MEMORANDUM OF AGREEMENT AND UNDERSTANDING
dated as of June 21, 1996
Memorandum of Agreement and Understanding made as of this 21st day of June,
1996 by and between RORY J. COWAN of Concord, MA ("Cowan"), on the one hand, and
STREAM INTERNATIONAL HOLDINGS INC., a Delaware corporation with its principal
offices in Norwood, MA ("Stream") and R.R. DONNELLEY & SONS COMPANY, a Delaware
corporation with its principal offices in Chicago, IL ("RRD"), on the other
hand.
Recitals
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Cowan is Chief Executive Officer of Stream under an Employment Agreement
dated as of April 21, 1995 ("Agreement") and is also serving as Executive Vice
President of RRD. The parties have agreed that Cowan's employment by and
relationships with Stream and RRD shall terminate. This Memorandum is intended
to set forth the terms and conditions of the termination of employment and
relationships with each of Stream and RRD with the understanding that, to the
extent that further more formal steps and/or documentation are necessary or
desirable to effectuate the parties' mutual agreements, the parties shall work
together speedily, cooperatively and in good faith to develop any such steps and
documentation to effect completion of such separation and termination as well as
any collateral and related matters.
In consideration of the mutual promises and covenants of the parties and
other good and valuable consideration, by each party paid to the other, the
receipt and adequacy of which are hereby acknowledged, the parties have agreed
and do hereby agree as follows:
1. TERMINATION; SALARY CONTINUATION; BENEFITS, ETC.
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(a) Employee Status: Cowan's status as an employee of Stream will continue
until midnight, December 31, 1996 ("Termination Date"), at which time such
status will formally terminate. During the period from July 1, 1996 through
the Termination Date, Cowan shall be on an unpaid leave of absence from
Stream which leave of absence shall not affect his eligibility for health
and welfare benefits. Similarly, Cowan will be deemed to be an employee of
RRD on an unpaid leave of absence (without benefits) during the period from
the date hereof through the Termination Date. The parties' sole purpose
and intention in continuing Cowan's employment status is to permit the
continued vesting of Cowan's options and rights under existing stock plans
with Stream and with RRD, the effect of which will permit the following:
(i) the vesting of 12.5% of Stream options ("Stream Options") to purchase
Class A Common Stock, par value $.01 per share ("Stream Stock") outstanding
under a grant dated April 21, 1995; (ii) the vesting of RRD options ("RRD
Options") to purchase Common Stock, par value $1.25 per share ("RRD Stock")
outstanding under grants dated December 10, 1992, December 9, 1993 and
December 12, 1994, in the amounts of 10,400 shares, 5,200 shares and
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4,200 shares, respectively; and (iii) the lapse by time of restrictions
applicable to, or the possibility of forfeiture of, a grant of restricted
RRD Stock under an agreement dated December 12, 1991 between Cowan and RRD.
Notwithstanding his employment status, by execution hereof, Cowan resigns
from any and all officerships and board memberships he holds in both Stream
and RRD, as well as any officerships and board memberships he holds in any
entity the majority of the equity of which is owned by either of Stream or
RRD, either directly or indirectly.
(b) Salary, Benefits, etc.:
----------------------
(i) Cowan shall be paid all accrued base salary, one-half the full bonus
which would be paid to Cowan for 1996 (to be calculated and paid at such
time in 1997 as bonuses are calculated and paid to other executives of
Stream), pension and other benefits, and accrued vacation and reimbursed
expenses due from Stream under the Agreement for the period ending June 30,
1996.
(ii) Thereafter, in lieu of any other payments of salary and bonus under
the Agreement or otherwise, Cowan shall be paid the amount of the "Minimum
Guaranteed Severance" provided for in Para. 4.7 of the Agreement for and
during the 18-month period July 1, 1996 through December 31, 1997
("Severance Period"). Cowan may elect to receive prepayment of the entire
sum due under said Para. 4.7 for the entire 18-month period, i.e., so much
as remains unpaid at his time of election (as hereinafter provided),
discounted to the date of prepayment at an annual discount rate equal to
the interest rate of The Note (hereinafter defined) of 7.34% by giving
Stream two weeks' written notice of such election at any time during the
18-month period.
