-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WNjIk9CjRBrS/G6oakS9+TksqDw78+776L3Hze0TmJFBHzeNNsjcAIfrVjh9FcgC WxTQKh61wntAoCeg8TaLmA== 0000927016-99-003924.txt : 19991213 0000927016-99-003924.hdr.sgml : 19991213 ACCESSION NUMBER: 0000927016-99-003924 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 25 FILED AS OF DATE: 19991210 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MODUS MEDIA INTERNATIONAL HOLDINGS INC CENTRAL INDEX KEY: 0001100406 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 043357799 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-92559 FILM NUMBER: 99772901 BUSINESS ADDRESS: STREET 1: 690 CANTON STREET CITY: WESTWOOD STATE: MA ZIP: 02090 BUSINESS PHONE: 7814072000 MAIL ADDRESS: STREET 1: 690 CANTON STREET STREET 2: C/O MODUS MEDI INTERNATIONAL HOLDINGS CITY: WESTWOOD STATE: MA ZIP: 02090 S-1 1 FORM S-1 As filed with the Securities and Exchange Commission on December 10, 1999 Registration No. 333- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ----------- MODUS MEDIA INTERNATIONAL HOLDINGS, INC. (Exact name of registrant as specified in its charter) ----------- 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 ----------- 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 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Proposed maximum aggregate Amount of Title of each class of offering registration securities to be registered price(1) fee(2) - -------------------------------------------------------------------------------- Common Stock, $.01 par value per share............... $150,000,000 $39,600 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
(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. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +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. ---------
Per Share Total --------- ------ Initial Public Offering Price $ $ Underwriting Discount $ $ Proceeds to Modus Media (before expenses) $ $
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 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. ------------ TABLE OF CONTENTS
Page ---- 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
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 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 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: 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
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 The Offering 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..............
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 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.
Nine Months Ended Years Ended December 31, September 30, --------------------------------- ------------------------ 1996 1997 1998 1998 1999 --------- --------- ----------- ----------- ----------- (in thousands, except share and per share data) 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
As of September 30, 1999 -------------------- Actual As Adjusted -------- ----------- (in thousands) 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
- -------- (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 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 . 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 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 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 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 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 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 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 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 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 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.
September 30, 1999 --------------------- Actual As Adjusted -------- ----------- (in thousands) 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 $ ======== ===
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 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: 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..............................
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):
Shares Purchased Total Consideration ------------------ ------------------- Average Price Number Percent Amount Percent Per Share ---------- ------- ----------- ------- ------------- Existing stockholders.. 12,821,340 % $23,799,000 % $1.86 New investors.......... ---------- ----- ----------- ----- Total................ 100.0% 100.0% ========== ===== =========== =====
- -------- 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 $ . 18 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.
Nine Months Ended Years Ended December 31, September 30, ------------------------------------------- ------------------------ 1995 1996 1997 1998 1998 1999 --------- --------- --------- ----------- ----------- ----------- (in thousands, except share and per share amounts) 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
19
As of December 31, As of ------------------------------------ September 30, 1995 1996 1997 1998 1999 -------- -------- -------- -------- ------------- (in thousands) 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
- -------- (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 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 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:
Years Ended Nine Months Ended December 31, September 30, --------------- ------------------ 1997 1998 1998 1999 ------ ------ -------- -------- 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% ====== ====== ======== ========
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. 22 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 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 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.
1998 Quarters Ended 1999 Quarters Ended ---------------------------------------- ---------------------------- March 31 June 30 Sept 30 Dec 31 March 31 June 30 Sept 30 -------- -------- -------- -------- -------- -------- -------- (in thousands) 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 ======== ======== ======== ======== ======== ======== ======== 1998 Quarters Ended 1999 Quarters Ended ---------------------------------------- ---------------------------- March 31 June 30 Sept 30 Dec 31 March 31 June 30 Sept 30 -------- -------- -------- -------- -------- -------- -------- 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% ======== ======== ======== ======== ======== ======== ========
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 . 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 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 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 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 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; 30 . 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. 31 . 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. 32 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. 33 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 34 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. 35 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.
Client Content Manufacturing Solutions e-Fulfillment Solutions - ------ ------------------------------- ----------------------- 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
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 36 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. 37 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.
Facility Location Area (sq. ft.) ----------------- -------------- 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
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 38 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. 39 MANAGEMENT Executive Officers and Directors Our executive officers and directors, and their ages and positions as of November 30, 1999, are as follows:
Name Age Position ---- --- -------- 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
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. 40 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. 41 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 $100,000, referred to collectively as the Named Executive Officers. 42 Summary Compensation Table
Long-term Compensation Annual Compensation(1) Awards -------------------------------- -------------- Other Annual Shares All Other Name and Salary Bonus Compensation Underlying Compensation Principal Position ($) ($) ($) Options (#)(2) ($) ------------------ -------- ---------- ------------ -------------- ------------ 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
- -------- (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 $701 of life insurance premiums paid by us. 43 Stock Options The following table contains information concerning the grant of options to purchase shares of our common stock to each of our Named Executive Officers during the fiscal year ended December 31, 1998: Option Grants in Last Fiscal Year
Potential Realizable Value at Assumed Annual Rates of Stock Appreciation for Option Individual Grants Term(3) ------------------------------------------------ ------------------------ Number of Percent of Securities Total Options Underlying Granted To Exercise Options Employees in Price Expiration Name Granted (#) Fiscal Year(1) ($/Sh)(2) Date 5% ($) 10% ($) ---- ----------- -------------- --------- ---------- ----------- ------------ 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
- -------- (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 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
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 ---- -------- -------- ------------------------------ ---------------------------- 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
- -------- (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 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 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 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 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 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.
