:
(a) all Purchased Shares and all certificates evidencing the Purchased
Shares and other instruments or documents evidencing the same now owned by the
Pledgor and all dividends, cash, instruments and other property from time to
time received, receivable or otherwise distributed in respect of or in exchange
for any or all of the Purchased Shares;
(b) Zero shares of Class B Common Stock of the Parent (collectively,
the "Owned Shares") and all certificates evidencing the Owned Shares and other
instruments or documents evidencing the same and all dividends, cash,
instruments and other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of the Owned
Shares;
(c) options to purchase ______ shares of Class A Common Stock and
options to purchase ______ shares of Class B Common Stock of the Parent
(collectively, the "Options") and all certificates evidencing the Options and
other instruments or documents evidencing the same and all dividends, cash,
instruments and other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of the Options
including without limitation any shares of Class A Common Stock and Class B
Common Stock received upon the exercise of any Option; and
<PAGE>
(d) The Publicly Traded Securities described on Exhibit A hereto (the
"Additional Securities") and all certificates evidencing the Additional
---------------------
Securities and other instruments or documents evidencing the same and all
dividends, cash, instruments and other property from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of the Additional Securities.
The Purchased Shares, Owned Shares, Additional Securities and Options
(together with any securities or property delivered to the Pledgor pursuant to
Section 2(b) hereof) are hereinafter collectively referred to as the "Pledged
Securities".
The Pledgor hereby delivers to the Company appropriate undated security
transfer powers duly executed in blank for the Pledged Securities set forth
above and will deliver appropriate undated security transfer powers duly
executed in blank for the Pledged Securities to be pledged hereunder from time
to time hereafter. The Pledgor agrees that all certificates evidencing the
Pledged Securities shall be marked with the following legend:
THE SHARES/OPTION TO PURCHASE SHARES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO THE PROVISIONS OF A STOCK PLEDGE AGREEMENT DATED AS OF APRIL 21, 1995
BY AND BETWEEN CORPORATE SOFTWARE INCORPORATED, A DELAWARE CORPORATION AND A
WHOLLY-OWNED SUBSIDIARY OF STREAM INTERNATIONAL INC., A DELAWARE CORPORATION
(THE "CORPORATION"), AND THE BORROWER NAMED THEREIN, A COPY OF WHICH IS ON
FILE AT THE OFFICES OF THE CORPORATION.
The Pledgor agrees to deliver to the Company all Pledged Securities
currently held by him in order that such legend may be placed thereon. The
Pledgor further agrees, with respect to the Additional Securities, to deliver
written notice to each issuer of an Additional Security of the pledge of such
security to the Company.
2. Administration of Security. The following provisions shall govern the
--------------------------
administration of the Pledged Securities:
(a) So long as no Event of Default has occurred and is continuing (as
used herein, "Event of Default" shall mean the occurrence of any Event of
Default as defined in the Note Obligations), the Pledgor shall be entitled to
act with respect to the Pledged Securities in
<PAGE>
any manner not inconsistent with this Stock Pledge Agreement, the Employment
Agreement, the Note Obligations or any document or instrument delivered or to be
delivered pursuant to or in connection with the Employment Agreement, including
transferring the Pledged Securities to a nominee for purposes of exercising the
Options, and/or voting the Pledged Securities and receiving all cash
distributions thereon and giving consents, waivers and ratifications in respect
thereof.
(b) If while this Stock Pledge Agreement is in effect, the Pledgor
shall become entitled to receive or shall receive any debt or equity security
certificate (including, without limitation, any certificates representing shares
of stock received in connection with the exercise of any Option, any certificate
representing a stock dividend or a distribution in connection with any
reclassification, increase or reduction of capital, or issued in connection with
any reorganization), option or right, whether as a dividend or distribution in
respect of, in substitution of, or in exchange for any Pledged Securities, the
Pledgor agrees to accept the same as the Company agent and to hold the same in
trust on behalf of and for the benefit of the Company and to deliver the same
forthwith to the Company in the exact form received, with the endorsement of the
Pledgor when necessary and/or appropriate undated security transfer powers duly
executed in blank, to be held by the Company, subject to the terms of this Stock
Pledge Agreement, as additional collateral security for the Note Obligations.
Notwithstanding the foregoing, it is agreed that the Pledgor may exercise any
option or right received as contemplated in the preceding sentence, and the
Company will exercise any such option or right upon receipt of written
instructions to that effect and any required payments or documents from the
Pledgor, and the securities received upon such exercise of any such option or
right shall thereafter be held by the Pledgor or the Company as contemplated by
the preceding sentence.
(c) The Pledgor shall immediately upon request by the Company and in
confirmation of the security interests hereby created, execute and deliver to
the Company such further instruments, deeds, transfers, assurances and
agreements, in form and substance as the Company shall request, including any
financing statements and amendments thereto, or any other documents, as required
under Massachusetts law and any other applicable law to protect the security
interests created hereunder.
(d) Subject to any sale by the Company or other disposition by the
Company of the Pledged Securities or other property pursuant to this Stock
Pledge Agreement and subject to Sections 5 and 6 below, the Pledged Securities
shall be returned to the Pledgor upon payment in full of the principal of and
accrued and unpaid interest on the Note Obligations.
<PAGE>
3. Remedies in Case of an Event of Default.
---------------------------------------
(a) In case an Event of Default shall have occurred and be continuing,
the Company shall have in each case all of the remedies of a secured party under
the Massachusetts Uniform Commercial Code, and, without limiting the foregoing,
shall have the right, in its sole discretion, to sell, resell, assign and
deliver all or, from time to time, any part of the Pledged Securities, or any
interest in or option or right to purchase any part thereof, on any securities
exchange on which the Pledged Securities or any of them may be listed, at any
private sale or at public auction, with or without demand of performance or
other demand, advertisement or notice of the time or place of sale or
adjournment thereof or otherwise (except that the Company shall give ten days'
notice to the Pledgor of the time and place of any sale pursuant to this Section
3), for cash, on credit or for other property, for immediate or future delivery,
and for such price or prices and on such terms as the Company shall, in its sole
discretion, determine, the Pledgor hereby waiving and releasing any and all
right or equity of redemption whether before or after sale hereunder. At any
such sale the Company may bid for and purchase the whole or any part of the
Pledged Securities so sold free from any such right or equity of redemption. The
Company shall apply the proceeds of any such sale first to the payment of all
-----
costs and expenses, including reasonable attorneys' fees, incurred by the
Company in enforcing its rights under this Stock Pledge Agreement and second
------
to the payment of accrued and unpaid interest on (i) the Tax Loan Note and (ii)
the Note and third to the payment of unpaid principal of (i) the Tax Loan Note
-----
and (ii) the Note.
(b) The Pledgor recognizes that the Company may be unable to effect a
public sale of all or a part of the Pledged Securities by reason of certain
prohibitions contained in the Securities Act of 1933, as amended (the
"Securities Act"), or in the rules and regulations promulgated thereunder or in
applicable state securities or "blue sky" laws, but may be compelled to resort
to one or more private sales to a restricted group of purchasers who will be
obliged to agree, among other things, to acquire the Pledged Securities for
their own account, for investment and not with a view to the distribution or
resale thereof. The Pledgor understands that private sales so made may be at
prices and on other terms less favorable to the seller than if the Pledged
Securities were sold at public sale, and agrees that the Company has no
obligation to delay the sale of the Pledged Securities for the period of time
necessary to permit the registration of the Pledged Securities for public sale
under the Securities Act and under applicable state securities or "blue sky"
laws. The Pledgor agrees that a private sale or sales made under the foregoing
circumstances shall be deemed to have been made in a commercially reasonable
manner.
<PAGE>
(c) If any consent, approval or authorization of any state, municipal
or other governmental department, agency or authority should be necessary to
effectuate any sale or disposition by the Company pursuant to this Section 3 of
the Pledged Securities, the Pledgor will execute all such applications and other
instruments as may be required in connection with securing any such consent,
approval or authorization, and will otherwise use his or her best efforts to
secure the same.
(d) Neither failure nor delay on the part of the Company to exercise
any right, remedy, power or privilege provided for herein or by statute or at
law or in equity shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, remedy, power or privilege preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege.
4. Pledgor's Obligations Not Affected. The obligations of the Pledgor
----------------------------------
under this Stock Pledge Agreement shall remain in full force and effect without
regard to, and shall not be impaired or affected by: (a) any subordination,
amendment or modification of or addition or supplement to the Employment
Agreement or the Note Obligations, or any assignment or transfer of any thereof,
(b) any exercise or non-exercise by the Company of any right, remedy, power or
privilege under or in respect of this Stock Pledge Agreement, the Employment
Agreement or the Note Obligations, or any waiver of any such right, remedy,
power or privilege, (c) any waiver, consent, extension, indulgence or other
action or inaction in respect of this Stock Pledge Agreement, the Employment
Agreement or the Note Obligations, or any assignment or transfer of any thereof,
or (d) any bankruptcy, insolvency, reorganization, arrangement, readjustment,
composition, liquidation or the like, of the Company, whether or not the Pledgor
shall have notice or knowledge of any of the foregoing.
5. Transfer by Pledgor. The Pledgor will not sell, assign, transfer or
-------------------
otherwise dispose of, grant any option with respect to, or mortgage, pledge or
otherwise encumber (collectively, a "Disposition") the Pledged Securities or
any interest therein except as permitted by the Company's Restated Certificate
of Incorporation (the "Charter"), the Employment Agreement and any Stockholders
Agreement to which Pledgor and the Company or its stockholders may be or become
bound. In the event of any Disposition of Pledged Securities pursuant to and in
accordance with the terms and conditions of the Charter, the Employment
Agreement and any such Stockholders Agreement, the Company shall release such
Pledged Securities from the pledge hereunder to permit consummation of such
transaction solely to the extent that, after such release,
<PAGE>
the sum (the "Coverage Amount") of (i) the product of the number of shares of
Class A Common Stock owned by the Pledgor and subject to this Stock Pledge
Agreement multiplied by $30 (the "Class A Calculated Value") plus (ii) the
product of the number of shares of Class B Common Stock owned by the Pledgor and
subject to this Stock Pledge Agreement multiplied by $30 (the "Class B
Calculated Value") exceeds 150% of the aggregate principal amount of the Note
Obligations then outstanding (the "Note Amount") is greater than zero.
Notwithstanding the foregoing, (i) upon the written request of the Pledgor, the
Company shall release Additional Securities from the pledge hereunder to permit
consummation of a Disposition solely to the extent that, after such release, the
Value (as defined below) of the Additional Securities subject to this Stock
Pledge Agreement exceeds 125% of the difference between the Note Amount and a
fraction, the numerator of which is the Coverage Amount and the denominator of
which is 1.5, and (ii) in the case of any Disposition in connection with the
occurrence of a Trigger Event (as such term is defined in the Employment
Agreement), the Company shall release such Pledged Securities regardless of
whether the Coverage Amount is greater than zero, provided, that any proceeds
received upon such Disposition are either pledged to the Company as additional
collateral and/or used to reduce the Note Amount so that the foregoing
collateral coverage test continues to be satisfied after giving effect to such
Disposition.
For purposes of this Section 5, (i) fully vested Options shall be treated
as exercised in determining whether any Pledged Securities shall be released,
provided, however, that the Calculated Value applicable to each share of stock
for which the Option may be exercised shall be reduced by the per share exercise
price of such Option and (ii) the Value of the Additional Securities shall be
the market value of such securities determined by reference to the per share
closing price on the date prior to the requested release of such securities as
reported by the New York Stock Exchange, American Stock Exchange or the National
Association of Securities Dealers Automatic Quotation National Market System, as
the case may be.
6. Adjustments to Calculated Value. In the event of any stock dividend,
-------------------------------
stock split, stock issuance, reverse stock split, subdivision, combination,
recapitalization, reclassification, merger, consolidation or other change in any
class of common stock of the Company, the dollar value used to determine the
Calculated Value applicable to such class of common stock shall be appropriately
adjusted to reflect such dividend, split, issuance, subdivision, combination,
recapitalization, reclassification, merger, consolidation or other change.
7. Attorney-in-Fact. The Company is hereby appointed the attorney-in-fact
----------------
of the Pledgor and the Pledgor's transferees for the purpose of carrying out
the provisions of this Stock
<PAGE>
Pledge Agreement and taking any action and executing any instrument which the
Company reasonably may deem necessary or advisable to accomplish the purposes
hereof, including without limitation, the execution of the applications and
other instruments described in Section 3(c) hereof, which appointment as
attorney-in-fact is irrevocable as one coupled with an interest.
8. Termination. Upon payment in full of the principal of and accrued and
-----------
unpaid interest on the Note Obligations and upon the due performance of and
compliance with all the provisions of the Note Obligations, this Stock Pledge
Agreement shall terminate and the Pledgor shall be entitled to the return of
such of the Pledged Securities as have not theretofore been sold, released
pursuant to Sections 5 and 6 hereof or otherwise applied pursuant to the
provisions of this Stock Pledge Agreement.
10. Notices. All notices or other communications required or permitted to
-------
be given hereunder shall be delivered as provided in the Employment Agreement.
11. Binding Effect, Successors and Assigns. This Stock Pledge Agreement
--------------------------------------
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns and nothing herein is intended or shall be
construed to give any other person any right, remedy or claim under, to or in
respect of this Stock Pledge Agreement.
12. Miscellaneous. The Company and its assigns shall have no obligation in
-------------
respect of the Pledged Securities, except to hold and dispose of the same in
accordance with the terms of this Stock Pledge Agreement. Neither this Stock
Pledge Agreement nor any provision hereof may be amended, modified, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the amendment, modification, waiver,
discharge or termination is sought. The provisions of this Stock Pledge
Agreement shall be binding upon the heirs, representatives, successors and
permitted assigns of the Pledgor. The captions in this Stock Pledge Agreement
are for convenience of reference only and shall not define or limit the
provisions hereof. This Stock Pledge Agreement shall be governed by and
construed and enforced in accordance with the laws of the Commonwealth of
Massachusetts, without regard to the conflicts of law rules thereof. This Stock
Pledge Agreement may be executed simultaneously in several counterparts, each of
which is an original, but all of which together shall constitute one instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Stock Pledge
Agreement to be executed and delivered as of the date first above written.
CORPORATE SOFTWARE INCORPORATED
By [ILLEGIBLE]
-------------------------
Title:
PLEDGOR
/s/ Terence M. Leahy
---------------------------
Terence M. Leahy
<PAGE>
Exhibit 10.13
AMENDED AND RESTATED
7.25% UNSECURED PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned, W. Kendale Southerland (the "Borrower"),
hereby promises to pay to Modus Media International Holdings, Inc., a Delaware
corporation (the "Company"), or to the legal holder of this Unsecured Promissory
Note at the time of payment, the principal sum of Seventy Thousand Dollars
($70,000) in lawful money of the United States of America, and to pay simple
interest (computed on the basis of a 365- or 366-day year, as the case may be)
on the principal amount hereof from and after July 20, 1999 until the entire
principal amount hereof has been paid in full, at the rate of 7.25% per annum.
The entire principal amount of indebtedness evidenced by this Unsecured
Promissory Note shall be repaid on the Maturity Date. Each payment of principal
shall be accompanied by payment of any accrued and unpaid interest thereon.
If the date set for any payment or prepayment of principal or interest hereunder
is a Saturday, Sunday or legal holiday, then such payment or prepayment shall be
made on the next preceding business day.
Capitalized terms used herein and not otherwise defined shall have the meanings
ascribed to them in the Modus Media International Holdings, Inc. 1997 Stock
Incentive Plan, as amended (the "Option Plan").
As used in this Note:
(a) The term "Maturity Date" means the earlier of (i) a Liquidity Event, (ii)
-------------
the termination of the Borrower's employment with the Company or any
successor thereto for "Cause" or by resignation of the Borrower; or (iii)
July 20, 2004.
(b) The term "Liquidity Event" means an Acquisition Event (as defined in Section
---------------
8(e)(i) of the Option Plan) in which Borrower receives, in exchange for his
shares of capital stock of the Borrower ("Shares") and/or his options to
purchase shares of capital stock of the Borrower ("Options"), Liquid
Consideration (as defined in the Option Plan) having a fair market value)
equal to at least $300,000. For this purpose, options issued in substitution
or exchange for the Options pursuant to an Acquisition Event shall be
considered Liquid Consideration if the shares underlying such options
constitute Liquid Consideration and shall be valued as the difference
between the exercise price of such options and the fair market value of such
underlying shares. If any consideration received by the Borrower pursuant to
an Acquisition Event in exchange for his Shares or Options does not
constitute Liquid Consideration having a fair market value equal to at least
$300,000, such Acquisition Event shall be deemed to be a Liquidity Event at
such later time (if any) that such consideration becomes Liquid
Consideration having a value at least equal to $300,000.
<PAGE>
(c) The term "Cause" means: (i) fraud, embezzlement or other act of dishonesty
by the Borrower that causes material injury to the Company; (ii) Borrower's
conviction of, or plea of, nolo contendere to any felony involving
dishonesty or moral turpitude; or (iii) a failure by the Borrower to take or
refrain from taking any action consistent with his duties as Executive Vice
President as specified in written direction of the President which is not
cured within 30 days after written notice that failure to take or refrain
from taking such action shall constitute "Cause" for termination.
Interest on the principal amount hereof outstanding from time to time shall
accrue but shall not be payable until the Maturity Date.
This Unsecured Promissory Note is subject to the following further terms and
conditions:
1. Payment and Prepayment: All payments of principal and interest on this
----------------------
Unsecured Promissory Note shall be made to the Company or its order, or to
the legal holder of this Unsecured Promissory Note or such holder's order, in
lawful money of the United States of America at the principal offices of the
Company (or at such other place as the holder hereof shall notify the
Borrower in writing).
2. Events of Default. Upon the occurrence of any of the following events
-----------------
("Events of Default"):
-----------------
(a) Failure to pay the principal of this Unsecured Promissory Note, which
shall be unremedied for five (5) days following the date when such
payment was originally due hereunder; or
(b) Failure to pay any interest installment due under this Unsecured
Promissory Note which shall remain unremedied for five days following the
date when such installment was originally due hereunder; then, and in any
such event, the holder of this Unsecured Promissory Note may declare, by
notice of default given to the Borrower, the entire principal amount of
this Unsecured Promissory Note to be forthwith due and payable, whereupon
the entire principal amount of this Unsecured Promissory Note outstanding
and any accrued and unpaid interest hereunder shall become due and
payable without presentment, demand, protest, notice of dishonor and all
other demands and notices of any kind, all of which are hereby expressly
waived. Upon the occurrence of an Event of Default, the accrued and
unpaid interest hereunder shall thereafter bear the same rate of interest
as on the principal hereunder, but in no event shall such interest be
charged which would violate any applicable usury law. If an Event of
Default shall occur hereunder, the Borrower shall pay costs of
collection, including reasonable attorneys' fees, incurred by the holder
in the enforcement hereof.
No delay or failure by the holder of this Unsecured Promissory Note in
the exercise of any right or remedy shall constitute a waiver thereof,
and no single or partial exercise by the holder hereof of any right or
remedy shall preclude other or future exercise thereof or the exercise of
any other right or remedy.
2
<PAGE>
3. Forgiveness, Etc.
----------------
(a) Notwithstanding any other provision of this Note, if Company or any
successor terminates Borrower for any reason other than termination for
Cause, or if such employment terminates by reason of Borrower's death or
long-term disability, all principal and interest payable under this Note
shall be forgiven and this Note shall be of no further force or effect.
(b) Notwithstanding any other provision of this Note, upon the occurrence of
a Maturity Date as a result of the voluntary resignation of the Borrower
as an employee of the Company or any successor, the Borrower shall be
obligated to surrender to the Company, in full payment of principal and
interest due under this Note, Shares and/or vested and exercisable
Options having a then fair market value equal to such principal and
interest and, if the fair market value of all Shares and vested and
exercisable Options then held by the Borrower is less than the amount of
such principal and interest, the Company shall forgive the balance of
such principal and interest in excess of such fair market value.
(c) Notwithstanding any other provision of this Note, upon the occurrence of
a Maturity Date as a result of a Liquidity Event, Borrower shall have the
right to pay the principal and interest due under this Note in cash or by
surrender to the Company of Liquid Consideration having a fair market
value equal to such principal and interest.
(d) For purposes of this Note, "fair market value" shall be determined by the
Board of Directors of the Company in its sole discretion.
4. Transfers. While this Note is outstanding, Borrower shall not sell or
---------
otherwise transfer any of his Shares or Options (other than pursuant to an
Acquisition Event).
5. Miscellaneous.
-------------
(a) The provisions of this Unsecured Promissory Note shall be governed by and
construed in accordance with the laws of the Commonwealth of
Massachusetts, without regard to the conflicts of law rules thereof.
(b) This Unsecured Promissory Note may be assigned by the Company or any
assignee of the Company without the consent of, or notice to, the
Borrower.
3
<PAGE>
(c) All notices and other communications hereunder shall be in writing and
will be deemed to have been duly given to the Company if delivered or
mailed first class, and to the Borrower if addressed as follows:
W. Kendale Southerland
North Street
Walpole, Massachusetts
(d) The headings contained in this Unsecured Promissory Note are for
reference purposes only and shall not affect in any way the meaning or
interpretation of the provisions hereof.
IN WITNESS WHEREOF, this Unsecured Promissory Note has been duly executed and
delivered by the Borrower on the date first above written.
/s/ W. Kendale Southerland
---------------------------------
W. Kendale Southerland
Witness:
/s/ Ann E. Tyeryar
- ---------------------------------
4
<PAGE>
Exhibit 10.14
AMENDED AND RESTATED
7.25% UNSECURED PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned, Ronald Leitch (the "Borrower"), hereby
promises to pay to Modus Media International Holdings, Inc., a Delaware
corporation (the "Company"), or to the legal holder of this Unsecured Promissory
Note at the time of payment, the principal sum of Sixty-two Thousand Five
Hundred Dollars ($62,500) in lawful money of the United States of America, and
to pay simple interest (computed on the basis of a 365- or 366-day year, as the
case may be) on the principal amount hereof from and after August 10, 1999 until
the entire principal amount hereof has been paid in full, at the rate of 7.25%
per annum. The entire principal amount of indebtedness evidenced by this
Unsecured Promissory Note shall be repaid on the Maturity Date. Each payment of
principal shall be accompanied by payment of any accrued and unpaid interest
thereon.
If the date set for any payment or prepayment of principal or interest hereunder
is a Saturday, Sunday or legal holiday, then such payment or prepayment shall be
made on the next preceding business day.
Capitalized terms used herein and not otherwise defined shall have the meanings
ascribed to them in the Modus Media International Holdings, Inc. 1997 Stock
Incentive Plan, as amended (the "Option Plan").
As used in this Note:
(a) The term "Maturity Date" means the earlier of (i) a Liquidity Event, (ii)
-------------
the termination of the Borrower's employment with the Company or any
successor thereto for "Cause" or by resignation of the Borrower; or (iii)
August 10, 2004.
(b) The term "Liquidity Event" means an Acquisition Event (as defined in Section
---------------
8(e)(i) of the Option Plan) in which Borrower receives, in exchange for his
shares of capital stock of the Borrower ("Shares") and/or his options to
purchase shares of capital stock of the Borrower ("Options"), Liquid
Consideration (as defined in the Option Plan) having a fair market value)
equal to at least $300,000. For this purpose, options issued in substitution
or exchange for the Options pursuant to an Acquisition Event shall be
considered Liquid Consideration if the shares underlying such options
constitute Liquid Consideration and shall be valued as the difference
between the exercise price of such options and the fair market value of such
underlying shares. If any consideration received by the Borrower pursuant to
an Acquisition Event in exchange for his Shares or Options does not
constitute Liquid Consideration having a fair market value equal to at least
$300,000, such Acquisition Event shall be deemed to be a Liquidity Event at
such later time (if any) that such consideration becomes Liquid
Consideration having a value at least equal to $300,000.
<PAGE>
(c) The term "Cause" means: (i) fraud, embezzlement or other act of dishonesty
by the Borrower that causes material injury to the Company; (ii) Borrower's
conviction of, or plea of, nolo contendere to any felony involving
dishonesty or moral turpitude; or (iii) a failure by the Borrower to take or
refrain from taking any action consistent with his duties as Executive Vice
President as specified in written direction of the President which is not
cured within 30 days after written notice that failure to take or refrain
from taking such action shall constitute "Cause" for termination.
Interest on the principal amount hereof outstanding from time to time shall
accrue but shall not be payable until the Maturity Date.
This Unsecured Promissory Note is subject to the following further terms and
conditions:
1. Payment and Prepayment: All payments of principal and interest on this
----------------------
Unsecured Promissory Note shall be made to the Company or its order, or to
the legal holder of this Unsecured Promissory Note or such holder's order,
in lawful money of the United States of America at the principal offices of
the Company (or at such other place as the holder hereof shall notify the
Borrower in writing).
2. Events of Default. Upon the occurrence of any of the following events
--------- -------
("Events of Default"):
-----------------
(a) Failure to pay the principal of this Unsecured Promissory Note, which
shall be unremedied for five (5) days following the date when such
payment was originally due hereunder; or
(b) Failure to pay any interest installment due under this Unsecured
Promissory Note which shall remain unremedied for five days following
the date when such installment was originally due hereunder; then, and
in any such event, the holder of this Unsecured Promissory Note may
declare, by notice of default given to the Borrower, the entire
principal amount of this Unsecured Promissory Note to be forthwith due
and payable, whereupon the entire principal amount of this Unsecured
Promissory Note outstanding and any accrued and unpaid interest
hereunder shall become due and payable without presentment, demand,
protest, notice of dishonor and all other demands and notices of any
kind, all of which are hereby expressly waived. Upon the occurrence of
an Event of Default, the accrued and unpaid interest hereunder shall
thereafter bear the same rate of interest as on the principal hereunder,
but in no event shall such interest be charged which would violate any
applicable usury law. If an Event of Default shall occur hereunder, the
Borrower shall pay costs of collection, including reasonable attorneys'
fees, incurred by the holder in the enforcement hereof.
No delay or failure by the holder of this Unsecured Promissory Note in
the exercise of any right or remedy shall constitute a waiver thereof,
and no single or partial exercise by the holder hereof of any right or
remedy shall preclude other or future exercise thereof or the exercise
of any other right or remedy.
2
<PAGE>
3. Forgiveness, Etc.
----------------
(a) Notwithstanding any other provision of this Note, if Company or any
successor terminates Borrower for any reason other than termination for
Cause, or if such employment terminates by reason of Borrower's death or
long-term disability, all principal and interest payable under this Note
shall be forgiven and this Note shall be of no further force or effect.
(b) Notwithstanding any other provision of this Note, upon the occurrence of
a Maturity Date as a result of the voluntary resignation of the Borrower
as an employee of the Company or any successor, the Borrower shall be
obligated to surrender to the Company, in full payment of principal and
interest due under this Note, Shares and/or vested and exercisable
Options having a then fair market value equal to such principal and
interest and, if the fair market value of all Shares and vested and
exercisable Options then held by the Borrower is less than the amount of
such principal and interest, the Company shall forgive the balance of
such principal and interest in excess of such fair market value.
(c) Notwithstanding any other provision of this Note, upon the occurrence of
a Maturity Date as a result of a Liquidity Event, Borrower shall have
the right to pay the principal and interest due under this Note in cash
or by surrender to the Company of Liquid Consideration having a fair
market value equal to such principal and interest.
(d) For purposes of this Note, "fair market value" shall be determined by
the Board of Directors of the Company in its sole discretion.
4. Transfers. While this Note is outstanding, Borrower shall not sell or
---------
otherwise transfer any of his Shares or Options (other than pursuant to an
Acquisition Event).
5. Miscellaneous.
-------------
(a) The provisions of this Unsecured Promissory Note shall be governed by
and construed in accordance with the laws of the Commonwealth of
Massachusetts, without regard to the conflicts of law rules thereof.
(b) This Unsecured Promissory Note may be assigned by the Company or any
assignee of the Company without the consent of, or notice to, the
Borrower.
3
<PAGE>
(c) All notices and other communications hereunder shall be in writing and
will be deemed to have been duly given to the Company if delivered or
mailed first class, and to the Borrower if addressed as follows:
Ronald Leitch
South Natick, Massachusetts
(d) The headings contained in this Unsecured Promissory Note are for
reference purposes only and shall not affect in any way the meaning or
interpretation of the provisions hereof.
IN WITNESS WHEREOF, this Unsecured Promissory Note has been duly executed and
delivered by the Borrower on the date first above written.
/s/ R. Leitch 10-Aug-99
________________________________
Ronald Leitch
Witness:
/s/ Hazel Roy 10-Aug-99
___________________________
4
<PAGE>
Exhibit 10.15
EMPLOYMENT AGREEMENT
This Employment Agreement is made as of January 1, 1998 by and between
Modus Media International Holdings, Inc., a Delaware corporation (the
"Company"), and Terence M. Leahy (the "Executive").
------- ---------
The parties hereto agree as follows:
1. Employment. Subject to the terms and conditions set forth in this
----------
Agreement, the Company agrees to employ the Executive, and the Executive accepts
employment with the Company, upon the terms set forth in this Agreement.
2. Term. Subject to earlier termination as hereafter provided, the
----
Executive shall be employed hereunder for an original term commencing as of
January 1, 1998 (the "Effective Date") and ending on December 31, 2000, which
term shall be automatically extended thereafter for successive terms of one year
each, unless either party provides notice to the other at least three months
prior to the expiration of the original or any extension term that this
Agreement is not to be extended. The term of this Agreement, as from time to
time modified and in effect, is hereafter referred to as "the term of this
Agreement" or "the term hereof".
3. Capacity and Performance.
------------------------
3.1 Offices. During the term hereof, the Executive shall serve the
-------
Company in the offices of Chief Executive Officer and President. In such
capacities, the Executive will be responsible for the overall direction and
financial performance of the Company. The Executive shall be subject to the
direction of, and shall have such other powers, duties and
responsibilities, consistent with the Executive's position as Chief
Executive Officer and President, as may from time to time be prescribed by
the Company's Board of Directors (the "Board"). During the term hereof, the
Company shall use its best efforts to cause the election of the Executive
as a director of the Company.
3.2 Performance. During the term hereof, the Executive shall be
-----------
employed by the Company on a full-time basis and shall perform and
discharge (faithfully, diligently and to the best of his ability) such
duties and responsibilities on behalf of the Company and its subsidiaries
as may be designated from time to time by the Board and which are
consistent with the Executive's position as Chief Executive Officer and
President. During the term hereof, the Executive shall devote his full
business time exclusively to the advancement of the business and interests
of the Company and its subsidiaries and to the discharge of his duties and
responsibilities hereunder. The Executive shall not engage in any other
business activity or serve in any industry, trade, professional,
governmental or academic position during the term of this Agreement, except
for such directorships or other positions which
<PAGE>
he currently holds and has disclosed to the Company and except as otherwise
may be approved in advance by the Board.
4. Compensation and Benefits. As compensation for all services performed
-------------------------
by the Executive under this Agreement and subject to Section 5 hereof and
performance of the Executive's duties and of the obligations of the Executive to
the Company and its subsidiaries, pursuant to this Agreement or otherwise:
4.1 Base Salary. During the term hereof, the Company shall pay the
-----------
Executive a base salary at the rate of $340,000 per year, payable in
accordance with the payroll practices of the Company for its executives and
subject to increase from time to time (based on an annual review) by the
Board in its sole discretion. Such base salary, as from time to time
increased, is hereafter referred to as the "Base Salary". The Base Salary
shall be prorated for any period of service less than one full year.
4.2 Bonus Compensation.
------------------
(a) Special Bonus. As soon as practicable after the audited financial
-------------
results of the Company for calendar 1998 are available, the
Company shall pay to the Employee a Special Bonus in the amount
set forth below, if, but only if, the Executive is an employee of
the Company on December 31, 1998. The Special Bonus shall be
$300,000 if the Company's average daily amount of outstanding
indebtedness for borrowed money during the six month period ended
December 31, 1998 ("Debt") is equal to or less than $54,500,000
(but more than $46,500,000); $600,000 if the Debt is equal to or
less than $46,500,000 (but more than $40,000,000); and $900,000
if the Debt is equal to or less than $40,000,000.
(b) Annual Bonuses. The Executive shall be entitled to an annual
--------------
bonus in respect of 1998 operations in accordance with Exhibit A.
The bonus, if any, for 1998 shall be paid as soon as practicable
after the audited financial results of the Company for 1998 are
available.
(c) Subsequent Bonuses. The annual bonus potential, and the bonus
------------------
criteria, for years subsequent to 1998 shall be determined by
mutual agreement of the Executive and the Board.
-2-
<PAGE>
4.3 Options.
-------
(a) The Executive shall retain all of the outstanding options held by the
Executive, as of the Effective Date, for the purchase of shares of common
stock of the Company, Corporate Software and Technology Holdings, Inc.
("CST") and Stream International Holdings, Inc. ("Stream"). Such options
(the "Old Options") shall continue to become exercisable in accordance with
their respective terms, provided that upon any termination of the
--------
Executive's employment, other than pursuant to Section 5.3 or 5.6 hereof,
50% of the then unvested installments of each Old Option shall immediately
vest and become exercisable in full.
(b) On the date hereof, the Company shall grant to the Executive the following
options (the "New Options") under the Company's 1997 Stock Incentive Plan
(the "Incentive Plan"), at an exercise price of $.58 per share:
(i) an option for 120,000 shares of common stock of the Company ("MMI
Common Stock"), which shall vest 25% on the first anniversary of the
Effective Date; 25% on the second anniversary thereof; 20% on each of
the third and fourth anniversaries thereof; and 10% on the fifth
anniversary thereof, in each case as long as the Executive remains in
the employ of the Company, provided that 50% of each then unvested
installment of such option shall accelerate if within six months after
an Acquisition Event the Executive's employment terminates other than
pursuant to Section 5.3 or 5.6 hereof;
(ii) an option for 120,000 shares of MMI Common Stock that vest (A) in full
on December 31, 2004 if the Executive is employed by the Company on
such date or (B) as to 25% of the option shares at the end of the
first anniversary of the Effective Date; 25% on the second anniversary
thereof; 20% on each of the third and fourth anniversaries thereof;
and 10% on the fifth anniversary thereof, in each case as long as the
Executive is employed by the Company, provided that such option may be
--------
exercised as to shares vested under this clause (B) only if the First
Liquidity Condition is met prior to such exercise. Notwithstanding the
foregoing, if following an Acquisition Event the employment of the
Executive terminates other than
-3-
<PAGE>
pursuant to Section 5.3 or 5.6 hereof, such option shall become
immediately exercisable in full. The "First Liquidity Condition" shall be
deemed to have been met (i) at such time on or after an Acquisition Event
that the holders of MMI Common Stock (and options for MMI Common Stock)
immediately prior to the Acquisition Event receive Liquid Consideration
(as defined below) totalling at least $100 million in exchange for their
shares of, or options for, MMI Common Stock or as a result of the sale of
the shares of capital stock received by such holders in such Acquisition
Event or (ii) at such time after the closing of the initial underwritten
public offering of MMI ("IPO") that the value of the outstanding shares
of, and options for, MMI Common Stock held by holders prior to the closing
is at least $100 million. Any options for MMI Common Stock, and any
options issued in substitution for such options pursuant to an Acquisition
Event, shall be valued net of the applicable option exercise price.
"Acquisition Event" shall mean any sale of all or substantially all of the
assets of the Company, any sale of all of the outstanding shares of MMI
Common Stock in a single transaction, or related series of transactions,
to a third party or any merger or consolidation in which shares of MMI
Common Stock are exchanged for cash, property or stock of a third party
(other than a merger or consolidation in which holders of MMI Common Stock
immediately prior thereto continue to hold more than 60%, by voting power,
of the outstanding capital stock of the acquiring or surviving
corporation, or the parent thereof). "Liquid Consideration" shall mean
cash or shares of capital stock registered under the Securities Act of
1933 or eligible for resale under Rule 144. Such option must be exercised,
to the extent then vested, within 90 days after termination of employment.
(iii) an option for 60,000 shares of MMI Common Stock that vest (A) in full on
December 31, 2004 if the Executive is employed by the Company on such date
or (B) as to 25% of the option shares at the end of the first anniversary
of the Effective Date; 25% on the second anniversary thereof; 20% on each
of the third and fourth anniversaries thereof; and 10% on the fifth
anniversary-thereof, in each case as long as the Executive is employed by
the Company, provided that such option may be exercised as to shares
--------
vested under this clause (B) only if the Second Liquidity
-4-
<PAGE>
Condition is met prior to such exercise. Notwithstanding the
foregoing, if following an Acquisition Event the employment of
the Executive terminates other than pursuant to Section 5.3 or
5.6 hereof, such option shall become immediately exercisable in
full. The "Second Liquidity Condition" shall be deemed to have
been met (i) at such time on or after an Acquisition Event that
the holders of MMI Common Stock (and options for MMI Common
Stock) immediately prior to the Acquisition Event receive Liquid
Consideration totalling at least $200 million either in exchange
for their shares of, or options for, MMI Common Stock or as a
result of the sale of the shares of capital stock received by
such holders in such Acquisition Event or (ii) at such time after
an IPO that the value of the outstanding shares of, or options
for, MMI Common Stock held by holders prior to the closing is at
least $200 million. Such option must be exercised, to the extent
then vested, within 90 days after termination of employment.
(c) All vested New Options shall be subject to the right (but not the
obligation) of the Company to repurchase such New Options (or shares
purchased upon exercise thereof) at the lower of cost or Fair Value
(as defined in the Incentive Plan) if the Executive's employment is
terminated for Cause (as defined below) or at Fair Value if the
Executive's employment is terminated pursuant to Sections 5.1, 5.2,
5.4 5.5 or 5.6 below.
(d) The New Options shall be evidenced by option agreements substantially
in the form attached hereto.
4.4 Loans. The Executive currently has outstanding two loans from the
-----
Company: one in the principal amount of $400,000 (the "Original Loan"), and
another in the principal amount of $1,000,000 (the "Home Loan"). Fifty percent
(50%) of the Original Loan (and all accrued interest thereon) shall be forgiven
by the Company if the Executive is employed by the Company on December 31, 1998
and the remaining fifty percent (50%) thereof (and all accrued interest thereon)
shall be forgiven by the Company if the Executive is employed by the Company on
December 31, 1999. The Home Loan shall be amended and restated upon the terms of
the Amended and Restated 7 3/4% Unsecured Promissory Note attached hereto.
4.5 Vacations. During the term hereof, the Executive shall be entitled to
---------
five (5) weeks of vacation per annum, to be taken at such times and intervals as
shall be determined by the Executive in his reasonable discretion.
-5-
<PAGE>
The Executive may not accumulate or carry over from one calendar year to
another any unused, accrued vacation time. The Executive shall not be
entitled to compensation for vacation time not taken.
4.6 Other Benefits. During the term hereof and subject to any
--------------
contribution therefor generally required of executives of the Company, the
Executive shall be entitled to participate in all employee benefit plans
(other than any profit sharing or bonus compensation programs) from time to
time adopted by the Board and in effect for executives of the Company
generally, except to the extent such plans are in a category of benefit
otherwise provided to the Executive. Such participation shall be subject to
(i) the terms of the applicable plan documents, (ii) generally applicable
Company policies and (iii) the discretion of the Board or any
administrative or other committee provided for in or contemplated by such
plan. The Company may alter, modify, add to or delete its employee benefit
plans at any time as the Board, in its sole judgment, determines to be
appropriate.
4.7 Business Expenses. The Company shall pay or reimburse the
-----------------
Executive for all reasonable business expenses incurred or paid by the
Executive in the performance of his duties and responsibilities hereunder,
subject to (i) any expense policy of the Company set by the Board from time
to time, and (ii) such reasonable substantiation and documentation
requirements as may be specified by the Board from time to time.
4.8 Severance. In the event Executive's employment with the Company
---------
terminates other than by resignation pursuant to Section 5.6 or by the
Company for Cause, Executive will be entitled to receive monthly severance
payments, each in an amount equal to the Executive's monthly base
compensation at the time of such termination (i.e., 1/12th of the Base
----
Salary), until 18 months after such termination (the "Severance Period").
5. Termination of Employment and Severance Benefits. Notwithstanding the
------------------------------------------------
provisions of Section 2 hereof, the Executive's employment hereunder shall
terminate prior to the expiration of the term of this Agreement under the
following circumstances:
5.1 Retirement or Death. In the event of the Executive's retirement
-------------------
(after age sixty-five) or death during the term hereof, the Executive's
employment hereunder shall immediately and automatically terminate. In the
event of the Executive's retirement after the age of sixty-five with the
prior consent of the Board or death during the term hereof, the Company
shall pay to the Executive (or in the case of death, the Executive's
designated beneficiary or, if no beneficiary has been designated by the
Executive, to his estate) any Base Salary earned but unpaid through the
date of such retirement or death,
-6-
<PAGE>
and any Bonus for the fiscal year preceding the year in which such retirement or
death occurs that was earned but has not yet been paid and, at the times the
Company pays its executives bonuses in accordance with its general payroll
policies, an amount equal to that portion of any bonus earned but unpaid during
the fiscal year of such retirement or death (pro-rated based on a formula, the
denominator of which shall be 365 and the numerator of which shall be the number
of days during the fiscal year of such retirement or death in which the
Executive was employed by the Company).
5.2 Disability.
----------
(a) The Company may terminate the Executive's employment hereunder, upon
notice to the Executive, in the event that the Executive becomes
disabled during his employment hereunder through any illness, injury,
accident or condition of either a physical or psychological nature
and, as a result, is unable to perform substantially all of his duties
and responsibilities hereunder for an aggregate of one hundred twenty
(120) days during any period of three hundred and sixty-five (365)
consecutive calendar days.
(b) The Board may designate another employee to act in the Executive's
place during any period of the Executive's disability. Notwithstanding
any such designation, the Executive shall continue to receive the Base
Salary in accordance with Section 4.1 and to receive benefits in
accordance with Section 4.6, to the extent permitted by the then-
current terms of the applicable benefit plans, until the Executive
becomes eligible for disability income benefits under any disability
income plan maintained by the Company or until the termination of his
employment, whichever shall first occur. Upon becoming so eligible, or
upon such termination, whichever shall first occur, the Company shall
pay to the Executive (i) any Base Salary earned but unpaid through the
date of such eligibility or termination and any Bonus for the fiscal
year preceding the year of such eligibility or termination that was
earned but unpaid (ii) during the twelve month period from such date,
amounts (payable from time to time at the times the Company pays its
executive in accordance with its general payroll policies) equal to
the difference between the Base Salary for the Executive for such
period, or portion thereof, and the amounts of disability income
benefits that the Executive receives pursuant to the above-referenced
disability income plan in respect of such period and (iii) at the
times the Company pays its executives bonuses in accordance with its
-7-
<PAGE>
general payroll policies, an amount equal to that portion of any Bonus
earned but unpaid during the fiscal year of such eligibility or
termination (pro-rated based on a formula, the denominator of which
shall be 365 and the numerator of which shall be the number of days
during the fiscal year of such eligibility or termination in which the
Executive was employed by the Company).
(c) Except as provided in Section 5.2.2, while receiving disability income
payments under any disability income plan maintained by the Company,
the Executive shall not be entitled to receive any Base Salary under
Section 4.1 or Bonus payments under Section 4.2 but shall continue to
participate in the Company's benefit plans in accordance with Section
4.6 and the terms of such plans, until the termination of his
employment. During the eighteen-month period from the date of
termination, the Company shall contribute to the cost of the
Executive's participation in the Company's group medical and dental
plans, provided that the Executive is entitled to continue such
participation under applicable law and plan term.
(d) If any question shall arise as to whether during any period the
Executive is disabled through any illness, injury, accident or
condition of either a physical or psychological nature so as to be
unable to perform substantially all of his duties and responsibilities
hereunder, the Executive may, and at the request of the Company shall,
submit to a medical examination by a physician selected by the Company
to whom the Executive or his duly appointed guardian, if any, has no
reasonable objection to determine whether the Executive is so disabled
and such determination shall for the purposes of this Agreement be
conclusive of the issue. If such question shall arise and the
Executive shall fail to submit to such medical examination, the
Board's determination of the issue shall be binding on the Executive.
5.3 By the Company for Cause. The Company may terminate the Executive's
------------------------
employment hereunder for Cause at any time upon notice to the Executive setting
forth in reasonable detail the nature of such Cause. Upon the giving of notice
of termination of the Executive's employment hereunder for Cause, the Company
shall have no further obligation or liability to the Executive relating to the
Executive's employment hereunder, or the termination thereof, other than for
Base Salary earned but unpaid through the date of termination. Without limiting
the generality of the foregoing, the
-8-
<PAGE>
Company shall have no further obligation to pay any Bonus amounts for any
year(s) in the event of termination of employment pursuant to this Section 5.3,
whether or not earned but unpaid in respect of a fiscal year preceding the year
in which such termination occurs.
5.4 By the Company other than for Cause. The Company may terminate the
-----------------------------------
Executive's employment hereunder other than for Cause at any time upon notice to
the Executive. In the event of such termination, then the Company shall pay the
Executive (i) Base Salary earned but unpaid through the date of termination plus
(ii) the amounts specified in Section 4.8 plus (iii) any unpaid portion of any
Bonus for the fiscal year preceding the year in which such termination occurs
that was earned but has not been paid plus (iv) at the times the Company pays
its executives bonuses in accordance with its general payroll policies, an
amount equal to that portion of any Bonus earned but unpaid during the fiscal
year of such termination (pro-rated based on a formula, the denominator of which
shall be 365 and the numerator of which shall be the number of days during the
fiscal year of such termination in which the Executive was employed by the
Company). During the Severance Period provided for in Section 4.8. the Company
shall, at its own cost, maintain the participation of the Executive in its
family health and dental plans pursuant to the provisions of the Consolidated
Omnibus Budget Reconciliation Act of 1985 ("COBRA").
5.5 By the Executive for Good Reason. The Executive may terminate his
--------------------------------
employment hereunder (i) in the event that the Company fails to perform, in any
material respect, its obligations under this Agreement, after written notice to
the Company setting forth in reasonable detail the nature of such breach if such
breach remains uncured for a period of 30 days following such written notice to
the Company, (ii) there is a substantial diminution in the responsibilities,
duties and powers of the Executive or (iii) in the event the Executive is
relocated to an area more than 50 miles from the metropolitan Boston area (each
of such events being referred to as "Good Reason"). In the event of termination
in accordance with this Section 5.5, then the Company shall pay the Executive
(i) Base Salary earned but unpaid through the date of termination plus (ii) any
Bonus for the fiscal year preceding the year in which such termination occurs
that was earned but has not been paid plus (iii) the amounts specified in
Section 4.8 hereof plus (iv) at the times the Company pays its executives
bonuses in accordance with its general payroll policies, an amount equal to that
portion of any Bonus earned but unpaid during the fiscal year of such
termination (pro-rated based on a formula, the denominator of which shall be 365
and the numerator of which shall be the number of days during the fiscal year of
such termination in which the Executive was employed by the Company). During the
Severance Period provided for in Section 4.8, the Company shall, at its own
cost, maintain the participation of the Executive in its family health and
dental plans pursuant to the provisions of COBRA.
-9-
<PAGE>
5.6 By the Executive Other than for Good Reason. The Executive may
-------------------------------------------
terminate his employment hereunder at any time upon ninety (90) days'
notice to the Company. In the event of termination of the Executive
pursuant to this Section 5.6, the Board may elect to waive the period of
notice, or any portion thereof, and, whether or not the Board so elects,
the Company will pay the Executive his Base Salary for the notice period,
except to the extent so waived by the Board (or for any remaining portion
of such period). Upon the giving of notice of termination of the
Executive's employment hereunder pursuant to this Section 5.6, the Company
shall have no further obligation or liability to the Executive relating to
the Executive's employment hereunder, or the termination thereof, other
than payment to the Executive of his Base Salary for the period (or portion
of such period) indicated above. Without limiting the generality of the
foregoing, the Company shall have no further obligation to pay any Bonus
amounts for any year(s) in the event of termination of employment pursuant
to this Section 5.6. whether or not earned but unpaid in respect of a
fiscal year preceding the year in which such termination occurs.
5.7 Post-Agreement Employment. In the event the Executive remains in
------------------------
the employ of the Company or any of its Affiliates following termination of
this Agreement, by the expiration of the term hereof or otherwise, then
such employment shall be at will, unless otherwise agreed in writing.
6. Effect of Termination. The provisions of this Section 6 shall apply in
---------------------
the event of termination due to the expiration of the term, pursuant to Section
5 or otherwise.
6.1 Payment in Full. Payment by the Company of any Base Salary, Bonus
---------------
and other amounts and contributions to the cost of the Executive's
continued participation in the Company's group health and dental plans that
may be due the Executive under the applicable termination provision of
Section 5 shall constitute the entire obligation of the Company to the
Executive, except that nothing in this Section 6.1 is intended or shall be
construed to affect the rights and obligations of the Company and its
Affiliates, on the one hand, and the Executive, on the other, with respect
to any loans, stock pledge arrangements, option plans or other agreements
to the extent said rights or obligations survive termination of employment
under the provision of documents relating thereto. Acceptance by the
Executive of performance by the Company shall constitute full settlement of
any claim that the Executive might otherwise assert against the Company,
its Affiliates or any of their respective shareholders, partners,
directors, officers, employees or agents relating to such termination.
-10-
<PAGE>
6.2 Termination of Benefits. Except for medical and dental insurance
-----------------------
coverage continued pursuant to Sections 5.2, 5.4 and 5.5 hereof and any right of
continuation of health coverage to the extent provided by Sections 601 through
608 of ERISA, benefits shall terminate pursuant to the terms of the applicable
benefit plans based on the date of termination of the Executive's employment
without regard to any continuation of Base Salary or other payments to the
Executive following such date of termination pursuant to Section 5.
6.3 Survival of Certain Provisions. Provisions of this Agreement shall
------------------------------
survive any termination if so provided herein or if necessary or desirable full
to accomplish the purposes of such provision, including, without limitation, the
obligations of the Executive under Sections 7 and 8 hereof. The obligation of
the Company to make payments to or on behalf of the Executive under Sections
4.8, 5.4 or 5.5 hereof is expressly conditioned upon the Executive's continued
full performance of obligations under Sections 7 and 8 hereof. The Executive
recognizes that, except as expressly provided in Section 4.8, 5.4 or 5.5, no
compensation is earned after termination of employment.
7. Confidential Information; Intellectual Property.
-----------------------------------------------
7.1 Confidentiality. The Executive acknowledges that the Company and its
---------------
Affiliates continually develop Confidential Information, that the Executive may
develop Confidential Information for the Company or its Affiliates and that the
Executive may learn of Confidential Information during the course of employment.
The Executive will comply with the policies and procedures of the Company for
protecting Confidential Information and shall never disclose to any Person
(except as required by applicable law or for the proper performance of his
duties and responsibilities to the Company and its Affiliates), or use for his
own benefit or gain or otherwise use in a manner adverse to the interests of the
Company and its Affiliates, any Confidential Information obtained by the
Executive incident to his employment or other association with the Company or
any of its Affiliates. The Executive understands that this restriction shall
continue to apply after his employment terminates, regardless of the reason for
such termination.
7.2 Return of Documents. All documents, records, tapes and other media of
-------------------
every kind and description relating to the business, present or otherwise, of
the Company or its Affiliates and any copies, in whole or in part, thereof (the
"Documents"), whether or not prepared by the Executive, shall be the sole and
---------
exclusive property of the Company and its Affiliates. The Executive shall
safeguard all Documents and shall surrender to the Company at the time his
employment terminates, or at such earlier time or times as the Board or its
designee may specify, all Documents then in the Executive's possession or
control.
-11-
<PAGE>
7.3 Assignment of Rights to Intellectual Property. The Executive
---------------------------------------------
shall promptly and fully disclose all Intellectual Property to the Company.
The Executive hereby assigns and agrees to assign to the Company (or as
otherwise directed by the Company) the Executive's full right, title and
interest in and to all Intellectual Property. The Executive agrees to
execute any and all applications for domestic and foreign patents,
copyrights or other proprietary rights and to do such other acts (including
without limitation the execution and delivery of instruments of further
assurance or confirmation) requested by the Company to assign the
Intellectual Property to the Company and to permit the Company to enforce
any patents, copyrights or other proprietary rights to the Intellectual
Property. The Executive will not charge the Company for time spent in
complying with these obligations. All copyrightable works that the
Executive creates shall be considered "work made for hire".
8. Agreement not to Compete with the Business. The Executive agrees that
------------------------------------------
during the term of his employment hereunder and for a period of eighteen (18)
months following the date of termination thereof (the "Non-Competition Period").
----------------------
he will not, directly or indirectly (a) own, manage, operate, control or
participate in any manner in the ownership, management, operation or control of,
or be connected as an officer, employee, partner, director, principal,
consultant, agent or otherwise with, or have any financial interest in, or aid
or assist anyone else in the conduct of, any business, venture or activity which
competes with, any business, venture or activity being conducted or proposed to
be conducted by the Company at the date (the "Date of Termination") on which the
-------------------
Executive's employment under this Agreement is terminated, or by any group,
division or subsidiary of the Company, in the United States, Australia, Belgium,
Canada, Denmark, England, France, Germany, Ireland, Japan, Korea, Singapore or
any other geographic area where such business is being conducted or is proposed
to be conducted at the Date of Termination (each a "Restricted Business"), or
-------------------
(b) recruit or otherwise seek to induce any employees of the Company or any of
its subsidiaries to terminate their employment or violate any agreement with or
duty to the Company or any of its subsidiaries. It is understood and agreed
that, for the purposes of the foregoing provisions of this Section 8, (i) no
business, venture or activity shall be deemed to be a business, venture or
activity conducted by the Company or any group, division or subsidiary of the
Company, unless not less than five percent of the Company's consolidated gross
sales or operating income is derived from, or not less than five percent of the
Company's consolidated assets are devoted to, such business, venture or
activity; and (ii) no business, venture or activity conducted by any entity by
which the Executive is employed or in which he is interested or with which he is
connected or associated shall be deemed competitive with any business, venture
or activity conducted by the Company unless it is one from which five percent or
more of its consolidated gross
-12-
<PAGE>
sales or operating income is derived, or to which five percent or more of its
consolidated assets are devoted; provided, however, that if the actual gross
-----------------
sales or operating income or assets of such entity derived from or devoted to
such business, venture or activity is equal to or in excess of 10% of the most
nearly comparable figure for the Company, such business, venture or activity of
such entity shall be deemed to be competitive with a business of the Company.
Further, ownership of not more than five percent of the voting stock of any
publicly held corporation shall not, of itself, constitute a violation of this
Section 8.
9. Enforcement of Covenants. The Executive acknowledges that he has
------------------------
carefully read and considered all the terms and conditions of this Agreement,
including without limitation the restraints imposed upon him pursuant to
Sections 7 and 8 hereof. The Executive agrees that said restraints are necessary
for the reasonable and proper protection of the Company and its Affiliates and
that each and every one of the restraints is reasonable in respect to subject
matter, length of time and geographic area. The Executive further acknowledges
that, were he to breach any of the covenants or agreements contained in Sections
7 or 8 hereof, the damage to the Company could be irrevocable. The Executive
therefore agrees that the Company, in addition to any other remedies available
to it, shall be entitled to preliminary and permanent injunctive relief against
any breach or threatened breach by the Executive of any of said covenants or
agreements. The parties further agree that in the event that any provision of
Section 7 or 8 hereof shall be determined by any Court of competent jurisdiction
to be unenforceable by reason of its being extended over too great a time, too
large a geographic area or too great a range of activities, such provision shall
be deemed to be modified to permit its enforcement to the maximum extent
permitted by law.
10. Conflicting Agreements. The Executive hereby represents and warrants
----------------------
that the execution of this Agreement and the performance of his obligations
hereunder will not breach or be in conflict with any other agreement to which or
by which the Executive is a party or is bound and that the Executive is not now
subject to any covenants against competition or similar covenants that would
affect the performance of his obligations hereunder. The Executive will not
disclose to or use on behalf of the Company or any of its Affiliates any
proprietary information of a third party without such party's consent.
11. Definitions. Terms defined elsewhere in this Agreement are used herein
-----------
as so defined. In addition, capitulated terms used and not otherwise defined
herein are used in this Agreement as defined in the Merger Agreement; and the
following terms shall have the following meanings:
11.1 Affiliates. "Affiliates" means all persons and entities directly
----------
or indirectly controlling, controlled by or under common control with the
Company.
-13-
<PAGE>
11.2 Bonus. The bonuses provided for in Sections 4.2(b) and (c).
-----
11.3 Business. Any service currently or hereafter provided, directly or
--------
indirectly, by or on behalf of the Company or any of its subsidiaries.
11.4 Cause. The following events or conditions shall constitute "Cause"
-----
for termination: (i) fraud, embezzlement or other act of dishonesty by the
Executive that causes material injury to the Company or any of its Affiliates,
(ii) conviction of, or plea of nolo contendere to, any felony involving
dishonesty or moral turpitude, or (iii) a failure by the Executive to take or
refrain from taking any corporate action consistent with his duties as President
and Chief Executive Officer as specified in written directions of the Board
following receipt by the Executive of such written directions which such failure
is not cured within 30 days after written notice that failure to take or refrain
from taking such action shall constitute "Cause" for purposes hereof.
11.5 Confidential Information. "Confidential Information" means any and
------------------------
all in formation of the Company and its Affiliates that is not generally known
by others with whom they compete or do business, or with whom they plan to
compete or do business and any and all information the disclosure of which would
otherwise be adverse to the interests of the Company or any of its Affiliates.
Confidential Information includes without limitation such information relating
to (i) the services or products sold or offered by the Company or any of its
Affiliates, (ii) the costs, sources of supply, financial performance and
strategic plans of the Company and its Affiliates, (iii) the identity and
special needs of the customers of the Company and its Affiliates and (iv) the
people and organizations with whom the Company and its Affiliates have business
relationships and those relationships. Confidential Information also includes
comparable information that the Company or any of its Affiliates have received
belonging to others or which was received by the Company or any of its
Affiliates with any understanding that it would not be disclosed.
11.6 Intellectual Property. "Intellectual Property" means inventions,
---------------------
discoveries, developments, methods, processes, compositions, works, concepts and
ideas (whether or not patentable or copyrightable or constituting trade secrets)
conceived, made, created, developed or reduced to practice by the Executive
(whether alone or with others, whether or not during normal business hours or on
or off Company premises) during the Executive's employment that relate to either
the Business or any prospective activity of the Company or any of its
Affiliates.
-14-
<PAGE>
11.7 Person. "Person" means an individual, a corporation, an
------
association, a partnership, a limited liability company, an estate, a trust
and any other entity or organization.
12. Withholding. All payments made by the Company under this Agreement
-----------
shall be reduced by any tax or other amounts required to be withheld by the
Company under applicable law. In addition, the Company shall be entitled to
reduce any payments by the Company of Base Salary or Bonus under this Agreement
by the amount of any tax or other amounts required to be withheld by the Company
under applicable law with respect to deemed compensation arising out of or
related to imputed interest on any loans by the Company to the Executive.
13. Miscellaneous.
-------------
13.1 Assignment. Neither the Company nor the Executive may make any
----------
assignment of this Agreement or any interest herein, by operation of law or
otherwise, without the prior written consent of the other; provided,
--------
however, that the Company may assign its rights and obligations under this
-------
Agreement without the consent of the Executive in the event that the
Company shall hereafter affect a reorganization, consolidate with, or merge
into, any other Person or transfer all or substantially all of its
properties or assets to any other Person, in which event such other Person
shall be deemed the "Company" hereunder for all purposes. This Agreement
shall inure to the benefit of and be binding upon the Company and the
Executive, and their respective successors, executors, administrators,
heirs and permitted assigns.
13.2 Severability. If any portion or provision of this Agreement
------------
shall to any extent be declared illegal or unenforceable by a court of
competent jurisdiction, then the application of such provision in such
circumstances shall be deemed modified to permit its enforcement to the
maximum extent permitted by law, and both the application of such portion
or provision in circumstances other than those as to which it is so
declared illegal or unenforceable and the remainder of this Agreement shall
not be affected thereby, and each portion and provision of this Agreement
shall be valid and enforceable to the fullest extent permitted by law.
13.3 Waiver: Amendment No waiver of any provision hereof shall be
-----------------
effective unless made in writing and signed by the waiving party. The
failure of either party to require the performance of any term or
obligation of this Agreement, or the waiver by either party of any breach
of this Agreement, shall not prevent any subsequent enforcement of such
term or obligation or be deemed a waiver of any subsequent breach. This
Agreement may be amended or modified only by a written instrument signed by
the Executive and the Company.
-15-
<PAGE>
13.4 Notices. Any and all notices, requests, demands and other
-------
communications provided for by this Agreement shall be in writing and shall be
effective when delivered in person or two business days after being deposited in
the United States mail, postage prepaid, registered or certified, and addressed
(a) in the case of the Executive, to:
Mr. Terence M. Leahy
President and Chief Executive Officer
Modus Media International Holdings, Inc.
690 Canton Street
Westwood, MA 02090
or, (b) in the case of the Company, at its principal place of business and to
the attention of Chief Executive Officer; or to such other address as either
party may specify by notice to the other.
13.5 Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties with respect to the terms and conditions of the Executive's
employment and, except as otherwise provided herein, supersedes all prior
communications, agreements and understandings, written or oral, with the Company
or any of its Affiliates or predecessors with respect to the terms and
conditions of the Executive's employment. Without limiting the foregoing, (i)
that certain Management Retention Agreement between Stream and the Executive and
the Employment Agreement dated April 21, 1995 between Stream and the Executive
are hereby terminated and the Executive shall have no rights thereunder, and
(ii) the Executive shall have no right to any bonus payment as a result of the
bonuses authorized by the Board of Directors of Stream in 1996.
13.6 Headings. The headings and captions in this Agreement are for
--------
convenience only and in no way define or describe the scope or content of any
provision of this Agreement.
13.7 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original and all of which together shall
constitute one and the same instrument.
13.8 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 laws provision
or rule that would cause the application of the domestic substantive laws of any
other jurisdiction.
-16-
<PAGE>
13.9 Consent to Jurisdiction. Each of the Company and the Executive,
-----------------------
by its or his execution hereof, (i) hereby irrevocably submits to the
exclusive jurisdiction of the state courts of The Commonwealth of
Massachusetts for the purpose of any claim or action arising out of or
based upon this Agreement or relating to the subject matter hereof, (ii)
hereby waives, to the extent not prohibited by applicable law, and agrees
not to assert by way of motion, as a defense or otherwise, in any such
claim or action, any claim that it is not subject personally to the
jurisdiction of the above-named courts, that its property is exempt or
immune from attachment or execution, that any such proceeding brought in
the above-named courts is improper, or that this Agreement or the subject
matter hereof may not be enforced in or by such court, and (iii) hereby
agrees not to commence any claim or action arising out of or based upon
this Agreement or relating to the subject matter hereof other than before
the above-named courts nor to make any motion or take any other action
seeking or intending to cause the transfer or removal of any such claim or
action to any court other than the above- named courts whether on the
grounds of inconvenient forum or otherwise. Each of the Company and the
Executive hereby consents to service of process in any such proceeding in
any manner permitted by Massachusetts law, and agrees that service of
process by registered or certified mail, return receipt requested, at its
address specified pursuant to Section 13.4 hereof is reasonably calculated
to give actual notice.
14. Legal Fees. The Company shall reimburse the Executive for up to
----------
$10,000 of legal fees and expenses incurred in connection with the preparation
of this Agreement.
-17-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the Company, by its
duly authorized representative, and by the Executive, as of the date first above
written.
COMPANY:
MODUS MEDIA INTERNATIONAL
HOLDINGS, INC.
By: /s/ Mary L. Wilson
---------------------------------
Title: General Counsel
EXECUTIVE:
/s/ Terence M. Leahy
---------------------------------
Terence M. Leahy
-18-
<PAGE>
Exhibit A
---------
1998 Bonus
----------
1. The bonus shall consist of three components:
(i) The Executive shall receive 60% of the payment set forth in the column
entitled "Payout" opposite the annual EBITDA less capital expenditures
achieved by the Company:
<TABLE>
<CAPTION>
Annual EBITDA
Less Capital Performance
Expenditures * (% of Goal) Payout *
----------------- ------------ --------
<S> <C> <C>
Less than $24,421,000 Less than 90% -0-
$24,421,000 90% 25% of Base Salary,
$24,560,000 to $27,130,000 91.0 to 99.9% 25% of Base Salary,
plus 2.5% for each
additional 1% of
performance
$27,134,000 100% 60% of Base Salary
$33,046,000 122% 75% of Base Salary
$38,614,000 142% 120% of Base Salary
</TABLE>
- -------------
* There shall be no Payout if EBITDA is less than $40.2 million.
(ii) The Executive shall receive a bonus equal to 20% of his quarterly Base
Salary at the end of each quarter if the following EB1TDA (less
capital expenditures) targets for such quarter are achieved and the
Company has positive EBIT:
Target EB1TDA
Less Capital
Expenditures
------------
First Quarter $ 1
Second Quarter $ 1,617,000
Third Quarter $ 7,204,000
Fourth Quarter $20,223,000
<PAGE>
(iii) The Executive shall receive at the end of the year a bonus based on the
achievement of his MBOs equal to up to 20% of his Base Salary if the
Company achieves EBITDA less capital expenditures of at least $24.421
million, as follows:
Performance on Assigned MBOs Payout (as % of 20% target)
---------------------------- --------------------------
Failed to meet most MBOs 0
Met Most MBOs 50%
Met all MBOs 100%
The Executive's MBO's are:
. Establish management committee effectiveness in delivering predictable
financial performance
. Develop organization effectiveness around operational metrics (as well
as financial reporting) i.e. Global Metrics Reporting
. Improve finance organization responsiveness
. Implement product model for planning and reporting business
<PAGE>
EXHIBIT 10.16
INTERNAL WORKING DRAFT
- --------------------------------------------------------------------------------
COMPOSITE COPY
OF CREDIT AGREEMENT
AMONG MODUS MEDIA INTERNATIONAL, INC.
AS BORROWER AND THE OTHER PARTIES THERETO
AS AMENDED BY
THE FIRST AMENDMENT TO CREDIT AGREEMENT DATED AS
OF FEBRUARY 18,1998,
THE SECOND AMENDMENT TO CREDIT AGREEMENT
DATED AS OF FEBRUARY 27, 1998,
THE THIRD AMENDMENT TO CREDIT
AGREEMENT DATED AS OF AUGUST 10, 1998,
THE FOURTH AMENDMENT TO
CREDIT AGREEMENT AND WAIVER DATED AS OF NOVEMBER 6, 1998,
THE FIFTH AMENDMENT TO CREDIT AGREEMENT DATED
AS OF DECEMBER 31, 1998,
THE SIXTH AMENDMENT TO CREDIT AGREEMENT AND WAIVER DATED AS
OF MAY 10, 1999,
THE SEVENTH AMENDMENT TO CREDIT AGREEMENT AND
WAIVER DATED AS OF JUNE 25, 1999,
AND
THE EIGHTH AMENDMENT TO CREDIT AGREEMENT AND WAIVER
DATED AS OF SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
<PAGE>
COMPOSITE COPY
- --------------------------------------------------------------------------------
CREDIT AGREEMENT
among
MODUS MEDIA INTERNATIONAL, INC.,
AS BORROWER,
MODUS MEDIA INTERNATIONAL HOLDINGS, INC.,
VARIOUS LENDING INSTITUTIONS,
NATIONSBANC MONTGOMERY SECURITIES, INC.,
AS ARRANGER AND SYNDICATION AGENT,
CITICORP USA, INC.,
AS DOCUMENTATION AGENT, COLLATERAL AGENT
AND MULTI-CURRENCY AGENT
and
NATIONSBANK OF TEXAS, N.A.,
AS ADMINISTRATIVE AGENT
________________________
Dated as of December 15, 1997
________________________
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
<C> <S> <C>
Page
SECTION 1. Amount and Terms of Credit............................................................. 2
--------------------------
1.01 Commitments............................................................................ 2
-----------
1.02 Minimum Borrowing Amounts, Etc......................................................... 8
------------------------------
1.03 Notice of Borrowing.................................................................... 8
-------------------
1.04 Disbursement of Funds.................................................................. 10
---------------------
1.05 Notes 11
-----
1.06 Conversions............................................................................ 11
-----------
1.07 Pro Rata Borrowings.................................................................... 12
-------------------
1.08 Interest............................................................................... 12
--------
1.09 Interest Periods....................................................................... 13
----------------
1.10 Increased Costs, Illegality, Etc....................................................... 14
--------------------------------
1.11 Compensation........................................................................... 17
------------
1.12 Change of Lending Office............................................................... 18
------------------------
1.13 Replacement of Banks................................................................... 18
--------------------
1.14 Additional Borrowers and Credit Parties................................................ 19
---------------------------------------
1.15 Borrower Liability..................................................................... 19
------------------
SECTION 2. Letters of Credit...................................................................... 19
-----------------
2.01 Letters of Credit...................................................................... 19
-----------------
2.02 Letter of Credit Requests; Notices of Issuance......................................... 22
----------------------------------------------
2.03 Agreement to Repay Letter of Credit Drawings........................................... 23
--------------------------------------------
2.04 Letter of Credit Participations........................................................ 24
-------------------------------
2.05 Increased Costs........................................................................ 26
---------------
SECTION 3. Fees; Commitments...................................................................... 27
-----------------
3.01 Fees 27
----
3.02 Voluntary Termination or Reduction of Commitments...................................... 28
-------------------------------------------------
3.03 Mandatory Adjustments of Commitments, Etc.............................................. 29
-----------------------------------------
SECTION 4. Payments............................................................................... 29
--------
Voluntary Prepayments.................................................................. 29
4.01 ---------------------
Mandatory Prepayments.................................................................. 30
4.02 ---------------------
Method and Place of Payment............................................................ 34
4.03 ---------------------------
Net Payments........................................................................... 35
4.04 ------------
SECTION 5. Conditions Precedent.................................................................... 37
--------------------
5.01 Execution of Agreement; Notes.......................................................... 37
-----------------------------
5.02 No Default; Representations and Warranties............................................. 37
------------------------------------------
5.03 Officer's Certificate.................................................................. 38
---------------------
5.04 Opinions of Counsel.................................................................... 38
-------------------
5.05 Corporate Proceedings.................................................................. 38
---------------------
i
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
Page
5.06 Adverse Change, Etc.................................................................... 39
-------------------
5.07 Litigation............................................................................. 39
----------
5.08 Approvals.............................................................................. 39
---------
5.09 Consummation of the Transaction........................................................ 40
-------------------------------
5.10 Security Documents..................................................................... 40
------------------
5.11 Guaranties............................................................................. 41
----------
5.12 CST Guaranty........................................................................... 42
------------
5.13 Plans; Existing Indebtedness Agreements; Shareholders' Agreements; Management
-----------------------------------------------------------------------------
Agreements; Employment Agreements; Non-Compete Agreements; Tax Allocation Agreements;
-------------------------------------------------------------------------------------
Material Contracts..................................................................... 42
------------------
5.14 Solvency Certificate; Evidence of Insurance; Financial Statements...................... 43
-----------------------------------------------------------------
5.15 Pro Forma Balance Sheet................................................................ 44
-----------------------
5.16 Projections............................................................................ 44
-----------
5.17 Existing Indebtedness.................................................................. 44
---------------------
5.18 Field Examinations; Initial Borrowing Base Certificate................................. 45
------------------------------------------------------
5.19 Due Diligence.......................................................................... 45
-------------
5.20 Payment of Fees........................................................................ 45
---------------
5.21 Total Unutilized Commitment............................................................ 46
---------------------------
5.22 Notice of Borrowing; Letter of Credit Request.......................................... 46
---------------------------------------------
5.23 Process Agent Letters.................................................................. 46
---------------------
5.24 Proceeds............................................................................... 46
--------
SECTION 6. Representations, Warranties and Agreements............................................. 47
------------------------------------------
6.01 Corporate Status....................................................................... 47
----------------
6.02 Corporate Power and Authority.......................................................... 47
-----------------------------
6.03 No Violation........................................................................... 48
------------
6.04 Litigation............................................................................. 48
----------
6.05 Use of Proceeds: Margin Regulations................................................... 48
------------------------------------
6.06 Approvals.............................................................................. 49
---------
6.07 Investment Company Act................................................................. 49
----------------------
6.08 Public Utility Holding Company Act..................................................... 49
----------------------------------
6.09 True and Complete Disclosure........................................................... 49
----------------------------
6.10 Financial Condition; Financial Statements.............................................. 50
-----------------------------------------
6.11 Security Interests..................................................................... 51
------------------
6.12 Representations and Warranties in Other Documents...................................... 52
-------------------------------------------------
6.13 Transaction............................................................................ 52
-----------
6.14 Compliance with ERISA.................................................................. 52
---------------------
6.15 Capitalization......................................................................... 53
--------------
6.16 Subsidiaries........................................................................... 54
------------
6.17 Intellectual Property.................................................................. 54
---------------------
6.18 Compliance with Statutes, Etc.......................................................... 54
-----------------------------
6.19 Environmental Matters.................................................................. 54
---------------------
6.20 Properties............................................................................. 55
----------
6.21 Labor Relations........................................................................ 55
---------------
6.22 Tax Returns and Payments............................................................... 55
------------------------
6.23 Existing Indebtedness.................................................................. 56
---------------------
6.24 Investments............................................................................ 56
-----------
ii
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
Page
6.25 Stamp Tax.............................................................................. 56
---------
6.26 Immunity............................................................................... 57
--------
6.27 Proper Legal Form...................................................................... 57
-----------------
6.28 Borrowing Base Availability............................................................ 57
--------------------------
6.29 MMI-Singapore.......................................................................... 58
-------------
SECTION 7. Affirmative Covenants.................................................................. 58
---------------------
7.01 Information Covenants.................................................................. 58
---------------------
7.02 Books, Records and Inspections......................................................... 62
------------------------------
7.03 Insurance.............................................................................. 62
---------
7.04 Payment of Taxes....................................................................... 63
----------------
7.05 Corporate Franchises................................................................... 63
--------------------
7.06 Compliance with Statutes, Etc.......................................................... 63
-----------------------------
7.07 Compliance with Environmental Laws..................................................... 63
----------------------------------
7.08 ERISA.................................................................................. 64
-----
7.09 Good Repair............................................................................ 64
-----------
7.10 End of Fiscal Years; Fiscal Quarters................................................... 65
------------------------------------
7.11 Additional Security Further Assurances................................................. 65
--------------------------------------
7.12 Interest Rate Protection............................................................... 66
------------------------
7.13 Register............................................................................... 66
--------
7.14 Foreign Subsidiaries Security.......................................................... 67
-----------------------------
7.15 Compliance with Terms of Leaseholds.................................................... 68
-----------------------------------
7.16 Performance of Transaction Documents................................................... 68
------------------------------------
7.18 Cash Collateral Accounts............................................................... 68
------------------------
7.19 Conditions Subsequent to Closing....................................................... 68
--------------------------------
SECTION 8. Negative Covenants..................................................................... 76
---------------------------------------------------------------------------------------
8.01 Changes in Business.................................................................... 76
-------------------
8.02 Consolidation, Merger, Sale or Purchase of Assets, Etc................................. 76
------------------------------------------------------
8.03 Liens.................................................................................. 78
-----
8.04 Indebtedness........................................................................... 80
------------
8.05 Leases................................................................................. 81
------
8.06 Advances, Investments and Loans........................................................ 82
-------------------------------
8.07 Dividends, Etc......................................................................... 83
--------------
8.08 Transactions with Affiliates........................................................... 84
----------------------------
8.09 Capital Expenditures................................................................... 85
--------------------
8.10 Minimum Tangible Net Worth............................................................. 86
--------------------------
8.11 Minimum Consolidated EBITDA............................................................ 86
---------------------------
8.12 Interest Coverage Ratio................................................................ 86
-----------------------
8.13 Leverage Ratio......................................................................... 86
--------------
8.14 Limitation on Voluntary Payments and Modifications of Indebtedness; Modifications of
------------------------------------------------------------------------------------
Certificate of Incorporation, By-Laws and Certain Other Agreements; Negative Pledge;
------------------------------------------------------------------------------------
Limitations on Speculative Transactions; Issuances of Capital Stock; Etc............... 87
------------------------------------------------------------------------
8.15 Limitation on the Creation of Subsidiaries............................................. 88
------------------------------------------
SECTION 9. Events of Default...................................................................... 89
-----------------
iii
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
Page
9.01 Payments............................................................................... 89
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9.02 Representations, Etc................................................................... 89
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9.03 Covenants.............................................................................. 89
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9.04 Default Under Other Agreements......................................................... 89
------------------------------
9.05 Bankruptcy, Etc........................................................................ 90
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9.06 ERISA.................................................................................. 90
-----
9.07 Security Documents..................................................................... 91
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9.08 Guaranties............................................................................. 91
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9.09 Judgments.............................................................................. 91
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9.10 Ownership.............................................................................. 91
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9.11 Credit Documents....................................................................... 91
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9.12 Material Contracts..................................................................... 91
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9.13 Borrowing Base Deficiency.............................................................. 92
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9.14 Material Adverse Change................................................................ 92
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9.15 CST Guaranty........................................................................... 92
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9.16. Spinoff Transaction.................................................................... 92
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SECTION 10. Definitions............................................................................ 93
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SECTION 11. The Agents............................................................................. 126
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11.01 Appointment............................................................................ 126
-----------
11.02 Delegation of Duties................................................................... 127
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11.03 Exculpatory Provisions................................................................. 127
----------------------
11.04 Reliance by Agents..................................................................... 127
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11.05 Notice of Default...................................................................... 128
-----------------
11.06 Nonreliance on Agents and Other Banks.................................................. 128
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11.07 Indemnification........................................................................ 129
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11.08 Agents in Their Individual Capacity.................................................... 129
-----------------------------------
11.09 Holders................................................................................ 129
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11.10 Resignation of any Agent; Successor Agents............................................. 130
------------------------------------------
SECTION 12. Miscellaneous.......................................................................... 130
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12.01 Payment of Expenses, Etc............................................................... 130
------------------------
12.02 Right of Setoff........................................................................ 131
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12.03 Notices................................................................................ 132
-------
12.04 Benefit of Agreement................................................................... 132
--------------------
12.05 No Waiver; Remedies Cumulative......................................................... 134
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12.06 Payments Pro Rata...................................................................... 134
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12.07 Calculations; Computations............................................................. 135
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12.08 Governing Law; Submission to Jurisdiction; Venue....................................... 135
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12.09 Counterparts........................................................................... 136
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12.10 Effectiveness.......................................................................... 136
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12.11 Headings Descriptive................................................................... 137
--------------------
12.12 Amendment or Waiver; Etc............................................................... 137
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12.13 Survival............................................................................... 138
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12.14 Domicile of Loans...................................................................... 138
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12.15 Confidentiality........................................................................ 138
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iv
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
Page
12.16 Interest............................................................................... 139
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12.17A Judgment Currency...................................................................... 140
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12.17B Substitution of Currency............................................................... 141
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12.17C Interpretation......................................................................... 141
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12.18 Waiver of July Trial................................................................... 141
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</TABLE>
EXHIBITS
- --------
EXHIBIT A Form of Notice of Borrowing
EXHIBIT B-1 Form of Revolving Note
EXHIBIT B-2 Form of Swingline Note
EXHIBIT C Form of Section 4.04(b)(ii) Certificate
EXHIBIT D Form of Opinion of Hale & Dorr LLP
EXHIBIT E Form of Officers' Certificate
EXHIBIT F-1 Form of US Security Agreement
EXHIBIT F-2 Form of Foreign Subsidiary Security Agreement
EXHIBIT F-3 Form of Japanese Security Assignment
EXHIBIT G-1 Form of Parent Guaranty
EXHIBIT G-2 Form of US Subsidiary Guaranty
EXHIBIT G-3 Form of Foreign Subsidiary Guaranty
EXHIBIT H Form of Borrowing Base Certificate
EXHIBIT I Form of Assignment and Assumption Agreement
EXHIBIT J Form of Intercompany Note
EXHIBIT K Form of Process Agent Letter
EXHIBIT L Form of CST Guaranty
EXHIBIT M Form of Credit Agreement Supplement
ANNEXES
- -------
ANNEX I Commitments
ANNEX II Bank Addresses for Notices
ANNEX 5.05 Credit Parties On Initial Borrowing Date
ANNEX 5.11 List of Subsidiary Guarantors
ANNEX 5.16 Projections
ANNEX 6.15 Capitalization
ANNEX 6.16 Subsidiaries
ANNEX 6.20 Properties
ANNEX 6.23 Existing Indebtedness
ANNEX 6.24 Existing Investments
ANNEX 7.03 Insurance
ANNEX 8.03D Existing Liens
ANNEX 8.06E Advances, Investments and Loans
ANNEX 8.14B Joint Ventures
v
<PAGE>
%%/nofolio
CREDIT AGREEMENT, dated as of December 15, 1997, among MODUS MEDIA
INTERNATIONAL HOLDINGS, INC., a Delaware corporation ("MMI Holdings"), MODUS
MEDIA INTERNATIONAL, INC., a Delaware corporation ("MMI"), the lenders from time
to time party hereto (each, a "Bank" and, collectively, the "Banks"),
NATIONSBANC MONTGOMERY SECURITIES, INC., as Arranger and Syndication Agent (in
such capacity, the "Syndication Agent"), CITICORP USA, INC. ("Citicorp"), as
Multi-Currency Agent, Documentation Agent and Collateral Agent, and NATIONSBANK
OF TEXAS, N.A., as Administrative Agent (in such capacity, the "Administrative
Agent"). Unless otherwise defined herein, all capitalized terms used herein and
defined in Section 10 are used herein as so defined.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, pursuant to that certain Contribution Agreement dated as of
December 15, 1997 (the "Contribution Agreement") among Stream International
Inc., a Delaware corporation (f/k/a Stream International Holdings, Inc.)
("Stream International"), MMI Holdings and MMI and certain of its subsidiaries
have agreed (i) to contribute to MMI Holdings on the Closing Date Stream
International's software sale and licensing business (the "MMI Business") in
exchange for voting common stock and shares of non-voting 9.5% PIK preferred
stock of MMI Holdings, (ii) immediately thereafter, causing MMI Holdings to
transfer the MMI Business to MMI (together with the transactions described in
clause (i), the "Drop-down") and (iii) to distribute to Stream International's
stockholders all of the oustanding voting common stock of the MMI Holdings no
later than January 15, 1998 (such referred to as the "Spinoff Transaction");
WHEREAS, on the Closing Date, R.R. Donnelley & Sons Company ("RRD")
will exchange certain net debt owed to RRD by Stream allocable to the MMI
Business for shares of non-voting 9.5% PIK preferred stock of MMI Holdings; and
WHEREAS, the Borrowers have asked the Banks severally to extend credit
to the Borrowers for the purpose of refinancing the existing indebtedness
associated with the MMI Business, paying fees and expenses incurred in
connection with the Spinoff Transaction and for working capital and other
general corporate purposes of the Borrowers and their respective Subsidiaries,
and each Bank has severally agreed to extend such credit, on the terms and
conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein, the parties hereto hereby agree as
follows:
SECTION 1. Amount and Terms of Credit.
--------------------------
<PAGE>
2
1.01 Commitments. (A) Subject to and upon the terms and conditions
-----------
herein set forth, each Bank severally agrees to make a loan or loans to the
Borrowers, which loans shall be drawn, as set forth below:
(a) (1) Each loan (each, a "Revolving Loan" and, collectively, the
"Revolving Loans") (i) shall be made at any time and from time to time on
and after the Initial Borrowing Date and prior to the Maturity Date, (ii)
shall be denominated in US Dollars or an Approved Foreign Currency, (iii)
except as hereinafter provided, may, at the option of the Borrower to which
such Revolving Loan was made, be incurred and maintained as and/or
converted into Base Rate Loans or Eurodollar Loans, provided that (x) all
--------
Revolving Loans made as part of the same Borrowing shall, unless otherwise
specifically provided herein, consist of Revolving Loans of the same Type
and (y) unless the Administrative Agent has determined that the Syndication
Date has occurred (at which time this clause (y) shall no longer be
applicable), each Borrowing of Eurodollar Loans may only have an Interest
Period of one month, (iv) shall not exceed for all Banks at any time
outstanding that aggregate principal amount which, when added to the
aggregate principal amount of all Revolving Loans then outstanding, the
aggregate principal amount of all Swingline Loans (exclusive of Swingline
Loans which are repaid with the proceeds of, and simultaneously with the
incurrence of, the respective incurrence of Revolving Loans) then
outstanding and the aggregate amount of all Letter of Credit Outstandings
(exclusive of Unpaid Drawings which are repaid with the proceeds of, and
simultaneously with the incurrence of, the respective incurrence of
Revolving Loans) at such time, equals the lesser of (A) the Total Borrowing
Base at such time (based on the Borrowing Base Certificate last delivered)
and (B) the Total Revolving Loan Commitment at such time; and (v) may be
repaid and reborrowed in accordance with the provisions hereof.
Notwithstanding the foregoing the principal amount available to be borrowed
under the US Borrowing Base shall be reduced, without duplication, by an
amount equal to the principal amount of any advances made and outstanding
at any time pursuant to Section 8.06(k) hereof.
(2) Subject to clause (1) above, each Bank severally agrees, on the
terms and conditions set forth herein, to make Revolving Loans denominated
in US Dollars (each, a "US Revolving Loan" and, collectively, the "US
Revolving Loans") to MMI from time to time in an amount for each such US
Revolving Loan which (i) shall not exceed for any Bank at any time
outstanding that aggregate principal amount which, when combined with such
Bank's RL Percentage, if any, of (A) the aggregate principal amount of all
Revolving Loans then outstanding, (B) the aggregate principal amount of all
Swingline Loans (exclusive of Swingline Loans which are repaid with the
proceeds of, and simultaneously with the incurrence of, the respective
incurrence of Revolving Loans) then outstanding and (C) the aggregate
amount of all Letter of Credit Outstandings (exclusive of Unpaid Drawings
which are repaid with the proceeds of, and simultaneously with the
incurrence of, the respective incurrence of Revolving Loans) at such time,
equals the Revolving Loan Commitment, if any, of such Bank at such time
<PAGE>
3
and (ii) shall not exceed for all Banks at any time outstanding that
aggregate principal amount which, when added to the aggregate principal
amount of all US Revolving Loans then outstanding, the aggregate principal
amount of all Swingline Loans (exclusive of Swingline Loans which are
prepaid with the proceeds of, and simultaneously with the incurrence of,
the respective incurrence of US Revolving Loans) then outstanding and the
aggregate amount of all US Letter of Credit Outstandings (exclusive of
Unpaid Drawings which are repaid with the proceeds of, and simultaneously
with the incurrence of, the respective incurrence of US Revolving Loans) at
such time, equals the lesser of (A) the US Borrowing Base at such time
(based on the Borrowing Base Certificate last delivered) and (B) Foreign
Availability Amount then in effect. Notwithstanding the foregoing the
principal amount available to be borrowed under the US Borrowing Base shall
be reduced, without duplication, by an amount equal to the principal amount
of any advances made and outstanding at any time pursuant to Section
8.06(k) hereof.
(3) Subject to clause (1) above and clause (4) below, each Multi-
Currency Bank agrees, on the terms and conditions set forth herein, to make
Revolving Loans denominated in the currency (which shall be an Approved
Foreign Currency) of the jurisdiction where the applicable Local Currency
Borrower is located (each, a "Multi-Currency Revolving Loan", and,
collectively, the "Multi-Currency Revolving Loans") to any Local Currency
Borrower from time to time in an amount which (i) shall not exceed at any
time outstanding that aggregate principal amount which, when added to the
aggregate principal amount of all Multi-Currency Revolving Loans then
outstanding and owed by such Local Currency Borrower, the aggregate amount
of all Multi-Currency Letter of Credit Outstandings (exclusive of Unpaid
Drawings under such Multi-Currency Letters of Credit which are prepaid with
the proceeds of, and simultaneously with the incurrence of, the respective
incurrence of Multi-Currency Revolving Loans) issued for the account of
such Local Currency Borrower at such time, equals the lesser of (A) the
Foreign Borrowing Base with respect to such Local Currency Borrower at such
time (based on the Borrowing Base Certificate last delivered), (B) the
Currency Sublimit and (C) an amount equal to the Multi-Currency Revolving
Sublimit less the sum of (x) the aggregate principal amount of all Multi-
----
Currency Revolving Loans then outstanding and (y) the aggregate amount of
all Multi-Currency Letter of Credit Outstandings (exclusive of Unpaid
Drawings under such Multi-Currency Letters of Credit which are prepaid with
the proceeds of, and simultaneously with the incurrence of, the respective
incurrence of Multi-Currency Revolving Loans) at such time.
(4) Notwithstanding anything herein to the contrary, no Multi-Currency
Revolving Loans shall be made to any Local Currency Borrower at any time
prior to the satisfaction of the conditions with respect to such Local
Currency Borrower set forth in Section 7.19.
<PAGE>
4
(B) (i) At any time that a Multi-Currency Bank makes a Multi-Currency
Loan or issues a Multi-Currency Letter of Credit, each other Bank shall be
deemed, without further action by any Person, to have purchased from such Multi-
Currency Bank or Multi-Currency Letter of Issuer, as the case may be, an
unfunded participation in any such Multi-Currency Loan or Multi-Currency Letter
of Credit, as the case may be, in an amount equal to such Bank's RL Percentage
of the aggregate principal amount of such Multi-Currency Revolving Loan or
Stated Amount of such Multi-Currency Letter of Credit and shall be obligated to
fund such participation at such time and in the manner provided below, whereupon
such Bank shall be entitled to receive on each Quarterly Payment Date (i) on
which interest is paid on any such Multi-Currency Revolving Loan an amount (only
to the extent such amount shall have been paid to the Multi-Currency Bank by any
Borrower) equal to such Bank's RL Percentage of the portion of such interest
payment attributable to the Applicable Base Rate Margin or Applicable Eurodollar
Margin, as the case may be, in effect at such time for Such Revolving Loan and
(ii) on which any MC/LC Fee is paid in respect of any such Multi-Currency Letter
of Credit, an amount (only to the extent such amount shall have been paid to the
Multi-Currency Letter of Credit Issuer by any Borrower) equal to such Bank's RL
percentage of such MC/LC Fee. Upon (I) the occurrence and during the
continuance of a Default, and (II) the demand (confirmed within a reasonable
time in writing) (notwithstanding any other fact or circumstance) by any Multi-
Currency Bank or Multi-Currency Letter of Credit of Credit Issuer, as the case
may be to the Multi-Currency Agent and the Administrative Agent (with prompt
telephonic notice of such demand followed by a copy of such written demand to
each other Bank, each such other Bank, a "Multi-Currency Participant") and each
Borrower with respect to any outstanding Multi-Currency Revolving Loan made by
such Multi-Currency Bank or Unpaid Drawing in respect of any drawing under a
Multi-Currency Letter of Credit, each Multi-Currency Participant shall purchase
from such Multi-Currency Bank or Multi-Currency Letter of Credit Issuer, as the
case may be, without recourse to such Multi-Currency Bank or Multi-Currency
Letter of Credit Issuer, as the case may be (except in the case of a breach of
the representation and warranty set forth below in this clause (II)), and such
Multi-Currency Bank shall sell and assign to each such Multi-Currency
Participant, such Multi-Currency Participant's RL Percentage of the aggregate
principal amount of such outstanding Multi-Currency Revolving Loan or such
Unpaid Drawing in respect of a drawing under a Multi-Currency Letter of Credit
as of the date of such demand.
Any such demand made by a Multi-Currency Bank shall specify the amount
of US Dollars (based upon the actual exchange rate at which the Multi-Currency
Agent anticipates being able to obtain the relevant Foreign Currency (with any
excess payment being refunded to the Multi-Currency Participants and any
deficiency remaining payable by the Multi-Currency Participants)) required from
such Multi-Currency Participant in order to effect the purchase and funding by
such Multi-Currency Participant of its RL Percentage of the aggregate principal
amount of any such Multi-Currency Revolving Loan or such Unpaid Drawing in
respect of a drawing under a Multi-Currency Letter of Credit. Each Multi-
Currency Participant shall effect such purchase, sale assignment and funding by
making available to the Administrative Agent for the account of such Multi-
Currency Bank or Multi-Currency Letter of Credit Issuer, as the
<PAGE>
5
case may be, by deposit to the Appropriate Payment Office, in same day funds in
US Dollars, such amount required to effect the purchase by such Multi-Currency
Participant of its RL Percentage of the aggregate principal amount of such
outstanding Multi-Currency Revolving Loan or such Unpaid Drawing in respect of a
drawing under a Multi-Currency Letter of Credit. Each Borrower hereby agrees to
each such purchase, sale and assignment. Each Multi-Currency Participant agrees
to purchase and fund its RL Percentage of the aggregate principal amount of an
outstanding Multi-Currency Revolving Loan or Unpaid Drawing in respect of any
drawing under a Multi-Currency Letter of Credit on (1) the US Business Day on
which demand therefor is made by a Multi-Currency Bank or Multi-Currency Letter
of Credit Issuer, as the case may be, provided that notice of such demand is
--------
given not later than 11:00 a.m. (Dallas time) on such US Business Day or (2) the
first US Business Day next succeeding such demand if notice of such demand is
given after such time.
Upon any such purchase, sale and assignment by a Multi-Currency Bank
to any Multi-Currency Participant of a portion of a Multi-Currency Revolving
Loan or Unpaid Drawing in respect of any drawing under a Multi-Currency Letter
of Credit, such Multi-Currency Bank or Multi-Currency Letter of Credit Issuer
represents and warrants to such Multi-Currency Participant that such Multi-
Currency Bank or Multi-Currency Letter of Credit Issuer is the legal and
beneficial owner of such interest being sold and assigned by it, but makes no
other representation or warranty and assumes no responsibility with respect to
such Multi-Currency Revolving Loan or Multi-Currency Letter of Credit, the
Credit Documents or any Credit Party. If and to the extent that any Multi-
Currency Participant shall not have so made the amount of its purchase price
with respect to such Multi-Currency Revolving Loan or Unpaid Drawing in respect
of any drawing under a Multi-Currency Letter of Credit available to the
Administrative Agent, such Multi-Currency Participant agrees to pay to the
Administrative Agent forthwith on demand such amount together with interest
thereon, for each day from the date of demand by such Multi-Currency Bank or
Multi-Currency Letter of Credit Issuer to the date such amount is paid to the
Administrative Agent, at the Federal Funds Rate. If such Multi-Currency
Participant shall pay to the Administrative Agent such amount for the account of
a Multi-Currency Bank or Multi-Currency Letter of Credit Issuer on any Business
Day, such amount so paid in respect of principal shall constitute a Multi-
Currency Revolving Loan made by such Multi-Currency Participant in its capacity
as a Bank (and for such purposes such Bank shall be deemed to be a Multi-
Currency Bank with respect to such Multi-Currency Revolving Loan) on such
Business Day for purposes of this Agreement, and the outstanding principal
amount of such Multi-Currency Revolving Loan originally made by such Multi-
Currency Bank shall be reduced by such amount on such Business Day. Each Multi-
Currency Participant acknowledges and agrees that, notwithstanding anything in
this Agreement to the contrary, its obligation to purchase and fund its RL
Percentage of the aggregate principal amount of any Multi-Currency Revolving
Loan or Unpaid Drawing in respect of any drawing under a Multi-Currency Letter
of Credit hereunder is absolute and unconditional and shall not be affected by
any circumstance whatsoever, including, without limitation, (i) the occurrence
and continuance of any Default or Event of Default, (ii) the existence of any
claim, set-off, defense or other right that such Multi-Currency Participant may
<PAGE>
6
have at any time against any Multi-Currency Bank, any Multi-Currency Letter of
Credit Issuer, any other Bank, any Borrower or any other Person, whether in
connection with the transactions contemplated by this Agreement or any unrelated
transaction or (iii) any other circumstance that might otherwise constitute a
defense available to, or a discharge of, such Multi-Currency Participant.
(ii) If, and for so long as any Multi-Currency Participant's public
debt rating (as defined below) is below A- (or BBB in the case of each of Heller
Financial, Sanwa Business Credit and IBJ Schroder Business Credit) by S&P or
Moody's (or, with respect to any Multi-Currency Participant that does not have
such a public debt rating at any time of determination, the Multi-Currency Banks
shall determine that such Multi-Currency Participant's ability to meet such
Multi-Currency Participant's obligations under clause (I) above has declined
since the date such Multi-Currency Participant became a Multi-Currency
Participant hereunder), (1) such Multi-Currency Participant shall, immediately
upon demand by any Multi-Currency Bank, cash collateralize its RL Percentage of
the aggregate principal amount of all outstanding Multi-Currency Revolving Loans
and all outstanding Multi-Currency Letters of Credit by depositing an amount
equal to such RL Percentage into a cash collateral account designated by the
Administrative Agent (and, if necessary, established for such purposes and, so
long as no Default or Event of Default has occurred and is continuing,
established in such location as determined after consultation with the
Borrowers), and (2) each such Multi-Currency Participant shall, if so demanded
by any Multi-Currency Bank in its sole discretion by written notice to the
Administrative Agent, the Multi-Currency Agent, the Borrowers and such Multi-
Currency Participant, prior to the funding by the Multi-Currency Bank of any
Multi-Currency Revolving Loans in connection with each additional Multi-Currency
Revolving Loan and prior to the issuance of each additional Multi-Currency
Letter of Credit, deposit to such cash collateral account an amount equal to
such Multi-Currency Participant's RL Percentage of the aggregate amount of such
Multi-Currency Revolving Loan or the Letter of Credit Outstandings with respect
to such Multi-Currency Letter of Credit, as the case may be. Amounts deposited
by any Multi-Currency Participant in any such cash collateral account shall be
held for the benefit of the Multi-Currency Banks, shall be applied by the
Administrative Agent to satisfy such Multi-Currency Participant's obligations
under clause (i) above and shall, to the extent such amounts exceed at any time
such Multi-Currency Participant's RL Percentage of all outstanding Multi-
Currency Revolving Loans and all outstanding Multi-Currency Letters of Credit,
be returned to such Multi-Currency Participant. The term "public debt rating"
means, as of any date with respect to any Person, the rating that has been most
recently announced by either S&P or Moody's, as the case may be, for any class
of non-credit enhanced long-term senior unsecured debt issued by such Person.
(iii) The Multi-Currency Agent shall furnish to the Administrative
Agent and each Bank on the first Business Day of each week a written report
summarizing the aggregate principal amount of Multi-Currency Revolving Loans
outstanding in each Approved Foreign
<PAGE>
7
Currency (including the U.S. Dollar Foreign Currency Equivalent thereof) during
the preceding week.
(C) Subject to and upon the terms and conditions herein set forth, the
Swingline Bank in its individual capacity agrees to make at any time and from
time to time after the Initial Borrowing Date and prior to the Swingline Expiry
Date, a loan or loans to MMI (each, a "Swingline Loan" and, collectively, the
"Swingline Loans"), which Swingline Loans (i) shall be made and maintained as
Base Rate Loans, (ii) shall be denominated in US Dollars, (iii) may be repaid
and reborrowed in accordance with the provisions hereof, (iv) shall not exceed
in aggregate principal amount at any time outstanding, when combined with the
aggregate principal amount of all Revolving Loans then outstanding and the
aggregate amount of all Letter of Credit Outstandings (exclusive of Unpaid
Drawings which are repaid with the proceeds of, and simultaneously with the
incurrence of, the respective incurrence of Revolving Loans) at such time, an
amount equal to the lesser of (A) the US Borrowing Base at such time (based on
the Borrowing Base Certificate last delivered) and (B) the Total Revolving Loan
Commitment then in effect and (v) shall not exceed in aggregate principal amount
at any time outstanding the Maximum Swingline Amount. The Swingline Bank shall
not be obligated to make any Swingline Loans at a time when a Bank Default
exists unless the Swingline Bank has entered into arrangements satisfactory to
it and the Borrowers to eliminate the Swingline Bank's risk with respect to the
Defaulting Bank's or Banks' participation in such Swingline Loans, including by
cash collateralizing such Defaulting Bank's or Banks' RL Percentage of the
outstanding Swingline Loans. The Swingline Bank will not make a Swingline Loan
after it has received written notice from any Borrower or the Required Banks
stating that a Default or an Event of Default exists until such time as the
Swingline Bank shall have received a written notice of (i) rescission of such
notice from the party or parties originally delivering the same or (ii) a waiver
of such Default or Event of Default from the Required Banks. No Swingline Loan
shall be used for the purpose of funding the payment of principal of any other
Swingline Loan. Each Swingline Loan shall mature on the seventh day following
the making thereof, and if not repaid on such date shall be deemed and shall be
treated as a U.S. Revolving Loan.
(D) On any Business Day, the Swingline Bank may, in its sole
discretion, give notice to the RL Banks that its outstanding Swingline Loans
shall be funded with a Borrowing of US Revolving Loans (provided that each such
--------
notice shall be deemed to have been automatically given upon the occurrence of a
Default or an Event of Default under Section 9.05 or upon the exercise of any of
the remedies provided in the last paragraph of Section 9), in which case a
Borrowing of US Revolving Loans constituting Base Rate Loans (each such
Borrowing, a "Mandatory Borrowing") shall be made on the immediately succeeding
Business Day by all RL Banks pro rata based on each RL Bank's RL Percentage, and
--- ----
the proceeds thereof shall be applied directly to repay the Swingline Bank for
such outstanding Swingline Loans. Each RL Bank hereby irrevocably agrees to
make Base Rate Loans upon one Business Day's notice pursuant to each Mandatory
Borrowing in the amount and in the manner specified in the preceding sentence
and on the date specified in writing by the Swingline Bank notwithstanding (i)
that the amount of the Mandatory Borrowing may not
<PAGE>
8
comply with the Minimum Borrowing Amount otherwise required hereunder, (ii)
whether any conditions specified in Section 5 are then satisfied, (iii) whether
a Default or an Event of Default has occurred and is continuing, (iv) the date
of such Mandatory Borrowing and (v) the amount of the US Borrowing Base or the
Total Revolving Loan Commitment at such time. In the event that any Mandatory
Borrowing cannot for any reason be made on the date otherwise required above
(including, without limitation, as a result of the commencement of a proceeding
under the Bankruptcy Code in respect of any Borrower), each RL Bank (other than
the Swingline Bank which made the Swingline Loan giving rise to such Mandatory
Borrowing) hereby agrees that it shall forthwith purchase from the Swingline
Bank (without recourse or warranty) such assignment of the outstanding Swingline
Loans as shall be necessary to cause the RL Banks to share in such Swingline
Loans ratably based upon their respective RL Percentages, provided that all
--------
interest payable on the Swingline Loans shall be for the account of the
Swingline Bank making the Swingline Loan giving rise to such Mandatory Borrowing
until the date the respective assignment is purchased and, to the extent
attributable to the purchased assignment, shall be payable to the RL Bank
purchasing same from and after such date of purchase.
1.02 Minimum Borrowing Amounts, Etc. The aggregate principal
------------------------------
amount of each Borrowing shall not be less than the Minimum Borrowing Amount for
such Borrowing. More than one Borrowing may be incurred on any day; provided
--------
that at no time shall there be outstanding to any one Borrower more than six
Borrowings of Eurodollar Loans.