(iii) In addition to the foregoing, Cowan shall also receive the
following:
a.) Should Cowan elect to continue coverage under Stream's group
health plans from and after the Termination Date pursuant to the
Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"),
then for any such coverage provided for benefits provided under
COBRA for calendar year 1997, Stream shall either (i) reimburse
Cowan for his COBRA expenses, or (ii) pay Cowan's COBRA expenses
directly.
b.) Stream shall reimburse Cowan for his expenses in securing
office and administrative support services in the Boston area for
use during the period beginning July 1, 1996 and ending June 30,
1997, up to a maximum reimbursement amount of $20,000. Such
expenses shall be reimbursed on receipt of a copy of an invoice,
with sufficient supporting documentation, from Cowan.
c.) Cowan shall be deemed to have purchased from Stream and/or
RRD, all computer, facsimile, office supply and telephonic
equipment currently held by Cowan at his permanent residence, and
he shall be free to continue to use such
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equipment; provided that Cowan shall be disconnected from any lines or
services furnished by or connected to, either of Stream or RRD.
d.) Stream shall pay up to $5,000 of legal and financial planning
expenses incurred by Cowan in the negotiation of this Memorandum. Such
payment shall be in lieu of any other payment due Cowan for financial
planning services from either Stream or RRD, if any and whether or not
previously accrued. Cowan shall provide Stream with copies of all
invoices received by him for such expenses, and Stream shall pay such
invoices directly to the attorneys/planner involved, subject to the
dollar limitation set forth above.
e.) For so long as Cowan is obligated to file reports with the
Securities and Exchange Commission as a result of being an executive
officer of RRD, RRD will furnish Stock Max services from Richard M.
Sawdey at the expense of RRD.
2. STREAM AND RRD STOCK AND OPTIONS
--------------------------------
(a) Recitals:
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(i) Cowan presently owns certain shares of Stream Stock purchased in
conjunction with and at or about the date of execution of the Agreement.
Also pursuant to the terms of the Agreement and the Stream 1995 Stock
Option Plan, Cowan holds certain Stream Options. Cowan also owns certain
shares of RRD Stock (subject in the case of shares received pursuant to
grants of restricted shares to certain conditions relating to his
continuing employment with RRD) and holds certain RRD Options.
(ii) One-third of Cowan's Stream Stock was purchased by Cowan from his
own funds and two-thirds Cowan's Stream Stock was purchased through funds
borrowed by Cowan from an affiliate of Stream, such borrowing being
evidenced by a promissory note ("The Note") in the form of Exhibit C to the
Agreement. The Stream Stock is pledged with Stream to secure this loan
under a Stock Pledge Agreement in the form of Exhibit D to the Agreement.
(b) Vesting, Rights, etc. Prior to Termination Date: Until the Termination
Date, all options and rights relating to Stream Stock and Stream Options
and RRD Stock and RRD Options shall continue to accrue and vest in Cowan,
and any condition to the RRD Stock relating to Cowan's continuing
employment which is satisfied prior to the Termination Date shall lapse and
terminate on such Date, all as provided under the terms and conditions of
the Agreement and any other documentation relating to the Stream Stock,
Stream Options, RRD Stock and RRD Options, such as, without limitation,
option agreements and plans, Certificates of Incorporation, the Merger
Agreement between the two constituent corporations which merged to form
Stream, and grants of restricted stock; after giving effect to the
foregoing, in addition to any Stream Stock and RRD Stock owned by
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Cowan, and any Stream Options and RRD Options vested in but unexercised by
Cowan as of the date hereof, Cowan will (i) vest in 12.5% of Stream Options
outstanding under a grant dated April 21, 1995 as set forth in the
Agreement; (ii) vest in RRD Options for 10,400 shares under a grant dated
December 10, 1992; 5,200 shares under a grant dated December 9, 1993; and
4,200 shares under a grant dated December 12, 1994; and (iii) own, without
restrictions on transfer or possibility of forfeiture, RRD Stock granted
under a restricted stock agreement dated December 12, 1991.
(c) Vesting, Rights, etc. After Termination Date:
--------------------------------------------
(i) From and after the Termination Date, there will be no further vesting
in Cowan of any additional Stream Options or RRD Options over and above
those that shall have vested prior to that Date, except, however, that 50%
of each then unvested Stream Option granted to Cowan under the Agreement
shall immediately vest upon the Termination Date.