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 ------------------- -------------- ------------ --------- ---------- 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%
- -------- * 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 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 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 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 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 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 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:
Number Name of shares ---- ---------- Salomon Smith Barney Inc....................................... Donaldson, Lufkin & Jenrette Securities Corporation............ Robertson Stephens Inc......................................... Thomas Weisel Partners LLC..................................... ----- Total........................................................ =====
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 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.
Paid by Us ------------------------- No Exercise Full Exercise ----------- ------------- Per share........................................ $ $ Total............................................ $ $
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 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 MODUS MEDIA INTERNATIONAL HOLDINGS, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page ---- 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
F-1 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 MODUS MEDIA INTERNATIONAL HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS (In Thousands, Except Share Amounts)
December 31, 1998 September 30, 1999 ----------------- ------------------ 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 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-3 MODUS MEDIA INTERNATIONAL HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, Except Per Share Data)
Year Ended Nine Months December 31, Ended ------------------ September 30, 1997 1998 1999 -------- -------- ------------- 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 ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-4 MODUS MEDIA INTERNATIONAL HOLDINGS, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In Thousands, Except Share Amounts)
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 ---------- --------- ----------- ----------- --------- ---------- -------- ------------- -------- 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 ======== ====== ======= =========== ===== ======== ======= ===== ========
The accompanying notes are an integral part of these financial statements. F-5 MODUS MEDIA INTERNATIONAL HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands)
Year Ended Nine Months December 31, Ended ------------------- September 30, 1997 1998 1999 --------- -------- ------------- 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 ========= ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-6 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 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):
December 31, September 30, 1998 1999 ------------ ------------- 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): December 31, September 30, 1998 1999 ------------ ------------- 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 ======== ========
(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 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):
December 31, September 30, 1998 1999 ------------ ------------- 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 ======= =======
(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 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 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 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):
December 31, September 30, 1998 1999 ------------ ------------- 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 ======== =======
F-12 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):
Year Operating Capital ---- --------- ------- 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 =======
(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 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):
Year Ended Nine Months December 31, Ended ------------- September 30, 1997 1998 1999 ------ ------ ------------- Current: Domestic...................................... $ -- $ -- $ -- Foreign....................................... -- 4,607 4,075 Deferred........................................ 2,824 (342) (801) ------ ------ ------ $2,824 $4,265 $3,274 ====== ====== ======
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:
Year Ended Nine Months December 31, Ended --------------- September 30, 1997 1998 1999 ------ ------ ------------- 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% ====== ====== =====
F-14 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):
December 31, September 30, 1998 1999 ------------ ------------- 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 ======= =======
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 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):
Year Ended Nine Months December 31, Ended ---------------- September 30, 1997 1998 1999 ------- ------- ------------- 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 ======= ======= =======
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 MODUS MEDIA INTERNATIONAL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) September 30, 1999 Common stock consisted of the following:
December 31, September 30, 1998 1999 ------------ ------------- 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 ========== ==========
(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 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):
Year Ended Nine Months December 31, Ended ----------------- September 30, 1997 1998 1999 -------- ------- ------------- Net income (loss) As reported.............................. $(32,667) $10,747 $9,390 Pro forma................................ (33,298) 10,263 9,163
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:
Weighted Number of Average Shares Exercise Price ---------- -------------- 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
F-18 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:
Weighted Average Remaining Range of Outstanding at Contractual Exercisable at Exercise Prices September 30, 1999 Life (Years) September 30, 1999 --------------- ------------------ ---------------- ------------------ $ 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 ============ ========= ===== =========
(10) Earnings Per Share The following table sets forth the computation of basic and diluted income per share (in thousands, except per share amounts):
Nine Months Year Ended Ended December 31, September 30, 1998 1999 ------------ ------------- 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 ======= =======
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 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):
Year Ended Nine Months December 31, Ended ------------------ September 30, 1997 1998 1999 -------- -------- ------------- 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 ======== ========
(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 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 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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. 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............................................................ =======
-------- * 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 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:
Exhibit No. Description ----------- ----------- *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
II-2
Exhibit No. Description ----------- ----------- 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
II-3
Exhibit No. Description ----------- ----------- 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
- -------- * 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
Additions Balance Balance at Charged to at End Beginning Costs and of Description of Period Expenses Deductions Period - ----------------------------------- ---------- ---------- ---------- ------- (in thousands) 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) $ --
(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 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 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.