1.03 Notice of Borrowing. (a) Whenever a Borrower desires to incur
-------------------
Loans (excluding Borrowings of Swingline Loans and Revolving Loans made pursuant
to a Mandatory Borrowing), (i) with respect to any Borrowing of US Revolving
Loans, it shall give the Administrative Agent at the Appropriate Notice Office,
prior to 11:00 A.M. (Dallas time), (x) at least three Business Days' prior
written notice (or telephonic notice promptly confirmed in writing) of each
Borrowing of Eurodollar Loans and (y) at least one Business Day's prior (or, at
the discretion of the Administrative Agent, same day) written notice (or
telephonic notice promptly confirmed in writing) of each Borrowing of Base Rate
Loans to be made hereunder and (ii) with respect to any Borrowing of Multi-
Currency Revolving Loans, it shall give the Multi-Currency Agent at the
Appropriate Notice Office, prior to 11:00 A.M. (Relevant Currency Time), (x) at
least three Business Days' prior written notice (or telephonic notice promptly
confirmed in writing) of each Borrowing of Eurodollar Loans and (y) at least one
Business Day's prior written notice (or telephonic notice promptly confirmed in
writing) of each Borrowing of Base Rate Loans to be made hereunder. Each such
notice (each, a "Notice of Borrowing") shall, except as provided in Section
1.10, be irrevocable, and, in the case of each written notice and each
confirmation of telephonic notice, shall be in the form of Exhibit A,
appropriately completed to specify (i) the aggregate principal amount and the
Approved Foreign Currency of the Loans to be made pursuant to such Borrowing,
(ii) the date of such Borrowing (which shall be a Business Day), (iii) whether
the respective Borrowing shall consist of Base Rate Loans or, to the extent
permitted hereunder, Eurodollar Loans and, if Eurodollar Loans, the Interest
Period to be initially applicable thereto and (iv) in the case of a
<PAGE>
9
Borrowing of Multi-Currency Loans, the Multi-Currency Bank requested to make
such Multi-Currency Revolving Loan. The Administrative Agent or the Multi-
Currency Agent, as the case may be, shall promptly give each Bank written notice
(or telephonic notice promptly confirmed in writing) of each proposed Borrowing,
of such Bank's proportionate share thereof, if any, and of the other matters
covered by the Notice of Borrowing.
(b) (i) Whenever MMI desires to incur Swingline Loans hereunder, it
shall give the Swingline Bank not later than 12:00 Noon (Dallas time) on the day
such Swingline Loan is to be made, written notice (or telephonic notice promptly
confirmed in writing) of each Swingline Loan to be made hereunder. Each such
notice shall be irrevocable and shall specify in each case (x) the date of such
Borrowing (which shall be a Business Day) and (y) the aggregate principal amount
of the Swingline Loan to be made pursuant to such Borrowing.
(ii) Mandatory Borrowings shall be made upon the notice specified in
Section 1.01(D), with MMI irrevocably agreeing, by the incurrence of any
Swingline Loan, to the making of Mandatory Borrowings as set forth in such
Section 1.01(D).
(c) Without in any way limiting the obligation of any Borrower to
confirm in writing any telephonic notice permitted to be given hereunder, the
Administrative Agent, the Multi-Currency Agent, or the Swingline Bank (in the
case of a Borrowing of Swingline Loans) or any Letter of Credit Issuer (in the
case of the issuance of Letters of Credit), as the case may be, may prior to
receipt of written confirmation act without liability upon the basis of such
telephonic notice, believed by the Administrative Agent, the Multi-Currency
Agent, the Swingline Bank or such Letter of Credit Issuer, as the case may be,
in good faith to be from an Authorized Officer of the relevant Borrower. In
each such case, each Borrower hereby waives the right to dispute the
Administrative Agent's, the Multi-Currency Agent's, the Swingline Bank's or any
Letter of Credit Issuer's record of the terms of such telephonic notice.
(d) In the case of any Borrowing that the related Notice of Borrowing
specifies is to be comprised of Eurodollar Loans, MMI and the requesting
Borrower shall indemnify each Bank against any loss, cost or expense incurred by
such Bank as a result of any failure to fulfill on or before the date specified
in such Notice of Borrowing for such Borrowing the applicable conditions set
forth in Section 5, including, without limitation, any loss, cost or expense
incurred by reason of the liquidation or reemployment of deposits or other funds
acquired by such Bank to fund the Loan to be made by such Bank as part of such
Borrowing when such Loan, as a result of such failure, is not made on such date.
1.04 Disbursement of Funds. (a)(i) Not later than 1:00 P.M. (Dallas
---------------------
time) on the date specified in each Notice of Borrowing relating to a Borrowing
of US Revolving Loans (or (x) in the case of Swingline Loans, not later than
2:00 P.M. (Dallas time) on the date specified in Section 1.03(b)(i) or (y) in
the case of Mandatory Borrowings, not later than 12:00 Noon (Dallas time) on the
date specified in Section 1.01(C)), each Bank will make
<PAGE>
10
available its pro rata share, if any, of each Borrowing requested to be made on
--- ----
on such date (or in the case of Swingline Loans, the Swingline Bank shall make
available the full amount thereof) in the manner provided below. All amounts
shall be made available to the Administrative Agent in US dollars in immediately
available funds at the Appropriate Payment Office and upon fulfillment of the
applicable conditions set forth in Section 5, the Administrative Agent promptly
will make available to the requesting Borrower by depositing to its account at
such Appropriate Payment Office the aggregate of the amounts so made available
in the type of funds received. Unless the Administrative Agent shall have been
notified by any Bank prior to the date of Borrowing that such Bank does not
intend to make available to the Administrative Agent its portion of the
Borrowing or Borrowings to be made on such date, the Administrative Agent may
assume that such Bank has made such amount available to the Administrative Agent
on such date of Borrowing, and the Administrative Agent, in reliance upon such
assumption, may (in its sole discretion and without any obligation to do so)
make available to the requesting Borrower a corresponding amount. If such
corresponding amount is not in fact made available to the Administrative Agent
by such Bank and the Administrative Agent has made available same to the
requesting Borrower, the Administrative Agent shall be entitled to recover such
corresponding amount from such Bank. If such Bank does not pay such
corresponding amount forthwith upon the Administrative Agent's demand therefor,
the Administrative Agent shall promptly notify the requesting Borrower, and such
Borrower shall immediately pay such corresponding amount to the Administrative
Agent. The Administrative Agent shall also be entitled to recover from the Bank
or the requesting Borrower, as the case may be, interest on such corresponding
amount in respect of each day from the date such corresponding amount was made
available by the Administrative Agent to such Borrower to the date such
corresponding amount is recovered by the Administrative Agent, at a rate per
annum equal to (x) if paid by such Bank, the Federal Funds Rate or (y) if paid
by a Borrower, the then applicable rate of interest, calculated in accordance
with Section 1.08, for the respective Loans.
(ii) Not later than 1:00 P.M. (Relevant Currency Time) on the date
specified in each Notice of Borrowing relating to a Borrowing of Multi-Currency
Loans, the Multi-Currency Bank requested to make such Borrowing shall make
available to the Multi-Currency Agent in the requested Currency in immediately
available funds at the Appropriate Payment Office upon fulfillment of the
applicable conditions set forth in Section 5, the Multi-Currency Agent will
promptly make available to the requesting Local Currency Borrower by depositing
to its account at the Appropriate Payment Office, the aggregate principal amount
so made available in the type of funds received.
(b) Nothing herein shall be deemed to relieve any Bank from its
obligation to fulfill its commitments hereunder or to prejudice any rights which
the Borrowers may have against any Bank as a result of any default by such Bank
hereunder.
1.05 Notes. (a) Each Borrower's obligation to pay the principal
-----
of, and interest on, all the Loans made to it by each Bank shall be evidenced
(i) if Revolving Loans, by a promissory note substantially in the form of
Exhibit B-1 with blanks appropriately completed in conformity herewith (each, a
"Revolving Note" and, collectively, the "Revolving Notes")
<PAGE>
11
and (ii) if Swingline Loans, by a promissory note substantially in the form of
Exhibit B-2 with blanks appropriately completed in conformity herewith (the
"Swingline Note").
(b) The Revolving Note issued by each Borrower to each Bank shall (i)
be executed by such Borrower, (ii) be payable to such Bank or its registered
assigns and be dated the Initial Borrowing Date, (iii) be in a stated principal
amount equal to the Revolving Loan Commitment of such Bank and be payable in the
principal amount of the outstanding Revolving Loans evidenced thereby from time
to time, (iv) mature on the Maturity Date, (v) bear interest as provided in the
appropriate clause of Section 1.08 in respect of the Base Rate Loans and
Eurodollar Loans, as the case may be, evidenced thereby, (vi) be subject to
voluntary prepayment as provided in Section 4.01, and mandatory repayment as
provided in Section 4.02 and (vii) be entitled to the benefits of this Agreement
and the other Credit Documents.
(c) The Swingline Note issued by MMI to the Swingline Bank shall (i)
be executed by MMI, (ii) be payable to the Swingline Bank or its registered
assigns and be dated the Initial Borrowing Date, (iii) be in a stated principal
amount equal to the Maximum Swingline Amount and be payable in the principal
amount of the outstanding Swingline Loans evidenced thereby from time to time,
(iv) mature on the Swingline Expiry Date, (v) bear interest as provided in
Section 1.08 in respect of the Base Rate Loans evidenced thereby, (vi) be
subject to voluntary prepayment as provided in Section 4.01, and mandatory
repayment as provided in Section 4.02 and (vii) be entitled to the benefits of
this Agreement and the other Credit Documents.
(d) Each Bank will note on its internal records the amount of each
Loan made by it and each payment in respect thereof and will prior to any
transfer of any of its Notes endorse on the reverse side thereof the outstanding
principal amount of Loans evidenced thereby. Failure to make any such notation
or any error in such notation shall not affect the Borrowers' obligations in
respect of such Loans.
1.06 Conversions. The Borrowers shall have the option to convert on
-----------
any Business Day occurring after the Initial Borrowing Date, all or a portion at
least equal to the applicable Minimum Borrowing Amount of the outstanding
principal amount of the Loans (other than Swingline Loans which at all times
shall be maintained as Base Rate Loans) owing by any Borrower into a Borrowing
or Borrowings of another Type of Loan; provided that (i) except as otherwise
--------
provided in Section 1.10(b), no partial conversion of a Borrowing of Eurodollar
Loans shall reduce the outstanding principal amount of the Eurodollar Loans made
pursuant to such Borrowing to less than the Minimum Borrowing Amount applicable
thereto, (ii) Base Rate Loans may only be converted into Eurodollar Loans if no
Default or Event of Default is in existence on the date of the conversion, and
(iii) Borrowings of Eurodollar Loans resulting from this Section 1.06 shall be
limited in number as provided in Section 1.02. Each such conversion shall be
effected by any Borrower by giving the Appropriate Agent at its Appropriate
Notice Office, prior to 11:00 A.M. (Relevant Currency Time), at least three
Business Days' (or one Business Day's in the case of a conversion into Base Rate
Loans) prior
<PAGE>
12
written notice (or telephonic notice promptly confirmed in writing) (each, a
"Notice of Conversion") specifying the Loans to be so converted, the Type of
Loans to be converted into and, if to be converted into a Borrowing of
Eurodollar Loans, the Interest Period to be initially applicable thereto. The
Administrative Agent or the Multi-Currency Agent, as the case may be, shall give
each Bank prompt notice of any such proposed conversion affecting any of its
Loans.
1.07 Pro Rata Borrowings. All Borrowings of Loans (other than
-------------------
Swingline Loans and Multi-Currency Revolving Loans) under this Agreement shall
be made by the Banks pro rata on the basis of their Revolving Loan Commitments,
--- ----
as the case may be. It is understood that no Bank shall be responsible for any
default by any other Bank of its obligation to make Loans hereunder and that
each Bank shall be obligated to make the Loans to be made by it hereunder,
regardless of the failure of any other Bank to fulfill its commitments
hereunder.
1.08 Interest. (a) The unpaid principal amount of each Base Rate
--------
Loan shall bear interest from the date of the Borrowing thereof until the
earlier of (i) the maturity (whether by acceleration or otherwise) of such Base
Rate Loan and (ii) the conversion of such Base Rate Loan to a Eurodollar Loan
pursuant to Section 1.06, at a rate per annum which shall at all times be the
Base Rate in effect from time to time plus the Applicable Margin for Base Rate
Loans in effect from time to time.
(b) The unpaid principal amount of each Eurodollar Loan shall bear
interest from the date of the Borrowing thereof until the earlier of (i) the
maturity (whether by acceleration or otherwise) of such Eurodollar Loan and (ii)
the conversion of such Eurodollar Loan to a Base Rate Loan pursuant to Section
1.06, 1.09 or 1.10(b), as applicable, at a rate per annum which shall at all
times during each Interest Period applicable thereto be the relevant Eurodollar
Rate for such Interest Period plus the Applicable Margin for Eurodollar Loans in
effect from time to time.
(c) Overdue principal and, to the fullest extent permitted by law, the
amount of any overdue interest in respect of each Loan, Fee, or other amount
payable hereunder, shall bear interest at a rate per annum equal to the greater
of (x) the rate which is 2% in excess of the rate then borne by such Loans and
(y) the rate which is 2% in excess of the rate otherwise applicable to Base Rate
Loans from time to time. Interest which accrues under this Section 1.08(c)
shall be payable on demand.
(d) Interest shall accrue from and including the date of any Borrowing
to but excluding the date of any repayment thereof and shall be payable by the
Borrowers (i) in respect of each Base Rate Loan, quarterly in arrears on each
Quarterly Payment Date, (ii) in respect of each Eurodollar Loan, on (x) the date
of any prepayment or repayment thereof (on the amount prepaid or repaid), (y)
the date of any conversion into a Base Rate Loan pursuant to Section 1.06, 1.09
or 1.10(b), as applicable (on the amount converted) and (z) the last day
<PAGE>
13
of each Interest Period applicable thereto and, in the case of an Interest
Period in excess of three months, on each date occurring at three month
intervals after the first day of such Interest Period and (iii) in respect of
each Loan, at maturity (whether by acceleration or otherwise) and, after such
maturity, on demand.
(e) All computations of interest hereunder shall be made in accordance
with Section 12.07(b).
(f) The Administrative Agent, upon determining the interest rate for
any Borrowing of Eurodollar Loans for any interest Period, shall promptly notify
the Borrowers and the Banks thereof.
1.09 Interest Periods. At the time any Borrower gives a Notice of
----------------
Borrowing or a Notice of Conversion in respect of the making of, or conversion
into, a Borrowing of Eurodollar Loans (in the case of the initial Interest
Period applicable thereto) or prior to 11:00 A.M. (Relevant Currency Time) on
the third Business Day prior to the expiration of an Interest Period applicable
to a Borrowing of Eurodollar Loans, it shall have the right to elect by giving
the Appropriate Agent written notice (or telephonic notice promptly confirmed in
writing) of the Interest Period applicable to such Borrowing, which Interest
Period shall, at the option of such Borrower (but otherwise subject to the
provisions of Section 1.01(A)(a)(1)(iii)), be a one, two, three or six month
period. Notwithstanding anything to the contrary contained above:
(i) all Eurodollar Loans comprising a Borrowing shall have the same
Interest Period;
(ii) the initial Interest Period for any Borrowing of Eurodollar
Loans shall commence on the date of such Borrowing (including the date of
any conversion from a Borrowing of Base Rate Loans) and each Interest
Period occurring thereafter in respect of such Borrowing shall commence on
the day on which the next preceding Interest Period expires;
(iii) if any Interest Period begins on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period, such Interest Period shall end on the last Business Day of
such calendar month;
(iv) if any Interest Period would otherwise expire on a day which is
not a Business Day, such Interest Period shall expire on the next
succeeding Business Day, provided that if any Interest Period would
--------
otherwise expire on a day which is not a Business Day but is a day of the
month after which no further Business Day occurs in such month, such
Interest Period shall expire on the next preceding Business Day;
<PAGE>
14
(v) no Interest Period for a Borrowing may be elected if it would
extend beyond the Maturity Date; and
(vi) unless the Required Banks otherwise agree in writing, no Interest
Period may be elected at any time when a Default or an Event of Default is
then in existence.
If upon the expiration of any Interest Period, any Borrower has failed to elect,
or is not permitted to elect by virtue of the application of clause (vi) above,
a new Interest Period to be applicable to the respective Borrowing of Eurodollar
Loans as provided above, such Borrower shall be deemed to have elected to
convert such Borrowing into a Borrowing of Base Rate Loans effective as of the
expiration date of such current Interest Period.
1.10 Increased Costs, Illegality, Etc. (a) In the event that (x) in
--------------------------------
the case of clause (i) below, the Required Lenders shall notify the
Administrative Agent or (y) in the case of clauses (ii) and (iii) below, any
Bank shall have determined (which determination shall, absent manifest error, be
final and conclusive and binding upon all parties hereto):
(i) on any date for determining the Eurodollar Rate for any Interest
Period, that, (x) adequate and fair means do not exist for ascertaining the
applicable interest rate on the basis provided for in the definition of
Eurodollar Rate or (y) the Eurodollar Rate for such Interest Period will
not adequately reflect the cost to such Banks of making, funding or
maintaining their Eurodollar Loans for such Interest Period; or
(ii) at any time, that such Bank shall incur increased costs or
reductions in the amounts received or receivable hereunder with respect to
agreeing to make or of making, funding or maintaining any Eurodollar Loans
(other than any increased cost or reduction in the amount received or
receivable resulting from the imposition of or a change in the rate of net
income taxes or similar charges imposed by the United States or by the
foreign jurisdiction or state under the laws of which such Bank is
organized or has its applicable lending office or any political subdivision
thereof) because of (x) (A) any change after the date hereof in any law,
rule, regulation, guideline, order or request (whether or not having the
force of law), or in the interpretation or administration thereof and
including the introduction of any new law or governmental rule, regulation,
guideline, order or request (such as, for example, but not limited to, a
change in official reserve requirements, but, in all events, excluding
reserves required under Regulation D to the extent included in the
computation of the Eurodollar Rate) or (B) the compliance with any
guideline or request after the date hereof from any central bank or other
governmental authority (whether or not having the force of law) and/or (y)
other circumstances occurring after the date hereof affecting the interbank
Eurodollar market or the position of such Bank in such market; or
(iii) at any time that the performance of its obligations hereunder
to make Eurodollar Loans or the continuance by such Bank of funding or
maintaining any
<PAGE>
15
Eurodollar Loan has become unlawful by compliance by such Bank with, or by
the introduction of or change in or in the interpretation of, any law,
governmental rule, regulation, guideline or order (or would conflict with
any such governmental rule, regulation, guideline or order not having the
force of law but with which such Bank customarily complies even though the
failure to comply therewith would not be unlawful), or has become
impracticable as a result of a contingency occurring after the date of this
Agreement which materially and adversely affects the interbank Eurodollar
market, or any central bank or other governmental authority shall assert
that making, funding or maintaining such Eurodollar Loan is unlawful;
then, and in any such event, such Bank (or the Administrative Agent in the case
of clause (i) above) shall (x) on such date and (y) within five Business Days of
the date on which such event no longer exists give notice (by telephone
confirmed in writing) to the Borrowers and to the Administrative Agent of such
determination (which notice the Administrative Agent shall promptly transmit to
each of the other Banks). Thereafter, (x) in the case of clause (i) above,
Eurodollar Loans shall no longer be advanced until such time as the
Administrative Agent notifies the Borrowers and the Banks that the circumstances
giving rise to such notice by the Administrative Agent no longer exist, and any
Notice of Borrowing or Notice of Conversion given by any Borrower with respect
to Eurodollar Loans which have not yet been incurred shall be deemed rescinded
by such Borrower, (y) in the case of clause (ii) above, such Borrower agrees to
pay to such Bank, upon written demand therefor (accompanied by the written
notice referred to below), such additional amounts (in the form of an increased
rate of, or a different method of calculating, interest or otherwise as such
Bank in its sole discretion shall determine) as shall be required to compensate
such Bank for such increased costs or reductions in amounts received or
receivable hereunder (a written notice as to the additional amounts owed to such
Bank, showing the basis for the calculation thereof, submitted to the Borrowers
by such Bank shall, absent manifest error, be final and conclusive and binding
upon all parties hereto) and (z) in the case of clause (iii) above, such
Borrower shall take one of the actions specified in Section 1.10(b) as promptly
as possible and, in any event, within the time period required by law.
(b) At any time that any Eurodollar Loan is affected by the
circumstances described in Section 1.10(a)(ii) or (iii), the affected Borrower
may (and in the case of a Eurodollar Loan affected pursuant to Section
1.10(a)(iii), such Borrower shall) either (i) if the affected Eurodollar Loan is
then being made pursuant to a Borrowing, cancel said Borrowing by giving the
Administrative Agent telephonic notice (confirmed promptly in writing) thereof
on the same date that such Borrower was notified by a Bank pursuant to Section
1.10(a)(ii) or (iii) or (ii) if the affected Eurodollar Loan is then
outstanding, upon at least three Business Days' notice to the Administrative
Agent, require the affected Bank to convert each such Eurodollar Loan into a
Base Rate Loan (which conversion, in the case of the circumstances described in
Section 1.10(a)(iii), shall occur no later than the last day of the Interest
Period then applicable to such Eurodollar Loan (or such earlier date as shall be
required by applicable law)); provided that if more than one Bank is affected at
--------
any time, then all affected Banks must
<PAGE>
16
be treated the same pursuant to this Section 1.10(b), and in the case of clauses
(i) and (iii) above, the obligation of the Banks to make, or to convert Loans
into, Eurodollar Loans shall be suspended until the Administrative Agent has
determined that the circumstances causing such suspension no longer exist.
(c) If any Bank shall have determined that the adoption or
effectiveness after the date hereof of, any law, rule, regulation, guideline or
request (whether or not having the force of law), or any change therein, or any
change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency, or compliance by such Bank or any
corporation controlling such Bank with any request or directive (whether or not
having the force of law), of any such authority, central bank or comparable
agency affects or would affect the amount of capital required or expected to be
maintained by such Bank or any corporation controlling such Bank and that the
amount of such capital is increased by or based upon the existence of such
Bank's commitment to lend hereunder and other commitments of such type or the
issuance or maintenance of the Letters of Credit (or similar contingent
obligations), then from time to time, upon written demand by such Bank (with a
copy to the Administrative Agent), accompanied by the notice referred to in the
last sentence of this clause (c), the affected Borrower severally shall pay to
such Bank such additional amount or amounts as will compensate such Bank or such
other corporation in the light of such circumstances, to the extent that such
Bank reasonably determines such increase in capital to be allocable to the
existence of such Bank's commitment to lend hereunder or to the issuance or
maintenance of any Letters of Credit. Each Bank, upon determining in good faith
that any additional amounts will be payable pursuant to this Section 1.10(c),
will give prompt written notice thereof to the Borrowers, which notice shall set
forth the basis of the calculation of such additional amounts (a written notice
as to the additional amounts owed to such Bank, showing the basis for the
calculation thereof, submitted to the Borrowers by such Bank shall, absent
manifest error, be final and conclusive and binding upon all parties hereto),
although the failure to give any such notice shall not release or diminish each
Borrower's obligations to pay additional amounts pursuant to this Section
1.10(c) upon the subsequent receipt of such notice within 90 days of such
determination.
1.11 Compensation. (a) Each Borrower severally shall compensate each
------------
Bank, upon its written request (which request shall set forth the basis for
requesting such compensation), for all reasonable losses, expenses and
liabilities (including, without limitation, any loss, expense or liability
incurred by reason of the liquidation or reemployment of deposits or other funds
required by such Bank to fund such Borrower's Eurodollar Loans which such Bank
may sustain: (i) if for any reason (other than a default by such Bank or the
Administrative Agent) a Borrowing of Eurodollar Loans does not occur on a date
specified therefor in a Notice of Borrowing or Notice of Conversion (whether or
not withdrawn by the Borrower delivering such notice or deemed withdrawn
pursuant to Section 1.10(a)); (ii) if any repayment (including any repayment
made pursuant to Section 4.01 or 4.02 or as a result of an acceleration of the
Loans pursuant to Section 9) or conversion of any Eurodollar Loans occurs
<PAGE>
17
on a date which is earlier than the last day of an Interest Period applicable
thereto; (iii) if any prepayment of any Eurodollar Loans is not made on any date
specified in a notice of prepayment given by any Borrower; or (iv) as a
consequence of (x) any other default by any Borrower to repay its Eurodollar
Loans when required by the terms of this Agreement or (y) an election made
pursuant to Section 1.10(b). Calculation of all amounts payable to a Bank under
this Section 1.11(a) shall be made as though that Bank had actually funded its
relevant Eurodollar Loan through the purchase of a Eurodollar deposit bearing
interest at the Eurodollar Rate in an amount equal to the amount of that Loan,
having a maturity comparable to the relevant Interest Period and through the
transfer of such Eurodollar deposit from an offshore office of that Bank to a
domestic office of that Bank in the United States of America; provided, however,
-------- -------
that each Bank may fund each of its Eurodollar Loans in any manner it sees fit
and the foregoing assumption shall be utilized only for the calculation of
amounts payable under this Section 1.11(a). It is further understood and agreed
that if any repayment of Eurodollar Loans pursuant to Section 4.01 or any
conversion of Eurodollar Loans pursuant to Section 1.06 in either case occurs on
a date which is not the last day of an Interest Period applicable thereto, such
repayment or conversion shall be accompanied by any amounts owing to any Bank
pursuant to this Section 1.11(a).
(b) In addition to the foregoing, until the earlier of (i) the
Syndication Date and (ii) the 180th day following the Initial Borrowing Date,
each Borrower severally shall compensate each Bank (including each Person that
becomes a Bank pursuant to Section 12.04(b)), upon its written request (which
request shall set forth the basis for requesting such compensation), for all
reasonable losses, expenses and liabilities (including, without limitation, any
loss, expense or liability incurred by reason of the liquidation or reemployment
of deposits or other funds required by such Bank to fund such Borrower's
Eurodollar Loans including loss of anticipated profit with respect to any
Eurodollar Loans) which such Bank may sustain in connection with the
Administrative Agent's and the Syndication Agent's syndication of this Agreement
to additional Banks during such period to the extent that such losses, expenses
and liabilities arise from assignments of, incurrences of, or repayments of,
Eurodollar Loans.
1.12 Change of Lending Office. Each Bank agrees that, upon the
------------------------
occurrence of any event giving rise to the operation of Section 1.10(a)(ii) or
(iii), 1.10(c), 2.05 or 4.04 with respect to such Bank, it will, if requested by
any Borrower, use reasonable efforts (subject to overall policy considerations
of such Bank) to designate another lending office for any Loans or Letters of
Credit affected by such event; provided that such designation is made on such
--------
terms that, in the sole judgment of such Bank, such Bank and its lending office
suffer no economic, legal or regulatory disadvantage, with the object of
avoiding the consequences of the event giving rise to the operation of any such
Section. Nothing in this Section 1.12 shall affect or postpone any of the
obligations of any Borrower or the right of any Bank provided in Section 1.10,
2.05 or 4.04.
1.13 Replacement of Banks. (x) If any Bank becomes a Defaulting
--------------------
Bank or (y) upon the occurrence of any event giving rise to the operation of
Section 1.10(a)(ii) or (iii),
<PAGE>
18
Section 1.10(c), Section 2.05 or Section 4.04 with respect to any Bank which
results in such Bank charging to any Borrower increased costs in excess of those
being generally charged by the other Banks, the Borrowers shall have the right,
if no Default or Event of Default then exists, to replace such Bank (the
"Replaced Bank") with one or more other Eligible Transferee or Transferees, none
of whom shall constitute a Defaulting Bank at the time of such replacement
(collectively, the "Replacement Bank") and each of whom shall be reasonably
acceptable to the Administrative Agent, provided that (i) at the time of any
--------
replacement pursuant to this Section 1.13, the Replacement Bank shall enter into
one or more Assignment and Assumption Agreements pursuant to Section 12.04(b)
(and with all fees payable pursuant to said Section 12.04(b) to be paid by the
Replacement Bank) pursuant to which the Replacement Bank shall acquire all of
the Commitments and outstanding Loans of, and in each case participations in
Letters of Credit by, the Replaced Bank and, in connection therewith, shall pay
to (x) the Replaced Bank in respect thereof an amount equal to the sum of (A) an
amount equal to the principal of, and all accrued interest on, all outstanding
Loans of the Replaced Bank, (B) an amount equal to all Unpaid Drawings that have
been funded by (and not reimbursed to) such Replaced Bank, together with all
then unpaid interest with respect thereto at such time and (C) an amount equal
to all accrued, but theretofore unpaid, Fees owing to the Replaced Bank pursuant
to Section 3.01, (y) each Letter of Credit Issuer, an amount equal to such
Replaced Bank's RL Percentage of any Unpaid Drawing (which at such time remains
an Unpaid Drawing) under the Letters of Credit issued by such Letter of Credit
Issuer to the extent such amount was not theretofore funded by such Replaced
Bank and (z) the Swingline Bank an amount equal to such Replaced Bank's RL
Percentage of any Mandatory Borrowing arising from the Swingline Loans made by
the Swingline Bank to the extent such amount was not theretofore funded by such
Replaced Bank, and (ii) all obligations of the Borrowers owing to the Replaced
Bank (other than those specifically described in clause (i) above in respect of
which the assignment purchase price has been, or is concurrently being, paid)
shall be paid in full to such Replaced Bank concurrently with such replacement.
Upon the execution of the respective Assignment and Assumption Agreements, the
payment of amounts referred to in clauses (i) and (ii) above, recordation of the
assignment on the Register by the Administrative Agent pursuant to Section 7.13
and, if so requested by the Replacement Bank, delivery to the Replacement Bank
of the appropriate Note or Notes executed by each Borrower, the Replacement Bank
shall become a Bank hereunder and the Replaced Bank shall cease to constitute a
Bank hereunder, except with respect to indemnification provisions under this
Agreement, which shall survive as to such Replaced Bank.
1.14 Additional Borrowers and Credit Parties. Upon the execution
---------------------------------------
and delivery by any Subsidiary of MMI acceptable to the Required Banks of a
supplement to this Agreement, in substantially the form of Exhibit M hereto (a
"Credit Agreement Supplement"), (i) such Person shall be referred to as a
- ----------------------------
"Borrower" and shall be and become a Borrower, and each reference in this
Agreement to a "Borrower" shall also mean and be a reference to such Borrower
and each reference in any other Credit Document to a "Borrower" or a "Credit
Party" shall also mean and be a reference to such Borrower, and (ii) such Person
shall assume all of the Obligations of a Borrower hereunder. Upon the execution
and delivery by any
<PAGE>
19
Subsidiary of MMI after the Initial Borrowing Date of a Subsidiary Guaranty,
such Person shall be referred to as a "Credit Party" and shall be and become a
"Credit Party", and each reference in this Agreement to a "Credit Party" shall
also mean and be a reference to such Credit Party and each reference in any
other Credit Document to a "Credit Party" shall also mean and be a reference to
such Credit Party. The Administrative Agent shall promptly notify each Bank of
each such additional Borrower and Credit Party.
1.15 Borrower Liability. MMI shall be jointly and severally
------------------
liable for all Borrowings and other liabilities hereunder or under any other
Credit Document by or of itself or any Local Currency Borrower. Notwithstanding
any other provision of this Agreement or any provision of any other Transaction
Document which provides to the contrary, no Local Currency Borrower shall have
any liability for any Borrowing or other liabilities hereunder or under any
other Credit Document by or of MMI or (except as may otherwise be provided in
such Local Currency Borrower's Subsidiary Guaranty) any other Local Currency
Borrower.
SECTION 2. Letters of Credit.
-----------------
2.01 Letters of Credit. (a) Subject to and upon the terms and
-----------------
conditions herein set forth, any Borrower may request any Appropriate Letter of
Credit Issuer at any time and from time to time on or after the Initial
Borrowing Date and prior to the Business Day (or the 30th day in the case of the
Trade Letters of Credit) preceding the Maturity Date to issue, for the account
of such Borrower and in support of (x) trade obligations of such Borrower or any
of its Subsidiaries that arise in the ordinary course of business and are in
respect of general corporate purposes of such Borrower or any of its
Subsidiaries, as the case may be, (y) on a standby basis, L/C Supportable
Indebtedness of such Borrower or any of its Subsidiaries, and/or (z) obligations
of such Borrower under existing foreign currency facilities and, subject to and
upon the terms and conditions herein set forth, the US Letter of Credit Issuer
severally agrees to issue from time to time, irrevocable Trade Letters of Credit
and Standby Letters of Credit available for drawing in US Dollars (each a "US
Letter of Credit", and collectively, the "US Letters of Credit"), and the Multi-
Currency Letter of Credit Issuer severally agrees to issue from time to time,
irrevocable Trade Letters of Credit and Standby Letters of Credit available for
drawing in an Approved Foreign Currency (each a "Multi-Currency Letter of
Credit" and, collectively, the "Multi-Currency Letters of Credit"; the US
Letters of Credit and the Multi-Currency Letters of Credit being collectively,
the "Letters of Credit"), in each case in such form as may be approved by such
Letter of Credit Issuer. Notwithstanding the foregoing, none of the Letter of
Credit Issuers shall be under any obligation to issue any Letter of Credit if at
the time of such issuance:
(i) any order, judgment or decree of any governmental authority or
arbitrator shall purport by its terms to enjoin or restrain such Letter of
Credit Issuer from issuing such Letter of Credit or any requirement of law
applicable to such Letter of Credit Issuer or any request or directive
(whether or not having the force of law) from any governmental authority
with jurisdiction over such Letter of Credit Issuer
<PAGE>
20
shall prohibit, or request that such Letter of Credit Issuer refrain from,
the issuance of letters of credit generally or such Letter of Credit in
particular or shall impose upon such Letter of Credit Issuer with respect
to such Letter of Credit any restriction or reserve or capital requirement
(for which such Letter of Credit Issuer is not otherwise compensated) not
in effect on the date hereof, or any unreimbursed loss, cost or expense
which was not applicable, in effect or known to such Letter of Credit
Issuer as of the date hereof and which such Letter of Credit Issuer in good
faith deems material to it; or
(ii) such Letter of Credit Issuer shall have received notice from any
Borrower or the Required Banks prior to the issuance of such Letter of
Credit of the type described in clause (viii) of Section 2.01(b).
(b) Notwithstanding the foregoing, (i) no Letter of Credit shall be
issued the Stated Amount of which, when added to the Letter of Credit
Outstandings (exclusive of Unpaid Drawings which are repaid on the date of, and
prior to the issuance of, the respective Letter of Credit), at such times would
exceed the lesser (x) US$5,000,000 (or the Foreign Currency Equivalent thereof)
and (y) when added to the aggregate principal amount of all Revolving Loans and
Swingline Loans then outstanding, the lesser of (A) the Total Borrowing Base at
such time (based on the Borrowing Base Certificate last delivered) and (B) the
Total Revolving Loan Commitment at such time; (ii) no Multi-Currency Letter of
Credit shall be issued the Stated Amount of which, when added to the Multi-
Currency Letter of Credit Outstandings (exclusive of Unpaid Drawings which are
repaid on the date of, and prior to the issuance of, the respective Multi-
Currency Letter of Credit) at such time would exceed, when added to the
aggregate principal amount of Multi-Currency Revolving Loans then outstanding,
the lesser of (A) the Multi-Currency Revolving Loan Sublimit, (B) the Multi-
Currency L/C Currency Sublimit for the Foreign Currency in which such Multi-
Currency Letter of Credit is denominated and (C) the aggregate Foreign Borrowing
Base; (iii) no Multi-Currency Letter of Credit shall be issued for the account
of any Local Currency Borrower, the Stated Amount of which, when added to the
Multi-Currency Letter of Credit Outstandings in respect of Multi-Currency
Letters of Credit issued for the account of such Local Currency Borrower
(exclusive of Unpaid Drawings which are repaid on the date of, and prior to the
issuance of the respective Multi-Currency Letter of Credit) at such time would
exceed, when added to the aggregate principal amount of Multi-Currency Loans
then outstanding and owed by such Local Currency Borrower, the Foreign Borrowing
Base for such Local Currency Borrower, (iv) (x) each Standby Letter of Credit
shall have an expiry date occurring not later than one year after such Letter of
Credit's date of issuance, provided that any such Letter of Credit may be
--------
automatically extendable for periods of up to one year so long as such Letter of
Credit provides that the Letter of Credit Issuer issuing such Letter of Credit
retains an option, satisfactory to such Letter of Credit Issuer, to terminate
such Letter of Credit within a specified period of time prior to each scheduled
extension date and (y) each Trade Letter of Credit shall have an expiry date
occurring not later than 60 days after such Letter of Credit's date of issuance;
(v) no Letter of Credit shall have an expiry date occurring later than 30 days
prior to the
<PAGE>
21
Maturity Date; (vi) each Letter of Credit shall be denominated in US Dollars or
an Approved Foreign Currency; (vii) the Stated Amount of each Letter of Credit
shall not be less than $100,000 (or the Foreign Currency Equivalent thereof) or
such lesser amount as is acceptable to the Appropriate Letter of Credit Issuer
issuing such Letter of Credit; and (viii) none of the Letter of Credit Issuers
will issue or renew any Letter of Credit after it has received written notice
from any Borrower or the Required Banks stating that a Default or an Event of
Default exists until such time as the Letter of Credit Issuers shall have
received a written notice of (x) rescission of such notice from the party or
parties originally delivering the same or (y) a waiver of such Default or Event
of Default by the Required Banks.
(c) Notwithstanding the foregoing, in the event a Bank Default exists,
no Letter of Credit Issuer shall not be required to issue any Letter of Credit
unless such Letter of Credit Issuer has entered into arrangements satisfactory
to it and the Borrowers to eliminate the Letter of Credit Issuer's risk with
respect to the participation in Letters of Credit of the Defaulting Bank or
Banks, including by cash collateralizing such Defaulting Bank's or Banks' RL
Percentage of the Letter of Credit Outstandings.
2.02 Letter of Credit Requests; Notices of Issuance. (a) Whenever
----------------------------------------------
any Borrower desires that a Letter of Credit be issued, such Borrower shall give
(i) in the case of a US Letter of Credit, the Administrative Agent and the US
Letter of Credit Issuer written notice (or telephonic notice confirmed in
writing) thereof prior to 12:00 Noon (Dallas time) and (ii) in the case of a
Multi-Currency Letter of Credit, the Multi-Currency Agent and the Multi-Currency
Letter Issuer written notice (or telephone notice confirmed in writing) thereof
prior to 12:00 Noon (Relevant Currency Time) at the Appropriate Notice Office.
Each such notice (a "Letter of Credit Request") shall be given of at least five
Business Days (or such shorter period as may be acceptable to the Appropriate
Letter of Credit Issuer) prior to the proposed date of issuance (which shall be
a Business Day). Each Letter of Credit Request shall include (A) the requested
date of such issuance (which shall be a Business Day); (B) the requested Stated
Amount of such Letter of Credit; (C) the requested expiration date of such
Letter of Credit; (D) the requested Currency in which such Letter of Credit
shall be denominated, which shall be US dollars or, in the case of a Multi-
Currency Letter of Credit, an Approved Foreign Currency; (E) the requested name
and address of the beneficiary of such Letter of Credit; (F) the requested form
of such Letter of Credit; and (G) any other documents as such Letter of Credit
Issuer customarily requires in connection therewith and shall be accompanied by
such application and agreement for letter of credit (a "Letter of Credit
Agreement") as such Letter of Credit Issuer may specify to such requesting
Borrower for use in connection with such requested Letter of Credit. The
Administrative Agent or the Multi-Currency Agent, as the case may be, shall
promptly transmit copies of each Letter of Credit Request to each RL Bank. If
the requested form of such Letter of Credit is acceptable to the Appropriate
Letter of Credit Issuer that is issuing such Letter of Credit in its sole
discretion, such Letter of Credit Issuer will, upon fulfillment of the
applicable conditions set forth in Section 5, make such Letter of Credit
available to the requesting Borrower at the Appropriate Payment Office or as
otherwise agreed with such Borrower in connection with such issuance. In the
event and to the extent
<PAGE>
22
that the provisions of any Letter of Credit Agreement shall conflict with this
Agreement, the provisions of this Agreement shall govern. A Letter of Credit
shall be deemed to have been issued for the account of the Borrower delivering
the Letter of Credit Request therefor.
(b) Each Letter of Credit Issuer shall, on the date of each issuance
of, or amendment or modification to, a Letter of Credit, give the Administrative
Agent, the Multi-Currency Agent (in the case of the issuance of a Multi-Currency
Letter of Credit), each RL Bank and the Borrowers written notice of the issuance
of, or amendment or modification to, such Letter of Credit, accompanied by a
copy to the Administrative Agent and the Multi-Currency Agent (in the case of
the issuance of a Multi-Currency Letter of Credit) of the Letter of Credit or
Letters of Credit issued by it and each such amendment or modification thereto.
(c) Each Letter of Credit Issuer shall furnish to the Administrative
Agent, the Multi-Currency Agent (in the case of the Multi-Currency Letter of
Credit Issuer) and each Bank on the first Business Day of each month a written
report summarizing issuance and expiration dates of Letters of Credit issued by
such Letter of Credit Issuer during the preceding month and drawings during such
month under all Letters of Credit issued by such Letter of Credit Issuer and
setting forth the average daily aggregate Stated Amount, and with respect to any
Multi-Currency Letter of Credit Issuer, the Foreign Currency Equivalent thereof
in US Dollars during the preceding month of all Letters of Credit issued by such
Letter of Credit Issuer.
2.03 Agreement to Repay Letter of Credit Drawings. (a) MMI hereby
--------------------------------------------
agrees to reimburse each Letter of Credit Issuer, and each Local Currency
Borrower hereby agrees to reimburse the Multi-Currency Letter of Credit Issuer
with respect to Letters of Credit it has requested, by making payment to the
Appropriate Agent in immediately available funds in the Currency in which any
such Letter of Credit is denominated at the Appropriate Payment Office, for any
payment or disbursement made by such Letter of Credit Issuer under any Letter of
Credit issued by such Letter of Credit Issuer (each such amount so paid or
disbursed until reimbursed, an "Unpaid Drawing") for the account of such Local
Currency Borrower or, in the case of MMI, for the account of any Borrower no
later than one Business Day following the date of such payment or disbursement,
with interest on the amount so paid or disbursed by such Letter of Credit
Issuer, to the extent not reimbursed prior to 1:00 P.M. (Dallas time) in the
case of any US Letter of Credit and 1:00 P.M. (Relevant Currency Time) in the
case of any Multi-Currency Letter of Credit on the date of such payment or
disbursement, from and including the date paid or disbursed to but not including
the date such Letter of Credit Issuer is reimbursed therefor at a rate per annum
which shall be the sum of the Base Rate as in effect from time to time plus the
Applicable Margin for Base Rate Loans then in effect with respect to Revolving
Loans (plus an additional 2% per annum if not reimbursed by the second Business
Day after the date of such payment or disbursement), such interest also to be
payable on demand. Each Letter of Credit Issuer shall provide the Borrowers
prompt notice of any payment or disbursement made by it under any Letter of
Credit, although the failure of, or
<PAGE>
23
delay in, giving any such notice shall not release or diminish the obligations
of any Borrower under this Section 2.03(a) or under any other Section of this
Agreement.
(b) Each Borrower's obligation under this Section 2.03 to reimburse
the Appropriate Letter of Credit Issuers with respect to Unpaid Drawings
(including, in each case, interest thereon) shall be absolute and unconditional
under any and all circumstances, including, without limitation, any of the
circumstances set forth in Section 2.04(e) below, and irrespective of any
setoff, counterclaim or defense to payment which the Borrowers or any of their
Subsidiaries may have or have had against the Appropriate Letter of Credit
Issuer, the Administrative Agent, the Multi-Currency Agent or any Bank,
including, without limitation, any defense based upon the failure of any drawing
under a Letter of Credit to conform to the terms of such Letter of Credit or any
nonapplication or misapplication by the beneficiary of the proceeds of such
drawing; provided, however, that no Borrower shall be obligated to reimburse any
-------- -------
Letter of Credit Issuer for any wrongful payment made by such Letter of Credit
Issuer under a Letter of Credit as a result of acts or omissions constituting
willful misconduct or gross negligence on the part of such Letter of Credit
Issuer.
2.04 Letter of Credit Participations. (a) (i) Immediately upon the
-------------------------------
issuance by the US Letter of Credit Issuer of any US Letter of Credit, such
Letter of Credit Issuer shall be deemed to have sold and transferred to each
other RL Bank, and each such RL Bank (each, a "L/C Participant") shall be deemed
and unconditionally to have purchased and received from such Letter of Credit
Issuer, without recourse or warranty, an undivided interest and participation,
to the extent of such L/C Participant's RL Percentage, in such Letter of Credit,
each substitute letter of credit, each drawing made thereunder and the
obligations of the Borrowers under this Agreement with respect thereto (although
Letter of Credit Fees shall be payable directly to the Administrative Agent for
the account of the RL Banks as provided in Section 3.01(b) and the L/C
Participants shall have no right to receive any portion of any Facing Fees with
respect to such Letters of Credit) and any security therefor or guaranty
pertaining thereto.
(ii) Participations in any Multi-Currency Letters of Credit shall be
sold, purchased, transferred and funded in accordance with Section 1.01(B).
(iii) Upon any change in the Revolving Loan Commitments of the RL
Banks pursuant to Section 1.13 or 12.04(b), it is hereby agreed that, with
respect to all outstanding Letters of Credit and Unpaid Drawings, there shall be
an automatic adjustment to the participations pursuant to this Section 2.04 to
reflect the new RL Percentages of the assigning and assignee Bank.
(b) In determining whether to pay under any Letter of Credit, the
Letter of Credit Issuer that issued such Letter of Credit shall not have any
obligation relative to the L/C Participants other than to determine that any
documents required to be delivered under such Letter of Credit have been
delivered and that they appear to substantially comply on their face with the
requirements of such Letter of Credit. Any action taken or omitted to be taken
by any
<PAGE>
24
Letter of Credit Issuer under or in connection with any Letter of Credit issued
by such Letter of Credit Issuer if taken or omitted in the absence of gross
negligence or willful misconduct, shall not create for such Letter of Credit
Issuer any resulting liability.
(c) In the event that any Letter of Credit Issuer makes any payment
under any Letter of Credit issued by such Letter of Credit Issuer and no
Borrower shall have reimbursed such amount in full to such Letter of Credit
Issuer pursuant to Section 2.03(a), such Letter of Credit Issuer shall promptly
notify the Administrative Agent, and the Administrative Agent shall promptly
notify each L/C Participant of such failure, and each L/C Participant shall
promptly and unconditionally pay to the Administrative Agent for the account of
such Letter of Credit Issuer, the amount of such L/C Participant's RL Percentage
of such payment in US Dollars and in same day funds. If the Administrative
Agent so notifies any L/C Participant required to fund a payment under a Letter
of Credit prior to 11:00 A.M. (Dallas time) on any Business Day, such L/C
Participant shall make available to the Administrative Agent for the account of
such Letter of Credit Issuer such L/C Participant's RL Percentage of the amount
of such payment on such Business Day in same day funds. If and to the extent
such L/C Participant shall not have so made its RL Percentage of the amount of
such payment available to the Administrative Agent for the account of such
Letter of Credit Issuer, such L/C Participant agrees to pay to the
Administrative Agent for the account of such Letter of Credit Issuer, forthwith
on demand such amount, together with interest thereon, for each day from such
date until the date such amount is paid to the Administrative Agent for the
account of such Letter of Credit Issuer at the Federal Funds Rate. The failure
of any L/C Participant to make available to the Administrative Agent for the
account of any Letter of Credit Issuer its RL Percentage of any payment under
any Letter of Credit shall not relieve any other L/C Participant of its
obligation hereunder to make available to the Administrative Agent for the
account of such Letter of Credit Issuer its RL Percentage of any payment under
any Letter of Credit issued by such Letter of Credit Issuer on the date
required, as specified above, but no L/C Participant shall be responsible for
the failure of any other Participant to make available to the Administrative
Agent for the account of such Letter of Credit Issuer such other L/C
Participant's RL Percentage of any such payment.
(d) Whenever any Letter of Credit Issuer receives a payment of a
reimbursement obligation as to which the Administrative Agent has received for
the account of such Letter of Credit Issuer any payments from the L/C
Participants pursuant to clause (c) above, such Letter of Credit Issuer shall
pay to the Administrative Agent and the Administrative Agent shall promptly pay
to each L/C Participant which has paid its RL Percentage thereof, in US Dollars
and in same day funds, an amount equal to such L/C Participant's RL Percentage
of the principal amount thereof and interest thereon accruing after the purchase
of the respective participations.
(e) The obligations of the L/C Participants to make payments to the
Administrative Agent for the account of any Letter of Credit Issuer with respect
to Letters of Credit issued by such Letter of Credit Issuer shall be irrevocable
and not subject to
<PAGE>
25
counterclaim, set-off or other defense or any other qualification or exception
whatsoever and shall be made in accordance with the terms and conditions of this
Agreement under all circumstances, including, without limitation, any of the
following circumstances:
(i) any lack of validity or enforceability of this Agreement, any
of the other Credit Documents, any Letter of Credit Agreement, any Letter
of Credit or any other agreement or instrument relating thereto (all of the
foregoing being, collectively, the "L/C Related Documents");
(ii) any change in the time, manner or place of payment of, or in
any other term of, all or any of the Obligations of any Borrower in respect
of any L/C Related Document or any other amendment or waiver of or any
consent to departure from all or any of the L/C Related Documents;
(iii) the existence of any claim, set-off, defense or other right
which any Borrower or any of its Subsidiaries may have at any time against
a beneficiary named in a Letter of Credit, any transferee of any Letter of
Credit (or any Person for whom any such beneficiary or transferee may be
acting), the Administrative Agent, any Letter of Credit Issuer, any Bank,
or other Person, whether in connection with this Agreement, any Letter of
Credit, the transactions contemplated herein or any unrelated transactions
(including any underlying transaction between any Borrower or any of its
Subsidiaries and the beneficiary named in any such Letter of Credit);
(iv) any draft, certificate or other document presented under any
Letter of Credit proving to be forged, fraudulent, invalid or insufficient
in any respect or any statement therein being untrue or inaccurate in any
respect;
(v) payment by any Letter of Credit Issuer under a Letter of Credit
against presentation of a draft or certificate that does not strictly
comply with the terms of such Letter of Credit;
(vi) any exchange, release or non-perfection of any Collateral or
other collateral, or any release or amendment or waiver of or consent to
departure from any Guaranty or any other guarantee, for all or any of the
obligations of the Borrowers in respect of the L/C Related Documents;
(vii) the occurrence of any Default or Event of Default; or
(viii) any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing, including, without limitation, any other
circumstance that might otherwise constitute a defense available to, or a
discharge of, any Borrower or a guarantor.
<PAGE>
26
2.05 Increased Costs. If, after the date hereof, the adoption or
---------------
effectiveness of any applicable law, rule or regulation, or any change therein,
or any change in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Letter of Credit
Issuer or any L/C Participant with any request or directive (whether or not
having the force of law) by any such authority, central bank or comparable
agency shall either (i) impose, modify or make applicable any reserve deposit,
capital adequacy or similar requirement against Letters of Credit issued by such
Letter of Credit Issuer or such L/C Participant's participation therein, or (ii)
impose on such Letter of Credit Issuer or any L/C Participant any other
conditions affecting this Agreement, any Letter of Credit or such L/C
Participant's participation therein; and the result of any of the foregoing is
to increase the cost to such Letter of Credit Issuer or such L/C Participant of
issuing, maintaining or participating in any Letter of Credit, or to reduce the
amount of any sum received or receivable by such Letter of Credit Issuer or such
Participant hereunder, then, upon written demand to the Borrowers by such Letter
of Credit Issuer or such L/C Participant (a copy of which notice shall be sent
by such Letter of Credit Issuer or such L/C Participant to the Administrative
Agent), accompanied by the certificate described in the last sentence of this
Section 2.05, the applicable Borrower shall pay to such Letter of Credit Issuer
or such L/C Participant such additional amount or amounts as will compensate
such Letter of Credit Issuer or such L/C Participant for such increased cost or
reduction. A certificate submitted to such Borrower by such Letter of Credit
Issuer or such L/C Participant, as the case may be (a copy of which certificate
shall be sent by such Letter of Credit Issuer or such L/C Participant to the
Administrative Agent), setting forth the basis for the determination of such
additional amount or amounts necessary to compensate such Letter of Credit
Issuer or such L/C Participant as aforesaid shall be final and conclusive and
binding on such Borrower absent manifest error, although the failure to deliver
any such certificate shall not release or diminish such Borrower's obligations
to pay additional amounts pursuant to this Section 2.05 upon subsequent receipt
of such certificate.
SECTION 3. Fees; Commitments.
-----------------
3.01 Fees. (a) The Borrowers severally shall pay to the
----
Administrative Agent for distribution to each Bank a commitment fee (the
"Commitment Fee") for the period from the earlier to occur of (i) the Commitment
Date and (ii) the Effective Date to, but not including, the date the Total
Revolving Loan Commitment has been terminated, computed (x) at the rate of
0.500% per annum on the daily Aggregate Unutilized Commitment of such Bank if
the Leverage Ratio of MMI the day after the date on which the Administrative
Agent receives the financial statements required to be delivered pursuant to
Section 7.01(b) and (c), and a certificate of the chief financial officer of MMI
demonstrating the applicable Leverage Ratio, (such date being the "Date of
Determination") immediately prior to the date the applicable Accrued Commitment
Fee is due and payable is equal to or greater than 1.0:1.0, or (y) at the rate
of 0.375% per annum on the Aggregate Unutilized Commitment of such Bank if, but
only if, the Leverage Ratio of MMI on the Date of Determination immediately
prior to the
<PAGE>
27
date the applicable Accrued Commitment Fee is due and payable is less than
1.0:1.0., provided, however, that the Applicable Margin shall be at the rate of
0.500% per annum for so long as the Borrower has not submitted to the
Administrative Agent the information described in clause (x) above of this
Section as and when required under Section 7.01(b) or (c), as the case may be.
Accrued Commitment Fees shall be due and payable quarterly in arrears on each
Quarterly Payment Date and the date upon which the Revolving Loan Commitment is
terminated.
(b) The Borrowers severally shall pay to the Multi-Currency Agent for
distribution to each Multi-Currency Bank a fronting fee (the "Fronting Fee") for
the period from the Effective Date to the Maturity Date computed at __ of 1% per
annum on the amount equal to the aggregate principal amount of Multi-Currency
Revolving Loans outstanding at any time. Accrued Fronting Fees shall be due and
payable on the Effective Date and thereafter quarterly in arrears on each
Quarterly Payment Date on the Maturity Date.
(c) The Borrowers severally shall pay to the Administrative Agent (i)
for the account of the RL Banks pro rata on the basis of their RL Percentages, a
--- ----
fee in respect of each US Letter of Credit (the "US/LC Fee") in US Dollars and
(ii) for the account of the Multi-Currency Letter of Credit Issuer, a fee in
respect of each Multi-Currency Letter of Credit (the "MC/LC Fee"), and together
with the US/LC Fee, the "Letter of Credit Fees") in the Currency in which such
Letter of Credit is denominated, in each case computed at a rate per annum equal
to the Applicable Margin for Eurodollar Loans then in effect with respect to
Revolving Loans on the average daily Stated Amount of such Letter of Credit.
Accrued Letter of Credit Fees shall be due and payable quarterly in arrears on
each Quarterly Payment Date and upon the first day on or after the termination
of the Total Revolving Loan Commitment upon which no Letters of Credit remain
outstanding.
(d) The Borrowers severally shall pay to the Administrative Agent as a
facing fee (the "Facing Fees") in respect of each Letter of Credit for the
account of (i) the US Letter of Credit Issuer a fee payable in US Dollars in
respect of each US Letter of Credit computed at the rate of __ of 1% per annum
and (ii) the Multi-Currency Letter of Credit Issuer a fee in receipt of each
Multi-Currency Letter of Credit in the currency in which such Multi-Currency
Letter of Credit is denominated computed at a rate of __ of 1% per annum, in
each case, on the average daily Stated Amount of such Letter of Credit. Accrued
Facing Fees shall be due and payable quarterly in arrears on each Quarterly
Payment Date and upon the first day on or after the termination of the Total
Revolving Loan Commitment upon which no Letters of Credit remain outstanding.
(e) The Borrowers severally shall pay directly to each Letter of
Credit Issuer upon each issuance of, drawing under, and/or amendment to, each
Letter of Credit issued by such Letter of Credit Issuer such amount as shall at
the time of such issuance, drawing or amendment be the administrative charge
which such Letter of Credit Issuer is customarily charging for issuances of,
drawings under or amendments to, letters of credit issued by it.
<PAGE>
28
(f) The Borrowers severally shall pay to the Administrative Agent, for
its own account, such fees as may be agreed to from time to time between the
Borrowers and the Administrative Agent, when and as due.
(g) All computations of Fees shall be made in accordance with Section
12.07(b).
3.02 Voluntary Termination or Reduction of Commitments. Upon at
-------------------------------------------------
least five Business Days' prior written notice (or telephonic notice promptly
confirmed in writing) to the Administrative Agent at its Notice Office (which
notice the Administrative Agent shall promptly transmit to each of the Banks),
the Borrowers shall have the right, without premium or penalty, to terminate in
whole or partially reduce the Total Unutilized Revolving Loan Commitment,
provided that (x) any such termination or partial reduction shall apply to
- --------
proportionately and permanently reduce the Revolving Loan Commitment of each of
the RL Banks and (y) any partial reduction pursuant to this Section 3.02 shall
be in the amount of at least $250,000 and in integral multiples of $100,000 in
excess thereof.
3.03 Mandatory Adjustments of Commitments, Etc. (a) The Total
-----------------------------------------
Revolving Loan Commitment (and the Revolving Loan Commitment of each RL Bank)
shall automatically terminate in its entirety on the earlier of (i) December 20,
1997 unless the Initial Borrowing Date has occurred on or before such date, (ii)
the date on which a Change of Control Event occurs and (iii) the Maturity Date.
(b) On each date upon which a mandatory repayment pursuant to Section
4.02(A)(c) is required, the Total Revolving Loan Commitment shall be
automatically and permanently reduced by the amount, if any, by which the amount
required to be applied pursuant to said Section exceeds the aggregate principal
amount of Revolving Loans then outstanding.
(c) Each reduction to the Total Revolving Loan Commitment pursuant to
this Section 3.03 shall apply proportionately to the Revolving Loan Commitment
of each Bank.
SECTION 4. Payments.
--------
4.01 Voluntary Prepayments. MMI shall have the right to prepay the
---------------------
Loans and each Local Currency Borrower shall have the right to prepay the Loans
made to such Borrower, in whole or in part, without premium or penalty except as
otherwise provided in this Agreement, from time to time on the following terms
and conditions: (i) each such Borrower shall give the Administrative Agent at
the Appropriate Notice Office written notice (or telephonic notice promptly
confirmed in writing) of its intent to prepay the Loans, whether such Loans are
Revolving Loans or Swingline Loans, the amount of such prepayment and (in the
case of Eurodollar Loans) the specific Borrowing(s) pursuant to which made,
which notice
<PAGE>
29
shall be given by such Borrower prior to 11:00 A.M. (Dallas Time) (x) at least
one Business Day prior to the date of such prepayment in the case of US
Revolving Loans maintained as Base Rate Loans, (y) on the date of such
prepayment in the case of Swingline Loans and (z) at least three Business Days
prior to the date of such prepayment in the case of Eurodollar Loans or Multi-
Currency Revolving Loans, which notice shall, except in the case of Swingline
Loans, promptly be transmitted by the Administrative Agent to the Multi-Currency
Agent and each of the Banks; (ii) each prepayment shall be in an aggregate
principal amount of at least US$250,000 (or the Foreign Currency Equivalent
thereof) (or US$100,000 in the case of Swingline Loans), provided that no
--------
partial prepayment of Eurodollar Loans made pursuant to a Borrowing shall reduce
the aggregate principal amount of the Loans outstanding pursuant to such
Borrowing to an amount less than the Minimum Borrowing Amount applicable
thereto; (iii) each prepayment in respect of any Loans made pursuant to a
Borrowing shall be applied pro rata among such Loans, provided that at any
--- ---- --------
Borrower's election in connection with any prepayment of Revolving Loans
pursuant to this Section 4.01, such prepayment shall not be applied to any
Revolving Loans of a Defaulting Bank.
4.02 Mandatory Prepayments.
---------------------
(A) Requirements.
------------
(a) (i) If on any date the sum of (x) the aggregate outstanding
principal amount of Revolving Loans and Swingline Loans (after giving effect to
all other repayments thereof on such date) plus (y) the Letter of Credit
Outstandings on such date exceeds the lesser of (A) the Total Borrowing Base at
such time (based on the Borrowing Base Certificate last delivered) or (B) the
Total Revolving Loan Commitment as then in effect, MMI shall repay on such date
the principal amount of Swingline Loans, and if no Swingline Loans are or remain
outstanding, either (i) MMI shall repay the principal amount of Revolving Loans
then outstanding in an aggregate principal amount equal to such excess or (ii)
each Borrower shall repay the principal amount of Revolving Loans then
outstanding and owed by such Borrower in an aggregate principal amount equal to
such Borrower's Prepayment Pro Rata Share of such excess. If, after giving
effect to the prepayment of all outstanding Swingline Loans and Revolving Loans,
the aggregate amount of all Letter of Credit Outstandings exceeds the lesser of
(A) the Total Borrowing Base at such time (based on the Borrowing Base
Certificate last delivered) and (B) the Total Revolving Loan Commitment as then
in effect, either (i) MMI shall pay to the Administrative Agent on such date an
amount equal to such excess or (ii) each Borrower shall repay the principal
amount of Revolving Loans then outstanding and owed by such Borrower in an
aggregate principal amount equal to such Borrower's Prepayment Pro Rata Share of
such excess (up to the aggregate amount of all Letter of Credit Outstandings at
such time) and the Administrative Agent shall hold such payment as security for
the respective obligations of each Borrower under this clause (a)(i) pursuant to
a cash collateral agreement to be entered into in form and substance reasonably
satisfactory to the Administrative Agent (which shall permit certain investments
in Cash Equivalents reasonably satisfactory to the
<PAGE>
30
Administrative Agent and the Collateral Agent until the proceeds are applied to
the secured obligations).
(ii) If on any date the sum of (x) the aggregate principal amount of
US Revolving Loans and Swingline Loans (after giving effect to all other
repayments thereof on such date) outstanding at such time plus (y) the US Letter
of Credit Outstandings on such date exceeds the lesser of (A) the US Borrowing
Base at such time (based on the Borrowing Base Certificate last delivered) and
(B) the Foreign Availability Amount in effect at such time, MMI shall repay on
such date the principal amount of Swingline Loans, and if no Swingline Loans are
or remain outstanding, the principal amount of US Revolving Loans, in each case
in an aggregate principal amount equal to such excess. If, after giving effect
to the prepayment of all outstanding Swingline Loans and US Revolving Loans, the
aggregate amount of all US Letter of Credit Outstandings exceeds the lesser of
(A) the US Borrowing Base at such time (based on the Borrowing Base Certificate
last delivered) and (B) the Foreign Availability Amount as then in effect, MMI
shall pay to the Administrative Agent on such date an amount equal to such
excess (up to the aggregate amount of all US Letter of Credit Outstandings at
such time) and the Administrative Agent shall hold such payment as security for
the obligations of MMI hereunder pursuant to a cash collateral agreement to be
entered into in form and substance reasonably satisfactory to the Administrative
Agent (which shall permit certain investments in Cash Equivalents reasonably
satisfactory to the Administrative Agent and the Collateral Agent until the
proceeds are applied to the secured obligations).
(iii) If on any date the sum of (i) the aggregate outstanding
principal amount of Multi-Currency Revolving Loans (after giving effect to all
other repayments thereof on such date) plus (ii) the Multi-Currency Letter of
Credit Outstandings in respect of the Multi-Currency Letters of Credit on such
date exceeds the lesser of (A) the aggregate Foreign Borrowing Base at such time
(based on the Borrowing Base Certificate last delivered) and (B) 110% of the
Multi-Currency Revolving Loan Sublimit as then in effect, either (i) MMI shall
repay on such date the principal amount of Multi-Currency Revolving Loans in an
aggregate amount equal to such excess or (ii) each Borrower shall pay to the
Multi-Currency Agent on such date the principal amount of Multi-Currency
Revolving Loans then outstanding and owed by such Borrower in an aggregate
principal amount equal to such Borrower's Prepayment Pro Rata Share of such
excess. If, after giving effect to the prepayment of all such outstanding
Multi-Currency Revolving Loans, the aggregate amount of all Multi-Currency
Letter of Credit Outstandings in respect of the Multi-Currency Letters of
Credit, exceeds the lesser of (A) the aggregate Foreign Borrowing Base at such
time (based on the Borrowing Base Certificate last delivered) and (B) 110% of
the Multi-Currency Revolving Loan Sublimit as then in effect, either (i) MMI
shall pay to the Multi-Currency Agent on such date an amount equal to such
excess or (ii) each Borrower shall repay the principal amount of Multi-Currency
Revolving Loans then outstanding and owed by such Borrower in an aggregate
principal amount equal to such Borrower's Prepayment Pro Rata Share of such
excess (up to the aggregate amount of all Multi-Currency Letter of Credit
Outstandings at such time, in respect of the Multi-Currency Letters of Credit)
and the Multi-Currency Agent shall hold such
<PAGE>
31
payment as security for the respective obligations of each Borrower under this
clause (a)(iii) pursuant to a cash collateral agreement to be entered into in
form and substance reasonably satisfactory to the Administrative Agent (which
shall permit certain investments in Cash Equivalents reasonably satisfactory to
the Administrative Agent and the Collateral Agent until the proceeds are applied
to the secured obligations).
(iv) If on any date the sum of (i) the aggregate principal amount of
Mutli-Currency Revolving Loans denominated in any Approved Foreign Currency and
owed by any Local Currency Borrower (after giving effect to all other repayment,
thereof on such date) plus the Multi-Currency Letter of Credit Outstandings in
----
respect of Multi-Currency Letters of Credit denominated in such Approved Foreign
Currency on such date exceeds the lesser of (A) the Foreign Borrowing Base with
respect to such Local Currency Borrower at such time (based on the Borrowing
Base Certificate last delivered) and (B) 110% of the Currency Sublimit for such
Approved Foreign Currency, such Local Currency Borrower shall repay the
principal amount of Multi-Currency Loans owed by such Local Currency Borrower in
an aggregate amount to such excess.
(b) On the Business Day after the date of receipt thereof by any
Credit Party and/or any of their respective Subsidiaries of Cash Proceeds from
any Asset Sale, an amount equal to 100% of the Net Cash Proceeds from such Asset
Sale shall be applied as a mandatory repayment of principal of the outstanding
Revolving Loans owed by such Credit Party or, in the case of MMI, owed by any
Credit Party, provided that with respect to no more than $1,000,000 in the
--------
aggregate of such Net Cash Proceeds in any fiscal year of MMI, such Net Cash
Proceeds shall not be required to be so applied on such date to the extent that
no Default or Event of Default then exists and the Borrowers deliver a
certificate to the Administrative Agent on or prior to such date stating that
such Net Cash Proceeds shall be used to purchase assets used or to be used in
the businesses referred to in Section 8.01(a) (including, without limitation
(but only to the extent permitted by Section 8.02), capital stock of a
corporation engaged in any such business) within 90 days following the date of
such Asset Sale (which certificate shall set forth the estimates of the proceeds
to be so expended), provided further that (1) if all or any portion of such Net
-------- -------
Cash Proceeds not so applied to the repayment of outstanding Revolving Loans are
not so used (or contractually committed to be used) within such 90 day period,
such remaining portion shall be applied on the last day of such period as a
mandatory repayment of principal of outstanding Revolving Loans as provided
above in this Section 4.02(A)(b) and (2) if all or any portion of such Net Cash
Proceeds are not required to be applied on the 90th day referred to in clause
(1) above because such amount is contractually committed to be used and
subsequent to such date such contract is terminated or expires without such
portion being so used, then such remaining portion shall be applied on the date
of such termination or expiration as a mandatory repayment of principal of
outstanding Revolving Loans as provided above in this Section 4.02(A)(b).
(c) On the Business Day after the date of the receipt thereof by any
Credit Party or any of its Subsidiaries of Cash Proceeds from the sale or
issuance by such Credit
<PAGE>
32
Party or such Subsidiary of any capital stock or other ownership or profit
interest, any securities convertible into or exchangeable for capital stock or
other ownership or profit interest or any warrants, rights or options to acquire
capital stock or other ownership or profit interest (other than equity issued in
connection with the exercise by employees of any Credit Party or any of its
Subsidiaries of employee stock option), an amount equal to 100% of the Net Cash
Proceeds from such sale or issuance of equity shall be applied as a mandatory
repayment of principal of the outstanding Revolving Loans owed by such Credit
Party or, in the case of MMI, owed by any Credit Party.
(d) On the Business Day after the date of the receipt thereof by any
Credit Party or any of its Subsidiaries of Cash Proceeds from the incurrence or
issuance of Indebtedness by such Credit Party or such Subsidiary, an amount
equal to 100% of the Net Cash Proceeds from such incurrence or issuance of
Indebtedness (other than Indebtedness permitted to be incurred by Section 8.04)
shall be applied by such Credit Party or MMI as a mandatory repayment of
principal of the outstanding Revolving Loans owed by such Credit Party or, in
the case of MMI, owed by any Credit Party.
(e) Within 5 days following each date on which any Credit Party or any
of its Subsidiaries receives any proceeds from any Extraordinary Receipt, an
amount equal to 100% of the Net Cash Proceeds of such Extraordinary Receipt
shall be applied by such Credit Party or MMI as a mandatory repayment of
principal of outstanding Revolving Loans owed by such Credit Party or, in the
case of MMI, owed by any Credit Party; provided that so long as no Default or
--------
Event of Default then exists and such proceeds received in respect of a Recovery
Event do not exceed $1,500,000, such proceeds shall not be required to be so
applied on such date to the extent that the Borrowers have delivered a
certificate to the Administrative Agent on or prior to such date stating that
such proceeds shall be used to replace or restore any properties or assets in
respect of which such proceeds were paid within 180 days following the date of
the receipt of such proceeds (which certificate shall set forth the estimates of
the proceeds to be so expended), and provided further that (i) if the amount of
-------- -------
such proceeds received in respect of a Recovery Event exceeds $1,500,000, then
the entire amount and not just the portion in excess of $1,500,000 shall be
applied as a mandatory repayment of principal of the outstanding Revolving Loans
as provided above in this Section 4.02(A)(e), (ii) if all or any portion of such
proceeds not required to be applied to the repayment of outstanding Revolving
Loans pursuant to the preceding proviso are not so used (or contractually
committed to be used) within 180 days after the date of the receipt of such
proceeds, such remaining portion shall be applied on the last day of such period
as a mandatory repayment of principal of the outstanding Revolving Loans as
provided above in this Section 4.02(A)(e) and (iii) if all or any portion of
such proceeds are not required to be applied on the 180th day referred to in
clause (ii) above because such amount is contractually committed to be used and
subsequent to such date such contract is terminated or expires without such
portion being so used, then such remaining portion shall be applied on the date
of such termination or expiration as a mandatory repayment of principal of
outstanding Revolving Loans as provided above in this Section 4.02(A)(e).
<PAGE>
33
(f) Notwithstanding anything to the contrary contained elsewhere in
this Agreement, (i) all then outstanding Swingline Loans shall be repaid in full
on the Swingline Expiry Date and (ii) all other then outstanding Loans shall be
repaid in full on the Maturity Date.
(B) Application.
-----------
(a) With respect to each repayment of Loans required by this Section
4.02, the Borrowers may designate the Types of Loans which are to be repaid and
the specific Borrowing(s) pursuant to which made; provided that (i) if any
--------
payment to be made under Section 4.02(A) on account of Eurodollar Loans would be
made other than on the last day of an Interest Period applicable to such
Eurodollar Loan, the Borrower which is making such prepayment shall compensate
the Banks in accordance with Section 1.11; (ii) if any repayment of Eurodollar
Loans made pursuant to a single Borrowing shall reduce the outstanding Loans
made pursuant to such Borrowing to an amount less than the Minimum Borrowing
Amount, such Borrowing shall be immediately converted into a Borrowing of Base
Rate Loans; and (iii) each repayment of any Loans made pursuant to a Borrowing
shall be applied pro rata among such Loans; provided that no repayment pursuant
--- ---- --------
to Section 4.02(A)(a) shall be applied to any Revolving Loans of a Defaulting
Bank. In the absence of a designation by the Borrowers as described in the
preceding sentence, the Administrative Agent shall, subject to the above, make
such designation in its sole discretion with a view, but no obligation, to
minimize breakage costs owing under Section 1.11.
(b) All prepayments under this Section 4 shall be made together with
accrued interest to the date of such prepayment on the principal amount repaid.
(c) Amounts prepaid pursuant to Sections 4.02(A)(a), (b), (d) and (e)
may be reborrowed. Amounts prepaid pursuant to Sections 4.02(A)(c) may not be
reborrowed.
4.03 Method and Place of Payment. Except as otherwise specifically
---------------------------
provided herein, all payments under this Agreement or under any Note shall be
made to the Appropriate Agent for the ratable account of the Banks entitled
thereto, not later than 12:00 Noon (Relevant Currency Time) on the date when
due, and shall be made in immediately available funds and in US Dollars, or in
the case of any Multi-Currency Revolving Loan or Multi-Currency Letter of Credit
in the Approved Foreign Currency in which such Multi-Currency Loan or Multi-
Currency Letter of Credit is denominated at the Appropriate Payment Office, it
being understood that written, telex or facsimile transmission notice by a
Borrower to the Appropriate Agent to make a payment from the funds in such
Borrower's accounts at the Appropriate Payment Office shall constitute the
making of such payment to the extent of such funds held in such account. Any
payments under this Agreement or under any Note which are made later than 12:00
Noon (Relevant Currency Time) shall be deemed to have been made on the next
succeeding Business Day. Whenever any payment to be made hereunder shall be
<PAGE>
34
stated to be due on a day which is not a Business Day, the due date thereof
shall be extended to the next succeeding Business Day and, with respect to
payments of principal, interest shall be payable during such extension at the
applicable rate in effect immediately prior to such extension.
4.04 Net Payments. (a) All payments made by each Borrower hereunder
------------
or under any Note will be made without setoff, counterclaim or other defense.
Except as provided in Section 4.04(b), all such payments will be made free and
clear of, and without deduction or withholding for, any present or future taxes,
levies, imposts, duties, fees, assessments or other charges of whatever nature
now or hereafter imposed by any jurisdiction or by any political subdivision or
taxing authority thereof or therein with respect to such payments (but
excluding, except as provided in the second succeeding sentence, any tax imposed
on or measured by the net income or net profits of a Bank pursuant to the laws
of the jurisdiction in which it is organized or the jurisdiction in which the
principal office or applicable lending office of such Bank is located or any
subdivision thereof or therein or Australian income tax levied on a Bank
pursuant to Section 25(2) of the Income Tax Assessment Act 1936 (Commonwealth))
and all interest, penalties or similar liabilities with respect thereto (all
such non-excluded taxes, levies, imposts, duties, fees, assessments or other
charges being referred to collectively as "Taxes"). If any Taxes are so levied
or imposed, each Borrower making any payment agrees to pay the full amount of
such Taxes, and such additional amounts as may be necessary so that every
payment of all amounts due under this Agreement or under any Note, after
withholding or deduction for or on account of any Taxes, will not be less than
the amount provided for herein or in such Note. If any amounts are payable by
any Borrower in respect of Taxes pursuant to the preceding sentence, such
Borrower agrees to reimburse each Bank, upon the written request of such Bank,
for Taxes imposed on or measured by the net income or net profits of such Bank
pursuant to the laws of the jurisdiction in which the principal office or
applicable lending office of such Bank is located or under the laws of any
political subdivision or taxing authority of any such jurisdiction in which the
principal office or applicable lending office of such Bank is located and for
any withholding of Taxes as such Bank shall determine are payable by, or
withheld from, such Bank in respect of such amounts so paid to or on behalf of
such Bank pursuant to the preceding sentence and in respect of any amounts paid
to or on behalf of such Bank pursuant to this sentence. Each Borrower will
furnish to the Administrative Agent within 30 days after the date the payment of
any Taxes is due pursuant to applicable law certified copies of tax receipts
evidencing such payment by such Borrower. Each Borrower agrees to indemnify and
hold harmless each Bank, and reimburse such Bank upon its written request, for
the amount of any Taxes so levied or imposed and paid by such Bank.
(b) Each Bank agrees to deliver to the Borrowers and the
Administrative Agent on or prior to the Effective Date, or in the case of a Bank
that is an assignee or transferee of an interest under this Agreement pursuant
to Section 1.13 or 12.04 (unless the respective Bank was already a Bank
hereunder immediately prior to such assignment or
<PAGE>
35
transfer), on the date of such assignment or transfer to such Bank, any form or
certificate that is required by any taxing authority to demonstrate such Bank's
entitlement to an exemption from or reduction in Home Jurisdiction Withholding
Taxes (as defined below), if any, with respect to payments to be made under this
Agreement including, if applicable, (i) two accurate and complete original
signed copies of Internal Revenue Service Form 4224 or 1001 (or successor forms)
certifying to such Bank's entitlement to a complete exemption from United States
withholding tax with respect to payments to be made under this Agreement and
under any Note, or (ii) if the Bank is not a "bank" within the meaning of
Section 881(c)(3)(A) of the Code and cannot deliver either Internal Revenue
Service Form 1001 or 4224 pursuant to clause (i) above, (x) a certificate
substantially in the form of Exhibit C (any such certificate, a "Section
4.04(b)(ii) Certificate") and (y) two accurate and complete original signed
copies of Internal Revenue Service Form W-8 (or successor form) certifying to
such Bank's entitlement to a complete exemption from United States withholding
tax with respect to payments to be made under this Agreement and under any Note;
provided, however, that such Bank shall have been advised in writing by each
- -------- -------
Borrower of the form or certificate applicable to it, determined by reference to
the jurisdiction of organization and applicable lending office of such Bank set
forth on Annex I hereto, in the case of a Bank that is an assignee or transferee
of an interest under this Agreement pursuant to Section 1.13 or 12.04 (unless
the respective Bank was already a Bank thereunder immediately prior to such
assignment or transfer), the jurisdiction of organization and applicable lending
office of such Bank set forth in the Assignment and Assumption Agreement
pursuant to which it became a Bank, or such other branch or office of any Bank
designated by such Bank from time to time. If any form or document referred to
in this subsection (b) requires the disclosure of information greater than that
required on the date hereof by Forms 1001 or 4224 and which a Bank reasonably
considers to be confidential, such Bank shall give notice thereof to the
Borrowers and shall not be obligated to include in such form or document such
confidential information. In addition, each Bank agrees that from time to time
after the Effective Date, when a lapse in time or change in circumstances
renders the previous certification obsolete or inaccurate in any material
respect, upon the written request of a Borrower (but only if the Bank remains
lawfully able to do so) it will deliver to such Borrower and the Administrative
Agent a new accurate and complete form or certificate that is required by any
taxing authority including, if applicable, two new accurate and complete
original signed copies of Internal Revenue Service Form 4224 or 1001, or Form W-
8 and a Section 4.04(b)(ii) Certificate, as the case may be, and such other
forms as may be required in order to confirm or establish the entitlement of
such Bank to a continued exemption from or reduction in Home Jurisdiction
Withholding Taxes, if any, with respect to payments under this Agreement and any
Note, or it shall immediately notify such Borrower and the Administrative Agent
of its inability to deliver any such Form or Certificate, in which case such
Bank shall not be required to deliver any such Form or Certificate pursuant to
this Section 4.04(b). Notwithstanding anything to the contrary contained in
Section 4.04(a), but subject to Section 12.04(b) and the immediately succeeding
sentence, (x) each Borrower shall be entitled, to the extent it is required to
do so by law, to deduct or withhold income or similar taxes from interest, fees
or other amounts payable hereunder for the account of any Bank to the extent
that such Bank has not provided to such Borrower the form or certificate that
establishes a complete exemption from, or entitlement to a reduction of, such
deduction or withholding and (y) such
<PAGE>
36
Borrower shall not be obligated pursuant to Section 4.04(a) hereof to gross-up
payments to be made to a Bank in respect of income or similar taxes imposed if
(I) such Bank has not provided to the Borrowers the form or certificate required
to be provided to the Borrowers pursuant to this Section 4.04(b) or (II) in the
case of a payment, other than interest, to a Bank described in clause (ii)
above, to the extent that such form or certificate does not establish a complete
exemption from, or entitlement to a reduction of, withholding of such taxes.
Notwithstanding anything to the contrary contained in the preceding sentence or
elsewhere in this Section 4.04 and except as set forth in Section 12.04(b), each
Borrower agrees to pay additional amounts and to indemnify each Bank in the
manner set forth in Section 4.04(a) (without regard to the identity of the
jurisdiction requiring the deduction or withholding) in respect of any amounts
deducted or withheld by it as described in the immediately preceding sentence as
a result of any changes after the Effective Date, or, in the case of a Bank that
is an assignee or transferee of an interest under this Agreement pursuant to
Sections 1.13 or 12.04(b) (unless the respective Bank was already a Bank
hereunder immediately prior to such assignment or transfer), after the date of
such assignment or transfer to such Bank, in any applicable law, treaty,
governmental rule, regulation, guideline or order, or in the interpretation
thereof, relating to the deducting or withholding of income or similar Taxes.
SECTION 5. Conditions Precedent.
--------------------
The obligation of each Bank to make each Loan to any Borrower
hereunder, and the obligation of each Letter of Credit Issuer to issue each
Letter of Credit hereunder, is subject, at the time of the making of each such
Loan or the issuance of each such Letter of Credit (except as otherwise
hereinafter indicated), to the satisfaction of the following conditions:
5.01 Execution of Agreement; Notes. On or prior to the Initial
-----------------------------
Borrowing Date, (i) the Effective Date shall have occurred and (ii) there shall
have been delivered to the Administrative Agent for the account of each Bank the
appropriate Revolving Note executed by MMI and to the Swingline Bank the
Swingline Note, executed by MMI, in each case, in the amount, maturity and as
otherwise provided herein.
5.02 No Default; Representations and Warranties. At the time of each
------------------------------------------
Credit Event and also after giving effect thereto and to the application of the
proceeds therefrom (i) no event shall have occurred and be continuing which
constitutes a Default and (ii) all representations and warranties contained
herein and in the other Credit Documents in effect at such time shall be true
and correct in all material respects with the same effect as though such
representations and warranties had been made on and as of the date of such
Credit Event, unless stated to relate to a specific earlier date, in which case
such representations and warranties shall be true and correct in all material
respects as of such earlier date.
5.03 Officer's Certificate. On the Initial Borrowing Date, the
---------------------
Administrative Agent shall have received a certificate of MMI dated such date
signed by an appropriate officer
<PAGE>
37
of such Borrower stating that all of the applicable conditions set forth in
Sections 5.02, 5.05, 5.07, 5.08, 5.09 and 5.17 exist as of such date.
5.04 Opinions of Counsel. On the Initial Borrowing Date, the
-------------------
Administrative Agent shall have received favorable opinions, addressed to the
Administrative Agent, the Collateral Agent and each of the Banks and dated the
Initial Borrowing Date, from (i) Hale and Dorr LLP, counsel to the Credit
Parties, which opinion shall be in substantially the form of Exhibit D and as to
such other matters incident to the transactions contemplated herein as the
Agents may reasonably request, and (ii) Japanese counsel to the Credit Parties
and/or the Agents reasonably satisfactory to the Agents, which opinion shall
cover such matters incident to the transactions contemplated herein and in the
other Credit Documents as the Agents may reasonably request and shall be in form
and substance reasonably satisfactory to the Agents.
5.05 Corporate Proceedings. (a) On the Initial Borrowing Date, the
---------------------
Administrative Agent shall have received from each Credit Party listed on Annex
5.05 a certificate, dated the Initial Borrowing Date, signed by the chairman, a
vice chairman, the president, any vice president or representative director of
such Credit Party, and attested to by the secretary or any assistant secretary
of such Credit Party, in the form of Exhibit E with appropriate insertions,
together with copies of the Certificate of Incorporation and By-Laws or the
Articles of Incorporation and the Corporate Registry or the Memorandum and
Articles of Association of such Credit Party, all amendments thereto, if any,
and the resolutions of the Board of Directors of such Credit Party referred to
in such certificate. All of the foregoing (including such Certificate of
Incorporation, By-Laws and amendments) shall approve the Transaction, this
Agreement and the other Documents to which the applicable Credit Party is or is
to be a party and be reasonably satisfactory to the Administrative Agent.
(b) On the Initial Borrowing Date, all corporate and legal proceedings
and all instruments and agreements in connection with the transactions
contemplated by this Agreement and the other Documents and necessary for the
approval thereof or consent thereto shall be in form and substance reasonably
satisfactory to the Administrative Agent, and the Administrative Agent shall
have received all information and copies of all certificates, documents and
papers, including good standing certificates, bring-down certificates and any
other records of corporate proceedings and governmental approvals, if any, which
the Administrative Agent reasonably may have requested in connection therewith,
such documents and papers, where appropriate, to be certified by proper
corporate or governmental authorities reasonably satisfactory to the
Administrative Agent and the Collateral Agent.
(c) On the Initial Borrowing Date, the ownership, capital, corporate
and legal structure (including, without limitation, the terms of any capital
stock, options, warrants or other securities issued by any Borrower or any of
its Subsidiaries), and the management of MMI and each of its Subsidiaries, and
each related agreement and instrument, in each case after giving effect to the
Transaction, shall be acceptable to the Administrative Agent and the Required
Banks.
<PAGE>
38
(d) On the Initial Borrowing Date, the Administrative Agent shall have
received with respect to each Credit Party listed on Annex 5.05 a copy of (i) a
certificate of the Secretary of State of the jurisdiction of incorporation of
such Credit Party dated reasonably near the Initial Borrowing Date, listing the
charter of such Credit Party and each amendment thereto on file in such
Secretary of State's office and certifying that (A) such charter is a true and
correct copy thereof, (B) such amendments are the only amendments to such Credit
Party's charter on file in such Secretary of State's office, (C) such Credit
Party has paid all franchise taxes to the date of such certificate and (D) such
Credit Party is duly incorporated and in good standing under the laws of the
State of the jurisdiction of its incorporation or (ii) the equivalent thereof in
any jurisdiction outside of the United States in which any Credit Party is
organized, except that in respect to MMI-Australia certified evidence
(including, without limitation, a certified except of the corporate registry) of
such information may be received.
5.06 Adverse Change, Etc. On or prior to the Initial Borrowing
-------------------
Date, nothing shall have occurred (and neither the Banks nor the Administrative
Agent shall have become aware of any facts or conditions not previously known)
which the Required Banks or the Administrative Agent shall determine (a)
constitutes, or could reasonably be expected to constitute, a Material Adverse
Change since December 31, 1996 or (b) has, or could reasonably be expected to
have, a Material Adverse Effect.
5.07 Litigation. On the Initial Borrowing Date, there shall be no
----------
actions, suits, investigations, litigations or proceedings pending or threatened
before any court, governmental agency or arbitrator (a) which purport to affect
the legality, validity or enforceability of the Transaction, this Agreement or
any other Document or (b) which the Administrative Agent or the Required Banks
shall determine could reasonably be expected to (i) have a Material Adverse
Effect or (ii) have a material adverse effect on the Transaction.
5.08 Approvals. On or prior to the Initial Borrowing Date, all
---------
necessary governmental (domestic and foreign), corporate, shareholder and third
party approvals and consents including, but not limited to, the delivery to the
Administrative Agent of reasonable proof of any notice to, filing with, or
approval of, the Japanese Minister of Finance required to be made or procured
pursuant to the Foreign Exchange and Foreign Trade Control Law (Law No. 228 of
1949 as amended), in connection with the Transaction, the transactions
contemplated by the Documents, the Documents and otherwise referred to herein or
therein shall have been obtained and remain in effect, all applicable waiting
periods shall have expired without any action being taken by any competent
authority which restrains, prevents or imposes materially adverse conditions
upon the consummation of the Transaction, the transactions contemplated by the
Documents and otherwise referred to herein or therein, or that could threaten or
seek to threaten any of the foregoing and no law, regulation or rule shall be
applicable to any Credit Party or to the Transaction which in the judgment of
the Administrative Agent could threaten or seek to threaten any of the
foregoing. Additionally, there shall not exist any judgment, order, injunction
or other restraint issued or filed or a
<PAGE>
39
hearing seeking injunctive relief or other restraint pending or notified
prohibiting or imposing materially adverse conditions upon the consummation of
the Transaction or the making of Loans.
5.09 Consummation of the Transaction. (a) On the Initial Borrowing
-------------------------------
Date, the Dropdown shall have been consummated strictly in accordance with the
Transaction Documents and all applicable laws and regulations, each of the
conditions precedent to the consummation of the Dropdown (including, without
limitation, the accuracy in all material respects of the representations and
warranties contained in the Transaction Documents) shall have been satisfied and
not waived (except with the written consent of the Administrative Agent and the
Required Banks) to the satisfaction of the Administrative Agent and the Required
Banks, and the Transaction Documents shall be in full force and effect. On the
Initial Borrowing Date, the assets comprising the MMI Business shall be
transferred to MMI and its Subsidiaries free and clear of all Liens other than
Permitted Liens.
(b) On or prior to the Initial Borrowing Date, there shall have been
delivered to the Administrative Agent certified true and correct copies of all
Documents entered into on or prior to such date in connection with the
Transaction (including, without limitation, all of the Transaction Documents),
and all of the terms and conditions of such Documents, as well as the structure
of the Transaction, in all material respects, shall be in form and substance
satisfactory to the Administrative Agent and the Required Banks.
(c) On the Initial Borrowing Date, MMI and its Subsidiaries, after
giving effect to the Transaction, shall be in compliance with all existing
financial obligations.
(d) On the Initial Borrowing Date, the Administrative Agent shall have
received evidence in form, scope and substance reasonably satisfactory to it
that the matters set forth in this Section 5.09 have been satisfied on such
date.
5.10 Security Documents. On the Initial Borrowing Date, each Credit
------------------
Party listed on Annex 5.05 shall have duly authorized, executed and delivered a
Security Agreement in the form of Exhibit F-1 or F-3, as appropriate, covering
all of the Security Agreement Collateral, together with:
(A) all of the Pledged Securities referred to in each Security
Agreement and owned by such Credit Party endorsed in blank in the case of
promissory notes or accompanied by executed and undated stock powers in the
case of capital stock;
(B) acknowledgment copies or stamped receipt copies of proper
Financing Statements (Form UCC-1) or appropriate local equivalent duly
filed under the UCC or appropriate local equivalent of each jurisdiction as
the Collateral Agent may deem necessary or desirable to perfect and protect
the first priority security interests created by each Security Agreement;
<PAGE>
40
(C) certified copies of Requests for Information or Copies (Form UCC-
11), or equivalent reports, each of a recent date listing all effective
financing statements that name such Credit Party or any of its Subsidiaries
as debtor or otherwise relate to the MMI Business and that are filed in the
jurisdictions referred to in clause (B) above, together with copies of such
financing statements (none of which shall cover the Collateral except (x)
those with respect to which appropriate termination statements executed by
the secured lender thereunder have been delivered to the Administrative
Agent and (y) to the extent evidencing Permitted Liens);
(D) evidence of the completion of all other action, recordings and
filings of or with respect to each Security Agreement delivered pursuant to
this Section 5.10 as may be necessary or, in the reasonable opinion of the
Collateral Agent, desirable, to perfect the security interests created by
the Security Agreement;
(E) evidence of the insurance required by the terms of the Security
Agreements;
(F) copies of the Assigned Agreements, referred to in each Security
Agreement; and
(G) evidence that all other actions necessary or, in the reasonable
opinion of the Collateral Agent, desirable, to perfect the security
interests created by the Security Agreement have been taken;
and each Security Agreement delivered pursuant to this Section 5.10 shall be in
full force and effect.
5.11 Guaranties. On the Initial Borrowing Date, each of MMI Holdings
----------
and MMI shall have duly authorized, executed and delivered a Parent Guaranty in
the form of Exhibit G-1 (as modified, amended or supplemented from time to time
in accordance with the terms thereof and hereof, each a "Parent Guaranty"), and
each Subsidiary Guarantor listed on Annex 5.11 shall have duly authorized,
executed and delivered a Subsidiary Guaranty in the form of Exhibit G-2 or G-3,
as appropriate (as modified, amended or supplemented from time to time in
accordance with the terms thereof and hereof, each a "Subsidiary Guaranty", and,
together with each Parent Guaranty, the "Guaranties"), and each Guaranty shall
be in full force and effect.
5.12 CST Guaranty. On the Initial Borrowing Date, Corporate Software
------------
& Technology, Inc. shall have duly authorized, executed and delivered a guaranty
in the form of Exhibit L (the "CST Guaranty"), and the CST Guaranty shall be in
full force and effect.
<PAGE>
41
5.13 Plans; Existing Indebtedness Agreements; Shareholders'
------------------------------------------------------
Agreements; Management Agreements; Employment Agreements; Non-Compete
- ---------------------------------------------------------------------
Agreements; Tax Allocation Agreements; Material Contracts. On or prior to the
- ---------------------------------------------------------
Initial Borrowing Date, there shall have been delivered to the Administrative
Agent copies, certified as true and correct by an appropriate officer of MMI,
of:
(a) all Plans of MMI or any of its Subsidiaries after giving effect to
the consummation of the Transaction and for each such Plan (i) that is a
"single-employer plan" (as defined in Section 4001(a)(15) of ERISA) the
most recently completed actuarial valuation prepared therefor by such
Plan's regular enrolled actuary and the Schedule B, "Actuarial Information"
to the IRS Form 5500 (Annual Report) most recently filed with the Internal
Revenue Service and (ii) that is a "multiemployer plan" (as defined in
Section 4001(a)(3) of ERISA), each of the documents referred to in clause
(i) either in the possession of any Credit Party or any ERISA Affiliate or
reasonably available thereto from the sponsor or trustees of such Plan;
(b) all agreements evidencing or relating to the Existing Indebtedness
that are to remain in effect after giving effect to the consummation of the
Transaction (collectively, the "Existing Indebtedness Agreements");
(c) all other agreements entered into by MMI or any of its
Subsidiaries governing the terms and relative rights of its membership
interests or capital stock, as the case may be, and any agreements entered
into by members or shareholders, as the case may be, relating to any such
entity with respect to their capital stock, in each case that are to remain
in effect after giving effect to the consummation of the Transaction
(collectively, the "Shareholders' Agreements");
(d) any material agreements (or the forms thereof) with members of, or
with respect to, the management of MMI or any of its Subsidiaries involving
consideration payable to or by MMI or any of its Subsidiaries of $500,000
or more in any year that are to remain in effect after giving effect to the
consummation of the Transaction (collectively, the "Management
Agreements");
(e) any material employment agreements entered into by MMI or any of
its Subsidiaries involving consideration payable by MMI or any of its
Subsidiaries of $500,000 or more in any year (collectively, the "Employment
Agreements");
(f) any tax sharing or tax allocation agreements entered into by MMI
or any of its Subsidiaries (collectively, the "Tax Allocation Agreements");
and
(g) any material contracts entered into by MMI or any of its
Subsidiaries, the breach or termination of which would have a Material
Adverse Effect (collectively, the "Material Contracts");
<PAGE>
42
all of which Plans, Existing Indebtedness Agreements, Shareholders' Agreements,
Management Agreements, Employment Agreements, Non-Compete Agreements, Tax
Allocation Agreements and Material Contracts shall be in form and substance
reasonably satisfactory to the Administrative Agent and shall be in full force
and effect on the Initial Borrowing Date.
5.14 Solvency Certificate; Evidence of Insurance; Financial
------------------------------------------------------
Statements. On the Initial Borrowing Date, the Administrative Agent shall
- ----------
have received:
(a) a certificate from the chief financial officer of each of MMI
addressed to the Administrative Agent and each of the Banks and dated the
Initial Borrowing Date and certifying that, after giving effect to the
Transaction and the incurrence of all financings contemplated therein and
herein, each such Borrower individually, and each such Borrower and its
Subsidiaries (on a consolidated basis) are not insolvent and will not be
rendered insolvent by the indebtedness incurred in connection herewith,
will not be left with unreasonably small capital with which to engage in
their respective businesses and will not have incurred debts beyond their
ability to pay such debts as they mature and become due and that no
proceeds of the Loans will be used to purchase assets or capital stock in
connection with the Transaction;
(b) evidence of insurance complying with the requirements of Section
7.03 for the business and properties of MMI and its Subsidiaries
(including, without limitation, the MMI Business), in scope, form and
substance reasonably satisfactory to the Administrative Agent and the
Required Banks and naming the Collateral Agent as an additional insured
and/or loss payee, and stating that such insurance shall not be cancelled
or revised without at least 30 days' (or 10 days' in the case of non-
payment of premium) prior written notice by the insurer to the Collateral
Agent;
(c) the annual audited consolidated financial statements and
consolidating financial statements for the MMI Business for the most
recently completed fiscal year and such other prior fiscal years as may be
available, including balance sheets and statements of income and cash flow,
and all of the foregoing shall have been audited by independent public
accountants of recognized national standing and prepared in accordance with
GAAP (and containing an unqualified opinion of such accountants) and shall
be in form and substance satisfactory to the Administrative Agent and the
Required Banks;
(d) the unaudited balance sheets, statements of income and cash flow
of the MMI Business for each fiscal month in 1997 ending on or before the
Initial Borrowing Date, together with working capital detail of the MMI
Business for the prior twelve months and working capital detail for each
Borrower for the twelve months immediately succeeding the Initial Borrowing
Date, and all of the foregoing shall be in
<PAGE>
43
form and substance satisfactory to the Administrative Agent and the
Required Banks; and
(e) such financial, business and other information regarding each
Credit Party and its Subsidiaries as the Banks or the Administrative Agent
shall have requested.
5.15 Pro Forma Balance Sheet. On or prior to the Initial Borrowing
-----------------------
Date, there shall have been delivered to the Administrative Agent an unaudited
pro forma consolidated balance sheet as of the Initial Borrowing Date of each of
- --- -----
MMI and its Subsidiaries and each Borrower and its Subsidiaries after giving
effect to the Transaction and prepared in accordance with GAAP, together with a
related funds flow statement, which pro forma balance sheets and funds flow
--- -----
statement shall be in form and substance reasonably satisfactory to the
Administrative Agent and the Required Banks.
5.16 Projections. On or prior to the Initial Borrowing Date, the
-----------
Banks shall have received (i) the financial projections (the "Projections") set
forth in Annex 5.16, which include the projected results of the Borrowers and
their respective Subsidiaries and of MMI Holdings and its Subsidiaries, taken
as a whole for the four fiscal years ended after the Initial Borrowing Date and
(ii) a pro forma monthly borrowing base for the Borrowers for each month of the
--- -----
12-month period immediately following the Initial Borrowing Date.
5.17 Existing Indebtedness. On the Initial Borrowing Date and
---------------------
after giving effect to the Transaction and the Loans incurred on the Initial
Borrowing Date, neither MMI Holdings nor any of its Subsidiaries shall have any
Preferred Stock or Indebtedness outstanding except for the MMI Holdings
Preferred Stock, the Obligations and the Existing Indebtedness. On and as of
the Initial Borrowing Date, all of the Existing Indebtedness shall remain
outstanding after giving effect to the Transaction and the other transactions
contemplated hereby without any default or event of default existing thereunder
or arising as a result of the Transaction and the other transactions
contemplated hereby, and there shall not be any amendments or modifications to
the Existing Indebtedness Agreements other than as requested or approved by the
Administrative Agent or the Required Banks. On and as of the Initial Borrowing
Date, the Administrative Agent and the Required Banks shall be satisfied with
the amount of and the terms and conditions of all Existing Indebtedness.
Furthermore, the Banks shall be satisfied that all Indebtedness of each Borrower
other than such Indebtedness permitted under this Agreement has been prepaid,
redeemed or defeased in full or otherwise satisfied or extinguished.
5.18 Field Examinations; Initial Borrowing Base Certificate. (a)
------------------------------------------------------
On or prior to the Initial Borrowing Date, the Administrative Agent shall have
completed a field examination of the accounts receivable, inventory, payables,
controls and systems of MMI and its Subsidiaries (including the MMI Business),
the results of which examination shall be satisfactory to the Collateral Agent
and the Required Banks. Furthermore, the Administrative
<PAGE>
44
Agent shall have received asset valuation reports with respect to all the Real
Property and personal property owned by MMI or its Subsidiaries, in form and
substance satisfactory to the Administrative Agent.
(b) On or prior to the Initial Borrowing Date, the Administrative
Agent shall have received an initial Borrowing Base Certificate for MMI meeting
the requirements of Section 7.01(i).
5.19 Due Diligence. On or prior to the Initial Borrowing Date, the
-------------
Banks shall have completed a due diligence investigation of MMI and its
Subsidiaries and the MMI Business in scope, and with results, satisfactory to
the Banks, and nothing shall have come to the attention of the Banks during the
course of such due diligence investigation to lead them to believe (i) that any
information provided to the Agents and the Banks by, or on behalf of, the
Borrowers was or has become misleading, incorrect or incomplete in any material
respect, (ii) that, following the consummation of the Dropdown, MMI and its
Subsidiaries would not have good and marketable title to all material assets of
the MMI Business and (iii) the Transaction will have a Material Adverse Effect;
without limiting the generality of the foregoing, the Banks shall have been
given such access to the management, records, books of account, contracts and
properties of MMI and its Subsidiaries as they shall have requested.
5.20 Payment of Fees. On the Initial Borrowing Date, all costs,
---------------
fees and expenses, and all other compensation contemplated by this Agreement,
due to the Administrative Agent, the Syndication Agent or the Banks (including,
without limitation, legal fees and expenses) shall have been paid.
5.21 Total Unutilized Commitment. On the Initial Borrowing Date
---------------------------
and concurrently with the incurrence of Loans on such date, the principal amount
of Loans to be incurred on such date, when added to an amount equal to
$5,000,000, shall not exceed the Total Borrowing Base.
5.22 Notice of Borrowing; Letter of Credit Request. The
---------------------------------------------
Administrative Agent shall have received a Notice of Borrowing satisfying the
requirements of Section 1.03 with respect to each incurrence of Loans, and if a
Letter of Credit is to be issued, the Administrative Agent and the Appropriate
Letter of Credit Issuer shall have received a Letter of Credit Request
satisfying the requirements of Section 2.02 with respect to each issuance of a
Letter of Credit.
5.23 Process Agent Letters. Intentionally Omitted.
---------------------
5.24 Proceeds. On the Initial Borrowing Date, MMI Holdings and MMI
--------
shall have received net proceeds from the sale of a certain Portland, Oregon
printing plant in an amount equal to at least $3,500,000. As of the Initial
Borrowing Date, MMI anticipates that
<PAGE>
45
during the 60-day period following the Initial Borrowing Date, the operation of
its business will generate at least $10,000,000 from a permanent reduction in
Working Capital.
5.25 Other Documents. On or before the Initial Borrowing Date, the
---------------
Administrative Agent shall have received such other approvals, opinions or
documents as any Bank through the Administrative Agent may reasonably request.
The acceptance of the benefits of each Credit Event shall constitute a
representation and warranty by each Credit Party to the Administrative Agent and
each of the Banks that all of the applicable conditions specified above exist or
shall have been satisfied as of the date of such Credit Event. All of the
certificates, legal opinions and other documents and papers referred to in this
Section 5, unless otherwise specified, shall be delivered to the Administrative
Agent at its Notice Office for the account of each of the Banks and, except for
the Notes, in sufficient counterparts for each of the Banks and shall be
satisfactory in form and substance to the Administrative Agent and the Required
Banks.
For purposes of determining compliance with the conditions specified
in this Section 5, each Bank shall be deemed to have consented to, approved or
accepted or to be satisfied with each document or other matter required
thereunder to be consented to or approved by or acceptable or satisfactory to
the Banks or the Required Banks unless an officer of the Administrative Agent
responsible for the transactions contemplated by the Credit Documents shall have
received notice from such Bank prior to the initial Credit Event specifying its
objection thereto and if such initial Credit Event is a Loan, such Bank shall
not have made available to the Administrative Agent such Bank's ratable portion
of such Loan.
SECTION 6. Representations, Warranties and Agreements.
------------------------------------------
In order to induce the Banks to enter into this Agreement and to make
the Loans and issue and/or participate in the Letters of Credit provided for
herein, each Credit Party makes the following representations, warranties and
agreements with the Banks, in each case after giving effect to the Transaction,
all of which shall survive the execution and delivery of this Agreement, the
making of the Loans and the issuance of the Letters of Credit (with the
occurrence of each Credit Event being deemed to constitute a representation and
warranty that the matters specified in this Section 6 are true and correct in
all material respects on and as of the date of each such Credit Event, unless
stated to relate to a specific earlier date in which all representations and
warranties shall be true and correct in all material respects as of such earlier
date):
6.01 Corporate Status. Each Credit Party and each of their
----------------
respective Subsidiaries (i) is a duly organized, or incorporated, and validly
existing corporation in good standing (however, the good standing requirement
does not have to be met in those jurisdictions where the concept does not exist)
under the laws of the jurisdiction of its organization, (ii) has the corporate
power and authority (including, without limitation, all governmental licenses,
permits and other approvals) to own or lease and operate its properties
<PAGE>
46
and assets and to transact the business in which it is engaged and presently
proposes to engage and (iii) is duly qualified and is authorized to do business
and is in good standing in all jurisdictions where it is required to be so
qualified or licensed except with respect to clause (iii) where the failure to
be so qualified or authorized to do business would not have a Material Adverse
Effect.