(ii) Pursuant to the terms of the Stream 1995 Stock Option Plan, Stream
grants to Cowan a period of up to eighteen months from January 1, 1997
(ending June 30, 1998) in which to exercise any Stream Options vested in
Cowan on the Termination Date. During this period, Cowan shall be entitled
to all rights (including rights due in the event of an Acquisition Event as
defined in the Stream 1995 Stock Option Plan) available to all other Stream
Option holders.
(iii) Pursuant to the terms of the 1991 and 1995 RRD Stock Incentive Plans,
Cowan may exercise his RRD Options at any time during the 90-day period
next following the Termination Date.
3. REPURCHASE OF COWAN'S STREAM STOCK
-----------------------------------
In lieu of any right Stream may have now or in the future to purchase
Cowan's Stream Stock as provided in Para. 4.3.5 of the Agreement (which
rights are hereby declared null and void and of no further force or
effect), the parties have agreed on the following arrangement whereby Cowan
can elect to sell his Purchased Shares (as defined in Para. 4.3.1 of the
Agreement) to Stream, failing of which election by Cowan, he shall continue
to own such Stock.
(a) Stream Obligation to Repurchase Stream Stock, Price: Until such time as
there shall have occurred a Trigger Event (as defined in the Agreement) or
until the Stream Stock is publicly traded, Cowan shall have the right,
exercisable by notice to Stream, to require Stream to buy back up to one-
half of his total Purchased Shares on either or both of two occasions
("First Election" and "Second Election," respectively) at Cowan's purchase
price for such Shares plus an additional amount representing interest on
the purchase price for such Shares.
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(b) Allocation of Repurchase Price Between Borrowed Funds and Cowan's Own
Funds: Cowan may, on each of the First Election and Second Election dates,
elect to allocate the Purchase Shares sold to Stream between (i) those
Shares purchased for cash and (ii) those Shares purchased using funds
borrowed from Stream. Such election shall be in Cowan's own sole and
unfettered discretion, and he shall designate such allocation at the time
of, and in his notice of exercise of each of, the First Election or the
Second Election, as the case may be. Failing and in default of such a
designation by Cowan, in any sale of Purchased Shares to Stream, the shares
sold shall be deemed to be 50% those purchased by Cowan for cash and 50%
those purchased by Cowan using funds borrowed from Stream.
(c) How Purchase Effected: As to any Purchased Shares purchased by Cowan
using funds borrowed from Stream, a repurchase by Stream shall be effected
by crediting against the principal amount of The Note an amount equal to
(i) the elected number of Purchased Shares to be sold times (ii) $6
(adjusted for any splits, stock dividends, combination of shares or
recapitalization), and credit against interest due on The Note all interest
accrued to date of credit on such portion of the principal. As to any
Purchased Shares purchased by Cowan for cash, a repurchase shall be
effected by a cash payment to Cowan which shall include interest on such
funds computed at the rate of interest as provided in The Note, namely
7.34% per annum for the period from the date of original purchase by Cowan
until the date of such repurchase by Stream hereunder. Except for
reflection of credits against The Note, nothing herein shall be deemed to
amend or accelerate any terms contained in The Note.
(d) When Cowan Election May be Made: Cowan may exercise the First Election at
any time before the later of (i) thirty (30) days after the actual
execution and delivery of this Memorandum, and (ii) fifteen (15) business
days next following Cowan's receipt of Stream financial statements for the
second fiscal quarter of 1996 (the "Financial Statements"). Cowan may
exercise the Second Election at any time after April 30, 1997 and before a
date fifteen (15) full calendar months next following the end of First
Election period, as aforesaid (being the later of October 31, 1997 or a
date fifteen (15) full calendar months from the fifteenth business day
following Cowan's receipt of the Financial Statements).
(e) Stockholder Information/Reports: The parties agree and acknowledge that
these agreements with respect to Stream Stock and Stream Options are
intended to afford Cowan certain limited participation in any public
offerings or stock sales in connection with a purchase of Stream by a third
party. Accordingly, so long as Cowan shall hold any Stream Stock or Stream
Options and provided that the Stream Stock is not publicly traded, Cowan
shall have the right to meet no more frequently than quarterly with the
Chief Financial Officer of RRD (currently Cheryl A. Francis), who shall
keep him advised of such developments and events as may be appropriate
under the described circumstances; provided, however, that Cowan agrees
that all such information shall be deemed confidential and proprietary
information of Stream and RRD, and Cowan shall
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be prohibited from discussing such information with, or disclosing such
information to, any third party.