Signature Title Date --------- ----- ---- /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
II-6 EXHIBIT INDEX
Exhibit No. Description ----------- ----------- *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
Exhibit No. Description ----------- ----------- 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
- -------- * 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
EX-3.1 2 RESTATED CERTIFICATE OF INCORPORATION OF THE REGIS 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- 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- 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- 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- 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- (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- 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- 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- 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- 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- 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- 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. 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 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 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: 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 EX-3.3 3 BY-LAWS OF THE REGISTRANT EXHIBIT 3.3 AMENDED AND RESTATED BY-LAWS OF MODUS MEDIA INTERNATIONAL HOLDINGS, INC. 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 -ii- 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 -iii- 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- 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- 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- 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- 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- 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- 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- 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- 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- 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- 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- 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- 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- EX-10.1 4 CONTRIBUTION AGREEMENT DATED DECEMBER 15, 1997 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. ================================================================================ TABLE OF CONTENTS
Page 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
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
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 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; 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 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 (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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 (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 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 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 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 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 SCHEDULE A MMI Subsidiaries
New name to be adopted prior to, as of or following the Jurisdiction of Name of Subsidiary date hereof Incorporation - ------------------ ----------- ------------- 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
36 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]
37 SCHEDULE B Stream International Subsidiaries
New name to be adopted prior to, as of or following the Jurisdiction of Name of Subsidiary date hereof Incorporation - ------------------ ----------- ------------- 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
38 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 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 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
EX-10.2 5 TAX SHARING AGREEMENT 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"); 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- "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- (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- "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- "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- "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 -7- 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 -8- 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 -9- 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 -10- 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 -11- 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 -12- 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. -13- (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 -14- the taxable years or periods in which the recipient, or any Affiliate, is required to pay additional Taxes by reason of the payment, or is entitled to a refund of Tax or a reduction in the amount of Taxes it would otherwise be required to pay by reason of the event or the incurrence of the liability. Section 3.04 Liability for Taxes with Respect to Post-Drop-down Periods. ---------------------------------------------------------- Unless otherwise provided in this Agreement, or the Tax Reimbursement Agreement, the Stream Group shall pay all Taxes and shall be entitled to receive and retain all Tax Refunds with respect to Post-Drop-down Taxable Periods which are attributable to the Stream Business. Unless otherwise provided in this Agreement, or the Tax Reimbursement Agreement, each of the MMI Group and the CST Group, as the case may be, shall pay all Taxes and shall be entitled to receive and retain all refunds of Taxes with respect Post-Drop-down Taxable Periods which are attributable to the MMI Business and the CST Business, respectively. For purposes of this Section 3.04, each Straddle Period shall be treated as described in Section 3.01. Section 3.05 Carrybacks. Each of MMI Holdings and CST Holdings agrees that ---------- it will not carry back any Tax Item arising after the Drop-down Date to a taxable period with respect to a Joint Tax Return which includes a member of the Stream Group or the other Group of which it is not a member, without the consent of Stream and the common parent of the other Group. In the event that MMI Holdings and CST Holdings do carry back any such Tax Item with the consent of Stream and the common parent of the other Group, any Tax Refund resulting therefrom shall be paid over to MMI Holdings or CST Holdings, as the case may be. To the extent that the carryback of any Tax Item does not result in a Tax Refund (or would not result in a refund if a claim were filed) solely as the result of an offsetting Tax Item attributable to another Group, such other Group shall remit to MMI Holdings or CST Holdings, as the case may be, the amount of any decrease in the MMI Group's or the CST Group's share of Tax with respect to such return as a result of such carryback as determined under the principles contained in Section 3.01 and 3.03(a). Section 3.06 Responsibility for Reorganization Taxes. Stream shall be --------------------------------------- responsible for 100% of any Reorganization Taxes, and shall indemnify, defend and hold harmless MMI Holdings, CST Holdings and each member of their respective Groups from and against all liability for such Reorganization Taxes. -15- ARTICLE 4 INDEMNITY; COOPERATION AND EXCHANGE OF INFORMATION -------------------------------------------------- Section 4.01 Breach. Stream shall be liable for and shall indemnify, defend ------ and hold harmless each member of the MMI Group and each member of the CST Group and their officers and directors, from and against, any payment required to be made as a result of a breach by a member of the Stream Group of any obligation under this Agreement. MMI Holdings shall be liable for and shall indemnify, defend and hold harmless each member of the Stream Group and each member of the CST Group and their officers and directors from and against, any payment required to be made as a result of the breach by a member of the MMI Group of any obligation under this Agreement. CST Holdings shall be liable for and shall indemnify, defend and hold harmless each member of the Stream Group and each member of the MMI Group and their officers and directors, from and against, any payment required to be made as a result of the breach by a member of the CST Group of any obligation under this Agreement. Section 4.02 Contest Rights -------------- (a) Notice. Whenever a party hereto or any Affiliate thereof (the ------ "Notified Party") becomes aware of any audit, action, suit, investigation, claim, assessment, litigation or other administrative or judicial proceeding (collectively, a "Proceeding") that could result in a redetermination or other adjustment to any Tax Item which could increase its liability or the liability of any member of any Group (such party or any such