6.02 Corporate Power and Authority. Each Credit Party has the
-----------------------------
corporate power and authority to execute, deliver and carry out the terms and
provisions of the Documents to which it is a party and has taken all necessary
corporate action to authorize the execution, delivery and performance of the
Documents to which it is a party. Each Credit Party has duly executed and
delivered each Document to which it is a party and each such Document
constitutes the legal, valid and binding obligation of such Credit Party
enforceable against such Credit Party in accordance with its terms, except to
the extent that the enforceability thereof may be limited by applicable voidable
preference, bankruptcy, insolvency, reorganization, moratorium or similar laws
generally affecting creditors' rights and by equitable principles (regardless of
whether enforcement is sought in equity or at law).
6.03 No Violation. Neither the execution, delivery or performance
------------
by any Credit Party of the Documents to which it is a party nor compliance by
any Credit Party with the terms and provisions thereof, nor the consummation of
the transactions contemplated herein or therein, (i) will contravene any
applicable provision of any law, statute, rule or regulation, or any order,
writ, injunction, judgment, award, determination or decree of any court or
governmental instrumentality, (ii) will conflict or be inconsistent with or
result in any breach of, any of the terms, covenants, conditions or provisions
of, or constitute a default under, any contract, indenture, mortgage, deed of
trust, lease, loan agreement, credit agreement or any other material agreement
or instrument to which any Credit Party or any of its Subsidiaries is a party or
by which it or any of its property or assets are bound or to which it may be
subject or (other than pursuant to the Security Documents) result in the
creation or imposition of (or the obligation to create or impose) any Lien upon
any of the property or assets of any Credit Party or any of its Subsidiaries, as
the case may be, except with respect to the execution, delivery or performance
of the Transaction Documents, for such breaches or defaults which, either
individually or in the aggregate, would not be expected to have a Material
Adverse Effect, or (iii) will violate any provision of the Certificate of
Incorporation, By-Laws, Articles of Incorporation, Memorandum or Articles of
Association or other similar constitutional documents of any Credit Party or
any of its Subsidiaries. No Credit Party or any of its Subsidiaries is in
violation of any such law, statute, rule, regulation, order, writ, judgment,
injunction, decree, determination or award or in breach of any such contract,
loan agreement, indenture, mortgage, deed of trust, lease, loan agreement,
credit agreement or other material agreement or other instrument, the violation
or breach of which could have a Material Adverse Effect.
6.04 Litigation. There are no actions, investigations,
----------
litigations, suits or proceedings pending or, to the knowledge of MMI or any of
its Subsidiaries, threatened,
<PAGE>
47
before any court, governmental agency or arbitrator with respect to MMI or any
of its Subsidiaries or the MMI Business (i) that could reasonably be expected to
have a Material Adverse Effect or (ii) purports to affect the legality, validity
or enforceability of the Transaction, this Agreement or any other Document or
the consummation of the transactions contemplated hereby. Additionally, there
does not exist any judgment, order or injunction prohibiting or imposing
material adverse conditions upon the occurrence of any Credit Event.
6.05 Use of Proceeds: Margin Regulations.
------------------------------------
(a) The proceeds of all Loans shall be utilized for the general
corporate and working capital purposes of the Borrowers and their respective
Subsidiaries; provided that proceeds of the U.S. Revolving Loans and Swingline
--------
Loans in an amount not to exceed $5,000,000 may be used to finance the
Transaction and to pay the fees and expenses incurred in connection therewith.
(b) If applicable, neither the making of any Loan, nor the use of the
proceeds thereof, will violate the provisions of Regulation G, T, U or X of the
Board of Governors of the Federal Reserve System and no part of the proceeds of
any Loan will be used to purchase or carry any Margin Stock or to extend credit
for the purpose of purchasing or carrying any Margin Stock.
6.06 Approvals. Except as may have been obtained or made on or
---------
prior to the Initial Borrowing Date (and which remain in full force and effect
on the Initial Borrowing Date) or as may be required to be obtained pursuant to
Section 7.19, no order, consent, approval, license, authorization, or validation
of, or filing, recording or registration with, or exemption by, or notice to,
any foreign or domestic governmental or public body or authority or any other
third party, or any subdivision thereof, is required to authorize or is required
in connection with (i) the due execution, delivery, recordation, filing and
performance by any Credit Party of any Document to which it is or is to be a
party or for the consummation of the Transaction or the other transactions
contemplated hereby, (ii) the legality, validity, binding effect or
enforceability of any Document, (iii) the grant by any Credit Party of the Liens
granted by it pursuant to the Security Documents, (iv) the perfection or
maintenance of the Liens created by the Security Documents (including the first
priority nature thereof) or (v) the exercise by the Administrative Agent or the
Collateral Agent or any Bank of its rights under, or the remedies in respect of
the Collateral pursuant to, the Credit Documents.
6.07 Investment Company Act. If applicable, neither any Credit
----------------------
Party nor any of its Subsidiaries is an "investment company," or an "affiliated
person" of, or "promoter" or "principal underwriter" for, an "investment
company," as such terms are defined in the Investment Company Act of 1940, as
amended. Neither the making of any Loans, nor the issuance of any Letters of
Credit, nor the application of the proceeds or repayment thereof by any
Borrower, nor the consummation of the other transactions contemplated hereby,
will violate any provision of such Act or any rule, regulation or order of the
SEC thereunder.
<PAGE>
48
6.08 Public Utility Holding Company Act. If applicable, neither
----------------------------------
any Credit Party nor any of its Subsidiaries is a "holding company," or a
"subsidiary company" of a "holding company," or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company," within the meaning
of the Public Utility Holding Company Act of 1935, as amended.
6.09 True and Complete Disclosure. All factual information
----------------------------
heretofore or contemporaneously furnished by or on behalf of MMI or any of its
Subsidiaries in writing to the Administrative Agent or any Bank (including,
without limitation, all information contained in the Documents) for purposes of,
or in connection with this Agreement or any transaction contemplated herein is,
and all other such factual information hereafter furnished by or on behalf of
any such Persons in writing to the Administrative Agent or any Bank will be,
true and accurate in all material respects on the date as of which such
information is dated or certified and not incomplete by omitting to state any
material fact necessary to make such information not misleading at such time in
light of the circumstances under which such information was provided.
6.10 Financial Condition; Financial Statements. (a) On and as of
-----------------------------------------
the Initial Borrowing Date, on a pro forma basis after giving effect to the
--- -----
Transaction and to all Indebtedness incurred, and to be incurred (including,
without limitation, the Loans), and Liens created, and to be created, by each
Credit Party in connection therewith, with respect to each of MMI and its
Subsidiaries (on a consolidated basis) and each of the Borrowers (on a stand-
alone basis) (x) the sum of the assets, at a fair valuation, of each of MMI and
its Subsidiaries (on a consolidated basis) and each of the Borrowers (on a
stand-alone basis) will exceed its debts, (y) it has not incurred nor intended
to, nor believes that it will, incur debts beyond its ability to pay such debts
as such debts mature and (z) it will have sufficient capital with which to
conduct its business. For purposes of this Section 6.10, "debt" means any
liability on a claim, and "claim" means (i) right to payment whether or not such
a right is reduced to judgment, liquidated, unliquidated, fixed, contingent,
matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured
or (ii) right to an equitable remedy for breach of performance if such breach
gives rise to a payment, whether or not such right to an equitable remedy is
reduced to judgment, fixed, contingent, matured, unmatured, disputed,
undisputed, secured or unsecured.
(b) The consolidated and consolidating balance sheets of the MMI
Business at December 31, 1996 and at September 30, 1997 and the related
statements of income and cash flow of the MMI Business for the fiscal year or
nine-month period (accompanied (i) in the case of the balance sheets and
statements relating to the 1996 fiscal year, by an opinion of Arthur Andersen,
independent public accountants and (ii) in the case of the balance sheets and
statements relating to the 1997 period, a certificate of the chief financial
officer of MMI), as the case may be, ended as of said dates, copies of which
have heretofore been furnished to each Bank, present fairly the consolidated
financial position of the MMI Business at the dates of said balance sheets and
statements and the results of operations for the periods covered
<PAGE>
49
thereby. All such balance sheets and financial statements have been (or will be,
as the case may be) prepared in accordance with GAAP consistently applied except
to the extent provided in the notes to said financial statements and subject, in
the case of the September 30, 1997 balance sheets and statements, to normal
year-end audit adjustments and the absence of footnotes.
(c) Since December 31, 1996 (but after giving effect to the
Transaction as if same had occurred prior thereto), nothing has occurred that
has had or could reasonably be expected to have a Material Adverse Effect nor
has there occurred any Material Adverse Change.
(d) Except as fully reflected in the balance sheets and financial
statements described in Section 6.10(b) and the Indebtedness incurred and
permitted under this Agreement, there were as of the Initial Borrowing Date (and
after giving effect to any Loans made on such date), no liabilities or
obligations (excluding current obligations incurred in the ordinary course of
business) with respect to MMI or any of its Subsidiaries or the MMI Business of
any nature whatsoever (whether absolute, accrued, contingent or otherwise and
whether or not due), and no Borrower knows of any basis for the assertion
against any Borrower or any of its Subsidiaries or with respect to the MMI
Business of any such liability or obligation which, either individually or in
the aggregate, are or would be reasonably likely to have, a Material Adverse
Effect.
(e) The Projections are based on good faith estimates and assumptions
made by the management of MMI, and on the Initial Borrowing Date such management
believed that the Projections were reasonable and attainable, it being
recognized by the Banks, however, that projections as to future events are not
to be viewed as facts and that the actual results during the period or periods
covered by the Projections probably will differ from the projected results and
that the differences may be material. There is no fact known to MMI or any of
its Subsidiaries which would have a Material Adverse Effect, which has not been
disclosed herein or in such other documents, certificates and statements
furnished to the Banks for use in connection with the transactions contemplated
hereby.
(f) The consolidated and consolidating pro forma balance sheets of MMI
--- -----
and its Subsidiaries as at September 30, 1997, and the related consolidated and
consolidating pro forma statements of income and cash flows of MMI and its
--- -----
Subsidiaries for the nine-months then ended, certified by the chief financial
officer of MMI, copies of which have been furnished to each Bank, fairly present
the consolidated and consolidating pro forma financial condition of MMI and its
--- -----
Subsidiaries as at such date and the consolidated and consolidating pro forma
--- -----
results of operations of MMI and its Subsidiaries for the period ended on such
date, in each case giving effect to the Transaction and the other transactions
contemplated hereby, all in accordance with GAAP.
<PAGE>
50
6.11 Security Interests. On and after the Initial Borrowing Date,
------------------
each of the Security Documents creates (or after the execution and delivery and
perfection thereof will create), as security for the Obligations stated to be
secured thereby, a valid and enforceable equitable interest or perfected first
priority security interest in and Lien on all of the Collateral subject thereto,
superior to and prior to the rights of all third Persons, and subject to no
other Liens (except that the Security Agreement Collateral, the Mortgaged
Properties and the Collateral covered by the Additional Security Documents may
be subject to Permitted Liens relating thereto), in favor of the Collateral
Agent. No filings or recordings are required in order to perfect the security
interests created under any Security Document except for filings or recordings
required in connection with any such Security Document which shall have been
made on or prior to the Initial Borrowing Date as contemplated by Section
5.10(B) or on or prior to the execution and delivery thereof as contemplated by
Sections 7.11, 7.14 and 8.15. The Credit Parties are the legal and beneficial
owners of the Collateral free and clear of any Lien, except for the Liens and
security interests created or permitted under the Credit Documents or otherwise
permitted hereunder.
6.12 Representations and Warranties in Other Documents. All
-------------------------------------------------
representations and warranties set forth in the other Documents were true and
correct in all material respects as of the time such representations and
warranties were made and shall be true and correct in all material respects as
of the Initial Borrowing Date as if such representations and warranties were
made on and as of such date, unless stated to relate to a specific earlier date,
in which case such representations and warranties shall be true and correct in
all material respects as of such earlier date.
6.13 Transaction. At the time of consummation thereof, the
-----------
Dropdown and the Spinoff Transaction shall have been consummated in accordance
with the terms of the respective Documents and all applicable laws. At the time
of consummation thereof, all consents and approvals of, and filings and
registrations with, and all other actions in respect of, all governmental
agencies, authorities or instrumentalities required to make or consummate the
Dropdown and the Spinoff Transaction have been obtained, given, filed or taken
or waived and are or will be in full force and effect (or effective judicial
relief with respect thereto has been obtained) except where the failure to
obtain, give, file, take or waive would not reasonably be expected to have a
Material Adverse Effect. All applicable waiting periods with respect thereto
have or, prior to the time when required, will have, expired without, in all
such cases, any action being taken by any competent authority which restrains,
prevents, or imposes material adverse conditions upon the Dropdown and the
Spinoff Transaction or the rights of the Credit Parties or their respective
Subsidiaries freely to transfer or otherwise dispose of, or to create any Lien
on, any properties now owned or hereafter acquired by any of them.
Additionally, there does not exist any judgment, order or injunction prohibiting
or imposing material adverse conditions upon the Dropdown and the Spinoff
Transaction, or the occurrence of any Credit Event or the performance by MMI and
its Subsidiaries of their obligations under the Documents and all applicable
laws.
<PAGE>
51
6.14 Compliance with ERISA. (a) Each Plan is in substantial
---------------------
compliance with ERISA and the Code so that such Plans would have no Material
Adverse Effect on any Credit Party or any ERISA Affiliate; no Reportable Event
has occurred with respect to a Plan which could result in a Material Adverse
Effect to any Credit Party or any ERISA Affiliate; no Plan is insolvent or in
reorganization; no Plan has an accumulated or waived funding deficiency, has
permitted decreases in its funding standard account or has applied for a waiver
of the minimum funding standard or an extension of any amortization period
within the meaning of Section 412 of the Code; all contributions required to be
made with respect to a Plan and a Foreign Pension Plan have been timely made
unless such failure would not have a Material Adverse Effect on any Credit Party
or any ERISA Affiliate; none of any Credit Party or any ERISA Affiliate has
incurred a liability to or on account of a Plan which will have a Material
Adverse Effect on any Credit Party or any ERISA Affiliate pursuant to Section
409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or
Section 401(a)(29), 4971, 4975 or 4980 of the Code or reasonably expects to
incur any material liability (including any indirect, contingent or secondary
liability) under any of the foregoing Sections with respect to any Plan (other
than liabilities of any ERISA Affiliate which could not, by operation of law or
otherwise, become a liability of any of the Credit Parties); no proceedings have
been instituted to terminate, or to appoint a trustee to administer, any Plan;
no condition exists which presents a material risk to any of the Credit Parties
or any ERISA Affiliate of incurring a liability to or on account of a Plan
pursuant to the foregoing provisions of ERISA and the Code which would have a
Material Adverse Effect; using actuarial assumptions and computation methods
consistent with subpart 1 of subtitle E of Title IV of ERISA, the aggregate
liabilities of the Credit Parties and their ERISA Affiliates to all Plans which
are multiemployer plans (as defined in Section 4001 (a)(3) of ERISA) in the
event of a complete withdrawal therefrom, as of the close of the most recent
fiscal year of each such Plan ended prior to the date of the most recent Credit
Event, would not result in a Material Adverse Effect; no lien imposed under the
Code or ERISA on the assets of any Credit Party or any ERISA Affiliate exists or
is likely to arise on account of any Plan; and no Credit Party maintains or
contributes to any employee welfare benefit plan (as defined in Section 3(l) of
ERISA) which provides benefits to retired employees or other former employees
(other than as required by Section 601 of ERISA) or any employee pension benefit
plan (as defined in Section 3(2) of ERISA) the obligations with respect to which
are not recorded in MMI's financial statements and any footnotes related
thereto and which could reasonably be expected to have a Material Adverse
Effect.
(b) No Credit Party has incurred, nor is any Credit Party expected to
incur liability in connection with any Foreign Pension Plan or the termination
of or withdrawal from any Foreign Pension Plan that would have a Material
Adverse Effect.
6.15 Capitalization. On the Initial Borrowing Date and after
--------------
giving effect to the Transaction and the other transactions contemplated hereby,
the authorized capital stock of each Borrower shall consist of the number of
shares of common stock and with par values per share as set forth on Annex 6.15,
all of which shares shall be validly issued and outstanding, are fully paid and
non-assessable and owned by the Persons listed on Annex 6.15, free and
<PAGE>
52
clear of all Liens, except those created under the Security Document. None of
the Borrowers has outstanding any securities convertible into or exchangeable
for its capital stock or outstanding any rights to subscribe for or to purchase,
or any options for the purchase of, or any agreements providing for the issuance
(contingent or otherwise) of, or any calls, commitments or claims of any
character relating to, its capital stock.
6.16 Subsidiaries. (a) On and as of the Initial Borrowing Date
------------
and after giving effect to the consummation of the Transaction, the Borrowers
have no Subsidiaries other than such Subsidiaries listed on Annex 6.16.
(b) Annex 6.16 shall include, as of the date hereof (as to each
Subsidiary listed thereon) the jurisdiction of its incorporation, the number of
shares of each class of capital stock authorized, and the number outstanding, on
the date hereof and the percentage of the outstanding shares of each such class
owned (directly or indirectly) by the applicable Credit Party and the number of
shares covered by all outstanding options, warrants, rights of conversion or
purchase and similar rights at the date hereof.
6.17 Intellectual Property. Each of MMI and each of its
---------------------
Subsidiaries owns or holds a valid license to use all the material patents,
trademarks, permits, service marks, trade names, technology, know-how and
formulas or other rights with respect to the foregoing, free from restrictions
that are materially adverse to the use thereof, that are used in the operation
of the business of MMI and each of its Subsidiaries as presently conducted.
6.18 Compliance with Statutes, Etc. Each of MMI and each of its
-----------------------------
Subsidiaries is in compliance with all applicable statutes, regulations and
orders of, and all applicable restrictions imposed by, all governmental bodies,
domestic or foreign, in respect of the conduct of its business and the ownership
of its property (including compliance with all applicable Environmental Laws
with respect to any Real Property or governing its business and the requirements
of any permits issued under such Environmental Laws with respect to any such
Real Property or the operations of MMI or any of its Subsidiaries), except where
such non-compliance is not expected to, individually or in the aggregate, have a
Material Adverse Effect.
6.19 Environmental Matters. Except as would not be reasonably
---------------------
expected, either individually or in the aggregate, to result in a Material
Adverse Effect,
(a) Each of MMI and each of its Subsidiaries has complied with, and on
the date of each Credit Event is in compliance with, all applicable
Environmental Laws and the requirements of any permits issued under such
Environmental Laws. There are no pending or, to the best knowledge of MMI and
each Borrower, past or threatened Environmental Claims against MMI or any of its
Subsidiaries or any Real Property owned or operated by MMI or any of its
Subsidiaries. There are no facts, circumstances, conditions or occurrences on
any Real
<PAGE>
53
Property owned or operated by MMI or any of its Subsidiaries or, to the
best knowledge of MMI and each Borrower, on any property adjoining or in the
vicinity of any such Real Property that would reasonably be expected (i) to form
the basis of an Environmental Claim against MMI or any of its Subsidiaries or
any such Real Property or (ii) to cause any such Real Property to be subject to
any restrictions on the ownership, occupancy, use or transferability of such
Real Property by MMI or any of its Subsidiaries under any applicable
Environmental Law.
(b) Hazardous Materials have not at any time been generated, used,
treated or stored on, or transported to or from, any Real Property owned or
operated by MMI or any of its Subsidiaries where such generation, use, treatment
or storage has violated or would reasonably be expected to violate any
Environmental Law. Hazardous Materials have not at any time been Released on or
from any Real Property owned or operated by MMI or any of its Subsidiaries in a
manner that could reasonably be expected to form the basis for an Environmental
Claim against MMI or any of its Subsidiaries. There are not now any underground
storage tanks located on any Real Property owned or operated by MMI or any of
its Subsidiaries which could reasonably be expected to form the basis for an
Environmental Claim against MMI or any of its Subsidiaries.
6.20 Properties. All Real Property owned by MMI or any of its
----------
Subsidiaries and all material Leaseholds leased by MMI or any of its
Subsidiaries, in each case as of the Initial Borrowing Date and after giving
effect to the Transaction, and the nature of the interest therein, is correctly
set forth in Annex 6.20. Each of MMI and each of its Subsidiaries has good and
marketable title to, or a validly subsisting leasehold interest in, all material
properties owned or leased by it, including all Real Property reflected in Annex
6.20 or in the financial statements referred to in Section 6.10(b), free and
clear of all Liens, other than Permitted Liens.
6.21 Labor Relations. If applicable, neither MMI nor any of its
---------------
Subsidiaries is engaged in any unfair labor practice that could reasonably be
expected to have a Material Adverse Effect. There is (i) no unfair labor
practice complaint pending against MMI or any of its Subsidiaries or, to the
best knowledge of MMI and each Borrower, threatened against any of them, before
the National Labor Relations Board, and no grievance or arbitration proceeding
arising out of or under any collective bargaining agreement is so pending
against MMI or any of its Subsidiaries or, to the best knowledge of MMI and each
Borrower, threatened against any of them, (ii) no strike, labor dispute,
slowdown or stoppage pending against MMI or any of its Subsidiaries or, to the
best knowledge of MMI and each Borrower, threatened against MMI or any of its
Subsidiaries and (iii) to the best knowledge of MMI and each Borrower, no union
representation question existing with respect to the employees of MMI or any of
its Subsidiaries and, to the best knowledge of MMI and each Borrower, no union
organizing activities are taking place, except (with respect to any matter
specified in clause (i), (ii) or (iii) above, either individually or in the
aggregate) such as is not reasonably likely to have a Material Adverse Effect.
<PAGE>
54
6.22 Tax Returns and Payments. All Federal, state and other
------------------------
material returns, statements, forms and reports for taxes (the "Returns")
required to be filed by or with respect to the income, properties or operations
of MMI and/or any of its Subsidiaries have been timely filed with the
appropriate taxing authority. The Returns accurately reflect all liability for
taxes of MMI and its Subsidiaries for the periods covered thereby. MMI and each
of its Subsidiaries have paid all taxes payable by them other than immaterial
taxes and other taxes which are not yet due and payable, and other than taxes
contested in good faith and for which adequate reserves have been established in
accordance with GAAP. There is no action, suit, proceeding, investigation,
audit, or claim now pending or, to the knowledge of MMI or each Borrower,
threatened by any authority regarding any taxes relating to MMI or any of its
Subsidiaries which would reasonably be expected, either individually or in the
aggregate, to have a Material Adverse Effect. As of the Initial Borrowing Date,
neither MMI nor any of its Subsidiaries has entered into an agreement or waiver
or been requested to enter into an agreement or waiver extending any statute of
limitations relating to the payment or collection of taxes of MMI or any of its
Subsidiaries, or is aware of any circumstances that would cause the taxable
years or other taxable periods of MMI or any of its Subsidiaries not to be
subject to the normally applicable statute of limitations. Neither MMI nor any
of its Subsidiaries has incurred, or will incur, any material tax liability in
connection with the Transaction and the other transactions contemplated hereby.
6.23 Existing Indebtedness. Annex 6.23 sets forth a true and
---------------------
complete list of all Indebtedness of MMI and its Subsidiaries as of the Initial
Borrowing Date and which is to remain outstanding after giving effect to the
Transaction and the incurrence of Loans on such date (excluding the Loans and
the Letters of Credit, the "Existing Indebtedness"), in each case showing the
aggregate principal amount thereof and the name of the respective borrower and
any other entity which directly or indirectly guaranteed such debt.
6.24 Investments. Set forth on Annex 6.24 hereto is a complete and
-----------
accurate list of all investments held by any Credit Party or any of its
Subsidiaries, showing as of the date hereof the amount, obligor or issuer and
maturity, if any, thereof.
6.25 Stamp Tax. Other than (i) a withholding tax of 10% on
---------
payments of interest or in the nature of interest by or on behalf of MMI-
Australia under this Agreement or the Notes pursuant to Division 11A of Part III
of the Australian Income Tax Assessment Act (ii), (iii) a withholding tax at the
rate of 15% on payments of interest by MMI-Singapore, (iv) a stamp duty imposed
in respect MMI-Singapore with respect to execution of the Credit Agreement, its
Subsidiary Guaranty, the Debenture and its Security Agreement, and (v) a stamp
duty imposed in respect of each original of any Credit Document (other than a
Security Document) if executed in Japan under the Stamp Duty Law (Law No. 23 of
1967 as amended), if executed in Korea under the Stamp Tax Law of Korea (Law No.
4452 of 1991), and Stamp and financial institutions duties under the New South
Wales Duties Act, 1920 or New South Wales Duties Act 1997 as described in the
opinion of Australian counsel to MMI-Australia to
<PAGE>
55
be delivered to the Administrative Agent pursuant to Section 7.19, no income,
stamp or other taxes (other than taxes on, or measured by, net income or net
profits) or levies, imposts, deductions, charges, compulsory loans or
withholdings whatsoever are or will be, under applicable law in any jurisdiction
in which any Credit Party is organized as of such date, imposed, assessed,
levied or collected by such jurisdiction or any political subdivision or taxing
authority thereof or therein either (i) on or by virtue of the execution or
delivery of this Agreement, the Notes or any other Credit Document or (ii) on
any payment to be made by any Credit Party pursuant to any Credit Document.
6.26 Immunity. None of the Credit Parties or any of their
--------
respective properties has any immunity from jurisdiction of any court or from
set-off or any legal process (whether through service or notice, attachment
prior to judgment, attachment in aid of execution, execution or otherwise) under
the laws of the jurisdiction of its organization.
6.27 Proper Legal Form. Each Credit Document to which a non-U.S.
-----------------
Borrower, Subsidiary Guarantor or Subsidiary Grantor is a party is in proper
legal form under the law of the jurisdiction in which such Borrower, Subsidiary
Guarantor or Subsidiary Grantor is organized or incorporated for the enforcement
thereof against such Credit Party under the law of such jurisdiction; and to
ensure the legality, validity, enforceability or admissibility in evidence of
each such Credit Document in such jurisdiction, it is not necessary that any
such Credit Document or any other document be filed or recorded with any court
or other authority of such jurisdiction (other than the registration of the
Mortgage with the Registry of Titles and Deeds in Singapore and the filing of
the Debenture and the Security Agreement executed by MMI-Singapore with the
Registry of Companies and Businesses in Singapore and any other filings required
to complete the conditions of Section 7.19) or that any stamp or similar tax
(other than as described in Section 6.25) be paid on or in respect of any such
Credit Document.
6.28 Borrowing Base Availability. On the Initial Borrowing Date,
---------------------------
after giving effect to the consummation of the Dropdown and the satisfaction by
MMI's Subsidiaries of the conditions set forth in Sections 7.19(b), (c) and
(d), MMI reasonably believes that the availability under the Total Borrowing
Base shall support Borrowings sufficient to satisfy the ongoing working capital
needs of the business of MMI Holdings and its Subsidiaries as such business is
currently conducted.
6.29 MMI-Singapore. MMI is not aware, having made all due enquiry,
-------------
of any fact, matter, thing or circumstance which would prevent the due and
proper completion of the procedures set out in Section 76(10) and all other
relevant provisions of the Companies Act, Chapter 50 of Singapore (the
"Singapore Companies Act") in relation to the giving of financial assistance
by the entry of MMI-Singapore into the Security Agreement to which it will
become a party as soon as possible after the Initial Borrowing Date, but in no
event later than the Singapore Credit Supplement Date and in particular sees no
reason why any of the
<PAGE>
56
persons listed in Section 76(12) of the Singapore Companies Act should object to
the due and proper completion of such procedures.
SECTION 7. Affirmative Covenants.
---------------------
MMI Holdings and each Borrower hereby covenants and agrees that as of
the Effective Date and thereafter for so long as this Agreement is in effect and
until the Total Revolving Loan Commitment has terminated, no Letters of Credit
or Notes are outstanding and the Loans and Unpaid Drawings, together with
interest, Fees and all other Obligations (other than any indemnities described
in Section 12.13 which are not then due and payable) incurred hereunder, are
paid in full:
7.01 Information Covenants. MMI Holdings will furnish to each
---------------------
Bank:
(a) Monthly Reports. Within 30 days after the end of each fiscal
---------------
month of MMI Holdings, the consolidated and consolidating balance sheets of MMI
and its Subsidiaries as at the end of such fiscal month and the related
consolidated and consolidating statements of income and retained earnings and a
consolidated statement of cash flow for such fiscal month and for the elapsed
portion of the fiscal year ended with the last day of such fiscal month, in each
case setting forth comparative figures for the corresponding fiscal month in the
prior fiscal year and comparable budgeted figures (delivered in accordance with
Section 7.01(d)) for such fiscal month, all of which shall be certified by the
chief financial officer of MMI, subject to normal year-end audit adjustments and
the absence of footnotes.
(b) Quarterly Financial Statements. Within 45 days after the close of
------------------------------
the first three quarterly accounting periods in each fiscal year of MMI
Holdings, the consolidated and consolidating balance sheets of MMI Holdings and
its Subsidiaries as at the end of such quarterly accounting period and the
related consolidated and consolidating statements of income and retained
earnings and consolidated statement of cash flow for such quarterly accounting
period and for the elapsed portion of the fiscal year ended with the last day of
such quarterly accounting period, in each case setting forth (i) at any time
after the end of the fiscal year of MMI Holdings ending December 31, 1998,
comparative figures for the corresponding quarterly accounting period in the
prior fiscal year and (ii) comparable budgeted figures (delivered in accordance
with Section 7.01(d)) for each quarterly accounting period, all of which, in
each case, shall be in reasonable detail and certified by the chief financial
officer of MMI that they fairly present in all material respects the financial
condition of MMI Holdings and its Subsidiaries as of the dates indicated and the
results of their operations and changes in their cash flow for the periods
indicated, subject to normal year-end audit adjustments and the absence of
footnotes.
(c) Annual Financial Statements. Within 90 days after the close of
---------------------------
each fiscal year of MMI Holdings, the consolidated and consolidating balance
sheets of MMI Holdings and its Subsidiaries as at the end of such fiscal year
and the related consolidated and
<PAGE>
57
consolidating statements of income and retained earnings and consolidated
statement of cash flow for such fiscal year and setting forth (i) at any time
after the end of the fiscal year of MMI Holdings ending December 31, 1998,
comparative consolidated figures for the preceding fiscal year and (ii)
comparable budgeted figures (delivered in accordance with Section 7.01(d)) for
such fiscal year and, except for such comparable budgeted figures, certified by
Arthur Andersen or such other independent certified public accountants of
recognized national standing as shall be reasonably acceptable to the
Administrative Agent, in each case to the effect that such statements fairly
present in all material respects the financial condition of MMI Holdings and its
Subsidiaries as of the dates indicated and the results of their operations and
changes, together with a certificate of such accounting firm stating that in the
course of its regular audit of the business of MMI Holdings and its
Subsidiaries, which audit was conducted in accordance with generally accepted
auditing standards, no Default or Event of Default which has occurred and is
continuing has come to their attention or, if such a Default or an Event of
Default has come to their attention a statement as to the nature thereof.
(d) Budgets, Etc. Ten (10) days prior to the commencement of each
------------
fiscal year of MMI Holdings, budgets of MMI Holdings and its Subsidiaries in
reasonable detail for each of the twelve fiscal months of such fiscal year, as
customarily prepared by management for its internal use setting forth, with
appropriate discussion, the principal assumptions upon which such budgets are
based.
(e) Officer's Certificates. At the time of the delivery of the
----------------------
financial statements provided for in Sections 7.01(b) and 7.01(c), a certificate
of the chief financial officer of MMI to the effect that no Default or Event of
Default exists or, if any Default or Event of Default does exist, specifying the
nature and extent thereof, which certificate shall set forth (in reasonable
detail) the calculations required to establish whether MMI Holdings and its
Subsidiaries were in compliance with the provisions of Sections 8.10, 8.11, 8.12
and 8.13, as at the end of such fiscal quarter or year, as the case may be.
(f) Notice of Default or Litigation. Promptly, and in any event
-------------------------------
within two Business Days (or 10 Business Days in the case of clause (y) below)
after any officer of any Borrower obtains knowledge thereof, notice of (x) the
occurrence of any event which constitutes a Default or an Event of Default,
which notice shall specify the nature thereof, the period of existence thereof
and what action such Borrower proposes to take with respect thereto and (y) the
commencement of, or threat of, or any significant development in, any action,
suit, investigation, litigation or governmental proceeding pending against MMI
or any of its Subsidiaries which is likely to have a Material Adverse Effect.
(g) Auditors' Reports. Promptly upon receipt thereof, a copy of each
-----------------
report or "management letter" submitted to MMI Holdings or any of its
Subsidiaries by its independent accountants in connection with any annual,
interim or special audit made by them of the books of MMI Holdings or any of its
Subsidiaries and the management's responses thereto.
<PAGE>
58
(h) Environmental Matters. Promptly after obtaining knowledge of any
---------------------
of the following, written notice of:
(A) any pending or threatened material Environmental Claim against MMI
Holdings or any of its Subsidiaries or any Real Property owned or operated
by MMI Holdings or any of its Subsidiaries;
(B) any condition or occurrence on any Real Property owned or operated
by MMI Holdings or any of its Subsidiaries that (x) results in material
noncompliance by MMI Holdings or any of its Subsidiaries with any
applicable Environmental Law or (y) could reasonably be anticipated to form
the basis of a material Environmental Claim against MMI Holdings or any of
its Subsidiaries or any such Real Property;
(C) any condition or occurrence on any Real Property owned or operated
by MMI Holdings or any of its Subsidiaries that could reasonably be
anticipated to cause such Real Property to be subject to any material
restrictions on the ownership, occupancy, use or transferability by MMI
Holdings or any such Subsidiary, as the case may be, of its interest in
such Real Property under any Environmental Law; and
(D) the taking of any material removal or remedial action in response
to the actual or alleged presence of any Hazardous Material on any Real
Property owned or operated by MMI Holdings or any of its Subsidiaries.
All such notices shall describe in reasonable detail the nature of the claim,
investigation, condition, occurrence or removal or remedial action and MMI
Holdings' or any Borrower's response thereto. In addition, MMI Holdings
agrees to provide the Banks with copies of all material written communications
by MMI Holdings or any of its Subsidiaries with any Person, government or
governmental agency relating to any of the matters set forth in clauses (i)-(iv)
above, and such detailed reports relating to any of the matters set forth in
clauses (i)-(iv) above as may reasonably be requested by the Administrative
Agent or the Required Banks.
(i) Borrowing Base Certificate. (x) On the Initial Borrowing Date
--------------------------
and on each Credit Party Supplement Date on which any Subsidiary of MMI becomes
a Borrower, and (y) not later than 12:00 Noon (Dallas time) on the tenth day
after the last day of each fiscal month (or more frequently as the
Administrative Agent may request) commencing with the fiscal month ending
January 31, 1998, a borrowing base certificate in the form of Exhibit H (each, a
"Borrowing Base Certificate") for each Borrower, which shall be prepared as of
December 15, 1997 (in the case of the initial Borrowing Base Certificate) and as
of two days prior to any such Credit Party Supplement Date (in the case of any
Credit Party Supplement Date) or as of the last Business Day of the preceding
fiscal month or quarter, as the case may
<PAGE>
59
be (in the case of subsequent Borrowing Base Certificates) and certified by the
chief financial officer of each such Borrower.
(j) Financial Report. As soon as possible after the end of each fiscal
----------------
month, the financial report of MMI for the preceding fiscal month.
(k) Other Financial Information. Promptly (but in any event within
---------------------------
three Business Days) upon transmission thereof, copies of any filings and
registrations with, and reports to, the SEC by MMI Holdings or any of its
Subsidiaries and copies of all financial statements, proxy statements, notices
and reports as MMI Holdings or any of its Subsidiaries shall send generally to
analysts, or the holders of their capital stock (in each case to the extent not
theretofore delivered to the Banks pursuant to this Agreement) and, with
reasonable promptness, such other information or documents (financial or
otherwise) as the Administrative Agent on its own behalf or on behalf of any
Bank may reasonably request from time to time.
(k) Creditor Reports. Promptly after the furnishing thereof, copies
----------------
of any statement or report furnished to any other holder of the securities of
MMI Holdings or of any of its Subsidiaries pursuant to the terms of any
indenture, loan or credit or similar agreement and not otherwise required to be
furnished to the Administrative Agent or the Banks pursuant to any other clause
of this Section 7.
(l) Agreement Notices. Promptly upon receipt thereof, copies of all
-----------------
notices, requests and other documents received by MMI Holdings or any of its
Subsidiaries under or pursuant to any Transaction Document or indenture, loan or
credit or similar agreement and, from time to time upon request by the
Administrative Agent, such information and reports regarding the Transaction
Documents as the Administrative Agent may reasonably request.
(m) Other Information. Such other information respecting the
-----------------
business, condition (financial or otherwise), operations, performance,
properties or prospects of MMI or any of its Subsidiaries as any Bank (through
the Administrative Agent) may from time to time reasonably request.
(n) Pledged Debt. Within 45 days after the end of each fiscal
------------
quarter, an updated Schedule IA, Part II, to the US Security Agreement dated
December 15, 1997, showing the current pledged debt existing as of the last
Business Day of such preceding fiscal quarter, in the form of Schedule IA, Part
II to such US Security Agreement, as amended.
7.02 Books, Records and Inspections. (a) MMI Holdings will keep,
------------------------------
and cause each of its Subsidiaries to keep, proper books of record and account,
in which full and correct entries shall be made of all financial transactions
and the assets and business of MMI Holdings and each such Subsidiary in
accordance with GAAP and (b) MMI Holdings will, and
<PAGE>
60
will cause each of its Subsidiaries to, permit, upon reasonable prior notice to
the chief financial officer MMI Holdings or any Borrower, (x) officers and
designated representatives of the Administrative Agent, the Collateral Agent or
any Bank to visit and inspect any of the properties or assets of MMI Holdings
and any of its Subsidiaries in whomsoever's possession, and to examine the books
of account of MMI Holdings and any of its Subsidiaries and discuss the affairs,
finances and accounts of MMI Holdings and of any of its Subsidiaries with, and
be advised as to the same by, their officers and independent accountants, all at
such reasonable times and intervals and to such reasonable extent as the
Administrative Agent, the Collateral Agent or any Bank may desire (it being
understood that so long as no Default or Event of Default is then in existence,
any such visit, inspection or examination shall be arranged in coordination with
MMI Holdings or the relevant Borrower, the Administrative Agent and the
Collateral Agent) and (y) the Administrative Agent and the Collateral Agent, at
the request of the Required Banks, to conduct, at MMI Holdings or the Borrowers'
expense, an audit of the inventories and accounts receivable of the Borrowers
and their Subsidiaries at such times and with such frequency (but no less
frequently than once a year unless an Event of Default has occurred and is
continuing) as the Required Banks shall reasonably require.
7.03 Insurance. MMI Holdings will, and will cause each of its
---------
Subsidiaries to, at all times from and after the Effective Date, maintain in
full force and effect insurance with reputable and solvent insurance carriers in
such amounts, covering such risks and liabilities and with such deductibles or
self-insured retentions as are in accordance with normal industry practice and
at such levels to the extent then generally available (but in any event within
the deductible or self-insured retention limitations set forth above) or
otherwise as are reasonably acceptable to the Administrative Agent. MMI
Holdings will furnish to the Administrative Agent on the Initial Borrowing Date
a summary of the insurance carried in respect of MMI Holdings and its
Subsidiaries and the assets of MMI Holdings and its Subsidiaries together with
certificates of insurance and other evidence of such insurance, if any, naming
the Collateral Agent as certificate holder, mortgagee and loss payee with
respect to real property, certificate holder and loss payee with respect to
personal property, additional insured with respect to general liability and
umbrella liability coverage and certificate holder with respect to workers'
compensation insurance.
7.04 Payment of Taxes. MMI Holdings will pay and discharge, and
----------------
will cause each of its Subsidiaries to pay and discharge, all taxes, assessments
and governmental charges or levies imposed upon it or upon its income or
profits, or upon any properties belonging to it, when due and all lawful claims
for sums that have become due and payable when due which, if unpaid, might
become a Lien not otherwise permitted under Section 8.03(a) or charge upon any
properties of MMI Holdings or any of its Subsidiaries; provided that neither MMI
--------
Holdings nor any of its Subsidiaries shall be required to pay any such tax,
assessment, charge, levy or claim which is being contested in good faith and by
proper proceedings if it has maintained adequate reserves with respect thereto
in accordance with GAAP.
<PAGE>
61
7.05 Corporate Franchises. MMI Holdings will do, and will cause
--------------------
each of its Subsidiaries to do, or cause to be done, all things necessary to
preserve and keep in full force and effect its existence, legal structure, legal
name, rights (charter or statutory), permits, licenses, approvals, privileges,
franchises and authority to do business; provided, however, that any transaction
-------- -------
permitted by Section 8.02 will not constitute a breach of this Section 7.05.
7.06 Compliance with Statutes, Etc. MMI Holdings will, and will
-----------------------------
cause each of its Subsidiaries to, comply with all applicable laws, statutes,
regulations, rules and orders of, and all applicable restrictions imposed by,
all governmental bodies, domestic or foreign, in respect of the conduct of its
business and the ownership of its property (including applicable statutes,
regulations, orders and restrictions relating to environmental standards and
controls) except where such noncompliance as would not have a Material Adverse
Effect.
7.07 Compliance with Environmental Laws. (a) MMI Holdings will
----------------------------------
pay, and will cause each of its Subsidiaries to pay, all costs and expenses
incurred by it in keeping in compliance with all Environmental Laws, and will
keep or cause to be kept all Real Properties owned or operated by MMI Holdings
or any of its Subsidiaries free and clear of any Liens imposed pursuant to such
Environmental Laws; and (b) neither MMI Holdings nor any of its Subsidiaries
will generate, use, treat, store, release or dispose of, or permit the
generation, use, treatment, storage, release or disposal of, Hazardous Materials
on any Real Property owned or operated by MMI Holdings or any of its
Subsidiaries, or transport or permit the transportation of Hazardous Materials
to or from any such Real Property, unless the failure to comply with the
requirements specified in clause (a) or (b) above, either individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect.
If MMI Holdings or any of its Subsidiaries, or any tenant or occupant of any
Real Property owned or operated by MMI Holdings or any of its Subsidiaries,
cause or permit any intentional or unintentional act or omission resulting in
the presence or Release of any Hazardous Material (except in compliance with
applicable Environmental Laws), each of the Borrowers agrees to undertake,
and/or to cause any of its Subsidiaries, tenants or occupants to undertake, at
their sole expense, any clean up, removal, remedial or other action required
pursuant to Environmental Laws to remove and clean up any Hazardous Materials
from any Real Property except where the failure to do so would not reasonably be
expected to have a Material Adverse Effect; provided that neither MMI Holdings
--------
nor any of its Subsidiaries shall be required to comply with any such order or
directive which is being contested in good faith and by proper proceedings so
long as it has maintained adequate reserves with respect to such compliance to
the extent required in accordance with GAAP.
7.08 ERISA. As soon as possible and, in any event, within 10 days
-----
after any Credit Party or any ERISA Affiliate knows or has reason to know of the
occurrence of any of the following events to the extent that one or more of such
events is reasonably likely to result in a material liability to any Credit
Party, MMI will deliver to each of the Banks a certificate of the chief
financial officer of MMI setting forth details as to such occurrence and the
action, if any, which such Credit Party or such ERISA Affiliate is required or
proposes to take,
<PAGE>
62
together with any notices required or proposed to be given to or filed with or
by such Credit Party, such ERISA Affiliate, the PBGC, a Plan participant or the
Plan administrator with respect thereto: that a Reportable Event has occurred,
that an accumulated funding deficiency has been incurred or an application may
be or has been made to the Secretary of the Treasury for a waiver or
modification of the minimum funding standard (including any required installment
payments) or an extension of any amortization period under Section 412 of the
Code with respect to a Plan; that a contribution required to be made to a Plan
or Foreign Pension Plan has not been timely made; that a Plan has been or may be
terminated, reorganized, partitioned or declared insolvent under Title IV of
ERISA; that a Plan has an Unfunded Current Liability giving rise to a lien under
ERISA or the Code; that proceedings may be or have been instituted to terminate
or appoint a trustee to administer a Plan; that a proceeding has been instituted
pursuant to Section 515 of ERISA to collect a delinquent contribution to a Plan;
that any Credit Party or any ERISA Affiliate will or may incur any material
liability (including any contingent or secondary liability) to or on account of
the termination of or withdrawal from a Plan under Section 4062, 4063, 4064,
4069, 4201, 4204 or 4212 of ERISA or with respect to a Plan under Section
401(a)(29), 4971, 4975 or 4980 of the Code or Section 409, 502(i) or 502(l) of
ERISA; provided, however, that the obligation to report such material liability
-------- -------
shall only apply to the extent to which any Credit Party knows or has reason to
know of such material liability. At the request of any Bank, MMI will deliver to
such Bank a complete copy of the annual report (Form 5500) of each Plan required
to be filed with the Internal Revenue Service. In addition to any certificates
or notices delivered to the Banks pursuant to the first sentence hereof, copies
of annual reports and any notices received by any Credit Party or any ERISA
Affiliate with respect to any Plan or Foreign Pension Plan shall be delivered to
the Banks upon request.
7.09 Good Repair. MMI Holdings will, and will cause each of its
-----------
Subsidiaries to, ensure that its material properties and equipment used in its
business are kept in good repair, working order and condition, normal wear and
tear and damage by casualty excepted, and, subject to Section 8.09, that from
time to time there are made in such properties and equipment all needful and
proper repairs, renewals, replacements, extensions, additions, betterments and
improvements thereto, to the extent and in the manner useful or customary for
companies in similar businesses.
7.10 End of Fiscal Years; Fiscal Quarters. MMI Holdings will, for
------------------------------------
financial reporting purposes, cause (i) each of its, and each of its
Subsidiaries', fiscal years to end on December 31 of each year and (ii) each of
its, and each of its Subsidiaries', fiscal quarters to end on March 31, June 30,
September 30 and December 31 of each year.
7.11 Additional Security Further Assurances. Subject to Section
--------------------------------------
7.19,
(a) MMI Holdings will, and will cause each of its Domestic
Subsidiaries and, subject to Section 7.14, each of its Foreign Subsidiaries to,
and the other Borrowers will cause their respective Subsidiaries to, grant to
the Collateral Agent security interests, pledges,
<PAGE>
63
assignments, and mortgages in such assets and properties of MMI and such
Subsidiaries as are not covered by the original Security Documents, and as may
be requested from time to time by the Administrative Agent, the Collateral Agent
or the Required Banks (collectively, the "Additional Security Documents"). All
such security interests and mortgages shall be granted pursuant to documentation
satisfactory in form and substance to the Administrative Agent and the
Collateral Agent and shall constitute valid and enforceable first priority
perfected security interests and mortgages superior to and prior to the rights
of all third Persons and subject to no other Liens except for Permitted Liens.
The Additional Security Documents or instruments related thereto shall have been
duly recorded or filed in such manner and in such places as are required by law
to establish, perfect, preserve and protect the Liens in favor of the Collateral
Agent required to be granted pursuant to the Additional Security Documents or if
perfection cannot be accomplished by delivery and filing then all other actions
required by law to establish, perfect, preserve and protect the Liens in favor
of the Collateral Agent shall have been taken and all taxes, fees and other
charges payable in connection therewith shall have been paid in full.
(b) MMI Holdings will, and will cause each of its Subsidiaries to, at
the expense of MMI Holdings and the Borrowers, make, execute, endorse,
acknowledge, file and/or deliver to the Collateral Agent from time to time such
vouchers, invoices, schedules, confirmatory assignments, conveyances, financing
statements, transfer endorsements, powers of attorney, certificates, reports and
other assurances or instruments and take such further steps relating to the
collateral covered by any of the Security Documents as the Collateral Agent may
reasonably require. Furthermore, MMI Holdings and the Borrowers shall cause to
be delivered to the Collateral Agent such opinions of counsel, title insurance
and other related documents as may be reasonably requested by the Administrative
Agent to assure themselves that this Section 7.11 has been complied with.
(c) If the Administrative Agent or the Required Banks determine that
they are required by law or regulation to have appraisals prepared in respect of
the Real Property of MMI Holdings and its Subsidiaries constituting Collateral,
the Borrowers shall provide to the Administrative Agent and the Collateral Agent
appraisals which satisfy the applicable requirements of the Real Estate
Appraisal Reform Amendments of the Financial Institution Reform, Recovery and
Enforcement Act of 1989 and which shall be in form and substance reasonably
satisfactory to the Administrative Agent.
(d) MMI Holdings and the Borrowers agree that each action required
above by this Section 7.11 shall be completed within 30 days after such action
is either requested to be taken by the Administrative Agent or the Required
Banks or required to be taken by the Borrowers and their respective Subsidiaries
pursuant to the terms of this Section 7.11.
7.12 Intentionally omitted
---------------------
7.13 Register. The Borrowers hereby designate the Administrative
--------
Agent to serve as the Borrowers' agent, solely for purposes of this Section
7.13, to maintain a register
<PAGE>
64
(the "Register") on which it will record the Commitments from time to time of
each of the Banks, the Loans made by each of the Banks and each repayment in
respect of the principal amount of the Loans of each Bank. Failure to make any
such recordation, or any error in such recordation shall not affect the
Borrowers' obligations in respect of such Loans. With respect to any Bank, the
transfer of the Revolving Loan Commitments of such Bank and the rights to the
principal of, and interest on, any Loan made pursuant to such Revolving Loan
Commitments shall not be effective until such transfer is recorded on the
Register maintained by the Administrative Agent with respect to ownership of
such Revolving Loan Commitments and Loans and prior to such recordation all
amounts owing to the transferor with respect to such Revolving Loan Commitments
and Loans shall remain owing to the transferor. The registration of assignment
or transfer of all or part of any Revolving Loan Commitments and Loans shall be
recorded by the Administrative Agent on the Register only upon the acceptance by
the Administrative Agent of a properly executed and delivered Assignment and
Assumption Agreement pursuant to Section 12.04(b). Coincident with the delivery
of such an Assignment and Assumption Agreement to the Administrative Agent for
acceptance and registration of assignment or transfer of all or part of a Loan,
or as soon thereafter as practicable, the assigning or transferor Bank shall
surrender the Note evidencing such Loan, and thereupon one or more new Notes in
the same aggregate principal amount shall be issued to the assigning or
transferor Bank and/or the new Bank. The Borrowers agree to indemnify the
Administrative Agent from and against any and all losses, claims, damages and
liabilities of whatsoever nature which may be imposed on, asserted against or
incurred by the Administrative Agent in performing its duties under this Section
7.13.
7.14 Foreign Subsidiaries Security. If following a change in the
-----------------------------
relevant sections of the Code or the regulations, rules, rulings, notices or
other official pronouncements issued or promulgated thereunder which permits (i)
MMI to pledge more than 66 2/3% of the total combined voting power of all
classes of capital stock of any of its Foreign Subsidiaries or pledge any
promissory note issued by such Foreign Subsidiary to MMI or any of its Domestic
Subsidiaries or (ii) any Foreign Subsidiary of MMI to enter into a Security
Agreement or a Subsidiary Guaranty, in each case without causing the
undistributed earnings of such Foreign Subsidiary as determined for Federal
income tax purposes to be treated as a deemed dividend to such Foreign
Subsidiary's United States parent for Federal income tax purposes, and
thereafter counsel for the Borrowers reasonably acceptable to the Administrative
Agent does not, within 30 days after a request from the Administrative Agent or
the Required Banks, deliver evidence, in form and substance mutually
satisfactory to the Administrative Agent and the Borrowers, with respect to any
Foreign Subsidiary of MMI which has not already had all of its stock pledged
pursuant to the Security Agreement that (A) a pledge (x) of 66-2/3% or more of
the total combined voting power of all classes of capital stock of such Foreign
Subsidiary entitled to vote and (y) of any promissory note issued by such
Foreign Subsidiary to MMI or any of its Domestic Subsidiaries, (B) the entering
into by such Foreign Subsidiary of a security agreement in substantially the
form of the Security Agreement and (C) the entering into by such Foreign
Subsidiary of a guaranty in substantially the form of a Subsidiary Guaranty, in
any such case would cause the undistributed earnings of such Foreign Subsidiary
<PAGE>
65
as determined for Federal income tax purposes to be treated as a deemed dividend
to such Foreign Subsidiary's United States parent for Federal income tax
purposes, then in the case of a failure to deliver the evidence described in
clause (A) above, that portion of such Foreign Subsidiary's outstanding capital
stock or any promissory notes so issued by such Foreign Subsidiary, in each case
not theretofore pledged pursuant to the Security Agreement shall be pledged to
the Collateral Agent for the benefit of the Secured Creditors pursuant to the
Security Agreement (or another security agreement in substantially similar form,
if needed), and in the case of a failure to deliver the evidence described in
clause (B) above, such Foreign Subsidiary shall execute and deliver the Security
Agreement (or another security agreement in substantially similar form, if
needed), granting the Secured Creditors a security interest in all of such
Foreign Subsidiary's assets and securing the Obligations of the Borrowers under
the Credit Documents and under any Interest Rate Protection Agreement or Other
Hedging Agreement and, in the event the Subsidiary Guaranty shall have been
executed by such Foreign Subsidiary, the obligations of such Foreign Subsidiary
thereunder, and in the case of a failure to deliver the evidence described in
clause (C) above, such Foreign Subsidiary shall execute and deliver the
Subsidiary Guaranty (or another guaranty in substantially similar form, if
needed), guaranteeing the Obligations of the Borrowers under the Credit
Documents and under any Interest Rate Protection Agreement or Other Hedging
Agreement, in each case to the extent that the entering into such Security
Agreement or Subsidiary Guaranty is permitted by the laws of the respective
foreign jurisdiction and with all documents delivered pursuant to this Section
7.14 to be in form and substance reasonably satisfactory to the Administrative
Agent.
7.15 Compliance with Terms of Leaseholds. MMI Holdings shall, and
-----------------------------------
shall cause each of its Subsidiaries to make all payments and otherwise perform
all obligations in respect of all leases of Real Property to which MMI Holdings
or any of its Subsidiaries is a party, keep such leases in full force and effect
and not allow such leases to lapse or be terminated or any rights to renew such
leases to be forfeited or cancelled, notify the Administrative Agent of any
default by any party with respect to such leases and cooperate with the
Administrative Agent in all respects to cure any such default, and cause each of
its Subsidiaries to do so, except where the failure to do so, either
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.
7.16 Performance of Transaction Documents. MMI Holdings shall, and
------------------------------------
shall cause each of its Subsidiaries to perform and observe all of the terms and
provisions of each Transaction Document to be performed or observed by it,
maintain each such Transaction Document in full force and effect, enforce such
Transaction Document in accordance with its terms, take all such action to such
end as may be from time to time requested by the Administrative Agent and, upon
request of the Administrative Agent, make to each other party to each such
Transaction Document such demands and requests for information and reports or
for action as MMI Holdings or any such Subsidiary is entitled to make under such
Transaction Document.
7.18 Cash Collateral Accounts. MMI shall, and shall cause each of
------------------------
its Subsidiaries to maintain main cash collateral accounts with Citicorp into
which all proceeds of
<PAGE>
66
Collateral will be paid upon the occurrence of an Event of Default and Lockbox
Accounts (as defined in the Security Agreement) with one or more banks
acceptable to the Administrative Agent and the Collateral Agent that have
accepted the assignment of such accounts to the Administrative Agent pursuant to
each Security Agreement.
7.19 Conditions Subsequent to Closing. (a) Additional Credit
-------------------------------- -----------------
Parties. On any date following the Initial Borrowing Date on which any Credit
- -------
Party delivers a Credit Agreement Supplement and/or a Subsidiary Guaranty (a
"Credit Party Supplement Date"), the following conditions shall be complied
with to the satisfaction of the Agents and the Agents agree to reasonably
cooperate with the Borrowers to allow the Borrowers to comply with such
conditions:
(A) Execution of Credit Agreement Supplement; Notes. On or prior to
-----------------------------------------------
each Credit Party Supplement Date, (i) each Subsidiary of MMI which shall become
a Borrower on such date shall have duly authorized, executed and delivered to
the Administrative Agent a Credit Agreement Supplement and (ii) shall have
delivered to the Administrative Agent for the account of each Bank the
appropriate Revolving Note executed by such Borrower, if any, in the amount,
maturity and as otherwise provided herein.
(B) Officer's Certificate. On each Credit Party Supplement Date, the
---------------------
Administrative Agent shall have received a certificate of each Subsidiary of MMI
which shall become a Borrower on such date dated such date signed by an
appropriate officer of such Borrower stating that all of the applicable
conditions set forth in Sections 5.02 (provided, however, that the
-------- -------
representations and warranties referred to therein may be qualified, to the
reasonable satisfaction of the Administrative Agent, to take into account
requirements of the local laws of the jurisdiction in which such Borrower is
organized and/or the commercial practices therein), 7.19(a)(D), and 7.19(a)(F),
exist as of such date.
(C) Opinions of Counsel. On each Credit Party Supplement Date, the
-------------------
Administrative Agent shall have received favorable opinions, addressed to the
Administrative Agent, the Collateral Agent and each of the Banks and dated as of
such Credit Party Supplement Date from local counsel to such Credit Party and/or
the Agents reasonably satisfactory to the Agents, which opinion shall cover such
matters incident to the transactions contemplated herein and in the other Credit
Documents as the Agents may reasonably request and shall be in form and
substance reasonably satisfactory to the Agents.
(D) Corporate Proceedings. (i) On each Credit Party Supplement Date,
---------------------
the Administrative Agent shall have received from each Subsidiary of MMI which
shall become a Credit Party on such date a certificate, dated such Credit Party
Supplement Date, signed by the chairman, a vice chairman, the president, any
vice president or representative director of such Credit Party, and attested to
by the secretary or any assistant secretary of such Credit Party, in the form of
Exhibit E with appropriate insertions, together with copies of the Certificate
of Incorporation and By-Laws or the Articles of Incorporation and the Corporate
Registry or, the
<PAGE>
67
Memorandum and Articles of Association and the Register of Members or similar
constitutional documents of such Credit Party, all amendments thereto, if any,
and the resolutions of the Board of Directors of such Credit Party referred to
in such certificate. All of the foregoing (including (to the extent applicable)
such Certificate of Incorporation, By-Laws, the Memorandum and Articles of
Association or the Register of Members or similar constitutional documents and
amendments) shall approve the Transaction, this Agreement and the other
Documents to which such Credit Party is or is to be a party and be reasonably
satisfactory to the Administrative Agent.
(ii) On such Credit Party Supplement Date, all corporate and legal
proceedings and all instruments and agreements to be taken or delivered, as the
case may be, by such Credit Party in connection with the transactions
contemplated by this Agreement and the other Documents and necessary for the
approval thereof or consent thereto shall be in form and substance reasonably
satisfactory to the Administrative Agent, and the Administrative Agent shall
have received all information and copies of all certificates, documents and
papers, including good standing certificates, bring-down certificates and any
other records of corporate proceedings and governmental approvals, if any, which
the Administrative Agent reasonably may have requested in connection therewith,
such documents and papers, where appropriate, to be certified by proper
corporate or governmental authorities reasonably satisfactory to the
Administrative Agent and the Collateral Agent.
(iii) On such Credit Party Supplement Date, the Administrative Agent
shall have received with respect to such Credit Party a copy of (i) a
certificate of the Secretary of State of the jurisdiction of incorporation of
such Credit Party dated reasonably near such Credit Party Supplement Date,
listing the charter of such Credit Party and each amendment thereto on file in
such Secretary of State's office and certifying that (A) such charter is a true
and correct copy thereof, (B) such amendments are the only amendments to such
Credit Party's charter on file in such Secretary of State's office, (C) such
Credit Party has paid all franchise taxes to the date of such certificate and
(D) such Credit Party is duly incorporated and in good standing under the laws
of the State of the jurisdiction of its incorporation or (ii) the equivalent, if
any, thereof in any jurisdiction outside of the United States in which any
Credit Party is organized or incorporated, except that in respect MMI-Australia
certified evidence (including, without limitation, a certified except of the
corporate registry) of such information may be received.
(E) Approvals. On or prior to each Credit Party Supplement Date, all
---------
necessary governmental (domestic and foreign), corporate, shareholder and third
party approvals and consents in connection with the transactions contemplated by
this Agreement and the other Credit Documents, including the effectiveness of
any Subsidiary Guaranty to be delivered on such Credit Party Supplement Date or
the effectiveness of any pledge of Collateral to be made on such Credit Party
Supplement Date and otherwise referred to herein or therein shall have been
obtained and remain in effect, all applicable waiting periods shall have expired
without any action being taken which restrains, prevents or imposes materially
adverse conditions upon the transactions contemplated by the Documents and
otherwise
<PAGE>
68
referred to herein or therein, or that could threaten or seek to threaten any of
the foregoing and no law, regulation or rule shall be applicable to any Credit
Party which in the judgment of the Administrative Agent could threaten or seek
to threaten any of the foregoing.
(F) Security Documents. On each Credit Party Supplement Date, each
------------------
Subsidiary of MMI which shall become a Credit Party on such date shall have duly
authorized, executed and delivered a Security Agreement in form and substance
satisfactory to the Agent, covering all of the Security Agreement Collateral,
together with:
(1) all of the Pledged Securities referred to in each Security
Agreement and owned by such Credit Party endorsed in blank in the case of
promissory notes or accompanied by executed and undated stock powers in the
case of capital stock;
(2) evidence of the completion of all other action, recordings and
filings of or with respect to each Security Agreement delivered pursuant to
this clause (F) as may be necessary or, in the reasonable opinion of the
Collateral Agent, desirable, to perfect the security interests created by
each such Security Agreement;
(3) evidence of the insurance required by the terms of each Security
Agreements, if any; and
(4) evidence that all other actions if any necessary or, in the
reasonable opinion of the Collateral Agent, desirable, to perfect the
security interests created by each such Security Agreement have been taken;
and each such Security Agreement delivered pursuant to this clause (F) shall be
in full force and effect.
(G) Guaranties. On each Credit Party Supplement Date, each Subsidiary
----------
of MMI which shall become a Credit Party on such date shall have duly
authorized, executed and delivered a Subsidiary Guaranty substantially in the
form of Exhibit G-3 and each such Guaranty shall be in full force and effect.
(H) Solvency Certificate; On each Credit Party Supplement Date, the
---------------------
Administrative Agent shall have received a certificate from the chief financial
officer of each Subsidiary of MMI which shall become a Borrower on such date
addressed to the Administrative Agent and each of the Banks and dated such
Credit Party Supplemental Date and certifying that, after giving effect to the
Transaction and the incurrence of all financings contemplated therein and
herein, each such Borrower individually, and each such Borrower and its
Subsidiaries (on a consolidated basis) are not insolvent and will not be
rendered insolvent by the indebtedness incurred in connection herewith, will not
be left with unreasonably small capital with which to engage in their respective
businesses and will not have incurred debts beyond their ability to pay such
debts as they mature and become due and
<PAGE>
69
that no proceeds of the Loans will be used to purchase assets or capital stock
in connection with the Transaction.
(I) Borrowing Base Certificate. On or prior to each Credit Party
--------------------------
Supplement Date, the Administrative Agent shall have received an initial
Borrowing Base Certificate for each Subsidiary of MMI which shall become a
Borrower on such date meeting the requirements of Section 7.01(i).
(J) Payment of Fees. On each Credit Party Supplement Date, all unpaid
---------------
costs, fees and expenses, and all other compensation contemplated by this
Agreement, due to the Administrative Agent, the Syndication Agent or the Banks
(including, without limitation, legal fees and expenses) shall have been paid.
(K) Notice of Borrowing; Letter of Credit Request. On or prior to
---------------------------------------------
each Credit Party Supplement Date, if any Subsidiary of MMI which shall become a
Borrower on such date intends to make a Borrowing on such date, the
Administrative Agent and the Multi Currency Agent shall have received from such
Borrower on such date a Notice of Borrowing satisfying the requirements of
Section 1.03 with respect to each incurrence of Loans, and if a Letter of Credit
is to be issued, the Administrative Agent and the Appropriate Letter of Credit
Issuer shall have received a Letter of Credit Request satisfying the
requirements of Section 2.02 with respect to each issuance of a Letter of
Credit.
(L) Process Agent Letters. On or prior to each Credit Party
---------------------
Supplement Date, the Administrative Agent shall have reviewed a letter from the
Process Agent dated on or before such date, substantially in the form of Exhibit
K hereto, agreeing to act as Process Agent on behalf of each Subsidiary of MMI
which shall be an Credit Party on such date.
(M) Other Documents. On or before each Credit Party Supplement
---------------
Date, the Administrative Agent shall have received such other approvals,
opinions or documents as any Bank through the Administrative Agent may
reasonably request.
All of the certificates, legal opinions and other documents and papers referred
to in this Section 7.19(a), unless otherwise specified, shall be delivered to
the Administrative Agent at its Appropriate Notice Office for the account of
each of the Banks and, except for the Notes, in sufficient counterparts for each
of the Banks and shall be satisfactory in form and substance to the
Administrative Agent and the Required Banks.
(b) MMI-Ireland. As soon as possible after the Initial Borrowing
-----------
Date, but in no event later than January 15, 1998, MMI shall cause MMI-Ireland
to have duly completed, to the satisfaction of the Agents, the procedures
required by applicable law to be taken to permit MMI-Ireland to duly authorize,
execute and deliver to the Administrative Agent the Subsidiary Guaranty in the
form of Exhibit G-3 and the Security Agreement to which it is to become a party
pursuant to Sections 7.19(a)(G) and (F) above.
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70
(c) Stock Pledges; MMI-UK; MMI-Ireland. As soon as possible after the
----------------------------------
Initial Borrowing Date, but in no event later than January 30, 1998: (i) MMI
shall (A) have duly authorized, executed and delivered Security Agreements
covering the pledge by MMI of its shares of MMI-UK, MMI-Ireland, MMI-Singapore,
MMI-Netherlands and MMI-France, in each case, in form and substance satisfactory
to the Agents and their local counsel, (B) take all such other action as the
Collateral Agent or its local counsel may deem necessary or desirable to
perfect, protect and maintain the security interest of the Secured Creditors in
the Pledged Shares and other Collateral identified in each such Security
Agreement and (C) deliver opinions of Korean, English, Irish and Singaporean
counsel in form and substance satisfactory to the Administrative Agent and the
Collateral Agent; and
(ii) MMI shall cause each of MMI-UK and MMI-Ireland, to the extent
permitted by applicable law, to become Credit Parties and to fully satisfy all
of the conditions set forth in Section 7.19(a).
(d) MMI Singapore. (i) As soon as possible after the Initial
-------------
Borrowing Date, but in no event later than February 15, 1998 (the "Singapore
Credit Supplement Date"), MMI shall cause MMI-Singapore to:
(W) duly complete, to the satisfaction of the Collateral Agent,
the procedures set out in Section 76(10) and all other
relevant provisions of the Singapore Companies Act in
relation to the giving by it of financial assistance by its
entry into of the Security Agreement to which it is to
become a party;
(X) procure the delivery to the Collateral Agent of a
certificate, signed by not less than two of its directors,
or by one of its directors and its secretary, stating that
the requirements of Section 76(10)(a) to (j), inclusive of
the Singapore Companies Act, have bene complied with in
relation to the aforesaid giving by it of financial
assistance;
(Y) on request by the Collateral Agent do or procure the doing
of all such acts and will execute or procure the execution
of all such documents as the Collateral Agent may reasonably
consider necessary for completing and giving full effect to
the procedures set out in Section 76(10) and all other
relevant provisions of Singapore Companies Act in relation
to the giving by it of financial assistance by its entry
into the Security Agreement to which it is to become a
party; and
<PAGE>
71
(Z) cause its Memorandum and Articles of Association to be
amended in the manner requested by the Collateral Agent for
the purpose of ensuring that:-
(A) its objects specifically permit the issuing by it of
the guarantees and the creation by it of the security
contemplated by this Agreement;
(B) its directors shall not be entitled to decline to
register, or suspend the registration of, any transfer
of any shares where such transfer is executed (whether
as transferor or transferee) by any bank or financial
institution to whom such shares shall have been charged
or pledged by way of security, or by any nominee of
such bank or financial institution; and
(C) all pre-emption rights contained therein shall not
apply to any transfer of any shares which have been
charged or pledged by way of security to any bank or
financial institution or any nominee of such bank or
financial institution.
(ii) On or prior to the Singapore Credit Supplement Date, MMI shall
cause MMI-Singapore to satisfy the following conditions to the satisfaction of
the Agents:
(I) On the Singapore Credit Supplement Date, MMI-Singapore shall
have satisfied all of the conditions set forth in Section 7.19(a).
(II) Mortgage. On the Singapore Supplement Date, the Collateral
--------
Agent shall have received the following:
(A) Legal Mortgage in form and substance satisfactory to the
Collateral Agent (as amended, modified or supplemented from time
to time in accordance with the terms thereof and hereof (the
"Mortgage") with respect to the Mortgaged Property, duly
executed by MMI-Singapore and stamped with the consent of the
Housing & Development Board, Singapore (the "HDB") the
lessor of the Mortgaged Property), duly endorsed thereon;
(B) HDB[_]s written confirmation that after the execution of the
Security Agreement to be executed by MMI-Singapore (the
"Debenture"):
<PAGE>
72
(i) the HDB will not distrain upon the Collateral (as defined in
the Debenture; and
(ii) upon termination of the Instrument of Lease No. 1/00125L
(the "Lease") relating to the Mortgaged Property, the
HDB will allow the Collateral Agent to enter upon the
Mortgaged Property for the purpose of removing the
Collateral;
(C) HDB's written confirmation that there are no breaches of the
terms of the Lease relating to the Mortgaged Property;
(D) (x) either HDB's written confirmation that notwithstanding the
provisions of the Lease, HDB will not treat any notice of
termination served by MMI-Singapore pursuant to the provisions of
Clause 6 of the Lease as an effective notice of termination
unless the Collateral Agent under the Mortgage has endorsed its
consent on such termination notice, (y) an executed amendment to
Clause 6 of the Lease in form satisfactory to the Agents, to
require MMI-Singapore not to exercise its termination rights so
long as any Loan, Unpaid Drawing, Letter of Credit or Commitment
remains outstanding; or (z) an absolute assignment to the
Administrative Agent, for the benefit of the Banks, of the Lease
with all necessary action and all documentation necessary to
effectuate such assignment or an agreement to absolutely assign
to the Administrative Agent, for the benefit of the Banks the
Lease (or other similar agreement) in each case, in form
satisfactory to the Agents and MMI shall cause MMI-Singapore to
pay any and all fees, expenses and costs incurred in connection
with any such assignment;
(E) All replies to legal requisitions in respect of the Mortgaged
Property being found satisfactory to the Collateral Agent and the
title in respect of the Mortgaged Property being in order and
free from encumbrances;
(F) Duplicate Certificate of Title Volume 458 Folio 196 and Duplicate
Lease No. 1/00125L both relating to the Mortgaged Property; and
(G) All risks insurance policy in the joint names of MMI-Singapore
and the Collateral Agent with insurance companies as the
Collateral Agent may approve, fully insuring the Mortgaged
Property against, inter alia, loss or damage by fire and all
other risks commonly covered with respect to properties of
similar kind, and such policy shall be in such amount and shall
contain such terms and provisions as shall be approved by the
Collateral Agent and shall contain standard mortgagee clauses
naming as loss payee the Collateral Agent.
<PAGE>
73
(iii) On or prior to the Singapore Credit Supplement Date, MMI-
Singapore shall have caused the Mortgages to be recorded in all places
to the extent necessary or desirable, in the judgment of the Collateral
Agent, effectively to create a valid and enforceable first priority mortgage
lien, subject only to Permitted Encumbrances, on each such Mortgaged
Property in favor of the Collateral Agent (or such other trustee as may be
required or desired under Singapore law) for the benefit of the Secured
Creditors.
(iv) In the event that MMI-Singapore shall fail to satisfy the
conditions set forth in clauses (i), (ii) and (iii) above by the
Singapore Credit Supplement Date, MMI shall be obligated on such date to
execute and deliver a subordinated note in substantially the form of
Exhibit A to the CST Guaranty and to incur the CST Subordinated Loan and
shall receive the proceeds thereof in accordance with the CST Guaranty.
(e) Blocked Account Letters. As soon as possible after the Initial
-----------------------
Borrowing Date, but in no event later than 45 days thereafter, MMI and its
Domestic Subsidiaries shall deliver to the Collateral Agent the Lockbox Letters
referred to in the Security Agreement to which MMI is a party, duly executed by
each Lockbox Bank referred to in such Security Agreement.
SECTION 8. Negative Covenants.
------------------
MMI Holdings and the Borrowers hereby covenant and agree that as of
the Effective Date and thereafter for so long as this Agreement is in effect and
until the Commitments have terminated, no Letters of Credit or Notes are
outstanding and the Loans, together with interest, Fees and all other
Obligations (other than any indemnities described in Section 12.13 which are not
then due and payable) incurred hereunder, are paid in full:
8.01 Changes in Business. (a) MMI Holdings and its Subsidiaries
-------------------
will not engage in any business other than the businesses engaged in by the MMI
Business as of the Initial Borrowing Date and activities directly related
thereto, and similar or related businesses.
(b) Notwithstanding the foregoing, MMI Holdings will not engage in any
business other than its ownership of the capital stock of MMI.
8.02 Consolidation, Merger, Sale or Purchase of Assets, Etc. MMI
------------------------------------------------------
Holdings will not, and will not permit any of its Subsidiaries to, wind up,
liquidate or dissolve its affairs or enter into any transaction of merger or
consolidation, or convey, sell, lease, transfer or otherwise dispose of (or
agree to do any of the foregoing at any future time) all or any part of its
property or assets (other than sales of inventory in the ordinary course of
business), or enter
<PAGE>
74
into any partnerships, joint ventures or sale-leaseback transactions, or
purchase or otherwise acquire (in one or a series of related transactions) any
part of the property or assets (other than purchases or other acquisitions of
inventory, materials and equipment in the ordinary course of business) of any
Person, except that the following shall be permitted:
(a) the Borrowers may, as lessees, enter into operating leases in the
ordinary course of business with respect to real or personal property to
the extent permitted by Section 8.05;
(b) the advances, investments and loans permitted pursuant to Section
8.06;
(c) the Borrowers and their respective Subsidiaries may sell for cash
and for fair value assets as contemplated and provided for in the
Projections;
(d) (i) the Borrowers may sell for cash and for fair value its shares
in Nimbus CD International, Inc., and (ii) the Borrowers and their
respective Subsidiaries may sell for cash and for fair value other assets
having a fair market value not to exceed in the aggregate $1,000,000 in any
fiscal year of MMI Holdings; provided that in the case of both clause (i)
--------
and (ii) above, the Net Cash Proceeds therefrom are either applied to repay
Revolving Loans (or reduce the Total Revolving Loan Commitment) as provided
in Section 4.02(A)(c) or reinvested in replacement assets to the extent
permitted by Section 4.02(A)(b);
(e) the Borrowers and their respective Subsidiaries may sell or
discount, in each case without recourse, accounts receivable arising in the
ordinary course of business, but only in connection with the compromise or
collection of past due amounts thereof and as consistent with past
practices;
(f) the Borrowers and their respective Subsidiaries may sell or
exchange specific items of equipment, so long as the purpose of each such
sale or exchange is to acquire (and results within 60 days of such sale or
exchange in the acquisition of) replacement items of equipment which are
the functional equivalent of the item of equipment so sold or exchanged;
(g) the Borrowers and their respective Subsidiaries may, in the
ordinary course of business, license patents, trademarks, copyrights and
know-how to third Persons and to one another, so long as each such license
is permitted to be assigned pursuant to the Security Agreement (to the
extent that a security interest in such patents, trademarks, copyrights and
know-how is granted thereunder) and does not otherwise prohibit the
granting of a Lien pursuant to the Security Agreement in the intellectual
property covered by such license;
<PAGE>
75
(h) any Subsidiary of a Borrower may merge with and into, or be
dissolved or liquidated into, such Borrower so long as (i) immediately
after giving effect thereto, no event shall occur and be continuing that
constitutes a Default, (ii) such Borrower is the surviving corporation of
any such merger, dissolution or liquidation and (iii) the security
interests granted to the Collateral Agent for the benefit of the Secured
Creditors pursuant to the Security Documents in the assets of such
Subsidiary so merged shall remain in full force and effect and perfected
(to at least the same extent as in effect immediately prior to such
merger);
(i) any Subsidiary of a Borrower may merge with and into, or be
dissolved or liquidated into, any Wholly-Owned Domestic Subsidiary of such
Borrower so long as (i) immediately after giving effect thereto, no event
shall occur and be continuing that constitutes a Default, (ii) such Wholly-
Owned Domestic Subsidiary is the surviving corporation of any such merger,
dissolution or liquidation, (iii) such Wholly-Owned Domestic Subsidiary
shall assume such Subsidiary's obligations and performance of such
Subsidiary's obligations under the Credit Documents to which it is or is to
be a party in a writing satisfactory in form and substance to the Required
Banks, and (iv) the security interests granted to the Collateral Agent for
the benefit of the Secured Creditors pursuant to the Security Documents in
the assets of such Subsidiary shall remain in full force and effect and
perfected (to at least the same extent as in effect immediately prior to
such merger);
(j) leases or subleases granted by the Borrowers or any of their
respective Subsidiaries to third Persons not interfering in any material
respect with the business of MMI Holdings or any of the Borrowers or any of
their respective Subsidiaries;
(k) any Borrower may transfer assets in an arm's length transaction
to any Credit Party which has executed and delivered a Security Agreement
pursuant to Section 5.10 or 7.19.
To the extent the Required Banks waive the provisions of this Section 8.02 with
respect to the sale or other disposition of any Collateral, or any Collateral is
sold or otherwise disposed of as permitted by this Section 8.02, such Collateral
in each case shall be sold or otherwise disposed of free and clear of the Liens
created by the Security Documents and the Administrative Agent shall take such
actions (including, without limitation, directing the Collateral Agent to take
such actions) as are appropriate in connection therewith.
8.03 Liens. MMI Holdings will not, and will not permit any of its
-----
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with
respect to any property or assets of any kind (real or personal, tangible or
intangible) of MMI Holdings or any of its Subsidiaries, whether now owned or
hereafter acquired, or sign or file or suffer to exist under the Uniform
Commercial Code of any jurisdiction, a financing statement that names any of MMI
Holdings or any of its Subsidiaries as debtor, or sign or suffer to exist any
<PAGE>
76
security agreement authorizing any secured party thereunder to file such
financing statement, or sell any such property or assets subject to an
understanding or agreement, contingent or otherwise, to repurchase such property
or assets (including sales of accounts receivable or notes with recourse to MMI
Holdings or any of its Subsidiaries) or assign any accounts or other right to
receive income (other than as permitted by Section 8.02(d)), except for the
following (collectively, the "Permitted Liens"):
(a) inchoate Liens for taxes, assessments or governmental charges or
levies not yet due and payable or Liens for taxes, assessments or
governmental charges or levies being contested in good faith and by
appropriate proceedings for which adequate reserves have been established
in accordance with GAAP and as to which no enforcement, collection,
execution, levy or foreclosure proceeding shall have been commenced;
(b) Liens in respect of property or assets of MMI Holdings or any of
its Subsidiaries imposed by law which were incurred in the ordinary course
of business and which have not arisen to secure Indebtedness for borrowed
money, such as carriers', warehousemen's, mechanics', materialmen's,
workmen's and repairmen's Liens, statutory landlord's Liens, and other
similar Liens arising in the ordinary course of business, and which either
(x) do not in the aggregate materially detract from the value of such
property or assets or materially impair the use thereof in the operation of
the business of MMI Holdings or any of its Subsidiaries or (y) are being
contested in good faith by appropriate proceedings, which proceedings have
the effect of preventing the forfeiture or sale of the property or asset
subject to such Lien and as to which no enforcement, collection, execution,
levy or foreclosure proceeding shall have been commenced;
(c) Liens created by or pursuant to this Agreement and the Security
Documents;
(d) Liens in existence on the Initial Borrowing Date which are listed,
and the property subject thereto described, in Annex 8.03(d), without
giving effect to any extensions or renewals thereof;
(e) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default under Section 9.09;
(f) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation law, unemployment insurance law
and other types of social security legislation, or to secure the
performance of tenders, statutory obligations, surety and appeal bonds,
bids, government contracts, performance and return-of-money bonds and other
similar obligations incurred in the ordinary course of business (exclusive
of obligations in respect of the payment for borrowed money) and
<PAGE>
77
as to which no enforcement, collection, execution, levy or foreclosure
proceeding shall have been commenced;
(g) licenses, leases or subleases granted to third Persons not
interfering in any material respect with the business of MMI Holdings or
any of its Subsidiaries and otherwise permitted under this Agreement;
(h) Liens arising from precautionary UCC financing statements
regarding operating leases permitted by this Agreement;
(i) any interest or title of a licensor, lessor or sublessor under any
license or lease permitted by this Agreement;
(j) Liens created pursuant to Capital Leases permitted pursuant to
Section 8.04(b) and (d); provided that no such Lien shall extend to or
--------
cover any Collateral or assets other than the assets subject to such
Capital Leases;
(k) Permitted Encumbrances;
(l) Liens arising pursuant to purchase money mortgages or security
interests securing Indebtedness representing the purchase price of assets
acquired after the Initial Borrowing Date in the ordinary course of
business, or extensions, renewals or replacements of any of the foregoing
for the same or a lesser amount, provided that (i) any such Liens attach
--------
only to the assets so purchased, (ii) the aggregate principal amount of the
Indebtedness secured by any such Lien does not exceed 100%, nor is less
than 70%, of the lesser of the fair market value or the purchase price of
the property being purchased at the time of the incurrence of such
Indebtedness and (iii) the aggregate principal amount of the Indebtedness
secured thereby is permitted to be incurred pursuant to Section 8.04(d);
(m) additional Liens incurred by the Borrowers and their respective
Subsidiaries so long as the value of the property subject to such Liens,
and the Indebtedness and other obligations secured thereby, do not exceed
$50,000 in the aggregate; provided that no such Lien shall extend to or
--------
cover any Collateral; and
(n) Liens created in respect of receivables of MMI-France under the
French Francs Facility.
8.04 Indebtedness. MMI Holdings will not, and will not permit any
------------
of its Subsidiaries to, contract, create, incur, assume or suffer to exist any
Indebtedness, except:
(a) Indebtedness incurred pursuant to this Agreement and the other
Credit Documents;
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78
(b) Existing Indebtedness outstanding on the Initial Borrowing Date
and listed on Annex 6.23, without giving effect to any subsequent
extension, renewal or refinancing thereof;
(c) Indebtedness of the Borrowers under Interest Rate Protection
Agreements entered into to protect the Borrowers against fluctuations in
interest rates in respect of Indebtedness otherwise permitted under this
Agreement in an aggregate notional amount not to exceed $50,000,000;
(d) Capitalized Lease Obligations and Indebtedness of the Borrowers
and their respective Subsidiaries incurred pursuant to purchase money Liens
permitted under Sections 8.03(j) and (l), provided that (i) all such
--------
Capitalized Lease Obligations are permitted under Section 8.09 and (ii) the
sum of (x) the aggregate Capitalized Lease Obligations outstanding at any
time plus (y) the aggregate principal amount of such purchase money
Indebtedness outstanding at such time shall not exceed $30,000,000;
(e) Indebtedness constituting Intercompany Loans to the extent
permitted by Section 8.06(g);
(f) obligations of MMI Holdings and its Subsidiaries contemplated
under the Transaction Documents;
(g) indebtedness of MMI-Ireland under the AIB Facility;
(h) Subordinated Indebtedness of MMI under the CST Subordinated Loan
in an amount not to exceed $25,000,000;
(i) additional unsecured Indebtedness of the Borrowers and their
Subsidiaries not otherwise permitted hereunder not exceeding $20,000,000 in
aggregate principal amount at any time outstanding;
(j) indebtedness of MMI-France under the French Francs Facility in an
amount no exceeding 13 million French Francs; and
(k) Contingent Obligations of MMI Holdings in respect of the
guaranties in favor of the Industrial Development Agency (Ireland) ("IDA")
guaranteeing the obligations of Modus Media International (Ireland)
Holdings ("Ireland Holdings"), Modus Media International Fulfillment
Services Europe, Modus Media International Dublin and Modus Media
International Kildare (the "Irish Subsidiaries") under certain grants
received by Ireland Holdings and/or the Irish Subsidiaries from the IDA,
not to exceed in the aggregate the equivalent in Irish pounds of
$12,000,000.
<PAGE>
79
8.05 Leases. MMI Holdings will not permit the aggregate
------
obligations of MMI Holdings and its Subsidiaries on a consolidated basis to make
payments (including, without limitation, any property taxes paid as additional
rent or lease payments) under any agreement to rent, hire or lease any real or
personal property (excluding Capitalized Lease Obligations) having an original
term of one year or more to exceed (x) $22,000,000 for the fiscal year of MMI
Holdings ended December 31, 1998 (y) $25,000,000 for the fiscal year ended
December 31, 1999 and (z) $30,000,000 for each fiscal year of MMI Holdings
thereafter.
8.06 Advances, Investments and Loans. MMI Holdings will not, and
-------------------------------
will not permit any of its Subsidiaries to, lend money or credit or make
advances to any Person, or purchase or acquire any capital stock or other
ownership or profit interest, warrants, rights, options, obligations or other
securities of, or any other interest in, or make any capital contribution to or
any other investment in, any Person, or purchase or own a futures contract or
otherwise become liable for the purchase or sale of currency or other
commodities at a future date in the nature of a futures contract, or hold any
cash or Cash Equivalents, except:
(a) the Borrowers and their respective Subsidiaries may invest in cash
and Cash Equivalents in an aggregate principal amount not to exceed
$25,000,000 at any time outstanding;
(b) the Borrowers and their respective Subsidiaries may acquire and
hold receivables owing to them, if created or acquired in the ordinary
course of business and payable or dischargeable in accordance with
customary trade terms (including the dating of receivables) of the
Borrowers or any such Subsidiary;
(c) the Borrowers and their respective Subsidiaries may acquire and
own investments (including debt obligations) received in connection with
the bankruptcy or reorganization of suppliers and customers and in
settlement of delinquent obligations of, and other disputes with, customers
and suppliers arising in the ordinary course of business;
(d) Interest Rate Protection Agreements entered into in compliance
with Section 8.04(c);
(e) advances, loans and investments in existence on the Initial
Borrowing Date and listed on Annex 8.06(e), without giving effect to any
additions thereto or replacements thereof shall be permitted;
(f) deposits made in the ordinary course of business consistent with
past practices to secure the performance of leases shall be permitted;
<PAGE>
80
(g) the Borrowers may make intercompany loans and advances to any
Subsidiary Guarantor, and any Subsidiary Guarantor may make intercompany
loans and advances to the Borrower of which it is a Subsidiary, or any
other Subsidiary Guarantor (collectively, "Intercompany Loans"), duly
stamped where required by the laws of any jurisdiction for its
enforceability provided that (x) each Intercompany Loan shall be evidenced
--------
by an Intercompany Note duly stamped where required by the laws of any
jurisdiction for its enforceability, and (y) each such Intercompany Note
shall be pledged to the Collateral Agent pursuant to the Security Agreement
executed by the payee of such Intercompany Note;
(h) loans and advances by the Borrowers and their respective
Subsidiaries to their employees for moving and travel expenses and other
similar expenses, in each case incurred in the ordinary course of business,
in an aggregate outstanding principal amount not to exceed $1,000,000 at
any time (determined without regard to any write-downs or write-offs of
such loans and advances) shall be permitted;
(i) the Borrowers and their respective Subsidiaries may own the
capital stock of their respective Subsidiaries created or acquired in
accordance with the terms of this Agreement and other loans, advances or
investments in an aggregate amount invested not to exceed $1,000,000;
provided that with respect to loans, advances and investments made under
--------
this clause (j): (1) any newly acquired or created Subsidiary of any
Borrower or any of its Subsidiaries shall be a Wholly-Owned Subsidiary
thereof; (2) immediately before and after giving effect thereto, no Default
shall have occurred and be continuing or would result therefrom; and (3)
any business acquired or invested in pursuant to this clause (j) shall be
in the same line of business as the business of the Borrowers or any of
their respective Subsidiaries;
(j) in addition to investments permitted by clauses (a) through (i) of
this Section 8.06, the Borrowers and their respective Subsidiaries may make
additional loans, advances and investments to or in a Person not an
Affiliate in an aggregate amount for all loans, advances and investments
made pursuant to this clause (j) not to exceed $1,000,000; provided that
--------
with respect to loans, advances and investments made under this clause (j):
(1) any newly acquired or created Subsidiary of any Borrower or any of its
Subsidiaries shall be a Wholly Owned Subsidiary thereof (in the case of any
newly acquired or created Foreign Subsidiary, to the extent permitted by
the law of the jurisdiction of its organization); (2) immediately before
and after giving effect thereto, no Default shall have occurred and be
continuing or would result therefrom; and (3) any business acquired or
invested in pursuant to this clause (j) shall be in the same line of
business as the business of the Borrowers or any of their respective
Subsidiaries; and
(k) in addition to investments, loans and advances permitted by
clauses (a) through (j) of this Section 8.06, MMI may make additional
advances to Sasatoku Donnelly JV, a Japanese joint venture of which it is a
partner, in an aggregate principal
<PAGE>
81
amount for all advances, not to exceed $3,000,000; provided that
--------
immediately before and after giving effect thereto, no Default shall have
occurred and be continuing or would result therefrom; and provided further
--------- -------
that the amount available to be borrowed under the US Borrowing Base by any
Borrower under Section 1.01(A)(a)(1) or 1.01(A)(a)(2) shall be reduced by
the principal amount of any advances made and outstanding at any time
pursuant to this clause (k).
8.07 Dividends, Etc. MMI Holdings will not, and will not permit any
--------------
of its Subsidiaries to, declare or pay any dividends (other than dividends
payable solely in common stock of any such Borrower or any such Subsidiary, as
the case may be), or return any capital to, its stockholders or authorize or
make any other distribution, payment or delivery of property, capital stock,
warrants, rights, options, obligations, securities or cash to its stockholders
as such, or redeem, retire, purchase, defease or otherwise acquire, directly or
indirectly, for a consideration, any shares of any class of its capital stock,
now or hereafter outstanding (or any warrants for or options or rights in
respect of any of such shares), or set aside any funds for any of the foregoing
purposes, MMI Holdings will not permit any of its Subsidiaries to purchase,
redeem, retire, defease or otherwise acquire for consideration any shares of any
class of the capital stock of MMI Holdings or any such other Subsidiary, as the
case may be, now or hereafter outstanding (or any options or warrants or rights
issued by such Person with respect to its capital stock) (all of the foregoing
"Dividends"), except that, so long as no Default shall have occurred and be
continuing at the time of any action described in clauses (i) through (v) below
or would result therefrom:
(i) MMI may, following December 31, 1998, declare and pay cash
Dividends to its stockholders and purchase, redeem, retire, defease or
otherwise acquire shares of its own outstanding capital stock for cash
solely out of 25% Consolidated Net Income of MMI arising after December 31,
1998 and computed on a cumulative, unconsolidated basis in accordance with
GAAP;
(ii) any Subsidiary of any Borrower may pay Dividends to such
Borrower or any Wholly-Owned Subsidiary of such Borrower;
(iii) MMI Holdings may purchase, redeem, defease or retire the MMI
Holdings Preferred Stock in whole or in part for cash at any time and from
time to time after the second anniversary of the Initial Borrowing Date,
only if, (1) after giving effect to such purchase, redemption, defeasance
or retirement no Default shall exist and (2) the aggregate purchase or
redemption price in any one year does not exceed 25% of Consolidated Net
Income for the immediately preceding fiscal year of MMI;
(iv) MMI may pay cash Dividends to MMI Holdings so long as the cash
proceeds thereof are promptly used by MMI Holdings for the purposes
described in clause (iii) of this Section 8.07;
<PAGE>
82
(v) MMI may purchase or retire any options to purchase any capital
stock of MMI issued to and held by employees of MMI pursuant to the
Employee Stock Option Plan, only if (1) after giving effect to such
purchase or retirement no Default shall exist and (2) the aggregate
purchase price in any one year does not exceed $500,000;
(vi) MMI-Singapore may redeem its preference shares with the consent
of the Required Banks; and
(vii) MMI may grant options and issue stock to members of management,
employees and shareholders of MMI pursuant to the Employee Stock Option
Plan, provided that after giving effect to such grant of options no Default
--------
shall exist.
8.08 Transactions with Affiliates. MMI Holdings will not, and will
----------------------------
not permit any of its Subsidiaries to, enter into any transaction or series of
transactions with any Affiliate other than on terms and conditions substantially
as favorable to MMI Holdings or such Subsidiary as would be reasonably expected
to be obtainable by MMI Holdings or such Subsidiary at the time in a comparable
arm's-length transaction with a Person other than an Affiliate; provided that
--------
the following shall in any event be permitted: (i) the Transaction; (ii) the
payment, on a quarterly basis, of management fees to Bain Capital in an
aggregate amount (for all such Persons taken together) not to exceed $375,000 in
any fiscal quarter of MMI Holdings, provided that if during any fiscal quarter
--------
of MMI Holdings a Default or an Event of Default exists and is continuing, only
one-half of such fee for such fiscal quarter may be paid, and the remaining one-
half of such fee may continue to accrue and may be paid at such time as all
Defaults and Events of Default have been cured or waived; and (iii) intercompany
transactions among MMI Holdings and its Subsidiaries to the extent expressly
permitted by Sections 8.02, 8.04, 8.06 and 8.07.
8.09 Capital Expenditures. (a) MMI Holdings will not, and will not
--------------------
permit any of its Subsidiaries to, make any Capital Expenditures, except that,
at any time after the Initial Borrowing Date, the Borrowers and their respective
Subsidiaries may make Capital Expenditures so long as the aggregate amount of
such Capital Expenditures does not exceed (i) $3,000,000 at any time prior to
December 31, 1997, (ii) $20,000,000 at any time prior to December 31, 1998 and
(iii) $25,000,000 in any fiscal year of MMI Holdings thereafter.
(b) Notwithstanding the foregoing, in the event that the amount of
Capital Expenditures permitted to be made by the Borrowers and their respective
Subsidiaries pursuant to clause (a) above in any fiscal year (before giving
effect to any increase in such permitted expenditure amount pursuant to this
clause (b)) is greater than the amount of such Capital Expenditures made by the
Borrowers and their respective Subsidiaries during such fiscal year, such excess
(the "Rollover Amount") may be carried forward and utilized to make Capital
Expenditures in succeeding fiscal years, provided that in no event shall the
--------
aggregate amount
<PAGE>
83
of Capital Expenditures made by the Borrowers and their respective Subsidiaries
during any fiscal year pursuant to Section 8.09(a) and this Section 8.09(b)
exceed $30,000,000.
(c) Notwithstanding the foregoing, the Borrowers and their respective
Subsidiaries may make Capital Expenditures with the Net Cash Proceeds of Asset
Sales to the extent such proceeds are not required to be applied to repay
Revolving Loans pursuant to Section 4.02(A)(b) (or reduce the Total Revolving
Loan Commitment pursuant to Section 4.02(A)(c).
(d) Notwithstanding the foregoing, the Borrowers and their respective
Subsidiaries may make Capital Expenditures with the insurance proceeds received
by any such Person from any Recovery Event so long as such Capital Expenditures
are to replace or restore any properties or assets in respect of which such
proceeds were paid within 180 days following the date of the receipt of such
insurance proceeds to the extent such insurance proceeds are not required to be
applied to repay Revolving Loans pursuant to Section 4.02(A)(e).
8.10 Minimum Tangible Net Worth. MMI Holdings will not permit its
--------------------------
Tangible Net Worth at the end of each fiscal quarter to be less than an amount
equal to the sum of (i) 85% of the Tangible Net Worth of MMI as of September 30,
1999 after giving effect to the redemption of the MMI Holdings Preferred Stock
plus (ii) 75% of cumulative Consolidated Net Income of MMI Holdings without
- ----
deduction for losses for all fiscal quarters ending after September 30, 1999
plus (iii) 100% of the Net Cash Proceeds from the issuance or sale by MMI
- ----
Holdings or any of its Subsidiaries to any Person other than MMI Holdings or any
of its Subsidiaries of any capital stock or other ownership or profit interest,
any securities convertible into or exchangeable for capital stock or other
ownership or profit interest or any warrants, rights or options to acquire
capital stock or other ownership or profit interest (other than equity issued in
connection with the exercise by employees of any Credit Party or any of its
Subsidiaries of employee stock option).
8.11 Minimum Consolidated EBITDA. MMI Holdings will not permit
---------------------------
Consolidated EBITDA for any Test Period ending on a date set forth below to be
less than the amount set forth opposite such date:
<TABLE>
<CAPTION>
Date Minimum Consolidated EBITDA
---- ---------------------------
<S> <C> <C>
March 31, 1998 $(2,500,000)
June 30, 1998 $3,000,000
September 30, 1998 $12,500,000
December 31, 1998 $26,000,000
March 31, 1999 $28,000,000
June 30, 1999 $32,000,000
September 30, 1999 $35,000,000
December 31, 1999 $35,000,000
</TABLE>
<PAGE>
84
March 31, 2000
and the last day of each fiscal
quarter ended thereafter $40,000,000
8.12 Interest Coverage Ratio. MMI Holdings will not permit the Interest
-----------------------
Coverage Ratio for any Test Period ending on a date set forth below to be less
than the ratio set forth opposite such date:
Date Ratio
---- -----
June 30, 1998 2.5:1.00
September 30, 1998 3.0:1.00
and the last day of each
fiscal quarter ended
thereafter
8.13 Leverage Ratio. MMI will not permit the Leverage Ratio for any Test
--------------
Period ending date set forth below to be more than the ratio set forth opposite
such date:
Date Ratio
---- -----
December 31, 1998 3.5:1.00
March 31, 1999 3.0:1.00
and thereafter
8.14 Limitation on Voluntary Payments and Modifications of Indebtedness;
-------------------------------------------------------------------
Modifications of Certificate of Incorporation, By-Laws and Certain Other
- ------------------------------------------------------------------------
Agreements; Negative Pledge; Limitations on Speculative Transactions; Issuances
- -------------------------------------------------------------------------------
of Capital Stock; Etc. None of the Borrowers will, and will not permit any of
- ---------------------
its Subsidiaries to:
(i) make (or give any notice in respect of) any voluntary or optional
payment or prepayment on or redemption or acquisition for value of, or
redeem, defease or otherwise satisfy prior to the scheduled maturity
thereof in any manner (including, without limitation, by way of depositing
with the trustee with respect thereto or any other Person money or
securities before due for the purpose of paying when due), or make any
payment in violation of any subordination terms of, any Indebtedness other
than (x) the prepayment of the Loans in accordance with the terms of this
Agreement, (y) regularly scheduled or required repayments or redemptions of
Existing Indebtedness, or amend, modify or change in any manner any term or
condition of any Existing Indebtedness, other than, so long as no Default
or Event of Default shall have occurred and is continuing, to prepay any
Indebtedness payable to any Borrower or any Subsidiary of a Borrower
whether by cash or set-off, and (z) the repayment of the CST Subordinated
Loan in accordance with Section 4 of the promissory note evidencing the CST
Subordinated Loan;
<PAGE>
85
(ii) amend its certificate of incorporation or bylaws or Memorandum
or Articles of Association or other documents;
(iii) make any change in (i) accounting policies or reporting
practices, except as required or permitted by generally accepted accounting
principles or (ii) fiscal year in effect on the Effective Date;
(iv) cancel or terminate any Transaction Document or consent to or
accept any cancellation or termination thereof, amend, modify or change in
any manner any material term or condition of any Transaction Document or
give any consent, waiver or approval thereunder, waive any default under or
any breach of any material term or condition of any Transaction Document,
agree in any manner to any other amendment, modification or change of any
term or condition of any Transaction Document or take any other action in
connection with any Transaction Document that would impair the value of the
interest or rights of any Credit Party thereunder or that would impair the
rights or interests of the Administrative Agent or any Bank;
(v) enter into or suffer to exist any agreement prohibiting or
conditioning the creation or assumption of any Lien upon any of its
property or assets other than (x) in favor of the Secured Parties, (y) such
prohibitions existing on the date hereof contained in certain agreements
with customers of any of the Borrowers or their Subsidiaries and (z) with
respect to assets subject to purchase money security interests or
Capitalized Leases; provided, however that such Borrower and such of its
-------- -------
Subsidiaries shall only be required to use its commercially reasonable
efforts to not enter into or suffer to exist any such negative pledge
agreement with any of its customers;
(vi) engage in any transaction involving commodity options or futures
contracts or any similar speculative transactions except for Interest Rate
Protection Agreements permitted under Section 8.04(c); or
(vii) become a general partner in any general or limited partnership
or joint venture, or permit any of its Subsidiaries to do so, other than
any Subsidiary the sole assets of which consist of its interest in such
partnership or joint venture or such joint ventures set forth on Annex
8.14B.
8.15 Limitation on the Creation of Subsidiaries. Notwithstanding
------------------------------------------
anything to the contrary contained in this Agreement, MMI Holdings will not, and
will not permit any of its Subsidiaries to, establish, create or acquire after
the Initial Borrowing Date any Subsidiary; provided that the Borrowers and their
--------
respective Wholly-Owned Subsidiaries shall be permitted to establish or create
Wholly-Owned Subsidiaries so long as (i) at least 30 days' prior written notice
thereof is given to the Administrative Agent (or such shorter notice as may be
acceptable to the Administrative Agent), (ii) the capital stock of such new
Subsidiary is
<PAGE>
86
pledged pursuant to, and to the extent required by, the Security Agreement and
the certificates representing such stock, together with stock powers duly
executed in blank, are delivered to the Collateral Agent, (iii) such new
Subsidiary (other than a Foreign Subsidiary except to the extent otherwise
required pursuant to Section 7.14) executes a Subsidiary Guaranty and the
Security Agreement and (iv) to the extent requested by the Administrative Agent
or the Required Banks, such new Subsidiary takes all actions required pursuant
to Section 7.11. In addition, each new Wholly-Owned Subsidiary of any Borrower
shall execute and deliver, or cause to be executed and delivered, all other
relevant documentation of the type described in Sections 5.05, 5.10 and, if
required by the Administrative Agent, 5.04, in each case as such new Subsidiary
would have had to deliver if such new Subsidiary were a Credit Party on the
Initial Borrowing Date.
SECTION 9. Events of Default.