4. REFERENCES
----------
Upon request by Cowan, Stream and RRD shall furnish references with respect
to Cowan and his accomplishments and achievements during his tenure with
them, from among the following persons: Messrs John R. Walter, Robert
White, Mark Nunnelley, Morton Rosenthal and Steven Baumgartner.
5. CONFIDENTIALITY AND NON-DISPARAGEMENT
-------------------------------------
(a) Cowan, for his part, and Stream and RRD (together the "Companies") for
theirs, each agree that the terms of this Memorandum of Agreement shall be
and remain confidential and shall not be disclosed except when required by
law or government decree, judicial process, court order or the like, or in
connection with Cowan's seeking legal or financial planning advice. Cowan
acknowledges that this Memorandum of Agreement will be filed by RRD as
required by law with the Securities and Exchange Commission, and that such
filing shall not constitute a breach of confidentiality. Cowan shall not
make, utter or issue any public statements that may be reasonably construed
as disparaging to the Companies or placing the Companies in a negative or
false light; and likewise, the Companies shall and shall cause their
officers, employees and agents, not to make, utter or issue any public
statements that may be reasonably construed as disparaging to Cowan or
placing Cowan in a negative or false light.
(b) In addition to the foregoing, each of Cowan and Stream acknowledge the
continuing application to Cowan of Para. 7.1. of the Agreement
notwithstanding termination of Cowan's employment with Stream.
6. MODIFICATION OF THE AGREEMENT'S NON-COMPETE RESTRICTIONS
--------------------------------------------------------
(a) Recitals: Para. 8. of the Agreement sets forth certain non-compete
restrictions to apply in the event of termination of Cowan's employment by
Stream. In view of the termination of Cowan's employment relationship
approximately a year after beginning his tenure at Stream, the parties have
agreed to narrow the scope of non-compete restrictions as follows:
(b) Restated Agreement Not to Compete: Cowan agrees that from and after the
date hereof and for the Non-Competition Period set forth in the Agreement
(ending December 31, 1997), he shall not directly or indirectly own,
manage, operate, control or participate in, whether as an officer,
employee, partner, director, principal, consultant, agent or
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otherwise, or aid or assist anyone else in the conduct of, any business in
competition with Stream which business involves the manufacture,
replication, ordering, fulfillment, distribution or support of software
products, through either physical or electronic means, anywhere in the
world except in such countries or areas where Stream is neither operating
such a business or is proposing to operate such a business as of the date
hereof. Nothing herein shall prohibit Cowan from participating in any
business involving the creation and publication of software products,
provided such business is not involved in competition with Stream in the
business of manufacture, replication, ordering, fulfillment, distribution
or support of software products.
7. RELEASE
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(a) Cowan, on behalf of himself, his heirs, executors, attorneys,
administrators and assigns, agrees to release from and not to sue either of
Stream or RRD (including current and former employees, partners,
fiduciaries, directors, agents, divisions, subsidiaries, affiliates or
other related entities) for all known or unknown claims, demands,
agreements, actions, causes of action, damages or liabilities of any kind,
in law or equity or otherwise, which Cowan has, had or may have against
either Stream or RRD related to Cowan's employment with either Stream or
RRD, resignation from his officerships with each of Stream or RRD or his
resignation from his directorship with Stream, including but not limited
to, claims which could have been asserted under any fair employment,
contract or tort law, or any other federal, state or local law, regulation
or ordinance, such as Title VII of the Civil Rights Act of 1964, the
Employee Retirement Income Security Act, the Age Discrimination in
Employment Act, the Americans with Disabilities Act, the Older Workers
Benefit and Protection Act, or under any compensation, bonus, severance or
other benefit plan. Notwithstanding the foregoing, nothing herein shall
release or waive any rights Cowan may have to enforce the provisions of
this Agreement. Cowan acknowledges and agrees that the release and
covenant not to sue included herein are essential and material terms of
this Memorandum and that without such release and covenant not to sue no
agreement would have been reached by the parties. Cowan understands and
acknowledges the significance and consequences of this release, and further
acknowledges the receipt of separate consideration beyond that to which he
would otherwise be entitled in exchange for such release and covenant not
to sue.