member, hereinafter an "Indemnitee") for any Tax for which another party hereto (hereinafter the "Indemnitor") is or may be liable under this Agreement (hereinafter an "Indemnity Issue"), the Notified Party shall promptly give notice to each other party hereto of such Indemnity Issue. The failure of any Notified Party to give such notice shall not relieve the Indemnitor of its obligations under this Agreement except to the extent such Indemnitor or any of its Affiliates is actually prejudiced by such failure to give notice. (b) General Control Rights. Subject to the other provisions of this ---------------------- Section 4.02, with respect to any Proceeding in respect of a Tax Return relating, in whole or in part, to an Indemnity Issue, the party who has responsibility for filing such Tax Return (the "Responsible Party") shall have the right to decide as between the parties hereto how such Proceeding is to be dealt with and finally resolved with the appropriate taxing authority and shall control all related Proceedings; provided, however, that if the Responsible -------- ------- Party is not the Indemnitor, the Responsible Party shall: -16- (i) promptly deliver to the Indemnitor complete copies of all written notices, requests, or other information received from any taxing authority or judicial or similar body that relate to any Indemnity Issue; (ii) not provide any documents or other information to any taxing authority or judicial or similar body that relate to the Indemnity Issue without the Indemnitor's prior review; (iii) not submit any written response or other written work in respect of any Indemnity Issue to any taxing authority or judicial or similar body without allowing the Indemnitor to review and revise such written response or other written work to the extent it relates to any Indemnity Issue (with any disagreement as to the ultimate language used in any such written response or other written work to be resolved by the Responsible Party); (iv) permit the Indemnitor and its representatives, at the Indemnitor's sole expense, to participate fully in all conferences, meetings, proceedings or judicial appearances with or before any taxing authority or judicial or similar body (whether in person or by telephone) the subject matter of which is or includes the Indemnity Issue; (v) consult in good faith with the Indemnitor with respect to all aspects of any action or position to be taken by the Responsible Party that relates to any Indemnity Issue and take the Indemnitor's interests into account; (vi) not adopt any position in any Proceeding that unfairly compromises an Indemnity Issue so as to gain any advantage with respect to any non-Indemnity Issue which is the subject of the same or any related Proceeding; (vii) if the Proceeding relates solely to one or more Indemnity Issues, permit the Indemnitor to control such Proceeding in all respects; and (viii) except in the circumstances described below, not make any settlement offer to any taxing authority, discuss any settlement offer made by any taxing authority, or accept any settlement offer made by any taxing authority, in each case with respect to any Proceeding that is related, in whole or in part, to any Indemnity Issue. (c) Settlements. With respect to any settlement offer that relates, in ----------- whole or in part, to any Indemnity Issue, the following rules shall apply if the Responsible Party is not the Indemnitor: -17- (i) no settlement offer shall be made by the Responsible Party to any taxing authority except in writing and in such case the amount offered with respect to any Indemnity Issue shall be determined solely by the Indemnitor (as indicated in a written notice to the Responsible Party); (ii) in the case of any settlement offer from a taxing authority that is not in response to a written settlement offer by the Responsible Party, the Responsible Party shall, if requested by the Indemnitor, make a written settlement offer (i.e., a counter offer) to the taxing authority in accordance ---- with paragraph (c)(i); and (iii) in the case of any settlement offer from a taxing authority (other than a settlement offer described in paragraph (c)(ii)): (A) the Responsible Party may make a written settlement offer (i.e., a ---- counter offer) to the taxing authority in accordance with paragraph (c)(i); (B) the Responsible Party may choose not to accept the settlement offer from the taxing authority and instead choose to litigate the issues reflected in such settlement offer, in which case the Responsible Party shall litigate the Indemnity Issue, which litigation shall be conducted subject to the rules of subsection (b) of this Section 4.02; (C) the Responsible Party may notify the Indemnitor of the Responsible Party's proposal that such settlement offer be accepted and entered into and request the Indemnitor's consent to doing so and, upon (x) the written consent to such settlement offer by the Indemnitor, (y) a failure of the Indemnitor to respond to such proposal by the Responsible Party within thirty days after receipt by the Indemnitor of such notice from the Responsible Party, or (z) a failure of the Indemnitor to withhold its consent to such settlement offer in accordance with subparagraph (D) below, the Responsible Party may accept and enter into such settlement offer; or (D) the Indemnitor may withhold its consent to a settlement offer of which the Responsible Party has notified the Indemnitor in accordance with subparagraph (C) above if the Indemnitor (x) notifies the Responsible Party in writing within such 30-day period that the Indemnitor does not consent to the proposed settlement, and (y) provides the Responsible Party with an opinion from tax counsel selected by the Indemnitor and reasonably satisfactory to the Responsible Party to the effect that there is a reasonable possibility that the Responsible Party will prevail on the merits with respect to one or more Indemnity Issues with an aggregate value of not less than the lesser of $1 million or 25% of the -18- amount at issue with respect to the Indemnitor in a tribunal with jurisdiction to adjudicate the Indemnity Issues; (E) if the Indemnitor provides the Responsible Party with written notification withholding consent in accordance with subparagraph (D) above, then: (i) the Indemnitor shall fully indemnify and hold harmless the Responsible Party from and against any and all liabilities (other than liability for payments to the Indemnitor hereunder) for Taxes and other costs and expenses (including, without limitation, additional attorneys' and accountants' fees) over and above the payments that the Responsible Party would have been liable for if the Responsible Party had entered into the proposed settlement; and (ii) the Responsible Party shall select one of the following alternatives: (1) the Responsible party shall enter into a closing agreement or other final resolution with the relevant taxing authority with respect to all issues in accordance with the proposed settlement other than Indemnity Issues (if doing so would not preclude litigation or other judicial proceedings with respect to the Indemnity Issues), provided that (i) such closing agreement or -------- other final resolution specifically provides that it does not apply to the Indemnity Issues, and (ii) the Responsible Party agrees to give the Indemnitor and its representatives control over the relevant Proceedings, and the Responsible Party further agrees (y) to take such actions requested by Indemnitor or its representatives to continue to contest (or, if permitted by applicable law, to permit the Indemnitor to contest) the Indemnity Issues (through administrative proceedings or litigation, which proceedings or litigation shall be conducted pursuant to the provisions of this Section 4.02 using counsel selected by the Indemnitor to the fullest extent possible), and (z) to permit the Indemnitor, if successful, to obtain the full monetary benefit of a successful contest; (2) the Responsible Party shall settle all issues with the relevant taxing authority in accordance with the proposed settlement, in which case each of the Responsible Party and the Indemnitor shall, with respect to its share thereof, pay any additional liability for Taxes as provided for in such proposed settlement, provided that (i) such settlement shall specifically provide that it -------- shall not preclude a refund claim from being filed with respect to the Indemnity Issues and (ii) the Responsible Party agrees to give the Indemnitor and its representatives control over the relevant Proceedings, and agrees (y) to take such actions requested by the Indemnitor to continue to contest (or, if permitted by applicable law, to permit the Indemnitor to contest) the Indemnity Issues (through administrative proceedings or -19- 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- 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- 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- 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- 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- 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- 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- 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-