-----------------
Upon the occurrence of any of the following specified events (each an
"Event of Default"):
9.01 Payments. Any Borrower or other Credit Party shall (i) default
--------
in the payment when due of any principal of the Loans or the payment when due of
any Unpaid Drawing or (ii) default, and such default shall continue for three or
more days, in the payment when due of any interest on the Loans or Unpaid
Drawings or any Fees or any other amounted owing hereunder or under any other
Credit Document; or
9.02 Representations, Etc. Any representation, warranty or statement
--------------------
made by any Credit Party herein or in any other Credit Document or in any
statement or certificate delivered pursuant hereto or thereto shall prove to be
untrue in any material respect on the date as of which made or deemed made; or
9.03 Covenants. Any Credit Party shall (a) default in the due
---------
performance or observance by it of any term, covenant or agreement contained in
Section 7.01, 7.05, 7.08, 7.11, 7.21 or 8, or (b) default in the due performance
or observance by it of any term, covenant or agreement (other than those
referred to in Section 9.01, 9.02 or clause (a) of this Section 9.03) contained
in this Agreement or any other Credit Document and such default shall continue
unremedied for a period of at least 10 days after notice to the defaulting party
by the Administrative Agent or the Required Banks; or
9.04 Default Under Other Agreements. (a) Any Credit Party or any of
------------------------------
its Subsidiaries shall (i) default in any payment with respect to any
Indebtedness (other than the Obligations) beyond the period of grace, if any,
provided in the instrument or agreement under which Indebtedness was created or
(ii) default in the observance or performance of any agreement or condition
relating to any such Indebtedness or contained in any instrument or agreement
evidencing, securing or relating thereto, or any other event shall occur or
condition exist, the effect of which default or other event or condition is to
cause, or to permit the holder
<PAGE>
87
or holders of such Indebtedness (or a trustee or agent on behalf of such holder
or holders) to cause any such Indebtedness to become due prior to its stated
maturity; or (b) any Indebtedness (other than the Obligations) of any Credit
Party or any of its Subsidiaries shall be declared to be due and payable, or
shall be required to be prepaid or redeemed other than by a regularly scheduled
required prepayment or as a mandatory prepayment, purchased or defeased, or an
offer to prepay, redeem, purchase or defease such Indebtedness shall be required
to be made, in each case, prior to the stated maturity thereof; provided that it
--------
shall not constitute an Event of Default pursuant to clause (a) or (b) of this
Section 9.04 unless the principal amount of any one issue of such Indebtedness,
or the aggregate amount of all such Indebtedness referred to in clauses (a) and
(b) above, exceeds $1,500,000 at any one time; or
9.05 Bankruptcy, Etc. Any Credit Party or any of its Subsidiaries
---------------
or, so long as the CST Guaranty shall be in effect, CST shall generally not pay
its debts as such debts become due, or shall admit in writing its inability to
pay its debts generally, or shall make a general assignment for the benefit of
creditors; or any proceeding shall be instituted by or against any Credit Party,
any of its Subsidiaries or, so long as the CST Guaranty shall be in effect, CST
seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation,
winding up, reorganization, arrangement, adjustment, protection, administration,
relief, or composition of it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking the entry of an
order for relief or the appointment of a receiver, trustee, administrator,
examiner or other similar official for it or for any substantial part of its
property and, in the case of any such proceeding instituted against it (but not
instituted by it) that is being diligently contested by it in good faith, either
such proceeding shall remain undismissed or unstayed for a period of 30 days or
any of the actions sought in such proceeding (including, without limitation, the
entry of an order for relief against, or the appointment of a receiver, trustee,
administrator, custodian or other similar official for, it or any substantial
part of its property) shall occur; or any Credit Party, any of its Subsidiaries
or, so long as the CST Guaranty shall be in effect, CST shall take any corporate
action to authorize any of the actions set forth above in this Section 9.05; or
9.06 ERISA. (a) Any ERISA Event shall have occurred with respect to
-----
a Plan and the sum (determined as of the date of occurrence of such ERISA Event)
of the liability that has been or is reasonably expected to be incurred of such
Plan and the liability that has been or is reasonably expected to be incurred of
any and all other Plans with respect to which an ERISA Event shall have occurred
and then exist (or the liability of the Credit Parties and the ERISA Affiliates
related to such ERISA Event) exceeds $1,000,000; or
(b) any Credit Party or any ERISA Affiliate shall have been notified
by the sponsor of a Multiemployer Plan that it has incurred Withdrawal Liability
to such Multiemployer Plan in an amount that, when aggregated with all other
amounts required to be paid to Multiemployer Plans by the Credit Parties and the
ERISA Affiliates as Withdrawal Liability (determined as of the date of such
notification), exceeds $1,000,000 or requires payments exceeding $500,000 per
annum; or
<PAGE>
88
(c) any Credit Party or any ERISA Affiliate shall have been notified
by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in
reorganization or is being terminated, within the meaning of Title IV of ERISA,
and as a result of such reorganization or termination the aggregate annual
contributions of the Credit Parties and the ERISA Affiliates to all
Multiemployer Plans that are then in reorganization or being terminated have
been or will be increased over the amounts contributed to such Multiemployer
Plans for the plan years of such Multiemployer Plans immediately preceding the
plan year in which such reorganization or termination occurs by an amount
exceeding $500,000; or
9.07 Security Documents. (a) Any Security Document shall cease to be
------------------
in full force and effect, or shall cease to give the Collateral Agent the Liens,
rights, powers and privileges purported to be created thereby in favor of the
Collateral Agent (including, without limitation, a perfected first priority
security interest in, and Lien on, all of the Collateral (subject to Permitted
Liens)), or (b) any Credit Party shall default in the due performance or
observance of any term, covenant or agreement on its part to be performed or
observed pursuant to any such Security Document and such default (except to the
extent that same will adversely affect the continued perfection and priority of
the Liens created by any such Security Document in Collateral with an aggregate
value in excess of $50,000, in which case clause (a) of this Section 9.07 will
be applicable) shall continue unremedied for a period of 10 days; or
9.08 Guaranties. The Guaranties or any provision thereof shall cease
----------
to be in full force and effect, or any Guarantor or any Person acting by or on
behalf of such Guarantor shall deny or disaffirm such Guarantor's obligations
under any Guaranty or any Guarantor shall default in the due performance or
observance of any term, covenant or agreement on its part to be performed or
observed pursuant to any Guaranty; or
9.09 Judgments. (i) Any judgment or order for the payment of money
---------
in excess of $1,000,000 shall be rendered against any Credit Party or any of its
Subsidiaries and either (A) enforcement proceedings shall have been commenced by
any creditor upon such judgment or order which have not been stayed within 5
days of such commencement or (B) there shall be any period of 10 consecutive
days during which a stay of enforcement of such judgment or order, by reason of
a pending appeal or otherwise, shall not be in effect; or (ii) any non-monetary
judgment or order shall be rendered against any Credit Party or any of its
Subsidiaries that could have a Material Adverse Effect, and there shall be any
period of 10 consecutive days during which a stay of enforcement of such
judgment or order, by reason of a pending appeal or otherwise, shall not be in
effect; or
9.10 Ownership. A Change of Control Event shall have occurred; or
---------
9.11 Credit Documents. Any provision of any Credit Document after
----------------
delivery thereof pursuant to Section 5 or 7.11 shall for any reason cease to be
valid and
<PAGE>
89
binding on or enforceable against any Credit Party to it, or any such Credit
Party shall so state in writing; or
9.12 Material Contracts. Any Material Contract which, if suspended,
------------------
revoked or otherwise terminated could, either individually or in the aggregate,
could have a Material Adverse Effect shall at any time and for any reason be
suspended, revoked or otherwise terminated prior to the scheduled termination
thereof by the other party thereto, or shall otherwise cease to be in full force
and effect; or
9.13 Borrowing Base Deficiency. Any Borrowing Base Deficiency shall
-------------------------
occur after expiration of the period of time required for prepayment in
accordance with Section 4.02(A); or
9.14 Material Adverse Change. There shall occur any Material Adverse
-----------------------
Change; or
9.15 CST Guaranty. The CST Guaranty or any provision thereof shall
------------
cease to be in full force and effect other than in accordance with its terms, or
CST or any Person acting by or on behalf of CST shall deny or disaffirm CST's
obligations under the CST Guaranty or CST shall default in the due performance
or observance of any term, covenant or agreement on its part to be performed or
observed pursuant to the CST Guaranty, including the obligation of CST to make
the CST Subordinated Loan in accordance with the terms of the CST Guaranty;
9.16. Spinoff Transaction. The Spinoff Transaction shall not have
-------------------
occurred on or prior to January 15, 1998.
then, and in any such event, and at any time thereafter, if any Event of Default
shall then be continuing, the Administrative Agent shall, upon the request or
with the consent of the Required Banks, by written notice to the Borrowers, take
any or all of the following actions, without prejudice to the rights of the
Administrative Agent or any Bank to enforce its claims against any Guarantor or
any Borrower, except as otherwise specifically provided for in this Agreement
(provided that if an Event of Default specified in Section 9.05 shall occur with
--------
respect to any Borrower, the result which would occur upon the giving of written
notice by the Administrative Agent as specified in clauses (i) and (ii) below
shall occur automatically without the giving of any such notice): (i) declare
the Revolving Loan Commitment terminated, whereupon the Commitment of each Bank
shall forthwith terminate immediately and any Commitment Fees shall forthwith
become due and payable without any other notice of any kind; (ii) declare the
principal of and any accrued interest in respect of all Loans and all
Obligations owing hereunder (including Unpaid Drawings) to be, whereupon the
same shall become, forthwith due and payable without presentment, demand,
protest or other notice of any kind, all of which are hereby waived by the
Borrowers; (iii) enforce, as Collateral Agent (or direct the Collateral Agent to
enforce), any or all of the Liens and security interests created
<PAGE>
90
pursuant to the Security Documents; (iv) terminate any Letter of Credit which
may be terminated in accordance with its terms; and (v) direct the Borrowers to
pay (and each Borrower hereby agrees upon receipt of such notice, or upon the
occurrence of any Event of Default specified in Section 9.05, to pay) to the
Collateral Agent at the Payment Office such additional amounts of cash, to be
held as security for the Borrowers' reimbursement obligations in respect of
Letters of Credit then outstanding, equal to the aggregate Stated Amount of all
Letters of Credit then outstanding.
SECTION 10. Definitions.
-----------
As used herein, the following terms shall have the meanings herein
specified unless the context otherwise requires. Defined terms in this
Agreement shall include in the singular number the plural and in the plural the
singular:
"Additional Charges" shall have the meaning provided in Section
12.16(b).
"Additional Security Documents" shall have the meaning provided in
Section 7.11.
"Administrative Agent" shall have the meaning provided in the first
paragraph of this Agreement and shall include any successor to the
Administrative Agent appointed pursuant to Section 11.10.
"Affiliate" shall mean, with respect to any Person, any other Person
directly or indirectly controlling (including but not limited to all directors
and officers of such Person), controlled by, or under direct or indirect common
control with such Person. A Person shall be deemed to control a corporation if
such Person possesses, directly or indirectly, the power (i) to vote 10% or more
of the securities having ordinary voting power for the election of directors of
such corporation or (ii) to direct or cause the direction of the management and
policies of such corporation, whether through the ownership of voting
securities, by contract or otherwise. In addition, for purposes of this
Agreement, an Affiliate of Bain Capital shall include any Bain Capital investor
or any investment fund under common control with the Bain Investors.
"Agents" shall mean the Administrative Agent, the Collateral Agent and
the Multi-Currency Agent.
"Aggregate Unutilized Commitment" shall mean, with respect to any Bank
at any time, such Bank's Revolving Loan Commitment at such time, if any, less
----
the sum of (A) the aggregate outstanding principal amount of all US Revolving
Loans made by such Bank, (B) such Bank's RL Percentage of the Letter of Credit
Outstandings at such time, (C) such Bank's RL Percentage of the aggregate
principal amount of all Multi-Currency Revolving Loans made by the Multi-
Currency Banks pursuant to Section 1.01(A)(b)(3) and outstanding at such time as
<PAGE>
91
to which such Bank has a contingent obligation to fund participations in Multi-
Currency Loans pursuant to Section 1.01(B), (C) such Bank's RL Percentage of the
aggregate Stated Amount of all Letters of Credit outstanding at such time as to
which such Bank has a contingent obligation to fund Unpaid Drawings in respect
of drawings under such Multi-Currency Letters of Credit pursuant to Section
1.01(B) and (D) such Bank's RL Percentage of the aggregate principal amount of
all Unpaid Drawings in respect of all drawings under Multi-Currency Letters of
Credit outstanding at such time and as to which such Bank has a contingent
obligation to fund Unpaid Drawings pursuant to Section 1.01(B).
"Agreement" shall mean this Credit Agreement, as the same may be from
time to time modified, amended and/or supplemented.
"AIB Facility" shall mean any debt facility, as amended, modified
and supplemented from time to time between Allied Irish Banks p.l.c. or an
Affiliate thereof ("AIB") and one or more direct or indirect Subsidiaries of
MMI.
"Applicable Margin" shall mean a percentage per annum determined by
reference to the Leverage Ratio as set forth below:
<TABLE>
<CAPTION>
=====================================================================================
Leverage Ratio Eurodollar Loans Base Rate Loans
-------------------------------------------------------------------------------------
U.S. Revolving Multi-Currency
Loans Loans
=====================================================================================
<S> <C> <C> <C> <C>
Level I
------- 2.00% 1.75% 1.00%
less than 1.0:1.0
Level II
--------
1.0:1.0 or greater,
but less than 2.0:1.0 2.25% 2.00% 1.25%
Level III
---------
2.0: 1.0 or greater 2.50% 2.25% 1.50%
=====================================================================================
</TABLE>
The Applicable Margin for each Loan shall be determined by reference to the
Leverage Ratio in effect from time to time; provided, however, that (A) no
change in the Applicable Margin shall be effective until three Business Days
after the date on which the Administrative Agent receives the financial
statements required to be delivered pursuant to Section 7.01(b) and (c), and a
certificate of the chief financial officer of MMI demonstrating such Leverage
Ratio, and
<PAGE>
92
(B) the Applicable Margin shall be at Level III for so long as the Borrower has
not submitted to the Administrative Agent the information described in clause
(A) of this proviso as and when required under Section 7.01(b) or (c), as the
case may be.
"Appropriate Agent" means, at any time, with respect to matters
relating to US Revolving Loans or US Letters of Credit, the Administrative Agent
and, with respect to matters relating to Multi-Currency Revolving Loans or
Multi-Currency Letters of Credit, the Multi-Currency Agent.
"Appropriate Letter of Credit Issuer" means, at any time, with respect
to matters relating to US Letters of Credit, the US Letter of Credit Issuer and,
with respect to matters relating to Multi-Currency Letters of Credit issued for
the account of any Local Currency Borrower, the Multi-Currency Letter of Credit
Issuer.
"Appropriate Notice Office" shall mean with respect (i) to US
Revolving Loans, US Letters of Credit and funding of participations in Multi-
Currency Revolving Loans or Unpaid Drawings in respect of drawings under Multi-
Currency Letters of Credit, the office of the Administrative Agent located at
901 Main Street, 14th Floor, Dallas, Texas 75202, Attention: Molly Oxford,
Agency Services, or such other office as the Administrative Agent may designate
to the Borrowers and the Banks from time to time and (ii) Multi-Currency
Revolving Loans and Multi-Currency Letters of Credit denominated in any
Currency, the office of the Multi-Currency Agent set forth on Schedule I
opposite such Currency or such other office as the Multi-Currency Agent may
designate to the Local Currency Borrowers and the Banks from time to time.
"Appropriate Payment Office" shall mean with respect (i) to US
Revolving Loans, US Letters of Credit and funding of participations in Multi-
Currency Revolving Loans or Unpaid Drawings in respect of drawings under Multi-
Currency Letters of Credit, the office of the Administrative Agent located at
901 Main Street, 14th Floor, Dallas, Texas 75202, Attention: Molly Oxford,
Agency Services, or such other office as the Administrative Agent may designate
to the Borrowers and the Banks from time to time, and (ii) Multi-Currency
Revolving Loans and Multi-Currency Letters of Credit denominated in any
Currency, the office of the Multi-Currency Agent set forth on Schedule II
opposite the relevant Currency or such other office as the Multi-Currency Agent
may designate to the Local Currency Borrowers and the Banks from time to time.
"Approved Foreign Currency" shall mean each of Japanese Yen,
Singaporean Dollars, Australian Dollars, South Korean Won, Irish Pounds, Pounds
Sterling, French Francs, Dutch Guilders and such other currencies as shall be
agreed among the relevant Local Currency Borrower, the other Borrowers, the
Multi-Currency Agent and the Administrative Agent from time to time.
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"Asset Sale," with respect to any Person, shall mean any sale,
transfer or other disposition (in one or a series of related transactions) by
such Person or any of its Subsidiaries to any other Person other than any
Wholly-Owned Subsidiary of such selling Person of any asset (including, without
limitation, any capital stock or other securities of another Person, but
excluding the sale by such Person of its own capital stock) of such selling
Person or such Subsidiary other than (i) sales, transfers or other dispositions
of inventory made in the ordinary course of business and (ii) sales of assets
pursuant to Sections 8.02(e), (f), (g) and (h).
"Assignment and Assumption Agreement" shall mean the Assignment and
Assumption Agreement substantially in the form of Exhibit I (appropriately
completed).
"Authorized Officer" shall mean any senior officer of any Credit Party
designated as such in writing to the Administrative Agent by such Credit Party,
in each case to the extent reasonably acceptable to the Administrative Agent.
"Bain Affiliates" shall mean any Affiliate of Bain Capital, provided
that for purposes of the definition of "Change of Control Event" and for
purposes of Section 9.12, the term Bain Affiliate shall not include (x) any
portfolio company of either Bain Capital or any Affiliate of Bain Capital or (y)
any officer or director of MMI or any of its Subsidiaries that is not also a
partner or stockholder of Bain Capital on the Effective Date.
"Bain Capital" shall mean Bain Capital, Inc., a Delaware corporation.
"Bank" shall have the meaning provided in the first paragraph of this
Agreement.
"Bank Default" shall mean (i) the refusal (which has not been
retracted) of an RL Bank to make available its portion of any Borrowing
(including any Mandatory Borrowing) or to fund its portion of any unreimbursed
payment under Section 2.04(c) or (ii) an RL Bank having notified the
Administrative Agent and/or the Borrowers that it does not intend to comply with
the obligations under Section 1.01(A)(c), 1.01(C) or 2.04(c).
"Bankruptcy Code" shall have the meaning provided in Section 9.05.
"Base Rate" at any time shall mean the higher of (x) the rate which is
" of 1% in excess of the Federal Funds Rate and (y) the Prime Lending Rate.
"Base Rate Loan" shall mean each Loan bearing interest at the rates
provided in Section 1.08(a).
"Borrower" means each of MMI and each Subsidiary of MMI that has
delivered a Credit Agreement Supplement which has become effective.
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94
"Borrowing" shall mean the incurrence of one Type of Loan by any
Borrower from all of the Banks on a pro rata basis on a given date (or resulting
--- ----
from conversions on a given date), having in the case of Eurodollar Loans the
same Interest Period.
"Borrowing Base Certificate" shall have the meaning provided in
Section 7.01(i).
"Borrowing Base Deficiency" means, at any time, the failure of the
value of the Eligible Collateral as determined by the Agents in their reasonable
judgment at such time to equal or exceed the sum of the aggregate principal
amount of the Revolving Loans and the Swingline Loans outstanding at such time
and the Letter of Credit Outstanding at such time.
"Business Day" shall mean (i) for all purposes other than as covered
by clauses (ii) and (iii) below, any day excluding Saturday, Sunday and any day
which shall be in New York, New York or Dallas, Texas a legal holiday or a day
on which banking institutions are authorized by law or other governmental
actions to close, (ii) with respect to all notices and determinations in
connection with, and payments of principal and interest on, Eurodollar Loans,
any day which is a Business Day described in clause (i) and which is also a day
for trading by and between banks in US dollar deposits in the London interbank
Eurodollar market, and (iii) if the applicable Business Day relates to any
Multi-Currency Loans or Multi-Currency Letters of Credit, any day on which banks
are not required or authorized to close in the city of the jurisdiction of such
Currency where the Appropriate Payment Office for such Currency is located.
"Capital Expenditures" shall mean, with respect to any Person, the sum
of (a) all amounts expended, directly or indirectly, by such Person or any of
its Subsidiaries for equipment, fixed assets, real property or improvements, or
for replacements or substitutions therefor or additions thereto, which have been
or should be shown as capital expenditures in accordance with GAAP on a
consolidated balance sheet of such Person (including, without limitation,
expenditures for maintenance and repairs which should be capitalized in
accordance with GAAP) or have a useful life of more than one year plus (b)
(without duplication) the aggregate principal amount of all Indebtedness
(including the amount of all Capitalized Lease Obligations incurred by such
Person) assumed or incurred in connection with any such expenditures.
"Capital Lease," as applied to any Person, shall mean any lease of any
property (whether real, personal or mixed) by that Person as lessee which, in
conformity with GAAP, has been or should be accounted for as a capital lease on
the balance sheet of that Person.
"Capitalized Lease Obligations" shall mean all obligations under
Capital Leases of the Credit Parties or any of their respective Subsidiaries in
each case taken at the amount thereof accounted for as liabilities in accordance
with GAAP.
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95
"Cash Equivalents" shall mean (i) securities issued or directly and
fully guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
--------
States of America is pledged in support thereof) having maturities of not more
than one year from the date of acquisition, (ii) US dollar denominated time
deposits, certificates of deposit and bankers' acceptances of (x) any Bank or
(y) any bank whose short-term commercial paper rating or that of its parent
company from S&P is at least A-1 or the equivalent thereof or from Moody's is at
least P-1 or the equivalent thereof (any such bank or Bank, an "Approved Bank"),
in each case with maturities of not more than one year from the date of
acquisition, (iii) commercial paper issued by any Approved Bank or by the parent
company of any Approved Bank and commercial paper issued by, or guaranteed by,
any industrial or financial company with a short-term commercial paper rating of
at least A-1 or the equivalent thereof by S&P or at least P-1 or the equivalent
thereof by Moody's, or guaranteed by any industrial company with a long term
unsecured debt rating of at least A or A2, or the equivalent of each thereof,
from S&P or Moody's, as the case may be, and in each case maturing within one
year after the date of acquisition, (iv) marketable direct obligations issued by
any state of the United States of America or any political subdivision of any
such state or any public instrumentality thereof maturing within one year from
the date of acquisition thereof and, at the time of acquisition, having one of
the two highest ratings obtainable from either S&P or Moody's and (v)
investments in money market funds substantially all the assets of which are
comprised of securities of the types described in clauses (i) through (iv)
above.
"Cash Proceeds" shall mean, with respect to any Asset Sale, issuance
or sale of debt or equity or Extraordinary Receipt, the aggregate cash payments
(including any cash received by way of deferred payment pursuant to a note
receivable issued in connection therewith, other than the portion of such
deferred payment constituting interest, but only as and when so received)
received by MMI and/or any of its Subsidiaries from such Asset Sale, issuance or
sale of debt or equity or Extraordinary Receipt.
"Change of Control Event" shall mean (a) MMI Holdings shall cease to
own directly or indirectly 100% of the economic and voting interest in the
capital stock of MMI, (b) at any time after the consummation of the Spinoff
Transaction and prior to the date of a Qualified IPO, the former holders of
Class B Common Stock of Stream International Holdings, Inc. (the "Stream
Holders") and RRD shall cease, in the aggregate, to own directly or indirectly
at least 51% on a fully diluted basis of the economic and voting interest in the
capital stock of MMI Holdings, or (c) at any time on or after the date of a
Qualified IPO, any Person or "group" (within the meaning of Rules 13d-3 and 13d-
5 under the Securities Exchange Act of 1934, as in effect on the Initial
Borrowing Date), other than the Stream Holders, Bain Capital and/or the Bain
Affiliates or RRD, shall beneficially own, directly or indirectly, 30% or more
on a fully diluted basis of the voting and/or economic interest in the capital
stock of MMI Holdings or MMI, or (d) any Person or two or more Persons acting in
concert other than the Stream Holders, Bain Capital and/or the Bain Affiliates
or RRD, shall have acquired by contract or otherwise, or shall have entered into
a contract or arrangement that, upon
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96
consummation, will result in its or their acquisition of the power to exercise,
directly or indirectly, a controlling influence over the management or policies
of MMI, or (e) the Board of Directors of MMI Holdings shall cease to consist of
a majority of Continuing Directors; provided, however, that the consummation of
-------- -------
the Spinoff Transaction in accordance with the Transaction Documents shall not
constitute a Change of Control Event.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the regulations promulgated and rulings issued thereunder.
Section references to the Code are to the Code, as in effect at the date of this
Agreement and any subsequent provisions of the Code amendatory thereof,
supplemental thereto or substituted therefor.
"Collateral" shall mean all of the Collateral as defined in each of
the Security Documents.
"Collateral Agent" shall mean Citicorp acting as collateral agent and
shall include any successor to the Collateral Agent appointed pursuant to
Section 11.10.
"Commitment Fee" shall have the meaning provided in Section 3.01(a).
"Consolidated Current Assets" shall mean, at any time, all assets of
MMI and its Subsidiaries at such time determined on a consolidated basis that
would, in accordance with GAAP, be classified as current assets of a company
conducting a business the same or similar to that of MMI, after deducting
adequate resources in each case in which a reserve is proper in accordance with
GAAP.
"Consolidated Current Liabilities" shall mean, at any time, (a) all
Indebtedness of MMI and its Subsidiaries (other than Indebtedness under the AIB
Facility) determined on a consolidated basis that by its terms is payable on
demand or matures within one year after the date of its creation and (b) all
other items (including taxes accrued as estimated) that in accordance with GAAP
would be classified as current liabilities of MMI and its Subsidiaries.
"Consolidated Debt" shall mean, at any time, the sum of (without
duplication) (i) all Indebtedness of MMI and its Subsidiaries as would be
required to be reflected on the liability side of a balance sheet of such Person
in accordance with GAAP as determined on a consolidated basis, (ii) all
Indebtedness of MMI and its Subsidiaries of the type described in clause (iii)
of the definition of Indebtedness and (iii) all Contingent Obligations of MMI
and its Subsidiaries in respect of Indebtedness of other Persons of the type
referred to in preceding clauses (i) and (ii) of this definition.
"Consolidated EBIT" shall mean, for any period, Consolidated Net
Income, before (i) interest expense, whether cash or non-cash, of MMI and its
Subsidiaries determined on a consolidated basis, and (ii) provisions for taxes
based on income, and determined without giving effect to any extraordinary gains
or losses or gains or losses from sales of assets other
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97
than from inventory sold in the ordinary course of business, determined in
accordance with GAAP for such period.
"Consolidated EBITDA" shall mean, for any period, Consolidated EBIT,
adjusted by adding thereto the amount of all depreciation expense and
amortization expense that were deducted in determining Consolidated EBIT for
such period.
"Consolidated Interest Expense" shall mean, for any period, total
interest expense (including that attributable to Capital Leases in accordance
with GAAP) of MMI and its Subsidiaries determined on a consolidated basis with
respect to all outstanding Indebtedness of MMI and its Subsidiaries, including,
without limitation, all commissions, discounts and other fees and charges owed
with respect to letters of credit and bankers' acceptance financing and net
costs or benefits under Interest Rate Protection Agreements, but excluding,
however, amortization of original issue discount, any payments made to obtain
any Interest Rate Protection Agreement, deferred financing costs, any interest
expense on deferred compensation arrangements and any other non-cash interest
expense to the extent included in total interest expense.
"Consolidated Net Income" shall mean, for any period, the net income
(or loss), after provision for taxes, of MMI and its Subsidiaries on a
consolidated basis for such period taken as a single accounting period.
"Contingent Obligations" shall mean as to any Person any obligation of
such Person guaranteeing or intended to guarantee any Indebtedness, leases,
dividends or other obligations ("primary obligations") of any other Person (the
"primary obligor") in any manner, whether directly or indirectly, including,
without limitation, any obligation of such Person, whether or not contingent,
(a) to purchase any such primary obligation or any property constituting direct
or indirect security therefor, (b) to advance or supply funds (x) for the
purchase or payment of any such primary obligation or (y) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency of the primary obligor, (c) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation or (d) otherwise to assure or hold harmless the owner of
such primary obligation against loss in respect thereof. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof (assuming such Person is
required to perform thereunder) as determined by such Person in good faith.
"Continuing Directors" shall mean the directors of MMI Holdings on the
Effective Date, including Bain Affiliates and each other director if such
director's nomination for the election to the Board of Directors of MMI Holdings
is recommended by a majority of the then Continuing Directors.
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98
"Contribution Agreement" shall have the meaning provided in the second
paragraph of this Agreement.
"Credit Agreement Supplement" shall have the meaning provided in
Section 1.14.
"Credit Documents" shall mean this Agreement, the Notes, the
Guaranties, each Security Document and any Credit Agreement Supplement entered
into by a Borrower.
"Credit Party Supplement Date" shall have the meaning provided in
Section 7.19(a).
"Credit Event" shall mean the making of a Loan (other than a Revolving
Loan made pursuant to a Mandatory Borrowing) or the issuance of a Letter of
Credit.
"Credit Party" shall mean each of MMI Holdings, each of the Borrowers
and each Subsidiary Guarantor.
"CST" shall mean Corporate Software & Technology, Inc.
"CST Guaranty" shall mean the Guaranty dated December 15, 1997 made by
CST in favor of the Guaranteed Creditors.
"CST Subordinated Loan" shall mean the Subordinated loan made by CST
to MMI pursuant to the CST Guaranty and Section 7.19 hereof.
"Currency" shall mean US Dollars or any Approved Foreign Currency.
"Currency Sublimit" shall mean, with respect to any Currency, the
amount from time to time equal to the amount of US Dollars set forth on Schedule
III under the heading "Currency Sublimit" opposite such Currency and the name of
the related Local Currency Borrower, as such amount may be changed from time to
time by the relevant Local Currency Borrower with the consent of the Multi-
Currency Agent, such consent not to be unreasonably withheld.
"Default" shall mean any event, act or condition which with notice or
lapse of time, or both, would constitute an Event of Default.
"Defaulting Bank" shall mean any Bank with respect to which a Bank
Default is in effect.
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99
"Dividends" shall have the meaning provided in Section 8.07.
"Documents" shall mean the Credit Documents and the Transaction
Documents.
"Domestic Subsidiary" shall mean each Subsidiary incorporated or
organized in the United States or any State or territory thereof.
"Dropdown" shall have the meaning provided in the first "WHEREAS"
clause hereof.
"Effective Date" shall have the meaning provided in Section 12.10.
"Eligible Collateral" shall mean the Eligible Fixed Assets, the
Eligible Inventory and the Eligible Receivables.
"Eligible Fixed Assets" shall mean, collectively, the Eligible US
Fixed Assets and the aggregate Eligible Foreign Fixed Assets of the Local
Currency Borrowers.
"Eligible Foreign Fixed Assets" shall mean, with respect to any Local
Currency Borrower, the orderly liquidation value (as determined by an
independent appraiser acceptable to the Agents) of the tangible property of such
Local Currency Borrower and its Subsidiaries used in the operation of their
respective businesses, which conform to the representations and warranties
contained in the Security Agreement to which such Local Currency Borrower is a
party, which in each case continue to be acceptable to the Agents in their
reasonable judgment, including, without limitation, plant, machinery, and
equipment, furniture and fixtures, and leasehold improvements. The value of
such fixed assets shall be determined by the Agents in their reasonable
judgment.
"Eligible Foreign Inventory" shall mean, with respect to any Local
Currency Borrower, the gross dollar value (valued at the lower of cost or market
value) of the inventory of such Local Currency Borrower which conforms to the
representations and warranties contained in the Security Agreement to which such
Local Currency Borrower is a party and which continues to be acceptable to the
Agents in their reasonable judgment, less (i) any goods returned or rejected
(except to the extent that such returned or rejected goods continue to conform
to the representations and warranties contained in such Security Agreement) by
customers and goods to be returned to suppliers, (ii) the amount of any advance
payments made by customers with respect to inventory of such local Currency
Borrower and (iii) reserves required by the Agents in their reasonable judgment.
The value of such inventory shall be determined by the Agents in their
reasonable judgment.
"Eligible Foreign Receivables" shall mean, with respect to any Local
Currency Borrower, the total face amount of the receivables of such Local
Currency Borrower which conform to the representations and warranties contained
in the Security Agreement to which
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100
such Local Currency Borrower is a party, which in each case continue to be
acceptable to the Agents in their reasonable judgment less any returns,
discounts, claims, credit and allowances of any nature (whether issued, owing,
granted or outstanding) and less reserves for any other matter affecting the
creditworthiness of account debtors owing the receivables. The value of such
receivables shall be determined by the Agents in their reasonable judgment
taking into consideration, among other factors, their book value determined in
accordance with GAAP.
"Eligible Inventory" shall mean, collectively, the Eligible US
Inventory and the aggregate Eligible Foreign Inventory of the Local Currency
Borrowers.
"Eligible Receivables" shall mean, collectively, the Eligible US
Receivables and the aggregate Eligible Foreign Receivables of the Local Currency
Borrowers.
"Eligible US Fixed Assets" shall mean, the orderly liquidation value
(as determined by an independent appraiser acceptable to the Agents) of the
tangible property of MMI and its Domestic Subsidiaries used in the operation of
their respective businesses, which conform to the representations and warranties
contained in the Security Agreement to which MMI is a party, which in each case
continues to be acceptable to the Agents in their reasonable judgment,
including, without limitation, plant, machinery and equipment, furniture and
fixtures, and leasehold improvements.
"Eligible US Inventory" shall mean the gross dollar value (valued at
the lower of cost or market value) of the inventory of MMI and its Domestic
Subsidiaries which conforms to the representations and warranties contained in
the Security Agreement to which each of MMI and its Domestic Subsidiaries is a
party and which continues to be acceptable to the Agents in its reasonable
judgment, less (i) any goods returned or rejected (except to the extent that
such returned or rejected goods continue to conform to the representations and
warranties contained in such Security Agreement) by customers and goods to be
returned to suppliers, (ii) the amount of any advance payments made by customers
with respect to inventory of MMI and such Domestic Subsidiary and (iii) reserves
required by the Agents in their reasonable judgment. The value of such
inventory shall be determined by the Agents in their reasonable judgment. By
way of example only, and without limiting the discretion of the Agents to
consider any inventory not to be Eligible US Inventory, the Agents may consider
any of the following classes of inventory not to be Eligible US Inventory:
---
(a) inventory consisting of "perishable agricultural commodities"
within the meaning of the Perishable Agricultural Commodities Act of 1930,
as amended, and the regulations thereunder, or on which a Lien has arisen
or may arise in favor of agricultural producers under comparable state or
local laws;
(b) inventory located on leaseholds as to which the lessor has not
entered into, within 90 days from the Initial Borrowing Date, a consent and
agreement
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101
providing the Agents with the right to receive notice of default, the right
to repossess such Inventory at any time and such other rights as may be
acceptable to the Agents;
(c) inventory that is obsolete, unusable or otherwise unavailable for
sale;
(d) inventory that fails to meet all standards imposed by any
governmental agency, or department or division thereof, having regulatory
authority over such inventory or its use or sale;
(e) inventory that is subject to any licensing, patent, royalty,
trademark, trade name or copyright agreement with any third party from whom
MMI or any Domestic Subsidiary has received notice of a dispute in respect
of any such agreement;
(f) inventory located outside the United States;
(g) inventory that is not in the possession of or under the sole
control of MMI or any Domestic Subsidiary; and
(h) inventory that is covered by agreements prohibiting or restricting
the granting of liens or creation of security interests in such inventory;
and
(i) inventory in respect of which the Security Agreement, after giving
effect to the related filings of financing statements that have then been
made, if any, does not or has ceased to create a valid and perfected first
priority lien or security interest in favor of the Secured Creditors
securing the Secured Obligations.
"Eligible US Receivables" shall mean the total face amount of the
receivables of MMI and its Domestic Subsidiaries which conform to the
representations and warranties contained in the Security Agreement to which each
of MMI and its Domestic Subsidiaries is a party, which in each case continue to
be acceptable to the Agents in their reasonable judgment less any returns,
discounts, claims, credit and allowances of any nature (whether issued, owing,
granted or outstanding) and less reserves for any other matter affecting the
creditworthiness of account debtors owing the receivables. The value of such
receivables shall be determined by the Agents in their reasonable judgment
taking into consideration, among other factors, their book value determined in
accordance with GAAP. By way of example only, and without limiting the
discretion of the Agents to consider any receivables not to be Eligible US
Receivables, the Agents may consider any of the following classes of receivables
not to be Eligible US Receivables:
- ---
(a) receivables that do not arise out of sales of goods or rendering
of services in the ordinary course of MMI or any Domestic Subsidiary's
business;
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102
(b) receivables on terms other than those normal or customary in MMI
or any Domestic Subsidiary's business;
(c) receivables owing from any Person that is an Affiliate of MMI or
any Domestic Subsidiary;
(d) receivables more than 90 days past original invoice date or more
than 60 days past the date due;
(e) receivables owing from any Person from which an aggregate amount
of more than 20% of the receivables owing is more than 60 days past due;
(f) receivables owing from any Person that (i) has disputed liability
for any receivable owing from such Person or (ii) has otherwise asserted
any claim, demand or liability, whether by action, suit, counterclaim or
otherwise;
(g) receivables owing from any Person that shall take or be the
subject of any action or proceeding of a type described in Section 9.05;
(h) receivables (i) owing from any Person that is also a supplier to
or creditor of MMI or any Domestic Subsidiary or (ii) representing any
manufacturer's or supplier's credits, discounts, incentive plans or similar
arrangements entitling MMI or any Domestic Subsidiary to discounts on
future purchase therefrom;
(j) receivables arising out of sales to account debtors outside the
United States unless such Receivables are fully backed by an irrevocable
letter of credit on terms, and issued by a financial institution,
acceptable to the Agents and such irrevocable letter of credit is in the
possession of the Agents;
(k) receivables arising out of sales on a bill-and-hold, guaranteed
sale, sale-or-return, sale on approval or consignment basis or subject to
any right of return, set-off or charge-back;
(l) receivables owing from an account debtor that is an agency,
department or instrumentality of the United States or any State thereof;
(m) receivables the full and timely payment of which the Agents in
their reasonable judgment believes to be doubtful; and
(n) receivables in respect of which the Security Agreement, after
giving effect to the related filings of financing statements that have then
been made, if any, does not or has ceased to create a valid and perfected
first priority lien or security interest in favor of the Secured Creditors
securing the Secured Obligations.
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"Eligible Transferee" shall mean (i) a Bank; (ii) an Affiliate of a
Bank; (iii) a commercial bank organized under the laws of the United States, or
any State thereof, and having total assets in excess of $1,000,000,000; (iv) a
savings and loan association or savings bank organized under the laws of the
United States, or any State thereof, and having total assets in excess of
$1,000,000,000; (v) a commercial bank organized under the laws of any other
country that is a member of the Organization for Economic Cooperation and
Development (the "OECD") or has concluded special lending arrangements with the
International Monetary Fund associated with its General Arrangements to Borrow
or of the Cayman Islands, or a political subdivision of any such country, and
having total assets in excess of $1,000,000,000, so long as such bank is acting
through a branch or agency located in the United States; (vi) the central bank
of any country that is a member of the OECD; (vii) a finance company, insurance
company or other financial institution or fund (whether a corporation,
partnership, trust or other entity) that is engaged in making, purchasing or
otherwise investing in commercial loans in the ordinary course of its business
and having total assets in excess of $1,000,000,000; and (viii) any other Person
approved by the Agents and the Borrowers, such approval not to be unreasonably
withheld or delayed; provided, however, that neither any Credit Party nor any
-------- -------
Affiliate of a Credit Party shall qualify as an Eligible Transferee under this
definition.
"Employee Stock Option Plan" shall mean any stock option plan now or
hereafter adopted by MMI.
"Employment Agreements" shall have the meaning provided in Section
5.13.
"Environmental Claims" shall mean any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, claims, liens,
notices of non-compliance or violation, investigations or proceedings relating
in any way to any violation (or alleged violation) by MMI or any of its
Subsidiaries under any Environmental Law (hereafter "Claims") or any permit
issued to MMI or any of its Subsidiaries under any such law, including, without
limitation, (a) any and all Claims by governmental or regulatory authorities for
enforcement, cleanup, removal, response, remedial or other actions or damages
pursuant to any applicable Environmental Law, and (b) any and all Claims by any
third party seeking damages, contribution, indemnification, cost recovery,
compensation or injunctive relief resulting from Hazardous Materials or arising
from alleged injury or threat of injury to health, safety or the environment.
"Environmental Law" shall mean any federal, state or local policy,
statute, law, rule, regulation, ordinance, code or rule of common law now or
hereafter in effect and in each case as amended, and any judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent, decree or judgment (for purposes of this definition
(collectively, "Laws")), relating to the environment, or Hazardous Materials or
health and safety to the extent such health and safety issues arise under the
Occupational Safety and Health Act of 1970, as amended, or any such similar
Laws.
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"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated and the
rulings issued thereunder. Section references to ERISA are to ERISA as in
effect at the date of this Agreement and any subsequent provisions of ERISA
amendatory thereof, supplemental thereto or substituted therefor.
"ERISA Affiliate" shall mean each person (as defined in Section 3(9)
of ERISA) which together with any Credit Party would be deemed to be a "single
employer" within the meaning of Section 414(b), (c), (m) or (o) of the Code.
"ERISA Event" means (a)(i) the occurrence of a reportable event,
within the meaning of Section 4043 of ERISA, with respect to any Plan unless the
30-day notice requirement with respect to such event has been waived by the
PBGC, or (ii) the requirements of subsection (1) of Section 4043(b) of ERISA
(without regard to subsection (2) of such Section) are met with respect to a
contributing sponsor, as defined in Section 4001(a)(13) of ERISA, of a Plan, and
an event described in paragraph (9), (10), (11), (12) or (13) of Section 4043(c)
of ERISA is reasonably expected to occur with respect to such Plan within the
following 30 days; (b) the application for a minimum funding waiver with respect
to a Plan; (c) the provision by the administrator of any Plan of a notice of
intent to terminate such Plan, pursuant to Section 4041(a)(2) of ERISA
(including any such notice with respect to a plan amendment referred to in
Section 4041(e) of ERISA); (d) the cessation of operations at a facility of any
Credit Party or any ERISA Affiliate in the circumstances described in Section
4062(e) of ERISA; (e) the withdrawal by any Credit Party or any ERISA Affiliate
from a Multiple Employer Plan during a plan year for which it was a substantial
employer, as defined in Section 4001(a)(2) of ERISA; (f) the conditions for
imposition of a lien under Section 302(f) of ERISA shall have been met with
respect to any Plan; (g) the adoption of an amendment to a Plan requiring the
provision of security to such Plan pursuant to Section 307 of ERISA; or (h) the
institution by the PBGC of proceedings to terminate a Plan pursuant to Section
4042 of ERISA, or the occurrence of any event or condition described in Section
4042 of ERISA that constitutes grounds for the termination of, or the
appointment of a trustee to administer, such Plan.
"Eurodollar Loans" shall mean each Loan bearing interest at the rates
provided in Section 1.08(b).
"Eurodollar Rate" shall mean for the Interest Period for each
Eurodollar Loan comprising part of the same Borrowing, a per annum interest rate
determined pursuant to the following formula:
Eurodollar Rate = London Interbank Offered Rate
---------------------------------
1 - Eurodollar Reserve Percentage
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105
"Eurodollar Reserve Percentage" shall mean for any day, that
percentage (expressed as a decimal) which is in effect from time to time under
Regulation D of the Board of Governors of the Federal Reserve System (or any
successor), as such regulation may be amended from time to time or any successor
regulation, as the maximum reserve requirement (including, without limitation,
any basic, supplement, emergency, special, or marginal reserves) applicable with
respect to Eurocurrency liabilities as that term is defined in Regulation D (or
against any other category of liabilities that includes deposits by reference to
which the interest rate of Eurodollar Loans is determined), whether or not a
Bank has any Eurocurrency liabilities subject to such reserve requirement at
that time. Eurodollar Loans shall be deemed to constitute Eurocurrency
liabilities and as such shall be deemed subject to reserve requirements without
benefits of credits for proration, exceptions or offsets that may be available
from time to time to a Bank. The Eurodollar Rate shall be adjusted
automatically on and as of the effective date of any change in the Eurodollar
Reserve Percentage.
"Event of Default" shall have the meaning provided in Section 9.
"Existing Indebtedness" shall have the meaning provided in Section
6.23.
"Existing Indebtedness Agreement" shall have the meaning provided in
Section 5.13.
"Extraordinary Receipt" means any cash received by or paid to or for
the account of any Person not in the ordinary course of business, including,
without limitation, tax refunds, pension plan reversions, proceeds from any
Recovery Event and indemnity payments.
"Facing Fee" shall have the meaning provided in Section 3.01(d).
"Federal Funds Rate" shall mean for any period, a fluctuating interest
rate (rounded upward, if necessary, to the nearest 1/100th of 1%) equal for each
day during such period to the weighted average of the rates on overnight Federal
Funds transactions with members of the Federal Reserve System arranged by
Federal Funds brokers, as published for such day (or, if such day is not a
Business Day, for the next preceding Business Day) by the Federal Reserve Bank
of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations for such day on such transactions
received by the Administrative Agent from three Federal Funds brokers of
recognized standing selected by the Administrative Agent.
"Fees" shall mean all amounts payable pursuant to, or referred to in,
Section 3.01.
"Foreign Availability Amount" shall mean an amount equal to the Total
Revolving Loan Commitment less the sum of (x) the aggregate principal amount of
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Multi-
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106
Currency Revolving Loans then outstanding, (y) the aggregate amount of Multi-
Currency Letter of Credit Outstandings at such time and (z) $5,000,000.
"Foreign Borrowing Base", with respect to any Local Currency Borrower,
shall mean, as at any date on which the amount thereof is being determined, an
amount equal to the sum of (i) up to 85% of the Eligible Foreign Receivables of
such Local Currency Borrower, (ii) up to 60% of Eligible Foreign Inventory of
such Local Currency Borrower, and (iii) up to 75% of Eligible Foreign Fixed
Assets of such Local Currency Borrower (such amount of Eligible Foreign Fixed
Assets being reduced by up to 20% each fiscal year of MMI Holdings commencing on
January 1, 1999), in each case, as such percentages shall be determined by the
Agents in their sole discretion, and each as determined from the Borrowing Base
Certificate of such Local Currency Borrower most recently delivered pursuant to
Section 7.01(i).
"Foreign Corporation" mean any "controlled foreign corporation" within
the meaning of Section 957(a) of the Internal Revenue Code as to which MMI or
any of its Subsidiaries is a "United States shareholder" as defined in Section
951(b) of the Internal Revenue Code.
"Foreign Currency Equivalent" shall mean, on any date of
determination, the equivalent in any Foreign Currency of an amount in US
dollars, or in US dollars of an amount in any Foreign Currency, determined at
the rate of exchange quoted by the Multi-Currency Agent in New York City, at
9:00 A.M. (New York City time) on such date of determination, to prime banks in
New York City for the spot purchase in the New York foreign exchange market of
such amount of US dollars with such Foreign Currency or such amount of such
Foreign Currency or with US dollars.
"Foreign Outstanding" shall mean, at any time, the sum of (i) the
aggregate principal amount of Multi-Currency Revolving Loans then outstanding
plus (ii) the aggregate amount of Multi-Currency Letter of Credit Outstandings
at such time.
"Foreign Pension Plan" shall mean any plan, fund (including, without
limitation, any superannuation fund) or other similar program established or
maintained outside the United States of America by MMI or any one or more of its
Subsidiaries primarily for the benefit of employees of MMI or such Subsidiaries
residing outside the United States of America, which plan, fund or other similar
program provides, or results in, retirement income, a deferral of income in
contemplation of retirement or payments to be made upon termination of
employment, and which plan is not subject to ERISA or the Code.
"Foreign Subsidiary" shall mean each Subsidiary other than a Domestic
Subsidiary.
"French Francs Facility" shall mean, collectively, the following
credit facilities: (i) loan arrangements between MMI-France, as borrower and
Banque Nationale de
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107
Paris and (ii) loan arrangements between MMI-France, as borrower and Banque
Populaire Val de France each as in effect on the date hereof and any
replacement, extension or renewal of any such credit facility entered into by
MMI-France pursuant to clauses (i) and (ii) above with a comparable bank or
other comparable financing institution.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time as promulgated by the
Financial Accounting Standards Board (or any successor thereto); it being
understood and agreed that determinations in accordance with GAAP for purposes
of Section 8, including defined terms as used therein, are subject (to the
extent provided therein) to Section 12.07(a).
"Guaranteed Creditors" shall mean and include each of the
Administrative Agent, the Syndication Agent, the Collateral Agent, the Banks and
each party (other than any Credit Party) party to an Interest Rate Protection
Agreement or Other Hedging Agreement to the extent that such party constitutes a
Secured Creditor under the Security Documents.
"Guaranteed Obligations" shall mean (i) the principal and interest on
each Note issued by each Borrower to each Bank, and Loans made, under this
Agreement and all reimbursement obligations and Unpaid Drawings with respect to
Letters of Credit, together with all the other obligations (including
obligations which, but for the automatic stay under Section 362(a) of the
Bankruptcy Code, would become due) and liabilities (including, without
limitation, indemnities, fees and interest thereon) of each Borrower to such
Bank, the Administrative Agent, the Syndication Agent and the Collateral Agent
now existing or hereafter incurred under, arising out of or in connection with
this Agreement or any other Credit Document and the due performance and
compliance with all the terms, conditions and agreements contained in the Credit
Documents by the Credit Parties and (ii) all obligations (including obligations
which, but for the automatic stay under Section 362(a) of the Bankruptcy Code,
would become due) and liabilities of the Credit Parties or any of their
respective Subsidiaries owing under any Interest Rate Protection Agreement or
Other Hedging Agreement entered into by any Credit Party or any of its
Subsidiaries with any Bank or any affiliate thereof (even if such Bank
subsequently ceases to be a Bank under this Agreement for any reason) so long as
such Bank or affiliate participate in such Interest Rate Protection Agreement or
Other Hedging Agreement, and their subsequent assigns, if any, whether now in
existence or hereafter arising, and the due performance and compliance with all
terms, conditions and agreements contained therein.
"Guarantor" shall mean each of MMI Holdings, MMI and each Subsidiary
Guarantor.
"Guaranty" shall mean and include each Parent Guaranty and each
Subsidiary Guaranty.
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108
"Hazardous Materials" shall mean (a) any petrochemical or petroleum
products, radioactive materials, asbestos in any form that is or could become
friable, urea formaldehyde foam insulation, transformers or other equipment that
contain dielectric fluid containing levels of polychlorinated biphenyls, and
radon gas; and (b) any chemicals, materials or substances defined as or included
in the definition of "hazardous substances," "hazardous wastes," "hazardous
materials," "restricted hazardous materials," "extremely hazardous wastes,"
"restrictive hazardous wastes," "toxic substances," "toxic pollutants,"
"contaminants" or "pollutants," or words of similar meaning and regulatory
effect.
"Highest Lawful Rate" shall mean, with respect to any indebtedness
owed to any Bank hereunder or under any other Credit Document, the maximum
nonusurious interest rate, if any, that at any time or from time to time may be
contracted for, taken, reserved, charged or received by such Bank with respect
to such indebtedness under applicable law.
"Home Jurisdiction Withholding Taxes" means, in the case of each
Borrower, withholding taxes imposed by the jurisdiction or political subdivision
or taxing authority thereof or therein in which such Borrower is organized.
"Indebtedness" of any Person shall mean, without duplication, (i) all
indebtedness of such Person for borrowed money, (ii) the deferred purchase price
of assets or services payable to the sellers thereof or any of such seller's
assignees which in accordance with GAAP would be shown on the liability side of
the balance sheet of such Person, (iii) the face amount of all letters of credit
issued for the account of such Person and, without duplication, all drafts drawn
thereunder, (iv) all Indebtedness of a second Person secured by any Lien on any
property owned by such first Person, whether or not such Indebtedness has been
assumed, (v) all obligations, contingent or otherwise, of such Person under
acceptance or similar facilities, (vi) all Capitalized Lease Obligations of such
Person, (vii) all obligations of such Person to pay a specified purchase price
for goods or services whether or not delivered or accepted, i.e., take-or-pay
----
and similar obligations, (viii) all obligations under Interest Rate Protection
Agreements and Other Hedging Agreements, (ix) all obligations of such Person
evidenced by notes, bonds, debentures or other similar instruments, (x) all
obligations of such Person created or arising under any conditional sale or
other title retention agreement with respect to property acquired by such Person
(even though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale of such
property), (xi) all obligations of such Person to purchase, redeem, retire,
defease or otherwise make any payment in respect of any capital stock of or
other ownership or profit interest in such Person or any other Person or any
warrants, rights or options to acquire such capital stock, valued, in the case
of redeemable preferred stock, at the greater of its voluntary or involuntary
liquidation preference plus accrued and unpaid dividends but excluding the MMI
Holdings Preferred Stock, and (xii) all Contingent Obligations of such Person,
provided that Indebtedness shall not include trade or services payables not
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overdue by more than 60 days and accrued expenses, in each case arising in the
ordinary course of business, and provided,
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109
further, that for the purposes of Sections 8.10, 8.12, and 8.13, Indebtedness
- -------
shall not include the Contingent Obligations of MMI contemplated under the
Transaction Documents.
"Initial Borrowing Date" shall mean the date upon which Loans are
initially incurred hereunder.
"Intercompany Loan" shall have the meaning provided in Section
8.06(g).
"Intercompany Notes" shall mean promissory notes, in the form of
Exhibit J, evidencing Intercompany Loans.
"Interest Coverage Ratio" shall mean, for any period, the ratio of
Consolidated EBITDA to Consolidated Interest Expense for such period.
"Interest Period," with respect to any Eurodollar Loan, shall mean the
interest period applicable thereto, as determined Pursuant to Section 1.09.
"Interest Rate Protection Agreement" shall mean any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement, interest
rate hedging agreement or other similar agreement or arrangement.
"L/C Participant" shall have the meaning provided in Section 2.04.
"L/C Supportable Indebtedness" shall mean (i) obligations of MMI and
its Subsidiaries incurred in the ordinary course of business with respect to
insurance obligations and workers' compensation, surety bonds and other similar
statutory obligations and (ii) such other obligations of MMI and its
Subsidiaries, as are reasonably acceptable to the Administrative Agent and the
Letter of Credit Issuers and otherwise permitted to exist pursuant to the terms
of this Agreement.
"Leasehold" of any Person shall mean all of the right, title and
interest of such Person as lessee or licensee in, to and under leases or
licenses of land, improvements and/or fixtures.
"Letters of Credit" shall have the meaning provided in Section
2.01(a).
"Letter of Credit Fees" shall have the meaning provided in Section
3.01(b).
"Letter of Credit Issuer" shall mean any US Letter of Credit Issuer or
any Multi-Currency Letter of Credit Issuer.
"Letter of Credit Outstandings" shall mean the US Letter of Credit
Outstandings and the Multi-Currency Letter of Credit Outstandings.
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110
"Letter of Credit Request" shall have the meaning provided in Section
2.02(a).
"Leverage Ratio" shall mean, at any time, the ratio of (x)
Consolidated Debt at such time to (y) Consolidated EBITDA for the Test Period
then last ended.
"Lien" shall mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including any agreement to give any of
the foregoing, any conditional sale or other title retention agreement, any
financing or similar statement or notice filed under the UCC or any similar
recording or notice statute, and any lease having substantially the same effect
as the foregoing).
"Loan" shall mean each and every Loan made by any Bank hereunder,
Revolving Loans or Swingline Loans.
"Local Currency Borrower" shall mean any Borrower organized under the
laws of a jurisdiction outside of the United States.
"London Interbank Offered Rate" shall mean, with respect to any
Eurodollar Loan for the Interest Period applicable thereto, the rate of interest
per annum appearing on Telerate Page 3750 (or any successor page) as the London
interbank offered rate for deposits in Dollars at approximately 11:00 A.M.
(London time) two Business Days prior to the first day of such Interest Period
for a term comparable to such Interest Period; provided, if more than one rate
--------
is specified on Telerate Page 3750, the applicable rate shall be the arithmetic
mean of all such rates. If, for any reason, such rate is not available, the
term "London Interbank Offered Rate" shall mean, with respect to any Eurodollar
Loan for the Interest Period applicable thereto, the rate per annum appearing on
Reuters Screen LIBO Page as the London interbank offered rate for deposits in
Dollars at approximately 11:00 A.M. (London time) two Business Days prior to the
first day of such Interest Period for a term comparable to such Interest period;
provided further, if more than one rate is specified on Reuters Screen LIBO
- -------- -------
Page, the applicable rate shall be the arithmetic mean of all such rates.
"Management Agreements" shall have the meaning provided in Section
5.13.
"Mandatory Borrowing" shall have the meaning provided in Section
1.01(D).
"Margin Stock" shall have the meaning provided in Regulation U.
"Material Adverse Effect" shall mean a material adverse effect on (a)
the business, properties, assets, liabilities, condition (financial or
otherwise) or prospects of any Credit Party or of any Credit Party and its
Subsidiaries taken as a whole or, prior to the Dropdown, the MMI Business, (b)
the rights and remedies of the Administrative Agent or any Bank under any Credit
Document or any other Document or (c) the ability of any Credit Party
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111
to perform its obligations under any Credit Document or any other Document to
which it is a party.
"Material Adverse Change" means any material adverse change in the
business, condition (financial or otherwise), operations, performance,
properties or prospects of any Credit Party or any of its Subsidiaries.
"Maturity Date" shall mean December 17, 2001.
"Maximum Swingline Amount" shall mean $5,000,000.
"Minimum Borrowing Amount" shall mean (i) $1,000,000 for US Revolving
Loans, $1,000,000 (or the Foreign Currency Equivalent thereof), (iii) for Multi-
Currency Revolving Loans denominated in any Approved Foreign Currency, the
amount set forth on Schedule IV opposite such Approved Foreign Currency, and
(iii) for Swingline Loans, $250,000.
"MMI" shall have the meaning provided in the first paragraph of this
Agreement.
"MMI-Australia" shall mean Modus Media International Pty. Ltd. ACN
062 349 222, an Australian company.
"MMI-France" shall mean Modus Media International France S.A., a
French company registered with the Commercial Registry of Orleans under the
Number B390185346.
"MMI-Ireland" shall mean Modus Media International Ireland (Holdings)
and its Subsidiaries, Irish companies.
"MMI-Netherlands" shall mean Modus Media International B.V., a
Netherlands company.
"MMI- Singapore" shall mean Modus Media International Pte. Ltd., a
Singaporean company.
"MMI-UK" shall mean Modus Media International Limited (UK).
"MMI Business" shall mean all of the assets and liabilities
contributed by Stream to MMI, pursuant to the Transaction Documents.
"MMI Holdings" shall have the meaning provided in the first paragraph
of this Agreement.
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112
"MMI Holdings Preferred Stock" shall mean the 9.5% PIK Preferred Stock
of MMI Holdings issued to RRD on the Initial Borrowing Date.
"Moody's" shall mean Moody's Investors Service, Inc.
"Mortgaged Properties" means the whole of Lot 4406 of Mukim 23
together with the building(s) erected thereon and known as No.51 Ubi Avenue 3
Singapore, held under Instrument of Lease No. 1/00125L dated the 2nd December
1996 and comprised of a leasehold estate for unexpired portion of a terms of 30
years commencing from the 1st January 1990;
"Multi-Currency Agent" shall mean Citicorp and shall include any
successor to the Multi-Currency Agent appointed pursuant to Section 11.10.
"Multi-Currency Bank" shall mean each of Citicorp and such other Banks
as shall be agreed from time to time among the Multi-Currency Agent, the
Administrative Agent and the Borrowers.
"Multi-Currency L/C Currency Sublimit" shall mean, with respect to
Multi-Currency Letter of Credits denominated in any Currency, the amount from
time to time equal to the amount of US Dollars set forth an Schedule III under
the heading "Multi-Currency L/C Currency Sublimit" opposite each Currency and
the name of the related Local Currency Borrower.
"Multi-Currency Letter of Credit" shall mean a Letter of Credit
denominated in a Foreign Currency.
"Multi-Currency Letter of Credit Issuer" shall mean Citicorp.
"Multi-Currency Letter of Credit Outstandings" shall mean, at any
time, the sum of, without duplication, (i) the aggregated stated amount of all
outstanding Multi-Currency Letters of Credit and (ii) the aggregate amount of
all Unpaid Drawings in respect of such Letters of Credit.
"Multi-Currency Participant" shall have the meaning provided in
Section 1.01(B).
"Multi-Currency Revolving Loan Sublimit" shall mean the Foreign
Currency Equivalent of U.S. $50,000,000.
"NationsBank" shall mean NationsBank of Texas, N.A., in its individual
capacity, and any successor corporation thereto by merger, consolidation or
otherwise.
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113
"Net Cash Proceeds" shall mean, with respect to any Asset Sale or the
sale or issuance of any Indebtedness or capital stock or other ownership or
profit interest, any securities convertible into or exchangeable for capital
stock or other ownership or profit interest or any warrants, rights, options or
other securities to acquire capital stock or other ownership or profit interest
by any Person, or any Extraordinary Receipt received by or paid to or for the
account of any Person, the aggregate amount of cash received from time to time
(whether as initial consideration or through payment or disposition of deferred
consideration) by or on behalf of such Person in connection with such
transaction after deducting therefrom only (without duplication) (a) reasonable
and customary brokerage commissions, underwriting fees and discounts, legal
fees, finder's fees and other similar fees and commissions and (b) the amount of
taxes payable in connection with or as a result of such transaction, in each
case to the extent, but only to the extent, that the amounts so deducted are, at
the time of receipt of such cash, actually paid to a Person that is not an
Affiliate of such Person or any Credit Party or any Affiliate of any Credit
Party and are properly attributable to such transaction or to the asset that is
the subject thereof.
"Non-Defaulting Bank" shall mean each Bank other than a Defaulting
Bank.
"Note" shall mean each Revolving Note and each Swingline Note.
"Notice of Borrowing" shall have the meaning provided in Section
1.03(a).
"Notice of Conversion" shall have the meaning provided in Section
1.06.
"Obligations" shall mean all amounts, direct or indirect, contingent
or absolute, of every type or description, and at any time existing, owing to
the Administrative Agent, the Collateral Agent or any Bank pursuant to the terms
of this Agreement or any other Credit Document.
"Other Hedging Agreements" shall mean any foreign exchange contracts,
currency swap agreements or other similar agreements or arrangements designed to
protect against fluctuations in currency values.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Section 4002 of ERISA, or any successor thereto.
"Permitted Encumbrances" shall mean (i) those liens, encumbrances and
other matters affecting title to any Mortgaged Property listed in the Mortgage
Policies in respect thereof and found reasonably acceptable by the Agents, (ii)
as to any particular Mortgaged Property at any time, such easements,
encroachments, covenants, rights of way, minor defects, irregularities or
encumbrances on title which do not, in the reasonable opinion of the Agents,
materially impair such Mortgaged Property for the purpose for which it is held
by the mortgagor thereof, or the lien held by the Collateral Agent, (iii) zoning
and other municipal
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114
ordinances which are not violated in any material respect by the existing
improvements and the present use made by the mortgagor thereof of the Premises
(as defined in the respective Mortgage), (iv) general real estate taxes and
assessments not yet delinquent, and (v) such other items as the Agents may
consent to (such consent not to be unreasonably withheld).
"Permitted Liens" shall have the meaning provided in Section 8.03.
"Person" shall mean any individual, partnership, joint venture, firm,
corporation, limited liability company, association, trust or other enterprise
or any government or political subdivision or any agency, department or
instrumentality thereof.
"Plan" shall mean any multiemployer or single-employer plan as defined
in Section 4001 of ERISA, which is maintained or contributed to by (or to which
there is an obligation to contribute of) any Credit Party or any ERISA Affiliate
and each such plan for the five calendar year period immediately following the
latest date on which any Credit Party or any ERISA Affiliate maintained,
contributed to or had an obligation to contribute to such plan.
"Pledged Securities" shall mean all the Pledged Securities as defined
the Security Agreement.
"Preferred Stock" means, with respect to any corporation, capital
stock issued by such corporation that is entitled to a preference or priority
over any other capital stock issued by such corporation upon any distribution of
such corporation's assets, whether by dividend or upon liquidation.
"Prepayment Pro Rata Share" of any amount, with respect to any
Borrower at any time, (i) with respect to all Revolving Loans an amount equal to
(x) a fraction the numerator of which is the aggregate principal amount of
outstanding Revolving Loans owed by such Borrower at such time and the
denominator of which is the aggregate principal amount of all Revolving Loans
outstanding at such time, multiplied by (y) such amount; (ii) with respect to
all Letter of Credit Outstandings, an amount equal to (x) a fraction, the
numerator of which is the aggregate amount of all Letter of Credit Outstandings
in respect of drawings under Letters of Credit issued for the account of such
Borrower and the denominator of which is the aggregate amount of all Letter of
Credit multiplied by (y) such amount; (iii) with respect to Multi-Currency
----------
Revolving Loans an amount equal to (x) a fraction the numerator of which is the
aggregate principal amount of outstanding Multi-Currency Revolving Loans owed by
such Borrower at such time and the denominator of which is the aggregate
principal amount of all Multi-Currency Revolving Loans outstanding at such time,
multiplied by (y) such amount; and (iv) with respect to Multi-Currency Letter of
Credit Outstandings, an amount equal to (x) a fraction, the numerator of which
is the aggregate amount of all Multi-
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115
Currency Letter of Credit Outstandings in respect of drawings under Multi-
Currency Letters of Credit issued for the account of such Borrower and the
denominator of which is the aggregate amount of all Multi-Currency Letter of
Credit Outstandings in respect of drawings under all Letters of Credit
Outstandings in respect of drawings under all Letters of Credit multiplied by
----------
(y) such amount.
"Prime Lending Rate" shall mean the rate which NationsBank announces
from time to time at its principal office in Dallas, Texas (or such other
principal office as communicated in writing to the Borrowers and the Banks) as
its prime lending rate, the Prime Lending Rate to change when and as such prime
lending rate changes. The Prime Lending Rate is a reference rate and does not
necessarily represent the lowest or best rate actually charged to any customer.
NationsBank may make commercial loans or other loans at rates of interest at,
above or below the Prime Lending Rate.
"Process Agent" shall have the meaning provided in Section 12.08.
"Projections" shall have the meaning provided in Section 5.16.
"Qualified IPO" shall mean an initial registered public offering by
MMI of its capital stock which results in net cash proceeds to MMI of at least
$25,000,000.
"Quarterly Payment Date" shall mean each March 31, June 30, September
30 and December 31.
"Real Property" of any Person shall mean all of the right, title and
interest of such Person in and to land, improvements and fixtures, including
Leaseholds.
"Recovery Event" shall mean the receipt by MMI or any of its
Subsidiaries of any insurance or condemnation proceeds payable (i) by reason of
theft, physical destruction or damage or any other similar event with respect to
any properties or assets of MMI or any of its Subsidiaries, (ii) by reason any
condemnation, taking, seizing or similar event with respect to any properties or
assets of MMI or any of its Subsidiaries and (iii) under any policy of insurance
required to be maintained under Section 7.03.
"Register" shall have the meaning provided in Section 7.13.
"Regulation D" shall mean Regulation D of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof establishing reserve requirements.
"Regulation G" shall mean Regulation G of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or any portion thereof.
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116
"Regulation T" shall mean Regulation T of the Board of Governors of
the Federal Reserve System as from to time in effect and any successor to all or
any portion thereof.
"Regulation U" shall mean Regulation U of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof.
"Regulation X" shall mean Regulation X of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or any portion thereof.
"Related Business" shall mean any business permitted to be conducted
by MMI or any of its Subsidiaries pursuant to Section 8.01
"Release" shall mean any disposing, discharging, injecting, spilling,
pumping, leaking, leaching, dumping, emitting, escaping, emptying, seeping,
placing, pouring and the like, into or upon any land or water or air, or
otherwise entering into the environment.
"Relevant Currency Time" means, for any Borrowing in any currency, the
local time in the city where the Appropriate Payment Office for such currency is
located.
"Replaced Bank" shall have the meaning provided in Section 1.13.
"Replacement Bank" shall have the meaning provided in Section 1.13.
"Reportable Event" shall mean an event described in Section 4043(c) of
ERISA with respect to a Plan as to which the 30-day notice requirement has not
been waived by the PBGC.
"Required Banks" shall mean collectively (and not individually) Non-
Defaulting Banks whose Revolving Loan Commitments (or, if after the Total
Revolving Loan Commitment has been terminated, outstanding Revolving Loans and
RL Percentages of outstanding Swingline Loans and Letter of Credit Outstandings)
constitute greater than 50% of the Total Revolving Loan Commitment less the
aggregate Revolving Loan Commitments of Defaulting Banks (or, if after the Total
Revolving Loan Commitment has been terminated, the total outstanding Revolving
Loans of Non-Defaulting Banks and the aggregate RL Percentages of all Non-
Defaulting Banks of the total outstanding Swingline Loans and Letter of Credit
Outstandings at such time).
"Responsible Officer" shall mean with respect to any Person an officer
of such Person holding the office of Chief Executive Officer, Chief Financial
Officer or Treasurer.
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117
"Returns" shall have the meaning provided in Section 6.22.
"Revolving Loan" shall have the meaning provided in Section
1.01(A)(a).
"Revolving Loan Commitment" shall mean, with respect to each Bank, the
amount set forth opposite such Bank's name in Annex I directly below the column
entitled "Revolving Loan Commitment," as the same may be reduced from time to
time pursuant to Section 3.02, Section 3.03 and/or Section 9.
"Revolving Note" shall have the meaning provided in Section 1.05(a).
"RL Bank" shall mean at any time each Bank with a Revolving Loan
Commitment or with outstanding Revolving Loans.
"RL Percentage" shall mean at any time for each RL Bank, the
percentage obtained by dividing such RL Bank's Revolving Loan Commitment by the
Total Revolving Loan Commitment, provided that if the Total Revolving Loan
--------
Commitment has been terminated, the RL Percentage of each RL Bank shall be
determined by dividing such RL Bank's Revolving Loan Commitment immediately
prior to such termination by the Net Revolving Loan Commitment immediately prior
to such termination.
"Rollover Amount" shall have the meaning provided in Section 8.09(b).
"RRD" shall mean RR Donnelley & Sons Company.
"SEC" shall mean the Securities and Exchange Commission or any
successor thereto.
"Section 4.04(b)(ii) Certificate" shall have the meaning provided in
Section 4.04(b)(ii).
"Secured Creditors" shall have the meaning provided in the Security
Documents.
"Security Agreement" shall mean each security agreement delivered by
MMI pursuant to Section 5.10 and each other security agreement, pledge
agreement, debenture, charge, mortgage, notarial deed or similar security
document executed and delivered by any other Borrower or any Subsidiary
Guarantor pursuant to this Agreement.
"Security Agreement Collateral" shall mean all "Collateral" as defined
in the Security Agreement.
"Security Documents" shall mean and include each Security Agreement,
each Mortgage and each Additional Security Document, if any.
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118
"Shareholders' Agreements" shall have the meaning set forth in Section
5.13.
"Singapore Credit Supplement Date" shall have the meaning provided in
Section 7.19(d)
"Singapore Dollars" and "S$" each means lawful money of Singapore.
"Solvent" and "Solvency" shall mean, with respect to any Person on a
particular date, that on such date (a) the fair value of the property of such
Person is greater than the total amount of liabilities, including, without
limitation, contingent liabilities, of such Person, (b) the present fair salable
value of the assets of such Person is not less than the amount that will be
required to pay the probable liability of such Person on its debts as they
become absolute and matured, (c) such Person does not intend to, and does not
believe that it will, incur debts of liabilities beyond such Person's ability to
pay such debts and liabilities as they mature and (d) such Person is not engaged
in business or a transaction, and is not about to engage in business or a
transaction, for which such Person's property would constitute an unreasonably
small capital. The amount of contingent liabilities at any time shall be
computed as the amount that, in the light of all the facts and circumstances
existing at such time, represents the amount that can reasonably be expected to
become an actual or matured liability.
"S&P" shall mean Standard & Poor's Ratings Services, a division of
McGraw-Hill, Inc.
"Spinoff Transaction" shall have the meaning provided in the second
paragraph of this Agreement.
"Standby Letter of Credit" shall mean any Letter of Credit issued,
other than a Trade Letter of Credit.
"Stated Amount" of each Letter of Credit shall mean the maximum amount
available to be drawn thereunder (regardless of whether any conditions for
drawing could then be met).
"Stream" shall mean Stream International, Inc.
"Subsidiary" of any Person shall mean and include (i) any corporation
more than 50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person directly or
indirectly through Subsidiaries and (ii) any partnership, association, joint
venture or
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119
other entity (other than a corporation) in which such Person directly or
indirectly through Subsidiaries, has more than a 50% equity interest at the
time.
"Subsidiary Grantor" shall mean each Subsidiary of a Borrower which
executes a Security Agreement.
"Subsidiary Guarantor" shall mean (i) with respect to MMI, each
Domestic Subsidiary of MMI and, to the extent provided in Section 7.14, each
Foreign Subsidiary of MMI that is or becomes a party to a Subsidiary Guaranty
and (ii) with respect to any other Borrower, each Subsidiary of MMI which
becomes a party to a Subsidiary Guaranty pursuant to which such Subsidiary
guarantees the obligations of such Borrower.
"Subsidiary Guaranty" shall have the meaning provided in Section 5.11.
"Swingline Bank" shall mean NationsBank.
"Swingline Expiry Date" shall mean the date which is five Business
Days prior to the Maturity Date.
"Swingline Loan" shall have the meaning provided in Section 1.01(C).
"Swingline Note" shall have the meaning provided in Section 1.05(a).
"Syndication Agent" shall have the meaning provided in the first
paragraph of this Agreement.
"Syndication Date" shall mean the date upon which the Administrative
Agent determines (and notifies the Borrowers) that the primary syndication (and
resultant addition of Persons as Banks pursuant to Section 12.04(b)) has been
completed (it being understood and agreed that prior to the 180th day after the
Initial Borrowing Date the Administrative Agent agrees to use its reasonable
efforts to have the Syndication Date occur on the last day of an Interest Period
applicable to outstanding Eurodollar Loans).
"Tangible Net Worth" shall mean, at any time, an amount equal to the
excess at such time of (i) the total tangible assets of MMI Holdings and its
Subsidiaries at such time over (ii) the total liabilities of MMI Holdings and
its Subsidiaries at such time, in each case determined on a consolidated basis.
"Tax Allocation Agreements" shall have the meaning provided in Section
5.13.
"Taxes" shall have the meaning provided in Section 4.04.
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120
"Test Period" shall mean (a) with respect to Sections 8.11 and 8.12
(i) for any determination made on and prior to June 30, 1998, the period from
January 1, 1998 to the last day of the fiscal quarter of MMI Holdings then last
ended (taken as one accounting period), and (ii) for any determination made
thereafter, the four consecutive fiscal quarters of MMI Holdings then last ended
(taken as one accounting period) and (b) with respect to Section 8.13, the four
consecutive fiscal quarters of MMI Holdings then last ended (taken as one
accounting period).
"Total Borrowing Base" shall mean, as at any date on which the amount
thereof is being determined, an amount equal to the sum of the US Borrowing Base
and the aggregate Foreign Borrowing Base for all the Local Currency Borrowers.
"Total Outstanding" shall mean, at any time, the sum of (i) the
aggregate principal amount of Revolving Loans and Swingline Loans then
outstanding plus (ii) the aggregate amount of Letter of Credit Outstandings at
such time.
"Total Revolving Loan Commitment" shall mean the sum of the Revolving
Loan Commitments of each of the Banks.
"Total Unutilized Revolving Loan Commitment" shall mean, at any time,
(i) the Total Revolving Loan Commitment at such time less (ii) the sum of the
aggregate principal amount of all Revolving Loans outstanding at such time plus
the Letter of Credit Outstandings at such time.
"Trade Letter of Credit" means any Letter of Credit that is issued for
the benefit of a supplier of inventory to any Borrower or any of its
Subsidiaries to effect payment for such inventory.
"Transaction" shall mean, collectively, (i) the Dropdown, (ii) the
Spinoff Transaction, (iii) the incurrence of Loans on the Initial Borrowing Date
and (iv) the payment of fees and expenses in connection with the foregoing.
"Transaction Documents" shall mean each of the agreements listed on
Schedule V, and all other agreements and documents relating to the Transaction.
"Type" shall mean any type of Loan determined with respect to the
interest option applicable thereto, i.e., a Base Rate Loan or a Eurodollar Loan.
----
"UCC" shall mean the Uniform Commercial Code as in effect from time to
time in the relevant jurisdiction.
"Unfunded Current Liability" of any Plan shall mean the amount, if
any, by which the actuarial present value of the accumulated plan benefits under
the Plan as of the
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121
close of its most recent plan year exceeds the fair market value of the assets
allocable thereto, each determined in accordance with Statement of Financial
Accounting Standards No. 87, based upon the actuarial assumptions used by the
Plan's actuary in the most recent annual valuation of the Plan.
"Unpaid Drawing" shall have the meaning provided in Section 2.03(a).
"US Borrowing Base" shall mean as at any date on which the amount
thereof is being determined, an amount equal to the sum of (i) up to 85% of
Eligible US Receivables, (ii) up to 60% of Eligible US Inventory and (iii) up to
75% of Eligible US Fixed Assets (such amount of Eligible US Fixed Assets being
reduced by up to 20% each fiscal year of MMI Holdings commencing on January 1,
1999), in each case, as such percentages shall be determined by the Agents in
their sole discretion.
"US Business Day" shall mean any day excluding Saturday, Sunday and
any day which shall be in New York, New York or Dallas, Texas a legal holiday or
a day on which banking institutions are authorized by law or other governmental
action to close.
"US Dollars" and the sign "$" shall each mean freely transferable
lawful money of the United States of America.
"US Letter of Credit Issuer" shall mean NationsBank.
"US Letter of Credit Outstandings" shall mean, at any time, the sum
of, without duplication, (i) the aggregate Stated Amount of all outstanding US
Letters of Credit and (ii) the aggregate amount of all Unpaid Drawings in
respect of such Letters of Credit.
"US Outstanding" shall mean at any time, the sum of (i) the aggregate
principal amount of US Revolving Loans, and Swingline Loans then outstanding
plus (ii) the aggregate amount of US Letter of Credit Outstandings at such time.
"US Revolving Loan" shall have the meaning provided in Section
1.01(B).
"Wholly-Owned Domestic Subsidiary" shall mean, as to any Person, any
Wholly-Owned Subsidiary of such Person which is a Domestic Subsidiary.
"Wholly-Owned Subsidiary" shall mean, as to any Person, (i) any
corporation 100% of whose capital stock (other than director's qualifying shares
and/or other nominal amounts of shares required to be held other than by such
Person under applicable law) is at the time owned by such Person and/or one or
more Wholly-Owned Subsidiaries of such Person and (ii) any partnership,
association, joint venture or other entity in which such Person and/or one or
more Wholly-Owned Subsidiaries of such Person has a 100% equity interest at such
time.
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122
"Working Capital" shall mean the excess of Consolidated Current Assets
over Consolidated Current Liabilities.
"Written" (whether lower or upper case) or "in writing" shall mean any
form of written communication or a communication by means of telex, facsimile
device, telegraph or cable.
"Yen" and "[_]" each means lawful money of Japan.
SECTION 11. The Agents.
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11.01 Appointment. Each Bank hereby irrevocably designates and
-----------
appoints NationsBank as Administrative Agent of such Bank (such term to include
for purposes of this Section 11, NationsBanc Montgomery Securities, Inc. acting
as Syndication Agent) and Citicorp as Collateral Agent, Multi-Currency Agent and
Documentation Agent, in each case to act as specified herein and in the other
Credit Documents, and each such Bank hereby irrevocably authorizes NationsBank
as the Administrative Agent, and Citicorp as the Collateral Agent (and agrees
that the Collateral Agent shall act as trustee of the security, rights and
benefits constituted by Security Documents executed or to be executed by MMI-
Ireland and its subsidiaries and the Collateral Agent hereby declares that it
will hold such security and such rights and benefits in trust for the benefit of
each Bank subject to the terms of these presents), to take such action on its
behalf under the provisions of this Agreement and the other Credit Documents and
to exercise such powers and perform such duties as are expressly delegated to
the Administrative Agent and the Collateral Agent by the terms of this Agreement
and the other Credit Documents, together with such other powers as are
reasonably incidental thereto. Among other things, the Collateral Agent shall
act on behalf of the Banks in order to fully effectuate a right of pledge in
favor of the Banks on approximately 66% of the issued shares of MMI-Netherlands
by executing a notarial deed (the [_]Netherlands Share Pledge Deed[_]) to that
effect. The Collateral Agent shall act on behalf of the Banks in all matters in
connection with or in relation to or concerning the Netherlands Share Pledge
Deed and all transactions, matters and things contemplated thereby. The
Collateral Agent shall therefore be authorized to exercise on behalf of the
Banks all such rights as are granted to the Banks under the laws of the
Netherlands, and all such rights as are granted to them in the Netherlands Share
Pledge Deed. Each Agent agrees to act as such upon the express conditions
contained in this Section 11. Notwithstanding any provision to the contrary
elsewhere in this Agreement or in any other Credit Document, no Agent shall have
any duties or responsibilities, except those expressly set forth herein or in
the other Credit Documents, or any fiduciary relationship with any Bank, and no
implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or otherwise exist against such
Agent. The provisions of this Section 11 are solely for the benefit of the
Agents and the Banks, and neither MMI nor any of its Subsidiaries shall have any
rights as a third party beneficiary of any of the provisions hereof. In
performing its functions and duties under this Agreement and the other Credit
Documents,
<PAGE>
123
each Agent shall act solely as agent of the Banks and shall not assume and shall
not be deemed to have assumed any obligation or relationship of agency or trust
with or for MMI or any of its Subsidiaries. The Banks hereby acknowledge and
agree that NationsBanc Montgomery Securities, Inc. shall have no duties or
obligations (and shall have no liability to the Banks) under this Agreement or
any other Credit Document.
11.02 Delegation of Duties. Each Agent may execute any of its duties
--------------------
under this Agreement or any other Credit Document by or through affiliates,
agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. No Agent shall be responsible
for the negligence or misconduct of any affiliates, agents or attorneys-in-fact
selected by it with reasonable care except to the extent otherwise required by
Section 11.03.
11.03 Exculpatory Provisions. Neither of the Agents nor any of its
----------------------
officers, directors, employees, agents, attorneys-in-fact or affiliates shall be
(i) liable for any action lawfully taken or omitted to be taken by it or such
Person under or in connection with this Agreement or the other Credit Documents
(except for its or such Person's own gross negligence or willful misconduct) or
(ii) responsible in any manner to any of the Banks for any recitals, statements,
representations or warranties made by MMI, any of its Subsidiaries or any of
their respective officers contained in this Agreement or the other Credit
Documents, any other Document or in any certificate, report, statement or other
document referred to or provided for in, or received by any Agent under or in
connection with, this Agreement or any other Document or for any failure of MMI
or any of its Subsidiaries or any of their respective officers to perform its
obligations hereunder or thereunder. No Agent shall be under any obligation to
any Bank to ascertain or to inquire as to the observance or performance of any
of the agreements contained in, or conditions of, this Agreement or the other
Documents, or to inspect the properties, books or records of MMI or any of its
Subsidiaries. No Agent shall be responsible to any Bank for the effectiveness,
genuineness, validity, enforceability, collectibility or sufficiency of this
Agreement or any other Document or for any representations, warranties, recitals
or statements made herein or therein or made in any written or oral statement or
in any financial or other statements, instruments, reports, certificates or any
other documents in connection herewith or therewith furnished or made by any
Agent to the Banks or by or on behalf of MMI or any of its Subsidiaries to any
Agent or any Bank or be required to ascertain or inquire as to the performance
or observance of any of the terms, conditions, provisions, covenants or
agreements contained herein or therein or as to the use of the proceeds of the
Loans or of the existence or possible existence of any Default or Event of
Default.
11.04 Reliance by Agents. The Agents shall be entitled to rely, and
------------------
shall be fully protected in relying, upon any note, writing, resolution, notice,
consent, certificate, affidavit, letter, cablegram, telegram, facsimile, telex
or teletype message, statement, order or other document or conversation believed
by it to be genuine and correct and to have been signed, sent or made by the
proper Person or Persons and upon advice and statements of legal
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124
counsel (including, without limitation, counsel to MMI or any of its
Subsidiaries), independent accountants and other experts selected by any Agent.
The Agents shall be fully justified in failing or refusing to take any action
under this Agreement or any other Credit Document unless they shall first
receive such advice or concurrence of the Required Banks as they deem
appropriate or it shall first be indemnified to its satisfaction by the Banks
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action. The Agents shall in all cases
be fully protected in acting, or in refraining from acting, under this Agreement
and the other Credit Documents in accordance with a request of the Required
Banks, and such request and any action taken or failure to act pursuant thereto
shall be binding upon all the Banks.
11.05 Notice of Default. No Agent shall be deemed to have knowledge
-----------------
or notice of the occurrence of any Default or Event of Default unless such Agent
has actually received notice from a Bank or any Borrower referring to this
Agreement, describing such Default or Event of Default and stating that such
notice is a "notice of default." In the event that any Agent receives such a
notice, such Agent shall give prompt notice thereof to the Banks. The Agents
shall take such action with respect to such Default or Event of Default as shall
be reasonably directed by the Required Banks; provided that, unless and until
--------
the Agents shall have received such directions, the Agents may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default or Event of Default as it shall deem advisable in the best
interests of the Banks.
11.06 Nonreliance on Agents and Other Banks. Each Bank expressly
-------------------------------------
acknowledges that neither of the Agents nor any of their respective officers,
directors, employees, agents, attorneys-in-fact or affiliates have made any
representations or warranties to it and that no act by any Agent hereinafter
taken, including any review of the affairs of MMI or any of its Subsidiaries,
shall be deemed to constitute any representation or warranty by such Agent to
any Bank. Each Bank represents to each Agent that it has, independently and
without reliance upon such Agent or any other Bank, and based on such documents
and information as it has deemed appropriate, made its own appraisal of and
investigation into the business, assets, operations, property, financial and
other condition, prospects and creditworthiness of MMI and its Subsidiaries and
made its own decision to make its Loans hereunder and enter into this Agreement.
Each Bank also represents that it will, independently and without reliance upon
any Agent or any other Bank, and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement,
and to make such investigation as it deems necessary to inform itself as to the
business, assets, operations, property, financial and other condition, prospects
and creditworthiness of MMI and its Subsidiaries. No Agent shall have any duty
or responsibility to provide any Bank with any credit or other information
concerning the business, operations, assets, property, financial and other
condition, prospects or creditworthiness of MMI or any of its Subsidiaries which
may come into the possession of the Administrative Agent or any of its officers,
directors, employees, agents, attorneys-in-fact or affiliates.
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125
11.07 Indemnification. The Banks agree to indemnify each Agent in its
---------------
capacity as such ratably according to their respective "percentages" as used in
determining the Required Banks at such time (with such "percentages" to be
determined as if there are no Defaulting Banks), from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, reasonable expenses or disbursements of any kind whatsoever which may at
any time (including, without limitation, at any time following the payment of
the Obligations) be imposed on, incurred by or asserted against any Agent in its
capacity as such in any way relating to or arising out of this Agreement or any
other Credit Document, or any documents contemplated by or referred to herein or
the transactions contemplated hereby or any action taken or omitted to be taken
by such Agent under or in connection with any of the foregoing, but only to the
extent that any of the foregoing is not paid by MMI or any of its Subsidiaries;
provided that no Bank shall be liable to such Agent for the payment of any
- --------
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting solely from the
gross negligence or willful misconduct of such Agent. To the extent any Bank
would be required to indemnify any Agent pursuant to the immediately preceding
sentence but for the fact that it is a Defaulting Bank, such Defaulting Bank
shall not be entitled to receive any portion of any payment or other
distribution hereunder until each other Bank shall have been reimbursed for the
excess, if any, of the aggregate amount paid by such Bank under this Section
11.07 over the aggregate amount such Bank would have been obligated to pay had
such first Bank not been a Defaulting Bank. If any indemnity furnished to any
Agent for any purpose shall, in the opinion of such Agent be insufficient or
become impaired, such Agent may call for additional indemnity and cease, or not
commence, to do the acts indemnified against until such additional indemnity is
furnished. The agreements in this Section 11.07 shall survive the payment of
all Obligations.
11.08 Agents in Their Individual Capacity. The Agents and their
-----------------------------------
affiliates may make loans to, accept deposits from and generally engage in any
kind of business with MMI and its Subsidiaries and Affiliates as though such
Agents were not the Administrative Agent, Collateral Agent and Multi-Currency
Agent hereunder. With respect to the Loans made by it and all Obligations owing
to it, each Agent shall have the same rights and powers under this Agreement as
any Bank and may exercise the same as though it were not an Agent and the terms
"Bank" and "Banks" shall include the Agents in their individual capacity.
11.09 Holders. The Agents may deem and treat the payee of any Note
-------
as the owner thereof for all purposes hereof unless and until a written notice
of the assignment, transfer or endorsement thereof, as the case may be, shall
have been filed with the Administrative Agent. Any request, authority or
consent of any Person or entity who, at the time of making such request or
giving such authority or consent, is the holder of any Note shall be conclusive
and binding on any subsequent holder, transferee, assignee or indorsee, as the
case may be, of such Note or of any Note or Notes issued in exchange therefor.
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126
11.10 Resignation of any Agent; Successor Agents. (a) Any Agent may
------------------------------------------
resign from the performance of all its functions and duties hereunder and/or
under the other Credit Documents at any time by giving 20 Business Days' prior
written notice to the Borrowers and the Banks. Such resignation shall take
effect upon the appointment of a successor Agent pursuant to clauses (b) and (c)
below or as otherwise provided below.
(b) Upon any such notice of resignation by any Agent, the Required
Banks shall appoint a successor Agent hereunder who shall be a commercial bank
or trust company reasonably acceptable to the Borrowers.
(c) If a successor Agent shall not have been so appointed within such
20 Business Day period, such retiring Agent, with the consent of the Borrowers,
which consent shall not be unreasonably withheld, shall then appoint a successor
Agent who shall serve as Agent hereunder until such time, if any, as the
Required Banks appoint a successor Agent as provided above.
(d) If no successor Agent has been appointed pursuant to clause (b) or
(c) above by the 25th Business Day after the date such notice of resignation was
given by the retiring Agent, the retiring Agent's resignation shall become
effective and the Required Banks shall thereafter perform all the duties of the
retiring Agent hereunder and/or under any other Credit Document until such time,
if any, as the Required Banks appoint a successor Agent as provided above.
(e) After the resignation of any Agent hereunder, the provisions of
this Section 11 shall inure to its benefit as to any actions taken or omitted to
be taken by it while it was an Agent under this Agreement.
SECTION 12. Miscellaneous.
-------------
12.01 Payment of Expenses, Etc. MMI, jointly and severally, agrees,
------------------------
and each other Borrower severally agrees with respect to its obligations
hereunder to: (i) whether or not the transactions herein contemplated are
consummated, pay all reasonable out-of-pocket costs and expenses of the
Administrative Agent, the Syndication Agent, the Documentation Agent and the
Collateral Agent (including, without limitation, the reasonable fees and
disbursements of Shearman & Sterling and local counsel) in connection with the
negotiation, preparation, execution and delivery of the Credit Documents and the
documents and instruments referred to therein, advising the Administrative Agent
of its rights and responsibilities under this Agreement and any amendment,
waiver or consent relating thereto and in connection with the Administrative
Agent's and the Syndication Agent's syndication efforts with respect to this
Agreement; (ii) pay all reasonable out-of-pocket costs and expenses of the
Administrative Agent, the Syndication Agent, the Collateral Agent and each of
the Banks in connection with the enforcement of the Credit Documents and the
documents and instruments referred to
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127
therein and, after an Event of Default shall have occurred and be continuing,
the protection of the rights of the Administrative Agent, the Syndication Agent,
the Collateral Agent and each of the Banks thereunder (including, without
limitation, the reasonable fees and disbursements of counsel (including in-house
counsel) for the Administrative Agent, the Syndication Agent, the Collateral
Agent and for each of the Banks); (iii) pay on demand by the Administrative
Agent all stamp, loan, transaction, registration and similar taxes or duties,
and all duties or other imposts arising in respects of the debits from or credit
to any bank account in connection with the payment or receipt of any moneys
hereunder (including New South Wales financial institutions duty and debits tax)
and all stamp duty in respect of any purchase, sale or assignment pursuant to
Section 1.01B of any Multi-Currency Revolving Loan or Unpaid Drawing or of any
interest in any Multi-Currency Revolving Loan or Unpaid Drawing which may be
payable (whether by a Credit Party or by the Administrative Agent, the
Syndication Agent, the Collateral Agent or any Bank) to, or may be required to
be paid by, any appropriate authority or is determined to be payable in
connection with the execution, delivery, performance or enforcement of any
Credit Document or any transaction contemplated by any of them, and will
indemnify and keep indemnified the Administrative Agent, the Syndication Agent,
the Collateral Agent and each Bank against any loss or liability incurred or
suffered by any of them as a result of the delay or failure of any Borrower to
pay any such duties, taxes or imposts; and (iv) indemnify the Administrative
Agent, the Syndication Agent, the Collateral Agent and each Bank, their
respective officers, directors, employees, representatives and agents from and
hold each of them harmless against any and all losses, liabilities, claims,
damages or expenses incurred by any of them as a result of, or arising out of,
or in any way related to, or by reason of, (a) any investigation, litigation or
other proceeding (whether or not the Administrative Agent, the Syndication
Agent, the Collateral Agent or any Bank is a party thereto, whether or not any
such investigation, litigation or other proceeding is between or among the
Administrative Agent, the Syndication Agent the Collateral Agent, any Bank, any
Credit Party or any third Person or otherwise and whether or not such
investigation, litigation or other proceeding is brought by any Credit Party or
any other Person) related to the entering into and/or performance of this
Agreement or any other Document or the use of the proceeds of any Loans
hereunder or the Transaction or the consummation of any other transactions
contemplated in any Document (but excluding any such losses, liabilities,
claims, damages or expenses to the extent incurred by reason of the gross
negligence or willful misconduct of the Person to be indemnified), or (b) the
actual or alleged presence of Hazardous Materials in the air, surface water or
groundwater or on the surface or subsurface of any Real Property or any
Environmental Claim, in each case, including, without limitation, the reasonable
fees and disbursements of counsel and independent consultants incurred in
connection with any such investigation, litigation or other proceeding.
12.02 Right of Setoff. In addition to any rights now or hereafter
---------------
granted under applicable law or otherwise, and not by way of limitation of any
such rights, upon the occurrence of an Event of Default, the Administrative
Agent and each Bank is hereby authorized at any time or from time to time,
without presentment, demand, protest or other notice of any kind to any Borrower
or any of its Subsidiaries or to any other Person, any such notice being hereby
expressly waived, to set off and to appropriate and apply any and all
<PAGE>
128
deposits (general or special) and any other Indebtedness at any time held or
owing by the Administrative Agent or such Bank (including, without limitation,
by branches and agencies of the Administrative Agent and such Bank wherever
located) to or for the credit or the account such Borrower or any of its
Subsidiaries against and on account of the Obligations of such Borrower and
liabilities of MMI or any of its Subsidiaries to the Administrative Agent or
such Bank under this Agreement or under any of the other Credit Documents,
including, without limitation, all interests in Obligations of such Borrower or
any of its Subsidiaries purchased by such Bank pursuant to Section 12.06(b), and
all other claims of any nature or description arising out of or connected with
this Agreement or any other Credit Document, irrespective of whether or not such
Bank shall have made any demand hereunder and although said Obligations,
liabilities or claims, or any of them, shall be contingent or unmatured.
12.03 Notices. Except as otherwise expressly provided herein, all
-------
notices and other communications provided for hereunder shall be in writing
(including telegraphic, telex, facsimile or cable communication) and mailed,
telegraphed, telexed, telecopied, cabled or delivered, if to any Borrower, at
the address specified opposite its signature below or in the applicable Credit
Agreement Supplement or in the other relevant Credit Documents, as the case may
be; if to the Administrative Agent, at the Appropriate Notice Office; if to any
Bank, at its address specified for such Bank on Annex II; or, at such other
address as shall be designated by any party in a written notice to the other
parties hereto. All such notices and communications shall be mailed,
telegraphed, telexed, telecopied or cabled or sent by overnight courier, and
shall be effective when received.
12.04 Benefit of Agreement. (a) This Agreement shall be binding
--------------------
upon and inure to the benefit of and be enforceable by the respective successors
and assigns of the parties hereto; provided, however, the Borrowers may not
-------- -------
assign or transfer any of their rights, obligations or interest hereunder or
under any other Credit Document without the prior written consent of the Banks
and, provided further that, although any Bank may grant participations in its
-------- -------
rights hereunder, such Bank shall remain a "Bank" for all purposes hereunder
(and may not transfer or assign all or any portion of its Commitments hereunder
except as provided in Section 12.04(b)) and the participant shall not constitute
a "Bank" hereunder and provided further that no Bank shall grant any
-------- -------
participation under which the participant shall have rights to approve any
amendment to or waiver of this Agreement or any other Credit Document except to
the extent such amendment or waiver would (i) extend the final scheduled
maturity of any Loan, Note or Letter of Credit (unless such Letter of Credit is
not extended beyond the Maturity Date) in which such participant is
participating, or reduce the rate or extend the time of payment of interest or
Fees thereon (except in connection with a waiver of applicability of any post-
default increase in interest rates) or reduce the principal amount thereof, or
increase the amount of the participant's participation over the amount thereof
then in effect (it being understood that a waiver of any Default or Event of
Default or of a mandatory reduction in the Revolving Loan Commitment shall not
constitute a change in the terms of such participation, and that an increase in
any Commitment or Loan shall be permitted without the consent of any participant
if the participant's participation is not
<PAGE>
129
increased as a result thereof), (ii) consent to the assignment or transfer by
any Borrower of any of its rights and obligations under this Agreement or (iii)
release all or substantially all of the Collateral under all of the Security
Documents (except as expressly provided in the Credit Documents) supporting the
Loans hereunder in which such participant is participating. In the case of any
such participation, the participant shall not have any rights under this
Agreement or any of the other Credit Documents (the participant's rights against
such Bank in respect of such participation to be those set forth in the
agreement executed by such Bank in favor of the participant relating thereto)
and all amounts payable by the Borrowers hereunder shall be determined as if
such Bank had not sold such participation.
(b) Notwithstanding the foregoing, any Bank (or any Bank together with
one or more other Banks) may (x) assign all or a portion of its Revolving Loan
Commitment (and related outstanding Obligations hereunder) to its parent company
and/or any affiliate of such Bank which is at least 50% owned by such Bank or
its parent company or to one or more Banks or (y) assign all, or if less than
all, a portion equal to at least $5,000,000 in the aggregate for the assigning
Bank, of such Revolving Loan Commitments hereunder to one or more Eligible
Transferees, each of which assignees shall become a party to this Agreement as a
Bank by execution of an Assignment and Assumption Agreement, provided that (i)
--------
at such time Annex I shall be deemed modified to reflect the Revolving Loan
Commitments of such new Bank and of the existing Banks, (ii) upon surrender of
the old Notes, new Notes will be issued, at the Borrower's expense, to such new
Bank and to the assigning Bank, such new Notes to be in conformity with the
requirements of Section 1.05 (with appropriate modifications) to the extent
needed to reflect the revised Revolving Loan Commitments, (iii) the consent of
the Administrative Agent and the Borrowers shall be required in connection with
any such assignment pursuant to clause (y) of this Section 12.04(b) (which
consent shall not be unreasonably withheld or delayed) and (iv) the
Administrative Agent shall receive at the time of each such assignment, from the
assigning or assignee Bank, the payment of a nonrefundable assignment fee of
$3,500 and provided further that such transfer or assignment will not be
-------- -------
effective until recorded by the Administrative Agent on the Register pursuant to
Section 7.13. To the extent of any assignment pursuant to this Section
12.04(b), the assigning Bank shall be relieved of its obligations hereunder with
respect to its assigned Commitments. At the time of each assignment pursuant to
this Section 12.04(b) to a Person which is not already a Bank hereunder and
which is not a United States person (as such term is defined in Section
7701(a)(30) of the Code) for Federal income tax purposes, the respective
assignee Bank shall provide to the Borrowers and the Administrative Agent the
appropriate Internal Revenue Service Forms (and, if applicable a Section
4.04(b)(ii) Certificate) described in Section 4.04(b). To the extent that an
assignment of all or any portion of a Bank's Revolving Loan Commitment and
related outstanding Obligations pursuant to Section 1.13 or this Section
12.04(b) would, at the time of such assignment, result in increased costs under
Section 1.10, 1.11, 2.05 or 4.04 from those being charged by the respective
assigning Bank prior to such assignment, then no Borrower shall not be obligated
to pay such increased costs (although the Borrowers shall be obligated to pay
any other increased costs of the type described above resulting from changes
after the date of the respective assignment).
<PAGE>
130
(c) Nothing in this Agreement shall prevent or prohibit any Bank from
pledging its Loans and Notes hereunder to a Federal Reserve Bank in support of
borrowings made by such Bank from such Federal Reserve Bank.
12.05 No Waiver; Remedies Cumulative. No failure or delay on the
------------------------------
part of the Administrative Agent, the Collateral Agent or any Bank in exercising
any right, power or privilege hereunder or under any other Credit Document and
no course of dealing between any Credit Party and the Administrative Agent, the
Collateral Agent or any Bank shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, power or privilege hereunder or under
any other Credit Document preclude any other or further exercise thereof or the
exercise of any other right, power or privilege hereunder or thereunder. The
rights and remedies herein expressly provided are cumulative and not exclusive
of any rights or remedies which the Administrative Agent, the Collateral Agent
or any Bank would otherwise have. No notice to or demand on any Credit Party in
any case shall entitle any Credit Party to any other or further notice or demand
in similar or other circumstances or constitute a waiver of the rights of the
Administrative Agent, the Collateral Agent or the Banks to any other or further
action in any circumstances without notice or demand.
12.06 Payments Pro Rata. (a) The Administrative Agent agrees that
-----------------
promptly after its receipt of each payment from or on behalf of any Credit Party
in respect of any Obligations of such Credit Party, it shall, except as
otherwise provided in this Agreement, distribute such payment to the Banks
(other than any Bank that has consented in writing to waive its pro rata share
--- ----
of such payment) pro rata based upon their respective shares, if any, of the
--- ----
Obligations with respect to which such payment was received.
(b) Each of the Banks agrees that, if it should receive any amount
hereunder (whether by voluntary payment, by realization upon security, by the
exercise of the right of setoff or banker's lien, by counterclaim or cross
action, by the enforcement of any right under the Credit Documents, or
otherwise) which is applicable to the payment of the principal of, or interest
on, the Loans, Unpaid Drawings or Fees, of a sum which with respect to the
related sum or sums received by other Banks is in a greater proportion than the
total of such Obligation then owed and due to such Bank bears to the total of
such Obligation then owed and due to all of the Banks immediately prior to such
receipt, then such Bank receiving such excess payment shall purchase for cash
without recourse or warranty from the other Banks an interest in the Obligations
of the respective Credit Party to such Banks in such amount as shall result in a
proportional participation by all of the Banks in such amount; provided that if
--------
all or any portion of such excess amount is thereafter recovered from such Bank,
such purchase shall be rescinded and the purchase price restored to the extent
of such recovery, but without interest.
12.07 Calculations; Computations. (a) The financial statements to
--------------------------
be furnished to the Banks pursuant hereto shall be made and prepared in
accordance with GAAP consistently applied throughout the periods involved
(except as set forth in the notes thereto or
<PAGE>
131
as otherwise disclosed in writing by any Borrower to the Banks); provided that
--------
except as otherwise specifically provided herein, all computations determining
compliance with Sections 4.02 and 8, including definitions used therein, shall
utilize accounting principles and policies in effect at the time of the
preparation of, and in conformity with those used to prepare, the December 31,
1996 financial statements of the MMI Business referred to in Section 6.10(b),
but shall not give effect to purchase accounting adjustments required or
permitted by APB 16 (including non-cash write-ups and non-cash charges relating
to inventory, fixed assets and in-process research and development, in each case
arising in connection with the Acquisition) and APB 17 (including non-cash
charges relating to intangibles and goodwill arising in connection with the
Transaction).
(b) All computations of interest and Fees hereunder shall be made on
the actual number of days elapsed over a year of 360 days.