(b) Each of Stream and RRD, on behalf of itself, its attorneys, administrators
and assigns, directors, agents, divisions, subsidiaries, affiliates or
other related entities, agrees to release from and not to sue Cowan for all
known or unknown claims, demands, agreements, actions, causes of action,
damages or liabilities of any kind, in law or equity or otherwise, which it
has, had or may have against Cowan related to Cowan's employment with
either Stream or RRD, resignation from his officerships with each of Stream
or RRD or his resignation from his directorship with Stream.
Notwithstanding the foregoing, nothing herein shall release or waive any
rights either of Stream or RRD
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may have to enforce the provisions of this Agreement or to recover from
Cowan any amounts determined to have been wrongfully paid to him under the
terms of any compensation, reimbursement or benefit plan if an audit of
such plan reveals such wrongful payment.
8. REVOCATION RIGHTS
-----------------
Notwithstanding anything in this Memorandum to the contrary, Cowan
acknowledges that he has had the opportunity to have at least twenty-one
(21) days within which to decide whether or not to sign this Memorandum.
Cowan further acknowledges that he has been given the right to revoke this
Memorandum by serving, within a seven (7) day period after signing, a
written notice of revocation. The Memorandum shall become effective on the
eighth day following its execution by Cowan. If Cowan revokes the
Memorandum, neither party shall have any obligation under it.
9. MISCELLANEOUS
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(a) Notices: Para. 13.4 of the Agreement is hereby incorporated by reference
as a part hereof, except that the addresses for notice purposes shall be:
Stream International Inc.
2 Edgewater Drive
Norwood, MA 02062 Attn: CEO
Copy to: Monica M. Fohrman, Esq.
Vice President, Law and
Assistant General Counsel
R.R. Donnelley & Sons Company
Corporate Headquarters
77 West Wacker Drive
Chicago, IL 60601
Notices to RRD shall be sent to the Chairman, at
the foregoing Chicago address, copy to Attorney
Fohrman at same.
Notices to Cowan shall be sent to:
Rory J. Cowan
281 Fairhaven Hill Road
Concord, MA 01742
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Copy to: Milton Bordwin, Esq.
Rubin and Rudman
50 Rowes Wharf - 3rd Fl.
Boston, MA 02110
(b) Captions/Headings: The headings and captions in this Memorandum are for
convenience only and are not intended to define or describe the scope or
content of the substantive provisions hereof.
(c) Counterparts: This Memorandum 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.
(d) Governing Law: This Memorandum 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
principles or rules that would cause the application of the domestic
substantive laws of any other jurisdiction.
(e) Consent to Jurisdiction: Para. 13.9 of the Agreement is hereby
incorporated by reference as a part hereof, mutatis mutandis, including
references to the "Executive" to mean Cowan and references to "Company" to
mean RRD and Stream.
(f) Withholding: The payments and benefits described in this Memorandum shall
be subject to withholding taxes to the extent required by law.
(g) Status of Agreement: Except as specifically set forth or incorporated
herein by reference and except for the following additional provisions
thereof, the Agreement shall be of no further force and effect: Para.
4.3.4; Para 4.3.6; Para. 7.2; Para. 9, which provisions shall continue in
full force and effect, as shall The Note, and the Stock Pledge Agreement
referred to in the Agreement. This Memorandum embodies the entire
agreement and understanding of the parties with regard to the matters
described in this Memorandum and supersedes any and all prior or
contemporaneous agreements and understandings, oral or written between
Cowan, on the one hand, and either of Stream or RRD, on the other hand.
The parties agree to execute such other agreements and documents and do
such acts and deeds as are reasonably necessary or appropriate to
effectuate this agreement and understanding and the mutual purposes of the
parties hereto.
(h) Legal Advice: In signing below, Cowan expressly acknowledges that he has
read this Memorandum carefully, that he fully understands its terms and
conditions, that he has been advised of his rights and has been advised to
consult an attorney prior to executing this Memorandum. Cowan intends to
be legally bound by the terms and conditions of this Memorandum.
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Executed as a sealed instrument effective as of the date and year first
above written, but in fact signed and delivered on the following date for the
purposes hereof: June 30, 1996
Stream International Holdings Inc.
/s/Rory J. Cowan by /s/Cheryl A. Francis
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Rory J. Cowan Cheryl A. Francis, Director
Hereunto duly authorized
R.R. Donnelley & Sons Company
by /s/Steven J. Baumgartner
-------------------------------------
Steven J. Baumgartner, Exec. V.P.
& Sector President
Hereunto duly authorized
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