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 ----------------------- 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 -------------------------------------------- --------------------------------------------------------------------- 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 --------------------------------------------------------------------- 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) ----------------------------------------------------------------------
"Separate Tax Items" are net Tax Items primarily related to each Business under the principles of Section 3.01 without regard to carryovers. -28-
EX-10.3 6 1997 STOCK INCENTIVE PLAN AS AMENDED 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. 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- 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- 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- 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- 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- 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- 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- 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 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 EX-10.4 7 FORMS OF OPTION GRANTS UNDER 1997 STOCK INCENTIVE 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. (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- 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- (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- (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- 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- 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- 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- 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- 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- 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 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- 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- (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- 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- 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- 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- 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- 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- 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- 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 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- 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- (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- 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- 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- 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- 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- 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- 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- EX-10.5 8 1999 MANAGEMENT INCENTIVE PLAN 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 - -------------------------------------------------------------------------------- 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. 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. - -------------------------------------------------------------------------------- Page 3. 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. - -------------------------------------------------------------------------------- Page 4. 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. - -------------------------------------------------------------------------------- Page 5. 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. - -------------------------------------------------------------------------------- Page 6. 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. - -------------------------------------------------------------------------------- Page 7. Modus Media International 1999 Management Incentive Plan - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- Page 8. 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. 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. 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.
Success Factors Goal - What to Accomplish --------------------------------------- And Time-frame/Milestones Internal External - -------------------------------------------------------------------------------------------------------- 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 - --------------------- ---------------
- -------------------------------------------------------------------------------- Page 11. Modus Media International 1999 Management Incentive Plan - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------- 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 --------------------- --------------- - --------------------------------------------------------------------------------------------------------
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. Weekly Reporting Template Solution Center: OCS Worldwide Week Ended: 10/22/1999
Software Hardware On-Demand Resp Mgmt Channel Offset US$ Mfg. Assembly Mfg. & Fulfill Prog Mgmt OCS Print Total --------------------------------------------------------------------------------- Month To Date: 1. Billings --------------------------------------------------------------------------------- 2. GL Revenue 0 --------------------------------------------------------------------------------- 3. Shipments $472,812 472,812 ---------------------------------------------------------------------------------
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
EX-10.7 9 SUBLEASE DATED JUNE 18, 1997 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. (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 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 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 4 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 5 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, 6 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 7 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 8 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, 9 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 10 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 11 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 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: 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)
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 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 (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 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 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 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 (PLAN OF SUBLEASED PREMISES) SCHEDULE 1 [DRAWING APPEAR HERE] 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 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 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. STREAM INTERNATIONAL ASSIGNED PARKING SPACES: #`s 10-14, 39-44 EXHIBIT E PLAN OF PARKING GARAGE PARKING [DRAWING APPEARS HERE] 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 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 ---------------------- --------------------- _____________ 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 ------------------- 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. 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 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: _____________________ [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 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
REVISED EXHIBIT G ----------------- Revised Base Rent Schedule -- The Travelers TOTAL AREA: 62,972 square feet 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
- ---------- 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 ---------- - ---------- 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 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 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- 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- 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- 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- 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- 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- 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- SCHEDULE 1 ---------- [FLOOR PLAN APPEARS HERE] LEVEL ONE [FLOOR PLAN APPEARS HERE] LEVEL TWO-North & South Wings [FLOOR PLAN APPEARS HERE] LEVEL THREE-North Wing 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- 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.