12.08 Governing Law; Submission to Jurisdiction; Venue. (a) THIS
------------------------------------------------
AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE
GOVERNED BY THE LAW OF THE STATE OF NEW YORK. Any legal action or proceeding
with respect to this Agreement or any other Credit Document may be brought in
the courts of the State of New York or of the United States for the Southern
District of New York, and, by execution and delivery of this Agreement, each
Credit Party hereby irrevocably accepts for itself and in respect of its
property, generally and unconditionally, the jurisdiction of the aforesaid
courts. Each Credit Party hereby further irrevocably waives any claim that any
such courts lack jurisdiction over such Credit Party, and agrees not to plead or
claim, in any legal action or proceeding with respect to this Agreement or any
other Credit Document brought in any of the aforesaid courts, that any such
court lacks jurisdiction over such Credit Party. Each Credit Party agrees that
a final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Solely for the purposes of this Agreement, to the full extent
permitted by law each Credit Party organized under the laws of a jurisdiction
outside of the United States hereby irrevocably appoints CT Corporation System
with an office on the date hereof at 1633 Broadway, New York, New York 1019 (the
"Process Agent"), as its agent to receive on behalf of such Credit Party and its
property service of copies of the summons and complaint and any other process
which may be served in any such action or proceeding. Each Credit Party
irrevocably consents to the service of process in any such action or proceeding
by the mailing of copies thereof by registered or certified mail, postage
prepaid, to such Credit Party, at its address for notices pursuant to Section
12.03, such service to become effective 30 days after such mailing. Each Credit
Party hereby irrevocably waives any objection to such service of process and
further irrevocably waives and agrees not to plead or claim in any action or
proceeding commenced hereunder or under any other Credit Document that service
of process was in any way invalid or ineffective. Nothing herein shall affect
the right of the Administrative Agent, the Collateral Agent, any Bank or the
holder of any Note to serve process in any other manner permitted by
<PAGE>
132
law or to commence legal proceedings or otherwise proceed against any Credit
Party in any other jurisdiction.
(b) Each Credit Party hereby irrevocably waives any objection which it
may now or hereafter have to the laying of venue of any of the aforesaid actions
or proceedings arising out of or in connection with this Agreement or any other
Credit Document brought in the courts referred to in clause (a) above and hereby
further irrevocably waives and agrees not to plead or claim in any such court
that any such action or proceeding brought in any such court has been brought in
an inconvenient forum.
(c) To the extent that any Credit Party has or hereafter may acquire
any immunity from jurisdiction of any court or from any legal process (whether
through service or notice, attachment prior to judgment, attachment in aid of
execution, execution or otherwise) with respect to itself or its property, such
Credit Party to the extent permitted by law hereby irrevocably waives such
immunity in respect of its obligations under this Agreement and, without
limiting the generality of the foregoing, agrees that the waivers set forth in
this subsection (c) shall have the fullest scope permitted under the United
States Foreign Sovereign Immunities Act of 1976, as amended, or any other
similarly applicable foreign law and are intended to be irrevocable for purposes
of such Act or any other similarly applicable foreign law.
12.09 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 an original, but all of
which shall together constitute one and the same instrument. A complete set of
counterparts executed by all the parties hereto shall be lodged with MMI, the
Borrowers and the Administrative Agent.
12.10 Effectiveness. This Agreement shall become effective on the
-------------
date (the "Effective Date") on which each of the Borrowers, the Administrative
Agent and each of the Banks shall have signed a counterpart hereof (whether the
same or different counterparts) and shall have delivered the same to the
Administrative Agent at the Notice Office or, in the case of the Banks, shall
have given to the Administrative Agent telephonic (confirmed in writing),
written, telex or facsimile notice (actually received) at such office that the
same has been signed and mailed to it. The Administrative Agent will give the
Borrowers and each Bank prompt written notice of the occurrence of the Effective
Date.
12.11 Headings Descriptive. The headings of the several sections and
--------------------
subsections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.
12.12 Amendment or Waiver; Etc. Neither this Agreement nor any other
------------------------
Credit Document nor any terms hereof or thereof may be changed, waived,
discharged or
<PAGE>
133
terminated unless such change, waiver, discharge or termination is in writing
signed by the respective Credit Parties party thereto and the Required Banks,
provided that no such change, waiver, discharge or termination shall, without
- --------
the consent of each Bank (other than a Defaulting Bank), (i) waive any of the
conditions specified in Section 5, (ii) change the number of Banks or the
percentage of (x) the Commitments, (y) the aggregate unpaid principal amount of
the Loans or (z) the aggregate Stated Amount of outstanding Letters of Credit
that, in each case, shall be required for the Banks or any of them to take any
action hereunder, (iii) reduce or limit the obligations of any Guarantor under
Section 1 of the Guaranty to which such Guarantor is a party or otherwise limit
such Guarantor's liability with respect to the obligations owing to the
Administrative Agent and the Banks, (iv) release any portion of the Collateral
(other than assets permitted to be sold pursuant to the terms of this Agreement)
in any transaction or series of related transactions or permit the creation,
incurrence, assumption or existence of any Lien on any portion of Collateral in
any transaction or series of related transactions to secure any obligations
other than obligations owing to the Secured Creditors under the Credit Documents
and other than Indebtedness owing to any other Person, provided that, in the
--------
case of any Lien (other than Permitted Liens) on any item of Collateral to
secure Indebtedness owing to any other Person, (A) the Borrowers shall, on the
date such Indebtedness shall be incurred or issued, prepay the Loans pursuant
to, and in the order of priority set forth in, Section 4.02(c) in an aggregate
principal amount equal to the amount of such Net Cash Proceeds to the extent
required to do so under Section 3.03 and (B) the Required Banks shall otherwise
permit the creation, incurrence, assumption or existence of such Lien and of
such Indebtedness, (v) amend this Section 12.12, (vi) increase the Commitments
of the Banks or subject the Banks to any additional obligations, (vii) reduce
the principal of, or interest on, the Notes or any Fees or other amounts payable
hereunder, (viii) postpone any date fixed for any payment of principal of, or
interest on, the Notes or any Fees or other amounts payable hereunder or amend
Section 4.02, (ix) limit the liability of any Credit Party under any of the
Credit Documents; provided further that no amendment, waiver or consent shall,
-------- -------
unless in writing and signed by the Swingline Bank or each Letter of Credit
Issuer, as the case may be, in addition to the Banks required above to take such
action, affect the rights or obligations of the Swingline Banks or of the Letter
of Credit Issuers, as the case may be, under this Agreement; and provided
--------
further that no amendment, waiver or consent shall, unless in writing and signed
- -------
by the Administrative Agent in addition to the Banks required above to take such
action, affect the rights or duties of the Agent under this Agreement, (x)
increase the Multi-Currency Sublimit to an amount in excess of U.S. $70,000,000
and (xi) to increase the maximum percentages set forth in the definitions of
each of [_]Foreign Borrowing Base[_] and [_]U.S. Borrowing Base.[_]
12.13 Survival. All indemnities set forth herein including, without
--------
limitation, in Section 1.10, 1.11, 2.05, 4.04, 11.07 or 12.01, shall survive the
execution and delivery of this Agreement and the making and repayment of the
Loans. The agreements and obligations of each Borrower contained in Section 4.04
shall survive the execution and delivery of this Agreement and the making and
repayment of the Loans.
<PAGE>
134
12.14 Domicile of Loans. Each Bank may transfer and carry its Loans
-----------------
at, to or for the account of any branch office, subsidiary or affiliate of such
Bank; provided that the Borrowers shall not be responsible for costs arising
--------
under Section 1.10, 1.11, 2.05 or 4.04 resulting from any such transfer (other
than a transfer pursuant to Section 1.12) to the extent such costs would not
otherwise be applicable to such Bank in the absence of such transfer.
12.15 Confidentiality. (a) Each of the Banks agrees that it will
---------------
use its reasonable efforts not to disclose without the prior consent of the
Borrowers (other than to its employees, auditors, counsel or other professional
advisors, to affiliates (in accordance with Section 12.15(b)) or to another Bank
if the Bank or such Bank's holding or parent company in its sole discretion
determines that any such party should have access to their information) any
information with respect to the Borrowers or any of their Subsidiaries which is
furnished pursuant to this Agreement; provided that any Bank may disclose any
--------
such information (a) as has become generally available to the public, (b) as may
be required or appropriate in any report, statement or testimony submitted to
any municipal, state or Federal regulatory body having or claiming to have
jurisdiction over such Bank or to the Federal Reserve Board or the Federal
Deposit Insurance Corporation or similar organizations (whether in the United
States or elsewhere) or their successors, (c) as may be required or appropriate
in response to any summons or subpoena or in connection with any litigation, (d)
to comply with any law, order, regulation or ruling applicable to such Bank, and
(e) to any prospective transferee in connection with any contemplated transfer
of any of the Notes or any interest therein by such Bank; provided that such
--------
prospective transferee executes an agreement with such Bank, for the benefit of
such Bank and the Borrowers, containing provisions substantially identical to
those contained in this Section.
(b) Each of the Borrowers hereby acknowledges and agrees that each
Bank may share with any of its affiliates for the purposes of this Agreement and
the transactions contemplated hereby any information related to MMI Holdings or
any of its Subsidiaries (including, without limitation, any nonpublic customer
information regarding the creditworthiness of MMI and its Subsidiaries, provided
that such Persons shall be subject to the provisions of this Section 12.15 to
the same extent as such Bank).
12.16 Interest. (a) It is the intention of the parties hereto that
--------
each Bank shall conform strictly to usury laws applicable to it. Accordingly,
the parties hereto stipulate and agree that none of the terms and provisions
contained in the Notes, this Agreement or any of the other Credit Documents
shall ever be construed to create a contract to pay to any Bank for the use,
forbearance or detention of money at a rate in excess of the Highest Lawful Rate
applicable to such Bank, and that for purposes hereof, "interest" shall include
the aggregate of all charges or other consideration which constitute interest
under applicable laws and are contracted for, taken, reserved, charged or
received under any of this Agreement, the Notes or any of the other Credit
Documents or otherwise in connection with the transactions contemplated by this
Agreement. Further, if the transactions contemplated hereby would be
<PAGE>
135
usurious as to any Bank under laws applicable to it then, in that event,
notwithstanding anything to the contrary in the Notes, this Agreement or in any
of the other Credit Documents or agreements entered into in connection with or
as security for the Notes, it is agreed as follows: the aggregate of all
consideration which constitutes interest under law applicable to each such Bank
that is contracted for, taken, reserved, charged or received by such Bank under
the Notes, this Agreement or under any of the other aforesaid Credit Documents
or agreements or otherwise in connection with the Notes shall under no
circumstances exceed the maximum amount allowed by the law applicable to such
Bank and any excess shall be credited by such Bank on the principal amount of
the Indebtedness of the Borrower owed to such Bank (or, if the principal amount
of such Indebtedness shall have been paid in full, to the extent such interest
has been received by a Bank it shall be refunded by such Bank to the Borrower).
The provisions of this Section 12.16(a) shall control over all other provisions
of this Agreement, the Notes and the other Credit Documents which may be in
apparent conflict herewith. The parties hereto further stipulate and agree that,
without limitation of the foregoing, all calculations of the rate or amount of
interest contracted for, taken, reserved, charged or received under any of this
Agreement, the Notes and the other Credit Documents which are made for the
purpose of determining whether such rate or amount exceed the Highest Lawful
Rate shall be made, to the extent permitted by applicable law, by amortizing,
prorating, allocating and spreading during the period of the full stated term of
the Indebtedness, and if longer and if permitted by applicable law, until
payment in full, all interest at any time so contracted for, taken, reserved,
charged or received.
(b) If at any time the effective rate of interest which would
otherwise apply to any Indebtedness evidenced by any Bank's Notes would exceed
the Highest Lawful Rate applicable to such Bank (taking into account the
interest rate applicable to such Indebtedness pursuant to the other provisions
of this Agreement, plus all additional charges and consideration which have been
contracted for, taken, reserved, charged or received under this Agreement, such
Bank's Notes and the other Credit Documents, or any of them, and which
additional charges or consideration (the "Additional Charges") constitute
interest with respect to such Indebtedness), the effective interest rate to
apply to such Indebtedness made by a Bank shall be limited to the Highest Lawful
Rate, but any subsequent reductions in the interest rate applicable to such
Indebtedness owed to such Bank shall not reduce the effective interest rate to
apply to such Indebtedness owed to such Bank below the Highest Lawful Rate
applicable to such Bank until the total amount of interest accrued on such
Indebtedness equals the amount of interest which would have accrued if the
Interest Rate from time to time applicable to such Indebtedness owed to such
Bank had at all times been in effect with respect to such Indebtedness pursuant
to the other provisions of this Agreement and if the Banks had collected all
Additional Charges called for under this Agreement, the Notes and the other
Credit Documents. If at maturity or final payment of such Bank's Notes the
total amount of interest accrued on such Bank's Notes (including amounts
designated as "interest" plus any Additional Charges which constitute interest
with respect to such Bank's Notes, and taking into account the limitations of
the first sentence of this Section 12.16(b)) is less that the total amount of
interest which would have accrued if the interest rate or interest rates
applicable to the Indebtedness from time to time outstanding under such Bank's
Notes had at all times been in
<PAGE>
136
effect pursuant to the other provisions of this Agreement, then the Borrower
agrees, to the fullest extent permitted by the laws applicable to such Bank, to
pay to such Bank an amount equal to the difference between (i) the lesser of (1)
the amount of interest which would have accrued on such Bank's Notes if the
Highest Lawful Rate had at all times been in effect (but excluding, for purposes
of calculating such amount of interest, any Additional Charges which constitute
interest with respect to such Bank's Notes), or (2) the amount of interest which
would have accrued on such Bank's Notes if the interest rate or interest rates
applicable to the Indebtedness from time to time outstanding under such Bank's
Notes had at all times been in effect pursuant to the other provisions of this
Agreement (including amounts designated as "interest" plus any Additional
Charges which constitute interest with respect to such Bank's Notes) less (ii)
the amount of interest actually accrued on such Bank's Notes (including amounts
designated as "interest" plus any Additional Charges which constitute interest
with respect to such Bank's Notes).
12.17A Judgment Currency. (a) If, for the purposes of obtaining
-----------------
judgment in any court, it is necessary to convert a sum due hereunder or under
the Notes in U.S. Dollars into another currency, the parties hereto agree, to
the fullest extent that they may effectively do so, that the rate of exchange
used shall be that at which, in accordance with normal banking procedures, the
Multi-Currency Agent or each Multi-Currency Bank, as the case may be, could
purchase U.S. Dollars with such other currency at New York City on the U.S.
Business Day preceding that on which final, nonappealable judgment is given.
(b) The obligations of the Borrowers in respect of any sum due to any
Agent or any of the Banks hereunder or under the Notes shall, notwithstanding
any judgment in a currency other than U.S. Dollars, be discharged only to the
extent that on the Business Day following receipt by any Agent or such Bank, as
the case may be, of any sum adjudged to be so due in such other currency, any
Agent or any Bank, as the case may be, may, in accordance with normal,
reasonable banking procedures, purchase U.S. Dollars with such other currency.
If the amount of U.S. Dollars so purchased is less than the sum originally due
to such Agent or such Bank, in U.S. Dollars, each Borrower agrees, to the
fullest extent that it may effectively do so, as a separate obligation and
notwithstanding any such judgment, to indemnify such Agent or such Bank, as the
case may be, against such loss.
12.17B Substitution of Currency. If any countries parties to the
------------------------
Treaty on the European Economic and Monetary Union adopts the Euro in
substitution for its national currency in effect on the date hereof, the
regulations of the European Commission relating to the Euro shall apply to this
Agreement and the Notes. The circumstances and consequences described in this
Section 12.18 entitle none of the Borrowers, any Agent or any Bank to recission,
notice, repudiation, adjustment or renegotiation of the terms and conditions of
this Agreement or the Notes or to raise other defenses or to request any
compensation claim, nor will they affect any of the other obligations of any
Borrower under this Agreement and the Notes.
<PAGE>
137
12.17C Interpretation. Any reference in this Agreement to U.S. legal
--------------
concepts shall be interpreted to mean the closest equivalent in the non-U.S.
jurisdiction where such term or condition is required to be enforced.
12.18 Waiver of July Trial. EACH OF THE PARTIES TO THIS AGREEMENT
--------------------
HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER CREDIT
DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Agreement as of the date first
above written.
Address:
- -------
690 Canton Street MODUS MEDIA
Westwood, MA 02090 INTERNATIONAL, INC.
By ___________________________________
Title:
28-7, Kamiochio chiai 2-chome MODUS MEDIA INTERNATIONAL
Shinjuku, Tokyo 161, Japan KABUSHIKI KAISHA
By ___________________________________
Title:
MODUS MEDIA INTERNATIONAL
HOLDINGS, INC.
By ___________________________________
Title:
NATIONSBANK OF TEXAS, N.A.,
individually and as
Administrative Agent
<PAGE>
138
By ___________________________________
Title:
NATIONSBANC MONTGOMERY
SECURITIES, INC.,
as Arranger and Syndication Agent
By ___________________________________
Title:
CITICORP USA, INC.
individually and as Collateral Agent,
Documentation Agent and Multi-
Currency Agent
By ___________________________________
Title:
<PAGE>
EXHIBIT A
FORM OF NOTICE OF BORROWING
[NationsBank of Texas, N.A., as
Administrative Agent for the
Banks party to the Credit Agreement
referred to below
901 Main Street, 14th Floor
Dallas, Texas 75202
Attention: ______________]/1/
[Citicorp USA, Inc., as
Multi-Currency Agent for the
Banks party to the Credit Agreement
referred to below
_________________________
_________________________
Attention: ______________]/2/
[Date]
Ladies and Gentlemen:
The undersigned, [Name of Borrower], refers to the Credit Agreement
dated as of December 15, 1997 (as amended, supplemented or otherwise modified
from time to time, the "Credit Agreement", the terms defined therein being used
herein as therein defined), among the undersigned, [Modus Media International,
Inc.], [Modus Media International Kabushiki Kaisha], [Modus Media International
Holdings, Inc.], various banks party thereto, NationsBanc Montgomery Securities,
Inc., as Arranger and Syndication Agent, Citicorp USA, Inc., as Multi-Currency
Agent, Documentation Agent and Collateral Agent, and NationsBank of Texas, N.A.,
as Administrative Agent for said Banks, and hereby gives you notice,
irrevocably, pursuant to Section 1.03(a) of the Credit Agreement that the
undersigned hereby requests a Borrowing under the Credit Agreement, and in that
connection sets forth below the information relating to such Borrowing (the
"Proposed Borrowing") as required by Section 1.03(a) of the Credit Agreement:
(i) The Business Day of the Proposed Borrowing is _______ __,____.
(ii) The Currency of the Proposed Borrowing is [US Dollars][Japanese
Yen][Singaporean Dollars][South Korean Won][Pounds Sterling][Irish
Pounds][Australian Dollars].
- -------------------
/1/ Insert for Loans denomination in US Dollars.
/2/ Insert for Multi-Currency Revolving Loans
<PAGE>
(iii) The Type of Loans comprising the Proposed Borrowing is [Base
Rate Loans] [Eurodollar Loans].
(iv) The aggregate principal amount of the Proposed Borrowing is
[US$___][Y___][S$___][SKW___][pounds___][A$___].
[(v) The initial Interest Period for each Eurodollar Loan made as
part of the Proposed Borrowing is ______ month[s].]
[(vi) We request _____________, a Multi-Currency Bank, to make the
Multi-Currency Revolving Loan.]
The undersigned hereby certifies that the following statements are
true on the date hereof, and will be true at the time of the Proposed Borrowing
and also after giving effect thereto and to the application of the proceeds
therefrom:
(A) all representations and warranties contained in each Credit
Document in effect at such time shall be true and correct in all material
respects with the same effect as though such representations and warranties had
been made on and as of the date of the Proposed Borrowing, unless stated to
relate to a specific earlier date, in which case such representations and
warranties are true and correct in all material respects as of such earlier
date; and.
(B) on the date of the Proposed Borrowing and after giving effect
thereto, the aggregate Total Outstanding will not exceed an amount equal to the
lesser of (i) the Total Revolving Loan Commitment at such time and (ii) the
Total Borrowing Base at such time and $
(C) no event shall have occurred and be continuing which constitutes
a Default.
<PAGE>
Very truly yours,
[NAME OF BORROWER]
By ______________________________
Name:
Title:
<PAGE>
EXHIBIT B-1
FORM OF REVOLVING NOTE
US $_____________ Dated: _________ __, 199_
FOR VALUE RECEIVED, the undersigned, [NAME OF BORROWER] (the
"Borrower"), HEREBY PROMISES TO PAY_________________________ or its registered
assigns (the "Bank") the aggregate principal amount of the Revolving Loans (as
defined below) owing to the Bank by the Borrower pursuant to the Credit
Agreement dated as of December 15, 1997 (as amended, supplemented or otherwise
modified from time to time, the "Credit Agreement"; terms defined therein being
used herein as therein defined) among the undersigned, [Modus Media
International, Inc.], [Modus Media International Kabushiki Kaisha], [Modus Media
International Holdings, Inc.], the Bank and certain other banks party thereto,
NationsBanc Montgomery Securities, Inc., as Arranger and Syndication Agent,
Citicorp USA, Inc., as Multi-Currency Agent, Documentation Agent and Collateral
Agent, and NationsBank of Texas, N.A., as Administrative Agent for the Bank and
such other Banks on the Revolving Loan Maturity Date.
The Borrower promises to pay to the Bank interest on the unpaid
principal amount of each Revolving Loan from the date of such Revolving Loan
until such principal amount is paid in full, at such interest rates, and payable
at such times, as are specified in the Credit Agreement.
Both principal and interest in respect of each Revolving Loan made to
it (a) US Dollars are payable in lawful money of the United States of America to
NationsBank of Texas, N.A., as Administrative Agent, at 901 Main Street, 14th
Floor, Dallas, Texas 75202, in same day funds and (b) in any Approved Foreign
Currency are payable in such currency at the Appropriate Payment Office of the
Multi-Currency Agent specified in the Credit Agreement for payments in such
currency in same day funds. Each Revolving Loan owing to the Bank by the
Borrower and the maturity thereof, and all payments made on account of principal
thereof, shall be recorded by the Bank and, prior to any transfer hereof,
endorsed on the grid attached hereto, which is part of this Revolving Note.
This Revolving Note is one of the Notes referred to in, and is
entitled to the benefits of, the Credit Agreement. The Credit Agreement, among
other things, (i) provides for the making of loans (the "Revolving Loans") by
the Bank to the Borrower from time to time in an aggregate amount not to exceed
at any time outstanding the U.S. dollar amount first above mentioned (or the
equivalent in other currencies), the indebtedness of the Borrower resulting from
each such Revolving Loan being evidenced by this Revolving Note, and (ii)
contains provisions for acceleration of the maturity hereof upon the happening
of certain stated events and also for prepayments on account of principal hereof
prior to the maturity hereof upon the terms
<PAGE>
and conditions therein specified. The obligations of the Borrower under this
Note, and under the Credit Documents, are secured by the Collateral as provided
in the Credit Documents.
[NAME OF BORROWER]
By _____________________________________
Name:
Title:
<PAGE>
REVOLVING LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
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Amount of Unpaid
Amount of Principal Paid Principal Notation
Date Revolving Loan or Prepaid Balance Made By
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<S> <C> <C> <C> <C>
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</TABLE>
<PAGE>
EXHIBIT B-2
FORM OF SWINGLINE NOTE
US $5,000,000 Dated: _________ __, 199_
FOR VALUE RECEIVED, the undersigned, MODUS MEDIA INTERNATIONAL, INC.
(the "Borrower"), HEREBY PROMISES TO PAY to NationsBank of Texas, N.A. or its
registered assigns (the "Swingline Bank") the aggregate principal amount of the
Swingline Loans (as defined below) owing to the Swingline Bank by the Borrower
pursuant to the Credit Agreement dated as of December 15, 1997 (as amended,
supplemented or otherwise modified from time to time, the "Credit Agreement";
terms defined therein being used herein as therein defined) among the
undersigned, Modus Media International Kabushiki Kaisha, Modus Media
International Holdings, Inc., the Bank and certain other banks party thereto,
NationsBanc Montgomery Securities, Inc., as Arranger and Syndication Agent,
Citicorp USA, Inc., as Multi-Currency Agent, Documentation Agent and Collateral
Agent, and NationsBank of Texas, N.A., as Administrative Agent for the Swingline
Bank and the other Banks on the Revolving Loan Maturity Date.
The Borrower promises to pay to the Swingline Bank or its registered
assigns interest on the unpaid principal amount of each Swingline Loan from the
date of such Swingline Loan until such principal amount is paid in full, at such
interest rates, and payable at such times, as are specified in the Credit
Agreement.
Both principal and interest are payable in lawful money of the United
States of America to NationsBank of Texas, N.A., as Administrative Agent, at 901
Main Street, 14th Floor, Dallas, Texas 75202, in same day funds. Each Swingline
Loan owing to the Swingline Bank by the Borrower and the maturity thereof, and
all payments made on account of principal thereof, shall be recorded by the
Swingline Bank and, prior to any transfer hereof, endorsed on the grid attached
hereto, which is part of this Swingline Note.
This Swingline Note is one of the Notes referred to in, and is
entitled to the benefits of, the Credit Agreement. The Credit Agreement, among
other things, (i) provides for the making of loans (the "Swingline Loans") by
the Swingline Bank to the Borrower from time to time in an aggregate principal
amount not to exceed at any time outstanding when combined with the aggregate
principal amount of all Revolving Loans then outstanding and the aggregate
amount of all Letter of Credit Outstandings (exclusive of unpaid drawings which
are repaid with the proceeds of, and simultaneously with the incurrence of, the
respective incurrence of Revolving Loans) at such time, an amount equal to the
lesser of (x) the U.S. Borrowing Base at such time (based on the Borrowing Base
Certificate last delivered) and (y) an amount equal to the Total Revolving Loan
Commitment then in effect and (z) shall not exceed the aggregate principal
<PAGE>
amount at any time outstanding, and (ii) contains provisions for acceleration of
the maturity hereof upon the happening of certain stated events and also for
prepayments on account of principal hereof prior to the maturity hereof upon the
terms and conditions therein specified. The obligations of the Borrower under
this Swingline Note, and under the Credit Documents, are secured by the
Collateral as provided in the Credit Documents.
MODUS MEDIA INTERNATIONAL, INC.
By ________________________________________
Name:
Title:
<PAGE>
SWINGLINE LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
======================================================================================================
Amount of Unpaid
Amount of Principal Paid Principal Notation
Date Swingline Loan or Prepaid Balance Made By
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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</TABLE>
<PAGE>
SECURITY AGREEMENT
SECURITY AGREEMENT dated ________ __, 1997 made by the Persons listed on
the signature pages hereof and the Additional Grantors (as defined in Section
25(b)) (such Persons so listed and the Additional Grantors being, collectively,
the "Grantors"), to Citicorp USA, Inc. ("Citibank"), as collateral agent (the
"Collateral Agent") for itself, the Administrative Agent, the Syndication Agent,
Citibank, N.A., as Multi-Currency Agent and Documentation Agent, the Banks and
the [Hedge Banks] (in each case as defined in the Credit Agreement referred to
below) (each being a "Secured Creditor", and collectively, the "Secured
Creditors").
PRELIMINARY STATEMENTS.
(1) Modus Media International, Inc., a Delaware corporation ("MMI"), [Name
of Borrowing Subsidiary] (the "Borrowing Subsidiary"), [Modus Media
International Ireland, an Irish company ("MMI-Ireland")], [Modus Media
International Kabushiki Kaisha, a Japanese company ("MMI-KK")], [Modus Media
International Limited, an English company ("MMI-UK")], [Modus Media
International Pte. Ltd., a Singapore company ("MMI-Singapore")], [Modus Media
International Pty. Ltd., an Australian company ("MMI-Australia")], [Modus Media
International Korea Ltd., a Korean company ("MMI-Korea")], [Modus Media
International B.V., a Netherlands company ("MMI-Netherlands")]and [Modus Media
International S.A., a French company ("MMI-France"] and, together with MMI-
Ireland, MMI-KK, MMI-UK, MMI-Singapore, MMI-Australia and MMI-Netherlands, the
"Local Currency Borrowers"; MMI and the Local Currency Borrowers are referred to
herein collectively as the "Borrowers"), have entered into a Credit Agreement
dated as of ___________, 1997 (such Credit Agreement, as it may hereafter be
amended, supplemented or otherwise modified from time to time, being the "Credit
Agreement"; the terms defined therein and not otherwise defined herein being
used herein as therein defined) with NationsBank of Texas, N.A., as
Administrative Agent, NationsBanc Montgomery Securities, Inc., as Arranger and
Syndication Agent, Citicorp USA, Inc., as Multi-Currency Agent and Documentation
Agent, the Collateral Agent and the Banks party thereto.
(2) Each Grantor is the owner of the shares of stock set forth opposite
such Grantor's name in Part I of Schedule I hereto and issued by the
corporations named therein and of the indebtedness set forth opposite such
Grantor's name in Part II of Schedule I hereto and issued by the obligors named
therein.
(3) The Borrowing Subsidiary has opened a non-interest bearing cash
concentration account (the "Cash Concentration Account") with Citibank at its
office at _______________, ________, ________ _____, Account No. __________, in
the name of such Grantor but under the sole control and dominion of the
Collateral Agent and subject to the terms of this Agreement.
<PAGE>
2
(4) It is a condition precedent to the making of Loans and the issuance of
Letters of Credit by the Banks under the Credit Agreement that each Grantor
shall have granted the assignment and security interest and made the pledge and
assignment contemplated by this Agreement.
(5) Each Grantor will derive substantial direct and indirect benefit from
the transactions contemplated by the Credit Agreement.
NOW, THEREFORE, in consideration of the premises and in order to induce the
Banks to make Loans and to issue Letters of Credit under the Credit Agreement
each Grantor hereby agrees with the Collateral Agent for the ratable benefit of
the Secured Creditors as follows:
Section 1. Grant of Security. Each Grantor hereby assigns and pledges to
-----------------
the Collateral Agent for the ratable benefit of the Secured Creditors, and
hereby grants to the Collateral Agent for the ratable benefit of the Secured
Creditors a security interest in, the following (collectively, the
"Collateral"):
(a) all of such Grantor's right, title and interest, whether now owned or
hereafter acquired, in and to all equipment in all of its forms, wherever
located, now or hereafter existing (including, but not limited to, all (i)
furniture, furnishings, trade fixtures, machinery and appliances, (ii)
production, manufacturing, distribution, selling, data processing, computer
and office equipment, (iii) all Proprietary Works (as defined in Section 1(g)
below) in the form of equipment and all physical representations of or media
containing Proprietary Works or other information (including, without
limitation, notebooks, drawings, diagrams, plans, manuals, computer
peripherals, hardware, firmware, software, data storage tapes, disks,
diskettes and other computerized information and (iv) all [name other specific
items or types of equipment]), all fixtures and all parts thereof and all
accessions and additions thereto, appurtenances thereof, substitutions
therefor and replacements thereof (any and all such equipment, fixtures,
parts, accessions, additions, appurtenances, substitutions and replacements
being the "Equipment");
(b) all of such Grantor's right, title and interest, whether now owned or
hereafter acquired, in and to all inventory in all of its forms, wherever
located, now or hereafter existing (including, but not limited to, (i) all
[name specific items or types of inventory] and raw materials and work in
process therefor, finished goods thereof and materials used or consumed in the
manufacture, production or preparation thereof, (ii) goods in which such
Grantor has an interest in mass or a joint or other interest or right of any
kind (including, without limitation, goods in which such Grantor has an
interest or right as consignee) and (iii) goods that are returned to or
repossessed or stopped in transit by such Grantor), and all accessions thereto
and products thereof and
<PAGE>
3
documents therefor (any and all such inventory, accessions, products and
documents being the "Inventory");
(c) all of such Grantor's right, title and interest, whether now owned
or hereafter acquired, in and to all accounts, contract rights, chattel
paper, instruments, deposit accounts, general intangibles and all other
obligations of any kind, now or hereafter existing, whether or not arising
out of or in connection with the sale or lease of goods or the rendering of
services and whether or not earned by performance (including, without
limitation, any rights with respect to workers' compensation or other
deposits made by such Grantor and any rights to receive tax refunds or
other refunds, reimbursements and payments from any federal, state or local
government or any political subdivision, agency or instrumentality
thereof), and all rights now or hereafter existing in and to all security
agreements, leases and other contracts securing or otherwise relating to
any such accounts, contract rights, chattel paper, instruments, deposit
accounts, general intangibles or obligations (any and all such accounts,
contract rights, chattel paper, instruments, deposit accounts, general
intangibles and obligations, to the extent not referred to in clause (d),
(e), (f) or (g) below, being the "Receivables", and any and all such
leases, security agreements and other contracts being the "Related
Contracts");
(d) all of the following (the "Security Collateral"):
[(i) the shares of stock set forth opposite such Grantor's name
in Part I of Schedule I hereto and issued by the corporations
indicated therein (collectively referred to herein as the "Initial
Pledged Shares", and together with the shares referred to in clause
(iii) below, the "Pledged Shares"), together with the certificates
representing such Initial Pledged Shares, and all dividends, cash,
instruments and other property from time to time received, receivable
or otherwise distributed in respect of or in exchange for any or all
of such Initial Pledged Shares;]
(ii) the indebtedness (whether or not evidenced by instruments)
set forth opposite such Grantor's name in Part II of Schedule I hereto
and issued by the obligors indicated therein (collectively referred to
herein as the "Initial Pledged Debt", and together with the
indebtedness referred to in clause (iv) below, the "Pledged Debt") and
the instruments (if any) evidencing such initial Pledged Debt, all
security therefor and all interest, cash, instruments and other
property from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of such
initial Pledged Debt (the Initial Pledged Shares and the Initial
Pledged Debt together being the "Pledged Securities");
<PAGE>
4
(iii) all additional shares of stock from time to time acquired
by such Grantor in any manner, and the certificates representing such
additional shares, and all dividends, cash, instruments and other
property from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of such
shares; and
(iv) all additional indebtedness from time to time owed to such
Grantor and the instruments evidencing such indebtedness, all security
therefor and all interest, cash, instruments and other property from
time to time received, receivable or otherwise distributed in respect
of or in exchange for any or all of such indebtedness;
[provided, however, that none of the Grantors shall be required to pledge
-----------------
any shares of stock in any Foreign Corporation owned or otherwise held
thereby which, when aggregated with all of the other shares of stock in
such Foreign Corporation pledged by such Grantor and the other Grantors,
would result in more than 66% of the shares of stock in such Foreign
Corporation entitled to vote (within the meaning of Treasury Regulation
Section 1.956-2(c)(2) promulgated under the Internal Revenue Code) (the
"Voting Shares") (on a fully diluted basis) being pledged to the Collateral
Agent, on behalf of the Secured Creditors, under this Agreement and the
other Collateral Documents (although all of the shares of stock in such
Foreign Corporation not entitled to vote (within the meaning of Treasury
Regulation Section 1.956-2(c)(2) promulgated under the Internal Revenue
Code) (the "Non-Voting Shares") shall be pledged by each of the Grantors
that owns or otherwise holds any such Non-Voting Shares therein); provided
--------
that, if, as a result of any change in the tax laws of the United States of
America after the date of this Agreement, the pledge by such Grantor of any
additional shares of stock in any such Foreign Corporation to the
Collateral Agent, on behalf of the Secured Creditors, under this Agreement
or any of the other Collateral Documents would not result in an increase in
the aggregate net consolidated tax liabilities of the Borrower and its
Subsidiaries, then, promptly after the change in such laws, all such
additional shares of stock shall be so pledged under this Agreement or such
other Collateral Document, as applicable;]
(e) all of such Grantor's right, title and interest in and to each of
the agreements listed on Schedule II, as such agreements may be amended,
supplemented or otherwise modified from time to time (collectively, the
"Assigned Agreements"), including, without limitation, (i) all rights of
such Grantor to receive moneys due and to become due under or pursuant to
the Assigned Agreements, (ii) all rights of such Grantor to receive
proceeds of any insurance, indemnity, warranty or guaranty with respect to
the Assigned Agreements, (iii) claims of such Grantor for damages arising
out of or for breach of or default under the Assigned Agreements and (iv)
the right of such Grantor to terminate the Assigned Agreements, to perform
thereunder and to
<PAGE>
compel performance and otherwise exercise all remedies thereunder (all such
Collateral being the "Agreement Collateral");
(f) all of the following (collectively, the "Account Collateral"):
(i) the Cash Concentration Account, all funds held therein and
all certificates and instruments, if any, from time to time
representing or evidencing the Cash Concentration Account;
(ii) all Blocked Accounts (as hereinafter defined), all funds
held therein and all certificates and instruments, if any, from time
to time representing or evidencing the Blocked Accounts;
(iii) all other deposit accounts of such Grantor, all funds held
therein and all certificates and instruments, if any, from time to
time representing or evidencing such deposit accounts;
(iv) all Collateral Investments (as hereinafter defined) from
time to time and all certificates and instruments, if any, from time
to time representing or evidencing the Collateral Investments;
(v) all notes, certificates of deposit, deposit accounts,
checks and other instruments from time to time hereafter delivered to
or otherwise possessed by the Collateral Agent for or on behalf of
such Grantor, including, without limitation, those delivered or
possessed in substitution for or in addition to any or all of the then
existing Account Collateral; and
(vi) all interest, dividends, cash, instruments and other
property from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of the then
existing Account Collateral;
(g) all of such Grantor's right, title and interest, whether now
owned or hereafter acquired, in and to all general intangibles, now or
hereafter existing (other than general intangibles for money due or to
become due, which are covered by Section 1(c) above), including, but not
limited to, (i) all partnership, corporate and other interests in and to
any Person (other than any Security Collateral and subject to the
limitations set forth in the provisos to Section 1(d)), (ii) all
governmental permits, licenses (and any subsequent renewals thereof),
franchises, registrations, authorizations and approvals, (iii) all
trademarks, trade names, corporate names, company names, business names,
fictitious business names, trade styles, service marks, logos, and any
other designs or sources of business identifiers, indicia of origin or
similar devices, all registrations with respect thereto, all applications
with respect to the foregoing, and all
<PAGE>
6
extensions and renewals with respect to any of the foregoing, together with
all of the goodwill associated therewith, throughout the world, and all
rights and interests associated with the foregoing, (iv) all copyrights,
and all copyrights of works based on, incorporated in, derived from or
relating to works covered by such copyrights, and all right, title and
interest to make and exploit all derivative works based on or adopted from
works covered by such copyrights, all registrations with respect thereto,
all applications with respect to the foregoing, and all extensions and
renewals with respect to any of the foregoing, together with all rights and
interest associated with the foregoing, (v) all United States and foreign
patents and patent applications, and licenses and rights in, and the right
to sue for all past, present and future infringements of, any and all such
patents and patent applications, and all reissues, divisions,
continuations, renewals, extensions and continuations-in-part thereof, (vi)
all certificates, records, circulation lists, subscriber lists, advertiser
lists, supplier lists, customer lists, customer and supplier contracts,
sales orders, purchasing records and other rights, privileges and goodwill
obtained or used in connection with the Collateral and (vii) all sales
literature, promotional literature, processes, practices, techniques,
procedures, trade secrets, know-how and other information and data,
including, without limitation, designs, drawings, compilations of data,
specifications, assembly procedures, software and firmware (all such
Collateral being the "Proprietary Works"); and
(h) all proceeds of any and all of the foregoing Collateral
(including, without limitation, proceeds that constitute property of the
types described in clauses (a) through (g) of this Section 1) and, to the
extent not otherwise included, all (i) payments under insurance (whether or
not the Collateral Agent is the loss payee thereof), or any indemnity,
warranty or guaranty, payable by reason of loss or damage to or otherwise
with respect to any of the foregoing Collateral and (ii) cash.
Section 2. Security for Obligations. This Agreement secures the
------------------------
payment of all Obligations of the Grantors now or hereafter existing under the
Credit Documents, whether for principal, interest, fees, expenses or otherwise
(all such Obligations being the "Secured Obligations"). Without limiting the
generality of the foregoing, this Agreement secures the payment of all amounts
that constitute part of the Secured Obligations of the Grantors and that would
be owed by any Grantor to the Secured Creditors under the Credit Documents but
for the fact that they are unenforceable or not allowable due to the existence
of a bankruptcy, reorganization or similar proceeding involving any Grantor.
Section 3. Grantors Remain Liable. Anything herein to the contrary
----------------------
notwithstanding, (a) each Grantor shall remain liable under the contracts and
agreements included in the Collateral to the extent set forth therein to perform
all of its duties and obligations thereunder to the same extent as if this
Agreement had not been executed, (b) the exercise by the Collateral Agent of any
of the rights hereunder shall not release any Grantor from any of its duties or
obligations under the contracts and agreements included in the
<PAGE>
7
Collateral and (c) no Secured Creditor shall have any obligation or
liability under the contracts and agreements included in the Collateral by
reason of this Agreement or any other Credit Document, nor shall any
Secured Creditor be obligated to perform any of the obligations or duties
of any Grantor thereunder or to take any action to collect or enforce any
claim for payment assigned hereunder.
Section 4. Delivery of Security Collateral and Account Collateral.
------------------------------------------------------
All certificates or instruments representing or evidencing Security Collateral
or Account Collateral (and, to the extent requested by the Collateral Agent, any
other Collateral) shall be delivered to and held by or on behalf of the
Collateral Agent pursuant hereto and shall be in suitable form for transfer by
delivery, or shall be accompanied by duly executed instruments of transfer or
assignment in blank, all in form and substance satisfactory to the Collateral
Agent. The Collateral Agent shall have the right, at any time in its discretion
and without notice to any Grantor, to transfer to or to register in the name of
the Collateral Agent or any of its nominees any or all of the Security
Collateral and Account Collateral, subject only to the revocable rights
specified in Section 14(a). In addition, the Collateral Agent shall have the
right at any time to exchange certificates or instruments representing or
evidencing Security Collateral or Account Collateral for certificates or
instruments of smaller or larger denominations.
Section 5. Maintaining the Cash Concentration Account. So long as any
------------------------------------------
Loan shall remain unpaid, any Letter of Credit shall be outstanding or any Bank
shall have any Commitment under the Credit Agreement:
(a) The Borrowing Subsidiary will maintain the Cash Concentration
Account with Citibank.
(b) It shall be a term and condition of the Cash Concentration
Account, notwithstanding any term or condition to the contrary in any other
agreement relating to the Cash Concentration Account, and except as
otherwise provided by the provisions of Section 8 and Section 21, that no
amount (including interest on Collateral Investments) shall be paid or
released to or for the account of, or withdrawn by or for the account of,
the Borrowing Subsidiary or any other Person from the Cash Concentration
Account.
The Cash Concentration Account shall be subject to such applicable laws, and
such applicable regulations of the [Board of Governors of the Federal Reserve
System and of any other] appropriate banking or governmental authority, as may
now or hereafter be in effect.
Section 6. Maintaining the Blocked Accounts. So long as any Loan
--------------------------------
shall remain unpaid, any Letter of Credit shall be outstanding or any Bank shall
have any Commitment under the Credit Agreement:
(a) Each Grantor shall maintain blocked deposit accounts ("Blocked
<PAGE>
8
Accounts") only with banks ("Blocked Account Banks") that have entered into
letter agreements in substantially the form of Exhibit A with such Grantor
and the Collateral Agent ("Blocked Account Letters").
(b) Each Grantor shall immediately instruct each Person obligated at
any time to make any payment to such Grantor for any reason (an "Obligor")
to make such payment to a Blocked Account or to the Cash Concentration
Account and shall pay to the Collateral Agent for deposit in the Cash
Concentration Account all proceeds of Collateral.
(c) [Upon the occurrence of a Default, and the demand of the
Collateral Agent,] each Grantor shall instruct each Blocked Account Bank to
transfer to the Cash Concentration Account, at the end of each Business
Day, in same day funds, an amount equal to the credit balance of the
Blocked Account in such Blocked Account Bank.
(d) Upon any termination of any Blocked Account Letter or other
agreement with respect to the maintenance of a Blocked Account by any
Grantor or any Blocked Account Bank, such Grantor shall immediately notify
all Obligors that were making payments to such Blocked Account to make all
future payments to another Blocked Account or to the Cash Concentration
Account. Each Grantor agrees to terminate any or all Blocked Accounts and
Blocked Account Letters upon request by the Collateral Agent.
Section 7. Investing of Amounts in the Cash Concentration Account and
----------------------------------------------------------
the L/C Cash Concentration Account. If requested by the Borrowing Subsidiary,
- ----------------------------------
the Collateral Agent will, subject to the provisions of Section 8 and Section
21, from time to time (a) invest amounts on deposit in the Cash Concentration
Account in such Cash Equivalents in the name of the Collateral Agent as the
Borrowing Subsidiary may select and the Collateral Agent may approve and (b)
invest interest paid on the Cash Equivalents referred to in clause (a) above,
and reinvest other proceeds of any such Cash Equivalents that may mature or be
sold, in each case in such Cash Equivalents in the name of the Collateral Agent
as the Borrowing Subsidiary may select and the Collateral Agent may approve (the
Cash Equivalents referred to in clauses (a) and (b) above being collectively
"Collateral Investments"). Interest and proceeds that are not invested or
reinvested in Collateral Investments as provided above shall be deposited and
held in the Cash Concentration Account.
Section 8. Release of Amounts. If in its sole discretion it elects to
------------------
do so, the Collateral Agent may pay and release to the Borrowing Subsidiary or
at its order and at the request of the Borrowing Subsidiary, the amount, if any,
by which the credit balance of the Cash Concentration Account exceeds all
amounts then due and payable by the Borrowing Subsidiary under the Credit
Documents together with all accrued and unpaid interest and fees under the
Credit Agreement.
<PAGE>
9
Section 9. Representations and Warranties. Each Grantor represents and
------------------------------
warrants as follows:
(a) All of the Equipment and Inventory of such Grantor are located at
the places specified in Schedule III hereto. The chief place of business
and chief executive office of such Grantor and the office where such
Grantor keeps its records concerning the Receivables, and the original
copies of each Assigned Agreement and all originals of all Related
Contracts and all chattel paper that evidence Receivables (other than those
delivered to the Collateral Agent), are located at the address set forth
below such Grantor's name on the signature pages hereof. Such Grantor has
delivered to the Collateral Agent the originals of all agreements,
certificates or instruments representing or evidencing any Collateral and
all security therefor and guaranties thereof, in each case to the extent
that the delivery thereof to the Collateral Agent is required under Section
4 or Section 10. None of the Receivables or Agreement Collateral is
evidenced by a promissory note or other instrument.
(b) Such Grantor is the legal and beneficial owner of the Collateral
of such Grantor free and clear of any Lien, claim, option or right of
others except for the security interest created by this Agreement and
except as permitted under Section 8.03 of the Credit Agreement. No
effective financing statement or other instrument similar in effect
covering all or any part of such Collateral (including, without limitation,
accounts and general intangibles relating to the Collateral) or listing
such Grantor or any of its Subsidiaries or any trade name of such Grantor
or any of its Subsidiaries as debtor is on file in any recording office,
except such as may have been filed (i) in favor of the Collateral Agent
relating to the Credit Documents or (ii) in connection with Liens permitted
under Section 8.03 of the Credit Agreement.
(c) Such Grantor has exclusive possession and control of the Equipment
and Inventory of such Grantor.
(d) The Pledged Shares owned or otherwise held by such Grantor
constitute the type and percentage of the issued and outstanding shares of
stock in the issuers thereof set forth opposite the name of such Grantor in
Part I of Schedule I hereto, and such Grantor does not own or otherwise
hold any shares of stock of any kind in any Person other than [(i)] the
issued and outstanding shares of stock set forth opposite the name of such
Grantor in Part I of Schedule I hereto[, and (ii) Voting Shares in one or
more of the Foreign Corporations that, when aggregated with all of the
other Voting Shares in each such Foreign Corporation owned by such Grantor
and the other Grantors, do not exceed 34% of the issued and outstanding
Voting Shares in such Foreign Corporation (on a fully diluted basis).] All
of the Pledged Shares have been duly authorized and validly issued and are
fully paid and non-assessable.
<PAGE>
10
(e) The Pledged Debt held by such Grantor has been duly authorized,
authenticated or issued and delivered, is the legal, valid and binding
obligation of the issuers thereof and is not in default. The Initial
Pledged Debt constitutes all of the outstanding indebtedness for money
borrowed or for the deferred purchase price of property owed to such
Grantor by the issuers thereof.
(f) The Assigned Agreements to which such Grantor is a party, true and
complete copies of which have been furnished to each Bank, have been duly
authorized, executed and delivered by all parties thereto, have not been
amended or otherwise modified, are in full force and effect and are binding
upon and enforceable against all parties thereto in accordance with their
terms. There exists no default under any Assigned Agreement to which such
Grantor is a party by such Grantor, and to the best of such Grantor's
knowledge, there exists no default under any such Assigned Agreement by any
party thereto. Each party to any Assigned Agreement to which such Grantor
is a party (other than such Grantor) has executed and delivered to such
Grantor a consent, in substantially the form of Exhibit B hereto, to the
assignment of the Agreement Collateral to the Collateral Agent pursuant to
this Agreement.
(g) Such Grantor has no Blocked Accounts or other deposit accounts
other than the Blocked Accounts listed on Schedule IV hereto. Each Grantor
has instructed all existing Obligors to make all payments to either a
Blocked Account or the Cash Concentration Account.
(h) This Agreement, the pledge of the Security Collateral pursuant
hereto and the pledge and assignment of the Account Collateral pursuant
hereto create in favor of the Collateral Agent a valid and perfected first
priority security interest in the Collateral of such Grantor, securing the
payment of the Secured Obligations of such Grantor, and all filings and
other actions necessary or desirable to perfect and protect such security
interest have been duly taken.
(i) No consent of any other Person and no authorization, approval or
other action by, and no notice to or filing with, any governmental
authority or regulatory body or other Person is required (i) for the grant
by such Grantor of the assignment and security interest granted hereby, for
the pledge by such Grantor of the Security Collateral pursuant hereto or
for the execution, delivery or performance of this Agreement by such
Grantor, (ii) for the perfection or maintenance of the pledge, assignment
and security interest created hereby (including the first priority nature
of such pledge, assignment and security interest), except for the filing of
financing and continuation statements under the Uniform Commercial Code,
which financing statements have been duly filed, or (iii) for the exercise
by the Collateral Agent of its voting or other rights provided for in this
Agreement or the remedies in respect of the
<PAGE>
11
Collateral pursuant to this Agreement, except as may be required in
connection with the disposition of any portion of the Security Collateral
by laws affecting the offering and sale of securities generally.
(j) Such Grantor has no trade names except as set forth on Schedule V
hereto; such trade names were adopted in good faith; and, to the best of
such Grantor's knowledge, there exist no adverse claims against such trade
names.
(k) The execution, delivery and performance by such Grantor of this
Agreement is within such Grantor's corporate powers, have been duly
authorized by all necessary corporate action, and do not contravene (i)
such Grantor's memorandum and articles of incorporation or equivalent
corporate documents, or (ii) any law or any contractual restriction binding
on or affecting such Grantor;
(l) This Agreement is the legal, valid and binding obligation of such
Grantor enforceable against such Grantor in accordance with its terms,
subject to the effect of any applicable bankruptcy, insolvency (including,
without limitation, all laws relating to fraudulent transfers),
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally and to general principles of equity (regardless
of whether the issue of enforceability is considered in a proceeding in
equity or at law.)
(m) Such Grantor is, and, after giving effect to the transactions
contemplated hereby, individually and together with its Subsidiaries, will
be, Solvent.
(n) Neither such Grantor nor the Pledged Shares of such Grantor has
any immunity from jurisdiction of any court or from set-off or any legal
process (whether through service or notice, attachment prior to judgment,
attachment in aid of execution, execution or otherwise);
(o) There is no tax, levy, impost, deduction, charge or withholding
imposed by the jurisdiction of its incorporation or organization or any
political subdivision thereof on or by virtue of the execution or delivery
of this Agreement; and
(p) To ensure the legality, validity, enforceability or admissibility
in evidence of this Agreement in the jurisdiction of its incorporation or
organization, it is not necessary that this Agreement or any other document
be filed or recorded with any court or other authority in such jurisdiction
or that any stamp or similar tax be paid on or in respect of this
Agreement.
Section 10. Further Assurances. (a) Each Grantor agrees that from time
------------------
to time, at the expense of such Grantor, such Grantor will promptly execute and
deliver all
<PAGE>
12
further instruments and documents, and take all further action, that may be
necessary or desirable, or that the Collateral Agent may request, in order to
perfect and protect any pledge, assignment or security interest granted or
purported to be granted hereby or to enable the Collateral Agent to exercise and
enforce its rights and remedies hereunder with respect to any Collateral.
Without limiting the generality of the foregoing, each Grantor will: (i) mark
conspicuously each document included in the Inventory of such Grantor and each
chattel paper included in the Receivables, Related Contracts, and Assigned
Agreements of such Grantor and, at the request of the Collateral Agent, each of
its records pertaining to the Collateral, with a legend, in form and substance
satisfactory to the Collateral Agent, indicating that such document, chattel
paper, Related Contract, Assigned Agreement or other Collateral is subject to
the security interest granted hereby; (ii) if any Collateral shall be evidenced
by a promissory note or other instrument or chattel paper, deliver and pledge to
the Collateral Agent hereunder such note or instrument or chattel paper duly
indorsed and accompanied by duly executed instruments of transfer or assignment,
all in form and substance satisfactory to the Collateral Agent; (iii) deliver
and pledge to the Collateral Agent hereunder certificates representing the
Pledged Shares accompanied by undated stock powers executed in blank and
promissory notes representing the Pledged Debt and accompanied by undated note
powers and evidence that all other action that the Collateral Agent may deem
necessary or desirable in order to perfect and protect the liens and security
interests created under this Agreement has been taken; and (iv) execute and file
such financing or continuation statements, or amendments thereto, and such other
instruments or notices, as may be necessary or desirable, or as the Collateral
Agent may request, in order to perfect and preserve the pledge, assignment and
security interest granted or purported to be granted hereby.
(b) Each Grantor will furnish to the Collateral Agent from time to time
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as the Collateral Agent may
reasonably request, all in reasonable detail.
(c) Each Grantor will furnish to the Collateral Agent, biennially on or
before _________ __ of each odd year (commencing _________ __, 1999), an opinion
of counsel acceptable to the Required Banks to the effect that all financing or
continuation statements have been filed, and all other action has been taken, to
perfect and validate continuously from the date hereof the assignment and
security interest granted hereby.
Section 11. As to Equipment and Inventory. (a) Each Grantor shall keep
-----------------------------
the Equipment and Inventory (other than Inventory sold in the ordinary course of
business) at the places therefor specified in Section 9(a) or, upon 30 days'
prior written notice to the Collateral Agent, at such other places in a
jurisdiction where all action required by Section 10 shall have been taken with
respect to the Equipment and Inventory.
(b) Each Grantor shall cause the Equipment to be maintained and preserved
<PAGE>
13
in the same condition, repair and working order as when new, ordinary wear and
tear excepted, and in accordance with any manufacturer's manual therefor, and
shall forthwith, or in the case of any loss or damage to any of the Equipment as
quickly as practicable after the occurrence thereof, make or cause to be made
all repairs, replacements and other improvements in connection therewith that
are necessary or desirable to such end. Each Grantor shall promptly furnish to
the Collateral Agent a statement respecting any loss or damage to any of the
Equipment.
(c) Each Grantor shall pay promptly when due all property and other taxes,
assessments and governmental charges or levies imposed upon, and all claims
(including claims for labor, materials and supplies) against, the Equipment and
Inventory, to the extent required under Section 7.04 of the Credit Agreement.
Section 12. Insurance. (a) Each Grantor shall, at its own expense,
---------
maintain insurance with respect to the Equipment and Inventory in such amounts,
against such risks, in such form and with such insurers, as shall be
satisfactory to the Collateral Agent from time to time. Each policy for
liability insurance shall provide for all losses to be paid on behalf of the
Collateral Agent and such Grantor as their interests may appear, and each policy
for property damage insurance shall provide for all losses (except for losses of
less than $__________ per occurrence) to be paid directly to the Collateral
Agent. Each such policy shall in addition (i) name such Grantor and the
Collateral Agent as insured parties thereunder (without any representation or
warranty by or obligation upon the Collateral Agent) as their interests may
appear, (ii) contain the agreement by the insurer that any loss thereunder shall
be payable to the Collateral Agent notwithstanding any action, inaction or
breach of representation or warranty by such Grantor, (iii) provide that there
shall be no recourse against the Collateral Agent for payment of premiums or
other amounts with respect thereto and (iv) provide that at least 10 days' prior
written notice of cancellation or of lapse shall be given to the Collateral
Agent by the insurer. Each Grantor shall, if so requested by the Collateral
Agent, deliver to the Collateral Agent original or duplicate policies of such
insurance and, as often as the Collateral Agent may reasonably request, a report
of a reputable insurance broker with respect to such insurance. Further, each
Grantor shall, at the request of the Collateral Agent, duly exercise and deliver
instruments of assignment of such insurance policies to comply with the
requirements of Section 10 and cause the insurers to acknowledge notice of such
assignment.
(b) Reimbursement under any liability insurance maintained by any Grantor
pursuant to this Section 12 may be paid directly to the Person who shall have
incurred liability covered by such insurance. In case of any loss involving
damage to Equipment or Inventory of any Grantor when subsection (c) of this
Section 12 is not applicable, such Grantor shall make or cause to be made the
necessary repairs to or replacements of such Equipment or Inventory, and any
proceeds to such Grantor of insurance maintained by such Grantor pursuant to
this Section 12 shall be paid to such Grantor as reimbursement for the costs of
such repairs or replacements or shall be applied to preparing Loans, in each
case to the extent required under
<PAGE>
14
the Credit Agreement.
(c) Upon the occurrence and during the continuance of any Default or the
actual or constructive total loss (in excess of $__________ per occurrence) of
any Equipment or Inventory, all insurance payments in respect of such Equipment
or Inventory shall be paid to and applied by the Collateral Agent as specified
in Section 21(b) except to the extent otherwise required in the Credit
Agreement.
Section 13. Place of Perfection; Records; Collection of Receivables. (a)
-------------------------------------------------------
Each Grantor shall keep its chief place of business and chief executive office
and the office where it keeps its records concerning the Collateral of such
Grantor, and the original copies of the Assigned Agreements, Related Contracts
and all chattel paper that evidence Receivables (to the extent not required to
be delivered to the Collateral Agent hereunder), at the location therefor
specified in Section 9(a) or, upon 30 days' prior written notice to the
Collateral Agent, at such other locations in a jurisdiction where all actions
required by Section 10 shall have been taken with respect to the Collateral.
Each Grantor will hold and preserve such records, Assigned Agreements, Related
Contracts and chattel paper and will permit representatives of the Collateral
Agent at any time during normal business hours to inspect and make abstracts
from such records, Assigned Agreements, Related Contracts and chattel paper.
(b) Except as otherwise provided in this subsection (b), each Grantor shall
continue to collect, at its own expense, all amounts due or to become due such
Grantor under the Receivables and Related Contracts. In connection with such
collections, such Grantor may take (and, at the Collateral Agent's direction,
shall take) such action as such Grantor or the Collateral Agent may deem
necessary or advisable to enforce collection of the Receivables and Related
Contracts; provided, however, that the Collateral Agent shall have the right at
-------- -------
any time, upon written notice to such Grantor of its intention to do so, to
notify the Obligors under any Receivables and Related Contracts of the
assignment of such Receivables to the Collateral Agent and to direct such
Obligors to make payment of all amounts due or to become due to such Grantor
thereunder directly to the Collateral Agent and, upon such notification and at
the expense of such Grantor, to enforce collection of any such Receivables and
Related Contracts, and to adjust, settle or compromise the amount or payment
thereof, in the same manner and to the same extent as such Grantor might have
done. After receipt by such Grantor of the notice from the Collateral Agent
referred to in the proviso to the preceding sentence, (i) all amounts and
proceeds (including instruments) received by such Grantor in respect of the
Receivables and Related Contracts shall be received in trust for the benefit of
the Collateral Agent hereunder, shall be segregated from other funds of such
Grantor and shall be forthwith paid over to the Collateral Agent in the same
form as so received (with any necessary indorsement) to be deposited in the Cash
Concentration Account and either (A) released to the Borrowing Subsidiary on the
terms set forth in Section 8 so long as no Default shall have occurred and be
continuing or (B) if any Default shall have occurred and be continuing, applied
as provided under Section 21(b) and (ii) such Grantor shall not adjust, settle
or compromise the amount or
<PAGE>
15
payment of any Receivable, release wholly or partly any Obligor thereof, or
allow any credit or discount thereon. Anything contained herein to the contrary
notwithstanding, such Grantor shall not permit or agree to subordination of its
rights to payment under any of the Receivables to any other indebtedness or
obligations of the Obligor thereof.
Section 14. Voting Rights; Dividends; Etc. (a) So long as no Default
-----------------------------
shall have occurred and be continuing:
(i) Each Grantor shall be entitled to exercise any and all voting
and other consensual rights pertaining to the Security Collateral of such
Grantor or any part thereof for any purpose not inconsistent with the terms
of this Agreement or the other Credit Documents; provided, however, that no
-------- -------
Grantor shall exercise or refrain from exercising any such right if, in the
Collateral Agent's judgment, such action would have a material adverse
effect on the value of the Security Collateral of such Grantor or any part
thereof; and, provided further that such Grantor shall give the Collateral
Agent at least five days' written notice of the manner in which it intends
to exercise, or the reasons for refraining from exercising, any such right.
(ii) Each Grantor shall be entitled to receive and retain any and all
dividends and interest paid in respect of the Security Collateral of such
Grantor; provided, however, that any and all
(A) dividends and interest paid or payable other than in cash in
respect of, and instruments and other property received, receivable or
otherwise distributed in respect of, or in exchange for, any Security
Collateral,
(B) dividends and other distributions paid or payable in cash in
respect of any Security Collateral in connection with a partial or
total liquidation or dissolution or in connection with a reduction of
capital, capital surplus or paid-in-surplus, and
(C) cash paid, payable or otherwise distributed in respect of
principal of, or in redemption of, or in exchange for, any Security
Collateral
shall be, and shall be forthwith delivered to the Collateral Agent to hold
as, Security Collateral and shall, if received by any Grantor, be received
in trust for the benefit of the Collateral Agent, be segregated from the
other property or funds of such Grantor and be forthwith delivered to the
Collateral Agent as Security Collateral in the same form as so received
(with any necessary indorsement).
(iii) The Collateral Agent shall execute and deliver (or cause to be
executed and delivered) to each Grantor all such proxies and other
instruments as such Grantor
<PAGE>
16
may reasonably request for the purpose of enabling such Grantor to exercise
the voting and other rights that it is entitled to exercise pursuant to
paragraph (i) above and to receive the dividends or interest payments that
it is authorized to receive and retain pursuant to paragraph (ii) above.
(b) Upon the occurrence and during the continuance of a Default:
(i) All rights of each Grantor (x) to exercise or refrain from
exercising the voting and other consensual rights that it would otherwise
be entitled to exercise pursuant to Section 14(a)(i) shall, upon notice to
such Grantor by the Collateral Agent, cease and (y) to receive the
dividends and interest payments that it would otherwise be authorized to
receive and retain pursuant to Section 14(a)(ii) shall automatically cease,
and all such rights shall thereupon become vested in the Collateral Agent,
which shall thereupon have the sole right to exercise or refrain from
exercising such voting and other consensual rights and to receive and hold
as Security Collateral such dividends and interest payments.
(ii) All dividends and interest payments that are received by any
Grantor contrary to the provisions of paragraph (i) of this Section 14(b)
shall be received in trust for the benefit of the Collateral Agent, shall
be segregated from other funds of such Grantor and shall be forthwith paid
over to the Collateral Agent as Security Collateral in the same form as so
received (with any necessary indorsement).
Section 15. As to the Assigned Agreements. (a) Each Grantor shall at
-----------------------------
its expense:
(i) perform and observe all the terms and provisions of the Assigned
Agreements to be performed or observed by it, maintain the Assigned
Agreements to which it is a party in full force and effect, enforce the
Assigned Agreements in accordance with their terms and take all such action
to such end as may be from time to time requested by the Collateral Agent;
and
(ii) furnish to the Collateral Agent promptly upon receipt thereof
copies of all notices, requests and other documents received by such
Grantor under or pursuant to the Assigned Agreements to which it is a
party, and from time to time (A) furnish to the Collateral Agent such
information and reports regarding the Collateral of such Grantor as the
Collateral Agent may reasonably request and (B) upon request of the
Collateral Agent make to each other party to any Assigned Agreement to
which it is a party such demands and requests for information and reports
or for action as such Grantor is entitled to make thereunder.
(b) Each Grantor agrees that it shall not:
<PAGE>
17
(i) cancel or terminate any Assigned Agreement to which it is a
party or consent to or accept any cancellation or termination thereof;
(ii) amend or otherwise modify any Assigned Agreement to which it is
a party or give any consent, waiver or approval thereunder;
(iii) waive any default under or breach of any Assigned Agreement to
which it is a party;
(iv) consent to or permit or accept any prepayment of amounts to
become due under or in connection with any Assigned Agreement to which it
is a party, except as expressly provided therein; or
(v) take any other action in connection with any Assigned Agreement
to which it is a party that would impair the value of the interest or
rights of such Grantor thereunder or that would impair the interest or
rights of any Secured Creditor.
(c) Each Grantor hereby consents on its behalf and on behalf of its
Subsidiaries to the assignment and pledge to the Collateral Agent for the
ratable benefit of the Banks of each Assigned Agreement to which it is a party
by any other Grantor hereunder.
Section 16. Payments Under the Assigned Agreements. (a) Each Grantor
--------------------------------------
agrees, and has effectively so instructed each other party to each Assigned
Agreement to which it is a party, that all payments due or to become due under
or in connection with such Assigned Agreement shall be made directly to the Cash
Concentration Account.
(b) Except as set forth in Section 21, all moneys received or
collected pursuant to subsection (a) above shall be applied as set forth in
Section 8.
Section 17. Transfers and Other Liens; Additional Shares. (a) Except
--------------------------------------------
to the extent permitted by the Credit Agreement, no Grantor shall (i) sell,
assign (by operation of law or otherwise) or otherwise dispose of, or grant any
option with respect to, any of the Collateral of such Grantor, except sales of
Inventory in the ordinary course of business, or (ii) create or suffer to exist
any Lien upon or with respect to any of the Collateral of such Grantor except
for the pledge, assignment and security interest created by this Agreement.
(b) Each Grantor shall (i) cause each issuer of the Pledged Shares of
such Grantor not to issue any stock or other securities in addition to or in
substitution for the Pledged Shares issued by such issuer, except to such
Grantor, and (ii) pledge hereunder, immediately upon its acquisition (directly
or indirectly) thereof, subject to the provisos set forth in Section 1(d), any
and all additional shares of stock or other securities.
<PAGE>
18
Section 18. Collateral Agent Appointed Attorney-in-Fact. Each
-------------------------------------------
Grantor hereby irrevocably appoints the Collateral Agent such Grantor's
attorney-in-fact, with full authority in the place and stead of such Grantor and
in the name of such Grantor or otherwise, from time to time in the Collateral
Agent's discretion, to take any action and to execute any instrument that the
Collateral Agent may deem necessary or advisable to accomplish the purposes of
this Agreement, including, without limitation:
(a) to obtain and adjust insurance required to be paid to the
Collateral Agent pursuant to Section 12,
(b) to ask for, demand, collect, sue for, recover, compromise, receive
and give acquittance and receipts for moneys due and to become due under or
in respect of any of the Collateral,
(c) to receive, indorse and collect any drafts or other instruments,
documents and chattel paper, in connection with clause (a) or (b) above,
and
(d) to file any claims or take any action or institute any proceedings
that the Collateral Agent may deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce compliance with
the terms and conditions of any Assigned Agreement or the rights of the
Collateral Agent with respect to any of the Collateral.
Section 19. Collateral Agent May Perform. If any Grantor fails to
----------------------------
perform any agreement contained herein, the Collateral Agent may, but without
any obligation to do so and without further notice, itself perform, or cause
performance of, such agreement, and the expenses of the Collateral Agent
incurred in connection therewith shall be payable by such Grantor under
Section 23(b).
Section 20. The Collateral Agent's Duties. The powers conferred on
-----------------------------
the Collateral Agent hereunder are solely to protect its interest in the
Collateral and shall not impose any duty upon it to exercise any such powers.
Except for the safe custody of any Collateral in its possession and the
accounting for moneys actually received by it hereunder, the Collateral Agent
shall have no duty as to any Collateral, as to ascertaining or taking action
with respect to calls, conversions, exchanges, maturities, tenders or other
matters relative to any Security Collateral, whether or not the Collateral Agent
or any other Secured Creditor has or is deemed to have knowledge of such
matters, or as to the taking of any necessary steps to preserve rights against
any parties or any other rights pertaining to any Collateral. The Collateral
Agent shall be deemed to have exercised reasonable care in the custody and
preservation of any Collateral in its possession if such Collateral is accorded
treatment substantially equal to that which it accords its own property.
<PAGE>
19
Section 21. Remedies. If any Event of Default shall have occurred
--------
and be continuing:
(a) The Collateral Agent may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or otherwise
available to it, all the rights and remedies of a secured party upon
default under the Uniform Commercial Code in effect in the State of New
York at such time (the "N.Y. Uniform Commercial Code") (whether or not the
N.Y. Uniform Commercial Code applies to the affected Collateral) and also
may (i) require any Grantor to, and each Grantor hereby agrees that it will
at its expense and upon request of the Collateral Agent forthwith, assemble
all or part of the Collateral as directed by the Collateral Agent and make
it available to the Collateral Agent at a place and time to be designated
by the Collateral Agent that is reasonably convenient to both parties, (ii)
without notice except as specified below, sell the Collateral or any part
thereof in one or more parcels at public or private sale, at any of the
Collateral Agent's offices or elsewhere, for cash, on credit or for future
delivery, and upon such other terms as the Collateral Agent may deem
commercially reasonable, (iii) occupy any premises owned or leased by any
Grantor where the Collateral or any part thereof is assembled or located
for a reasonable period in order to effectuate its rights and remedies
hereunder or under law, without obligation to such Grantor in respect of
such occupation, and (iv) exercise any and all rights and remedies of any
Grantor under or in connection with the Assigned Agreements, the
Receivables and the Related Contracts or otherwise in respect of the
Collateral, including, without limitation, any and all rights of such
Grantor to demand or otherwise require payment of any amount under, or
performance of any provision of, the Assigned Agreements, the Receivables
and the Related Contracts. Each Grantor agrees that, to the extent notice
of sale shall be required by law, at least ten days' notice to such Grantor
of the time and place of any public sale or the time after which any
private sale is to be made shall constitute reasonable notification. The
Collateral Agent shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given. The Collateral Agent may
adjourn any public or private sale from time to time by announcement at the
time and place fixed therefor, and such sale may, without further notice,
be made at the time and place to which it was so adjourned.
(b) All cash held by the Collateral Agent as Collateral and all cash
proceeds received by the Collateral Agent in respect of any sale of,
collection from, or other realization upon all or any part of the
Collateral may, in the discretion of the Collateral Agent, be held by the
Collateral Agent as collateral for, and/or then or at any time thereafter
applied (after payment of any amounts payable to the Collateral Agent
pursuant to Section 23) in whole or in part by the Collateral Agent for the
ratable benefit of the Secured Creditors against, all or any part of the
Secured Obligations in such order as the Collateral Agent shall elect. Any
surplus of such cash or cash
<PAGE>
20
proceeds held by the Collateral Agent and remaining after payment in full
of all the Secured Obligations shall be paid over to the Grantors or to
whomsoever may be lawfully entitled to receive such surplus.
(c) The Collateral Agent may exercise any and all rights and remedies
of any Grantor under or in connection with the Assigned Agreements or
otherwise in respect of the Collateral, including, without limitation, any
and all rights of such Grantor to demand or otherwise require payment of
any amount under, or performance of any provision of, any Assigned
Agreement.
(d) All payments received by any Grantor under or in connection with
any Assigned Agreement or otherwise in respect of the Collateral shall be
received in trust for the benefit of the Collateral Agent, shall be
segregated from other funds of such Grantor and shall be forthwith paid
over to the Collateral Agent in the same form as so received (with any
necessary indorsement).
(e) The Collateral Agent may, without notice to any Grantor except as
required by law and at any time or from time to time, charge, set-off and
otherwise apply all or any part of the Secured Obligations against the Cash
Concentration Account or the L/C Cash Concentration Account or any part
thereof.
Section 22. Registration Rights. If the Collateral Agent shall
-------------------
determine to exercise its right to sell all or any of the Security Collateral
pursuant to Section 21, each Grantor agrees that, upon request of the Collateral
Agent, such Grantor will, at its own expense:
(a) execute and deliver, and cause each issuer of the Security
Collateral of such Grantor contemplated to be sold and the directors and
officers thereof to execute and deliver, all such instruments and
documents, and do or cause to be done all such other acts and things, as
may be necessary or, in the opinion of the Collateral Agent, advisable to
register such Security Collateral under the provisions of the Securities
Act of 1933, as from time to time amended (the "Securities Act"), to cause
the registration statement relating thereto to become effective and to
remain effective for such period as prospectuses are required by law to be
furnished and to make all amendments and supplements thereto and to the
related prospectus that, in the opinion of the Collateral Agent, are
necessary or advisable, all in conformity with the requirements of the
Securities Act and the rules and regulations of the Securities and Exchange
Commission applicable thereto;
(b) use its best efforts to qualify the Security Collateral of such
Grantor under the state securities or "Blue Sky" laws and to obtain all
necessary governmental approvals for the sale of the Security Collateral of
such Grantor, as requested by the
<PAGE>
21
Collateral Agent;
(c) cause each such issuer to make available to its security holders,
as soon as practicable, an earnings statement that will satisfy the
provisions of Section 11(a) of the Securities Act;
(d) provide the Collateral Agent with such other information and
projections as may be necessary or, in the opinion of the Collateral Agent,
advisable to enable the Collateral Agent to effect the sale of such
Security Collateral of such Grantor; and
(e) do or cause to be done all such other acts and things as may be
necessary to make such sale of the Security Collateral of such Grantor or
any part thereof valid and binding and in compliance with applicable law.
The Collateral Agent is authorized, in connection with any sale of the Security
Collateral pursuant to Section 21, to deliver or otherwise disclose to any
prospective purchaser of the Security Collateral (i) any registration statement
or prospectus, and all supplements and amendments thereto, prepared pursuant to
clause (a) above, (ii) any information and projections provided to it pursuant
to clause (d) above and (iii) any other information in its possession relating
to the Security Collateral.
Section 23. Indemnity and Expenses. (a) Each Grantor agrees to
----------------------
defend, protect, indemnify and hold harmless each Secured Creditor from and
against any and all claims, losses and liabilities growing out of or resulting
from this Agreement (including, without limitation, enforcement of this
Agreement), except claims, losses or liabilities resulting from such Secured
Creditor's gross negligence or willful misconduct as determined by a final
judgment of a court of competent jurisdiction.
(b) Each Grantor will upon demand pay to the Collateral Agent the
amount of any and all reasonable expenses, including the reasonable fees and
expenses of its counsel and of any experts and agents, that the Collateral Agent
may incur in connection with (i) the administration of this Agreement, (ii) the
custody, preservation, use or operation of, or the sale of, collection from or
other realization upon, any of the Collateral of such Grantor, (iii) the
exercise or enforcement of any of the rights of the Collateral Agent or any
other Secured Creditor hereunder or (iv) the failure by such Grantor to perform
or observe any of the provisions hereof.
Section 24. Security Interest Absolute. The Obligations of each
--------------------------
Grantor under this Agreement are independent of the Secured Obligations, and a
separate action or actions may be brought and prosecuted against each Grantor to
enforce this Agreement, irrespective of whether any action is brought against
any other Credit Party or whether any other Credit Party is joined in any such
action or actions. All rights of the Collateral Agent and the pledge,
<PAGE>
22
assignment and security interest hereunder, and all obligations of each Grantor
hereunder, shall be absolute and unconditional, irrespective of:
(a) any lack of validity or enforceability of any Credit Document or
any other agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Secured Obligations or any other amendment
or waiver of or any consent to any departure from any Credit Document,
including, without limitation, any increase in the Secured Obligations
resulting from the extension of additional credit to any Grantor or any of
its Subsidiaries or otherwise;
(c) any taking, exchange, release or non-perfection of any other
collateral, or any taking, release or amendment or waiver of or consent to
departure from any guaranty, for all or any of the Secured Obligations;
(d) any manner of application of collateral, or proceeds thereof, to
all or any of the Secured Obligations, or any manner of sale or other
disposition of any collateral for all or any of the Secured Obligations or
any other assets of any Grantor or any of its Subsidiaries;
(e) any change, restructuring or termination of the corporate
structure or existence of any Grantor or any of its subsidiaries; or
(f) any other circumstance that might otherwise constitute a defense
available to, or a discharge of, such Grantor or a third party grantor of a
security interest.
Section 25. Amendments; Waivers; Etc. (a) No amendment or waiver
------------------------
of any provision of this Agreement, and no consent to any departure by any
Grantor herefrom, shall in any event be effective unless the same shall be in
writing and signed by the Collateral Agent and the Grantors, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given. No failure on the part of the Collateral Agent
to exercise, and no delay in exercising any right hereunder, shall operate as a
waiver thereof; nor shall any single or partial exercise of any such right
preclude any other or further exercise thereof or the exercise of any other
right.
(b) Upon the execution and delivery by any Person of a security
agreement supplement in substantially the form of Exhibit C hereto (each a
"Security Agreement Supplement") pursuant to Section 7.11 of the Credit
Agreement, (i) such Person shall be referred to as an "Additional Grantor" and
shall be and become a Grantor and each reference in this Agreement to "Grantor"
shall also mean and be a reference to such Additional Grantor,
<PAGE>
23
and (ii) the annexes attached to each Security Agreement Supplement shall be
incorporated into and become a part of and supplement Schedules I, II, III, IV
and V hereto, and the Collateral Agent may attach such annexes as supplements to
such Schedules; and each reference to such Schedules shall mean and be a
reference to such Schedules as supplemented pursuant hereto.
Section 26. Addresses for Notices. All notices and other
---------------------
communications provided for hereunder shall be in writing (including telecopier,
telegraphic, telex or cable communication) and, if to any Grantor, mailed,
telegraphed, telecopied, telexed, cabled or delivered to it addressed to it at
the address set forth on the signature pages hereto beneath such Grantor's name
and, if to the Collateral Agent, mailed, telegraphed, telecopied or delivered to
it addressed to it at its address specified in the Credit Agreement or, as to
any party, at such other address as shall be designated by such party in a
written notice to each other party complying as to delivery with the terms of
this Section 26. All such notices and other communications shall, when mailed,
telecopied, telegraphed, telexed or cabled, respectively, be effective when
deposited in the mails, telecopied, delivered to the telegraph or cable company
or confirmed by telex answerback, respectively, addressed as aforesaid.
Section 27. Continuing Security Interest; Assignments. This
-----------------------------------------
Agreement shall create a continuing security interest in the Collateral and
shall (a) remain in full force and effect until the later of the payment in full
in cash of the Secured Obligations and the Maturity Date, (b) be binding upon
each Grantor, its successors and assigns and (c) inure, together with the rights
and remedies of the Collateral Agent hereunder, to the benefit of the Collateral
Agent, the other Secured Creditors and their respective successors, transferees
and assigns. Without limiting the generality of the foregoing clause (c), any
Bank may assign or otherwise transfer all or any portion of its rights and
obligations under the Credit Agreement (including, without limitation, all or
any portion of its Commitment, the Loans owing to it and the Note or Notes held
by it to any other Person, and such other Person shall thereupon become vested
with all the obligations and benefits in respect thereof granted to such Bank
herein or otherwise, in each case as provided in Section 12.04(b) of the Credit
Agreement.
Section 28. Release and Termination. (a) Upon any sale, lease,
-----------------------
transfer or other disposition of any item of Collateral in accordance with the
terms of the Credit Documents (other than sales of Inventory in the ordinary
course of business), the Collateral Agent will, at the applicable Grantor's
expense, execute and deliver to such Grantor such documents as such Grantor
shall reasonably request to evidence the release of such item of Collateral from
the assignment and security interest granted hereby; provided, however, that
-------- -------
(i) at the time of such request and such release no Default shall have occurred
and be continuing, (ii) such Grantor shall have delivered to the Collateral
Agent, at least ten Business Days prior to the date of the proposed release, a
written request for release describing the item of Collateral and the terms of
the sale, lease, transfer or other disposition in reasonable detail, including
the price thereof and any expenses in connection therewith, together with a form
of release for execution by the Collateral Agent and a certification by the
Borrower to the effect
<PAGE>
24
that the transaction is in compliance with the Credit Documents and as to such
other matters as the Collateral Agent may request, (iii) the proceeds of any
such sale, lease, transfer or other disposition required to be applied in
accordance with Section 4 of the Credit Agreement shall be paid to, or in
accordance with the instructions of, the Collateral Agent at the closing and
(iv) the Collateral Agent shall have approved such sale, lease, transfer or
other disposition in writing.
(b) Upon the latest of the payment in full in cash of the Secured
Obligations and the Maturity Date, the pledge, assignment and security interest
granted hereby shall automatically terminate and all rights to the Collateral
shall revert to the Grantors. Upon any such termination, the Collateral Agent
will, at the Grantor's expense, execute and deliver to the Grantors such
documents as the Grantors shall reasonably request to evidence such termination.
[Section 29. The Mortgages. In the event that any of the Collateral
hereunder is also subject to a valid and enforceable Lien under the terms of any
Mortgage and the terms of such Mortgage are inconsistent with the terms of this
Agreement, then with respect to such Collateral, the terms of such Mortgage
shall be controlling in the case of fixtures and leases, letting and licenses
of, and contracts and agreements relating to the lease of real property, and the
terms of this Agreement shall be controlling in the case of all other
Collateral.]
Section 30. Execution in Counterparts. This Agreement may be
-------------------------
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Agreement by telecopier shall be effective as delivery of a manually executed
counterpart of this Agreement.
Section 31. Governing Law; Terms; Submission to Jurisdiction. (a)
------------------------------------------------
This Agreement shall be governed by and construed in accordance with the laws of
the State of New York, except to the extent that the validity or perfection of
the security interest hereunder, or remedies hereunder, in respect of any
particular Collateral are governed by the laws of a jurisdiction other than the
State of New York. Unless otherwise defined herein or in the Credit Agreement,
terms used in Article 8 or Article 9 of the N.Y. Uniform Commercial Code are
used herein as therein defined.
(b) Any legal action or proceeding with respect to this Agreement or
any other Credit Document may be brought in the courts of the State of New York
or of the United States for the Southern District of New York, and, by execution
and delivery of this Agreement, each Grantor hereby irrevocably accepts for
itself and in respect of its property, generally and unconditionally, the
jurisdiction of the aforesaid courts. Each Grantor hereby further irrevocably
waives any claim that any such courts lack jurisdiction over such Grantor, and
agrees not to plead or claim, in any legal action or proceeding with respect to
this
<PAGE>
25
Agreement or any other Credit Document brought in any of the aforesaid courts,
that any such court lacks jurisdiction over such Grantor. Each Grantor agrees
that a final judgment in any such action or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on the judgment or in any other
manner provided by law. Solely for the purposes of this Agreement, to the full
extent permitted by law each Grantor hereby irrevocably appoints [CT Corporation
System] with an office on the date hereof at [1633 Broadway, New York, New York
1019] (the "Process Agent"), as its agent to receive on behalf of the such
Grantor and its property service of copies of the summons and complaint and any
other process which may be served in any such action or proceeding. Each Grantor
irrevocably consents to the service of process in any such action or proceeding
by the mailing of copies thereof by registered or certified mail, postage
prepaid, to the Process Agent, such service to become effective 30 days after
such mailing. Each Grantor hereby irrevocably waives any objection to such
service of process and further irrevocably waives and agrees not to plead or
claim in any action or proceeding commenced hereunder or under any other Credit
Document that service of process was in any way invalid or ineffective. Nothing
herein shall affect the right of any Secured Creditor to serve process in any
other manner permitted by law or to commence legal proceedings or otherwise
proceed against any Grantor in any other jurisdiction.
(c) Each Grantor hereby irrevocably waives any objection which it may
now or hereafter have to the laying of venue of any of the aforesaid actions or
proceedings arising out of or in connection with this Agreement or any other
Credit Document brought in the courts referred to in clause (b) above and hereby
further irrevocably waives and agrees not to plead or claim in any such court
that any such action or proceeding brought in any such court has been brought in
an inconvenient forum.
(d) To the extent that any Grantor has or hereafter may acquire any
immunity from jurisdiction of any court or from any legal process (whether
through service or notice, attachment prior to judgment, attachment in aid of
execution, execution or otherwise) with respect to itself or its property, such
Grantor to the extent permitted by law hereby irrevocably waives such immunity
in respect of its obligations under this Agreement and, without limiting the
generality of the foregoing, agrees that the waivers set forth in this
subsection (d) shall have the fullest scope permitted under the United States
Foreign Sovereign Immunities Act of 1976, as amended, and are intended to be
irrevocable for purposes of such Act.
(e) If for the purposes of obtaining judgment in any court it is
necessary to convert a sum due hereunder in any currency (the "Original
Currency") into another currency (the "Other Currency") the parties hereto
agree, to the fullest extent that they may effectively do so, that the rate of
exchange used shall be that at which in accordance with normal banking
procedures the Collateral Agent could purchase the Original Currency with the
Other Currency at 11:00 A.M. on the second Business Day preceding that on which
final judgment is given.
<PAGE>
26
(f) The obligation of each Grantor in respect to any sum due in the
Original Currency from it to any Secured Creditor hereunder or held by such
Secured Creditor shall, notwithstanding any judgment in any Other Currency, be
discharged only to the extent that, on the Business Day following receipt by
such Secured Creditor of any sum adjudged to be so due in such Other Currency,
such Secured Creditor may, in accordance with normal banking procedures,
purchase the Original Currency with such Other Currency; if the amount of the
Original Currency so purchased is less than the sum originally due to such
Secured Creditor in the Original Currency, such Grantor agrees, as a separate
obligation and notwithstanding any such judgment, to indemnify such Secured
Creditor against such loss, and if the amount of the Original Currency so
purchased exceeds the sum originally due to any Secured Creditor in the Original
Currency, such Secured Creditor agrees to remit to the Grantor such excess.
(g) Each Grantor hereby irrevocably waives all right to trial by jury
in any action, proceeding or counterclaim (whether based on contract, tort or
otherwise) arising out of or relating to any of this Agreement or any of the
other Credit Documents, the transactions contemplated thereby or the actions of
the Collateral Agent or any other Secured Creditor in the negotiation,
administration, performance or enforcement thereof.
IN WITNESS WHEREOF, each Grantor has caused this Agreement to be duly
executed and delivered by its officer thereunto duly authorized as of the date
first above written.
[NAME OF BORROWING SUBSIDIARY]
By
-------------------------------------------
Name:
Title:
Address of Chief Executive Office and
for Notices:
[NAME OF EACH SUBSIDIARY OF
THE BORROWING SUBSIDIARY]
By
-------------------------------------------
Name:
Title:
Address of Chief Executive Office and
<PAGE>
27
for Notices:
[ETC.]
<PAGE>
Schedule I
PLEDGED SHARES AND PLEDGED DEBT
Part I
<TABLE>
<CAPTION>
================================================================================================================
Name of Grantor Stock Issuer Class of Stock Par Stock Number of Shares Percentage
Value Certificate of Outstanding
No(s) Shares
================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
================================================================================================================
</TABLE>
Part II
<TABLE>
<CAPTION>
================================================================================================================
Name of Grantor Debt Issuer Description of Debt Debt Certificate Final Maturity Original
No(s). Principal
Amount
================================================================================================================
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
================================================================================================================
</TABLE>
<PAGE>
Schedule II
ASSIGNED AGREEMENTS
<PAGE>
Schedule III
LOCATIONS OF EQUIPMENT AND INVENTORY
Locations of Equipment:
Locations of Inventory:
<PAGE>
Schedule IV
BLOCKED ACCOUNTS
================================================================================
Name and Address of Bank Mailing Address of Blocked Account Number
------------------------ -------------------------- --------------
Account
-------
================================================================================
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
<PAGE>
Schedule V
TRADE NAMES
<PAGE>
EXHIBIT A
FORM OF BLOCKED ACCOUNT LETTER
_______________, 19__
[Name and address of
Blocked Account Bank]
[Name of the Grantor]
-------------------
Ladies and Gentlemen:
Reference is made to deposit account no. __________ into which certain
monies, instruments and other properties are deposited from time to time and
deposit account no. __________ (collectively, the "Blocked Account") maintained
with you by ____________________ (the "Grantor"). Pursuant to the Security
Agreement dated ________ __, 1997 (the "Security Agreement"), the Grantor has
granted to Citibank, N.A., as collateral agent (the "Collateral Agent") for the
Secured Creditors referred to in the Credit Agreement dated as of ________ __,
1997 (as amended, supplemented or otherwise modified from time to time, the
"Credit Agreement") with _________________ (the "Borrowing Subsidiary") and the
other borrowers parties thereto, a security interest in certain property of the
Grantor, including, among other things, the following (the "Account
Collateral"): the Blocked Account, all funds held therein and all certificates
and instruments, if any, from time to time representing or evidencing the
Blocked Account, all interest, dividends, cash, instruments and other property
from time to time received, receivable or otherwise distributed in respect of or
in exchange for any or all of the then existing Account Collateral and all
proceeds of any and all of the foregoing Account Collateral and, to the extent
not otherwise included, all (i) payments under insurance (whether or not the
Collateral Agent is the loss payee thereof), or any indemnity, warranty or
guaranty, payable by reason of loss or damage to or otherwise with respect to
any of the foregoing Account Collateral and (ii) cash. It is a condition to the
continued maintenance of the Blocked Account with you that you agree to this
letter agreement.
By signing this letter agreement, you acknowledge notice of, and
consent to the terms and provisions of, the Security Agreement and confirm to
the Collateral Agent that the description of the Blocked Account set forth on
Schedule IV of the Security Agreement is correct and that you have received no
notice of any other pledge or assignment of the Blocked Account. Further, you
hereby agree with the Collateral Agent that:
(a) Notwithstanding anything to the contrary in any other agreement
relating
<PAGE>
A-2
to the Blocked Account, the Blocked Account is and will be subject to the
terms and conditions of the Security Agreement, will be maintained solely
for the benefit of the Collateral Agent, will be entitled "Citibank, N.A.,
as Collateral Agent, Re: [name of the Grantor]" and will be subject to
written instructions only from an officer of the Collateral Agent.
(b) You will collect mail from the Blocked Account on each of your
business days at times that coincide with the delivery of mail thereto.
(c) You will follow your usual operating procedures for the handling
of any remittance received in the Blocked Account that contains restrictive
endorsements, irregularities (such as a variance between the written and
numerical amounts), undated or postdated items, missing signatures,
incorrect payees, etc.
(d) You will endorse and process all eligible checks and other
remittance items not covered by paragraph (c) and deposit such checks and
remittance items in the Blocked Account.
(e) You will maintain a record of all checks and other remittance
items received in the Blocked Account and, in addition to providing the
Borrowing Subsidiary with photostats, vouchers, enclosures, etc. of such
checks and remittance items on a daily basis, furnish to the Collateral
Agent (i) a monthly statement of the Blocked Account and (ii) a daily
collection and check float report, to be transmitted electronically to the
Collateral Agent at: _______________.
(f) You will transfer, in same day funds, on each of your business
days, all amounts collected from the Blocked Account on such day to the
following account (the "Cash Concentration Account"):
[Name of the Grantor]
Account No. ____________
________________________
________________________,
_________, _______ _____
Attention: ____________
or to such other account as may be notified to you by the Collateral Agent in
writing from time to time.
Each such transfer of funds shall neither comprise only part of a remittance nor
reflect the rounding off of any funds so transferred.
<PAGE>
A-3
(g) All transfers referred to in paragraph (f) above shall be made by
the undersigned irrespective of, and without deduction for, any
counterclaim, defense, recoupment or set-off and shall be final, and the
undersigned will not seek to recover from the Collateral Agent for any
reason any such payment once made.
(h) All service charges and fees with respect to the Blocked Account
shall be payable by the Grantor, and deposited checks returned for any
reason shall not be charged to the Blocked Account, but may be charged to
another account maintained by the Grantor with you.
(i) The Collateral Agent shall be entitled to exercise any and all
rights of the Grantor in respect of the Blocked Account in accordance with
the terms of the Security Agreement, and the undersigned shall comply in
all respects with such exercise.
This letter agreement shall be binding upon you and your successors
and assigns and shall inure to the benefit of the Collateral Agent, the Secured
Parties and their successors, transferees and assigns. You may terminate this
letter agreement only upon thirty days' prior written notice to the Grantor and
the Collateral Agent. Upon such termination you shall close the Blocked Account
and transfer all funds in the Blocked Account to the Cash Concentration Account
or such other account as may be notified to you in writing by the Collateral
Agent. After any such termination, you shall nonetheless remain obligated
promptly to transfer to the Cash Concentration Account all funds and other
property received in respect of the Blocked Account.
<PAGE>
A-4
This letter agreement shall be governed by and construed in accordance
with the laws of the State of New York.
Very truly yours,
[NAME OF GRANTOR]
By:
--------------------------------------
Name:
Title:
CITIBANK, N.A., as Collateral Agent
By:
--------------------------------------
Name:
Title:
Acknowledged and agreed to as of
the date first above written:
[NAME OF BLOCKED ACCOUNT BANK]
By:
----------------------
Name:
Title:
<PAGE>
EXHIBIT B
FORM OF CONSENT AND AGREEMENT
The undersigned hereby acknowledges notice of, and consents to the
terms and provisions of, the Security Agreement dated ________ __, 1997 (the
"Security Agreement", the terms defined therein being used herein as therein
defined) from ________________________, a ______________ corporation (the
"Borrowing Subsidiary") and certain other parties thereto (together with the
Borrower, the "Grantors") to Citibank, N.A. as collateral agent (the "Collateral
Agent") for the Secured Creditors referred to therein, and hereby agrees with
the Collateral Agent that:
(a) The undersigned will make all payments to be made by it under or
in connection with the __________ Agreement dated _______________, ____
(the "Assigned Agreement") between the undersigned and the applicable
Grantor directly to the Cash Concentration Account or otherwise in
accordance with the instructions of the Collateral Agent.
(b) All payments referred to in paragraph (a) above shall be made by
the undersigned irrespective of, and without deduction for, any
counterclaim, defense, recoupment or set-off and shall be final, and the
undersigned will not seek to recover from the Collateral Agent or any
Secured Creditor for any reason any such payment once made.
(c) The Collateral Agent shall be entitled to exercise any and all
rights and remedies of such Grantor under the Assigned Agreement in
accordance with the terms of the Security Agreement, and the undersigned
shall comply in all respects with such exercise.
(d) The undersigned will not, without the prior written consent of the
Collateral Agent, (i) cancel or terminate the Assigned Agreement or consent
to or accept any cancellation or termination thereof, (ii) amend or
otherwise modify the Assigned Agreement, or (iii) make any prepayment of
amounts to become due under or in connection with the Assigned Agreement,
except as expressly provided therein.
[In order to induce the Banks to make Loans and to issue Letters of
Credit under the Credit Agreement, the undersigned repeats and reaffirms for the
benefit of the Secured Creditors and the Collateral Agent the representations
and warranties made in Section _____ of the Assigned Agreement.]
This Consent and Agreement shall be binding upon the undersigned and
its successors and assigns, and shall inure, together with the rights and
remedies of the Collateral Agent hereunder, to the benefit of the Secured
Creditors and their successors, transferees and
<PAGE>
B-2
assigns.
This Consent and Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the undersigned has duly executed this Consent and
Agreement as of the date set opposite its name below.
Dated: _______________, ____ [NAME OF OBLIGOR]
By:
--------------------------------------
Name:
Title:
<PAGE>
EXHIBIT C
FORM OF SECURITY AGREEMENT SUPPLEMENT
NationsBank, N.A., as Administrative
Agent under the Credit Agreement
referred to below and
Citibank, N.A. as Collateral
Agent under the Security Agreement
referred to below
[Address]
[Date]
Attention: ___________
Security Agreement dated ________ __, 1997
made by Modus Media International, Inc.
and the other Grantors to Citibank, N.A., as Collateral Agent
-------------------------------------------------------------
Ladies and Gentlemen:
Reference is made to the above-captioned Security Agreement (such
Security Agreement, as in effect on the date hereof and as it may hereafter be
amended, modified or otherwise supplemented from time to time, being the
"Security Agreement"). The terms defined in the Security Agreement (or in the
Credit Agreement referred to therein) and not otherwise defined herein are used
herein as therein defined.
The undersigned hereby agrees, as of the date first above written, to
become a Grantor under the Security Agreement as if it were an original party
thereto and agrees that each reference in the Security Agreement to "Grantor"
shall also mean and be a reference to the undersigned.
The undersigned hereby assigns and pledges to the Collateral Agent for
the
<PAGE>
ratable benefit of the Secured Creditors, and hereby grants to the Collateral
Agent for the ratable benefit of the Secured Creditors as security for the
Secured Obligations a lien on and security interest in, all of the right, title
and interest of the undersigned, whether now owned or hereafter acquired, in and
to the Collateral owned by the undersigned, including, but not limited to, the
property listed on Annex I hereto. Schedules I, II, III, IV and V to the
Security Agreement are hereby supplemented by Annexes I, II, III, IV and V
hereto, respectively. The undersigned hereby certifies that such Annexes have
been prepared by the undersigned in substantially the form of Schedules I, II,
III, IV and V to the Security Agreement and are accurate and complete as of the
date hereof.
The undersigned hereby makes each representation and warranty set
forth in Section 9 of the Security Agreement (as supplemented by the attached
Annexes) to the same extent as each other Grantor and hereby agrees to be bound
as a Grantor by all of the terms and provisions of the Security Agreement to the
same extent as each other Grantor.
This Security Agreement Supplement shall be governed by, and construed
in accordance with, the laws of the State of New York.
Very truly yours,
[NAME OF ADDITIONAL GRANTOR]
By_______________________________________
Name:
Title:
Address of Chief Executive
Office and for Notices:
<PAGE>
S&S DRAFT 11/18/97
EXHIBIT F-2
FORM OF FOREIGN SUBSIDIARY SECURITY AGREEMENT
Dated _________ __, 1997
From
THE PERSONS LISTED ON THE SIGNATURE PAGES HEREOF
as Grantors
-----------
to
CITICORP USA, INC.
as Collateral Agent
-------------------
<PAGE>
T A B L E O F C O N T E N T S
- - - - - - - - - - - - - - -
<TABLE>
<CAPTION>
Section Page
<S> <C>
1. Grant of Security ....................................................... 2
2. Security for Obligations ................................................ 6
3. Grantors Remain Liable .................................................. 6
4. Delivery of Security Collateral and Account Collateral .................. 6
5. Maintaining the Cash Concentration Account .............................. 7
6. Maintaining the Blocked Accounts ........................................ 7
7. Investing of Amounts in the Cash Concentration Account and the L/C
Cash Concentration Account ............................................ 8
8. Release of Amounts ...................................................... 8
9. Representations and Warranties .......................................... 8
10. Further Assurances ...................................................... 11
11. As to Equipment and Inventory ........................................... 12
12. Insurance ............................................................... 13
13. Place of Perfection; Records; Collection of Receivables ................. 14
14. Voting Rights; Dividends; Etc ........................................... 15
15. As to the Assigned Agreements ........................................... 16
16. Payments Under the Assigned Agreements .................................. 17
17. Transfers and Other Liens; Additional Shares ............................ 17
18. Collateral Agent Appointed Attorney-in-Fact ............................. 18
19. Collateral Agent May Perform ............................................ 18
</TABLE>
<PAGE>
C-ii
<TABLE>
<CAPTION>
Section Page
<S> <C>
20. The Collateral Agent's Duties ........................................... 18
21. Remedies ................................................................ 19
22. Registration Rights ..................................................... 20
23. Indemnity and Expenses .................................................. 21
24. Security Interest Absolute .............................................. 22
25. Amendments; Waivers; Etc ................................................ 22
26. Addresses for Notices ................................................... 23
27. Continuing Security Interest; Assignments ............................... 23
28. Release and Termination ................................................. 23
29. The Mortgages ........................................................... 24
30. Execution in Counterparts ............................................... 24
31. Governing Law; Terms; Submission to Jurisdiction ........................ 24
</TABLE>
Schedules
Schedule I - Pledged Shares and Pledged Debt
Schedule II - Assigned Agreements
Schedule III - Locations of Equipment and Inventory
Schedule IV - Blocked Accounts
Schedule V - Trade Names
Exhibits
Exhibit A - Form of Blocked Account Letter
Exhibit B - Form of Consent and Agreement
Exhibit C - Form of Security Agreement Supplement
<PAGE>
PARENT GUARANTY
Dated December __, 1997
From
THE GUARANTORS NAMED HEREIN
as Guarantors
-- ----------
in favor of
THE GUARANTEED CREDITORS REFERRED TO IN
THE CREDIT AGREEMENT REFERRED TO HEREIN
<PAGE>
T A B L E O F C O N T E N T S
- - - - - - - - - - - - - - -
Section Page
1. Guaranty; Limitation of Liability 1
2. Guaranty Absolute 2
3. Waivers and Acknowledgments 4
4. Subrogation 4
5. Net Payments 5
6. Representations and Warranties 7
7. Covenants 9
8. Amendments, Etc. 10
9. Notices, Etc. 10
10. No Waiver; Remedies 11
11. Right of Set-off 11
12. Indemnification 11
13. Continuing Guaranty; Assignments
under the Credit Agreement 11
14. Governing Law; Jurisdiction;
Waiver of Jury Trial, Etc. 12
<PAGE>
GUARANTY
GUARANTY dated ________ __, 1997 made by the Persons listed on the
signature pages hereof (each a "Guarantor", and collectively the "Guarantors"),
in favor of the Guaranteed Creditors (as defined in the Credit Agreement
referred to below).
PRELIMINARY STATEMENT. Modus Media International, Inc., a Delaware
corporation ("MMI"), Modus Media International Kabushiki Kaisha, a Japanese
company ("MMI-KK" and together with MMI, the "Borrowers"), are parties to a
Credit Agreement dated as of December __, 1997 (such Credit Agreement, as it
may hereafter be amended, supplemented or otherwise modified from time to time,
being the "Credit Agreement", the capitalized terms defined therein and not
otherwise defined herein being used herein as therein defined) with certain
Banks party thereto, Modus Media International Holdings, Inc. ("Holdings"),
NationsBank of Texas, N.A. ("NationsBank"), as administrative agent (the
"Administrative Agent") for the Banks, NationsBanc Montgomery Securities, Inc.,
as Arranger and Syndication Agent and Citicorp USA, Inc., as Documentation
Agent, Collateral Agent and Multi-Currency Agent. It is a condition precedent
to the making of Loans and the issuance of Letters of Credit by the Banks under
the Credit Agreement from time to time that each Guarantor shall have executed
and delivered this Guaranty.
NOW, THEREFORE, in consideration of the premises and in order to induce the
Banks to make Loans and to issue Letters of Credit under the Credit Agreement
from time to time, each Guarantor, jointly and severally with each other
Guarantor, hereby agrees as follows:
Section 1. Guaranty; Limitation of Liability. (a) Each Guarantor hereby
---------------------------------
absolutely, unconditionally and irrevocably guarantees the punctual payment when
due, whether at stated maturity, by acceleration or otherwise, of all
Obligations of the Credit Parties and each other Guarantor now or hereafter
existing under the Credit Documents, whether for principal, interest, fees,
expenses or otherwise (such Obligations being the "Guaranteed Obligations"), and
----------------------
agrees to pay any and all expenses (including counsel fees and expenses)
incurred by the Administrative Agent or any other Guaranteed Creditor in
enforcing any rights under this Guaranty and the other Credit Documents.
Without limiting the generality of the foregoing, each Guarantor's liability
shall extend to all amounts that constitute part of the Guaranteed Obligations
and would be owed by any Credit Party to the Administrative Agent or any other
Guaranteed Creditor under the Credit Documents but for the fact that they are
unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving such Credit Party.