No. Description Date Rev. No. Date - --- ----------- ---- -------- ---- 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 No. Description Date Rev. No. Date - -- ----------- ---- ------- ----
LEASE AGREEMENT BY AND BETWEEN THE TRAVELERS INSURANCE COMPANY, as Landlord AND THE TRAVELERS INSURANCE COMPANY, as Tenant WESTWOOD BUSINESS CENTRE WESTWOOD, MASSACHUSETTS 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 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 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 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 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 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 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 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 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 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 (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 (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 (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 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. ----------- 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 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 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 14 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 15 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 16 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 --------- 17 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 18 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 --------- 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 20 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 21 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. 22 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 23 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. 24 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 25 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. 26 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 27 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 28 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 29 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 30 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 31 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. 32 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 33 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. 34 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 35 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. 36 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: 37 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 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 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 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 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 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 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 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; 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; 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. 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) ----------- 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 $------- 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) 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 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 - ---------------------------------------------------- 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. 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. 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. 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. 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. 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. ---------- 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; 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. 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 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. 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; 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. 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. 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. 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. [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 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 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. 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); 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 _________________________ 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
EX-10.8 10 LEASE DATED DECEMBER 19, 1994 BETWEEN LIEBOCH AND T 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 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- 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- (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- 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. (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 - (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- (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 - 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- (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 - 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 - 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- 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 - 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- 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- 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- (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 - 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- 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- 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- 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- 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- (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- 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 - 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- (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- 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- 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- (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- (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- 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- 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- 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- 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- 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- 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- 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- 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 - 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- 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 EX-10.9 11 LEASE DATED DECEMBER 2, 1996 BETWEEN HOUSING & DEV EXHIBIT 10.9 ---------------------- VL 1 Ver 1 ---------------------- ---------------------- ---------------------- (For Official use only) THE LAND TITLES ACT VARIATION OF LEASE
DESCRIPTION OF LAND - ------------------- - ------------------------------------------------------------------------------------------------ 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) - ------------------------------------------------------------------------------------------------
------ REGISTERED LEASE NO: 1/125L - ------------------- ------ LESSOR - ------
- ------------------------------------------------------------------------------------------------ Name: HOUSING & DEVELOPMENT BOARD - ------------------------------------------------------------------------------------------------ Address: HDB Centre, 3451 Jalan Bukit Merah, (within Singapore Singapore 159459 for service of Notice) - ------------------------------------------------------------------------------------------------
AND LESSEE - ------
- ------------------------------------------------------------------------------------------------ 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 - ------------------------------------------------------------------------------------------------
---------------------- L 1 Ver 1 ---------------------- ---------------------- ---------------------- (For Official use only) DUPLICATE THE LAND TITLES ACT LEASE
DESCRIPTION OF LAND - ------------------- - ------------------------------------------------------------------------------------------------ *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 - ------------------------------------------------------------------------------------------------
LESSOR: - ------
- ------------------------------------------------------------------------------------------------ Name: HOUSING & DEVELOPMENT BOARD - ------------------------------------------------------------------------------------------------ Address: 3451 Jalan Bukit Merah, HDB Centre (within Singapore Singapore 159459 for service of Notice) - ------------------------------------------------------------------------------------------------
(the registered proprietor) HEREBY LEASES the registered estate or interest in the land above described (hereinafter referred to as "the said land") to: LESSEE - ------
- ------------------------------------------------------------------------------------------------ /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.
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: 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 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). 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. 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 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. 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 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 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 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 - -----------------------------------
- ----------------------------------------------------------------------------------------- Description Amount GST @ 3% Total - ----------------------------------------------------------------------------------------- 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 - -----------------------------------------------------------------------------------------
EX-10.10 12 LEASE DATED DECEMBER 3, 1994 BETWEEN NOVELL AND RR 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). 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 (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 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 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 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 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. 7 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 8 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 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 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. 11 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. 12 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 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 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 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 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 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 EXHIBIT A --------- LAND EXHIBIT A-1 ----------- LABLETECH SPACE 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. 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. 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__________________________ 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 ================================================================================ 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 ---------------------- 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. 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 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 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 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 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 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 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 -------------------------- 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. 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 douglas.burton@haledorr.com 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) 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 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. 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. 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. 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 ------------------------- -------------------------- EX-10.11 13 AMENDED AND RESTATED 7-3/4% UNSECURED PROMISSORY NO 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 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 - 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 - 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 - 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 - EX-10.12 14 7-3/4% SECURED NON-RECOURSE PROMISSORY NOTE 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 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- 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- 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- 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- 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- 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- 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 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 (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 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. 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. (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, 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 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. 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 EX-10.13 15 AMENDED AND RESTATED 7.25% UNSECURED PROMISSORY 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. (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 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 (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 EX-10.14 16 AMENDED AND RESTATED NOTE BETWEEN RONALD LEITCH 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. (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 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 (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 EX-10.15 17 EMPLOYEE AGREEMENT AS AMENDED 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 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- 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- 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- 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- 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- 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- 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- 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- 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- 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- 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- 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- 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- 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- 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- 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- 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- 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:
Annual EBITDA Less Capital Performance Expenditures * (% of Goal) Payout * ----------------- ------------ -------- 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
- ------------- * 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 (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
EX-10.16 18 CREDIT AGREEMENT DATED AS OF DECEMBER 15, 1997 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 - -------------------------------------------------------------------------------- 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 ________________________ - -------------------------------------------------------------------------------- TABLE OF CONTENTS -----------------
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
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
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
Page 9.01 Payments............................................................................... 89 -------- 9.02 Representations, Etc................................................................... 89 -------------------- 9.03 Covenants.............................................................................. 89 --------- 9.04 Default Under Other Agreements......................................................... 89 ------------------------------ 9.05 Bankruptcy, Etc........................................................................ 90 --------------- 9.06 ERISA.................................................................................. 90 ----- 9.07 Security Documents..................................................................... 91 ------------------ 9.08 Guaranties............................................................................. 91 ---------- 9.09 Judgments.............................................................................. 91 --------- 9.10 Ownership.............................................................................. 91 --------- 9.11 Credit Documents....................................................................... 91 ---------------- 9.12 Material Contracts..................................................................... 91 ------------------ 9.13 Borrowing Base Deficiency.............................................................. 92 ------------------------- 9.14 Material Adverse Change................................................................ 92 ----------------------- 9.15 CST Guaranty........................................................................... 92 ------------ 9.16. Spinoff Transaction.................................................................... 92 ------------------- SECTION 10. Definitions............................................................................ 93 ----------- SECTION 11. The Agents............................................................................. 126 ---------- 11.01 Appointment............................................................................ 126 ----------- 11.02 Delegation of Duties................................................................... 127 -------------------- 11.03 Exculpatory Provisions................................................................. 127 ---------------------- 11.04 Reliance by Agents..................................................................... 127 ------------------ 11.05 Notice of Default...................................................................... 128 ----------------- 11.06 Nonreliance on Agents and Other Banks.................................................. 128 ------------------------------------- 11.07 Indemnification........................................................................ 129 --------------- 11.08 Agents in Their Individual Capacity.................................................... 129 ----------------------------------- 11.09 Holders................................................................................ 129 ------- 11.10 Resignation of any Agent; Successor Agents............................................. 130 ------------------------------------------ SECTION 12. Miscellaneous.......................................................................... 130 ------------- 12.01 Payment of Expenses, Etc............................................................... 130 ------------------------ 12.02 Right of Setoff........................................................................ 131 --------------- 12.03 Notices................................................................................ 132 ------- 12.04 Benefit of Agreement................................................................... 132 -------------------- 12.05 No Waiver; Remedies Cumulative......................................................... 134 ------------------------------ 12.06 Payments Pro Rata...................................................................... 134 ----------------- 12.07 Calculations; Computations............................................................. 135 -------------------------- 12.08 Governing Law; Submission to Jurisdiction; Venue....................................... 135 ------------------------------------------------ 12.09 Counterparts........................................................................... 136 ------------ 12.10 Effectiveness.......................................................................... 136 ------------- 12.11 Headings Descriptive................................................................... 137 -------------------- 12.12 Amendment or Waiver; Etc............................................................... 137 ------------------------ 12.13 Survival............................................................................... 138 -------- 12.14 Domicile of Loans...................................................................... 138 ----------------- 12.15 Confidentiality........................................................................ 138 --------------- iv
Page 12.16 Interest............................................................................... 139 --------- 12.17A Judgment Currency...................................................................... 140 ----------------- 12.17B Substitution of Currency............................................................... 141 ------------------------ 12.17C Interpretation......................................................................... 141 -------------- 12.18 Waiver of July Trial................................................................... 141 --------------------
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 %%/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. -------------------------- 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 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. 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 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 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 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 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 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 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") 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 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 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; 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 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 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 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), 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 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 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 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 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 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 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 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. 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 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. 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 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 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 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 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). 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 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 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 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 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. 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 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; 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. 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"); 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 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 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 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 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, 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. 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 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. 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. 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 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 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. 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 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 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 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. 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 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 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. 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, 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, 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 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 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 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 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 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 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. 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 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"): 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. 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 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; 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 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 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; 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. 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; 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 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; 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 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:
Date Minimum Consolidated EBITDA ---- --------------------------- 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
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; 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 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 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 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 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 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 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:
===================================================================================== Leverage Ratio Eurodollar Loans Base Rate Loans ------------------------------------------------------------------------------------- U.S. Revolving Multi-Currency Loans Loans ===================================================================================== 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% =====================================================================================
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 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. 93 "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. 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. 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 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 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. 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. 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 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 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; 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. 103 "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. 104 "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 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 ---- Multi- 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 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. 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 - -------- overdue by more than 60 days and accrued expenses, in each case arising in the ordinary course of business, and provided, -------- 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. 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 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. 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. 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 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- 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. 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. 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. 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 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. 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 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. 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. ---------- 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, 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 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. 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. 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 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 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 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). 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 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 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 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. 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 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 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. 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 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: 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 (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. Very truly yours, [NAME OF BORROWER] By ______________________________ Name: Title: 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 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: REVOLVING LOANS AND PAYMENTS OF PRINCIPAL
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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 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: SWINGLINE LOANS AND PAYMENTS OF PRINCIPAL
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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. 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 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"); 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 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 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 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 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. 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. 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 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 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 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 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 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 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: 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. 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. 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 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 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, 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, 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 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 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. 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 27 for Notices: [ETC.] Schedule I PLEDGED SHARES AND PLEDGED DEBT Part I