(b) Each Guarantor, and by its acceptance of this Guaranty, the
Administrative Agent and each other Guaranteed Creditor, hereby confirms that it
is the intention of all such parties that this Guaranty not constitute a
fraudulent transfer or conveyance for purposes of Bankruptcy Law (as defined
below), the Uniform Fraudulent
<PAGE>
Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or
state law to the extent applicable to this Guaranty. To effectuate the
foregoing intention, the Administrative Agent, the other Guaranteed Creditors
and the Guarantors hereby irrevocably agree that the Obligations of each
Guarantor under this Guaranty shall be limited to the maximum amount as will,
after giving effect to such maximum amount and all other contingent and fixed
liabilities of such Guarantor that are relevant under such laws, and after
giving effect to any collections from, rights to receive contribution from or
payments made by or on behalf of any other Guarantor in respect of the
Obligations of such other Guarantor under this Guaranty, result in the
Obligations of such Guarantor under this Guaranty not constituting a fraudulent
transfer or conveyance. For purposes hereof, "Bankruptcy Law" means Title 11,
U.S. Code, or any similar Federal or state law for the relief of debtors.
(c) Each Guarantor agrees that in the event any payment shall be required
to be made to the Guaranteed Creditors under this Guaranty or any other
guaranty, such Guarantor will contribute, to the maximum extent permitted by
law, such amounts to each other Guarantor so as to maximize the aggregate amount
paid to the Guaranteed Creditors under the Credit Documents.
Section 2. Guaranty Absolute. Each Guarantor guarantees that the
-----------------
Guaranteed Obligations will be paid strictly in accordance with the terms of the
Credit Documents, regardless of any law, regulation or order now or hereafter in
effect in any jurisdiction affecting any of such terms or the rights of the
Administrative Agent or any other Guaranteed Creditor with respect thereto. The
Obligations of each Guarantor under this Guaranty are independent of the
Guaranteed Obligations or any other Obligations of any other Credit Party under
the Credit Documents, and a separate action or actions may be brought and
prosecuted against each Guarantor to enforce this Guaranty, irrespective of
whether any action is brought against any Borrower or any other Credit Party or
whether any Borrower or any other Credit Party is joined in any such action or
actions. The liability of each Guarantor under this Guaranty shall be
irrevocable, absolute and unconditional irrespective of, and each Guarantor
hereby irrevocably waives any defenses it may now or hereafter have in any way
relating to, any or all of the following:
(a) any lack of validity or enforceability of any Credit Document or any
agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or in any other
term of, all or any of the Guaranteed Obligations or any other Obligations
of any other Credit Party under the Credit Documents, or any other
amendment or waiver of or any consent to departure from any Credit
Document, including, without limitation, any increase in the Guaranteed
Obligations resulting from the extension of additional credit to any
Borrower or any of its Subsidiaries or otherwise;
(c) any taking, exchange, release or non-perfection of any Collateral, or
any taking, release or amendment or waiver of or consent to departure from
any other guaranty, for all or any of the Guaranteed Obligations;
<PAGE>
(d) any manner of application of Collateral, or proceeds thereof, to all or
any of the Guaranteed Obligations, or any manner of sale or other
disposition of any Collateral for all or any of the Guaranteed Obligations
or any other Obligations of any other Credit Party under the Credit
Documents or any other assets of any Credit Party or any of its
Subsidiaries;
(e) any change, restructuring or termination of the corporate structure or
existence of any Credit Party or any of its Subsidiaries;
(f) any failure of any Guaranteed Creditor to disclose to any Credit Party
any information relating to the financial condition, operations, properties
or prospects of any other Credit Party now or in the future known to any
Guaranteed Creditor (each Guarantor waiving any duty on the part of the
Guaranteed Creditor to disclose such information);
(g) the failure of any other person to execute this Guaranty or any other
guaranty or agreement or the release or reduction of liability of any
Guarantor or other surety with respect to the Guaranteed Obligations; or
(h) any other circumstance (including, without limitation, any statute of
limitations) or any existence of or reliance on any representation by the
Administrative Agent or any other Guaranteed Creditor that might otherwise
constitute a defense available to, or a discharge of, any Credit Party or
any other guarantor or surety.
This Guaranty shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Guaranteed Obligations is rescinded
or must otherwise be returned by any Guaranteed Creditor or any other holder of
a Note upon the insolvency, bankruptcy or reorganization of any Borrower or any
other Credit Party or otherwise, all as though such payment had not been made.
Section 3. Waivers and Acknowledgments. (a) Each Guarantor hereby waives
---------------------------
promptness, diligence, notice of acceptance, presentment, demand for
performance, notice of nonperformance, default, acceleration, protest or
dishonor and any other notice with respect to any of the Guaranteed Obligations
and this Guaranty and any requirement that the Administrative Agent or any other
Guaranteed Creditor protect, secure, perfect or insure any Lien or any property
subject thereto or exhaust any right or take any action against any Credit Party
or any other Person or any Collateral.
(b) Each Guarantor hereby waives any right to revoke this Guaranty, and
acknowledges that this Guaranty is continuing in nature and applies to all
Guaranteed Obligations, whether existing now or in the future.
(c) Each Guarantor hereby waives (i) any defense arising by reason of any
claim or defense based upon an election of remedies by the Guaranteed Creditors
which in any manner impairs, reduces, releases or otherwise adversely affects
such Guarantor's subrogation,
<PAGE>
reimbursement, exoneration, contribution or indemnification rights or other
rights to proceed against any Credit Party or any other person or any
Collateral, and (ii) any defense based on any right of set-off or counterclaim
(other than a compulsory counterclaim) against or in respect of such Guarantor's
obligations hereunder.
(d) Each Guarantor acknowledges that it will receive substantial direct and
indirect benefits from the financing arrangements contemplated by the Credit
Documents and that the waivers set forth in Section 2 and this Section 3 are
knowingly made in contemplation of such benefits.
Section 4. Subrogation. No Guarantor will exercise any rights that it may
-----------
now or hereafter acquire against any Borrower or any other insider guarantor
that arise from the existence, payment, performance or enforcement of such
Guarantor's Obligations under this Guaranty or any other Credit Document,
including, without limitation, any right of subrogation, reimbursement,
exoneration, contribution or indemnification and any right to participate in any
claim or remedy of any Guaranteed Creditor against any Borrower or any other
insider guarantor or any Collateral, whether or not such claim, remedy or right
arises in equity or under contract, statute or common law, including, without
limitation, the right to take or receive from any Borrower or any other insider
guarantor, directly or indirectly, in cash or other property or by set-off or in
any other manner, payment or security on account of such claim, remedy or right,
unless and until all of the Obligations and all other amounts payable under this
Guaranty shall have been paid in full in cash and the Commitments shall have
expired or terminated. If any amount shall be paid to any Guarantor in
violation of the preceding sentence at any time prior to the later of (i) the
payment in full in cash of the Guaranteed Obligations and all other amounts
payable under this Guaranty and (ii) the Maturity Date, such amount shall be
held in trust for the benefit of the Guaranteed Creditors and shall forthwith be
paid to the Administrative Agent to be credited and applied to the Guaranteed
Obligations and all other amounts payable under this Guaranty, whether matured
or unmatured, in accordance with the terms of the Credit Documents, or to be
held as Collateral for any Guaranteed Obligations or other amounts payable under
this Guaranty thereafter arising. If (i) any Guarantor shall make payment to
the Administrative Agent or any other Guaranteed Creditor of all or any part of
the Guaranteed Obligations, (ii) all of the Guaranteed Obligations and all other
amounts payable under this Guaranty shall be paid in full in cash and (iii) the
Maturity Date shall have occurred, the Administrative Agent and the other
Guaranteed Creditors will, at such Guarantor's request and expense, execute and
deliver to such Guarantor appropriate documents, without recourse and without
representation or warranty, necessary to evidence the transfer by subrogation to
such Guarantor of an interest in the Guaranteed Obligations resulting from such
payment by such Guarantor.
Section 5. Net Payments (a) All payments made by any Guarantor hereunder
------------
will be made without setoff, counterclaim or other defense. Except as provided
in Section 5(b), all such payments will be made free and clear of, and without
deduction or withholding for, any present or future taxes, levies, imposts,
duties, fees, assessments or other charges of whatever nature now or hereafter
imposed by any jurisdiction or by any political subdivision or taxing authority
thereof or therein with respect to such payments (but excluding,
<PAGE>
except as provided in the second succeeding sentence, any tax imposed on or
measured by the net income or net profits of a Bank pursuant to the laws of the
jurisdiction in which it is organized or the jurisdiction in which the principal
office or applicable lending office of such Guaranteed Creditor is located or
any subdivision thereof or therein) and all interest, penalties or similar
liabilities with respect thereto (all such non-excluded taxes, levies, imposts,
duties, fees, assessments or other charges being referred to collectively as
"Taxes"). If any Taxes are so levied or imposed, such Guarantor agrees to pay
the full amount of such Taxes, and such additional amounts as may be necessary
so that every payment of all amounts due under this Guaranty, after withholding
or deduction for or on account of any Taxes, will not be less than the amount
provided for herein. If any amounts are payable in respect of Taxes pursuant to
the preceding sentence, such Guarantor agrees to reimburse each Guaranteed
Creditor, upon the written request of such Guaranteed Creditor, for Taxes
imposed on or measured by the net income or net profits of such Guaranteed
Creditor pursuant to the laws of the jurisdiction in which the principal office
or applicable lending office of such Guaranteed Creditor is located or under the
laws of any political subdivision or taxing authority of any such jurisdiction
in which the principal office or applicable lending office of such Guaranteed
Creditor is located and for any withholding of Taxes as such Guaranteed Creditor
shall determine are payable by, or withheld from, such Bank in respect of such
amounts so paid to or on behalf of such Guaranteed Creditor pursuant to the
preceding sentence and in respect of any amounts paid to or on behalf of such
Guaranteed Creditor pursuant to this sentence. Each Guarantor will furnish to
the Administrative Agent within 30 days after the date the payment of any Taxes
is due pursuant to applicable law certified copies of tax receipts evidencing
such payment by such Guarantor. Each Guarantor agrees to indemnify and hold
harmless each Guaranteed Creditor, and reimburse such Bank upon its written
request, for the amount of any Taxes so levied or imposed and paid by such
Guaranteed Creditor.
(b) Each Guaranteed Creditor agrees to deliver to each Guarantor and the
Administrative Agent on or prior to the Effective Date, or in the case of a
Guaranteed Creditor that is an assignee or transferee of an interest under the
Credit Agreement pursuant to Section 1.13 or 12.04 thereof (unless the
respective Guaranteed Creditor was already a Guaranteed Creditor thereunder
immediately prior to such assignment or transfer), on the date of such
assignment or transfer to such Guaranteed Creditor, any form or certificate that
is required by any taxing authority to demonstrate such Guaranteed Creditor's
entitlement to an exemption from or reduction in Home Jurisdiction Withholding
Taxes (as defined below), if any, with respect to payments to be made under this
Guaranty including, if applicable (i) two accurate and complete original signed
copies of Internal Revenue Service Form 4224 or 1001 (or successor forms)
certifying to such Guaranteed Creditor's entitlement to a complete exemption
from United States withholding tax with respect to payments to be made under
this Guaranty, or (ii) if the Guaranteed Creditor is not a "bank" within the
meaning of Section 881(c)(3)(A) of the Code and cannot deliver either Internal
Revenue Service Form 1001 or 4224 pursuant to clause (i) above, (x) a
certificate substantially in the form of Exhibit C to the Credit Agreement (any
such certificate, a "Section 4.04(b)(ii) Certificate") and (y) two accurate and
complete original signed copies of Internal Revenue Service Form W-8 (or
successor form) certifying to such Guaranteed Creditor's entitlement to a
complete exemption from United States withholding tax with respect to payments
to be made under this Guaranty, provided, however,
-------- -------
<PAGE>
that such Guaranteed Creditor shall have been advised in writing by each
Guarantor of the form or certificate applicable to it, determined by reference
to the jurisdiction of organization and applicable lending office of such
Guaranteed Creditor set forth on Annex I to the Credit Agreement, or in the case
of a Guaranteed Creditor that is an assignee or transferee of an interest under
the Credit Agreement pursuant to Sections 1.13 or 12.04 thereof (unless the
respective Guaranteed Creditor was already a Guaranteed Creditor thereunder
immediately prior to such assignment or transfer) the jurisdiction of
organization and Applicable Lending Office of such Guaranteed Creditor set forth
in the Assignment and Assumption Agreement pursuant to which it became a
Guaranteed Creditor, or such other branch or office of any Guaranteed Creditor
designated by such Guaranteed Creditor from time to time. If any form or
document referred to in this subsection (b) requires the disclosure of
information greater than that required on the date hereof by Forms 1001 or 4224
and which a Guaranteed Creditor reasonably considers to be confidential, such
Guaranteed Creditor shall give notice thereof to each Guarantor and shall not be
obligated to include in such form or document such confidential information. In
addition, each Guaranteed Creditor agrees that from time to time after the
Effective Date, when a lapse in time or change in circumstances renders the
previous certification obsolete or inaccurate in any material respect, upon the
written request of any Guarantor (but only if the Guaranteed Creditor remains
lawfully able to do so) it will deliver to such Guarantor and the Administrative
Agent a new accurate and complete form or certificate that is required by any
taxing authority including, if applicable, two new accurate and complete
original signed copies of Internal Revenue Service Form 4224 or 1001, or Form W-
8 and a Section 4.04(b)(ii) Certificate, as the case may be, and such other
forms as may be required in order to confirm or establish the entitlement of
such Guaranteed Creditor to a continued exemption from or reduction in Home
Jurisdiction Withholding Taxes, if any, with respect to payments under this
Guaranty, or it shall immediately notify such Guarantor and the Administrative
Agent of its inability to deliver any such Form or Certificate, in which case
such Guaranteed Creditor shall not be required to deliver any such Form or
Certificate pursuant to this Section 5(b). Notwithstanding anything to the
contrary contained in Section 5(a), but subject to Section 12.04(b) of the
Credit Agreement and the immediately succeeding sentence, (x) each Guarantor
shall be entitled, to the extent it is required to do so by law, to deduct or
withhold income or similar taxes from interest, fees or other amounts payable
hereunder for the account of any Guaranteed Creditor to the extent that such
Guaranteed Creditor has not provided to such Guarantor the form or certificate
that establishes a complete exemption from, or entitlement to a reduction of,
such deduction or withholding and (y) each Guarantor shall not be obligated
pursuant to Section 5(a) to gross-up payments to be made to a Guaranteed
Creditor in respect of income or similar taxes imposed if (I) such Guaranteed
Creditor has not provided to such Guarantor the form or certificate required to
be provided to such Guarantor pursuant to this Section 5(b) or (II) in the case
of a payment, other than interest, to a Guaranteed Creditor described in clause
(ii) above, to the extent that such form or certificate does not establish a
complete exemption from, or entitlement to a reduction of, withholding of such
taxes. Notwithstanding anything to the contrary contained in the preceding
sentence or elsewhere in this Section 5 and except as set forth in Section
12.04(b) of the Credit Agreement, each Guarantor agrees to pay additional
amounts and to indemnify each Guaranteed Creditor in the manner set forth in
Section 5(a) (without regard to the identity of the jurisdiction requiring the
deduction or withholding) in respect of any amounts deducted or
<PAGE>
withheld by it as described in the immediately preceding sentence as a result of
any changes after the Effective Date in any applicable law, treaty, governmental
rule, regulation, guideline or order, or in the interpretation thereof, relating
to the deducting or withholding of income or similar Taxes. "Home Jurisdiction
Withholding Taxes" means, in the case of each Guarantor, withholding taxes
imposed by the jurisdiction or political subdivision or taxing authority thereof
or therein in which such Guarantor is organized.
(c) Without prejudice to the survival of any other agreement of any
Guarantor hereunder or under any other Credit Document, the agreements and
obligations of each Guarantor contained in this Section 5 and in Section 12
shall survive the payment in full of the Guaranteed Obligations and all other
amounts payable under this Guaranty.
Section 6. Representations and Warranties. Each Guarantor hereby
------------------------------
represents and warrants as follows:
(a) Such Guarantor (i) is a duly organized and validly existing corporation
in good standing under the laws of the jurisdiction of its organization, (ii)
has the corporate power and authority (including, without limitation, all
governmental licenses, permits and other approvals) to own or lease and operate
its properties and assets and to transact the business in which it is engaged
and presently proposes to engage and (iii) is duly qualified and is authorized
to do business and is in good standing in all jurisdictions where it is required
to be so qualified or licensed.
(b) Such Guarantor has the corporate power and authority to execute,
deliver and carry out the terms and provisions of this Guaranty and has taken
all necessary corporate action to authorize the execution, delivery and
performance of this Guaranty. Such Guarantor has duly executed and delivered
this Guaranty and this Guaranty constitutes the legal, valid and binding
obligation of such Guarantor enforceable against such Guarantor in accordance
with its terms, except to the extent that the enforceability thereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws generally affecting creditors' rights and by equitable principles
(regardless of whether enforcement is sought in equity or at law).
(c) Neither the execution, delivery or performance by such Guarantor of
this Guaranty nor compliance by such Guarantor with the terms and provisions
thereof, nor the consummation of the transactions contemplated herein, (i) will
contravene any applicable provision of any law, statute, rule or regulation, or
any order, writ, injunction, judgment, award, determination or decree of any
court or governmental instrumentality, (ii) will conflict or be inconsistent
with or result in any breach of, any of the terms, covenants, conditions or
provisions of, or constitute a default under, any contract, indenture, mortgage,
deed of trust, lease, loan agreement, credit agreement or any other material
agreement or instrument to which such Guarantor or any of its Subsidiaries is a
party or by which it or any of its property or assets are bound or to which it
may be subject or (other than pursuant to the Security Documents) result in the
creation or imposition of (or the obligation to create or impose) any Lien upon
any of the property or assets of such Guarantor or any of its Subsidiaries or
(iii) will violate any provision of the Certificate of Incorporation or By-Laws
of such Guarantor or any
<PAGE>
of its Subsidiaries. Neither such Guarantor nor any of its Subsidiaries is in
violation of any such law, statute, rule, regulation, order, writ, judgment,
injunction, decree, determination or award or in breach of any such contract,
loan agreement, indenture, mortgage, deed of trust, lease, loan agreement,
credit agreement or other material agreement or other instrument, the violation
or breach of which could have a Material Adverse Effect.
(d) There are no actions, investigations, litigations, suits or proceedings
pending or, to the knowledge of such Guarantor or any of its Subsidiaries,
threatened, before any court, governmental agency or arbitrator with respect to
such Guarantor or any of its Subsidiaries (i) that could reasonably be expected
to have a Material Adverse Effect or (ii) purports to affect the legality,
validity or enforceability of this Guaranty.
(e) Except as may have been obtained or made on or prior to the Initial
Borrowing Date (and which remain in full force and effect on the Initial
Borrowing Date), no order, consent, approval, license, authorization, or
validation of, or filing, recording or registration with, or exemption by, or
notice to, any foreign or domestic governmental or public body or authority or
any other third party, or any subdivision thereof, is required to authorize or
is required in connection with (i) the due execution, delivery, recordation,
filing and performance by such Guarantor of this Guaranty or for the
consummation of the transactions contemplated hereby, or (ii) the legality,
validity, binding effect or enforceability of this Guaranty.
(f) There are no conditions precedent to the effectiveness of this Guaranty
that have not been satisfied or waived.
(g) Each Guarantor has, independently and without reliance upon the
Administrative Agent or any other Guaranteed Creditor and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Guaranty, and such Guarantor has
established adequate means of obtaining from any other Credit Parties on a
continuing basis information pertaining to, and is now and on a continuing basis
will be completely familiar with, the financial condition, operations,
properties and prospects of such other Credit Parties.
(h) Each Guarantor is, and, after giving effect to the transactions
contemplated hereby, individually and together with its Subsidiaries, will be
Solvent.
Section 7. Covenants. Each Guarantor covenants and agrees that, so long
---------
as any part of the Guaranteed Obligations shall remain unpaid (other than
indemnity and similar contingent obligations in respect of which no claim has
been made and no amount remains outstanding), any Letter of Credit shall be
outstanding or any Bank shall have any Commitment, such Guarantor will, unless
the Required Banks shall otherwise consent in writing as follows:
(a) Payment of Taxes. Each Guarantor will pay and discharge, and
----------------
will cause each of its Subsidiaries to pay and discharge, all taxes,
assessments and
<PAGE>
governmental charges or levies imposed upon it or upon its income or profits,
or upon any properties belonging to it, when due and all lawful claims for
sums that have become due and payable when due which, if unpaid, might become
a Lien not otherwise permitted under Section 8.03(a) of the Credit Agreement
or charge upon any properties of such Guarantor or any of its Subsidiaries;
provided that neither such Guarantor nor any of its Subsidiaries shall be
--------
required to pay any such tax, assessment, charge, levy or claim which is being
contested in good faith and by proper proceedings if it has maintained
adequate reserves with respect thereto in accordance with GAAP.
(b) Corporate Franchises. Such Guarantor will do, and will cause each
--------------------
of its Subsidiaries to do, or cause to be done, all things necessary to
preserve and keep in full force and effect its existence, legal structure,
legal name, rights (charter or statutory), permits, licenses, approvals,
privileges, franchises and authority to do business.
(c) Compliance with Statutes, Etc. Each Guarantor will, and will cause
-----------------------------
each of its Subsidiaries to, comply with all applicable laws, statutes,
regulations, rules and orders of, and all applicable restrictions imposed
by, all governmental bodies, domestic or foreign, in respect of the conduct
of its business and the ownership of its property (including applicable
statutes, regulations, orders and restrictions relating to environmental
standards and controls) except where such noncompliance as would not have a
Material Adverse Effect.
Section 8. Amendments, Etc. No amendment or waiver of any provision of
----------------
this Guaranty and no consent to any departure by any Guarantor therefrom shall
in any event be effective unless the same shall be in writing and signed by the
Administrative Agent (on behalf of the Banks or the Required Banks, as the case
may be) and the Guarantors, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given;
provided, however, that no amendment, waiver or consent shall, unless in writing
- -------- -------
and signed by all of the Guaranteed Creditors (other than any Bank that is, at
such time, a Defaulting Bank), (a) reduce or limit the liability of any
Guarantor hereunder or release any Guarantor hereunder, (b) postpone any date
fixed for payment hereunder or (c) change the number of Guaranteed Creditors
required to take any action hereunder.
Section 9. Notices, Etc. All notices and other communications provided
-------------
for hereunder shall be in writing (including telegraphic, telecopy or telex
communication) and mailed, telegraphed, telecopied, telexed or delivered to it,
if to any Guarantor, addressed to it at the address set forth below such
Guarantor's name on the signature pages hereof, if to the Administrative Agent
or any Bank, at its address specified in the Credit Agreement, or as to any
party at such other address as shall be designated by such party in a written
notice to each other party. All such notices and other communications shall,
when mailed, telegraphed, telecopied or telexed, be effective when deposited in
the mails, delivered to the telegraph company, transmitted by telecopier or
confirmed by telex answerback, respectively. Delivery by telecopier of an
executed counterpart of any amendment or waiver of any provision of this
Guaranty shall be effective as delivery of a manually executed counterpart
thereof.
<PAGE>
Section 10. No Waiver; Remedies. No failure on the part of the
-------------------
Administrative Agent or any other Guaranteed Creditor to exercise, and no delay
in exercising, any right hereunder shall operate as a waiver thereof; nor shall
any single or partial exercise of any right hereunder preclude any other or
further exercise thereof or the exercise of any other right. The remedies
herein provided are cumulative and not exclusive of any remedies provided by
law.
Section 11. Right of Set-off. Upon (a) the occurrence and during the
----------------
continuance of any Event of Default and (b) the making of the request or the
granting of the consent specified by Section 9 of the Credit Agreement to
authorize the Administrative Agent to declare the Notes due and payable pursuant
to the provisions of such Section 9, each Guaranteed Creditor and each of its
respective Affiliates is hereby authorized at any time and from time to time, to
the fullest extent permitted by law, to set-off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other indebtedness at any time owing by such Guaranteed Creditor or such
Affiliate to or for the credit or the account of any Guarantor against any and
all of the Obligations of such Guarantor now or hereafter existing under this
Guaranty, whether or not such Guaranteed Creditor shall have made any demand
under this Guaranty and although such Obligations may be unmatured. Each
Guaranteed Creditor agrees promptly to notify each Guarantor after any such set-
off and application; provided, however, that the failure to give such notice
-------- -------
shall not affect the validity of such set-off and application. The rights of
each Guaranteed Creditor and its respective Affiliates under this Section are in
addition to other rights and remedies (including, without limitation, other
rights of set-off) that such Guaranteed Creditor and its respective Affiliates
may have.
Section 12. Indemnification. Without limitation on any other Obligations
---------------
of any Guarantor or remedies of the Guaranteed Creditors under this Guaranty,
each Guarantor shall, to the fullest extent permitted by law, indemnify, defend
and save and hold harmless each Guaranteed Creditor from and against, and shall
pay on demand, any and all losses, liabilities, damages, costs, expenses and
charges (including the fees and disbursements of such Guaranteed Creditor's
legal counsel) suffered or incurred by such Guaranteed Creditor as a result of
any failure of any Guaranteed Obligations to be the legal, valid and binding
obligations of any Credit Party enforceable against such Credit Party in
accordance with their terms.
Section 13. Continuing Guaranty; Assignments under the Credit Agreement.
-----------------------------------------------------------
This Guaranty is a continuing guaranty and shall (a) remain in full force and
effect until the latest of (i) the payment in full in cash of the Guaranteed
Obligations and all other amounts payable under this Guaranty and (ii) Maturity
Date, (b) be binding upon each Guarantor, its successors and assigns and (c)
inure to the benefit of and be enforceable by the Administrative Agent and the
other Guaranteed Creditors and their successors, transferees and assigns.
Without limiting the generality of the foregoing clause (c), any Guaranteed
Creditor may assign or otherwise transfer all or any portion of its rights under
the Credit Agreement (including, without limitation, all or any portion of its
Commitments, the Loans owing to it and the Note or Notes held by it) to any
other Person, and such other Person shall thereupon
<PAGE>
become vested with all the obligations and benefits in respect thereof granted
to such Guaranteed Creditor herein or otherwise, in each case as and to the
extent provided in Section 12.04(b) of the Credit Agreement. No Guarantor shall
have the right to assign its rights hereunder or any interest herein without the
prior written consent of the Guaranteed Creditors.
Section 14. Governing Law; Jurisdiction; Waiver of Jury Trial, Etc. (a)
-------------------------------------------------------
This Guaranty shall be governed by, and construed in accordance with, the laws
of the State of New York.
(b) Any legal action or proceeding with respect to this Guaranty may be
brought in the courts of the State of New York or of the United States for the
Southern District of New York, and, by execution and delivery of this Agreement,
each Guarantor hereby irrevocably accepts for itself and in respect of its
property, generally and unconditionally, the jurisdiction of the aforesaid
courts. Each Guarantor hereby further irrevocably waives any claim that any
such courts lack jurisdiction over such Guarantor, and agrees not to plead or
claim, in any legal action or proceeding with respect to this Guaranty brought
in any of the aforesaid courts, that any such court lacks jurisdiction over such
Guarantor. Each Guarantor agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law. Solely for the
purposes of this Guaranty, to the full extent permitted by law each Guarantor
and its property service of copies of the summons and complaint and any other
process which may be served in any such action or proceeding. Each Guarantor
irrevocably consents to the service of process in any such action or proceeding
by the mailing of copies thereof by registered or certified mail, postage
prepaid, to the Process Agent, such service to become effective 30 days after
such mailing. Each Guarantor hereby irrevocably waives any objection to such
service of process and further irrevocably waives and agrees not to plead or
claim in any action or proceeding commenced hereunder that service of process
was in any way invalid or ineffective. Nothing herein shall affect the right of
any Guaranteed Creditor to serve process in any other manner permitted by law or
to commence legal proceedings or otherwise proceed against any Guarantor in any
other jurisdiction.
(c) Each Guarantor hereby irrevocably waives any objection which it may now
or hereafter have to the laying of venue of any of the aforesaid actions or
proceedings arising out of or in connection with this Guaranty brought in the
courts referred to in clause (b) above and hereby further irrevocably waives and
agrees not to plead or claim in any such court that any such action or
proceeding brought in any such court has been brought in an inconvenient forum.
(d) To the extent that such Guarantor has or hereafter may acquire any
immunity from jurisdiction of any court or from any legal process (whether
through service or notice, attachment prior to judgment, attachment in aid of
execution, execution or otherwise) with respect to itself or its property, each
Guarantor to the extent permitted by law hereby irrevocably waives such immunity
in respect of its obligations under this Guaranty and, without limiting the
generality of the foregoing, agrees that the waivers set forth in this
<PAGE>
subsection (d) shall have the fullest scope permitted under the United States
Foreign Sovereign Immunities Act of 1976, as amended, and are intended to be
irrevocable for purposes of such Act.
(e) If for the purposes of obtaining judgment in any court it is necessary
to convert a sum due hereunder in any currency (the "Original Currency") into
another currency (the "Other Currency") the parties hereto agree, to the fullest
extent that they may effectively do so, that the rate of exchange used shall be
that at which in accordance with normal banking procedures the Administrative
Agent could purchase the Original Currency with the Other Currency at 11:00 A.M.
on the second Business Day preceding that on which final judgment is given.
(f) The obligation of each Guarantor in respect to any sum due in the
Original Currency from it to any Guaranteed Creditor hereunder or held by such
Guaranteed Creditor shall, notwithstanding any judgment in any Other Currency,
be discharged only to the extent that, on the Business Day following receipt by
such Guaranteed Creditor of any sum adjudged to be so due in such Other Currency
such Guaranteed Creditor may in accordance with normal banking procedures
purchase the Original Currency with such Other Currency; if the amount of the
Original Currency so purchased is less than the sum originally due to such
Guaranteed Creditor in the Original Currency, such Guarantor agrees, as a
separate obligation and notwithstanding any such judgment, to indemnify such
Guaranteed Creditor against such loss, and if the amount of the Original
Currency so purchased exceeds the sum originally due to any Guaranteed Creditor
in the Original Currency, such Guaranteed Creditor agrees to remit to such
Guarantor such excess.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
(g) Each Guarantor hereby irrevocably waives all right to trial by jury in
any action, proceeding or counterclaim (whether based on contract, tort or
otherwise) arising out of or relating to any of this Guaranty, the transactions
contemplated hereby or the actions of the Collateral Agent or any other
Guaranteed Creditor in the negotiation, administration, performance or
enforcement hereof.
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly
executed and delivered by its officer thereunto duly authorized as of the date
first above written.
Address: MODUS MEDIA INTERNATIONAL, INC.
________________
________________
By
Attention: Name:
Title:
Address: MODUS MEDIA INTERNATIONAL HOLDINGS INC.
________________
________________
Attention: By
Name:
Title:
Acknowledged and Agreed:
NATIONSBANK OF TEXAS, N.A.
as Administrative Agent
By_____________________________
Name:
Title:
<PAGE>
U.S. SUBSIDIARY GUARANTY
Dated December ___, 1997
From
THE GUARANTORS NAMED HEREIN
as Guarantors
-------------
in favor of
THE GUARANTEED CREDITORS REFERRED TO IN
THE CREDIT AGREEMENT REFERRED TO HEREIN
<PAGE>
T A B L E O F C O N T E N T S
- - - - - - - - - - - - - - -
Section Page
1. Guaranty; Limitation of Liability 1
2. Guaranty Absolute 2
3. Waivers and Acknowledgments 4
4. Subrogation 4
5. Net Payments 5
6. Representations and Warranties 8
7. Covenants 9
8. Amendments, Etc. 10
9. Notices, Etc. 10
10. No Waiver; Remedies 11
11. Right of Set-off 11
12. Indemnification 11
13. Continuing Guaranty; Assignments
under the Credit Agreement 11
14. Governing Law; Jurisdiction;
Waiver of Jury Trial, Etc. 12
<PAGE>
GUARANTY
GUARANTY dated ________ __, 1997 made by the Persons listed on the
signature pages hereof (each a "Guarantor", and collectively the "Guarantors"),
in favor of the Guaranteed Creditors (as defined in the Credit Agreement
referred to below).
PRELIMINARY STATEMENT. Modus Media International, Inc., a Delaware
corporation ("MMI"), Modus Media International Kabushiki Kaisha, a Japanese
company ("MMI-KK" and together with MMI, the "Borrowers"), are parties to a
Credit Agreement dated as of December __, 1997 (such Credit Agreement, as it
may hereafter be amended, supplemented or otherwise modified from time to time,
being the "Credit Agreement", the capitalized terms defined therein and not
otherwise defined herein being used herein as therein defined) with certain
Banks party thereto, Modus Media International Holdings, Inc. ("Holdings"),
NationsBank of Texas, N.A. ("NationsBank"), as administrative agent (the
"Administrative Agent") for the Banks, NationsBanc Montgomery Securities, Inc.,
as Arranger and Syndication Agent and Citicorp USA, Inc., as Documentation
Agent, Collateral Agent and Multi-Currency Agent. It is a condition precedent
to the making of Loans and the issuance of Letters of Credit by the Banks under
the Credit Agreement from time to time that each Guarantor shall have executed
and delivered this Guaranty.
NOW, THEREFORE, in consideration of the premises and in order to induce the
Banks to make Loans and to issue Letters of Credit under the Credit Agreement
from time to time, each Guarantor, jointly and severally with each other
Guarantor, hereby agrees as follows:
Section 1. Guaranty; Limitation of Liability. (a) Each Guarantor hereby
---------------------------------
absolutely, unconditionally and irrevocably guarantees the punctual payment when
due, whether at stated maturity, by acceleration or otherwise, of all
Obligations of the Credit Parties and each other Guarantor now or hereafter
existing under the Credit Documents, whether for principal, interest, fees,
expenses or otherwise (such Obligations being the "Guaranteed Obligations"), and
----------------------
agrees to pay any and all expenses (including counsel fees and expenses)
incurred by the Administrative Agent or any other Guaranteed Creditor in
enforcing any rights under this Guaranty and the other Credit Documents.
Without limiting the generality of the foregoing, each Guarantor's liability
shall extend to all amounts that constitute part of the Guaranteed Obligations
and would be owed by any Credit Party to the Administrative Agent or any other
Guaranteed Creditor under the Credit Documents but for the fact that they are
unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving such Credit Party.
(b) Each Guarantor, and by its acceptance of this Guaranty, the
Administrative Agent and each other Guaranteed Creditor, hereby confirms that it
is the intention of all such parties that this Guaranty not constitute a
fraudulent transfer or conveyance for purposes of Bankruptcy Law (as defined
below), the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer
Act or any similar federal or state law to
<PAGE>
the extent applicable to this Guaranty. To effectuate the foregoing intention,
the Administrative Agent, the other Guaranteed Creditors and the Guarantors
hereby irrevocably agree that the Obligations of each Guarantor under this
Guaranty shall be limited to the maximum amount as will, after giving effect to
such maximum amount and all other contingent and fixed liabilities of such
Guarantor that are relevant under such laws, and after giving effect to any
collections from, rights to receive contribution from or payments made by or on
behalf of any other Guarantor in respect of the Obligations of such other
Guarantor under this Guaranty, result in the Obligations of such Guarantor under
this Guaranty not constituting a fraudulent transfer or conveyance. For purposes
hereof, "Bankruptcy Law" means Title 11, U.S. Code, or any similar Federal or
state law for the relief of debtors.
(c) Each Guarantor agrees that in the event any payment shall be required
to be made to the Guaranteed Creditors under this Guaranty or any other
guaranty, such Guarantor will contribute, to the maximum extent permitted by
law, such amounts to each other Guarantor so as to maximize the aggregate amount
paid to the Guaranteed Creditors under the Credit Documents.
Section 2. Guaranty Absolute. Each Guarantor guarantees that the
-----------------
Guaranteed Obligations will be paid strictly in accordance with the terms of the
Credit Documents, regardless of any law, regulation or order now or hereafter in
effect in any jurisdiction affecting any of such terms or the rights of the
Administrative Agent or any other Guaranteed Creditor with respect thereto. The
Obligations of each Guarantor under this Guaranty are independent of the
Guaranteed Obligations or any other Obligations of any other Credit Party under
the Credit Documents, and a separate action or actions may be brought and
prosecuted against each Guarantor to enforce this Guaranty, irrespective of
whether any action is brought against any Borrower or any other Credit Party or
whether any Borrower or any other Credit Party is joined in any such action or
actions. The liability of each Guarantor under this Guaranty shall be
irrevocable, absolute and unconditional irrespective of, and each Guarantor
hereby irrevocably waives any defenses it may now or hereafter have in any way
relating to, any or all of the following:
(a) any lack of validity or enforceability of any Credit Document or any
agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or in any other
term of, all or any of the Guaranteed Obligations or any other Obligations
of any other Credit Party under the Credit Documents, or any other
amendment or waiver of or any consent to departure from any Credit
Document, including, without limitation, any increase in the Guaranteed
Obligations resulting from the extension of additional credit to any
Borrower or any of its Subsidiaries or otherwise;
(c) any taking, exchange, release or non-perfection of any Collateral, or
any taking, release or amendment or waiver of or consent to departure from
any other guaranty, for all or any of the Guaranteed Obligations;
<PAGE>
(d) any manner of application of Collateral, or proceeds thereof, to all or
any of the Guaranteed Obligations, or any manner of sale or other
disposition of any Collateral for all or any of the Guaranteed Obligations
or any other Obligations of any other Credit Party under the Credit
Documents or any other assets of any Credit Party or any of its
Subsidiaries;
(e) any change, restructuring or termination of the corporate structure or
existence of any Credit Party or any of its Subsidiaries;
(f) any failure of any Guaranteed Creditor to disclose to any Credit Party
any information relating to the financial condition, operations, properties
or prospects of any other Credit Party now or in the future known to any
Guaranteed Creditor (each Guarantor waiving any duty on the part of the
Guaranteed Creditor to disclose such information);
(g) the failure of any other person to execute this Guaranty or any other
guaranty or agreement or the release or reduction of liability of any
Guarantor or other surety with respect to the Guaranteed Obligations; or
(h) any other circumstance (including, without limitation, any statute of
limitations) or any existence of or reliance on any representation by the
Administrative Agent or any other Guaranteed Creditor that might otherwise
constitute a defense available to, or a discharge of, any Credit Party or
any other guarantor or surety.
This Guaranty shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Guaranteed Obligations is rescinded
or must otherwise be returned by any Guaranteed Creditor or any other holder of
a Note upon the insolvency, bankruptcy or reorganization of any Borrower or any
other Credit Party or otherwise, all as though such payment had not been made.
Section 3. Waivers and Acknowledgments. (a) Each Guarantor hereby waives
---------------------------
promptness, diligence, notice of acceptance, presentment, demand for
performance, notice of nonperformance, default, acceleration, protest or
dishonor and any other notice with respect to any of the Guaranteed Obligations
and this Guaranty and any requirement that the Administrative Agent or any other
Guaranteed Creditor protect, secure, perfect or insure any Lien or any property
subject thereto or exhaust any right or take any action against any Credit Party
or any other Person or any Collateral.
(b) Each Guarantor hereby waives any right to revoke this Guaranty, and
acknowledges that this Guaranty is continuing in nature and applies to all
Guaranteed Obligations, whether existing now or in the future.
(c) Each Guarantor hereby waives (i) any defense arising by reason of any
claim or defense based upon an election of remedies by the Guaranteed Creditors
which in any manner impairs, reduces, releases or otherwise adversely affects
such Guarantor's subrogation,
<PAGE>
reimbursement, exoneration, contribution or indemnification rights or other
rights to proceed against any Credit Party or any other person or any
Collateral, and (ii) any defense based on any right of set-off or counterclaim
(other than a compulsory counterclaim) against or in respect of such Guarantor's
obligations hereunder.
(d) Each Guarantor acknowledges that it will receive substantial direct and
indirect benefits from the financing arrangements contemplated by the Credit
Documents and that the waivers set forth in Section 2 and this Section 3 are
knowingly made in contemplation of such benefits.
Section 4. Subrogation. No Guarantor will exercise any rights that it may
-----------
now or hereafter acquire against any Borrower or any other insider guarantor
that arise from the existence, payment, performance or enforcement of such
Guarantor's Obligations under this Guaranty or any other Credit Document,
including, without limitation, any right of subrogation, reimbursement,
exoneration, contribution or indemnification and any right to participate in any
claim or remedy of any Guaranteed Creditor against any Borrower or any other
insider guarantor or any Collateral, whether or not such claim, remedy or right
arises in equity or under contract, statute or common law, including, without
limitation, the right to take or receive from any Borrower or any other insider
guarantor, directly or indirectly, in cash or other property or by set-off or in
any other manner, payment or security on account of such claim, remedy or right,
unless and until all of the Obligations and all other amounts payable under this
Guaranty shall have been paid in full in cash and the Commitments shall have
expired or terminated. If any amount shall be paid to any Guarantor in
violation of the preceding sentence at any time prior to the later of (i) the
payment in full in cash of the Guaranteed Obligations and all other amounts
payable under this Guaranty and (ii) the Maturity Date, such amount shall be
held in trust for the benefit of the Guaranteed Creditors and shall forthwith be
paid to the Administrative Agent to be credited and applied to the Guaranteed
Obligations and all other amounts payable under this Guaranty, whether matured
or unmatured, in accordance with the terms of the Credit Documents, or to be
held as Collateral for any Guaranteed Obligations or other amounts payable under
this Guaranty thereafter arising. If (i) any Guarantor shall make payment to
the Administrative Agent or any other Guaranteed Creditor of all or any part of
the Guaranteed Obligations, (ii) all of the Guaranteed Obligations and all other
amounts payable under this Guaranty shall be paid in full in cash and (iii) the
Maturity Date shall have occurred, the Administrative Agent and the other
Guaranteed Creditors will, at such Guarantor's request and expense, execute and
deliver to such Guarantor appropriate documents, without recourse and without
representation or warranty, necessary to evidence the transfer by subrogation to
such Guarantor of an interest in the Guaranteed Obligations resulting from such
payment by such Guarantor.
Section 5. Net Payments (a) All payments made by any Guarantor hereunder
------------
will be made without setoff, counterclaim or other defense. Except as provided
in Section 5(b), all such payments will be made free and clear of, and without
deduction or withholding for, any present or future taxes, levies, imposts,
duties, fees, assessments or other charges of whatever nature now or hereafter
imposed by any jurisdiction or by any political subdivision or taxing authority
thereof or therein with respect to such payments (but excluding, except as
<PAGE>
provided in the second succeeding sentence, any tax imposed on or measured by
the net income or net profits of a Bank pursuant to the laws of the jurisdiction
in which it is organized or the jurisdiction in which the principal office or
applicable lending office of such Guaranteed Creditor is located or any
subdivision thereof or therein) and all interest, penalties or similar
liabilities with respect thereto (all such non-excluded taxes, levies, imposts,
duties, fees, assessments or other charges being referred to collectively as
"Taxes"). If any Taxes are so levied or imposed, such Guarantor agrees to pay
the full amount of such Taxes, and such additional amounts as may be necessary
so that every payment of all amounts due under this Guaranty, after withholding
or deduction for or on account of any Taxes, will not be less than the amount
provided for herein. If any amounts are payable in respect of Taxes pursuant to
the preceding sentence, such Guarantor agrees to reimburse each Guaranteed
Creditor, upon the written request of such Guaranteed Creditor, for Taxes
imposed on or measured by the net income or net profits of such Guaranteed
Creditor pursuant to the laws of the jurisdiction in which the principal office
or applicable lending office of such Guaranteed Creditor is located or under the
laws of any political subdivision or taxing authority of any such jurisdiction
in which the principal office or applicable lending office of such Guaranteed
Creditor is located and for any withholding of Taxes as such Guaranteed Creditor
shall determine are payable by, or withheld from, such Bank in respect of such
amounts so paid to or on behalf of such Guaranteed Creditor pursuant to the
preceding sentence and in respect of any amounts paid to or on behalf of such
Guaranteed Creditor pursuant to this sentence. Each Guarantor will furnish to
the Administrative Agent within 30 days after the date the payment of any Taxes
is due pursuant to applicable law certified copies of tax receipts evidencing
such payment by such Guarantor. Each Guarantor agrees to indemnify and hold
harmless each Guaranteed Creditor, and reimburse such Bank upon its written
request, for the amount of any Taxes so levied or imposed and paid by such
Guaranteed Creditor.
(b) Each Guaranteed Creditor agrees to deliver to each Guarantor and the
Administrative Agent on or prior to the Effective Date, or in the case of a
Guaranteed Creditor that is an assignee or transferee of an interest under the
Credit Agreement pursuant to Section 1.13 or 12.04 thereof (unless the
respective Guaranteed Creditor was already a Guaranteed Creditor thereunder
immediately prior to such assignment or transfer), on the date of such
assignment or transfer to such Guaranteed Creditor, any form or certificate that
is required by any taxing authority to demonstrate such Guaranteed Creditor's
entitlement to an exemption from or reduction in Home Jurisdiction Withholding
Taxes (as defined below), if any, with respect to payments to be made under this
Guaranty including, if applicable (i) two accurate and complete original signed
copies of Internal Revenue Service Form 4224 or 1001 (or successor forms)
certifying to such Guaranteed Creditor's entitlement to a complete exemption
from United States withholding tax with respect to payments to be made under
this Guaranty, or (ii) if the Guaranteed Creditor is not a "bank" within the
meaning of Section 881(c)(3)(A) of the Code and cannot deliver either Internal
Revenue Service Form 1001 or 4224 pursuant to clause (i) above, (x) a
certificate substantially in the form of Exhibit C to the Credit Agreement (any
such certificate, a "Section 4.04(b)(ii) Certificate") and (y) two accurate and
complete original signed copies of Internal Revenue Service Form W-8 (or
successor form) certifying to such Guaranteed Creditor's entitlement to a
complete exemption from United States withholding tax with respect to payments
to be made under this Guaranty, provided, however,
-------- -------
<PAGE>
that such Guaranteed Creditor shall have been advised in writing by each
Guarantor of the form or certificate applicable to it, determined by reference
to the jurisdiction of organization and applicable lending office of such
Guaranteed Creditor set forth on Annex I to the Credit Agreement, or in the case
of a Guaranteed Creditor that is an assignee or transferee of an interest under
the Credit Agreement pursuant to Sections 1.13 or 12.04 thereof (unless the
respective Guaranteed Creditor was already a Guaranteed Creditor thereunder
immediately prior to such assignment or transfer) the jurisdiction of
organization and Applicable Lending Office of such Guaranteed Creditor set forth
in the Assignment and Assumption Agreement pursuant to which it became a
Guaranteed Creditor, or such other branch or office of any Guaranteed Creditor
designated by such Guaranteed Creditor from time to time. If any form or
document referred to in this subsection (b) requires the disclosure of
information greater than that required on the date hereof by Forms 1001 or 4224
and which a Guaranteed Creditor reasonably considers to be confidential, such
Guaranteed Creditor shall give notice thereof to each Guarantor and shall not be
obligated to include in such form or document such confidential information. In
addition, each Guaranteed Creditor agrees that from time to time after the
Effective Date, when a lapse in time or change in circumstances renders the
previous certification obsolete or inaccurate in any material respect, upon the
written request of any Guarantor (but only if the Guaranteed Creditor remains
lawfully able to do so) it will deliver to such Guarantor and the Administrative
Agent a new accurate and complete form or certificate that is required by any
taxing authority including, if applicable, two new accurate and complete
original signed copies of Internal Revenue Service Form 4224 or 1001, or Form W-
8 and a Section 4.04(b)(ii) Certificate, as the case may be, and such other
forms as may be required in order to confirm or establish the entitlement of
such Guaranteed Creditor to a continued exemption from or reduction in Home
Jurisdiction Withholding Taxes, if any, with respect to payments under this
Guaranty, or it shall immediately notify such Guarantor and the Administrative
Agent of its inability to deliver any such Form or Certificate, in which case
such Guaranteed Creditor shall not be required to deliver any such Form or
Certificate pursuant to this Section 5(b). Notwithstanding anything to the
contrary contained in Section 5(a), but subject to Section 12.04(b) of the
Credit Agreement and the immediately succeeding sentence, (x) each Guarantor
shall be entitled, to the extent it is required to do so by law, to deduct or
withhold income or similar taxes from interest, fees or other amounts payable
hereunder for the account of any Guaranteed Creditor to the extent that such
Guaranteed Creditor has not provided to such Guarantor the form or certificate
that establishes a complete exemption from, or entitlement to a reduction of,
such deduction or withholding and (y) each Guarantor shall not be obligated
pursuant to Section 5(a) to gross-up payments to be made to a Guaranteed
Creditor in respect of income or similar taxes imposed if (I) such Guaranteed
Creditor has not provided to such Guarantor the form or certificate required to
be provided to such Guarantor pursuant to this Section 5(b) or (II) in the case
of a payment, other than interest, to a Guaranteed Creditor described in clause
(ii) above, to the extent that such form or certificate does not establish a
complete exemption from, or entitlement to a reduction of, withholding of such
taxes. Notwithstanding anything to the contrary contained in the preceding
sentence or elsewhere in this Section 5 and except as set forth in Section
12.04(b) of the Credit Agreement, each Guarantor agrees to pay additional
amounts and to indemnify each Guaranteed Creditor in the manner set forth in
Section 5(a) (without regard to the identity of the jurisdiction requiring the
deduction or withholding) in respect of any amounts deducted or
<PAGE>
withheld by it as described in the immediately preceding sentence as a result of
any changes after the Effective Date in any applicable law, treaty, governmental
rule, regulation, guideline or order, or in the interpretation thereof, relating
to the deducting or withholding of income or similar Taxes. "Home Jurisdiction
Withholding Taxes" means, in the case of each Guarantor, withholding taxes
imposed by the jurisdiction or political subdivision or taxing authority thereof
or therein in which such Guarantor is organized.
(c) Without prejudice to the survival of any other agreement of any
Guarantor hereunder or under any other Credit Document, the agreements and
obligations of each Guarantor contained in this Section 5 and in Section 12
shall survive the payment in full of the Guaranteed Obligations and all other
amounts payable under this Guaranty.
Section 6. Representations and Warranties. Each Guarantor hereby
------------------------------
represents and warrants as follows:
(a) Such Guarantor (i) is a duly organized and validly existing corporation
in good standing under the laws of the jurisdiction of its organization, (ii)
has the corporate power and authority (including, without limitation, all
governmental licenses, permits and other approvals) to own or lease and operate
its properties and assets and to transact the business in which it is engaged
and presently proposes to engage and (iii) is duly qualified and is authorized
to do business and is in good standing in all jurisdictions where it is required
to be so qualified or licensed.
(b) Such Guarantor has the corporate power and authority to execute,
deliver and carry out the terms and provisions of this Guaranty and has taken
all necessary corporate action to authorize the execution, delivery and
performance of this Guaranty. Such Guarantor has duly executed and delivered
this Guaranty and this Guaranty constitutes the legal, valid and binding
obligation of such Guarantor enforceable against such Guarantor in accordance
with its terms, except to the extent that the enforceability thereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws generally affecting creditors' rights and by equitable principles
(regardless of whether enforcement is sought in equity or at law).
(c) Neither the execution, delivery or performance by such Guarantor of
this Guaranty nor compliance by such Guarantor with the terms and provisions
thereof, nor the consummation of the transactions contemplated herein, (i) will
contravene any applicable provision of any law, statute, rule or regulation, or
any order, writ, injunction, judgment, award, determination or decree of any
court or governmental instrumentality, (ii) will conflict or be inconsistent
with or result in any breach of, any of the terms, covenants, conditions or
provisions of, or constitute a default under, any contract, indenture, mortgage,
deed of trust, lease, loan agreement, credit agreement or any other material
agreement or instrument to which such Guarantor or any of its Subsidiaries is a
party or by which it or any of its property or assets are bound or to which it
may be subject or (other than pursuant to the Security Documents) result in the
creation or imposition of (or the obligation to create or impose) any Lien upon
any of the property or assets of such Guarantor or any of its Subsidiaries or
(iii) will
<PAGE>
violate any provision of the Certificate of Incorporation or By-Laws of such
Guarantor or any of its Subsidiaries. Neither such Guarantor nor any of its
Subsidiaries is in violation of any such law, statute, rule, regulation, order,
writ, judgment, injunction, decree, determination or award or in breach of any
such contract, loan agreement, indenture, mortgage, deed of trust, lease, loan
agreement, credit agreement or other material agreement or other instrument, the
violation or breach of which could have a Material Adverse Effect.
(d) There are no actions, investigations, litigations, suits or proceedings
pending or, to the knowledge of such Guarantor or any of its Subsidiaries,
threatened, before any court, governmental agency or arbitrator with respect to
such Guarantor or any of its Subsidiaries (i) that could reasonably be expected
to have a Material Adverse Effect or (ii) purports to affect the legality,
validity or enforceability of this Guaranty.
(e) Except as may have been obtained or made on or prior to the Initial
Borrowing Date (and which remain in full force and effect on the Initial
Borrowing Date), no order, consent, approval, license, authorization, or
validation of, or filing, recording or registration with, or exemption by, or
notice to, any foreign or domestic governmental or public body or authority or
any other third party, or any subdivision thereof, is required to authorize or
is required in connection with (i) the due execution, delivery, recordation,
filing and performance by such Guarantor of this Guaranty or for the
consummation of the transactions contemplated hereby, or (ii) the legality,
validity, binding effect or enforceability of this Guaranty.
(f) There are no conditions precedent to the effectiveness of this Guaranty
that have not been satisfied or waived.
(g) Each Guarantor has, independently and without reliance upon the
Administrative Agent or any other Guaranteed Creditor and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Guaranty, and such Guarantor has
established adequate means of obtaining from any other Credit Parties on a
continuing basis information pertaining to, and is now and on a continuing basis
will be completely familiar with, the financial condition, operations,
properties and prospects of such other Credit Parties.
(h) Each Guarantor is, and, after giving effect to the transactions
contemplated hereby, individually and together with its Subsidiaries, will be
Solvent.
Section 7. Covenants. Each Guarantor covenants and agrees that, so long
---------
as any part of the Guaranteed Obligations shall remain unpaid (other than
indemnity and similar contingent obligations in respect of which no claim has
been made and no amount remains outstanding), any Letter of Credit shall be
outstanding or any Bank shall have any Commitment, such Guarantor will, unless
the Required Banks shall otherwise consent in writing as follows:
<PAGE>
(a) Payment of Taxes. Each Guarantor will pay and discharge, and
----------------
will cause each of its Subsidiaries to pay and discharge, all taxes,
assessments and governmental charges or levies imposed upon it or upon its
income or profits, or upon any properties belonging to it, when due and all
lawful claims for sums that have become due and payable when due which, if
unpaid, might become a Lien not otherwise permitted under Section 8.03(a) of
the Credit Agreement or charge upon any properties of such Guarantor or any of
its Subsidiaries; provided that neither such Guarantor nor any of its
--------
Subsidiaries shall be required to pay any such tax, assessment, charge, levy
or claim which is being contested in good faith and by proper proceedings if
it has maintained adequate reserves with respect thereto in accordance with
GAAP.
(b) Corporate Franchises. Such Guarantor will do, and will cause each
--------------------
of its Subsidiaries to do, or cause to be done, all things necessary to
preserve and keep in full force and effect its existence, legal structure,
legal name, rights (charter or statutory), permits, licenses, approvals,
privileges, franchises and authority to do business.
(c) Compliance with Statutes, Etc. Each Guarantor will, and will cause
-----------------------------
each of its Subsidiaries to, comply with all applicable laws, statutes,
regulations, rules and orders of, and all applicable restrictions imposed
by, all governmental bodies, domestic or foreign, in respect of the conduct
of its business and the ownership of its property (including applicable
statutes, regulations, orders and restrictions relating to environmental
standards and controls) except where such noncompliance as would not have a
Material Adverse Effect.
Section 8. Amendments, Etc. No amendment or waiver of any provision of
----------------
this Guaranty and no consent to any departure by any Guarantor therefrom shall
in any event be effective unless the same shall be in writing and signed by the
Administrative Agent (on behalf of the Banks or the Required Banks, as the case
may be) and the Guarantors, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given;
provided, however, that no amendment, waiver or consent shall, unless in writing
- -------- -------
and signed by all of the Guaranteed Creditors (other than any Bank that is, at
such time, a Defaulting Bank), (a) reduce or limit the liability of any
Guarantor hereunder or release any Guarantor hereunder, (b) postpone any date
fixed for payment hereunder or (c) change the number of Guaranteed Creditors
required to take any action hereunder.
Section 9. Notices, Etc. All notices and other communications provided
-------------
for hereunder shall be in writing (including telegraphic, telecopy or telex
communication) and mailed, telegraphed, telecopied, telexed or delivered to it,
if to any Guarantor, addressed to it at the address set forth below such
Guarantor's name on the signature pages hereof, if to the Administrative Agent
or any Bank, at its address specified in the Credit Agreement, or as to any
party at such other address as shall be designated by such party in a written
notice to each other party. All such notices and other communications shall,
when mailed, telegraphed, telecopied or telexed, be effective when deposited in
the mails, delivered to the telegraph company, transmitted by telecopier or
confirmed by telex answerback, respectively. Delivery by telecopier of an
executed counterpart of any amendment or waiver of any provision of this
Guaranty shall be effective as delivery of a manually executed counterpart
thereof.
<PAGE>
Section 10. No Waiver; Remedies. No failure on the part of the
-------------------
Administrative Agent or any other Guaranteed Creditor to exercise, and no delay
in exercising, any right hereunder shall operate as a waiver thereof; nor shall
any single or partial exercise of any right hereunder preclude any other or
further exercise thereof or the exercise of any other right. The remedies
herein provided are cumulative and not exclusive of any remedies provided by
law.
Section 11. Right of Set-off. Upon (a) the occurrence and during the
----------------
continuance of any Event of Default and (b) the making of the request or the
granting of the consent specified by Section 9 of the Credit Agreement to
authorize the Administrative Agent to declare the Notes due and payable pursuant
to the provisions of such Section 9, each Guaranteed Creditor and each of its
respective Affiliates is hereby authorized at any time and from time to time, to
the fullest extent permitted by law, to set-off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other indebtedness at any time owing by such Guaranteed Creditor or such
Affiliate to or for the credit or the account of any Guarantor against any and
all of the Obligations of such Guarantor now or hereafter existing under this
Guaranty, whether or not such Guaranteed Creditor shall have made any demand
under this Guaranty and although such Obligations may be unmatured. Each
Guaranteed Creditor agrees promptly to notify each Guarantor after any such set-
off and application; provided, however, that the failure to give such notice
-------- -------
shall not affect the validity of such set-off and application. The rights of
each Guaranteed Creditor and its respective Affiliates under this Section are in
addition to other rights and remedies (including, without limitation, other
rights of set-off) that such Guaranteed Creditor and its respective Affiliates
may have.
Section 12. Indemnification. Without limitation on any other Obligations
---------------
of any Guarantor or remedies of the Guaranteed Creditors under this Guaranty,
each Guarantor shall, to the fullest extent permitted by law, indemnify, defend
and save and hold harmless each Guaranteed Creditor from and against, and shall
pay on demand, any and all losses, liabilities, damages, costs, expenses and
charges (including the fees and disbursements of such Guaranteed Creditor's
legal counsel) suffered or incurred by such Guaranteed Creditor as a result of
any failure of any Guaranteed Obligations to be the legal, valid and binding
obligations of any Credit Party enforceable against such Credit Party in
accordance with their terms.
Section 13. Continuing Guaranty; Assignments under the Credit Agreement.
-----------------------------------------------------------
This Guaranty is a continuing guaranty and shall (a) remain in full force and
effect until the latest of (i) the payment in full in cash of the Guaranteed
Obligations and all other amounts payable under this Guaranty and (ii) Maturity
Date, (b) be binding upon each Guarantor, its successors and assigns and (c)
inure to the benefit of and be enforceable by the Administrative Agent and the
other Guaranteed Creditors and their successors, transferees and assigns.
Without limiting the generality of the foregoing clause (c), any Guaranteed
Creditor may assign or otherwise transfer all or any portion of its rights under
the Credit Agreement (including, without limitation, all or any portion of its
Commitments, the Loans owing to it and the Note or Notes held by it) to any
other Person, and such other Person shall thereupon become vested with all the
obligations and benefits in respect thereof granted to such
<PAGE>
Guaranteed Creditor herein or otherwise, in each case as and to the extent
provided in Section 12.04(b) of the Credit Agreement. No Guarantor shall have
the right to assign its rights hereunder or any interest herein without the
prior written consent of the Guaranteed Creditors.
Section 14. Governing Law; Jurisdiction; Waiver of Jury Trial, Etc. (a)
-------------------------------------------------------
This Guaranty shall be governed by, and construed in accordance with, the laws
of the State of New York.
(b) Any legal action or proceeding with respect to this Guaranty may be
brought in the courts of the State of New York or of the United States for the
Southern District of New York, and, by execution and delivery of this Agreement,
each Guarantor hereby irrevocably accepts for itself and in respect of its
property, generally and unconditionally, the jurisdiction of the aforesaid
courts. Each Guarantor hereby further irrevocably waives any claim that any
such courts lack jurisdiction over such Guarantor, and agrees not to plead or
claim, in any legal action or proceeding with respect to this Guaranty brought
in any of the aforesaid courts, that any such court lacks jurisdiction over such
Guarantor. Each Guarantor agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law. Solely for the
purposes of this Guaranty, to the full extent permitted by law each Guarantor
and its property service of copies of the summons and complaint and any other
process which may be served in any such action or proceeding. Each Guarantor
irrevocably consents to the service of process in any such action or proceeding
by the mailing of copies thereof by registered or certified mail, postage
prepaid, to the Process Agent, such service to become effective 30 days after
such mailing. Each Guarantor hereby irrevocably waives any objection to such
service of process and further irrevocably waives and agrees not to plead or
claim in any action or proceeding commenced hereunder that service of process
was in any way invalid or ineffective. Nothing herein shall affect the right of
any Guaranteed Creditor to serve process in any other manner permitted by law or
to commence legal proceedings or otherwise proceed against any Guarantor in any
other jurisdiction.
(c) Each Guarantor hereby irrevocably waives any objection which it may now
or hereafter have to the laying of venue of any of the aforesaid actions or
proceedings arising out of or in connection with this Guaranty brought in the
courts referred to in clause (b) above and hereby further irrevocably waives and
agrees not to plead or claim in any such court that any such action or
proceeding brought in any such court has been brought in an inconvenient forum.
(d) To the extent that such Guarantor has or hereafter may acquire any
immunity from jurisdiction of any court or from any legal process (whether
through service or notice, attachment prior to judgment, attachment in aid of
execution, execution or otherwise) with respect to itself or its property, each
Guarantor to the extent permitted by law hereby irrevocably waives such immunity
in respect of its obligations under this Guaranty and, without limiting the
generality of the foregoing, agrees that the waivers set forth in this
subsection (d) shall have the fullest scope permitted under the United States
Foreign Sovereign Immunities Act of 1976, as amended, and are intended to be
irrevocable for purposes of such Act.
<PAGE>
(e) If for the purposes of obtaining judgment in any court it is necessary
to convert a sum due hereunder in any currency (the "Original Currency") into
another currency (the "Other Currency") the parties hereto agree, to the fullest
extent that they may effectively do so, that the rate of exchange used shall be
that at which in accordance with normal banking procedures the Administrative
Agent could purchase the Original Currency with the Other Currency at 11:00 A.M.
on the second Business Day preceding that on which final judgment is given.
(f) The obligation of each Guarantor in respect to any sum due in the
Original Currency from it to any Guaranteed Creditor hereunder or held by such
Guaranteed Creditor shall, notwithstanding any judgment in any Other Currency,
be discharged only to the extent that, on the Business Day following receipt by
such Guaranteed Creditor of any sum adjudged to be so due in such Other Currency
such Guaranteed Creditor may in accordance with normal banking procedures
purchase the Original Currency with such Other Currency; if the amount of the
Original Currency so purchased is less than the sum originally due to such
Guaranteed Creditor in the Original Currency, such Guarantor agrees, as a
separate obligation and notwithstanding any such judgment, to indemnify such
Guaranteed Creditor against such loss, and if the amount of the Original
Currency so purchased exceeds the sum originally due to any Guaranteed Creditor
in the Original Currency, such Guaranteed Creditor agrees to remit to such
Guarantor such excess.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
(g) Each Guarantor hereby irrevocably waives all right to trial by jury in
any action, proceeding or counterclaim (whether based on contract, tort or
otherwise) arising out of or relating to any of this Guaranty, the transactions
contemplated hereby or the actions of the Collateral Agent or any other
Guaranteed Creditor in the negotiation, administration, performance or
enforcement hereof.
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly
executed and delivered by its officer thereunto duly authorized as of the date
first above written.
Address: MODUS MEDIA INTERNATIONAL
DOCUMENTATION SERVICES
- ------------------------ LIMITED (IRELAND)
- ------------------------
By
Name:
Title:
Address: MODUS MEDIA INTERNATIONAL
(IRELAND) LIMITED
- ------------------------
- ------------------------
Attention: By
Name:
Title:
Address: MODUS MEDIA INTERNATIONAL
HOLDINGS (AUSTRALIA) LIMITED
- ------------------------
- ------------------------
Attention: By
Name:
Title:
Acknowledged and Agreed:
NATIONSBANK OF TEXAS, N.A.
as Administrative Agent
By
----------------------
Name:
Title:
<PAGE>
FOREIGN SUBSIDIARY GUARANTY
Dated December __, 1997
From
THE GUARANTOR NAMED HEREIN
as Guarantor
------------
in favor of
THE GUARANTEED PARTIES REFERRED TO IN
THE CREDIT AGREEMENT REFERRED TO HEREIN
<PAGE>
GUARANTY
GUARANTY dated December 15, 1997 made by the Modus Media International
Kabushiki Kaisha, a Japanese company (the "Guarantor"), in favor of the
Guaranteed Creditors (as defined in the Credit Agreement referred to below).
PRELIMINARY STATEMENT. Modus Media International, Inc., a Delaware
corporation ("MMI") and the Guarantor (the Guarantor and MMI are referred to
herein collectively as the "Borrowers"), are parties to a Credit Agreement dated
as of December __, 1997 (such Credit Agreement, as it may hereafter be amended,
supplemented or otherwise modified from time to time, being the "Credit
Agreement", the capitalized terms defined therein and not otherwise defined
herein being used herein as therein defined) with certain Banks party thereto,
Modus Media International Holdings, Inc. (Holdings") NationsBank of Texas, N.A.
("NationsBank"), as Administrative Agent for the Banks, NationsBanc Montgomery
Securities, Inc., as Arranger and Syndication Agent, and Citicorp USA, Inc., as
Documentation Agent, Collateral Agent and Multi-Currency Agent. The Guarantor
may receive a portion of the proceeds of the Loans under the Credit Agreement
and will derive substantial direct and indirect benefit from the transactions
contemplated by the Credit Agreement. It is a condition precedent to the making
of Loans and the issuance of Letters of Credit by the Banks under the Credit
Agreement from time to time that the Guarantor shall have executed and delivered
this Guaranty.
NOW, THEREFORE, in consideration of the premises and in order to induce the
Banks to make Loans and to issue Letters of Credit under the Credit Agreement
from time to time, the Guarantor, hereby agrees as follows:
Section 1. Guaranty; Limitation of Liability. The Guarantor hereby
---------------------------------
absolutely, unconditionally and irrevocably guarantees the punctual payment when
due, whether at stated maturity, by acceleration or otherwise, of all
Obligations of MMI-Singapore (the "Relevant Credit Party") now or hereafter
existing under the Credit Documents, whether for principal, interest, fees,
expenses or otherwise (such Obligations being the "Guaranteed Obligations"), and
agrees to pay any and all expenses (including counsel fees and expenses)
incurred by the Administrative Agent or any other Guaranteed Creditor in
enforcing any rights under this Guaranty and the other Credit Documents. Without
limiting the generality of the foregoing, each Guarantor's liability shall
extend to all amounts that constitute part of the Guaranteed Obligations and
would be owed by any Credit Party to the Administrative Agent or any other
Guaranteed Creditor under the Credit Documents but for the fact that they are
unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving such Credit Party.
Section 2. Guaranty Absolute. The Guarantor guarantees that the Guaranteed
-----------------
Obligations will be paid strictly in accordance with the terms of the Credit
Documents, regardless of any law, regulation or order now or hereafter in effect
in any jurisdiction affecting any of such terms or the rights of the
Administrative Agent or any other Guaranteed
<PAGE>
Creditor with respect thereto. The Obligations of the Guarantor under this
Guaranty are independent of the Guaranteed Obligations or any other Obligations
of any other Credit Party under the Credit Documents, and a separate action or
actions may be brought and prosecuted against the Guarantor to enforce this
Guaranty, irrespective of whether any action is brought against any Borrower or
any other Credit Party or whether any Borrower or any other Credit Party is
joined in any such action or actions. The liability of the Guarantor under this
Guaranty shall be irrevocable, absolute and unconditional irrespective of, and
the Guarantor hereby irrevocably waives any defenses it may now or hereafter
have in any way relating to, any or all of the following:
(a) any lack of validity or enforceability of any Credit Document
or any agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or in
any other term of, all or any of the Guaranteed Obligations or any other
Obligations of any other Credit Party under the Credit Documents, or any
other amendment or waiver of or any consent to departure from any Credit
Document, including, without limitation, any increase in the Guaranteed
Obligations resulting from the extension of additional credit to any
Borrower or any of its Subsidiaries or otherwise;
(c) any taking, exchange, release or non-perfection of any
Collateral, or any taking, release or amendment or waiver of or consent to
departure from any other guaranty, for all or any of the Guaranteed
Obligations;
(d) any manner of application of Collateral, or proceeds thereof,
to all or any of the Guaranteed Obligations, or any manner of sale or other
disposition of any Collateral for all or any of the Guaranteed Obligations
or any other Obligations of any other Credit Party under the Credit
Documents or any other assets of any Credit Party or any of its
Subsidiaries;
(e) any change, restructuring or termination of the corporate
structure or existence of any Credit Party or any of its Subsidiaries;
(f) any failure of any Guaranteed Creditor to disclose to any
Credit Party any information relating to the financial condition,
operations, properties or prospects of any other Credit Party now or in the
future known to any Guaranteed Creditor (each Guarantor waiving any duty on
the part of the Guaranteed Creditor to disclose such information);
(g) the failure of any other person to execute this Guaranty or any
other guaranty or agreement or the release or reduction of liability of any
Guarantor or other surety with respect to the Guaranteed Obligations; or
(h) any other circumstance (including, without limitation, any
statute of limitations) or any existence of or reliance on any
representation by the Administrative
<PAGE>
Agent or any other Guaranteed Creditor that might otherwise constitute a
defense available to, or a discharge of, any Credit Party or any other
guarantor or surety.
This Guaranty shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Guaranteed Obligations is rescinded
or must otherwise be returned by any Guaranteed Creditor or any other holder of
a Note upon the insolvency, bankruptcy or reorganization of the Relevant Credit
Party or otherwise, all as though such payment had not been made.
Section 3. Waivers and Acknowledgments. (a) The Guarantor hereby waives
---------------------------
promptness, diligence, notice of acceptance, presentment, demand for
performance, notice of nonperformance, default, acceleration, protest or
dishonor and any other notice with respect to any of the Guaranteed Obligations
and this Guaranty and any requirement that the Administrative Agent or any other
Guaranteed Creditor protect, secure, perfect or insure any Lien or any property
subject thereto or exhaust any right or take any action against any Credit Party
or any other Person or any Collateral.
(b) The Guarantor hereby waives any right to revoke this Guaranty, and
acknowledges that this Guaranty is continuing in nature and applies to all
Guaranteed Obligations, whether existing now or in the future.
(c) The Guarantor hereby waives (i) any defense arising by reason of any
claim or defense based upon an election of remedies by the Guaranteed Creditors
which in any manner impairs, reduces, releases or otherwise adversely affects
the Guarantor's subrogation, reimbursement, exoneration, contribution or
indemnification rights or other rights to proceed against any Credit Party or
any other Person or any Collateral, and (ii) any defense based on any right of
set-off or counterclaim (other than a compulsory counterclaim) against or in
respect of such Guarantor's obligations hereunder.
(d) The Guarantor acknowledges that it will receive substantial direct
and indirect benefits from the financing arrangements contemplated by the Credit
Documents and that the waivers set forth in Section 2 and this Section 3 are
knowingly made in contemplation of such benefits.
Section 4. Subrogation. The Guarantor will not exercise any rights that it
-----------
may now or hereafter acquire against any Borrower or any other insider guarantor
that arise from the existence, payment, performance or enforcement of the
Guarantor's Obligations under this Guaranty or any other Credit Document,
including, without limitation, any right of subrogation, reimbursement,
exoneration, contribution or indemnification and any right to participate in any
claim or remedy of any Guaranteed Creditor against any Borrower or any other
insider guarantor or any Collateral, whether or not such claim, remedy or right
arises in equity or under contract, statute or common law, including, without
limitation, the right to take or receive from any Borrower or any other insider
guarantor, directly or indirectly, in cash or other property or by set-off or in
any other manner, payment or security on account of such claim, remedy or right,
unless and until all of the Obligations and all other amounts
<PAGE>
payable under this Guaranty shall have been paid in full in cash and the
Commitments shall have expired or terminated. If any amount shall be paid to the
Guarantor in violation of the preceding sentence at any time prior to the later
of (i) the payment in full in cash of the Guaranteed Obligations and all other
amounts payable under this Guaranty and (ii) the Maturity Date, such amount
shall be held in trust for the benefit of the Guaranteed Creditors and shall
forthwith be paid to the Administrative Agent to be credited and applied to the
Guaranteed Obligations and all other amounts payable under this Guaranty,
whether matured or unmatured, in accordance with the terms of the Credit
Documents, or to be held as Collateral for any Guaranteed Obligations or other
amounts payable under this Guaranty thereafter arising. If (i) the Guarantor
shall make payment to the Administrative Agent or any other Guaranteed Creditor
of all or any part of the Guaranteed Obligations, (ii) all of the Guaranteed
Obligations and all other amounts payable under this Guaranty shall be paid in
full in cash and (iii) the Maturity Date shall have occurred, the Administrative
Agent and the other Guaranteed Creditors will, at the Guarantor's request and
expense, execute and deliver to the Guarantor appropriate documents, without
recourse and without representation or warranty, necessary to evidence the
transfer by subrogation to such Guarantor of an interest in the Guaranteed
Obligations resulting from such payment by such Guarantor.
Section 5. Net Payments. (a) All payments made by the Guarantor hereunder
------------
will be made without set-off, counterclaim or other defense. Except as provided
in Section 5(b), all such payments will be made free and clear of, and without
deduction or withholding for, any present or future taxes, levies, imposts,
duties, fees, assessments or other charges of whatever nature now or hereafter
imposed by any jurisdiction or by any political subdivision or taxing authority
thereof or therein with respect to such payments (but excluding, except as
provided in the second succeeding sentence, any tax imposed on or measured by
the net income or net profits of a Guaranteed Creditor pursuant to the laws of
the jurisdiction in which it is organized or the jurisdiction in which the
principal office or applicable lending office of such Guaranteed Creditor is
located or any subdivision thereof or therein) and all interest, penalties or
similar liabilities with respect thereto (all such non-excluded taxes, levies,
imposts, duties, fees, assessments or other charges being referred to
collectively as "Taxes"). If any Taxes are so levied or imposed, the Guarantor
agrees to pay the full amount of such Taxes, and such additional amounts as may
be necessary so that every payment of all amounts due under this Guaranty, after
withholding or deduction for or on account of any Taxes, will not be less than
the amount provided for herein. If any amounts are payable in respect of Taxes
pursuant to the preceding sentence, the Guarantor agrees to reimburse each
Guaranteed Creditor, upon the written request of such Guaranteed Creditor, for
Taxes imposed on or measured by the net income or net profits of such Guaranteed
Creditor pursuant to the laws of the jurisdiction in which the principal office
or applicable lending office of such Guaranteed Creditor is located or under the
laws of any political subdivision or taxing authority of any such jurisdiction
in which the principal office or applicable lending office of such Guaranteed
Creditor is located and for any withholding of Taxes as such Guaranteed Creditor
shall determine are payable by, or withheld from, such Guaranteed Creditor in
respect of such amounts so paid to or on behalf of such Guaranteed Creditor
pursuant to the preceding sentence and in respect of any amounts paid to or on
behalf of such Guaranteed Creditor pursuant to this sentence. The Guarantor will
furnish to the Administrative Agent within 30
<PAGE>
days after the date the payment of any Taxes is due pursuant to applicable law
certified copies of tax receipts evidencing such payment by such Guarantor. The
Guarantor agrees to indemnify and hold harmless each Guaranteed Creditor, and
reimburse such Guaranteed Creditor upon its written request, for the amount of
any Taxes so levied or imposed and paid by such Guaranteed Creditor.
(b) Each Guaranteed Creditor agrees to deliver to the Guarantor and the
Administrative Agent on or prior to the Effective Date, or in the case of a
Guaranteed Creditor that is an assignee or transferee of an interest under the
Credit Agreement pursuant to Section 1.13 or 12.04 thereof (unless the
respective Guaranteed Creditor was already a Guaranteed Creditor thereunder
immediately prior to such assignment or transfer), on the date of such
assignment or transfer to such Guaranteed Creditor, any form or certificate that
is required by any taxing authority to demonstrate such Guaranteed Creditor's
entitlement to an exemption from or reduction in Home Jurisdiction Withholding
Taxes (as defined below), if any, with respect to payments to be made under this
Guaranty including, if applicable (i) two accurate and complete original signed
copies of Internal Revenue Service Form 4224 or 1001 (or successor forms)
certifying to such Guaranteed Creditor's entitlement to a complete exemption
from United States withholding tax with respect to payments to be made under
this Guaranty, or (ii) if the Guaranteed Creditor is not a "bank" within the
meaning of Section 881(c)(3)(A) of the Code and cannot deliver either Internal
Revenue Service Form 1001 or 4224 pursuant to clause (i) above, (x) a
certificate substantially in the form of Exhibit C to the Credit Agreement (any
such certificate, a "Section 4.04(b)(ii) Certificate") and (y) two accurate and
complete original signed copies of Internal Revenue Service Form W-8 (or
successor form) certifying to such Guaranteed Creditor's entitlement to a
complete exemption from United States withholding tax with respect to payments
to be made under this Guaranty, provided, however, that such Guaranteed Creditor
-------- -------
shall have been advised in writing by the Guarantor of the form or certificate
applicable to it, determined by reference to the jurisdiction of organization
and applicable lending office of such Guaranteed Creditor set forth on Annex I
to the Credit Agreement, or in the case of a Guaranteed Creditor that is an
assignee or transferee of an interest under the Credit Agreement pursuant to
Sections 1.13 or 12.04 thereof (unless the respective Guaranteed Creditor was
already a Guaranteed Creditor thereunder immediately prior to such assignment or
transfer) the jurisdiction of organization and Applicable Lending Office of such
Guaranteed Creditor set forth in the Assignment and Assumption Agreement
pursuant to which it became a Guaranteed Creditor, or such other branch or
office of any Guaranteed Creditor designated by such Guaranteed Creditor from
time to time. If any form or document referred to in this subsection (b)
requires the disclosure of information greater than that required on the date
hereof by Forms 1001 or 4224 and which a Guaranteed Creditor reasonably
considers to be confidential, such Guaranteed Creditor shall give notice thereof
to the Guarantor and shall not be obligated to include in such form or document
such confidential information. In addition, each Guaranteed Creditor agrees that
from time to time after the Effective Date, when a lapse in time or change in
circumstances renders the previous certification obsolete or inaccurate in any
material respect, upon the written request of the Guarantor (but only if the
Guaranteed Creditor remains lawfully able to do so) it will deliver to the
Guarantor and the Administrative Agent a new accurate and complete form or
certificate that is required by any taxing authority including, if applicable,
two new accurate and complete
<PAGE>
original signed copies of Internal Revenue Service Form 4224 or 1001, or Form
W-8 and a Section 4.04(b)(ii) Certificate, as the case may be, and such other
forms as may be required in order to confirm or establish the entitlement of
such Guaranteed Creditor to a continued exemption from or reduction in Home
Jurisdiction Withholding Taxes, if any, with respect to payments under this
Guaranty, or it shall immediately notify the Guarantor and the Administrative
Agent of its inability to deliver any such Form or Certificate, in which case
such Guaranteed Creditor shall not be required to deliver any such Form or
Certificate pursuant to this Section 5(b). Notwithstanding anything to the
contrary contained in Section 5(a), but subject to Section 12.04(b) of the
Credit Agreement and the immediately succeeding sentence, (x) the Guarantor
shall be entitled, to the extent it is required to do so by law, to deduct or
withhold income or similar taxes from interest, fees or other amounts payable
hereunder for the account of any Guaranteed Creditor to the extent that such
Guaranteed Creditor has not provided to the Guarantor the form or certificate
that establishes a complete exemption from, or entitlement to a reduction of,
such deduction or withholding and (y) the Guarantor shall not be obligated
pursuant to Section 5(a) to gross-up payments to be made to a Guaranteed
Creditor in respect of income or similar taxes imposed if (I) such Guaranteed
Creditor has not provided to the Guarantor the form or certificate required to
be provided to the Guarantor pursuant to this Section 5(b) or (II) in the case
of a payment, other than interest, to a Guaranteed Creditor described in clause
(ii) above, to the extent that the form or certificate does not establish a
complete exemption from, or entitlement to a reduction of, withholding of such
taxes. Notwithstanding anything to the contrary contained in the preceding
sentence or elsewhere in this Section 5 and except as set forth in Section
12.04(b) of the Credit Agreement, the Guarantor agrees to pay additional amounts
and to indemnify each Guaranteed Creditor in the manner set forth in Section
5(a) (without regard to the identity of the jurisdiction requiring the deduction
or withholding) in respect of any amounts deducted or withheld by it as
described in the immediately preceding sentence as a result of any changes after
the Effective Date or, in the case of a Guaranteed Creditor that is an assignee
or transferee of an interest under the Credit Agreement pursuant to Sections
1.13 or 12.04(b) of the Credit Agreement (unless the respective Guaranteed
Creditor was already a Guaranteed Creditor immediately prior to such assignment
or transfer), after the date of such assignment or transfer to such Guaranteed
Creditor, in any applicable law, treaty, governmental rule, regulation,
guideline or order, or in the interpretation thereof, relating to the deducting
or withholding of income or similar Taxes. "Home Jurisdiction Withholding Taxes"
means, in the case of the Guarantor, withholding taxes imposed by the
jurisdiction or political subdivision or taxing authority thereof or therein in
which such Guarantor is organized.
(c) Without prejudice to the survival of any other agreement of the
Guarantor hereunder or under any other Credit Document, the agreements and
obligations of the Guarantor contained in this Section 5 and in Section 12 shall
survive the payment in full of the Guaranteed Obligations and all other amounts
payable under this Guaranty.
Section 6. Representations and Warranties. The Guarantor hereby represents
------------------------------
and warrants as follows:
<PAGE>
(a) The Guarantor (i) is a duly organized and validly existing
corporation under the laws of the jurisdiction of its organization, (ii) has the
corporate power and authority (including, without limitation, all governmental
licenses, permits and other approvals) to own or lease and operate its
properties and assets and to transact the business in which it is engaged and
presently proposes to engage and (iii) is duly qualified and is authorized to do
business and, if applicable, is in good standing in all jurisdictions where it
is required to be so qualified or licensed except where a failure to be so
qualified or authorized to do business would not have a Material Adverse Effect.
(b) The Guarantor has the corporate power and authority to execute,
deliver and carry out the terms and provisions of this Guaranty and has taken
all necessary corporate action to authorize the execution, delivery and
performance of this Guaranty. The Guarantor has duly executed and delivered this
Guaranty and this Guaranty constitutes the legal, valid and binding obligation
of the Guarantor enforceable against the Guarantor in accordance with its terms,
except to the extent that the enforceability thereof may be limited by
applicable voidable preference, bankruptcy, insolvency, reorganization,
moratorium or similar laws generally affecting creditors' rights and by
equitable principles (regardless of whether enforcement is sought in equity or
at law).
(c) Neither the execution, delivery or performance by such Guarantor of
this Guaranty nor compliance by the Guarantor with the terms and provisions
thereof, nor the consummation of the transactions contemplated herein, (i) will
contravene any applicable provision of any law, statute, rule or regulation, or
any order, writ, injunction, judgment, award, determination or decree of any
court or governmental instrumentality, (ii) will conflict or be inconsistent
with or result in any breach of, any of the material terms, covenants,
conditions or provisions of, or constitute a default under, any material
contract, indenture, mortgage, deed of trust, lease, loan agreement, credit
agreement or any other material agreement or instrument to which the Guarantor
or any of its Subsidiaries is a party or by which it or any of its property or
assets are bound or to which it may be subject or (other than pursuant to the
Security Documents) result in the creation or imposition of (or the obligation
to create or impose) any Lien upon any of the property or assets of the
Guarantor or any of its Subsidiaries or (iii) will violate any provision of the
Articles of Association or equivalent constituent documents of the Guarantor.
The Guarantor is not in violation of any such law, statute, rule, regulation,
order, writ, judgment, injunction, decree, determination or award or in breach
of any such contract, loan agreement, indenture, mortgage, deed of trust, lease,
loan agreement, credit agreement or other material agreement or other
instrument, the violation or breach of which could have a Material Adverse
Effect.
(d) There are no actions, investigations, litigations, suits or
proceedings pending or, to the knowledge of the Guarantor or any of its
Subsidiaries, threatened, before any court, governmental agency or arbitrator
with respect to the Guarantor or any of its Subsidiaries (i) that could
reasonably be expected to have a Material Adverse Effect or (ii) purports to
affect the legality, validity or enforceability of this Guaranty.
<PAGE>
(e) Except as may have been obtained or made on or prior to the Initial
Borrowing Date (and which remain in full force and effect on the Initial
Borrowing Date), no order, consent, approval, license, authorization, or
validation of, or filing, recording or registration with, or exemption by, or
notice to, any foreign or domestic governmental or public body or authority or
any other third party, or any subdivision thereof, is required to authorize or
is required in connection with (i) the due execution, delivery, recordation,
filing and performance by the Guarantor of this Guaranty or for the consummation
of the transactions contemplated hereby or (ii) the legality, validity, binding
effect or enforceability of this Guaranty.
(f) There are no conditions precedent to the effectiveness of this
Guaranty that have not been satisfied or waived.
(g) The Guarantor has, independently and without reliance upon the
Administrative Agent or any other Guaranteed Creditor and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Guaranty, and the Guarantor has
established adequate means of obtaining from any other Credit Parties on a
continuing basis information pertaining to, and is now and on a continuing basis
will be completely familiar with, the financial condition, operations,
properties and prospects of such other Credit Parties.
(h) The Guarantor is, and, after giving effect to the transactions
contemplated hereby, will be, Solvent.
Section 7. Covenants. The Guarantor covenants and agrees that, so long as
---------
any part of the Guaranteed Obligations shall remain unpaid (other than indemnity
and similar contingent obligations in respect of which no claim has been made
and no amount remains outstanding), any Letter of Credit shall be outstanding or
any Bank shall have any Commitment, unless the Required Banks shall otherwise
consent in writing, as follows:
(a) Payment of Taxes. The Guarantor will pay and discharge all taxes,
----------------
assessments and governmental charges or levies imposed upon it or upon its
income or profits, or upon any properties belonging to it, when due and all
lawful claims for sums that have become due and payable when due which, if
unpaid, might become a Lien not otherwise permitted under Section 8.03(a) of the
Credit Agreement or charge upon any properties of the Guarantor; provided that
--------
the Guarantor shall not be required to pay any such tax, assessment, charge,
levy or claim which is being contested in good faith and by proper proceedings
if it has maintained adequate reserves with respect thereto in accordance with
GAAP.
(b) Corporate Franchises. The Guarantor will do, or cause to be done, all
--------------------
things necessary to preserve and keep in full force and effect its existence,
legal structure, legal name, rights (charter or statutory), permits, licenses,
approvals, privileges, franchises and authority to do business.
<PAGE>
(c) Compliance with Statutes, Etc. The Guarantor will comply with all
------------------------------
applicable laws, statutes, regulations, rules and orders of, and all applicable
restrictions imposed by, all governmental bodies, domestic or foreign, in
respect of the conduct of its business and the ownership of its property
(including applicable statutes, regulations, orders and restrictions relating to
environmental standards and controls) except where such noncompliance would not
have a Material Adverse Effect.
Section 8. Amendments, Etc. No amendment or waiver of any provision of this
----------------
Guaranty and no consent to any departure by the Guarantor therefrom shall in any
event be effective unless the same shall be in writing and signed by the
Administrative Agent (on behalf of the Banks or the Required Banks, as the case
may be) and the Guarantor, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given;
provided, however, that no amendment, waiver or consent shall, unless in writing
- -------- -------
and signed by all of the Guaranteed Creditors (other than any Bank that is, at
such time, a Defaulting Bank), (a) reduce or limit the liability of the
Guarantor hereunder or release the Guarantor hereunder, (b) postpone any date
fixed for payment hereunder or (c) change the number of Guaranteed Creditors
required to take any action hereunder.
Section 9. Notices, Etc. All notices and other communications provided for
-------------
hereunder shall be in writing (including telegraphic, telecopy or telex
communication) and mailed, telegraphed, telecopied, telexed or delivered to it,
if to the Guarantor, addressed to it at the address set forth below the
Guarantor's name on the signature pages hereof, if to the Administrative Agent
or any Bank, at its address specified in the Credit Agreement, or as to any
party at such other address as shall be designated by such party in a written
notice to each other party. All such notices and other communications shall,
when mailed, telegraphed, telecopied or telexed, be effective when deposited in
the mails, delivered to the telegraph company, transmitted by telecopier or
confirmed by telex answerback, respectively. Delivery by telecopier of an
executed counterpart of any amendment or waiver of any provision of this
Guaranty shall be effective as delivery of a manually executed counterpart
thereof.
Section 10. No Waiver; Remedies. No failure on the part of the
-------------------
Administrative Agent or any other Guaranteed Creditor to exercise, and no delay
in exercising, any right hereunder shall operate as a waiver thereof; nor shall
any single or partial exercise of any right hereunder preclude any other or
further exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
Section 11. Right of Set-off. Upon (a) the occurrence and during the
----------------
continuance of any Event of Default and (b) the making of the request or the
granting of the consent specified by Section 9 of the Credit Agreement to
authorize the Administrative Agent to declare the Notes due and payable pursuant
to the provisions of such Section 9, each Guaranteed Creditor and each of its
respective Affiliates is hereby authorized at any time and from time to time, to
the fullest extent permitted by law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other indebtedness at any time owing by such Guaranteed Creditor or such
Affiliate to or for the
<PAGE>
credit or the account of the Guarantor against any and all of the Obligations of
such Guarantor now or hereafter existing under this Guaranty, whether or not
such Guaranteed Creditor shall have made any demand under this Guaranty and
although such Obligations may be unmatured. Each Guaranteed Creditor agrees
promptly to notify such Guarantor after any such set-off and application;
provided, however, that the failure to give such notice shall not affect the
- -------- -------
validity of such set-off and application. The rights of each Guaranteed Creditor
and its respective Affiliates under this Section are in addition to other rights
and remedies (including, without limitation, other rights of set-off) that such
Guaranteed Creditor and its respective Affiliates may have.
Section 12. Indemnification. Without limitation on any other Obligations of
---------------
the Guarantor or remedies of the Guaranteed Creditors under this Guaranty, the
Guarantor shall, to the fullest extent permitted by law, indemnify, defend and
save and hold harmless each Guaranteed Creditor from and against, and shall pay
on demand, any and all losses, liabilities, damages, costs, expenses and charges
(including the fees and disbursements of such Guaranteed Creditor's legal
counsel) suffered or incurred by such Guaranteed Creditor as a result of any
failure of any Guaranteed Obligations to be the legal, valid and binding
obligations of any Relevant Credit Party enforceable against such Relevant
Credit Party in accordance with their terms.
Section 13. Continuing Guaranty; Assignments under the Credit Agreement.
-----------------------------------------------------------
This Guaranty is a continuing guaranty and shall (a) remain in full force and
effect until the latest of (i) the payment in full in cash of the Guaranteed
Obligations and all other amounts payable under this Guaranty and (ii) Maturity
Date, (b) be binding upon the Guarantor, its successors and assigns and (c)
inure to the benefit of and be enforceable by the Administrative Agent and the
other Guaranteed Creditors and their successors, transferees and assigns.
Without limiting the generality of the foregoing clause (c), any Guaranteed
Creditor may assign or otherwise transfer all or any portion of its rights under
the Credit Agreement (including, without limitation, all or any portion of its
Commitments, the Loans owing to it and the Note or Notes held by it) to any
other Person, and such other Person shall thereupon become vested with all the
obligations and benefits in respect thereof granted to such Guaranteed Creditor
herein or otherwise, in each case as and to the extent provided in Section
12.04(b) of the Credit Agreement. The Guarantor shall not have the right to
assign its rights hereunder or any interest herein without the prior written
consent of the Guaranteed Creditors.
Section 14. Governing Law; Jurisdiction; Waiver of Jury Trial, Etc. (a)
-------------------------------------------------------
This Guaranty shall be governed by, and construed in accordance with, the laws
of the State of New York.
(b) Any legal action or proceeding with respect to this Guaranty or any
other Credit Document may be brought in the courts of the State of New York or
of the United States for the Southern District of New York, and, by execution
and delivery of this Agreement, the Guarantor hereby irrevocably accepts for
itself and in respect of its property, generally and unconditionally, the
jurisdiction of the aforesaid courts. The Guarantor hereby
<PAGE>
further irrevocably waives any claim that any such courts lack jurisdiction over
the Guarantor, and agrees not to plead or claim, in any legal action or
proceeding with respect to this Guaranty or any other Credit Document brought in
any of the aforesaid courts, that any such court lacks jurisdiction over the
Guarantor. The Guarantor agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law. Solely for the
purposes of this Agreement, to the full extent permitted by law the Guarantor
hereby appoints, as renewable invoices are paid in due course, CT Corporation
System with an office on the date hereof at 1633 Broadway, New York, New York
10019 (the "Process Agent"), as its agent to receive on behalf of the Guarantor
and its property service of copies of the summons and complaint and any other
process which may be served in any such action or proceeding. The Guarantor
irrevocably consents to the service of process in any such action or proceeding
by the mailing of copies thereof by registered or certified mail, postage
prepaid, to the Process Agent, such service to become effective 30 days after
such mailing. The Guarantor hereby irrevocably waives any objection to such
service of process and further irrevocably waives and agrees not to plead or
claim in any action or proceeding commenced hereunder or under any other Credit
Document that service of process was in any way invalid or ineffective. Nothing
herein shall affect the right of any Guaranteed Creditor to serve process in any
other manner permitted by law or to commence legal proceedings or otherwise
proceed against the Guarantor in any other jurisdiction.
(c) The Guarantor hereby irrevocably waives any objection which it may
now or hereafter have to the laying of venue of any of the aforesaid actions or
proceedings arising out of or in connection with this Agreement or any other
Credit Document brought in the courts referred to in clause (b) above and hereby
further irrevocably waives and agrees not to plead or claim in any such court
that any such action or proceeding brought in any such court has been brought in
an inconvenient forum.
(d) To the extent that the Guarantor has or hereafter may acquire any
immunity from jurisdiction of any court or from any legal process (whether
through service or notice, attachment prior to judgment, attachment in aid of
execution, execution or otherwise) with respect to itself or its property, such
Guarantor to the extent permitted by law hereby irrevocably waives such immunity
in respect of its obligations under this Agreement and, without limiting the
generality of the foregoing, agrees that the waivers set forth in this
subsection (d) shall have the fullest scope permitted under the United States
Foreign Sovereign Immunities Act of 1976, as amended, and are intended to be
irrevocable for purposes of such Act.
(e) If for the purposes of obtaining judgment in any court it is
necessary to convert a sum due hereunder in any currency (the "Original
Currency") into another currency (the "Other Currency") the parties hereto
agree, to the fullest extent that they may effectively do so, that the rate of
exchange used shall be that at which in accordance with normal banking
procedures the Administrative Agent could purchase the Original Currency with
the Other Currency at 11:00 A.M. on the second Business Day preceding that on
which final judgment is given.
<PAGE>
(f) The obligation of the Guarantor in respect to any sum due in the
Original Currency from it to any Guaranteed Creditor hereunder or held by such
Guaranteed Creditor shall, notwithstanding any judgment in any Other Currency,
be discharged only to the extent that, on the Business Day following receipt by
such Guaranteed Creditor of any sum adjudged to be so due in such Other
Currency, such Guaranteed Creditor may, in accordance with normal banking
procedures, purchase the Original Currency with such Other Currency; if the
amount of the Original Currency so purchased is less than the sum originally due
to such Guaranteed Creditor in the Original Currency, the Guarantor agrees, as a
separate obligation and notwithstanding any such judgment, to indemnify such
Guaranteed Creditor against such loss, and if the amount of the Original
Currency so purchased exceeds the sum originally due to any Guaranteed Creditor
in the Original Currency, such Guaranteed Creditor agrees to remit to the
Guarantor such excess.
(g) The Guarantor hereby irrevocably waives all right to trial by jury in
any action, proceeding or counterclaim (whether based on contract, tort or
otherwise) arising out of or relating to any of this Agreement or any of the
other Credit Documents, the transactions contemplated thereby or the actions of
the Administrative Agent or any other Guaranteed Creditor in the negotiation,
administration, performance or enforcement thereof.
IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to be duly
executed and delivered by its officer thereunto duly authorized as of the date
first above written.
Address: MODUS MEDIA INTERNATIONAL
________________ KABUSHIKI KAISHA
________________
By
Attention: Name:
Title:
Acknowledged and Agreed:
NATIONSBANK OF TEXAS, N.A.
as Administrative Agent
By_____________________________
Name:
Title:
<PAGE>
MODUS MEDIA INTERNATIONAL
Borrowing Base Certificate
As of November 30, 1997
(Calculated on 12/15/97)
(U.S.$000s)
<TABLE>
<CAPTION>
U.S. Japan Singapore Scotland Total
<S> <C> <C> <C> <C> <C>
Accounts Receivable
Eligible A/R -- -- -- -- --
Advance Rate 85% 85% 85% 85% 85%
A/R Availability - sub total -- -- -- -- --
Inventory
Total Inventory 15,626 -- -- -- 15,626
- ---------------
Eligible Inventory 13,288 -- -- -- 13,288
Advance Rate 60% 60% 60% 60% 60%
Inventory Availability 7,937 -- -- -- 7,937
Fixed Assets
Eligible Fixed Assets (OLV) N/A N/A
Advance Rate 75% 75% 75%
Fixed Asset Availability 5,000 5,000
Other Assets
CST Guarantee 10,000 10,000
Total Availability 12,937 10,000 -- -- 22,937
</TABLE>
CITICORP North America
399 Park Avenue
New York, NY 10043
Attn.:
Pursuant to the provisions of the credit agreement, the undersigned officer of
Modus Media International (the "Company") certifies the truth, accuracy and
completeness of the attached information with respect to the accounts receivable
and inventory of the company as of close of business on 11/30/97.
<PAGE>
MODUS MEDIA INTERNATIONAL
Borrowing Base Certificate
As of November 30, 1997
(U.S.$000s)
<TABLE>
<CAPTION>
U.S. Japan Singapore Scotland Total
<S> <C> <C> <C> <C> <C>
Accounts Receivable
Beginning A/R Balance:
Plus: Sales
Minus: Cash Collection
Plus/Minus: Net Debits/Credits
Ending A/R Balance
Balance Sheet --
Gross Accounts Receivable -- --
Less: Past Due & Ineligibles --
- -----------------------------
Past Dues greater than 60 Days --
Credit in Past Due --
Total Past Dues --
Ineligibles --
- -----------
Chargeback --
Contras --
Cross-age (50%) --
Intercompany A/R --
Non Trade A/R --
Unbilled A/R --
Other (estimated 5%) -- -- -- --
Total Ineligible -- -- -- --
Total Past Dues & Ineligibles -- -- -- --
Eligible A/R -- -- -- --
Advance Rate 85% 85% 85% 85% 85%
A/R Availability - Sub Total -- -- -- --
</TABLE>
<PAGE>
MODUS MEDIA INTERNATIONAL
Borrowing Base Certificate
As of November 30, 1997
(Calculated on 12/15/97)
(U.S.$000s)
<TABLE>
<CAPTION>
U.S. Japan Singapore Scotland Total
<S> <C> <C> <C> <C> <C>
Inventory
Balance Sheet: Net 24,612 24,612
Gross 15,626 15,626
-----
Less: Ineligible --
Unrealized Profit --
Inventory in Transit --
Inventory @ Third Party --
Transfer Pricing 1,147
Aged Inventory greater
than Six Months -- --
Obsolete & Slow Moving 1,251 1,251
Other: Not Pledgable -- --
Retention of Titles --
Total Ineligible 2,398 2,398
Eligible Inventory 13,228 13,228
Advance Rate 60% 60% 60% 60% 60%
Inventory Availability 7,937 -- -- -- 7,937
</TABLE>
<PAGE>
MODUS MEDIA INTERNATIONAL
Borrowing Base Certificate
As of September 30, 1997
Calculated by NationsBank
- -------------------------
(U.S.$000s)
U.S.
Accounts Receivable
Beginning A/R Balance:
Plus: Sales
Minus: Cash Collection
Plus/Minus: Net Debits/Credits
Ending A/R Balance
<TABLE>
<CAPTION>
Amount % Aging Difference
<S> <C> <C> <C> <C>
Gross Accounts Receivable 53,036 100.0% 66,494 13,458 Due to TLC write offs
Less: Past Dues & Ineligibles
- ------------------------------
Past Dues greater than 60 Days 8,301 15.7%
Credit in Past Due 260 0.5%
Total Past Dues 8,561 16.1%
Ineligibles
- -----------
Chargeback 0.0%
Contras 765 1.4%
Cross-age (50%) 51 0.1%
Intercompany A/R 0.0%
Amts. Exceeding Customer Limit 0.0%
Unbilled A/R 0.0%
Other: Foreign 1,474 2.8%
Total Ineligible 2,290 4.3%
Total Past Dues & Ineligibles 10,851 20.5%
Eligible A/R 42,185 79.5%
Advance Rate 85%
A/R Availability - Sub Total 35,857 67.6%
Dilution 5.9% With TLC
2.9% Without TLC
Turnover 69 days
</TABLE>
<PAGE>
EXHIBIT H
FORM OF BORROWING BASE CERTIFICATE
MODUS MEDIA INTERNATIONAL
Borrowing Base Certificate
As of November 30, 1997
(Calculated on 12/15/97)
(U.S.$000s)
<TABLE>
<CAPTION>
U.S. Japan Singapore Scotland Total
<S> <C> <C> <C> <C> <C>
Accounts Receivable
Eligible A/R -- -- -- -- --
Advance Rate 85% 85% 85% 85% 85%
A/R Availability - sub total -- -- -- -- --
Inventory
Total Inventory 15,626 -- -- -- 15,626
- ---------------
Eligible Inventory 13,288 -- -- -- 13,288
Advance Rate 60% 60% 60% 60% 60%
Inventory Availability 7,937 -- -- -- 7,937
Fixed Assets
Eligible Fixed Assets (OLV) N/A N/A
Advance Rate 75% 75% 75%
Fixed Asset Availability 5,000 5,000
Other Assets
CST Guarantee 10,000 10,000
Total Availability 12,937 10,000 -- -- 22,937
</TABLE>
CITICORP North America
399 Park Avenue
New York, NY 10043
Attn.:
Pursuant to the provisions of the credit agreement, the undersigned officer of
Modus Media International (the "Company") certifies the truth, accuracy and
completeness of the attached information with respect to the accounts receivable
and inventory of the company as of close of business on 11/30/97.
<PAGE>
EXHIBIT I
FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT
Date: _________ ___, ____
Reference is made to the Credit Agreement dated as of December 15, 1997,
among the Borrowers, the banks from time to time party thereto, NationsBanc
Montgomery Securities, Inc., as Arranger and Syndication Agent, Citicorp USA,
Inc., as Multi-Currency Agent, Documentation Agent and Collateral Agent, and
NationsBank of Texas, N.A., as Administrative Agent (as amended, supplemented or
otherwise modified from time to time, the "Credit Agreement"). Unless defined in
Annex I attached hereto, terms defined in the Credit Agreement are used herein
as therein defined. ____________ (the "Assignor") and ____________ (the
"Assignee") hereby agree as follows:
1. The Assignor hereby sells and assigns to the Assignee without recourse
and without representation or warranty (other than as expressly provided
herein), and the Assignee hereby purchases and assumes from the Assignor, that
interest in and to all of the Assignor's rights and obligations under the Credit
Agreement as of the date hereof which represents the percentage interest
specified in Item 2 of Annex I (the "Assigned Share") of all of the outstanding
rights and obligations under the Credit Agreement relating to the facility
listed in Item 2 of Annex 1, including, without limitation, all rights and
obligations with respect to the Assigned Share of the Total Loan Commitment and
of any outstanding Term Loans, Revolving Loans, Swingline Loans and Letters of
Credit.