================================================================================================================ Name of Grantor Stock Issuer Class of Stock Par Stock Number of Shares Percentage Value Certificate of Outstanding No(s) Shares ================================================================================================================ - ---------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------- ================================================================================================================
Part II
================================================================================================================ Name of Grantor Debt Issuer Description of Debt Debt Certificate Final Maturity Original No(s). Principal Amount ================================================================================================================ - ---------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------- ================================================================================================================
Schedule II ASSIGNED AGREEMENTS Schedule III LOCATIONS OF EQUIPMENT AND INVENTORY Locations of Equipment: Locations of Inventory: Schedule IV BLOCKED ACCOUNTS ================================================================================ Name and Address of Bank Mailing Address of Blocked Account Number ------------------------ -------------------------- -------------- Account ------- ================================================================================ - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ================================================================================ Schedule V TRADE NAMES 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 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. 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. 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: 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 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: 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 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: 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 ------------------- T A B L E O F C O N T E N T S - - - - - - - - - - - - - - -
Section Page 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
C-ii
Section Page 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
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 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 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 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 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; (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, 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 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, -------- ------- 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 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 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 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. 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 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. (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] (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: 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 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 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 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; (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, 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 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, -------- ------- 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 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 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 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. 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 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. (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] (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: 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 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 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 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 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 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 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: (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. (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. (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 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 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. (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: MODUS MEDIA INTERNATIONAL Borrowing Base Certificate As of November 30, 1997 (Calculated on 12/15/97) (U.S.$000s)
U.S. Japan Singapore Scotland Total 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
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. MODUS MEDIA INTERNATIONAL Borrowing Base Certificate As of November 30, 1997 (U.S.$000s)
U.S. Japan Singapore Scotland Total 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 -- -- -- --
MODUS MEDIA INTERNATIONAL Borrowing Base Certificate As of November 30, 1997 (Calculated on 12/15/97) (U.S.$000s)
U.S. Japan Singapore Scotland Total 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
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
Amount % Aging Difference 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
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)
U.S. Japan Singapore Scotland Total 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
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. 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. 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. 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. 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 - -------------------------------------------------------------------------------- with assignments pursuant to clause (y) of Section 12.04(b) of the Credit Agreement (which consent shall not be unreasonably withheld or delayed). 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 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. 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: 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 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 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. 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 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; 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. 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. 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 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: 10 ADVANCE AND PAYMENTS OF PRINCIPAL
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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. 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: 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 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 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
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, 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 (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 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 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 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 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 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, 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 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 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 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] (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: 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 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. 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: 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: 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 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 TRANSAMERICA BUSINESS CREDIT Karen Francabandera BAKER & MCKENZIE Eli Cohen PALMER AND DODGE David Rudeiger SHEARMAN & STERLING Denise Grant 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. 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. 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. 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] 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 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: 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: 8 NATIONAL CITY COMMERCIAL FINANCE By:_____________________________ Title: PNC BANK NATIONAL ASSOCIATION By:_____________________________ Title: TRANSAMERICA BUSINESS CREDIT CORPORATION By:_____________________________ Title: FLEET CAPITAL CORPORATION By:_____________________________ Title: 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). 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 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
EX-10.17 19 AGREEMENT DATED JANUARY 20, 1999 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- 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- 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- 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- 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- 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- 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 - 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 - 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 - 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 - 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 - 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 - 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 - EX-10.18 20 BUSINESS TRANSFER AGREEMENT DATED DECEMBER 28, 1998 EXHIBIT 10.18 BUSINESS TRANSFER AGREEMENT dated December 28, 1998 by and between MODUS MEDIA INTERNATIONAL KABUSHIKI KAISHA and SASATOKU DONNELLEY KABUSHIKI KAISHA 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 (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 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 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 (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 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 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 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 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 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 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 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 EXHIBIT 1 EXHIBIT 1 of the Business Transfer Agreement -------------------------------------------- List of Transferred Assets and Transferred Liabilities and Net Asset Value Statement 15
(Inventory on Book) (yen) MSKK SUN IBM OEM NAI OTHERS TOTAL - ----------------------------------------------------------------------------------------------------- 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
16 Book Value based on the Balance Sheet as of December 31, 1998
- ---------------------------------------------------------------------------------------------- Transferred Assets Item Book Value - ---------------------------------------------------------------------------------------------- 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 - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- Transferred Liability Item Book Value - ---------------------------------------------------------------------------------------------- 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 -----------------------------------------------------------------
A/R balance as of 12/31/98
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
- ------------------------------------------------------------------------------------------------------------------------------------ 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 - ------------------------------------------------------------------------------------------------------------------------------------ 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 =========================================== =========================
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
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
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
EX-10.19 21 AMENDED AND RESTATED JOINT VENTURE AGREEMENT Exhibit 10.19 AMENDED AND RESTATED JOINT VENTURE AGREEMENT dated January , 1999 by and between MODUS MEDIA INTERNATIONAL, INC. and SASATOKU PRINTING CO., LTD. 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 EXHIBIT A Articles of Association of DONNELLEY SASATOKU K.K. [Translation] ***************************************** ARTICLES OF ASSOCIATION OF DONNELLEY SASATOKU K.K. ***************************************** as of June 5, 1997 - 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. - 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. - 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 - 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. - 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. - 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. - 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. - 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. - 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) EX-10.20 22 MASTER AGREEMENT DATED NOVEMBER 11, 1998 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, 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 ------------------------------------ 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 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 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 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 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 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 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 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. 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 Partners DaeSu Jung /s/ DaeSu Jung - ----------------------------- ByungSoo Lee /s/ ByungSoo Lee - ----------------------------- SeungHun Baek /s/ SeungHun Baek - ----------------------------- EX-21.1 23 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21.1 SUBSIDIARY LISTING MODUS MEDIA INTERNATIONAL HOLDINGS, INC.
AMERICAS - -------- 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 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 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
MODUS MEDIA INTERNATIONAL HOLDINGS, INC. LEGAL ENTITY ORGANIZATION CHART ----- ------ ------------ ----- (as of 9/99) Modus Media International Holdings, Inc. (Delaware) Modus Media International, Inc. (Delaware)
- ----------------- ----------------------- --------------- ------------------ ---------------- -------------- ----------------- 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] ------------ ------------------ ------------------------
EX-23.1 24 CONSENT OF ARTHUR ANDERSEN LLP 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 EX-27.1 25 FINANCIAL DATA SCHEDULE
5 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. 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 20,385 0 124,238 5,036 46,450 199,475 181,683 113,673 276,966 158,817 7,341 0 71,744 128 30,473 276,966 506,235 506,235 413,295 413,295 0 0 1,821 12,664 3,274 9,390 0 0 0 9,390 0.36 0.31
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