2. The Assignor (i) represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any liens or security interests; (ii) makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with the
Credit Agreement or the other Credit Documents or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of the Credit
Agreement or the other Credit Documents or any other instrument or document
furnished pursuant thereto; (iii) makes no representation or warranty and
assumes no responsibility with respect to the financial condition of the
Borrowers or any of their Subsidiaries or the performance or observance by the
Borrowers or any of their Subsidiaries of any of their respective obligations
under the Credit Agreement or the other Credit Documents or any other instrument
or document furnished pursuant thereto; and (iv) attaches the Note or Notes held
by the Assignor and requests that the Agent exchange such Note or Notes for a
new Note or Notes payable to the order of the Assignee in an amount equal to the
Commitments assumed by the Assignee pursuant hereto or new Notes payable to the
order of the Assignee in an amount equal to the Commitments assumed by the
Assignee pursuant hereto and the Assignor in an amount equal to the Commitments
retained by the Assignor under the Credit Agreement, respectively, as specified
on Annex I hereto.
<PAGE>
3. The Assignee (i) confirms that it has received a copy of the Credit
Agreement and the other Credit Documents, together with copies of the financial
statements referred to therein and such other documents and information as it
has deemed appropriate to make its own credit analysis and decision to enter
into this Assignment and Assumption Agreement; (ii) agrees that it will,
independently and without reliance upon the Administrative Agent, the Assignor
or any other Bank, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under the Credit Agreement; (iii) confirms that it is an
Eligible Transferee; (iv) appoints and authorizes the Administrative Agent and
the Collateral Agent to take such action as agent on its behalf and to exercise
such powers under the Credit Agreement and the other Credit Documents as are
delegated to the Administrative Agent and the Collateral Agent by the terms
thereof, together with such powers as are reasonably incidental thereto; [and]
(v) agrees that it will perform all of the obligations which by the terms of the
Credit Agreement are required to be performed by it as a Bank in accordance with
such terms[; and (vi) attaches the forms prescribed by the Internal Revenue
Service of the United States certifying as to the Assignee's status for purposes
of determining exemption from United States withholding taxes with respect to
all payments to be made to the Assignee under the Credit Agreement or such other
documents as are necessary to indicate that all such payments are subject to
such taxes at a rate reduced by an applicable tax treaty]./1/
4. Following the execution of this Assignment and Assumption Agreement by
the Assignor and the Assignee, an executed original hereof (together with all
attachments) will be delivered to the Administrative Agent. The effective date
of this Assignment and Assumption Agreement shall be the date on which (a) it is
executed by the Assignor and the Assignee, (b) to the extent required by the
Credit Agreement, the consent of the Administrative Agent and the Borrowers is
received, (c) the Administrative Agent receives the assignment fee referred to
in Section 12.04(b) of the Credit Agreement and (d) the registration of the
transfer on the Register as provided in Section 7.12 of the Credit Agreement is
made, or such later date as otherwise specified in Item 3 of Annex I (such date
of effectiveness being the "Settlement Date").
5. Upon the delivery of a fully executed original hereof to the
Administrative Agent, as of the Settlement Date, (i) the Assignee shall be a
party to the Credit Agreement and, to the extent provided in this Assignment and
Assumption Agreement, have the rights and obligations of a Bank thereunder and
under the other Credit Documents and (ii) the Assignor shall, to the extent
provided in this Assignment and Assumption Agreement, relinquish its rights and
be released from its obligations under the Credit Agreement and the other Credit
Documents.
6. It is agreed that upon the effectiveness hereof, the Assignee shall be
entitled to (x) all interest on the Assigned Share of the Loans at the rates
specified in Item 4 of Annex I, (y) all Commitment Fees (if applicable) on the
Assigned Share of the respective Commitments at the rate specified in Item 5 of
Annex I and (z) all Letter of Credit Fees (if applicable) on the Assignee's
participation in all Letters of Credit at the rate specified in Item 6 of Annex
I, which, in each case, accrue on and after the Settlement Date, such interest
and, if applicable, Commitment Fees and Letter of Credit Fees, to be paid by the
Administrative Agent directly to the Assignee. It is further
- -------------------------
1 Include if the Assignee is organized under the laws of a jurisdiction
outside the United States.
<PAGE>
3
agreed that all payments of principal made on the Assigned Share of the Loans
which occur on and after the Settlement Date will be paid directly by the
Administrative Agent to the Assignee. Upon the Settlement Date, the Assignee
shall pay to the Assignor an amount specified by the Assignor in writing which
represents the Assigned Share of the principal amount of the respective Loans
made by the Assignor pursuant to the Credit Agreement which are outstanding on
the Settlement Date, net of any closing costs, and which are being assigned
hereunder. The Assignor and the Assignee shall make all appropriate adjustments
in payments under the Credit Agreement for periods prior to the Settlement Date
directly between themselves.
7. THIS ASSIGNMENT AND ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
8. This Assignment and Acceptance may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement. Delivery of an executed
counterpart of Annex I to this Assignment and Acceptance by telecopier shall be
effective as delivery of a manually executed counterpart of this Assignment and
Acceptance.
<PAGE>
4
IN WITNESS WHEREOF, the parties hereto have caused this Assignment and
Assumption Agreement to be executed by their respective officers thereunto duly
authorized, as of the date first above written, such execution also being made
on Annex I hereto.
[NAME OF ASSIGNOR],
as Assignor
By___________________________
Name:
Title:
[NAME OF ASSIGNEE],
as Assignee
By___________________________
Name:
Title:
[Acknowledged and Agreed:
NATIONSBANK OF TEXAS, N.A.,
as Administrative Agent
By_________________________
Name:
Title:
MODUS MEDIA INTERNATIONAL, INC.
By_________________________
Name:
Title:]/2/
- --------------------
2 The consent of the Administrative Agent and the Borrowers is required only
in connection
<PAGE>
- --------------------------------------------------------------------------------
with assignments pursuant to clause (y) of Section 12.04(b)
of the Credit Agreement (which consent shall not be unreasonably withheld
or delayed).
<PAGE>
ANNEX I TO ASSIGNMENT
AND ASSUMPTION AGREEMENT
ANNEX I FOR ASSIGNMENT AND ASSUMPTION AGREEMENT
1. Date of Assignment and Assumption Agreement:
2. Amounts (as of the date set forth in item #1 above):
Total Revolving
Loan Commitment
---------------
a. Aggregate Amount for all Banks $_________
b. Assigned Share _________%
c. Amount of Assigned Share $_________
3. Settlement Date:
4. Rate of Interest
to the Assignee: As set forth in Section 1.08 of the Credit Agreement
(unless otherwise agreed to by the Assignor and the
Assignee)
5. Commitment
Fee Rate: As set forth in Section 3.01 of the Credit Agreement
(unless otherwise agreed to by the Assignor and the
Assignee)
- -------------------
3 The Borrowers and the Administrative Agent shall direct the entire amount
of the interest to the Assignee at the rate set forth in Section 1.08 of
the Credit Agreement, with the Assignor and Assignee effecting any agreed
upon sharing of interest through payments by the Assignee to the Assignor.
4 The Borrowers and the Administrative Agent shall direct the entire amount
of the interest
<PAGE>
6. Letter of Credit
- --------------------------------------------------------------------------------
to the Assignee at the rate set forth in Section 3.01(a) of
the Credit Agreement, with the Assignor and Assignee effecting any agreed
upon sharing of interest through payments by the Assignee to the Assignor.
<PAGE>
4
Fee Rate: As set forth in Section 3.01(b) of the Credit
Agreement (unless otherwise agreed to by the
Assignor and the Assignee)5
Effective Date (if other than date of acceptance by Agent):
6
________ __, 199_
[NAME OF ASSIGNOR], as Assignor
By__________________________________
Name:
Title:
Dated: _________ __, 199_
[NAME OF ASSIGNEE], as Assignee
By__________________________________
Name:
- --------------------------
5 The Borrowers and the Administrative Agent shall direct the entire amount
of the interest to the Assignee at the rate set forth in Section 3.01(b) of
the Credit Agreement, with the Assignor and Assignee effecting any agreed
upon sharing of interest through payments by the Assignee to the Assignor.
6 This date should be no earlier than five Business Days after the delivery
of this Assignment and Acceptance to the Agent.
5
Dated: , 199_
Domestic Lending Office:
Eurodollar Lending Office:
<PAGE>
EXHIBIT J-1
FORM OF INTERCOMPANY PROMISSORY NOTE
[Local Currency]___________
________ ___, ____
FOR VALUE RECEIVED, ______________________, a ____________
corporation (the "Payor"), HEREBY PROMISES TO PAY ON DEMAND to the order of
____________, or its registered assigns (the "Payee"), [LOCAL CURRENCY IN WORDS]
or such lesser principal amount as may from time to time be outstanding
hereunder and be owing by the Payor to the Payee in lawful money of the
[Applicable Jurisdiction] in immediately available funds, at such location in
the [Applicable Jurisdiction] as the Payee shall from time to time designate.
1. The Payor promises also to pay interest on the unpaid
principal amount from time to time outstanding hereunder in like money at said
office from the date hereof until paid at such rate per annum as shall be agreed
upon from time to time by the Payor and Payee.
2. This Intercompany Promissory Note is one of the
Intercompany Notes referred to in the Credit Agreement dated as of ________ __,
1997, among Modus Media International, Inc., a Delaware corporation ("MMI"),
Modus Media International Limited, an English company ("MMI-UK"), Modus Media
International Ireland (Holdings), an Irish company, ("Ireland Holdings"), Modus
Media International Pte. Ltd., a Singapore company ("MMI-Singapore"), Modus
Media International Pty. Ltd., an Australian company ("MMI-Australia") and Modus
Media International B.V., a Netherlands company ("MMI-Netherlands" and, together
with MMI-UK, Ireland Holdings, MMI-Singapore, MMI-Australia and MMI-Netherlands,
the "Local Currency Borrowers"; MMI and the Local Currency Borrowers are
referred to herein collectively as the "Borrowers"), Modus Media International
Holdings, Inc., the lenders from time to time party thereto, NationsBanc
Montgomery Securities, LLC, as Arranger and Syndication Agent, Citibank, N.A.,
as Multi-Currency Agent, Documentation Agent and Collateral Agent, and
NationsBank, N.A., successor in interest by merger with NationsBank of Texas,
N.A., as Administrative Agent (as amended, supplemented or otherwise modified
from time to time, the "Credit Agreement"; terms defined in the Credit Agreement
and not otherwise defined herein being used herein as therein defined) and is
subject to the terms thereof, and shall be pledged by the Payee pursuant to the
Security Agreement. The Payor hereby acknowledges and agrees that the Collateral
Agent pursuant to
<PAGE>
2
and as defined in the Security Agreement may exercise all rights provided
therein with respect to this Intercompany Promissory Note.
3. The indebtedness evidenced by this Intercompany
Promissory Note (together with any interest or other amounts payable hereunder
or in connection herewith, the "Subordinated Indebtedness") is, and shall be,
subordinate and subject in right of payment, to the extent and in the manner
hereinafter set forth and in accordance with the provisions of Section 8.14(i)
of the Credit Agreement, as amended by that certain Seventh Amendment to Credit
Agreement and Waiver dated as of June , 1999, to the prior payment in full in
cash of all obligations of the Payor now or hereafter existing under or in
respect of:
(a) the Credit Documents, whether for principal, interest
(including, without limitation, interest accruing after the filing of a
petition initiating any proceeding referred to in paragraph 7 below,
whether or not such interest accrues after the filing of such petition
for purposes of the U.S. Federal Bankruptcy Code or is an allowed claim
in such proceeding), fees, commissions, expenses or otherwise; and
(b) any and all amendments, modifications, extensions,
refinancings, renewals and refundings of the obligations referred to in
clause (a) of this paragraph 3 that are made in accordance with the
applicable terms thereof (all such obligations under clauses (a) and
(b) of this paragraph being, collectively, the "Senior Indebtedness").
For the purposes of the provisions hereof, the Senior Indebtedness shall not be
deemed to have been paid in full until the date of payment in full in cash of
the aggregate principal amount of all outstanding Loans and all interest accrued
thereon, all fees and expenses then due and payable in connection therewith and
all other Senior Indebtedness then due and payable.
4. So long as the Senior Indebtedness shall not have been
paid in full, the Payee shall not (a) ask, demand, sue for, take or receive from
the Payor, directly or indirectly, in cash or other property or by setoff or in
any manner (including, without limitation, from or by way of collateral),
payment of all or any of the Subordinated Indebtedness, except as and to the
extent expressly permitted hereunder and under Section 8.14 of the Credit
Agreement, as amended by that certain Seventh Amendment to Credit Agreement and
Waiver dated as of June , 1999, or (b) commence, or join with any creditor other
than the Administrative Agent or any Bank in commencing, or assist the Payor in
commencing, any proceeding referred to in paragraph 7 below.
5. Upon the occurrence and during the continuance of a
Default, no payment or distribution of any assets of the Payor of any kind or
character (including, without limitation, any payment that may be payable by
reason of any other indebtedness of the Payor
<PAGE>
3
being subordinated to payment of the Subordinated Indebtedness) shall be made by
or on behalf of the Payor for or on account of any Subordinated Indebtedness,
and the Payee shall not ask, demand, sue for, take or receive from the Payor,
directly or indirectly, in cash or other property or by setoff or in any other
manner (including, without limitation, from or by way of collateral), payment of
all or any of the Subordinated Indebtedness, unless and until such Default shall
have been cured or waived in writing or such Senior Indebtedness shall have been
paid in full, after which the Payor may resume making any and all required
payments in respect of the Subordinated Indebtedness (including any missed
payments).
6. The Payee shall promptly notify the Administrative Agent
of the occurrence of any default under the Subordinated Indebtedness.
7. In the event of any dissolution, winding up,
liquidation, arrangement, reorganization, adjustment, protection, relief or
composition of the Payor or its debts, whether voluntary or involuntary, in any
bankruptcy, insolvency, arrangement, reorganization, receivership, relief or
other similar case or proceeding under any federal (whether U.S. or otherwise)
or state bankruptcy or similar law or upon an assignment for the benefit of
creditors or any other marshalling of the assets and liabilities of the Payor or
otherwise, the Banks shall be entitled to receive payment in full of all of the
Senior Indebtedness before the Payee is entitled to receive any payment or
distribution of any kind or character on account of all or any of the
Subordinated Indebtedness, and, to that end, any payment or distribution of any
kind (whether in cash, property or securities) that otherwise would be payable
or deliverable upon or with respect to the Subordinated Indebtedness in any such
dissolution, winding up, liquidation, case, proceeding, assignment, marshalling
or otherwise (including, without limitation, any payment that may be payable by
reason of any other indebtedness of the Payor being subordinated to payment of
the Subordinated Indebtedness) shall be paid or delivered directly to the
Administrative Agent for the account of the Banks for application (in the case
of cash) to, or as collateral (in the case of noncash property or securities)
for, the payment or prepayment of the Senior Indebtedness until all of the
Senior Indebtedness shall have been paid in full.
8. Subject to the provisions of Section 8.14(i) of the
Credit Agreement, as amended by that certain Seventh Amendment to Credit
Agreement and Waiver dated as of June , 1999, in the event that any Subordinated
Indebtedness is declared due and payable before its stated maturity, if any, the
Banks shall be entitled to receive payment in full of all amounts due or to
become due on or in respect of all of the Senior Indebtedness before the Payee
is entitled to receive any payment (including, without limitation, any payment
that may be payable by reason of the payment of any other indebtedness of the
Payor being subordinated to the payment of the Subordinated Indebtedness) by the
Payor on account of the Subordinated Indebtedness.
<PAGE>
4
9. Until such time as the Senior Indebtedness has been paid
in full, if any proceeding referred to in paragraph 7 above is commenced by or
against the Payor:
(a) the Administrative Agent is hereby irrevocably
authorized and empowered (in its own name or in the name of the Payee
or otherwise), but shall have no obligation, to demand, sue for,
collect and receive every payment or distribution referred to in
paragraph 7 above and give acquittance therefor, and to file claims and
proofs of claim and take such other action (including, without
limitation, voting the Subordinated Indebtedness or enforcing any lien
or any other security interest securing payment of the Subordinated
Indebtedness) as it may deem necessary or advisable for the exercise or
enforcement of any of the rights or interests of the Administrative
Agent hereunder; and
(b) the Payee shall duly and promptly take such action as
the Administrative Agent may request (i) to collect the Subordinated
Indebtedness for the account of the Banks and to file appropriate
claims or proofs of claim in respect of the Subordinated Indebtedness,
(ii) to execute and deliver to the Administrative Agent such powers of
attorney, assignments or other instruments as the Administrative Agent
may request in order to enable the Administrative Agent to enforce any
and all claims with respect to, and any liens and any other security
interests securing payment of, the Subordinated Indebtedness and (iii)
to collect and receive any and all payments or distributions that may
be payable or deliverable upon or with respect to the Subordinated
Indebtedness.
10. The Payor agrees that it will not make any payment upon
or with respect to any of the Subordinated Indebtedness, or take any other
action, in contravention of the provisions of this Intercompany Promissory Note.
11. All payments or distributions upon or with respect to
the Subordinated Indebtedness that are received by the Payee contrary to the
provisions of this Intercompany Promissory Note shall be received in trust for
the benefit of the Banks, shall be segregated from other property or funds held
by the Payee and shall be forthwith paid over or delivered directly to the
Administrative Agent for the account of the Banks in the same form as so
received (with any necessary endorsement) to be applied (in the case of cash)
to, or held as collateral (in the case of noncash property or securities) for,
the payment or prepayment of the Senior Indebtedness in accordance with the
terms of the Credit Documents.
12. The Administrative Agent is hereby authorized to demand
specific performance of these provisions, whether or not the Payor shall have
complied with any of the provisions hereof applicable to it, at any time when
the Payee shall have failed to comply with any of these provisions. The Payee
hereby irrevocably waives any defense based on the
<PAGE>
5
adequacy of a remedy at law, which might be asserted as a bar to such remedy of
specific performance.
13. Other than as and to the extent permitted in the Credit
Agreement, the Payee will not:
(a) (i) cancel or otherwise discharge any of the
Subordinated Indebtedness (except upon payment in full of the Senior
Indebtedness); (ii) convert or exchange any of the Subordinated
Indebtedness into or for any other indebtedness or equity interest; or
(iii) subordinate any of the Subordinated Indebtedness to any
indebtedness of the Payor other than the Senior Indebtedness;
(b) sell, assign, pledge, encumber or otherwise dispose of
any of the Subordinated Indebtedness other than the pledge of the
instruments evidencing the Subordinated Indebtedness to the Collateral
Agent for its benefit and the benefit of the Banks; or
(c) permit the terms of any of the Subordinated Indebtedness
to be changed in such a manner as could reasonably be expected to have
an adverse effect upon the rights or interests of the Administrative
Agent or any Bank hereunder.
14. No payment or distribution to the Administrative Agent
pursuant to the provisions hereof shall entitle the Payee to exercise any rights
of subrogation in respect thereof until the Senior Indebtedness shall have been
paid in full provided however that the Payee shall not be precluded from
exercising its rights to receive payment from the Payor hereunder until the
payment in full of the debt evidenced by this Intercompany Promissory Note.
15. In accordance with the terms and conditions of the
Credit Agreement, the holders of the Senior Indebtedness may, at any time and
from time to time, without any consent of or notice to the Payee or any other
holder of the Subordinated Indebtedness and without impairing or releasing the
obligations of the Payee hereunder:
(a) change the time, manner or place of payment of, or any
other term of, all or any of the Senior Indebtedness (including any
change in the rate of interest thereon) or any other obligations of the
Payor or the Borrowers under the Credit Documents, or amend or waive or
consent to any departure from any Credit Document, including, without
limitation, any increase in the Obligations resulting from the
extension of additional credit to the Borrowers or any of their
Subsidiaries or otherwise;
<PAGE>
6
(b) take, exchange, release or not perfect any collateral,
or take, release, amend, waive or consent to any departure from any
other guaranty, or all or any of the Senior Indebtedness;
(c) apply collateral, or proceeds thereof, to all or any of
the Obligations, or sell or otherwise dispose of any collateral for all
or any of the Obligations or any other Obligations of the Borrowers or
any of their Subsidiaries under the Credit Documents or any other
assets of the Borrowers or any of their Subsidiaries;
(d) consent to the change, restructuring or termination of
the corporate structure or existence of the Borrowers or any of their
Subsidiaries;
(e) fail to disclose to the Borrowers any information
relating to the financial condition, operations, properties or
prospects of the Borrowers now or in the future known to any holder of
Senior Indebtedness (the Payor waiving any duty on the part of each
such holder of Senior Indebtedness to disclose such information);
(f) exercise or refrain from exercising any rights against
the Payor or any other Person; and
(g) apply to the Senior Indebtedness any sums from time to
time received.
16. The foregoing provisions regarding subordination are and
are intended solely for the purpose of defining the relative rights of the
holders of the Senior Indebtedness, on the one hand, and the holders of the
Subordinated Indebtedness, on the other hand. Such provisions are for the
benefit of the holders of the Senior Indebtedness and shall inure to the benefit
of, and shall be enforceable by, the Administrative Agent and the Banks,
directly against the holders of the Subordinated Indebtedness, and no holder of
the Senior Indebtedness shall be prejudiced in its right to enforce
subordination of any of the Subordinated Indebtedness by any act or failure to
act by the Payor or anyone in custody of its property or assets. Nothing
contained in the foregoing provisions is intended to or shall impair, as between
the Payor and the holders of the Subordinated Indebtedness, the obligations of
the Payor to such holders.
17. The Payee is hereby authorized (but not required) to
record all loans and advances made by it to the Payor (all of which shall be
evidenced by this Intercompany Promissory Note), and all repayments or
prepayments thereof, in its books and records, such books and records
constituting prima facie evidence of the accuracy of the information contained
therein provided, however, that the failure of the Payee to so record such
information shall not affect the Payor's obligations hereunder.
<PAGE>
7
18. The undersigned agrees to pay on demand all reasonable
costs and expenses (including reasonable fees and expenses of counsel) incurred
by the Payee in enforcing this Intercompany Promissory Note.
19. The Payor hereby waives presentment for payment,
demands, notice of dishonor and protest of this Intercompany Promissory Note and
further agrees that none of the terms or provisions hereof may be waived,
altered, modified or amended, except as the Payee may consent in a writing duly
signed for and on their behalf.
20. No amendment, waiver or modification of this
Intercompany Promissory Note (including, without limitation, the subordination
provisions hereof), and no consent to any departure herefrom, shall adversely
affect the Administrative Agent or the Banks in any manner unless the same shall
be in writing and signed by the Administrative Agent and the Banks, and then
such waiver, modification or consent shall be effective only in the specific
instance and for the specific purpose for which given.
21. All rights and interests of the Administrative Agent and
the Banks hereunder, and all agreements and obligations of the Payee and Payor
under this Intercompany Promissory Note, shall remain in full force and effect
irrespective of:
(a) any lack of validity or enforceability of the
Credit Agreement, the Notes, and any other Credit Document or any other
agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment
of, or in any other term of, all or any of the Obligations of the
Borrowers under any Credit Document, or any other amendment or waiver
of or any consent to departure from the Credit Agreement or the Notes
or any other Credit Document, including, without limitation, any
increase in such Obligations resulting from the extension of additional
credit to the Borrowers or any of their Subsidiaries or otherwise;
(c) any taking, exchange, release or nonperfection of
any other collateral or any taking, release or amendment or waiver of
or consent to any departure from any guaranty, for all or any of the
Obligations of the Borrowers under any Credit Document;
(d) any manner of application of collateral, or
proceeds thereof, to all or any of the Obligations of the Borrowers
under any Credit Document, or any manner of sale or other disposition
of any collateral for all or any of such Obligations or any other
assets of the Borrowers or any of their Subsidiaries;
(e) any change, restructuring or termination of the
structure or existence of the Borrowers or any of their Subsidiaries;
(f) any other circumstances (including, without
limitation, any statute of limitations to the fullest extent permitted
by applicable law or any existence of or reliance on any representation
by the Administrative Agent or any Bank) which might otherwise
constitute a defense available to, or a discharge of, the Borrowers or
any other guarantor or surety or the Payee.
This Intercompany Promissory Note shall continue to be effective or be
reinstated, as the case may be, if at any time any payment of any of the
Obligations of the Borrowers under any Credit Document is rescinded or must
otherwise be returned by the Borrowers, the Administrative Agent or any Bank
upon the insolvency, bankruptcy or reorganization of the Payor, the Borrowers or
otherwise, all as though such payment had not been made.
<PAGE>
8
22. All notices and other communications provided for
hereunder shall be in writing (including telecopier, telegraphic, telex or cable
communication) and mailed, telecopied, telegraphed, telexed, cabled or delivered
to it, if to the Payee, the Payor, the Administrative Agent or any Bank, at its
address specified in the Credit Agreement, or as to each party, at such other
address as shall be designated by such party in a written notice to each other
party. All such notices and other communications shall, when mailed, telecopied,
telegraphed, telexed or cabled, be effective when deposited in the mails,
telecopied, delivered to the telegraph company, confirmed by telex answerback or
delivered to the cable company, respectively.
23. This Intercompany Promissory Note is a continuing
agreement and shall (i) remain in full force and effect until the payment in
full of the debt evidenced hereby, (ii) be binding upon the Payee, the Payor and
their respective successors and assigns, and (iii) inure to the benefit of, and
be enforceable by, the Administrative Agent, the Banks and their respective
successors, transferees and assigns. Without limiting the generality of the
foregoing clause (iii), any Bank may assign or otherwise transfer all or any
portion of its rights and obligations under the Credit Agreement (including,
without limitation, all or any portion of its Commitment, the Loan and any Notes
to be held by it) to any other person or entity shall thereupon become vested
with all the rights in respect thereof granted to such Bank herein or otherwise,
subject, however, to the provisions of Section 11 (concerning the Agent) of the
Credit Agreement.
24. No failure on the part of the Administrative Agent or
any Bank to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right hereunder preclude any other or further exercise thereof or the exercise
of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
25. No failure or delay on the part of the Payee in
exercising any of its rights, powers or privileges hereunder shall operate as a
waiver thereof, nor shall a single or partial exercise thereof preclude any
other or further exercise of any right, power or privilege. The remedies
provided herein are cumulative and are not exclusive of any remedies provided by
law.
26. All payments under this Intercompany Promissory Note
shall be made without counterclaim or deduction of any kind.
27. THIS INTERCOMPANY PROMISSORY NOTE SHALL BE CONSTRUED IN
ACCORDANCE WITH, AND GOVERNED BY, THE LAW OF THE STATE OF NEW YORK.
28. By its acceptance hereof in the space provided below,
the Payee hereby (1) acknowledges and agrees that this Intercompany Promissory
Note amends and restates in its
<PAGE>
9
entirety each and every other promissory note heretofore executed by the
undersigned in favor of the Payee and (2) unconditionally and irrevocably
waives, to the extent permitted by law, all right to trial by jury in any
action, proceeding or counterclaim arising out of or relating to this
Intercompany Promissory Note, any other Credit Document or the transactions
contemplated thereby.
[NAME OF PAYOR]
By
-----------------------------
Name:
Title:
Pay to the order of
[NAME OF PAYEE]
By
----------------------------
Name:
Title:
<PAGE>
10
ADVANCE AND PAYMENTS OF PRINCIPAL
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</TABLE>
<PAGE>
Exhibit K
.
FORM OF PROCESS AGENT LETTER
[Letterhead of CT Corporation]
December __, 1997
To: Each of the Lenders party to the
Credit Agreement referred to below
and to NationsBank of Texas, N.A., as
Administrative Agent for such Lenders
Corporate Software and Technology Holdings, Inc., Corporate Software
--------------------------------------------------------------------
and Technology, Inc., Corporate Software and Technology GmbH, Topsoft
----------------------------------------------------------------------
Mailorder GmgH, Corporate Software and Technology Limited and
-------------------------------------------------------------
International Software Limited
------------------------------
Ladies and Gentlemen:
Reference is made to that certain Credit Agreement dated as of
December __, 1997 (as amended, supplemented or otherwise modified from time to
time, being the "Credit Agreement", the terms defined therein being used herein
----------------
with the same meaning) among Corporate Software and Technology Holdings, Inc.
and Corporate Software and Technology, Inc. as the Borrowers, various banks
party thereto (the [_]Lenders[_]), NationsBanc Montgomery Securities, Inc., as
Arranger and Syndication Agent and NationsBank of Texas, N.A., as Administrative
Agent for the Lenders. Unless otherwise defined herein, capitalized terms used
in this Certificate shall have the meanings set forth in the Credit Agreement.
Pursuant to [Section 5.23] of the Credit Agreement, the Borrowers have
appointed the undersigned (with an office on the date hereof at 1633 Broadway,
New York, New York 10019, United States) as Process Agent to receive on behalf
of the Borrowers and their property service of copies of the summons and
complaint and any other process which may be served in any action or proceeding
in any New York State or federal court sitting in New York City arising out of
or relating to the Credit Agreement, any of the Transaction Documents or any
other documents contemplated by the Credit Agreement.
<PAGE>
The undersigned hereby accepts such appointment as Process Agent and agrees
with each of you that (i) the undersigned will not terminate the undersigned's
agency as such Process Agent prior to 2 years after termination of Credit
Agreement (and hereby acknowledges that the undersigned has been paid in full by
the Borrowers for its services as Process Agent through such date), (ii) the
undersigned will maintain an office in New York City through such date and will
give the Agent prompt notice of any change of address of the undersigned, (iii)
the undersigned will perform its duties as Process Agent in accordance with
[Section 5.23] of the Credit Agreement and (iv) the undersigned will forward
forthwith to the Borrowers at the address specified opposite their respective
signature in the Credit Agreement or in the other relevant Transaction
Documents, as the case may be, copies of any summons, complaint and other
process which the undersigned receives in connection with its appointment as
Process Agent.
This acceptance and agreement shall be binding upon the undersigned and all
successors of the undersigned including all persons hereafter acting in the
capacity of the undersigned or otherwise in charge of the office of the
undersigned.
Very truly yours,
CT CORPORATION SYSTEM
By:__________________
Name:
Title:
<PAGE>
EXECUTION COPY
PARENT GUARANTY
Dated December 15, 1997
From
THE GUARANTORS NAMED HEREIN
as Guarantors
-- ----------
in favor of
THE GUARANTEED CREDITORS REFERRED TO IN
THE CREDIT AGREEMENT REFERRED TO HEREIN
<PAGE>
T A B L E O F C O N T E N T S
- - - - - - - - - - - - - -
<TABLE>
<CAPTION>
Section Page
<S> <C>
1. Guaranty; Limitation of Liability 1
2. Guaranty Absolute 1
3. Waivers and Acknowledgments 3
4. Subrogation 3
5. Net Payments 4
6. Representations and Warranties 7
7. Covenants 8
8. Amendments, Etc. 9
9. Notices, Etc. 9
10. No Waiver; Remedies 10
11. Right of Set-off 10
12. Indemnification 10
13. Continuing Guaranty; Assignments under the Credit Agreement 11
14. Governing Law; Jurisdiction; Waiver of Jury Trial, Etc. 11
</TABLE>
<PAGE>
GUARANTY
GUARANTY dated December 15, 1997 made by Corporate Software & Technology
Holdings, Inc. (the "Guarantor"), in favor of the Guaranteed Creditors (as
defined in the Credit Agreement referred to below).
PRELIMINARY STATEMENT. Corporate Software & Technology Holdings, Inc., a
Delaware corporation ("Holdings"), Corporate Software & Technology, Inc., a
Delaware Corporation (the "Borrower"), are parties to a Credit Agreement dated
as of December 15, 1997 (such Credit Agreement, as it may hereafter be amended,
supplemented or otherwise modified from time to time, being the "Credit
Agreement", the capitalized terms defined therein and not otherwise defined
herein being used herein as therein defined) with certain Banks party thereto,
NationsBank, N.A. ("NationsBank"), as administrative agent (the "Administrative
Agent") for the Banks and NationsBanc Montgomery Securities, Inc., as Arranger
and Syndication Agent. The Guarantor may receive a portion of the proceeds of
the Loans under the Credit Agreement and will derive substantial direct and
indirect benefit from the transactions contemplated by the Credit Agreement. It
is a condition precedent to the making of Loans and the issuance of Letters of
Credit by the Banks under the Credit Agreement from time to time that the
Guarantor shall have executed and delivered this Guaranty.
NOW, THEREFORE, in consideration of the premises and in order to induce the
Banks to make Loans and to issue Letters of Credit under the Credit Agreement
from time to time, each Guarantor, jointly and severally with each other
Guarantor, hereby agrees as follows:
Section 1. Guaranty; Limitation of Liability. The Guarantor hereby
---------------------------------
absolutely, unconditionally and irrevocably guarantees the punctual payment when
due, whether at stated maturity, by acceleration or otherwise, of all
Obligations of the Credit Parties now or hereafter existing under the Credit
Documents, whether for principal, interest, fees, expenses or otherwise (such
Obligations being the "Guaranteed Obligations"), and agrees to pay any and all
----------------------
expenses (including counsel fees and expenses) incurred by the Administrative
Agent or any other Guaranteed Creditor in enforcing any rights under this
Guaranty and the other Credit Documents. Without limiting the generality of the
foregoing, each Guarantor's liability shall extend to all amounts that
constitute part of the Guaranteed Obligations and would be owed by any Credit
Party to the Administrative Agent or any other Guaranteed Creditor under the
Credit Documents but for the fact that they are unenforceable or not allowable
due to the existence of a bankruptcy, reorganization or similar proceeding
involving such Credit Party.
Section 2. Guaranty Absolute. The Guarantor guarantees that the
-----------------
Guaranteed Obligations will be paid strictly in accordance with the terms of the
Credit Documents,
<PAGE>
regardless of any law, regulation or order now or hereafter in effect in any
jurisdiction affecting any of such terms or the rights of the Administrative
Agent or any other Guaranteed Creditor with respect thereto. The Obligations of
the Guarantor under this Guaranty are independent of the Guaranteed Obligations
or any other Obligations of any other Credit Party under the Credit Documents,
and a separate action or actions may be brought and prosecuted against the
Guarantor to enforce this Guaranty, irrespective of whether any action is
brought against any Borrower or any other Credit Party or whether any Borrower
or any other Credit Party is joined in any such action or actions. The
liability of the Guarantor under this Guaranty shall be irrevocable, absolute
and unconditional irrespective of, and the Guarantor hereby irrevocably waives
any defenses it may now or hereafter have in any way relating to, any or all of
the following:
(a) any lack of validity or enforceability of any Credit Document or
any agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Guaranteed Obligations or any other
Obligations of any other Credit Party under the Credit Documents, or any
other amendment or waiver of or any consent to departure from any Credit
Document, including, without limitation, any increase in the Guaranteed
Obligations resulting from the extension of additional credit to any
Borrower or any of its Subsidiaries or otherwise;
(c) any taking, exchange, release or non-perfection of any Collateral,
or any taking, release or amendment or waiver of or consent to departure
from any other guaranty, for all or any of the Guaranteed Obligations;
(d) any manner of application of Collateral, or proceeds thereof, to
all or any of the Guaranteed Obligations, or any manner of sale or other
disposition of any Collateral for all or any of the Guaranteed Obligations
or any other Obligations of any other Credit Party under the Credit
Documents or any other assets of any Credit Party or any of its
Subsidiaries;
(e) any change, restructuring or termination of the corporate
structure or existence of any Credit Party or any of its Subsidiaries;
(f) any failure of any Guaranteed Creditor to disclose to any Credit
Party any information relating to the financial condition, operations,
properties or prospects of any other Credit Party now or in the future
known to any Guaranteed Creditor (each Guarantor waiving any duty on the
part of the Guaranteed Creditor to disclose such information);
(g) the failure of any other person to execute this Guaranty or any
other guaranty or agreement or the release or reduction of liability of any
Guarantor or other surety with respect to the Guaranteed Obligations; or
<PAGE>
(h) any other circumstance (including, without limitation, any statute
of limitations) or any existence of or reliance on any representation by
the Administrative Agent or any other Guaranteed Creditor that might
otherwise constitute a defense available to, or a discharge of, any Credit
Party or any other guarantor or surety.
This Guaranty shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Guaranteed Obligations is rescinded
or must otherwise be returned by any Guaranteed Creditor or any other holder of
a Note upon the insolvency, bankruptcy or reorganization of any Borrower or any
other Credit Party or otherwise, all as though such payment had not been made.
Section 3. Waivers and Acknowledgments. (a) The Guarantor hereby
---------------------------
waives promptness, diligence, notice of acceptance, presentment, demand for
performance, notice of nonperformance, default, acceleration, protest or
dishonor and any other notice with respect to any of the Guaranteed Obligations
and this Guaranty and any requirement that the Administrative Agent or any other
Guaranteed Creditor protect, secure, perfect or insure any Lien or any property
subject thereto or exhaust any right or take any action against any Credit Party
or any other Person or any Collateral.
(b) The Guarantor hereby waives any right to revoke this Guaranty, and
acknowledges that this Guaranty is continuing in nature and applies to all
Guaranteed Obligations, whether existing now or in the future.
(c) The Guarantor hereby waives (i) any defense arising by reason of
any claim or defense based upon an election of remedies by the Guaranteed
Creditors which in any manner impairs, reduces, releases or otherwise adversely
affects the Guarantor's subrogation, reimbursement, exoneration, contribution or
indemnification rights or other rights to proceed against any Credit Party or
any other Person or any Collateral, and (ii) any defense based on any right of
set-off or counterclaim (other than a compulsory counterclaim) against or in
respect of such Guarantor's obligations hereunder.
(d) The Guarantor acknowledges that it will receive substantial direct
and indirect benefits from the financing arrangements contemplated by the Credit
Documents and that the waivers set forth in Section 2 and this Section 3 are
knowingly made in contemplation of such benefits.
Section 4. Subrogation. The Guarantor will not exercise any rights
-----------
that it may now or hereafter acquire against any Borrower or any other insider
guarantor that arise from the existence, payment, performance or enforcement of
such Guarantor's Obligations under this Guaranty or any other Credit Document,
including, without limitation, any right of subrogation, reimbursement,
exoneration, contribution or indemnification and any right to participate in any
claim or remedy of any Guaranteed Creditor against any Borrower or any other
insider guarantor or any Collateral, whether or not such claim, remedy or right
arises in equity or under contract, statute or common law, including, without
limitation, the right to take or receive from any Borrower or any other insider
guarantor, directly or indirectly, in
<PAGE>
cash or other property or by set-off or in any other manner, payment or security
on account of such claim, remedy or right, unless and until all of the
Obligations and all other amounts payable under this Guaranty shall have been
paid in full in cash and the Commitments shall have expired or terminated. If
any amount shall be paid to the Guarantor in violation of the preceding sentence
at any time prior to the later of (i) the payment in full in cash of the
Guaranteed Obligations and all other amounts payable under this Guaranty and
(ii) the Maturity Date, such amount shall be held in trust for the benefit of
the Guaranteed Creditors and shall forthwith be paid to the Administrative Agent
to be credited and applied to the Guaranteed Obligations and all other amounts
payable under this Guaranty, whether matured or unmatured, in accordance with
the terms of the Credit Documents, or to be held as Collateral for any
Guaranteed Obligations or other amounts payable under this Guaranty thereafter
arising. If (i) the Guarantor shall make payment to the Administrative Agent or
any other Guaranteed Creditor of all or any part of the Guaranteed Obligations,
(ii) all of the Guaranteed Obligations and all other amounts payable under this
Guaranty shall be paid in full in cash and (iii) the Maturity Date shall have
occurred, the Administrative Agent and the other Guaranteed Creditors will, at
the Guarantor's request and expense, execute and deliver to such Guarantor
appropriate documents, without recourse and without representation or warranty,
necessary to evidence the transfer by subrogation to the Guarantor of an
interest in the Guaranteed Obligations resulting from such payment by the
Guarantor.
Section 5. Net Payments (a) All payments made by the Guarantor
------------
hereunder will be made without set off, counterclaim or other defense. Except
as provided in Section 5(b), all such payments will be made free and clear of,
and without deduction or withholding for, any present or future taxes, levies,
imposts, duties, fees, assessments or other charges of whatever nature now or
hereafter imposed by any jurisdiction or by any political subdivision or taxing
authority thereof or therein with respect to such payments (but excluding,
except as provided in the second succeeding sentence, any tax imposed on or
measured by the net income or net profits of a Guaranteed Creditor pursuant to
the laws of the jurisdiction in which it is organized or the jurisdiction in
which the principal office or applicable lending office of such Guaranteed
Creditor is located or any subdivision thereof or therein) and all interest,
penalties or similar liabilities with respect thereto (all such non-excluded
taxes, levies, imposts, duties, fees, assessments or other charges being
referred to collectively as "Taxes"). If any Taxes are so levied or imposed,
the Guarantor agrees to pay the full amount of such Taxes, and such additional
amounts as may be necessary so that every payment of all amounts due under this
Guaranty, after withholding or deduction for or on account of any Taxes, will
not be less than the amount provided for herein. If any amounts are payable in
respect of Taxes pursuant to the preceding sentence, the Guarantor agrees to
reimburse each Guaranteed Creditor, upon the written request of such Guaranteed
Creditor, for Taxes imposed on or measured by the net income or net profits of
such Guaranteed Creditor pursuant to the laws of the jurisdiction in which the
principal office or applicable lending office of such Guaranteed Creditor is
located or under the laws of any political subdivision or taxing authority of
any such jurisdiction in which the principal office or applicable lending office
of such Guaranteed Creditor is located and for any withholding of Taxes as such
Guaranteed Creditor shall determine are payable by, or withheld from, such
Guaranteed Creditor in respect of such amounts so paid to or on behalf of such
Guaranteed Creditor pursuant to the preceding
<PAGE>
sentence and in respect of any amounts paid to or on behalf of such Guaranteed
Creditor pursuant to this sentence. The Guarantor will furnish to the
Administrative Agent within 30 days after the date the payment of any Taxes is
due pursuant to applicable law certified copies of tax receipts evidencing such
payment by such Guarantor. The Guarantor agrees to indemnify and hold harmless
each Guaranteed Creditor, and reimburse such Guaranteed Creditor upon its
written request, for the amount of any Taxes so levied or imposed and paid by
such Guaranteed Creditor.
(b) Each Guaranteed Creditor agrees to deliver to the Guarantor and
the Administrative Agent on or prior to the Effective Date, or in the case of a
Guaranteed Creditor that is an assignee or transferee of an interest under the
Credit Agreement pursuant to Section 1.13 or 12.04 thereof (unless the
respective Guaranteed Creditor was already a Guaranteed Creditor thereunder
immediately prior to such assignment or transfer), on the date of such
assignment or transfer to such Guaranteed Creditor, any form or certificate that
is required by any taxing authority to demonstrate such Guaranteed Creditor's
entitlement to an exemption from or reduction in Home Jurisdiction Withholding
Taxes (as defined below), if any, with respect to payments to be made under this
Guaranty including, if applicable (i) two accurate and complete original signed
copies of Internal Revenue Service Form 4224 or 1001 (or successor forms)
certifying to such Guaranteed Creditor's entitlement to a complete exemption
from United States withholding tax with respect to payments to be made under
this Guaranty, or (ii) if the Guaranteed Creditor is not a "bank" within the
meaning of Section 881(c)(3)(A) of the Code and cannot deliver either Internal
Revenue Service Form 1001 or 4224 pursuant to clause (i) above, (x) a
certificate substantially in the form of Exhibit C to the Credit Agreement (any
such certificate, a "Section 4.04(b)(ii) Certificate") and (y) two accurate and
complete original signed copies of Internal Revenue Service Form W-8 (or
successor form) certifying to such Guaranteed Creditor's entitlement to a
complete exemption from United States withholding tax with respect to payments
to be made under this Guaranty, provided, however, that such Guaranteed Creditor
-------- -------
shall have been advised in writing by the Guarantor of the form or certificate
applicable to it, determined by reference to the jurisdiction of organization
and applicable lending office of such Guaranteed Creditor set forth on Annex I
to the Credit Agreement, or in the case of a Guaranteed Creditor that is an
assignee or transferee of an interest under the Credit Agreement pursuant to
Sections 1.13 or 12.04 thereof (unless the respective Guaranteed Creditor was
already a Guaranteed Creditor thereunder immediately prior to such assignment or
transfer) the jurisdiction of organization and Applicable Lending Office of such
Guaranteed Creditor set forth in the Assignment and Assumption Agreement
pursuant to which it became a Guaranteed Creditor, or such other branch or
office of any Guaranteed Creditor designated by such Guaranteed Creditor from
time to time. If any form or document referred to in this subsection (b)
requires the disclosure of information greater than that required on the date
hereof by Forms 1001 or 4224 and which a Guaranteed Creditor reasonably
considers to be confidential, such Guaranteed Creditor shall give notice thereof
to the Guarantor and shall not be obligated to include in such form or document
such confidential information. In addition, each Guaranteed Creditor agrees
that from time to time after the Effective Date, when a lapse in time or change
in circumstances renders the previous certification obsolete or inaccurate in
any material respect, upon the written request of the Guarantor (but only if the
Guaranteed Creditor remains lawfully able to do so) it will deliver to
<PAGE>
such Guarantor and the Administrative Agent a new accurate and complete form or
certificate that is required by any taxing authority including, if applicable,
two new accurate and complete original signed copies of Internal Revenue Service
Form 4224 or 1001, or Form W-8 and a Section 4.04(b)(ii) Certificate, as the
case may be, and such other forms as may be required in order to confirm or
establish the entitlement of such Guaranteed Creditor to a continued exemption
from or reduction in Home Jurisdiction Withholding Taxes, if any, with respect
to payments under this Guaranty, or it shall immediately notify the Guarantor
and the Administrative Agent of its inability to deliver any such Form or
Certificate, in which case such Guaranteed Creditor shall not be required to
deliver any such Form or Certificate pursuant to this Section 5(b).
Notwithstanding anything to the contrary contained in Section 5(a), but subject
to Section 12.04(b) of the Credit Agreement and the immediately succeeding
sentence, (x) each Guarantor shall be entitled, to the extent it is required to
do so by law, to deduct or withhold income or similar taxes from interest, fees
or other amounts payable hereunder for the account of any Guaranteed Creditor to
the extent that such Guaranteed Creditor has not provided to the Guarantor the
form or certificate that establishes a complete exemption from, or entitlement
to a reduction of, such deduction or withholding and (y) the Guarantor shall not
be obligated pursuant to Section 5(a) to gross-up payments to be made to a
Guaranteed Creditor in respect of income or similar taxes imposed if (I) such
Guaranteed Creditor has not provided to the Guarantor the form or certificate
required to be provided to the Guarantor pursuant to this Section 5(b) or (II)
in the case of a payment, other than interest, to a Guaranteed Creditor
described in clause (ii) above, to the extent that such form or certificate does
not establish a complete exemption from, or entitlement to a reduction of,
withholding of such taxes. Notwithstanding anything to the contrary contained in
the preceding sentence or elsewhere in this Section 5 and except as set forth in
Section 12.04(b) of the Credit Agreement, the Guarantor agrees to pay additional
amounts and to indemnify each Guaranteed Creditor in the manner set forth in
Section 5(a) (without regard to the identity of the jurisdiction requiring the
deduction or withholding) in respect of any amounts deducted or withheld by it
as described in the immediately preceding sentence as a result of any changes
after the Effective Date in any applicable law, treaty, governmental rule,
regulation, guideline or order, or in the interpretation thereof, relating to
the deducting or withholding of income or similar Taxes. "Home Jurisdiction
Withholding Taxes" means, in the case of the Guarantor, withholding taxes
imposed by the jurisdiction or political subdivision or taxing authority thereof
or therein in which such Guarantor is organized.
(c) Without prejudice to the survival of any other agreement of the
Guarantor hereunder or under any other Credit Document, the agreements and
obligations of the Guarantor contained in this Section 5 and in Section 12 shall
survive the payment in full of the Guaranteed Obligations and all other amounts
payable under this Guaranty.
Section 6. Representations and Warranties. The Guarantor hereby
------------------------------
represents and warrants as follows:
(a) The Guarantor (i) is a duly organized and validly existing
corporation in good standing under the laws of the jurisdiction of its
organization, (ii) has the corporate power and authority (including, without
limitation, all governmental licenses, permits and
<PAGE>
other approvals) to own or lease and operate its properties and assets and to
transact the business in which it is engaged and presently proposes to engage
and (iii) is duly qualified and is authorized to do business and is in good
standing in all jurisdictions where it is required to be so qualified or
licensed.
(b) The Guarantor has the corporate power and authority to execute,
deliver and carry out the terms and provisions of this Guaranty and has taken
all necessary corporate action to authorize the execution, delivery and
performance of this Guaranty. Such Guarantor has duly executed and delivered
this Guaranty and this Guaranty constitutes the legal, valid and binding
obligation of such Guarantor enforceable against such Guarantor in accordance
with its terms, except to the extent that the enforceability thereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws generally affecting creditors' rights and by equitable principles
(regardless of whether enforcement is sought in equity or at law).
(c) Neither the execution, delivery or performance by such Guarantor
of this Guaranty nor compliance by the Guarantor with the terms and provisions
thereof, nor the consummation of the transactions contemplated herein, (i) will
contravene any applicable provision of any law, statute, rule or regulation, or
any order, writ, injunction, judgment, award, determination or decree of any
court or governmental instrumentality, (ii) will conflict or be inconsistent
with or result in any breach of, any of the terms, covenants, conditions or
provisions of, or constitute a default under, any contract, indenture, mortgage,
deed of trust, lease, loan agreement, credit agreement or any other material
agreement or instrument to which the Guarantor or any of its Subsidiaries is a
party or by which it or any of its property or assets are bound or to which it
may be subject or (other than pursuant to the Security Documents) result in the
creation or imposition of (or the obligation to create or impose) any Lien upon
any of the property or assets of the Guarantor or any of its Subsidiaries or
(iii) will violate any provision of the Certificate of Incorporation or By-Laws
of the Guarantor or any of its Subsidiaries. Neither the Guarantor nor any of
its Subsidiaries is in violation of any such law, statute, rule, regulation,
order, writ, judgment, injunction, decree, determination or award or in breach
of any such contract, loan agreement, indenture, mortgage, deed of trust, lease,
loan agreement, credit agreement or other material agreement or other
instrument, the violation or breach of which could have a Material Adverse
Effect.
(d) There are no actions, investigations, litigations, suits or
proceedings pending or, to the knowledge of the Guarantor or any of its
Subsidiaries, threatened, before any court, governmental agency or arbitrator
with respect to such Guarantor or any of its Subsidiaries (i) that could
reasonably be expected to have a Material Adverse Effect or (ii) purports to
affect the legality, validity or enforceability of this Guaranty.
(e) Except as may have been obtained or made on or prior to the
Initial Borrowing Date (and which remain in full force and effect on the Initial
Borrowing Date), no order, consent, approval, license, authorization, or
validation of, or filing, recording or registration with, or exemption by, or
notice to, any foreign or domestic governmental or public body or authority or
any other third party, or any subdivision thereof, is required to
<PAGE>
authorize or is required in connection with (i) the due execution, delivery,
recordation, filing and performance by the Guarantor of this Guaranty or for the
consummation of the transactions contemplated hereby, or (ii) the legality,
validity, binding effect or enforceability of this Guaranty.
(f) There are no conditions precedent to the effectiveness of this
Guaranty that have not been satisfied or waived.
(g) The Guarantor has, independently and without reliance upon the
Administrative Agent or any other Guaranteed Creditor and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Guaranty, and the Guarantor has
established adequate means of obtaining from any other Credit Parties on a
continuing basis information pertaining to, and is now and on a continuing basis
will be completely familiar with, the financial condition, operations,
properties and prospects of such other Credit Parties.
(h) The Guarantor is, and, after giving effect to the transactions
contemplated hereby, individually and together with its Subsidiaries, will be
Solvent.
Section 7. Covenants. The Guarantor covenants and agrees that, so
---------
long as any part of the Guaranteed Obligations shall remain unpaid (other than
indemnity and similar contingent obligations in respect of which no claim has
been made and no amount remains outstanding), any Letter of Credit shall be
outstanding or any Bank shall have any Commitment, the Guarantor will, unless
the Required Banks shall otherwise consent in writing as follows:
(a) Payment of Taxes. The Guarantor will pay and discharge, and
----------------
will cause each of its Subsidiaries to pay and discharge, all taxes,
assessments and governmental charges or levies imposed upon it or upon its
income or profits, or upon any properties belonging to it, when due and all
lawful claims for sums that have become due and payable when due which, if
unpaid, might become a Lien not otherwise permitted under Section 8.03(a)
of the Credit Agreement or charge upon any properties of the Guarantor or
any of its Subsidiaries; provided that neither the Guarantor nor any of its
--------
Subsidiaries shall be required to pay any such tax, assessment, charge,
levy or claim which is being contested in good faith and by proper
proceedings if it has maintained adequate reserves with respect thereto in
accordance with GAAP.
(b) Corporate Franchises. Such Guarantor will do, and will cause
--------------------
each of its Subsidiaries to do, or cause to be done, all things necessary
to preserve and keep in full force and effect its existence, legal
structure, legal name, rights (charter or statutory), permits, licenses,
approvals, privileges, franchises and authority to do business.
(c) Compliance with Statutes, Etc. Each Guarantor will, and will
-----------------------------
cause each of its Subsidiaries to, comply with all applicable laws,
statutes, regulations,
<PAGE>
rules and orders of, and all applicable restrictions imposed by, all
governmental bodies, domestic or foreign, in respect of the conduct of its
business and the ownership of its property (including applicable statutes,
regulations, orders and restrictions relating to environmental standards
and controls) except where such noncompliance would not have a Material
Adverse Effect.
Section 8. Amendments, Etc. No amendment or waiver of any provision
----------------
of this Guaranty and no consent to any departure by the Guarantor therefrom
shall in any event be effective unless the same shall be in writing and signed
by the Administrative Agent (on behalf of the Banks or the Required Banks, as
the case may be) and the Guarantor, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given; provided, however, that no amendment, waiver or consent shall, unless in
-------- -------
writing and signed by all of the Guaranteed Creditors (other than any Bank that
is, at such time, a Defaulting Bank), (a) reduce or limit the liability of the
Guarantor hereunder or release the Guarantor hereunder, (b) postpone any date
fixed for payment hereunder or (c) change the number of Guaranteed Creditors
required to take any action hereunder.
Section 9. Notices, Etc. All notices and other communications
-------------
provided for hereunder shall be in writing (including telegraphic, telecopy or
telex communication) and mailed, telegraphed, telecopied, telexed or delivered
to it, if to the Guarantor, addressed to it at the address set forth below the
Guarantor's name on the signature pages hereof, if to the Administrative Agent
or any Bank, at its address specified in the Credit Agreement, or as to any
party at such other address as shall be designated by such party in a written
notice to each other party. All such notices and other communications shall,
when mailed, telegraphed, telecopied or telexed, be effective when deposited in
the mails, delivered to the telegraph company, transmitted by telecopier or
confirmed by telex answerback, respectively. Delivery by telecopier of an
executed counterpart of any amendment or waiver of any provision of this
Guaranty shall be effective as delivery of a manually executed counterpart
thereof.
Section 10. No Waiver; Remedies. No failure on the part of the
-------------------
Administrative Agent or any other Guaranteed Creditor to exercise, and no delay
in exercising, any right hereunder shall operate as a waiver thereof; nor shall
any single or partial exercise of any right hereunder preclude any other or
further exercise thereof or the exercise of any other right. The remedies
herein provided are cumulative and not exclusive of any remedies provided by
law.
Section 11. Right of Set-off. Upon (a) the occurrence and during the
----------------
continuance of any Event of Default and (b) the making of the request or the
granting of the consent specified by Section 9 of the Credit Agreement to
authorize the Administrative Agent to declare the Notes due and payable pursuant
to the provisions of such Section 9, each Guaranteed Creditor and each of its
respective Affiliates is hereby authorized at any time and from time to time, to
the fullest extent permitted by law, to set-off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other indebtedness at any time owing by such Guaranteed Creditor or such
Affiliate to or for the credit or the account of the Guarantor against any and
all of the Obligations of such Guarantor now or hereafter existing under this
Guaranty, whether or not such Guaranteed Creditor shall
<PAGE>
have made any demand under this Guaranty and although such Obligations may be
unmatured. Each Guaranteed Creditor agrees promptly to notify the Guarantor
after any such set-off and application; provided, however, that the failure to
-------- -------
give such notice shall not affect the validity of such set-off and application.
The rights of each Guaranteed Creditor and its respective Affiliates under this
Section are in addition to other rights and remedies (including, without
limitation, other rights of set-off) that such Guaranteed Creditor and its
respective Affiliates may have.
Section 12. Indemnification. Without limitation on any other
---------------
Obligations of the Guarantor or remedies of the Guaranteed Creditors under this
Guaranty, the Guarantor shall, to the fullest extent permitted by law,
indemnify, defend and save and hold harmless each Guaranteed Creditor from and
against, and shall pay on demand, any and all losses, liabilities, damages,
costs, expenses and charges (including the fees and disbursements of such
Guaranteed Creditor's legal counsel) suffered or incurred by such Guaranteed
Creditor as a result of any failure of any Guaranteed Obligations to be the
legal, valid and binding obligations of any Relevant Credit Party enforceable
against such Relevant Credit Party in accordance with their terms.
Section 13. Continuing Guaranty; Assignments under the Credit
-------------------------------------------------
Agreement. This Guaranty is a continuing guaranty and shall (a) remain in full
- ---------
force and effect until the latest of (i) the payment in full in cash of the
Guaranteed Obligations and all other amounts payable under this Guaranty and
(ii) Maturity Date, (b) be binding upon the Guarantor, its successors and
assigns and (c) inure to the benefit of and be enforceable by the Administrative
Agent and the other Guaranteed Creditors and their successors, transferees and
assigns. Without limiting the generality of the foregoing clause (c), any
Guaranteed Creditor may assign or otherwise transfer all or any portion of its
rights under the Credit Agreement (including, without limitation, all or any
portion of its Commitments, the Loans owing to it and the Note or Notes held by
it) to any other Person, and such other Person shall thereupon become vested
with all the obligations and benefits in respect thereof granted to such
Guaranteed Creditor herein or otherwise, in each case as and to the extent
provided in Section 12.04(b) of the Credit Agreement. The Guarantor shall not
have the right to assign its rights hereunder or any interest herein without the
prior written consent of the Guaranteed Creditors.
Section 14. Governing Law; Jurisdiction; Waiver of Jury Trial, Etc.
-------------------------------------------------------
(a) This Guaranty shall be governed by, and construed in accordance with, the
laws of the State of New York.
(b) Any legal action or proceeding with respect to this Guaranty may
be brought in the courts of the State of New York or of the United States for
the Southern District of New York, and, by execution and delivery of this
Agreement, the Guarantor hereby irrevocably accepts for itself and in respect of
its property, generally and unconditionally, the jurisdiction of the aforesaid
courts. The Guarantor hereby further irrevocably waives any claim that any such
courts lack jurisdiction over the Guarantor, and agrees not to plead or claim,
in any legal action or proceeding with respect to this Guaranty brought in any
of the
<PAGE>
aforesaid courts, that any such court lacks jurisdiction over such Guarantor.
The Guarantor agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. Solely for the purposes of this
Guaranty, to the full extent permitted by law the Guarantor and its property
service of copies of the summons and complaint and any other process which may
be served in any such action or proceeding. The Guarantor irrevocably consents
to the service of process in any such action or proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to the Process
Agent, such service to become effective 30 days after such mailing. The
Guarantor hereby irrevocably waives any objection to such service of process and
further irrevocably waives and agrees not to plead or claim in any action or
proceeding commenced hereunder that service of process was in any way invalid or
ineffective. Nothing herein shall affect the right of any Guaranteed Creditor to
serve process in any other manner permitted by law or to commence legal
proceedings or otherwise proceed against the Guarantor in any other
jurisdiction.
(c) The Guarantor hereby irrevocably waives any objection which it may
now or hereafter have to the laying of venue of any of the aforesaid actions or
proceedings arising out of or in connection with this Guaranty brought in the
courts referred to in clause (b) above and hereby further irrevocably waives and
agrees not to plead or claim in any such court that any such action or
proceeding brought in any such court has been brought in an inconvenient forum.
(d) To the extent that such Guarantor has or hereafter may acquire any
immunity from jurisdiction of any court or from any legal process (whether
through service or notice, attachment prior to judgment, attachment in aid of
execution, execution or otherwise) with respect to itself or its property, each
Guarantor to the extent permitted by law hereby irrevocably waives such immunity
in respect of its obligations under this Guaranty and, without limiting the
generality of the foregoing, agrees that the waivers set forth in this
subsection (d) shall have the fullest scope permitted under the United States
Foreign Sovereign Immunities Act of 1976, as amended, and are intended to be
irrevocable for purposes of such Act.
(e) If for the purposes of obtaining judgment in any court it is
necessary to convert a sum due hereunder in any currency (the "Original
Currency") into another currency (the "Other Currency") the parties hereto
agree, to the fullest extent that they may effectively
<PAGE>
do so, that the rate of exchange used shall be that at which in accordance with
normal banking procedures the Administrative Agent could purchase the Original
Currency with the Other Currency at 11:00 A.M. on the second Business Day
preceding that on which final judgment is given.
(f) The obligation of the Guarantor in respect to any sum due in the
Original Currency from it to any Guaranteed Creditor hereunder or held by such
Guaranteed Creditor shall, notwithstanding any judgment in any Other Currency,
be discharged only to the extent that, on the Business Day following receipt by
such Guaranteed Creditor of any sum adjudged to be so due in such Other Currency
such Guaranteed Creditor may in accordance with normal banking procedures
purchase the Original Currency with such Other Currency; if the amount of the
Original Currency so purchased is less than the sum originally due to such
Guaranteed Creditor in the Original Currency, the Guarantor agrees, as a
separate obligation and notwithstanding any such judgment, to indemnify such
Guaranteed Creditor against such loss, and if the amount of the Original
Currency so purchased exceeds the sum originally due to any Guaranteed Creditor
in the Original Currency, such Guaranteed Creditor agrees to remit to the
Guarantor such excess.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
(g) The Guarantor hereby irrevocably waives all right to trial by jury
in any action, proceeding or counterclaim (whether based on contract, tort or
otherwise) arising out of or relating to any of this Guaranty, the transactions
contemplated hereby or the actions of the Collateral Agent or any other
Guaranteed Creditor in the negotiation, administration, performance or
enforcement hereof.
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly
executed and delivered by its officer thereunto duly authorized as of the date
first above written.
Address: CORPORATE SOFTWARE & TECHNOLOGY
HOLDINGS, INC.
________________
________________
By
Attention: Name:
Title:
Acknowledged and Agreed:
NATIONSBANK OF TEXAS, N.A.
as Administrative Agent
By_____________________________
Name:
Title:
<PAGE>
EXHIBIT M - FORM OF
CREDIT AGREEMENT
SUPPLEMENT
[DATE]
To each of the Banks under the Credit
Agreement referred to below
Ladies and Gentlemen:
Reference is made to the Credit Agreement dated as of December ___,
1997 (as amended or modified from time to time, the "Credit Agreement") among
----------------
Modus Media International, Inc., a Delaware company and Modus Media
International Kabushiki Kaisha, a Japanese company, and the other Borrowers (as
defined in the Credit Agreement) party thereto, Modus Media International
Holdings, Inc., a Delaware company, the Banks (as defined in the Credit
Agreement), NationsBanc Montgomery Securities, Inc., as Arranger and Syndication
Agent, Citicorp USA, Inc., as Documentation Agent, Collateral Agent and Multi-
Currency Agent, and NationsBank of Texas N.A., Inc., as Administrative Agent
(the "Administrative Agent"). Terms defined in the Credit Agreement are used
--------------------
herein with the same meaning.
[NAME AND JURISDICTION OF INCORPORATION OF ADDITIONAL BORROWER] (the
"Additional Borrower"), in consideration of the agreement of each Bank to extend
- --------------------
credit to it from time to time under, and on the terms and conditions set forth
in, the Credit Agreement does hereby assume each of the obligations imposed upon
a Borrower under the Credit Agreement and agrees to be bound by all of the terms
and conditions of the Credit Agreement.
The Additional Borrower hereby agrees as follows:
1. The Additional Borrower hereby agrees, as of the date first above
written, to be bound as a Borrower by all of the terms and conditions of
the Credit Agreement to the same extent as each of the other Borrowers as
if it had been a party thereto as a Borrower. The Additional Borrower
further agrees, as of the date first above written, that each reference in
the Credit Agreement to a "Borrower" shall, as and where the context
--------
requires also mean and be a reference to the Additional Borrower, and each
reference in any other Credit Document to a "Borrower" or a "Credit Party"
-------- ------------
shall also mean, as and where the context requires and be a reference to
the Additional Borrower.
2. The Additional Borrower hereby represents and warrants to the
Administrative Agent and each of the Banks that the representations and
warranties
<PAGE>
2
contained in each Credit Document are correct on and as of the date hereof
as though made on and as of such date other than any such representations
and warranties that, by their terms, refer to a date other than the date
hereof, in which case as of such specific date (provided that the
--------
representations and warranties referred to therein may be qualified, to the
reasonable satisfaction of the Administrative Agent, to take into account
requirements of the local laws of the foreign jurisdiction in which the
Additional Borrower is incorporated or conducts its business).
3. Pursuant to the terms of the Credit Agreement, the Administrative
Agent hereby indicates its approval of the Additional Borrower.
4. (a) THIS CREDIT AGREEMENT SUPPLEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. Any
legal action or proceeding with respect to this Credit Agreement Supplement
or any other Credit Document may be brought in the courts of the State of
New York or of the United States for the Southern District of New York,
and, by execution and delivery of this Credit Agreement Supplement, the
Additional Borrower hereby irrevocably accepts for itself and in respect of
its property, generally and unconditionally, the jurisdiction of the
aforesaid courts. The Additional Borrower hereby further irrevocably
waives any claim that any such courts lack jurisdiction over such
Additional Borrower, and agrees not to plead or claim, in any legal action
or proceeding with respect to this Credit Agreement Supplement or any other
Credit Document brought in any of the aforesaid courts, that any such court
lacks jurisdiction over the Additional Borrower. The Additional Borrower
agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. The Additional Borrower
hereby irrevocably appoints CT Corporation System with an office on the
date hereof at 1633 Broadway, New York, New York 10019 (the "Process
Agent"), as its agent to receive on behalf of the Additional Borrower and
its property service of copies of the summons and complaint and any other
process which may be served in any such action or proceeding. The
Additional Borrower irrevocably consents to the service of process in any
such action or proceeding by the mailing of copies thereof by registered or
certified mail, postage prepaid, to the Additional Borrower at its address
set forth on the signature pages hereof, such service to become effective
30 days after such mailing. The Additional Borrower hereby irrevocably
waives any objection to such service of process and further irrevocably
waives and agrees not to plead or claim in any action or proceeding
commenced hereunder or under any other Credit Document that service of
process was in any way invalid or ineffective. Nothing herein shall affect
the right of the Administrative Agent, the Collateral Agent, any Bank or
the holder of any Note to serve process in any other manner permitted by
law or to commence legal proceedings or otherwise proceed against the
Additional Borrower in any other jurisdiction.
<PAGE>
3
(b) The Additional Borrower hereby irrevocably waives any objection
which it may now or hereafter have to the laying of venue of any of the
aforesaid actions or proceedings arising out of or in connection with this
Credit Agreement Supplement or any other Credit Document brought in the
courts referred to in clause (a) above and hereby further irrevocably
waives and agrees not to plead or claim in any such court that any such
action or proceeding brought in any such court has been brought in an
inconvenient forum.
(c) To the extent that the Additional Borrower has or hereafter may
acquire any immunity from jurisdiction of any court or from any legal
process (whether through service or notice, attachment prior to judgment,
attachment in aid of execution, execution or otherwise) with respect to
itself or its property, the Additional Borrower to the extent permitted by
law hereby irrevocably waives such immunity in respect of its obligations
under this Credit Agreement Supplement or any other Credit Document and,
without limiting the generality of the foregoing, agrees that the waivers
set forth in this subsection (c) shall have the fullest scope permitted
under the United States Foreign Sovereign Immunities Act of 1976, as
amended, or any other similarly applicable foreign law and are intended to
be irrevocable for purposes of such Act or any other similarly applicable
foreign law.
5. The Additional Borrower hereby irrevocably waives all right to
trial by jury in any action, proceeding or counterclaim (whether based on
contract, tort or otherwise) arising out of or relating to this Credit
Agreement Supplement or any of the other Credit Documents to which it is a
party, or the actions of the Administrative Agent or any Bank in the
negotiation, administration, performance or enforcement thereof.
Very truly yours,
[NAME OF ADDITIONAL BORROWER]
By _______________________________
Name:
Title:
Address:
<PAGE>
4
Accepted and Agreed:
NATIONSBANK OF TEXAS N.A., INC.
as Administrative Agent
By______________________________________
Title:
CITICORP USA, INC.,
as Documentation Agent and Collateral Agent
Agent
By_____________________________________
Title:
<PAGE>
SHEARMAN & STERLING
November 10, 1999
Memorandum to: All Persons on the Attached Distribution List
Financing for Modus Media International, Inc. ("MMI")
Ninth Amendment to Credit Agreement and Waiver
-----------------------------------------------------
I refer to the letter dated November 1, 1999 from Modus Media
International forwarded to you by Bank of America, N.A. on November 8, 1999 in
connection with the above captioned transaction.
Attached please find one execution copy of the Ninth Amendment to
Credit Agreement and Waiver dated as of November 12, 1999, to be executed by
each of the parties thereto,
Please note that the fee referred to in Section 5 is in blank. MMI
will be writing to you separately to confirm the amount to be included there.
Please make a copy of the relevant signature page of the attached
document and arrange for an authorized officer of your institution to execute
the attached amendment and waiver on behalf of your institution in duplicate and
send me a copy of such executed pages by fax at (212) 848-7179 to reach me no
later than 3:00 PM. (New York time), Friday, November 12, 1999, with two
original executed hard copies to follow by courier delivery at Shearman &
Sterling, 599 Lexington Avenue, New York, New York 10022, marked for my
attention. Thank you.
If you have any questions of a business nature relating to the
attached please telephone Jouni Korhonen at Bank of America at (415) 622-7293 or
if you have any other questions please do not hesitate to contact me at (212)
848-8672. Kind regards.
Sarah M. Messana
Attachments
<PAGE>
DISTRIBUTION LIST
MODUS MEDIA INTERNATIONAL, INC.
Leo Vannoni
Joseph Maloney
Mary Wilson
BANK OF AMERICA
Matthew Gabel
Jouni Korhonen
Alex Samek
BANKBOSTON, N.A.
Marwan Isbaih
CITIBANK, N.A.
Miles McManus
John O'Connor
FIRST NATIONAL BANK OF CHICAGO
Christine Jamieson
Kevin Christensen
FIRST UNION NATIONAL BANK
Richard Preskenis
FLEET BANK
Steve Curran
FLEET CAPITAL CORPORATION
Dan Hughes
HELLER FINANCIAL, INC.
Dennis Graham
IBJ WHITEHALL BUSINESS CREDIT CORP.
Russell Kasow
NATIONAL CITY COMMERCIAL FINANCE, INC.
Kathy Ellero
PNC BUSINESS CREDIT
James Steffy
<PAGE>
TRANSAMERICA BUSINESS CREDIT
Karen Francabandera
BAKER & MCKENZIE
Eli Cohen
PALMER AND DODGE
David Rudeiger
SHEARMAN & STERLING
Denise Grant
<PAGE>
EXECUTION COPY
NINTH AMENDMENT TO CREDIT AGREEMENT AND WAIVER
NINTH AMENDMENT TO CREDIT AGREEMENT AND WAIVER (this "Amendment and
-------------
Waiver") dated as of November 12, 1999 by and among MODUS MEDIA INTERNATIONAL,
- ------
INC., a Delaware corporation ("MMI"), MODUS MEDIA INTERNATIONAL LIMITED, an
---
English company, MODUS MEDIA INTERNATIONAL PTE. LTD., a Singaporean company
("MMI-Singapore"), MODUS MEDIA INTERNATIONAL IRELAND (HOLDINGS), an Irish
-------------
company ("Ireland Holdings"), MODUS MEDIA INTERNATIONAL PTY. LTD, an Australian
----------------
company, MODUS MEDIA INTERNATIONAL B.V., a Netherlands company (collectively the
"Borrowers"), MODUS MEDIA INTERNATIONAL HOLDINGS, INC., a Delaware corporation
---------
("MMI Holdings"), the lenders from time to time party hereto, BANK OF AMERICA
------------
SECURITIES LLC, successor in interest by merger with NationsBank, Montgomery
Securities, Inc., as Arranger and Syndication Agent, CITICORP USA, INC.
("Citicorp"), as Multi-Currency Agent, Documentation Agent and Collateral Agent,
--------
and BANK OF AMERICA, N.A., formerly known as NationsBank, N.A., successor in
interest by merger with NationsBank of Texas, N.A., as Administrative Agent (in
such capacity, the "Administrative Agent").
--------------------
PRELIMINARY STATEMENTS:
(1) The Borrowers entered into a Credit Agreement dated as of December 15,
1997 (as amended by the First Amendment to Credit Agreement dated as of February
18, 1998, the Second Amendment to Credit Agreement dated as of February 27,
1998, the Third Amendment to Credit Agreement dated as of August 10, 1998, the
Fourth Amendment to Credit Agreement and Waiver dated as of November 6, 1998,
the Fifth Amendment to Credit Agreement dated as of December 31, 1998, the Sixth
Amendment to Credit Agreement and Waiver dated as of May 10, 1999, the Seventh
Amendment to Credit Agreement and Waiver dated as of June 25, 1999 and the
Eighth Amendment to Credit Agreement and Waiver dated as of September 30, 1999,
in each case among the parties thereto, and as otherwise supplemented from time
to time, the "Credit Agreement"; terms defined therein being used herein as
----------------
therein defined unless otherwise defined herein) with MMI Holdings, the Banks,
the Syndication Agent, Citicorp and the Administrative Agent.
(2) In accordance with the letter dated November 1, 1999, from MMI to
the Administrative Agent MMI Holdings intends to make a tender offer to
purchase, retire or redeem up to 4.1 million of its common shares at a price of
$10.35 per share and any options to purchase any capital stock of MMI, issued to
and held by certain current and former employees and members of management, of
Stream International Inc. ("Stream International"), Corporate Software &
--------------------
Technologies, Inc. ("CST") and MMI, respectively, pursuant to employee stock
---
option plans (the "Employee Stock Option Redemption"). In order to consummate
--------------------------------
the Employee Stock Option Redemption, MMI Holdings may be unable to comply with
certain of its obligations set forth in the Credit Agreement.
(3) The parties hereto have agreed to amend the Credit Agreement as
hereinafter set forth.
<PAGE>
2
SECTION 1. Amendments to Credit Agreement. Amendment to Section 8.10
---------------------------------------------------------
of Credit Agreement. Section 8.10 of the Credit Agreement is hereby amended by
- -------------------
deleting it in its entirety and replacing therefor a new Section to read as
follows:
"8.10 Minimum Tangible Net Worth. MMI Holdings will not permit its
--------------------------
Tangible Net Worth at the end of each fiscal quarter to be less than an
amount equal to the sum of (i) 85% of the Tangible Net Worth of MMI as of
December 31, 1999 plus (ii) 75% of cumulative Consolidated Net Income of
MMI Holdings without deduction for losses for all fiscal quarters ending
after December 31, 1999 plus (iii) 100% of the Net Cash Proceeds from the
issuance or sale by MMI Holdings or any of its Subsidiaries to any Person
other than MMI Holdings or any of its Subsidiaries of any capital stock or
other ownership or profit interest, any securities convertible into or
exchangeable for capital stock or other ownership or profit interest or any
warrants, rights or options to acquire capital stock or other ownership or
profit interest (other than equity issued in connection with the exercise
by employees of any Credit Party or any of its Subsidiaries of employee
stock option); provided, however, that in no event shall MMI Holdings
-----------------
permit its Tangible Net Worth at any time to be less than $5,500,000."
SECTION 2. Waivers. Sections of Credit Agreement. The Borrowers hereby
-------------------------------------
request that the Required Banks and the Administrative Agent waive, and each of
the Required Banks and the Administrative Agent hereby agrees to waive, the
provisions of (a) Section 8.02 of the Credit Agreement with respect to the
purchase or acquisition of any part of the property or assets of any Person
solely to permit the Employee Stock Option Redemption, (b) Section 8.06 of the
Credit Agreement with respect to the purchase or acquisition of any capital
stock solely to permit the Employee Stock Option Redemption, and (c) Section
8.07 of the Credit Agreement with respect to the purchase, redemption,
defeasance or retirement of shares of MMI and of any options to purchase any
capital stock of MMI issued and held by employees of MMI, Stream International
and CST solely to permit the Employee Stock Option Redemption, provided,
however, that in the case of each of clauses (a), (b) and (c) the aggregate
purchase, retirement or redemption price of all the shares of MMI and all the
stock options held by employees does not exceed $41,845,868 or a pro rata share
thereof calculated on the basis of a redemption price of $10.35 per share with a
maximum number of shares which may be so purchased, retired or redeemed of
4,043,079.
With respect to the waiver provided for hereunder, the Banks hereby waive
any Event of Default arising under the Credit Agreement resulting from the
failure of any Credit Party to comply with the obligations set forth in Sections
8.02, 8.06 and 8.07 of the Credit Agreement referred to above solely with
respect to and to permit the Employee Stock Option Redemption and subject to the
limitations set forth in this Section 2.
<PAGE>
3
SECTION 3. Representations and Warranties. The Borrowers represent and
------------------------------
warrant that the representations and warranties contained in each of the Credit
Documents are true and correct on and as of the date hereof with the same effect
as though made on and as of the date hereof, unless stated to relate to a
specific earlier date, in which case such representations and warranties were
true and correct as of such earlier date.
SECTION 4. Reference to and Effect on the Credit Agreement. (a) Upon
-----------------------------------------------
the effectiveness of this Amendment and Waiver, on and after the date hereof,
each reference in the Credit Agreement to "this Agreement", "hereunder",
"hereof" or words of like import referring to the Credit Agreement shall mean
and be a reference to the Credit Agreement, as amended hereby. The Credit
Agreement, as amended by this Amendment and Waiver, is and shall continue to be
in full force and effect and is hereby ratified and confirmed.
(b) The Credit Agreement, the Notes and each other Credit Document are and
shall continue to be in full force and effect and are hereby in all respects
ratified and confirmed. Without limiting the generality of the foregoing, the
Security Documents and all of the Collateral described therein do and shall
continue to secure the payment of all Obligations of the Credit Parties under
the Credit Documents, in each case as amended by this Amendment and Waiver.
(c) The execution, delivery and effectiveness of this Amendment and Waiver
shall not, except as expressly provided herein, operate as a waiver of any
right, power or remedy of any Bank or the Agents under any of the Credit
Documents, nor constitute a waiver of any provision of any of the Credit
Documents.
SECTION 5. Effectiveness of this Amendment and Waiver. This Amendment
------------------------------------------
and Waiver shall become effective as of the date first above written when and if
the Administrative Agent shall have received counterparts of this Amendment and
Waiver executed by the Borrowers and the Required Banks and the consent attached
hereto executed by each of the Guarantors parties thereto and the Borrower shall
have paid to the Administrative Agent a fee equal to ___ bps. on the Total
Revolving Loan Commitment arising in connection with this Amendment and Waiver.
SUCH FEE SHALL BE PAID ON A PRO RATA BASIS TO EACH OF THE BANKS THAT SHALL HAVE
EXECUTED AND DELIVERED THIS AMENDMENT AND WAIVER TO THE ADMINISTRATIVE AGENT'S
LEGAL COUNSEL AT OR BEFORE 3:00 P.M. (EASTERN TIME) ON FRIDAY, NOVEMBER 12,
1999. This Amendment and Waiver is subject to the provisions of Section 12.12 of
the Credit Agreement.
SECTION 6. Execution in Counterparts. This Amendment and Waiver may be
-------------------------
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute but
one and the same agreement.
<PAGE>
4
SECTION 7. Governing Law. This Amendment and Waiver and the rights and
-------------
obligations of the parties hereunder shall be governed by and construed and
interpreted in accordance with the laws of the State of New York.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
<PAGE>
5
IN WITNESS WHEREOF, the parties hereto have caused this Amendment and
Waiver to be executed by their respective officers thereunto duly authorized, as
of the date first written above.
MODUS MEDIA
INTERNATIONAL INC.
By: /s/ Richard M. Darer
--------------------------------
Name: Richard M. Darer
Title: CFO and EVP
MODUS MEDIA INTERNATIONAL
LIMITED
By: /s/ Paul Moore
--------------------------------
Name: Paul Moore
Title: Director
MODUS MEDIA INTERNATIONAL PTE. LTD.
By: /s/ Richard M. Darer
--------------------------------
Name: Richard M. Darer
Title: Director
MODUS MEDIA INTERNATIONAL
IRELAND (HOLDINGS)
By: /s/ Terry Leahy
--------------------------------
Name: Terry Leahy
Title: Director
MODUS MEDIA INTERNATIONAL PTY. LTD.
By: /s/ Terry Leahy
--------------------------------
Name: Terry Leahy
Title: Director
<PAGE>
6
MODUS MEDIA INTERNATIONAL B.V.
By: /s/ Hewk Bartels
--------------------------------
Name: Hewk Bartels
Title: Director
MODUS MEDIA INTERNATIONAL
HOLDINGS INC.
By: /s/ Richard M. Darer
--------------------------------
Name: Richard M. Darer
Title: CFO and EVP
BANK OF AMERICA, N.A.,
individually and as
Administrative Agent
By:
--------------------------------
Title:
CITICORP USA, INC.,
individually and as Collateral Agent,
Documentation Agent and Multi-Currency
Agent
By:
--------------------------------
Title:
BANKBOSTON, N.A.
By:
--------------------------------
Title:
<PAGE>
7
FIRST UNION NATIONAL BANK
By:_____________________________
Title:
THE FIRST NATIONAL BANK OF
CHICAGO
By:_____________________________
Title:
HELLER FINANCIAL, INC.
By:_____________________________
Title:
FLEET NATIONAL BANK
By:_____________________________
Title:
IBJ WHITEHALL BUSINESS
CREDIT CORPORATION
By:_____________________________
Title:
<PAGE>
8
NATIONAL CITY
COMMERCIAL FINANCE
By:_____________________________
Title:
PNC BANK NATIONAL ASSOCIATION
By:_____________________________
Title:
TRANSAMERICA BUSINESS
CREDIT CORPORATION
By:_____________________________
Title:
FLEET CAPITAL CORPORATION
By:_____________________________
Title:
<PAGE>
CONSENT
Dated as of November 12, 1999
Each of the undersigned, Modus Media International Documentation Services
(Ireland) Limited, Modus Media International (Ireland) Limited and Modus Media
International (Australia) Limited, each as a Guarantor (the "US Guarantors"),
under the U.S. Subsidiary Guaranty dated December 15, 1997 (the "US Guaranty")
by each of the US Guarantors in favor of the Guaranteed Creditors (as defined in
the Credit Agreement dated as of December 15, 1997 (as heretofore amended by the
First Amendment to Credit Agreement dated as of February 18, 1998, the Second
Amendment to Credit Agreement dated as of February 27, 1998, the Third Amendment
to Credit Agreement dated as of August 10, 1998, the Fourth Amendment to Credit
Agreement and Waiver dated as of November 6, 1998, the Fifth Amendment to
Credit Agreement dated as of December 31, 1998, the Sixth Amendment to Credit
Agreement and Waiver dated as of May 10, 1999, the Seventh Amendment to Credit
Agreement and Waiver dated as of June 25, 1999 and the Eighth Amendment to
Credit Agreement and Waiver dated as of September 30, 1999 in each case among
the parties thereto, as further amended by the foregoing Ninth Amendment to
Credit Agreement and Waiver dated as of November 12, 1999, and as otherwise
supplemented from time to time, the "Credit Agreement"; terms defined therein
being used herein as therein defined unless otherwise defined herein) among
Modus Media International Inc., and the other borrowers party thereto (the
"Borrowers"), Modus Media International Holdings Inc., the lenders from time to
time party thereto (the "Banks"), NationsBanc Montgomery Securities LLC, as
Arranger and Syndication Agent, Citicorp USA, Inc. ("Citicorp"), as Multi-
Currency Agent, Documentation Agent and Collateral Agent, and Bank of America,
N.A., formerly known as NationsBank, N.A., successor in interest by merger with
NationsBank of Texas, N.A., as Administrative Agent (in such capacity, the
"Administrative Agent")), and Modus Media International (Ireland) Holdings,
Modus Media International Fulfillment Services Europe, Modus Media International
Dublin and Modus Media International Kildare, each as a Guarantor (the "Irish
Guarantors"), under the Foreign Subsidiary Guaranty dated January 30, 1998 (the
"Irish Guaranty") by each of the Irish Guarantors in favor of the Guaranteed
Creditors (as defined in the Credit Agreement) hereby consents to the foregoing
Eighth Amendment to Credit Agreement and Waiver and hereby confirms and agrees
that (a) notwithstanding the effectiveness of the foregoing Amendment, each of
the US Guaranty and the Irish Guaranty and each other Credit Document to which
the undersigned is a party is, and shall continue to be, in full force and
effect and is hereby ratified and confirmed in all respects, except that, on and
after the effectiveness of the foregoing Amendment, each reference in the US
Guaranty and the Irish Guaranty and each other Credit Document to the "Credit
Agreement", "thereunder", "thereof" or words of like import shall mean and be a
reference to the Credit Agreement, as amended by the foregoing Amendment or
otherwise supplemented from time to time, and (b) the Security Documents to
which such Guarantor is a party and all of the Collateral and the Security
Agreement Collateral, as the case may be, described therein do, and shall
continue to, secure the payment of all of the Secured Obligations (in each case,
as defined therein).
<PAGE>
MODUS MEDIA INTERNATIONAL
DOCUMENTATION SERVICES
(IRELAND) LIMITED
By: /s/ Richard M. Darer
---------------------
Name: Richard M. Darer
Title: CFO and EVP
MODUS MEDIA INTERNATIONAL
(IRELAND) LIMITED
By: /s/ Richard M. Darer
---------------------
Name: Richard M. Darer
Title: CFO and EVP
MODUS MEDIA INTERNATIONAL
HOLDINGS (AUSTRALIA) LIMITED
By: /s/ Richard M. Darer
---------------------
Name: Richard M. Darer
Title: CFO and EVP
MODUS MEDIA INTERNATIONAL
IRELAND (HOLDINGS)
By: /s/ Terry Leahy
---------------------
Name: Terry Leahy
Title: Director
<PAGE>
MODUS MEDIA INTERNATIONAL
KILDARE
By: /s/ Paul Moore
---------------------
Name: Paul Moore
Title: Director
MODUS MEDIA INTERNATIONAL
DUBLIN
By: /s/ Paul Moore
---------------------
Name: Paul Moore
Title: Director
MODUS MEDIA INTERNATIONAL
FULFILLMENT SERVICES EUROPE
By: /s/ Paul Moore
---------------------
Name: Paul Moore
Title: Director
<PAGE>
Exhibit 10.17
AGREEMENT made the 20th day of January 1999 BETWEEN the INDUSTRIAL DEVELOPMENT
- --------- -------
AGENCY (IRELAND) having its principal office at Wilton Park House, Wilton
Place, Dublin 2 ("IDA") of the first part MODUS MEDIA INTERNATIONAL
KILDARE having its registered office at..................("the Company")
of the second part and MODUS MEDIA INTERNATIONAL HOLDINGS, INCORPORATED
having its registered office at..................("the Promoters") of
the third part.
WHEREAS:
- -------
A. The Company which is controlled by the Promoters has been carrying on at
Kildare an industrial undertaking for the production of software/hardware
assembly, on demand printing and technology services in accordance with
proposals furnished to IDA by the Promoters has applied to IDA for
financial assistance towards the cost of expanding its operation which is
intended to give employment to 200 persons over a revised base level of 494
jobs ("the Undertaking");
B. The Company and the Promoters having made the necessary enquiries
are satisfied and represent to IDA that to the best of their belief there
will be available to the Undertaking the relevant resources required for
its proper commercial expansion and efficient operation;
C. The Promoters have represented to IDA that the Undertaking will
contribute to the development of the Irish economy.
NOW IT IS HEREBY WITNESSED that in consideration of the Company implementing
- ------------------------
the said proposals and carrying on the Undertaking in accordance with
this Agreement, IDA agrees to grant to the Company the sum of 1,800,000
Irish Pounds or the aggregate of 9,000 Irish Pounds for each job created
over a base level of 494 in the Undertaking in accordance with Paragraph 7
of the Second Schedule hereto whichever is the lesser ("the grant")
subject to the following terms and conditions including those contained
in the Schedules hereto:
-1-
<PAGE>
1. DEVELOPMENT OF THE UNDERTAKING:
------------------------------
The development of the Undertaking and in particular the provision of
employment shall be substantially in accordance with the particulars given
in the said proposals.
2. CONTROL OF THE COMPANY:
----------------------
The controlling interest in the Company shall be held directly or indirectly
by the Promoters unless otherwise agreed to in writing by IDA.
3. PROVISION OF ELIGIBLE ASSETS:
----------------------------
The provision of the fixed assets shall be as set forth in the First Schedule.
4. PROMOTERS INVESTMENT:
--------------------
The Company shall procure or provide for the purposes of the Undertaking:-
4.1 Additional Equity Equivalent of IR(pounds) 1,800,000;
For the purposes of this Agreement "Equity Equivalent" shall mean the
total monies obtained by the Company as follows:-
4.1.1 cash received by the Company from the Promoters in consideration
for the issue at par of fully paid-up Ordinary Shares in the
Company; and/or
4.1.2 retained earnings of the Company capitalised at par as fully
paid-up Ordinary Shares in the Company; and/or
4.1.3 retained earnings of the Company transferred to a special non-
distributable reserve account which shall be maintained at the
appropriate level for the duration of this Agreement; and/or
4.1.4 loans from the Promoters on the following terms and conditions
("Subordinated Loans"):-
4.1.4.1 that no interest on such loans shall be payable by the
Company except out of profits which would otherwise
be available for dividend;
4.1.4.2 that no such loans shall be repaid except out of
profits of the Company which would otherwise be
available for dividend or out of a new loan obtained
on the same terms for this purpose, or out of the proceeds
of a new issue at par of fully paid-up Ordinary
Shares of the Company made for this purpose;
4.1.4.3 that where any such loans are repaid out of profits,
there shall be transferred out of profits which
would otherwise
-2-
<PAGE>
have been available for dividend to a special non-distributable
reserve account a sum equal to the amount of the loan repaid,
and that there shall be no reduction in the amount of such
special non-distributable reserve account during the term of
this Agreement;
4.1.4.4 that where any such loans are repaid out of a new loan obtained
for this purpose, the new loan shall be subject to these
conditions as if it were the original loan;
4.1.4.5 that in the event of the winding up of the Company the amount
of any such loans still outstanding shall be subordinated to
the claims of the unsecured creditors of the Company;
PROVIDED ALWAYS that not less than 25% of the Equity Equivalent shall be
---------------
Ordinary Shares in the Company as specified at Clauses 4.1.1 and/or 4.1.2
above and PROVIDED FURTHER that retained earnings utilised as Equity
-----------------
Equivalent as aforesaid shall not include any sum received in respect of
the grant or derived from a revaluation of the fixed assets of the Company.
4.2 Such further sums, including working capital, as may be required for
the Undertaking.
4.3 The total amount paid from the grant shall at no time exceed the total
amount of Equity Equivalent of which at all times not less than 25% shall
comprise an amount for issued Ordinary Shares in the Company as aforesaid.
5. PLANNING PERMISSION AN PREVENTION OF POLLUTION:
----------------------------------------------
The Company shall:-
5.1 obtain all relevant permissions prescribed by Local and/or National
Authorities and shall comply with all requirements of such permissions and
with all Building Regulations and Statutory requirements (if any)
required for the Undertaking;
5.2 comply with all statutory requirements and other requirements which IDA
reasonably considers to be necessary in relation to environmental
controls and the prevention of pollution.
-3-
<PAGE>
6. GUARANTEES:
-----------
The Company shall not give a guarantee in respect of any borrowings other
than borrowings for the purpose of the Undertaking.
7. INSURANCE:
----------
The Company shall:-
7.1 keep all the assets insured to their full cost of reinstatement against
loss or damage by fire and explosion;
7.2 obtain on commencement of production and in accordance with good
commercial practice Consequential Loss Insurance to adequately indemnify
the Company against losses and costs resulting from fire and explosion, and
7.3 make arrangements to ensure that IDA will be notified of any failure
to renew the insurance specified at Clauses 7.1 and 7.2 hereof and also of
any change in such insurance.
8. RESTORATION OF FIXED ASSETS:
-----------------------------
If there should be damage to or loss of fixed assets including buildings
under construction through fire or explosion or any other cause the insurance
or other compensation received by the Company shall be used forthwith to
restore to the reasonable satisfaction of IDA the property so damaged or
lost and in the event of such compensation being insufficient for that
purpose the Company shall make good the deficiency out of its own funds.
9. NON-DISTRIBUTION OF THE GRANT:
------------------------------
The Company shall not distribute by way of dividend on the share capital
of the Company or otherwise any sum received in respect of the grant.
10. ROYALTIES OR SIMILAR PAYMENTS:
------------------------------
The Company may only make royalty or similar payments on the following
terms and conditions:-
10.1 that to the extent that the said royalty and/or similar payments
exceed 5% of the Company's net annual sales, such excess shall not be
payable except out of profits of the Company which would otherwise be
available for dividend; and
10.2 that in the event of winding up of the Company the amount of any
such excess accrued or accruing for payment but unpaid shall be
-4-
<PAGE>
subordinated to the claims of the unsecured creditors, including
IDA, of the Company;
PROVIDED ALWAYS that the provisions of this Clause shall not apply to
- ---------------
bona fide third party arms length transactions.
11. PAYMENT OF THE GRANT:
---------------------
11.1 The grant shall be paid subject to the following terms and conditions
and the Company shall provide evidence satisfactory to IDA:-
11.1.1 that the Company has been properly incorporated and that its
Memorandum and Articles of Association empower the Company to
implement this Agreement;
11.1.2 that the Company has obtained suitable premises for the Undertaking
and has title acceptable to IDA to all land and buildings required
for the Undertaking;
11.1.3 that the Company is in compliance with all the terms and
conditions of its property agreements, if any, with IDA;
11.1.4 that the necessary arrangements have been made for the provision of
all capital required for the Undertaking as specified at Clause 4
hereof;
11.1.5 that all Planning Permissions as aforesaid have been obtained and
complied with;
11.1.6 that all requirements for the control of the environment
and prevention of pollution as aforesaid have been obtained and
complied with;
11.1.7 that insurance arrangements as aforesaid have been made;
11.1.8 that the Company has obtained a tax number in the relevant tax
district; that it is up to date in its tax affairs with the Revenue
Commissioners and prior to payment from the grant it shall submit
an up-to-date tax clearance certificate from the Revenue
Commissioners;
11.1.9 that the Company has complied up-to-date with all the provisions of
this Agreement;
11.2 Subject to compliance with all the relevant terms of this Agreement
the grant shall be paid to the Company in accordance with the arrangements
set forth in the Second Schedule hereto
-5-
<PAGE>
12. ACHIEVEMENT OF PROJECTED PERFORMANCE:
------------------------------------
Schedule of Grant Drawdown for the Undertaking
----------------------------------------------
Base Year Year 1 Year 2 Year 3
--------- ------ ------ ------
Period Ending Ending Ending Ending
------ ------ ------ ------ ------
31.12.1998 31.12.1999 31.12.2000 31.12.2001
---------- ---------- ---------- ----------
Cumulative Jobs to be 494 609 694 694
created
Maximum Cumulative - 517,000 1,417,000 1,800,000
Grant Drawdown IR(pounds)
Unless otherwise agreed to by IDA and notwithstanding any other provision in
this Agreement:
12.1 The aggregate amount payable from the grant in each period set out above
shall not exceed the maximum amount specified for that period.
12.2 The maximum grant drawdown in the period to the end of Year 1 shall be
available subject to compliance with the provisions of this Agreement.
12.3 Subject to compliance as aforesaid, payment from the maximum cumulative
grant drawdowns in the periods to the end of Years 2 and 3 respectively,
shall be conditional upon the cumulative number of Jobs (as set out above)
being created by the immediately preceding end of year; in the event of
such number of Jobs not having been created by the relevant date no part
of the grant drawdown for the following year will be paid to the Company
until such number of Relevant Jobs has been created.
12.4 On or after 31 December 2001 the Company and IDA shall review the
development of the Undertaking to that date with particular reference to
the creation of Jobs in the Company. Should the total number of jobs
existing in the Company at the date of review be less than 694, unless
otherwise agreed to by IDA and notwithstanding any other provision in this
Agreement, all monies paid from the grant on foot of this Agreement in
excess of IR(pounds) 9,000 per Job multiplied by the number of Jobs (in
excess of 494 Jobs) existing in the Company at the date of review shall
be repayable on demand to IDA by the Company (and in the event of default
-6-
<PAGE>
by the Company in making repayment shall be repayable on demand by the
Promoters) within one month from date of demand.
For the purposes of this Clause "Jobs" shall mean full-time permanent
Jobs existing in the Company at the relevant date.
13. FURNISHING OF INFORMATION:
-------------------------
13.1 The Company shall permit the officers and agents of IDA to inspect the
fixed assets at all reasonable times during the term of this Agreement and
shall furnish to IDA promptly whenever required to do so by IDA all such
information and documentary evidence as IDA may from time to time
reasonably require to vouch compliance by the Company with any of the
terms and conditions of this Agreement.
13.2 The Company acknowledges the right of IDA to consult with relevant third
parties to obtain any information it requires relating to the affairs of
the Company and/or the Promoters prior to any payment from the grant and
to withhold grant payments in the event of such information being
unsatisfactory to IDA. The Company and/or the Promoters hereby undertake
to instruct such third parties to furnish any such information to IDA, on
request.
13.3 The Company and/or the Promoters shall submit Annual Audited Accounts
satisfactory to IDA for the duration of this Agreement within six months
from the end of the relevant financial year.
14. NOTICES:
-------
14.1 The Certificate of an Officer of IDA certifying any decision of IDA taken
or made hereunder shall be conclusive evidence of any such decision.
14.2 Any notice by IDA to the Company or the Promoters or vice-versa under this
Agreement shall be sent by registered post to the Registered Office of the
party for whom it is intended.
15. CONSENTS:
--------
15.1 Circumstances requiring the consent, approval or permission of any party
hereto shall be interpreted to mean that such consents, approvals or
permissions shall not be unreasonably withheld. This provision shall not
apply to the provisions of Clause 2 hereof.
15.2 Any variation or modification of any of the terms or conditions herein
made at the request of or with the agreement of the Company and with the
consent of IDA shall not in any way determine or prejudice the
- 7 -
<PAGE>
Promoters' liability hereunder PROVIDED that the financial amount of the
Promoters' said liability shall not be increased without its express
agreement in writing.
16. TERMINATION OF AGREEMENT:
------------------------
This Agreement shall terminate five years from the date of the last
payment from the grant.
17. CANCELLATION AND REVOCATION OF THE GRANT:
----------------------------------------
IDA may stop payment of the grant and/or revoke and cancel or reduce the
grant or so much thereof as shall not then have been actually paid to the
Company if any one or more of the following events occur:-
17.1 if there be any breach of the terms or conditions of Clause 2 hereof
and/or Paragraph 2 of the Third Schedule hereto;
17.2 if the Company should to a material extent be in breach of any of the
terms and conditions of this Agreement other than those specified in
Clause 17.1 and having failed to establish to the reasonable satisfaction
of IDA that such breach was due to force majeure shall not have rectified
such breach within 30 days after written notice thereof has been served on
the Company;
17.3 if an order is made or an effective resolution is passed
for the winding up of the Company;
17.4 if a Receiver or an Examiner is appointed over any of the property of the
Company or if a distress or execution is levied or served upon any of the
property of the Company and is not paid off within 30 days;
17.5 if the Company should cease to carry on the Undertaking.
If the grant be revoked the Company and/or the Promoters shall repay to IDA on
demand all sums received in respect of the grant, and if the grant be reduced
the Company and/or the Promoters shall repay to IDA on demand all sums received
in excess of the amount of the reduced grant and in either case in default of
such repayment such sums shall be recoverable by IDA from the Company and/or the
Promoters as a joint and several simple contract debt.
18. GOVERNING LAW:
-------------
This Agreement shall be governed by and be construed in accordance with the Laws
of Ireland and the parties hereto expressly and irrevocably submit to the
jurisdiction of the Irish Courts and the Promoters hereby irrevocably appoint
the
- 8 -
<PAGE>
Company to be its attorney for the purpose of accepting service on its behalf of
any notice, document or legal process with respect to the Promoters' obligations
pursuant to the provisions of Clause 17 (and/or Clause 12) hereof and service of
any such document on such attorney shall be deemed for all purposes to be good
service.
- 9 -
<PAGE>
FIRST SCHEDULE
--------------
PROVISIONS OF FIXED ASSETS FOR THE UNDERTAKING
----------------------------------------------
1. FIXED ASSETS ESTIMATED COSTS
IR(pounds)
1.1 Buildings and Modifications 3,360,000
1.3 New Machinery and 9,337,000
Equipment
Total 12,697,000
2. The Company shall:-
2.1 have the construction of the said proposed factory buildings and building
modifications for the Undertaking commenced to the satisfaction of IDA not
later than 1 April 1999 and completed in a proper and satisfactory manner
not later than 31 December 2000;
2.2 Purchase and have installed in a proper and workmanlike manner ready for
operation in the said factory buildings all machinery and equipment
suitable in all respects required for the Undertaking by 31 December 2000;
2.3 have commenced production in the Undertaking by 31 December 1998.
- 10 -
<PAGE>
SECOND SCHEDULE
---------------
ADDITIONAL TERMS AND CONDITIONS RELATING TO THE
-----------------------------------------------
EMPLOYMENT GRANT
----------------
1. The grant shall be payable in respect of the total number of such jobs
as are created in the Company (in accordance with paragraph 7 of this
Schedule) provided such jobs are occupied by EU citizens who are subject to
Irish taxation.
2. A job for the purposes of grant shall be a permanent full time position
in the Undertaking and shall be deemed to be created when a contract of
employment has been signed and payment has been made to an employee in
respect of work done in the job.
3. The grant in respect of each job created shall be paid in two moieties.
The first moiety shall be payable when the job has been created and the
second moiety shall be payable when permanent full-time employment in the
job for a twelve month period has been completed.
4. Claims for payment of an instalment from the grant may be submitted
monthly and shall be certified by the Company's Auditors in an agreed
format.
5. The Company shall also submit details of the Company's employment history
to date; this shall give such particulars as IDA may require in a format
satisfactory to IDA.
6. IDA may at any time within five years from the date of payment of the
first moiety of the grant in respect of any job revoke the grant paid in
respect of that job if the job should become vacant and remain vacant for
a period in excess of six calendar months.
- 11 -
<PAGE>
7.
Job Description Base Year Year 1 Year 2
1998 1999 2000
Administration and 156 189 218
Support 338 420 476
Operations 494 609 694
Total --- --- ---
- 12 -
<PAGE>
IN WITNESS WHEREOF the parties hereto have affixed their respective seals the
day and year first herein written.
PRESENT when the Seal of the
INDUSTRIAL DEVELOPMENT AGENCY (IRELAND)
was affixed hereto:-
/s/ illegible signature
------------------------
AUTHORISED OFFICER
/s/ illegible signature
------------------------
AUTHORISED OFFICER
PRESENT when the Seal of
MODUS MEDIA INTERNATIONAL KILDARE
was affixed hereto:-
/s/ illegible signature
------------------------
Director
/s/ illegible signature
------------------------
Director
PRESENT when the Seal of
MODUS MEDIA INTERNATIONAL HOLDINGS, INCORPORATED
was affixed hereto:-
/s/ Terence M. Leahy
------------------------
Director
/s/ illegible signature
------------------------
Sr Vice President and
Chief Financial Officer
- 13 -
<PAGE>
EXHIBIT 10.18
BUSINESS TRANSFER
AGREEMENT
dated December 28, 1998
by and between
MODUS MEDIA INTERNATIONAL KABUSHIKI KAISHA
and
SASATOKU DONNELLEY KABUSHIKI KAISHA
<PAGE>
BUSINESS TRANSFER AGREEMENT
---------------------------
THIS AGREEMENT is made as of the 28th day of December, 1998 between
MODUS MEDIA INTERNATIONAL KABUSHIKI KAISHA, a corporation organized and existing
under the laws of Japan, having its principle place of business at 2-28-7
Ochiai, Shinjuku-ku, Tokyo, Japan ("MMIKK); and
SASATOKU DONNELLEY KABUSHIKI KAISHA, a corporation organized and existing under
the laws of Japan, having its place of business at 2-28-7 Ochiai, Shinjuku-ku,
Tokyo, Japan ("SD").
WHEREAS:
- -------
A Modus Media International Inc. and Sasatoku Printing Co., Ltd. executed
the Letter of Intent dated August 28, 1998 in Tokyo, Japan with respect to
a certain restructuring arrangement of MMIKK which is wholly owned by
Modus Media International Inc.
B. MMIKK and SD wish to enter into this Agreement to record their agreement
with respect to the transfer of the business of MMIKK to SD.
NOW THIS AGREEMENT WITNESSES AS FOLLOWS:
- ---------------------------------------
1. Definitions
In this Agreement, unless the context otherwise requires:
"Affiliate" means, with respect to any corporation:
(a) any person owning directly or indirectly a majority of outstanding
voting shares or interests of such corporation (such person owning
such shares or interests being hereinafter called the "Parent");
(b) any corporation, limited liability company, partnership, or other
legal entity of which a majority of the outstanding voting shares or
interests are owned directly or indirectly by the Parent; or
1
<PAGE>
(c) any other corporation, limited liability company, partnership, or
other legal entity of which a majority of the outstanding voting
shares or interests are owned directly or indirectly by such
corporation,
and, for the purposes of this definition, ownership of voting shares or
interest by a person for the purpose of this definition includes shares or
interests owned directly or indirectly by the person and shares or
interests owned directly or indirectly by one or more affiliates of such
person;
"Transferred Assets" means assets and inventories of MMIKK as of the
Completion Date, to be specified in a report to be prepared by MMIKK in a
form of Exhibit 1 attached hereto and signed by SD in accordance with
Clause 6.2.
"Transferred Business" means the whole of the turnkey services and related
businesses of MMIKK comprising the Transferred Assets and the Transferred
Liabilities;
"Completion Date" means December 31, 1998;
"GAAP" means generally accepted accounting practices and principles in
Japan;
"Transferred Liabilities" means the liabilities of MMIKK as of the
Completion Date, to be specified in a report to be prepared by MMIKK in a
form of Exhibit 1 attached hereto and signed by SD in accordance with
Clause 6.2.
"Purchase Price" means the balance between the Transferred Assets and the
Transferred Liabilities (the price described in the Net Asset Value
Statement of Exhibit 1). Provided; that the value of these Transferred
Assets and Liabilities shall be decided in accordance with the book value
of MMIKK as of the Completion Date. The books and accounts of MMIKK shall
be prepared in accordance with GAAP. The Purchase Price which is decided
based upon the book value as of November 30, 1998 shall be called the
"Provisional Purchase Price" (the price described in the Net Asset Value
Statement of Exhibit 2).
"Transferred Personnel" means each of the individuals specified in Exhibit
3.
2. Execution Date of the Agreement
2
<PAGE>
2.1 The parties agree that, on or before December 15, 1998 (or on another date
mutually agreed upon); they shall execute this Agreement.
2.2 In the event that for any reason this Agreement is not executed by December
31, 1998 or such later date as the parties agree, each party may
discontinue negotiations and terminate this Agreement without liability to
the other.
3. Transfer and Purchase Price
---------------------------
3.1 In consideration of the payment of the Purchase Price by SD to MMIKK, MMIKK
will agree to sell the Transferred Business to SD and SD will agree to
purchase the Transferred Business on the Completion Date.
3.2 On or before December 31, 1998, SD shall pay the Provisional Purchase Price
(the price described in the Net Asset Value Statement of Exhibit 2),
calculated by reference to the balance sheet of MMIKK as of November 30,
1998, to MMIKK by telegraphic transfer to such a bank account as MMIKK may
notify to SD. If the transfer of the Transferred Business is not completed
on the Completion Date (or by such later date as the parties may agree),
MMIKK shall refund the Purchase Price to SD. The parties acknowledge and
agree that, based on current projections, they anticipate that the
Provisional Purchase Price shall be 316,213,528 yen.
3.3 Prior to the execution date of this Agreement, MMIKK shall prepare a report
(Exhibit 2) listing the Transferred Assets and the Transferred Liabilities
in reasonable detail based on its balance sheet as of November 30, 1998.
Following the completion of its due diligence review pursuant to Clause
5(a) and, in any event, prior to December 15, 1998, SD shall countersign
such Statement (the Net Asset Value Statement of Exhibit 2) to confirm its
agreement with the list of the Transferred Assets and the Transferred
Liabilities.
4. Completion
----------
4.1 The parties will agree that legal title to all of the Transferred Assets
shall be transferred from MMIKK to SD on the Completion Date and that SD
shall assume all of the Transferred Liabilities on the Completion Date.
3
<PAGE>
4.2 Promptly following the date of execution of this Agreement referred to in
Clause 2.1 and, in any event prior to January 4, 1999, MMIKK shall deliver
to SD, and SD shall accept from MMIKK.
(a) all original documents of title in the possession of MMIKK with
respect to the Transferred Assets set forth in Exhibit 2;
(b) possession of the Transferred Assets set forth in Exhibit 2;
(c) a notice addressed to each third party with whom MMIKK has entered
into a contract relating to the Transferred Assets set forth in
Exhibit 2, notifying such third party that MMIKK has assigned its
interest in such contract to SD;
(d) all customer lists in relation to the Transferred Business;
(e) other Transferred Assets to be identified based on the balance sheet
of MMIKK as of December 31, 1998;
4.3 With effect on and from January 1, 1999, SD shall employ the Transferred
Personnel (subject to the agreement of the Transferred Personnel) on terms
and conditions no less favorable than the terms and conditions of
employment provided by SD to its employees as of the Completion Date.
5. Conditions Precedent
--------------------
5.1 It shall be a condition precedent to the obligations of SD to purchase the
Transferred Business that:
(a) SD shall have satisfactorily completed such due diligence with respect
to the Transferred Assets as may be reasonable and normal for a
transaction of this type;
(b) the transfer of the Transferred Business from the MMIKK to the SD shall
have been approved by the shareholders of each of MMIKK and SD, in
accordance with the provisions of the Japanese Commercial Code;
4
<PAGE>
(c) a notification of the proposed transfer of the Transferred Business
shall have been filed with the Japanese Fair Trade Commission, and
during the period of 30 days following the date of acceptance of such
filing, the Japanese Fair Trade Commission shall not have raised any
objection to the transfer of the Transferred Business;
(d) the parties shall have received all other required approvals and
consents from governmental authorities and agencies and third parties;
(e) SD shall have obtained financing with respect to the Purchase Price on
terms and conditions reasonably satisfactory to Sasatoku Printing Co.,
Ltd. and Modus Media International Inc.;
(f) SD has received a copy of a consent from each person with whom MMIKK
has entered into a material contract forming part of the Transferred
Assets with respect to the transfer of such contract to SD;
(g) SD has received a copy of a consent from each person to whom MMIKK has
any material Transferred Liability with respect to the assumption of
such Transferred Liability by SD;
(h) the truth and accuracy of all representations and warranties contained
in this Agreement; and
(i) no material change will occur in the business or financial condition
of MMIKK between the date of the accounts (November 30, 1998) referred
to in Clause 6.1 and the date of the Completion Date.
5.2 It shall be a condition precedent to the obligations of MMIKK to sell the
Transferred Business that MMIKK has obtained the approval of its bankers to
the sale of the Transferred Business.
6. Accounts and Purchase Price Adjustment
--------------------------------------
6.1 MMIKK shall prepare a balance sheet showing the financial position of MMIKK
as of November 30, 1998 and attach hereto. Such balance sheet shall be
prepared in accordance with GAAP, but shall not be audited.
5
<PAGE>
6.2 Promptly following the Completion Date, MMIKK shall prepare a balance sheet
showing the financial position of MMIKK as of December 31, 1998. MMIKK
shall further prepare a report to show the book value of the Transferred
Assets and the Transferred Liabilities and the current status thereof as
of December 31, 1998 (in a form of Exhibit 1 of this Agreement). The
balance sheet together with the report (Exhibit 1) shall be submitted to
SD, in no event later than January 25, 1999. Immediately after receiving
these documents, SD shall implement an audit thereof, and shall submit
objections to these documents, if any, to MMIKK within 2 weeks of receipt
thereof. In the event that SD agrees to the documents, it shall
countersign the Net Asset Value Statement in Exhibit 1 to confirm its
agreement therewith. Exhibit 1 signed by SD shall be additionally attached
hereto as a formal Exhibit to this Agreement. In the event that the
balance sheet has been prepared in accordance with GAAP, SD shall not be
entitled to make any claim as to the evaluation (book value) of the
Transferred Assets and the Transferred Liabilities. MMIKK shall fully
cooperate with SD, and provide the accountant designated by SD with full
access to books and accounts and other necessary documents as to the
Transferred Assets so that the accountant may be able to perform a
complete audit of the documents. In the event of a dispute between MMIKK
and SD as to the preparation of such balance sheet, MMIKK and SD agree to
accept the decision of the accounting auditor who shall be appointed by
the parties based on their mutual agreement with respect to such matter.
6.3 If there is a discrepancy between the amount of the Provisional Purchase
Price paid by SD pursuant to Clause 3.2 and the amount of the price
described in the Net Asset Value Statement of Exhibit 1 determined by
reference to the December 31, 1998 accounts prepared under Clause 6.2, the
parties shall, on or before March 9, 1999, make such adjustment payments
as may be necessary to ensure that the net amount paid by SD to MMIKK for
the Transferred Business (following such adjustment) equals price
described in the Net Asset Value Statement in Exhibit 1 determined by
reference to the December 31, 1998 accounts (book value) referred to in
Clause 6.2.
7. Obligations of MMIKK
---------------------
7.1 In the event that any difference of book value which exceeds one (1)
million yen arises as to the value of each of the Transferred Assets and/or
each of the Transferred Liabilities between November 30, 1998 and December
31, 1998, such difference shall be respectively set forth in the report
provided for in Clause 6.2.
6
<PAGE>
7.2 Between the date of this Agreement and the Completion Date, MMIKK shall:
(a) use its best endeavors to obtain the consent to the transfer of
employment of the Transferred Personnel from MMIKK to SD;
(b) notify SD immediately if it becomes aware of any objection to the
transaction by any of its major creditors; and
(c) use its best endeavors to obtain the consent of applicable third
parties to the assignment of the contracts forming part of the
Transferred Assets and the assumption of the Transferred Liabilities.
8. Guarantee of the Transferred Assets
-----------------------------------
The price for the Transferred Assets shall be guaranteed in accordance
with the arrangement set forth herein based on the status of the
Transferred Assets as of June 30, 1999 (the Standard Date):
8.1 SD shall dispose of the inventories included in the Transferred Assets in
accordance with the steps set forth below by the Standard Date:
(a) To make its best efforts to sell all of the inventories.
(b) To request customers to purchase the inventories.
(c) To request customers to pay storage charges if they do not wish to
purchase the inventories.
In the event that SD has inventories, which do not fall under any
categories set forth above as of the Standard Date, such inventories may be
deemed as obsolete inventories.
8.2 SD shall make its best efforts to collect the account receivable included
in the Transferred Assets by its due date. Despite SD's such effort, if it
has any uncollected account receivable over due because of insolvency of
the debtor, such account receivable may be deemed as a bad debt.
8.3 SD shall submit a list of the obsolete inventories and the bad debts as of
the Standard Date in a form of Exhibit 1 to MMIKK on or before July 5,
1999. A report explaining the situation under which SD found that the
inventories and the account receivable as obsolete inventories and/or bad
debts should be attached to the list.
8.4 MMIKK shall buy back the inventories and the account receivable, which
shall be deemed as obsolete inventories and/or bad debt, for the price set
forth in Exhibit 1 on or before July 15, 1999. Provided, however that the
total price for the obsolete
7
<PAGE>
inventories and/or the account receivable shall not exceed six (6)
percent of the total amount of the Transferred Assets as of December 31,
1998 set forth in Exhibit 1. In no event, MMIKK shall be responsible for
purchasing back the obsolete inventories and/or the bad debts in excess of
the amount set forth herein.
8.5 In the event that MMIKK will be liquidated on or before the Standard date,
the guaranty obligation set forth herein shall be assumed by MMI Inc., and
SD shall agree to such transfer or guaranty obligation. In such an event,
MMIKK shall ensure that MMI Inc. shall assume such a guaranty obligation in
writing before MMIKK's liquidation, and SD agrees that it shall not make
any claim against MMIKK in its liquidation proceedings.
9. Access for Due Diligence
------------------------
For the purposes of the due diligence review referred to in Clause 5(a),
MMIKK shall, upon reasonable prior notice and during normal business hours,
grant to SD and to its agents, employees and designees full and complete
access to the books and records and personnel of MMIKK for the purpose of
evaluating the Transferred Business, the Transferred Assets and the
Transferred Liabilities. Except as may be required by law or court order,
all information so obtained, not otherwise already public, will be held in
confidence.
10. Representations and Warranties. Each party represents and warrants to the
------------------------------
other that, as of the date of this Agreement:
(a) it is a corporation duly organized and validly existing under the laws
of its place of incorporation and has all requisite corporate power
and authority to own its assets and to conduct its business in the
manner in which it is now conducted;
(b) it has good and sufficient corporate power and authority to execute
and deliver the Agreement and to perform its obligations thereunder;
and
(c) this Agreement has been duly authorized, executed and delivered by it
and, assuming the due authorization, execution and delivery by the
other party, constitutes its legal, valid and binding obligations
enforceable against it in accordance with its terms.
8
<PAGE>
11. Costs and Expenses
------------------
Each party will be responsible for its own expenses in connection with all
matters relating to the transaction contemplated by this Agreement. If the
transactions contemplated by this Agreement are not consummated for any
reason, neither party will be responsible for any of the expenses of the
other party.
12. Counterparts
------------
This Agreement may be signed in any number of counterparts and all such
counterparts taken together shall be deemed to constitute one and the same
document.
13. Governing Law
-------------
This Agreement shall be governed by and construed in all respects in
accordance with the laws of Japan.
14. Jurisdiction
------------
All disputes arising out of or in relation to this Agreement shall be
submitted to the Tokyo District Court for final resolution and each party
hereby submits to the exclusive jurisdiction of the Tokyo District Court
and any courts competent to hear appeals therefrom.
15. Language and Official Version
-----------------------------
This Agreement shall be executed in English language, which language shall
control. A Japanese translation of this Agreement which is verified by both
Parties shall be attached hereto.
9
<PAGE>
IN WITNESS WHEREOF the parties have executed this Agreement on the day mentioned
below:
Date: December 28, 1998
Place: Westwood, MA, U.S.A.
MODUS MEDIA INTERNATIONAL KABUSHIKI KAISHA
/s/ Gene Morphis
BY: Director
Gene Morphis
Date: December 25, 1998
Place: Tokyo, Japan
SASATOKU DONNELLEY KABUSHIKI KAISHA.
/s/ Takashige Sugiyama
BY: Representative Director
Takashige Sugiyama
10
<PAGE>
EXHIBIT I
List of Transferred Assets and Transferred Liabilities
And
Net Asset Value Statement
Book Value based on the balance sheet as of December 31, 1998
Item Book Value
--------------------------------------------------------------
Transferred Assets
Item Book Value
--------------------------------------------------------------
Transferred Liabilities
Net Asset Value Statement
We hereby certify that the balance between the Transferred Assets and the
Transferred Liabilities as of December 31, 1998 is the following amount:
Yen
Modus Media International Kabusiki Kaisha
The Representative Director, President: Tasumi Nakano
We hereby approve the price set forth above as the correct balance as of
December 31, 1998.
February 25, 1998
Sasatoku Donnelley Kabusiki Kaisha
The Representative Director, President: Takashige Sugiyama
11
<PAGE>
EXHIBIT 2
Net Asset Value Statement
We hereby certify that the balance between the Transferred Assets and the
Transferred Liabilities as of November 30, 1998 is the following amount:
316,213,528 Yen
December 15, 1998
Modus Media International Kabusiki Kaisha
/s/ Tasumi Nakano
-----------------
The Representative Director, President: Tasumi Nakano
We hereby approve the price set forth above as the correct balance as of
November 30, 1998.
December 15, 1998
Sasatoku Donnelley Kabusiki Kaisha
/s/ Takashige Sugiyama
----------------------
The Representative Director, President: Takashige Sugiyama
13
<PAGE>
EXHIBIT 1
<PAGE>
EXHIBIT 1 of the Business Transfer Agreement
--------------------------------------------
List of
Transferred Assets and Transferred Liabilities
and
Net Asset Value Statement
15
<PAGE>
<TABLE>
<CAPTION>
(Inventory on Book) (yen)
MSKK SUN IBM OEM NAI OTHERS TOTAL
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ending 14,229,401 132,185,098 43,781,188 25,071,327 4,626,758 24,527,779 244,421,547
- ------------------------------------------------------------------------------------------------------
Parts 14,229,401 118,330,340 38,403,682 24,703,860 4,622,456 16,851,266 217,141,004
WIP 6,831,226 3,960,550 0 4,300 5,268,485 16,064,562
FG 7,023,531 1,416,955 367,467 0 2,408,028 11,215,981
</TABLE>
16
<PAGE>
Book Value based on the Balance Sheet as of December 31, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Transferred Assets Item Book Value
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Account receivable
(Please see the attached list in detail) 658,597,368
------------------------------------------------------------------
Inventory
(Please see the attached list in detail) 244,421,547
------------------------------------------------------------------
Fixed Assets
(Please see the attached list in detail) 41,633,360
------------------------------------------------------------------
Sub-total 944,652,275
- ----------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------
Transferred Liability Item Book Value
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Account Payable 631,255,283
(Please see the attached list in detail)
-----------------------------------------------------------------
Reserved Fund 56,000,000
-----------------------------------------------------------------
Sub-total 687,255,283
-----------------------------------------------------------------
-----------------------------------------------------------------
Grand Total 257,396,992
-----------------------------------------------------------------
</TABLE>
<PAGE>
A/R balance as of 12/31/98
<TABLE>
<CAPTION>
<S> <C>
Dell Computer 6,706,497
Encyclo Soft 26,520,501
Epson Direct 45,607
Epson Hanbai 4,181,202
Gateway 18,837
Hitachi Kaiyo Engineering 6,605,025
Hitachi Seisakusyo 19,956,553
IMES 8,457,750
IBM Corporation 170,625
JBL 1,057,350
COMPAQ 11,560,845
Matsushita Denchi 1,038,450
Network Associates 5,260,008
Million Enterprise 2,355,402
Nihon Oracle 298,200
Nihon Sun Microsystems 194,380,086
Oki Denki 165,533
Info Creates 18,223,670
PUMA Technology 4,091,630
PFU 4,820,627
Shimane Sanyo 40,398,453
SEAGATE 91,057
Shinshin Syoukai 31,033,774
Sanai Kogyo 3,811,446
Sunsoft Inc. 184,779,150
Forbal Creative 37,286
Fujitsu 67,055,759
Mitsubishi Denki 472,820
Yamashita Denki 302,661
Hewlett Packard 780,342
Haiman Denshi 1,184,400
CM Rogistios 19,215
Ryouden Syouji 636,720
Checkpoint 12,050,901
Soft Bank 12,338
OR CAD 16,648
G-Total 658,597,368
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
COST COST Tax Base Tax Base NHV
DESCRIPTION QTY MO YR ??? REG. BAL. INCREASE DECREASE 11/31/99 LIFE RATE Acc Dep Erp 12/31/98
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BUILDING
IMPROVEMENTS
------------------------------------------ -------------------------
Air conditioner 3 3 95 4F 8,400,000 - - 8,400,000 10 0.206 4,917,060 3,482,940
------------------------------------------ -------------------------
Vehicle:
FORKLIFT 1.5T 1 9 95 1F 2,550,000 - - 2,550,000 4 0.438 2,163,449 386,551
FORKLIFT 1.5T 1 10 95 1F 2,550,000 - - 2,550,000 4 0.438 2,146,928 403,072
FORKLIFT 1.5T 1 12 93 2F 2,678,000 - - 2,678,000 4 0.438 2,544,100 133,900
FORKLIFT 1.5T 1 1 94 2F 2,678,000 - - 2,678,000 4 0.438 2,544,100 133,900
------------------------------------------ -------------------------
10,456,000 - - 10,456,000 9,398,576 1,057,424
MACHINERY:
Sealer L_Type
#M84161 1 2 95 2F 513,230 - - 513,230 10 0.206 304,837 208,393
Tracer 8000ST_
Q TEST 3 2 95 4F 6,353,876 - - 6,353,876 8 0.250 4,287,625 2,066,251
Disk Labeler
DL3000 4 2 95 4F 6,858,837 - - 6,858,837 10 0.206 4,073,857 2,784,980
Disk Collator
DC600 4 2 95 4F 4,176,322 - - 4,176,322 8 0.250 2,818,202 1,358,120
Belt Conveyor 20 2 95 3F 5,944,000 - - 5,944,000 10 0.206 3,530,483 2,413,517
Weight Checker 5 2 95 3F 4,250,000 - - 4,250,000 5 0.369 3,543,404 706,596
Shrink Wrap Tunnel 5&4 2 95 3F 23,250,000 - - 23,250,000 6 0.319 18,054,326 5,195,674
Taping Machine 5 2 95 3F 2,200,000 - - 2,000,000 6 0.319 1,708,366 491,634
&
Nichyu
Belt Conveyor
FBG3000l 1 2 95 4F 490,000 - - 490,000 10 0.206 291,039 198,961
Trace 3020 System 4&40 2 95 3F 2,584,513 - - 2,584,513 5 0.369 2,154,818 429,695
PALET WRAPPER
SVUMD 1 12 93 1F 3,244,500 - - 3,244,500 8 0.250 2,490,605 753,895
Trace 3020 Complete 4&40 1 94 4F 29,998,346 - - 29,998,346 8 0.250 22,891,149 7,107,197
Magnet Eraser
(Garner) 1 3 94 4F 257,500 - - 257,500 5 0.369 229,231 28,269
------------------------------------------ -------------------------
90,121,124 - - 90,121,124 66,377,942 23,743,182
------------------------------------------ -------------------------
EQUIPMENT:
PC_Compaq Deskpro
(Accg) 4 5 98 - 888,000 888,000 6 0.319 188,848 699,152
PC_Compaq Deskpro 5 7 98 - 990,000 990,000 6 0.319 157,905 832,095
PC_Compaq Deskpro 4 7 98 - 996,000 996,000 6 0.319 158,862 837,138
PC_IBM Think PAD
560X 1 10 98 - 222,380 222,380 6 0.319 17,735 204,645
------------------------------------------ -------------------------
- 3,096,380 3,096,380 523,350 2,573,030
------------------------------------------ -------------------------
SOFTWARE:
Productivity Soft
for disk
monitor 2 95 1,600,000 - - 1,600,000 5 SL 1,253,333 346,667
Productivity Soft
for replication
machine 3 95 647,250 - - 647,250 5 SL 496,225 151,025
Data Base for Power 8 95 4,185,456 - - 4,185,456 5 8L 2,860,062 1,325,394
PID Label Print SW
development 1 2 97 420,000 - - 420,000 5 8L 161,000 259,000
PID Label Print SW
development 2 8 97 1,252,125 - - 1,252,125 5 8L 354,769 897,356
8,104,831 0 0 8,104,831 5,125,389 2,979,442
------------------------------------------ -------------------------
Atsugi Total 117,081,955 3,096,380 0 120,178,335 86,342,317 33,836,017
------------------------------------------ -------------------------
BUILDING
IMPROVEMENT:
Partion 10 96 4,294,100 - - 4,294,100 10 0.206 1,726,363 2,567,737
Partion 12 96 452,400 - - 452,400 10 0.206 172,087 280,313
Partion/Rack
& Storage 12 96 506,100 - - 506,100 8 0.250 227,350 278,750
Office remodiling
'97 restructure 12 97 650,200 - - 650,100 10 0.206 142,804 507,396
Office remodiling
'98 restructure 12 97 1,516,230 - - 1,516,230 10 0.206 333,010 1,183,220
Office remodeling
(98 katiyt chg) 3 98 - 2,585,776 - 2,585,776 10 0.206 443,892 2,141,884
------------------------------------------ -------------------------
7,419,030 2,585,776 - 10,004,806 3,045,506 6,959,300
------------------------------------------ -------------------------
EQUIPMENT:
PC IBM Think Pad 1 3 97 375,988 - - 375,988 6 0.319 188,006 187,980
PC IBM Think Pad 560 1 4 97 378,000 - - 378,000 6 0.319 182,169 195,831
PC IBM Think Pad 560 1 5 97 355,104 - - 355,104 6 0.319 164,706 190,398
PC IBM Think Pad 560 1 12 97 397,999 - - 397,999 6 0.319 134,167 263,832
------------------------------------------ -------------------------
1,507,091 - - 379,999 669,048 838,043
------------------------------------------ -------------------------
------------------------------------------ -------------------------
Ochial Total 8,916,121 2,585,776 0 11,511,897 3,714,554 7,797,343
------------------------------------------ -------------------------
Grand Total 126,008,076 5,682,156 0 131,690,232 90,056,871 41,633,360
=========================================== =========================
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ATT JENS 203,070
(SYOUEISHA) T :CORE 7,317,870
A. FUKADA 248,245
APO 54,010,370
ARAI INSATSU 18,900
ASAHI NP 53,025
ATENA 21,483,183
ATR JYUSETSU 16,800
BINDIO 568,488
CANON 30,282
CAREER STAFF 1,851,920
CORP RATE SW 3,696,000
CORRECT 20,475
DAIWA DATA STORAGE 107,415
DHL 13,790
DMS 3,306,457
DOCOMO 60,417
EBISAWA KONPO 3,937,500
EMERY WORLD 1,110
EPSON HANBAI 21,000
FEDERAL EXPRESS 522,568
FUJITSU APROCO 110,460
FUJITSU LOGISTIX 36,874
FUJITSU XEROX 395,568
FUKUIN RYOKAI 1,575
HEART 1,990,380
HIKARI SHASHIN 7,676,708
HITACHI MAXELL 83,255
HUMAN TOUCH 1,849,594
IKEDA PRINTING 2,873,325
IMES 603,750
INFO CREATES 11,620,875
JYOHOKU SHIKI KONP 784,035
KAMIOCHIAI POST 1,120
KANAGAWA RICOH 94,498
KDD 293,706
KOBAYASI KIROKUSHI 489,510
KOKUSAI ELE 25,200
KOMORI TELENET 37,952
LABEL JAPAN 1,698,125
MAX ENTERPREISE 33,600
MEBIUS 21,636
MEDIA 121,023
MEIKO KASAI 1,528,065
MEMORY TECH 31,356,886
METATECH 2,456,244
MIGHTY WINGS 2,372,348
MIKASA BUNGU 10,246
MILLION ENTERPRISE 2,692,083
MITSUMURA INSATSU 306,600
NEW PACKAGE CENTER 5,966,364
NEXT 2,783,070
NIHON BUSINESS LOGISTICS 2,154,202
NIHON POSTAL FRANKE 7,087
NIKKEI INSATSU 4,267,673
NIKKEN 10,500
NIPPO 126,683
NISSHO 37,380
NITTSU HIRATSUKA 26,728,771
NITTSU INT T (SHINJYUKU) 56,700
NITTSU TOKYO KOHKU 2,186,645
</TABLE>
<PAGE>
<TABLE>
<S> <C>
NTT 847,698
OHNO PRINTIN 4,703,186
PACKWELL 38,551,800
PASONA SOFT BANK 695,159
PHIL GRAPHICS 27,300
PHLL GRAPHICS 33,600
PRIPACKS 161,700
PURAPA DEC 158,075
PURCH ACCRUAL 1,722,620
SAGAWA INSATSU 11,885,234
SAGAWA KYUBIN 690,070
SAKAMOTO PRINTING 1,901
SANKO HEIHAN 431,550
SANWA KASAI 123,743
SASATOKU INSATSU 208,892,768
SASATOKU PRINTING 27,468
SEUTE SEALER 294,525
SHIMANE INSATSU 3,895,071
SHINSHIN SHOKAI 10,688,583
SHOEISHA 8,981,788
SONY MUSIC ENTERTAIN 8,551,463
SUDO HANA 31,500
SUN LIGHT 6,338,913
SYOWA YUKI 190,738
SYUEIDO SHIKOU INSATSU 12,407,903
TEIJIN 14,175,000
TELECOM 82,656
TEMBROS 432,499
TEPCO 1,543,788
TOGIN LEASE 9,682
TOKIWA CORP 16,919,468
TOKYO NICHI 216,300
TOKYU AIR CARGO 15,310
TOPPAN INSATSU 6,059,655
TOSHIBA EMI 15,967,245
TOZAI PACKAGE 237,720
UNI GLOBE 643,080
UNIMAC TONER 29,400
URBAN HOTEL 8,523
US PRINT 777,413
ATSUGI ODAKYU 18,120
BE KIKAKU 211,067
FUJIYA 133,770
FUKUIN IRYOKAI 1,575
HANEDA TURTLE SVC 1,881,339
HARVEST BLDG. MAINT 6,494,797
ITOCHU TECHNO 1,463,070
MITSUBISHI SOKO 11,646,067
NIHON 3RD PARTY 105,000
OTSUKA SYOKAI 161,490
TOKUBETSU KEIBI 42,000
TOPPAN TRAVEL SVC. 110,880
UNIMAT OFFISCO 107,129
UNO TAX ACCOUNTANT 190,000
WATAKON 2,844,345
YU TAKE OFF 15,013,338
631,255,283
</TABLE>
<PAGE>
Net Asset Value Statement
We hereby certify that the balance between the Transferred Assets and the
Transferred Liabilities as of December 31, 1998 is the following amount:
257,396,992Yen
March 3, 1999
Modus Media International Kabusiki Kaisha
/s/Tatsumi Nakano
Liquidator: Tatsumi Nakano
We hereby approve the price set forth above as the correct balance as of
December 31, 1998.
March 3, 1999
Sasatoku Donnelley Kabusiki Kaisha
/s/ Takashige Sugiyama
The Representative Director: Takashige Sugiyama
<PAGE>
Exhibit 10.19
AMENDED AND RESTATED
JOINT VENTURE AGREEMENT
dated January , 1999
by and between
MODUS MEDIA INTERNATIONAL, INC.
and
SASATOKU PRINTING CO., LTD.
<PAGE>
Table of Contents
JOINT VENTURE AGREEMENT
WITNESS: ................................................................... 1
ARTICLE 1: THE PARTNERSHIP AND JV COMPANY .................................. 2
1.01. JV Company .......................................................... 2
1.02. Articles of Association ............................................. 2
1.03. Capitalization ...................................................... 2
1.04. Principal Office .................................................... 2
1.05. Term ................................................................ 2
1.06. Property Ownership .................................................. 2
ARTICLE 2: BUSINESS OPERATIONS ............................................. 2
2.01. Business Purposes of JV Company ..................................... 2
2.02. Cooperation of the Party ............................................ 3
2.03. Annual Business Plan ................................................ 3
2.04. Insurance ........................................................... 3
ARTICLE 3: MANAGEMENT AND OPERATIONS OF THE JV COMPANY ..................... 4
3.01. Directors of the JV Company ......................................... 4
3.02. Management Authority ................................................ 5
3.03. Management .......................................................... 5
3.04. Provisions for Dealing with Deadlock ................................ 5
ARTICLE 4: MATTERS RESOLVED BY THE BOARD OF DIRECTORS MEETING .............. 5
4.01. Election of a Chairman .............................................. 5
4.02. Resolution of the Board of Directors ................................ 6
4.03. Quorum of the Board of Directors Meeting ............................ 7
ARTICLE 5: MATTERS RESOLVED BY THE SHAREHOLDERS MEETING .................... 7
5.01. Voting Right ........................................................ 7
5.02. Shareholders Meeting ................................................ 7
ARTICLE 6: ADDITIONAL CAPITAL OF THE JV COMPANY ............................ 8
6.01. Additional Capital Contribution ..................................... 8
6.02. Limitation of the Obligation to Finance of the JV Company ........... 8
ARTICLE 7: DUTIES AND RIGHTS OF AND RESTRICTIONS UPON JV COMPANY ........... 8
7.01. Fiduciary Duties .................................................... 8
7.02. Non-competition and Restrictions .................................... 8
7.03. Release from Non-Competition Obligation ............................. 9
7.04. Order of POD Products ............................................... 9
i
<PAGE>
ARTICLE 8: ACCOUNTING AND TAXATION ......................................... 9
8.01. Fiscal Year ......................................................... 9
8.02. Maintenance of Books and Records .................................... 9
8.03. Access to Books of Account .......................................... 9
8.04. Financial Statements ................................................ 9
8.05. Quarterly Statements ................................................10
8.06. Taxation ............................................................10
8.07. Deposit of Funds ....................................................10
ARTICLE 9: TRANSFER OR PLEDGE OF INTERESTS .................................10
9.01. Limitation on Right to Transfer Party's Interest ....................10
9.02. Transfer to an Affiliate ............................................10
ARTICLE 10: WITHDRAWAL FROM THE JOINT VENTURE BY ONE PARTNER ...............11
10.01. Transfer of Shares .................................................11
10.02. Fair Value and Approval of the Japanese Government .................11
10.03. Closing of Share Transfer ..........................................11
ARTICLE 11: TERMINATION ....................................................12
11.01. Reasons for Specific Termination ...................................12
11.02. Reasons for General Termination ....................................12
11.03. Effect of Termination ..............................................12
ARTICLE 12: DISSOLUTION OF THE JV COMPANY ..................................12
12.01. Dissolution Procedures .............................................12
12.02. Purchase of Assets Upon Winding-up .................................13
ARTICLE 13: INDEMNIFICATION ................................................13
13.01. Indemnification ....................................................13
13.02. Insurance ..........................................................13
ARTICLE 14: REPRESENTATIONS AND WARRANTIES .................................13
14.01. Organization and Standing ..........................................13
14.02. Authority Relative to this Agreement ...............................13
14.03. Litigation .........................................................14
14.04. Absence of Conflict ................................................14
14.05. Absence of Undisclosed Liabilities .................................14
ARTICLE 15: MISCELLANEOUS ..................................................14
15.01. Waiver of Rights of Partition and Dissolution ......................14
15.02. Severability .......................................................14
15.03. Waivers ............................................................14
15.04. Successors and Assigns .............................................15
15.05. Notices ............................................................15
ii
<PAGE>
15.06. Execution in Counterparts ..........................................15
15.07. Titles and Headings ................................................15
15.08. Governing Law ......................................................15
15.09. Entire Agreement and Modification ..................................15
15.10. Confidential Information ...........................................16
15.11. Language ...........................................................16
iii
<PAGE>
JOINT VENTURE AGREEMENT
-----------------------
THIS AGREEMENT (hereinafter "Agreement") is made and entered into this __
day of January, 1999 by and between MODUS MEDIA INTERNATIONAL, INC. ("MMI"), a
Delaware, U.S.A. corporation (hereinafter "MMI") and SASATOKU PRINTING CO.,
LTD., a Japanese corporation (hereinafter "Sasatoku").
WITNESS:
--------
WHEREAS, R.R. Donnelley Far East, Ltd. and Sasatoku Insatsu K.K. (the trade
name at that time was Sasatoku Insatsu Kogyo K.K.) entered into an Agreement to
form a joint venture company on September 5, 1991 (the "Original Agreement") and
did form such company (the "JV Company");
WHEREAS, MMI has acquired a certain interest in the JV Company;
WHEREAS, MMI and Sasatoku desire to amend and restate the terms of their
joint business relationship, such relationship to provide, among other things,
Supply Chain Management services to the high tech industry and to other
companies that are generally known for significant use and deployment of
technology, such as banks and other financial institutions, and aerospace
companies, based on MMI's sales and marketing knowledge and global
infrastructure and Sasatoku's printing and manufacturing capabilities and local
market expertise;
NOW, THEREFORE, in consideration of the foregoing and the mutual agreement
hereafter set forth, the parties hereto agree as follows:
1
<PAGE>
ARTICLE 1: THE PARTNERSHIP AND JV COMPANY
1.01. JV Company
- ----------------
MMI and Sasatoku (hereafter sometimes collectively referred to as the
"Parties" and singularly referred to as the "Party") shall conduct their venture
through a joint venture company (kabushiki kaisha) formed under the Commercial
Code of Japan called "Donnelley Sasatoku Kabushiki Kaisha" or such other name as
the Parties may agree upon in writing (hereinafter "JV Company"). The English
name of the JV Company shall be "Donnelley Japan/Sasatoku Co., Ltd."
The Parties agree to change the name of the JV Company to Sasatoku Modus
Media Kabushiki Kaisha on or before March 31, 1999. Each partner reserves the
right to cause the JV Company to ceasing using the name of that Party as a part
of the trade name of the JV Company if that Party ceases to be a shareholder in
the JV Company.
1.02. Articles of Association
- -----------------------------
The Articles of Association of the JV Company shall be attached hereto as
Exhibit A.
1.03. Capitalization
- --------------------
(1) The JV Company has issued two thousand six hundred twenty (2,620)
shares of capital stock and currently the shares are held by the Parties as
follows: -
(I) MMI: 1,048 shares at 50,000 yen per share
(II) Sasatoku: 1,572 shares at 50,000 yen per share.
(2) No additional shares of the JV Company may be authorized or issued
except upon the mutual written agreement of the Parties.
(3) The Parties agree that they shall not change their proportion of the
shares in the JV Company for the first three (3) years unless otherwise mutually
agreed upon by the Parties. This provision shall not change or foreclose any
rights of the Parties provided for in this Agreement.
1.04. Principal Office
- ----------------------
The principal office of the JV Company shall be in the central metropolitan
area of Tokyo, Japan, or such other place as the Parties may agree upon in
writing.
1.05. Term
- ----------
The term of this Agreement shall commence as of the date first above
written and shall continue until terminated pursuant to any provision thereof.
1.06. Property Ownership
- ------------------------
All assets and property, whether real or personal, tangible or intangible,
owned by the JV Company shall be held and recorded in the name of the JV
Company. All such assets and property shall be deemed to be owned by the JV
Company, and neither Party individually shall have any ownership of such
property. A Party's interest in the JV Company shall be personal property for
all purposes.
ARTICLE 2: BUSINESS OPERATIONS
2.01. Business Purposes of JV Company
- -------------------------------------
The business of the JV Company shall be to provide, among other things,
supply chain management, on-demand printing and manufacturing, software
manufacturing, marketing channel programs management, order management and
fulfillment, and other services, principally to the high tech industry, based on
MMI's sales and marketing knowledge and global infrastructure and Sasatoku's
printing, file management and manufacturing and local market expertise. The
parties agree to change the business purposes of the JV Company as follows:
2
<PAGE>
1. Printing
2. Provide agency services including ordering of components and
assembly of kits for the computer hardware and software industry:
3. Assembly, storage and sale concerning computer hardware and
computer-related parts; and
4. All business ancillary to the above.
Without limiting any other business objective of the JV Company, the
Parties agree that the Parties shall cause the JV Company to compete
aggressively for all opportunities to conduct business with the Microsoft
Corporation in Japan that are consistent with the JV Company's current or
planned product lines.
2.02. Cooperation of the Parties
- --------------------------------
(1) MMI: MMI's responsibilities will be focused in the areas of sales and
marketing with emphasis on increasing the customer base for POD. Another primary
responsibility of MMI's will be to develop technology driven solutions with
respect to the file management process.
(2) Sasatoku: Sasatoku will be responsible for plant management and
providing printing and binding experience for POD. Sasatoku will emphasize
efficient processes and quality product. In addition, Sasatoku will have all
management responsibilities for the lettershop business.
(3) Other Cooperation: Either Party or any affiliate thereof (affiliate
means a company or corporation which either Party controls more than 50% of its
voting right, hereinafter "Affiliate") may enter into contracts or agreements
with the JV Company and otherwise enter into transactions or dealings with the
JV Company on an arm's length equivalent basis and derive and retain profits
therefrom, provided that any such contact or agreement or other transaction or
dealing is approved by the Board of Directors of the JV Company (hereinafter
"Board of Directors") which consists of directors appointed by both Parties in
accordance with the provisions of this Agreement. The validity of any such
contract, agreement, transaction or dealing or any payment or profit related
thereof or derived therefrom, shall not be affected by any relationship between
the JV Company and such Party or any of its Affiliates.
2.03. Annual Business Plan
- --------------------------
An outline of the business plan of the JV Company for the three year period
from 1999 to the end of 2001 shall be set forth in Exhibit B attached hereto,
and the parties hereby agree that the JV Company shall be managed and operated
in accordance with the business plan outlined therein. This business plan shall
replace in its entirety the business plan provided pursuant to Article 2.03 of
the Original Agreement. A proposed Business Plan based generally on Exhibit B
(at least insofar as it reflects percentages of expense to sales revenues) which
covers each fiscal year of the JV Company, shall be prepared by the
Representative Directors on behalf of the Board of Directors for approval not
later than the commencement of each fiscal year. A change of the Business Plan
shall be deemed or considered to be an amendment or modification of this
Agreement; and therefore, it may be amended or modified only in accordance with
Article 15.09 herein.
2.04. Insurance
- ---------------
The JV Company shall maintain insurance in such amounts, with such
deductible and against such risks as the Board of Directors deems appropriate
for the business and properties of the JV Company.
3
<PAGE>
ARTICLE 3: MANAGEMENT AND OPERATIONS OF THE JV COMPANY
3.01. Directors of the JV Company
- ---------------------------------
(1) Directors
The JV Company shall have 9 directors in total, and the parties
respectively shall have the right to appoint the following number of directors:
Sasatoku: 4 directors (hereinafter "Sasatoku Directors")
MMI: 3 directors (hereinafter "MMI Directors")
Jointly appointed by both parties: 2 directors (hereinafter "JV Directors") If
the parties appoint the same person as a director of the JV Company, such a
director shall be deemed as a JV director. The JV Director shall be deemed
neither the Sasatoku Director nor the MMI Director. Any party may remove the JV
Director in accordance with Article 3.01 (4) herein.
The directors of the JV Company shall be elected and nominated by
resolution of the General Meeting of Shareholders of the JV Company and the
Parties agree to exercise their respective voting rights as a shareholder of the
JV Company so that the persons who are appointed by respective Party will be
elected as directors of the JV Company. The Parties agree to appoint the
following persons as directors of the JV Company:
Sasatoku Directors: Takashige Sugiyama
Takehara Yamada
Minoru Fukano
Tsuneo Kiyota
MMI Directors: Ken Southerland
Allen Fukada
Ed Rose
JV Directors: Tatsumi Nakano
Teruo Aoki
(2) The Representative Directors
The JV Company shall have two (2) or less number of representative
directors. Each of Sasatoku and MMI shall have the right to appoint one
representative director from the Sasatoku Directors or MMI Directors. A JV
director may be appointed as the representative director based on mutual
agreement between the Parties. The Parties agree to appoint the following person
as the representative directors of the JV Company at the time of execution of
this Agreement.
JV Director: Tatsumi Nakano
(3) Statutory Auditor
The JV Company shall have two statutory auditors. Each of Sasatoku and MMI
shall have the right to appoint one statutory auditor. The Parties agree to
appoint the following persons as the statutory auditors:
Sasatoku: Sinji Tanahashi
MMI: Phil Radnidge
(4) Removal or Vacancy of Officers
Either Party at any time, by written notice to the other Party and the JV
Company, may remove any of directors and/or statutory auditors who were
nominated by the relevant Party, including the JV Director, with or without
cause. In case the position of a director of the JV Company becomes vacant for
any reason, the Parties agree to cause their shares to be
4
<PAGE>
voted to elect as director a person nominated by the Party who nominated the
director whose office is vacant.
Both Parties agree that the JV Company may determine, at any time, to
increase the number of its directors; provided, however, that any increase shall
be in multiples of two, one-half of such increased number of the directors to be
from Sasatoku and one-half to be from MMI.
(5) Exercise of Voting Right
Both parties shall agree to exercise their respective voting rights as a
shareholder of the JV Company so that the persons who are appointed by
respective parties from time to time under this Article will be elected as
officers of the JV Company. The parties agree that the JV Company shall no later
than the fifth (5) day of June 1999 convene a General Meeting of Shareholders of
the JV Company the agenda of which shall be the election of these directors and
officers appointed under this Section.
3.02. Management Authority
- --------------------------
Except as otherwise provided herein, the Board of Directors of the JV
Company shall have complete and exclusive power and authority to manage, direct
and control the business of the JV Company. Neither Party shall have authority
to act for, or to assume any obligation or responsibility on behalf of, the JV
Company, except with the prior written consent of the Board of Directors.
The Board of Directors shall, except as may be otherwise provided herein,
operate in accordance with the Management Policies and Procedures adopted by the
Board of Directors. The Management Policies and Procedures to be adopted shall
address, by way of example, but not limitation: authority to enter into
agreements on behalf of the JV Company; authority to spend monies of the JV
Company; reimbursement of expenses incurred in promotion of the business of the
JV Company; and banking.
3.03. Management
- ----------------
Other than the Board of Directors, the management of the JV Company shall
be supplied by the Parties or hired from the outside by the JV Company on an "as
needed" basis, with the JV Company bearing all expenses of such management. It
is initially expected that accounting affairs of the JV Company will be
supported by Sasatoku and Information Technology affairs will be supported by
MMI, with the JV company bearing any out-of-pocket expenses for such services.
Within the constraints of the Business Plan approved by Parties or Board of
Directors, and the JV Company's business purpose, the Board of Directors will be
vested with complete discretion as to the equipment and technology which the JV
Company acquires.
3.04. Provisions for Dealing with Deadlock
- ------------------------------------------
In the event that the Board of Directors fails to reach agreement following
a reasonable period of deliberation on any matter before it, the Parties shall
confer in good faith with a view toward resolving such matter.
ARTICLE 4: MATTERS RESOLVED BY THE BOARD OF DIRECTORS MEETING
4.01. Election of a Chairman
- ----------------------------
The Board of Directors may elect a chairman of their meetings and determine
the period for which he is to hold office, but if no such chairman shall be
elected, or if at any meeting the chairman is not present within fifteen (15)
minutes after the time appointed for holding the meeting, the directors present
shall choose someone of their member to be chairman of such meeting.
5
<PAGE>
4.02. Resolution of the Board of Directors
- ------------------------------------------
The Board of Directors shall meet upon the request of any director, but in
no event less frequently than quarter-annually. Meetings of the Board of
Directors shall be held at such location as agreed upon by the Board of
Directors. The quorum for the Board of Directors Meeting shall consist of no
less than a majority of the total number of directors (including at Least one
MMI Director and one Sasatoku Director). All decisions of the board of Directors
shall require the affirmative vote of not less than a majority of the Directors
present at a meeting at which a quorum is present, including the affirmative
vote at least one MMI Director and one Sasatoku Director. The following actions
shall require the approval of the affirmative vote of at least two-third (2/3)
of all members of the Board of Directors, including at least one MMI Director
and one Sasatoku Director:
a) the approval of any Business Plan in accordance with Article 2.03
hereof or other strategic or financial plan of the JV Company;
b) the entering into of any contract or agreement having a total
committed aggregate contract price or requiring aggregate
payments in excess of ten million yen (Y10,000,000);
c) (i) the disposition, lease, or exchange of assets of the Company
for which the aggregate consideration of the JV Company's basis,
calculated in accordance with Japanese income tax regulations, is
in excess of ten million yen (Y10,000,000), or (ii) the making of
a capital expenditure or a commitment to make a capital
expenditure in excess of ten million yen (Y10,000,000);
d) the commencement (including the filing of a counterclaim) or
settlement of any material litigation or arbitration to which the
JV Company is, or is to be, a party, or by which it or any of the
property of the JV Company may be affected;
e) the filing with any governmental agency of any material documents
relating directly or indirectly to the business of the JV
Company;
f) the confirmation of annual financial statements;
g) supply and service commitments from third parties in excess of
ten million yen (Y10,000,000) per year;
h) any amendment to the Management Policies and Procedures;
i) the approval of all proposals relating to financing of the
business of the JV Company, including any capital contributions
to be requested from the Parties and the issuance of new capital
shares;
j) the entry into, amendment of or extension of any contract between
the JV Company and either Party or any Affiliate thereof;
k) any change in accounting principles used by the JV Company,
except as required by accounting principles which is generally
accepted as fair and reasonable;
l) authorization of either Party to act for, to assume any
obligation or responsibility on behalf of, the JV Company;
m) an acquisition or disposition of stock or securities of any other
corporation, or an acquisition, disposition or licensing of
patents, designs or trademarks, regardless of value;
n) assignment or sale of more than thirty (30) percent of gross
assets of the business, including goodwill of the JV Company;
o) reorganization or liquidation of the JV Company, merger or
consolidation of the JV Company into any other Company, or an
acquisition by the JV Company of all the assets of any other
company;
p) establishing branches, subsidiaries or distributors outside Japan
or entering joint venture with a third party;
q) the transfer or sale of existing shares;
r) the establishment of the basic personnel policies and the
employment and discharge of the chief employees of the JV
Company;
6
<PAGE>
s) the approval of any contract between the JV Company and any of
its shareholders or any person connected with a shareholders;
t) the approval of any transactions conducted by a director which
has similar nature to business as the one of the JV Company;
u) the approval of any transactions between the JV Company and the
director, whether such a director conduct as a principal or agent
with respect to the relevant transaction, and any transaction
between the JV Company and a third person by which the JV
Company's interests conflict with the one of the directors;
v) the appointment of independent certified public accountants for
the JV Company;
w) the Payment of dividend; and
x) any Resolutions to be submitted to a General Meeting of
Shareholders.
4.03. Quorum of the Board of Directors Meeting
- ----------------------------------------------
If at any meeting of the Board of Directors there shall be less than a
quorum present, a majority of the directors in attendance may adjourn the
meeting from time to time until a quorum is obtained.
ARTICLE 5: MATTERS RESOLVED BY THE SHAREHOLDERS MEETING
5.01. Voting Right
- ------------------
All the resolutions of the General Meeting of Shareholders of JV Company
shall be adopted by voting and shareholders of the JV Company shall be entitled
to one voting right per each share of the JV Company owned and held by it.
5.02 Shareholders Meeting
- -------------------------
The Ordinary General Meeting of Shareholders shall be convened by the Board
of Directors, and held in the address of the head office of the JV Company or
other place as set forth in the Articles of Association of the JV Company, at
least once a year. Extraordinary General Meeting of Shareholders shall be held
whenever necessary.
The important issues as to the organization and management of the JV
Company as set forth below, shall be presented to the General Meeting of
Shareholders and shall be adopted and resolved by the affirmative vote of
two-thirds (2/3) of the total number of votes representing the total number of
the issued shares:
a) changes in business lines,
b) amendment of the Articles of Association,
c) increase and/or decrease of capital,
d) compensation of a director or auditor,
e) discharge of a director or auditor,
f) a dividend distribution of profit,
g) share split due to capitalization of profit,
h) issuance of new shares or other than common par-value shares,
i) issuance of debentures,
j) transfer of business and/or all or an important part of the assets,
k) investment in other firms, or appropriation of profit or loss arising
from such investment,
1) granting to a third person, other than a current shareholder, the
right to subscribe to new shares,
m) dissolution and/or amalgamation, merger with another company,
n) matters decided by the Board of Directors, which are deemed so
important as may affect the financial and business position of the JV
Company.
7
<PAGE>
ARTICLE 6: ADDITIONAL CAPITAL OF THE JV COMPANY
6.01. Additional Capital Contribution
- -------------------------------------
The parties shall make loans to the JV Company in the proportion of their
respective shares; provided however that the maximum amount of additional loans
to be given to the JV Company on or after the execution date of this Agreement
shall not exceed 900 million (900,000,000) yen in total:
(a) the maximum liability of Sasatoku under such loan shall not exceed 540
million (540,000,000) yen:
(b) the maximum liability of MMI under such loan shall not exceed 360
million (360,000,000) yen.
Except as provided for in Article 6.02 of this Article, neither Party shall
be under any obligation to make any additional capital contributions to the JV
Company. Any additional capital contributions shall be mutually agreed upon by
the Parties in writing.
Such an agreement shall be executed on behalf of the Parties by their
respective duly authorized officers, setting forth the agreement of the Parties
to make such capital contributions, the amounts thereof and the dates for making
the same (or method for determining such dates). Any such contributions so
agreed upon shall be made simultaneously and equally, but in proportion to the
respective Party's shares in the JV Company, and no approval of any Business
Plan shall be deemed to be an agreement to make any additional contributions
contemplated thereby.
6.02. Limitation of the Obligation to Finance of the JV Company
- ---------------------------------------------------------------
Parties agree that they shall use their best efforts to replace the loans
from the Parties with external bank debt at a future time when the financial
standing of the JV Company makes it appropriate for it to obtain direct
financing.
Based on Parties' agreement provided in Article 6.01, the Parties shall
contribute working capital to the JV Company, in amounts proportionate to their
interests therein, in accordance with its requirement, as shall be requested by
the Board of Directors of the JV Company at least sixty (60) days prior to the
requirement date, up to the maximum described in section 6.01. These
contributions shall be made in the same form and on the same terms by both
Parties. Such contributions may be in the form of loans or increases in capital
as agreed upon between the Parties.
ARTICLE 7: DUTIES AND RIGHTS OF AND RESTRICTIONS UPON JV COMPANY
7.01. Fiduciary Duties
- ----------------------
The partners shall devote such time to the JV Company as shall be
necessary, in the opinion of the Parties to conduct the JV Company in a prudent
and efficient manner.
7.02. Non-competition and Restrictions
- --------------------------------------
Neither Party may, without the written consent of the other Party:
a) make an offer of a similar venture to this JV Company, to a competitor
of the other partner during the Term of this Agreement.
b) possess or assign any of the rights in property of the JV Company for
any purpose;
c) admit a person or entity as an additional partner to this joint
venture;
d) do any act in contravention of this Agreement or the Parties' Policies
and Procedures;
e) except as otherwise permitted in or by this Agreement do any act
within the JV Company which would constitute a breach of its fiduciary
obligations and which would materially and adversely impact the
ordinary business of the JV Company;
f) make any agreement on behalf of the other Party; or
8
<PAGE>
g) dissolve, terminate, liquidate or wind up the affairs of the JV
Company (except to the extent expressly permitted by this Agreement).
7.03. Release from Non-Competition Obligation
- ---------------------------------------------
Either party who wishes to conduct any business which has the possibility
of breaching the non-competition obligation provided for in Section 7.02 shall
disclose its business plan to the other party in advance to obtain its consent.
Neither party shall unreasonably withhold such consent. The parties, if
necessary, shall convene either a board of directors meeting or a general
meeting of shareholders, as the case may be, to resolve to release the relevant
party from the non-competition obligation and the scope of such release.
7.04. Order of POD Products
- ---------------------------
Either party may respectively place an order for the POD products as an
arms length party with the JV Company. The sales price for the POD products
shall be a 10 percent mark-up price of the targeted manufacturing cost of the
POD products. For the purpose of this Agreement, the manufacturing costs shall
include all direct costs as well as all operating costs incurred in the JV
Company for manufacturing the POD products.
ARTICLE 8: ACCOUNTING AND TAXATION
8.01. Fiscal Year
- -----------------
The books and records of the JV Company shall be kept on an accrual basis.
The fiscal year of the JV Company shall be commenced on December 26 and end on
the following December 25 of each year and the accounts shall be settled as of
the end of each fiscal year.
8.02. Maintenance of Books and Records
- --------------------------------------
At all times during the continuance of the JV Company, the JV Company shall
keep or cause to be kept, at the principal office referred to in Article 1.03
hereof, full and complete books of account. The books of account shall be
maintained in a manner that provides sufficient assurance that:
a) transactions of the JV Company are executed in accordance with
the general or specific authorization of the Parties' of the JV
Company;
b) transactions of the JV Company are recorded in such form and
manner as will (i) permit preparation of corporate tax returns
and information returns in accordance with this Agreement and as
required by law, (ii) permit preparation of the JV Company's
financial statements in accordance with accounting principles
which is generally accepted as fair and reasonable, and (iii)
maintain accountability for the JV Company's assets; and
c) the accounting record for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken
with respect to any difference.
8.03. Access to Books of Account
- --------------------------------
Each Party shall have the right at all reasonable times during usual
business hours to audit, examine and make copies of extracts of or from the
books of account of the JV Company. Such right may be exercised through any
agent or employee of such Party designated by it or by independent certified
public accountants designated by such partner. Each partner shall bear all
expenses incurred in any examination made for such Party's account.
8.04. Financial Statements
- --------------------------
As soon as practicable following the end of each fiscal year (and in any
event no later than 60 days after the end of such fiscal year), the JV Company
shall prepare, or cause to be prepared, and deliver to each Party and the Board
of Directors a statement of income (loss) of the JV Company, a balance sheet for
such fiscal year, a statement of cash flow and a statement of production cost of
the JV Company as of the end of such fiscal year. During the
9
<PAGE>
three year period described in section 1.03, (3), the JV Company will have its
books and records audited by the same international CPA firm as selected by the
Board of Directors in accordance with section 4.02 v). The firm is to be a "big
five" accounting firm. Appointment of the accounting firm is subject to
agreement between the Parties as to the responsible Party for payment of the
costs and fees for such audit.
8.05. Quarterly Statements
- --------------------------
As soon as possible following the end of each fiscal quarter, the JV
Company shall prepare, or cause to be prepared, and deliver to each Party and
the Board of Directors an unaudited statement of income (loss) of the JV
Company, a statement of changes in its financial position for such fiscal
quarter and an unaudited balance sheet of the JV Company as of the end of such
fiscal quarter.
8.06. Taxation
- --------------
The JV Company shall have the accountants provide assistance in the
preparation of tax returns required of the JV Company, as deemed necessary by
the Board of Directors and shall file the same after they have been approved by
the Board of Directors in accordance with the terms of Article 4.02 hereof, but
no later than within 3 months after the end of each fiscal year.
8.07. Deposit of Funds
- ----------------------
All funds of the JV Company not otherwise utilized shall be deposited from
time to time to its credit in accounts in such banks or trust companies, or
other depositories as the Board of Directors shall select. The JV Company shall
report the balances in any such accounts, as of the last business day of each
month, to the Parties on a regular monthly basis.
8.08. Other Report
- ------------------
The balance of the debt as of each of the end of the week shall be
submitted to the Parties by the second business day of the immediately following
week. A monthly provisional balance sheet as of the each of the end of month
shall be submitted to the Parties by the l0th day of the immediately following
month.
ARTICLE 9: TRANSFER OR PLEDGE OF INTERESTS
9.01. Limitation on Right to Transfer Party's Interest
- ------------------------------------------------------
The Parties may not sell, assign, pledge, hypothecate or otherwise
transfer, in any manner, all or any part of its interest, except with the
written consent of the other Party or as permitted by the terms set forth in
this Article.
9.02. Transfer to an Affiliate
- ------------------------------
Each Party (hereinafter "Selling Party") shall have the right, without the
consent of the other Party (hereinafter "Remaining Party" for the purpose of
this Article), to transfer all, but not less than all, of its interest to any
Affiliate thereof; provided, however, that it shall be a condition to any such
transfer that the Affiliate to which such transfer is made shall have assumed by
written agreement (in form and substance satisfactory to the Remaining Party)
all of the obligations of the transferor under this Agreement; and provided
further, that (i) no such transfer shall relieve the transferor of the Selling
Party's obligations under this Agreement; and (ii) any such transfer shall not
be reasonably likely, in the view of the Remaining Party, to result in any
significant change in the JV Company or in its policies, practices or management
or to affect adversely any material relationships between the JV Company and any
of its customer or supplier. Upon such transfer, the Affiliate shall be admitted
as a Party, in substitution of the Party that was the transferor, and for
purposes of this Agreement shall be deemed a Party.
10
<PAGE>
ARTICLE 10: WITHDRAWAL FROM THE JOINT VENTURE BY ONE PARTNER
10.01. Transfer of Shares
- -------------------------
(1) Notwithstanding anything contrary herein, each Party shall have the
right to withdraw from the JV Company on or after December 31, 2001 in
accordance with the procedures set forth in this Article.
(2) A Party desiring to sell or transfer all of its shares in the JV
Company (hereinafter "Withdrawing Party"), but not less than all, except in
accordance with Article 9 hereof, shall offer them in writing for purchase by
the other Party (hereinafter "Remaining Party" for the purpose of this Article)
at the fair value (defined in Article 10.02, hereinafter "Fair Value") as of the
end of the last accounting period of the JV Company and the Remaining Party may
elect to purchase such shares within a period of (60) days after the receipt of
the said offer (hereinafter "Withdrawing Notice") which sets forth the terms and
conditions of the sale of the shares. The right to purchase shares under this
Article may be exercised only with respect to all shares so offered, and upon
exercise the purchase price shall be paid in accordance with such payment
conditions agreed upon; however the settlement of the payment shall be made no
later than within (90) days after the date of the Withdrawing Notice.
(3) If the other Party does not exercise its right to purchase the shares
to which it is entitled within the (60) day period specified herein, then the
Withdrawing Party shall foreclose the right to sell its share, but shall have
the right to request to dissolve the JV Company. The other Party shall cause its
shares to vote for dissolution of the JV Company.
10.02. Fair Value and Approval of the Japanese Government
(1) "Fair Value" shall be the price for the shares of the JV Company,
determined in accordance with the method of stock evaluation provided by the
Japanese Inheritance Tax and the Notification of Inheritance Tax Evaluation by
JV Company's independent certified public accountant designated by the Board of
Directors, and shall include no amount for goodwill.
(2) Transfer of shares under this Article shall be subject to the
validation or approval of the Japanese government, if required, and shall not
become effective until such validation or approval has been obtained. When such
validation or approval is required, the period of time prescribed in Article
10.01 above during which the acceptance by the other Party or the sale or
transfer to a third party is required to be made, shall be extended to the time
at which such government validation or approval is obtained.
10.03. Closing of Share Transfer
- --------------------------------
(1) The closing of the purchase of the Withdrawing Party's entire interest
upon exercise of the purchase option pursuant to Article 10.01.(1) shall take
place on the withdrawal date, at which time the Remaining Party shall (i) pay
the withdrawal purchase price (Fair Value of the shares defined in Article
10.02) in immediately available funds, to the Withdrawing Party, and (ii)
deliver to the Withdrawing Party instruments, in a form reasonably satisfactory
to the Withdrawing Party, under which the Remaining Party (A) shall assume and
agree to perform and discharge any obligation of the JV Company after the date
of such closing and the Withdrawing Party shall thereby be released from any
obligation to make such capital contributions, and (B) shall agree to indemnify
and hold harmless the Withdrawing Party with respect to all obligations and
liabilities of the JV Company.
(2) The Withdrawing Party shall concurrently deliver to the Remaining Party
the share certificates of the JV Company and an instrument of assignment, in a
form reasonably satisfactory to the Remaining Party, under which the Withdrawing
Party will transfer and assign to the Remaining Party all right, title and
interest of the Withdrawing Party in and to its entire interest in the JV
Company, free of all liens and encumbrances; and the Withdrawing Party shall
thereafter deliver such other documents as the Remaining Party may reasonably
require to confirm and perfect such assignment. Such agreements shall take into
account the
11
<PAGE>
remaining length of contracts the JV Company shall have with third parties so as
to insure no interruption in the performance required of the JV Company under
such third party contracts.
ARTICLE 11: TERMINATION
11.01. Reasons for Specific Termination
- ---------------------------------------
This Agreement shall be terminated upon the event or events first occurring
as set forth as follows:
a) The unanimous written agreement of the Parties to terminate this
Agreement;
b) Upon the occurrence of any circumstances, other than those
circumstances referred to in this Agreement, which by law would
require that the JV Company be dissolved.
c) The deadlock set forth in Article 3.05 can not be resolved for a
period of six months by the Board of Directors, even after Parties'
mutual discussion in good faith.
d) This Agreement is materially breached by either Party and such default
is not cured within (30) day's written notice from aggrieved Party
specifying the nature of such default. The aggrieved Party shall be
entitled to purchase the shares of the JV Company owned by the
breaching Party which may be enforceable within (30) days from the
effective date of termination of this Agreement by giving notice to
that effect in writing to the breaching Party. In such an event, the
shares of the stock shall be transferred to the aggrieving Party by
Fair Value defined in Article 10.02. Provided, however, that exercise
of the right to purchase the shares shall not constitute discharge of
any antecedent liability to the other Party.
e) Either Party cease to owns shares of stock in the JV Company, except
for the share transfer made under Article 9.02.
11.02.Reasons for General Termination
- -------------------------------------
In the event that either Party enters bankruptcy (hasan), composition
(wagi), reorganization (kosei), liquidation (seisan), or arrangement (seiri)
proceedings under the relevant jurisdiction, or becomes insolvent due to its
being unable to pay its debts as they become due (hereinafter "Insolvent
Party"), the other Party shall have the right to terminate this Agreement
forthwith by giving written notice to the Insolvent Party.
11.03. Effect of Termination
- ----------------------------
The JV Company shall be dissolved in accordance with Article 12, except
that the cause of termination is (i) withdrawal from the JV Company by either
Party in accordance with Article 10, or (ii) either Party exercises the right to
purchase the shares in the JV Company under precedent Article 11.01(d).
ARTICLE 12: DISSOLUTION OF THE JV COMPANY
12.01.Dissolution Procedures
- ----------------------------
(1) If an event occurs that results in a dissolution of the JV Company,
then at the time of such event both Parties shall proceed as promptly as
practicable to wind-up the affairs of the JV Company and distribute the assets
thereof in accordance with the applicable Japanese Commercial Code; provided,
however that the assets of the JV Company shall be liquidated in an orderly and
businesslike manner so as not to involve undue sacrifice by the JV Company or
either Party. A final accounting shall be settled to the satisfaction for both
Parties.
As a general rule, the assets of the JV Company shall be sold at the time
of dissolution; however some or all of the assets of the JV Company may be
retained by the JV
12
<PAGE>
Company for distribution to the Parties based on the Parties' consent. The fair
market value of any assets retained by the JV Company shall then be determined
by the Parties' mutual agreement or by such appraisal procedures to which they
shall in good faith agree. Any assets retained for distribution in accordance
herewith shall be distributed at an agreed value.
(2) In the event that the liabilities of the JV Company exceed its assets,
both Parties shall contribute to the JV Company an amount of the balance of the
liabilities over its assets in immediately available funds in accordance with
each Party's proportional share in the JV Company.
12.02. Purchase of Assets Upon Winding-up
- -----------------------------------------
If the Parties determine to sell any assets, either Party shall have the
right to purchase the assets at any sale.
ARTICLE 13: INDEMNIFICATION
13.01. Indemnification
- -----------------------
(1) The JV Company shall indemnify, to the full extent permitted by law,
any person, corporation or Party who was or is a party to, or is threatened to
be made a party to, any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative, investigative, or
otherwise, by reason of the fact that such persons is or was a representative or
agent of the JV Company, or is or was serving at the request of the JV Company
as an agent of the JV Company. The indemnification provided for in this Article
shall be made only as authorized in any specific case upon a determination that
(i) indemnification is proper in the circumstances, (ii) the conduct of the
representative or agent did not constitute a willful violation of the terms of
this Agreement, (iii) the representative or agent acted in good faith and in a
manner reasonably believed to be in or not opposed to the best interests of the
JV Company, and (iv) with respect to any criminal proceeding, the representative
or agent had no reasonable cause to believe his conduct was unlawful.
(2) To the full extent permitted by law, the indemnification provided by
this Article shall include expenses (including attorney's fees), judgments,
fines, and amounts paid in settlement, and any such expenses may be paid by the
JV Company in advance of the final disposition of any action, suit or
proceeding.
13.02. Insurance.
- ------------------
The JV Company may, to the fullest extent permitted by law, purchase and
maintain insurance against any liability that may be asserted against any person
entitled to indemnity pursuant to Article (13.01) hereof.
ARTICLE 14: REPRESENTATIONS AND WARRANTIES
Each Party hereby represents and warrants to the other Parties as follow:
14.01. Organization and Standing
- --------------------------------
It is a corporation duty organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation, and has the corporate
power to own its properties and to carry on its business as it is presently
being conducted. To the best knowledge and belief of each Party, (i) the
character of the properties owned or leased by it and the nature of the business
transacted by it do not require that it be qualified to do business in any other
jurisdiction, or (ii) it has been qualified to do business in all other
jurisdictions in which its business requires it to be qualified.
14.02 Authority Relative to this Agreement
- ------------------------------------------
The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been duty authorized
by its Board of directors or
13
<PAGE>
pursuant to procedures authorized by its board of directors, and this Agreement
is binding and enforceable in accordance with its terms.
14.03. Litigation
- -----------------
It is not a party to any pending or, to the best of its knowledge
threatened, litigation or other proceeding which, if adversely determined, would
have a material adverse effect upon the JV Company's or the Parties' tangible or
intangible assets or operations.
14.04. Absence of Conflict
- --------------------------
Neither the execution, delivery or performance by it of this Agreement or
of any other agreements which are being executed and delivered simultaneously
herewith to which it is a party, nor the consummation of the transactions herein
or therein contemplated, nor the fulfillment of or compliance with the terms and
conditions hereof or thereof, will conflict with its Certificate of
Incorporation, by-laws or other instrument pursuant to which it is organized, or
result in a breach of or constitute a default under or conflict with any
material contract, agreement or instrument to which it is a party or by which it
or any of its properties are bound, or any law, rule, or regulation applicable
to it or any of its properties. Any third party, governmental or administrative
consents or approvals which are required in connection with the foregoing have
been obtained and are in full force and effect.
14.05. Absence of Undisclosed Liabilities
- -----------------------------------------
There are no material debts, liabilities, contracts or other obligations,
other than those liabilities and obligations which are being expressly assumed
by the JV Company, pursuant to this Agreement and the other agreements delivered
simultaneously herewith, and except as otherwise contemplated herein or therein,
which will impact upon the JV Company in a materially adverse manner.
ARTICLE 15: MISCELLANEOUS
15.01. Waiver of Rights of Partition and Dissolution
- ----------------------------------------------------
Each of the Parties hereby waives all rights it may have, at any time,
to maintain any action for partition or sale of the JV Company's properties as
now or hereafter permitted under any applicable statutes or other laws. Each of
the Parties hereby waives and renounces its rights to seek a court decree of
dissolution or to seek the appointment of a court receiver for the JV Company as
now or hereafter permitted under any applicable statutes or other laws. Neither
Party may effect a dissolution of the JV Company except as provided in this
Agreement.
15.02. Severability
- -------------------
In case any one or more of the provisions contained herein shall, for any
reason, be held to be invalid, illegal or unenforceable in any respect, such
provision or provisions shall be ineffective only to the extent of such
invalidity, illegality or unenforceability, without invalidating the remainder
of such provision or provisions or the remaining provisions of this Agreement,
and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision or provisions had never been contained herein, unless
such a construction would be unreasonable.
15.03. Waivers
- --------------
No consent or waiver, express or implied, by either Party to or of any
breach or default by the other Party in the performance by the other Party of
its obligations under this Agreement shall be deemed or construed to be a
consent or waiver to or of any other breach or default by such other Party of
the same or any other obligation of such Party hereunder. The failure of a Party
to exercise any right conferred in this Agreement within the time required shall
cause such right to terminate with respect to the transaction or circumstances
14
<PAGE>
giving rise to such right, but not to any such right arising as a result of any
other transaction or circumstances.
15.04. Successors and Assigns
- -----------------------------
Upon assignment in accordance with this Agreement, this Agreement shall be
binding upon and shall inure to the benefit of the successors and permitted
assigns of the parties hereto and is not intended to confer upon any other
persons any rights or remedies hereunder. except that the JV Company shall be an
express third party beneficiary under this Agreement.
15.05. Notices
- --------------
Any notices and other communications provided for hereunder shall, unless
otherwise stated herein be in writing and delivered or sent by certified mail,
postage prepaid, to each Party, at its address set forth below (or at such other
address as shall be designated for such purpose by such Party in a written
notice to the other Party):
a) To MMI: 690 Canton Street, Westwood,
Massachusetts 02090
Unites States of America
ATTN:.
b) To Sasatoku: 7 Owaki Sakac Machi
Toyoake-City, Alchi-ken
Japan
ATTN.: Somu-bu, Somu-ka
Notices shall be deemed to have been given upon receipt.
15.06. Execution in Counterparts
- --------------------------------
This Agreement may be executed in one or more counterparts, all of which
shall be considered one and the same agreement, and shall become a binding
agreement when one or more counterparts have been signed by both Parties hereto
and delivered to each Party.
15.07. Titles and Headings
- --------------------------
Titles and headings to Articles 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.
15.08.Governing Law
- -------------------
This Agreement shall be governed by and construed in accordance with the
laws of Japan. Notwithstanding this Article 15.08, United States tax and other
laws and regulations which could be detrimental to MMI shall be taken into
consideration in implementing this Agreement.
15.09.Entire Agreement and Modification
- ---------------------------------------
(1) This written Agreement together with the Exhibits A and B attached
hereto and any written amendments thereof, constitutes the entire agreement
between the Parties relating to the subject matter herein, and it is the final
expression of the agreement between the Parties. The terms included herein may
not be contradicted by evidence of any prior agreement or of a contemporaneous
oral agreement, but may be explained or supplemented by (i) course of dealing or
performance; and (ii) evidence of consistent additional terms except where this
written Agreement is a complete and exclusive statement of the terms agreed
upon.
(2) No change in, addition to or waiver of the terms and conditions herein
shall be binding upon any Parties, unless approved by it in writing.
(3) The Parties hereby agree that this Amended and Restated Joint Venture
Agreement shall replace the Original Agreement and the Amendment Agreement Dated
15
<PAGE>
January 31, 1994 between Sasatoku Insatsu Kogyo K.K. and R.R. Donnelley Far
East Ltd., in its entirety.
15.10. Confidential Information
- -------------------------------
The Parties hereto shall not disclose or otherwise divulge to any third
person or persons any secret or confidential information of any Party hereto
which may have come to their knowledge through the joint project contemplated
herein. The obligation set forth in this Article of the Parties hereto shall
survive any termination or cancellation of this Agreement.
15.11. Language
- ---------------
This Agreement shall be executed in English language, which language shall
control. A Japanese translation of this Agreement which is verified by both
Parties shall be attached hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year written below.
Date: January , 1999
Place: Westwood MA, U.S.A.
MODUS MEDIA INTERNATIONAL, INC.,
By: /s/ Gene Morphis
-------------------------------
Title: Senior Vice President
Name: Gene Morphis
Date: January , 1999
Place: Tokyo, Japan
SASATOKU PRINTING CO., LTD., formerly
Sasatoku Insatsu Kogyo K.K.
By: /s/ Takashige Sugiyama
-------------------------------
Title: Representative Director, President
Name: Takashige Sugiyama
16
<PAGE>
EXHIBIT A
Articles of Association
of
DONNELLEY SASATOKU K.K.
<PAGE>
[Translation]
*****************************************
ARTICLES OF ASSOCIATION
OF
DONNELLEY SASATOKU K.K.
*****************************************
as of June 5, 1997
<PAGE>
- 1 -
ARTICLES OF ASSOCIATION
-----------------------
CHAPTER I
GENERAL PROVISIONS
ARTICLE 1. COMPANY NAME
- -----------------------
-
The name of the Company is "Sasatoku Doneri Kabushiki Kaisha ", which is
expressed in English as Donnelley Sasatoku K.K.
ARTICLE 2. PURPOSE
- ------------------
The Company shall engage in the following businesses:
1. Printing; and
2. All other business activities incidental to the foregoing.
ARTICLE 3. LOCATION OF HEAD OFFICE
- ----------------------------------
The head office of the Company shall be located in Shinjuku-ku, Tokyo.
ARTICLE 4. METHOD OF PUBLIC AND OTHER NOTICES
- ---------------------------------------------
Public notices of the Company shall be carried in the KAMPO [Official
Gazette].
CHAPTER II
SHARES OF STOCK
ARTICLE 5. TOTAL NUMBER OF SHARES AUTHORIZED TO BE ISSUED
- ---------------------------------------------------------
The total number of shares authorized to be issued by the Company shall be
10,480 shares.
<PAGE>
- 2 -
ARTICLE 6. PRICE PER SHARE
- --------------------------
All shares to be issued by the Company shall be par-value shares. The price
per share shall be Y50,000.
ARTICLE 7. RIGHTS OF FRACTIONAL SHAREHOLDERS
- --------------------------------------------
(1) Shareholders recorded in the Fractional Shares Original Register as
fractional shareholders shall be vested with the right to receive dividends from
profit and monetary distributions pursuant to Article 293-5 of the Commercial
Code.
(2) Where a shareholder is deemed to be vested with the right to subscribe
to new shares, convertible debentures or warrant bonds, the fractional
shareholders of the previous paragraph shall have subscription rights thereof.
ARTICLE 8. SHARE CERTIFICATES
- -----------------------------
(1) All shares certificates to be issued by the Company shall be nominative
shares of 1, 50, 100, 1,000 and other share certificate denominations.
(2) Share certificates shall not be issued where a request for
non-possession of share certificates is presented to the Company.
ARTICLE 9. RESTRICTIONS ON ASSIGNMENT OF SHARES
- -----------------------------------------------
Any assignment of shares of the Company shall require the approval of the
Board of Directors.
ARTICLE 10. CHANGE IN HOLDER
- ----------------------------
(1) Applications to change the holder of a Company share must be made using
the Company's prescribed application form, signed and sealed and submitted with
the share certificate attached.
<PAGE>
- 3 -
(2) When shares are acquired other than by assignment, written evidence of
the reason therefor must be submitted together with the share certificate, as
the Company may request.
ARTICLE 11. RECORDING OF PLEDGES AND DESIGNATION OF PROPERTY IN TRUST
- ---------------------------------------------------------------------
Any application to record a pledge of Company shares or to designate
property in trust must be made using the Company's prescribed application form,
signed and sealed and submitted with the share certificate attached. The same
applies to cancellation of such record or designation.
ARTICLE 12. REISSUANCE OF SHARE CERTIFICATES
- --------------------------------------------
(1) Any application for reissuance of a share certificate by reason of
split, amalgamation or soiling must be made using the Company's prescribed
application form, signed and sealed and submitted with the share certificate
attached.
(2) To apply for reissuance of a lost share certificate, application must
be made using the Company's prescribed application form, signed and sealed and
submitted with the original or a certified copy of the nullification attached.
ARTICLE 13. FEES
Whenever an application is made subject to the preceding three articles,
the fee prescribed by the Company must be paid.
ARTICLE 14. CLOSURE OF THE SHAREHOLDERS REGISTER
- ------------------------------------------------
(1) The Company shall suspend all changes in the entries in the
shareholders register from the day following the last day of the business year
until the final day of the Regular General Meeting of Shareholders.
(2) In cases other than the above item, whenever necessary to ascertain
those persons who should exercise rights as shareholders or pledgees for a
distribution of interim dividend, etc., changes in the shareholders register may
be suspended by
<PAGE>
- 4 -
resolution of the Board of Directors or a record date may be determined. In such
case, two weeks prior public notice of the period of suspension or record date
shall be given.
ARTICLE 15. REPORTING OF SHAREHOLDERS' ADDRESSES
- ------------------------------------------------
The Company's shareholders, registered pledgees, or their legal agents or
representatives must report their names, addresses, and seals on the Company's
prescribed form. The same shall apply to any change occurring in the reported
items.
CHAPTER III
GENERAL MEETING OF SHAREHOLDERS
ARTICLE 16. CONVOCATION
- -----------------------
An Ordinary General Meeting of Shareholders of the Company shall be
convened within three (3) months after the end of each business year, and
Extraordinary General Meetings of Shareholders shall be convened from time to
time as necessary.
ARTICLE 17. CHAIRMAN
- --------------------
(1) A representative director shall serve as chairman of a general meeting
of shareholders. If the representative director is not available, one of the
other directors may serve in his stead by a resolution of the Board of Directors
Meeting.
(2) If all directors are not available, one of the shareholders present may
serve in their stead by election from among the shareholders in attendance.
ARTICLE 18. RESOLUTIONS
- -----------------------
Unless otherwise provided by law or order or by these Articles of
Association, all resolutions of a general meeting of shareholders shall require
an affirmative vote of the shareholders in attendance holding a majority of
voting shares.
<PAGE>
- 5 -
ARTICLE 19. EXERCISE VOTE BY PROXY
- ----------------------------------
(1) A shareholder may exercise his vote by a proxy who is a shareholder of
the Company. In such a case, a proxy shall file with the Company a document
establishing his power of representation.
(2) A shareholder shall not provide the proxy authority of the previous
paragraph to more than one person.
ARTICLE 20. MINUTES
- -------------------
The substance of the proceedings at a General Meeting of Shareholders and
result thereof shall be recorded in minutes of the meeting, and shall bear the
signatures or names and seals of the chairman and directors in attendance and be
preserved at the head office for ten (10) years.
CHAPTER IV
DIRECTORS, REPRESENTATIVE DIRECTORS AND
THE BOARD OF DIRECTORS
ARTICLE 21. NUMBER OF DIRECTORS AND AUDITORS
- --------------------------------------------
The Company shall have at least three (3) but no more than ten
(10) directors and no more than two (2) auditors.
ARTICLE 22. ELECTION OF DIRECTORS AND AUDITORS
- ----------------------------------------------
(1) The Company's directors and auditors shall be elected by a majority
vote at a general meeting of shareholders attended by shareholders holding at
least one-third of all outstanding shares.
(2) Cumulative voting for the election of Directors shall not be permitted.
<PAGE>
- 6 -
ARTICLE 23. TERM OF OFFICE OF DIRECTORS AND AUDITORS
- ----------------------------------------------------
(1) The term of office of a director shall terminate at the close of the
Ordinary General Meeting of Shareholders for the last business year within two
(2) years following assumption of office, and the term of office of an auditor
shall terminate at the close of the Ordinary General Meeting of Shareholders for
the last business year within three (3) years following assumption of office.
(2) The term of office of a director elected to fill a vacancy or due to an
increase in the number of directors shall correspond to the remaining term of
office of the other directors.
(3) The term of office of an auditor elected to fill a vacancy shall
correspond to the remaining term of office of his predecessor.
ARTICLE.24. CONVENING OF BOARD OF DIRECTORS MEETINGS
- ----------------------------------------------------
A notice of the Board of Directors Meeting shall be issued to each director
and auditor three days prior to the date of the meeting; however, in time of
emergency, this period may be shortened, or omitted with the consent of all
directors and auditors.
ARTICLE 25.RESOLUTION OF BOARD OF DIRECTORS MEETINGS
- ----------------------------------------------------
A resolution of the Board of Directors Meeting shall be adopted by the
affirmative vote of a majority of those directors present at a meeting attended
by a majority of the directors of the Company.
ARTICLE 26. MINUTES OF BOARD OF DIRECTORS MEETING
- -------------------------------------------------
The substance of the proceedings at the Board of Directors Meeting and
result thereof shall be recorded in minutes of the meeting, and shall bear the
signatures or names and seals of the chairman and directors in attendance and be
preserved at the head office for ten (10) years.
<PAGE>
- 7 -
ARTICLE 27. REPRESENTATIVE DIRECTORS AND OFFICER-DIRECTORS
- ----------------------------------------------------------
The Company shall have one or more representative directors, and a few
senior managing directors and managing directors as necessary, as may be elected
by a resolution of the Board of Directors from among themselves.
ARTICLE 28. PERFORMANCE OF DUTIES
- ---------------------------------
(1) Representative directors shall supervise the work of the Company, and
the senior managing director and managing director shall assist the
representative director and be delegated a portion of such work.
(2) If representative directors are unable to perform their duties, another
director shall act on behalf of the representative directors in an order
determined in advance by the Board of Directors.
ARTICLE 29. COMPENSATION AND RETIREMENT BONUSES
- -----------------------------------------------
Compensation and retirement bonuses for the directors and auditors shall be
separately decided by a resolution of the General Meeting of Shareholders.
CHAPTER V
ACCOUNTING
ARTICLE 30. BUSINESS YEAR
- -------------------------
The business year of the Company shall be the one-year period commencing on
December 26 and ending on December 25 of the following year.
ARTICLE 31. DISTRIBUTION OF PROFITS
- -----------------------------------
Dividends from profit shall be paid to shareholders and registered pledgees
who are listed in the Register of Shareholders as of the end of each business
year, as well as to fractional shareholders of Article 7(1) as of the same date.
<PAGE>
- 8 -
ARTICLE 32. DISTRIBUTION OF INTERIM PROFITS
- -------------------------------------------
The Company may make a distribution of money, by a resolution of a meeting
of the Board of Directors pursuant to the provisions of Article 293-5 of the
Commercial Code, to shareholders and registered pledgees registered in the
Register of Shareholders as of six month prior to the end of the business year,
as well as to fractional shareholders of Article 7(1) as of the same date.
ARTICLE 33. RELEASE FROM OBLIGATION TO PAY DIVIDENDS
- ----------------------------------------------------
The Company shall be relieved of any obligation to pay dividends from
profit and interim dividends of the preceding article which have not been
claimed after the lapse of five (5) full years from the date the dividend was
declared.
<PAGE>
- 9 -
Exhibit B
BUSINESS PLAN OF
DONNELLEY SASATOKU K.K.
FROM Year of 1999 TO 2001
(to be completed based on mutual discussion between the parties)
<PAGE>
EXHIBIT 10.20
MASTER AGREEMENT
THIS MASTER AGREEMENT ("Agreement") is made and entered into this 11th day
of November 1998, by and among:
1. Modus Media International, Inc. ("MMI"), a corporation existing under the
laws of Delaware with its principal place of business at 690 Canton Street,
Westwood, MA 02090, United States of America;
2. The Korean management team (hereinafter individually, "Partner" and
collectively "Partners") of Modus Media International Korea, Ltd. ("MMIK")
composed of DaeSu Jung, ByungSoo Lee and SeungHun Baek; and
3. MMIK, a corporation existing under the laws of the Republic of Korea which
has its principal place of business at 750-8 Komai-ri, Key-heung-ub, Yongin-si,
Kyungki-do, 449-900 Korea.
WHEREAS, MMI is the owner of all of the issued and outstanding shares of
MMIK;
WHEREAS, MMI wishes to restructure its operations in Korea whereby MMI
will dissolve and liquidate MMIK and otherwise end the corporate existence of
MMIK;
WHEREAS, the Partners wish to take over certain operations and employees
of MMIK and for this purpose will incorporate and form Modus Media Korea Ltd.
("NEWCO"), a joint stock company, under the laws of the Republic of Korea to
acquire such operations and employees of MMIK;
WHEREAS, to effectuate MMI's desire to sell, assign,
<PAGE>
transfer to the Partners and the Partners' desire to buy, assume, and receive
(through NEWCO) from MMI certain assets and operations of MMI, various actions
need to be taken by the parties and numerous agreements between the parties will
need to be entered into; and
WHEREAS, it is the intent of the parties to clarify the order of actions
to be taken and the procedures to be used to sell, assign, and transfer certain
assets and operations of MMIK to the Partners (through NEWCO) and tie and
connect together the various agreements to be entered into by the parties via
this Master Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties agree as follows:
1. Procedural Order
----------------
The parties shall take the following actions and enter into the following
agreements in accordance with the following phases. It is intended that all the
actions and agreements in each phase be completed and entered into prior to
taking the actions in the following phase.
a. Phase One
---------
Formation of NEWCO. The Partners shall form and incorporate a joint
------------------
stock company (chusik hoesa) under the laws of the Republic of Korea with
the paid-in capital of 100,000,000 won composed of 20,000 common shares
with par value of 5,000 won.
b. Phase Two
----------
(i) Stock Subscription and Shareholders
------------------------------------
<PAGE>
Agreement
---------
MMI, the Partners, and NEWCO shall enter into a Stock Subscription
and Shareholders Agreement substantially in the form attached hereto as
Exhibit A, which shall detail the rights and obligations of the
shareholders of NEWCO and NEWCO, whereby MMI shall subscribe for 5,000
common shares with a par value of 5,000 won in exchange for a capital
contribution of 50 million won.
(ii) Option Agreement
----------------
MMI, NEWCO, and the Partners shall enter into an Option Agreement
substantially in the form attached hereto as Exhibit B, whereby MMI shall
be given the option to purchase or designate the purchaser of all of the
voting shares in NEWCO at fair market value (but not less than 30,000
Korean won per share), beginning on the third anniversary of the Option
Agreement and continuing until the fifth anniversary of the Option
Agreement. The Parties shall cause NEWCO to place a legend on the share
certificates containing a reference to the terms of the option agreement
so as to give adequate notice of the restriction on the share transfer
under the Option Agreement to any third party who may acquire an interest
in the shares of NEWCO. The Option Agreement shall be executed
concurrently with the Stock Subscription and Shareholders Agreement.
c. Phase Three
-----------
(i) Severance Contributions by MMI
------------------------------
MMI shall inject funds to MMIK of up to
<PAGE>
U.S. $350,000 to be used to pay the severance and other disassociation
benefits payable by MMIK to its employees; any severance and other
disassociation benefits payable over this amount shall be borne equally by
MMI and NEWCO. Notwithstanding the foregoing, the severance and other
disassociation benefits payable to Sung Ho Lee shall be the responsibility
of and paid directly by MMI; MMI shall indemnify MMIK for any such payment
made to Sung Ho Lee by MMIK.
(ii) POD Sales and Purchase Agreement
--------------------------------
MMI and MMIK have entered into a POD sales and purchase agreement
whereby MMIK has sold the Print on Demand equipment for U.S. $430,000 to
MMI.
(iii) Cancellation of Loan Guarantees
-------------------------------
All loan and overdraft guarantees of MMI guaranteeing MMIK's loan and
debt obligations, shall be canceled or discontinued.
(iv) License Agreement
-----------------
MMI and NEWCO shall enter into a license agreement substantially in
the form attached hereto as Exhibit C, which shall detail the terms and
conditions for NEWCO's continuing use of the trademark "Modus Media," or a
derivation thereof, as part of NEWCO's name and trademark.
(v) Sales Commission Agreement
--------------------------
MMI and NEWCO shall enter into a sales commission agreement
substantially in the form
<PAGE>
attached hereto as Exhibit D, which shall detail the terms and conditions
of sales commission to be paid to MMI and NEWCO for sales support provided
to each other.
d. Phase Four
----------
(i) Business Transfer Agreement
---------------------------
MMIK and NEWCO shall enter into a business transfer agreement
substantially in the form attached hereto as Exhibit E, which shall detail
the terms and conditions of the transfer of certain operations and assets
of MMIK to NEWCO, including the transfer of employees. The transfer of the
business under this agreement shall be completed on the Closing Date as
defined in the business transfer agreement.
(ii) Dissolution of MMIK
-------------------
MMI shall adopt a resolution to dissolve and liquidate MMIK
(iii) Severance Pay & Employee Compensation
-------------------------------------
MMIK shall pay all wages due, accrued benefits payable, severance and
other disassociation benefits payable to MMIK employees, except as
provided for Sung Ho Lee in Section 1(i) within the time period required
by law or contract after the resolution to dissolve and liquidate MMIK is
passed.
e. Phase Five
----------
(i) Liquidation of MMIK. MMIK shall file with the relevant Korean
-------------------
court a request for an order
<PAGE>
to commence the liquidation procedure of MMIK, and upon its receipt,
liquidate MMIK.
(ii) Issuance of New Shares. NEWCO shall issue 5,000 new shares to
----------------------
MMI in exchange for 50,000,000 won in accordance with the Stock
Subscription and Shareholders Agreement.
2. This Agreement and the transactions and related agreements contemplated
hereunder shall be subject to and contingent upon (i) the approval of MMI's
banks, and (ii) the approval of MMI Board of Directors.
3. Entire Agreement. This Agreement constitutes the entire understanding and
----------------
agreement among all Parties and supersedes any and all prior or contemporaneous,
oral or written, representations, communications, understandings and agreements
among the Parties with respect to the subject matter hereof.
4. Modifications. This Agreement shall not be modified, amended, canceled or
-------------
altered in any way, and may not be modified by custom, usage of trade or course
of dealing, except by an instrument in writing signed by all Parties. All
amendments or modifications of this Agreement shall be binding upon the Parties
despite any lack of consideration so long as the same shall be in writing and
executed by the Parties.
5. Waiver. Performance of any obligation required of a Party hereunder may be
------
waived only by a written waiver signed by the other Parties, which waiver shall
be effective only with respect to the specific obligation described. The waiver
by each Party of a breach of any provision of this Agreement by any of the other
Parties shall not operate or be construed as a waiver of any
<PAGE>
subsequent breach of the same provision or another provision of this Agreement.
6. Severability. If any provision hereof is found invalid or unenforceable
------------
pursuant to any executive, legislative, judicial or other decree or decision,
the remainder of this Agreement shall remain valid and enforceable according to
its terms, unless any Party deems the invalid or unenforceable provisions to be
essential to this Agreement, in which case each Party may terminate this
Agreement, effective immediately, upon written notice to the other Party.
7. Governing Law. This Agreement and all disputes arising out of or in
--------------
connection with this Agreement shall be governed by, interpreted under, and
construed and enforceable in accordance with, the laws of the Republic of Korea.
8. Arbitration and Forum for Dispute Resolution. Any dispute arising out of
--------------------------------------------
or in relation to this Agreement, unless otherwise amicably resolved by
agreement between the parties, shall be finally settled by arbitration. Such
arbitration shall be conducted in Seoul, Korea in accordance with the Commercial
Arbitration Rules of the Korean Commercial Arbitration Board. Each party hereto
shall appoint one of the arbitrators, and those two arbitrators shall choose the
third arbitrator. The arbitration award rendered by three arbitrators so
appointed shall be final and conclusive, and shall be recognized and enforced by
any competent court having jurisdiction.
9. Expenses. Each Party shall pay all of its own expenses relating to the
--------
transactions contemplated by this Agreement, including without limitation the
fees and
<PAGE>
expenses of its counsel and financial advisers, unless specifically provided
otherwise in the other agreements.
10. Assignment. No Party may assign this Agreement or any of the rights or
----------
obligations hereunder to any third party without the prior written consent of
the other Parties.
11. Third Party Benefits. This Agreement shall be binding upon, and inure to
--------------------
the benefit of, each of the Parties and their respective successors and
permitted assigns. Nothing contained in this Agreement, express or implied,
shall be deemed to confer any right or remedy upon, or obligate any Party to,
any person or entity other than the Parties.
12. No Partnership or Agency. Nothing in this Agreement shall be construed as
------------------------
creating a partnership, agency, employment relationship, franchise relationship
or taxable entity among the Parties, and no Party shall have the right, power or
authority to create any obligation or duty, express or implied, on behalf of the
other Parties, it being understood that the Parties are independent contractors
vis-a-vis one another.
13. Force Majeure. The failure or delay of any Party to perform any obligation
-------------
under this Agreement solely by reason of acts of God, acts of civil or military
authority, civil disturbance, war, strikes or other labor disputes or
disturbances, fire, transportation contingencies, shortage of facilities, fuel,
energy, labor or materials, or laws, regulations, acts or order of any
governmental agency or official thereof, other catastrophes, or any other
circumstance beyond its reasonable control ("Force Majeure") shall not be deemed
to be a breach of this Agreement so long as the Party so prevented from
complying with this Agreement shall not have contributed to such Force Majeure,
shall have used its best efforts to avoid
<PAGE>
such Force Majeure or to ameliorate its effects, and shall continue to take all
actions within its power to comply as fully as possible with the terms of this
Agreement. In the event of any such default or breach, performance of the
obligations shall be deferred until the Force Majeure ceases.
14. Notices. All notices, demands, requests, consents or other communications
-------
hereunder shall be in writing and shall be deemed sufficiently given if
personally delivered, in which case such notice shall be deemed given upon
delivery, or sent by registered or certified mail, return receipt requested, in
which case such notice shall be deemed given five (5) days after dispatch, or
sent by telecopy, in which case such notice shall be deemed given upon
acknowledgement of receipt by the recipient, to the Parties at the following
addresses, or to such other address as may be designated by written notice given
by each Party to the other Parties:
To Modus Media International:
-----------------------------
Address: 690 Canton Street
Westwood, MA 02090
U.S.A.
Telephone: 1-781-407-2000
Facsimile: 1-781-407-3846
<PAGE>
To NEWCO:
---------
Address: 750-8 Komai-ri, Key-heung-ub,
Yongin-si, Kyungki-do
449-900 Korea
Telephone: 331-284-6114
Facsimile: 331-284-6119
To Partners:
------------
DaeSu Jung, ByungSoo Lee, SeungHun Baek
Address: 750-8 Komai-ri, Key-heung-ub,
Yongin-si, Kyungki-do
449-900 Korea
Telephone: 331-284-6114
Facsimile: 331-284-6119
TO MMIK
-------
Address: 750-8 Komai-ri, Key-heung-ub,
Yongin-si, Kyungki-do
449-900 Korea
Telephone: 331-284-6114
Facsimile: 331-284-6119
15. Compliance with Law. The Parties shall at all times act to assure that all
-------------------
the transactions contemplated herein shall comply with the laws and regulations
of Korea and other applicable authorities.
16. Counterparts. This Agreement may be executed in one (1) or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
<PAGE>
17. Captions. The section headings and captions contained herein are for
--------
purposes of reference and convenience only and shall not in any way affect the
meaning or interpretation of this Agreement.
18. Confidentiality of Agreement. The Parties agree that they will not
----------------------------
disclose, disseminate or cause to be disclosed the terms and conditions of this
Agreement, except insofar as disclosure is reasonably necessary to carry out and
effectuate the terms of this Agreement, and insofar as any Party is required by
law to respond to any demand for information from any court, governmental entity
or governmental agency.
19. Language. The Parties agree that the English language shall be the language
--------
used for the interpretation of this Agreement.
IN WITNESS WHEREOF, the Parties executed this Agreement as of the date
first above written.
Modus Media International
/s/ Gene S. Morphis
- -----------------------------
By:
Its: SR. V.P.
MMIK
/s/ [ILLEGIBLE]
- -----------------------------
By:
Its: President
<PAGE>
Partners
DaeSu Jung
/s/ DaeSu Jung
- -----------------------------
ByungSoo Lee
/s/ ByungSoo Lee
- -----------------------------
SeungHun Baek
/s/ SeungHun Baek
- -----------------------------
<PAGE>
EXHIBIT 21.1
SUBSIDIARY LISTING
MODUS MEDIA INTERNATIONAL HOLDINGS, INC.
<TABLE>
<CAPTION>
AMERICAS
- --------
<S> <C> <C>
Modus Media International, Inc. Delaware
Modus Media International (Ireland) Limited Delaware
Modus Media International Documentation Services (Ireland), Limited Delaware
Modus Media International Holdings (Australia) Limited Delaware
Modus Media International Ltda. Brazil Inactive
Modus Media International S.A. de C.V Mexico Inactive
<CAPTION>
EUROPE
- ------
International de Traitements de Donnes - I.T.D. S.A. France
Modus Media Financial Services Ltd. Ireland
Modus Media International B.V. Netherlands
Modus Media International Dublin Ireland
Modus Media International Fulfillment Services Europe Ireland
Modus Media International Ireland (Holdings) Ireland
Modus Media International Kildare Ireland
Modus Media International Leinster Unlimited British Virgin Islands
Modus Media International Limited U.K.
Modus Media International France S.A. France
<CAPTION>
ASIA/PACIFIC
- ------------
Fulfill: Plus Pte. Ltd. Singapore
Modus Media (M) Sdn. Bhd. Malaysia
Modus Media International (Hong Kong) Pte. Ltd. Singapore
Modus Media International Pte. Ltd. Singapore
Modus Media International PTY Ltd. Australia
Modus Media International Software Services (Shenzen) Co. Ltd. China
Open Channel Solutions K.K. Japan
Taiwan Modus Media International Limited Taiwan
Modus Media International K.K. Japan Liquidated 6/29/99
Modus Media Japan K.K. Japan
Modus Media International Korea Ltd. Korea Liquidated 3/1/99
Modus Media Korea Ltd. Korea
</TABLE>
<PAGE>
MODUS MEDIA INTERNATIONAL HOLDINGS, INC.
LEGAL ENTITY ORGANIZATION CHART
----- ------ ------------ -----
(as of 9/99)
Modus Media International Holdings, Inc.
(Delaware)
Modus Media International, Inc.
(Delaware)
<TABLE>
<CAPTION>
- ----------------- ----------------------- --------------- ------------------ ---------------- -------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
MMI Holdings MMI Documentation MMI (Ireland) MMI FRANCE S.A. MMI Limited MMI Pte. Ltd MMI B.V.
(Australia) Ltd. Services (Ireland) Ltd. Limited (France) (U.K.) (Singapore) (The Netherlands)
(Delaware) (Delaware) (Delaware)
- ----------------- ----------------------- --------------- ------------------ ---------------- -------------- -----------------
- ----------------- -------------------- ------------------------
Open Channel MMI Japan KK Modus Media Korea Ltd
Solutions KK* [joint venture (Korea)
(Japan) and licensee/MMI [20% ownership
has 40% interest] and licensee]
- ----------------- -------------------- ------------------------
- ----------------- ---------------------- ---------------------- ------------ ------------------------ -------------------
MMI PTY Ltd. MMI Leinster Unlimited MMI Ireland (Holdngs) ITD Trading MMI (Hong Kong) Taiwan MMI Limited
(Australia) (BVI) (Dublin) (France) Pte. Ltd. (Taiwan)
- ----------------- ---------------------- ---------------------- ------------ ------------------------ -------------------
Fulfill: Plus Pte. Ltd. MM (M) Sdn. Bhd.
(Singapore) (Malaysia)
------------ ------------------ ------------------------ -------------------
MMI Dublin MMI Fulfillment
(Ireland) Services Europe
(Ireland)
------------ ------------------ ------------------------
MMI Kildare MMI Financial MMI SS (Shenzhan)
(Ireland) Services Ltd. (China)
(Ireland) [TBE]
------------ ------------------ ------------------------
</TABLE>
<PAGE>
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountant, we here by consent to the use of our reports
(and to all references to our Firm) included in or made apart of this
registration statement.
/s/ Arthur Andersen LLP
Arthur Andersen
Boston MA
12/10/99
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MODUS MEDIA
INTERNATIONAL HOLDINGS, INC. FINANCIAL STATEMENTS AS OF AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 20,385
<SECURITIES> 0
<RECEIVABLES> 124,238
<ALLOWANCES> 5,036
<INVENTORY> 46,450
<CURRENT-ASSETS> 199,475
<PP&E> 181,683
<DEPRECIATION> 113,673
<TOTAL-ASSETS> 276,966
<CURRENT-LIABILITIES> 158,817
<BONDS> 7,341
0
71,744
<COMMON> 128
<OTHER-SE> 30,473
<TOTAL-LIABILITY-AND-EQUITY> 276,966
<SALES> 506,235
<TOTAL-REVENUES> 506,235
<CGS> 413,295
<TOTAL-COSTS> 413,295
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,821
<INCOME-PRETAX> 12,664
<INCOME-TAX> 3,274
<INCOME-CONTINUING> 9,390
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,390
<EPS-BASIC> 0.36
<EPS-DILUTED> 0.31
</TABLE>
