<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 25, 1995
REGISTRATION NO. 33-59649
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
PRE-EFFECTIVE AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
HOUGHTON MIFFLIN COMPANY
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
MASSACHUSETTS 04-1456030
(State or other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
</TABLE>
222 BERKELEY STREET
BOSTON, MASSACHUSETTS 02116
(617) 351-5000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
------------------------
PAUL D. WEAVER
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
HOUGHTON MIFFLIN COMPANY
222 BERKELEY STREET
BOSTON, MASSACHUSETTS 02116
(617) 351-5000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
RICHARD A. SODEN LOUIS A. GOODMAN
GOODWIN, PROCTER & HOAR SKADDEN, ARPS, SLATE, MEAGHER & FLOM
EXCHANGE PLACE ONE BEACON STREET
BOSTON, MASSACHUSETTS 02109 BOSTON, MASSACHUSETTS 02108
(617) 570-1000 (617) 573-4800
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: / / 33-
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 statement number of the earlier effective registration statement
for the same offering: / / 33-
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
------------------------
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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION
STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE
ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JULY 25, 1995
1,750,000 SAILS(SM*)
[HOUGHTON MIFFLIN COMPANY LOGO]
% Exchangeable Notes Due 1999
Stock Appreciation Income Linked Securities (SAILS)SM*
------------------
Houghton Mifflin Company (the "Company") is hereby offering for sale 1,750,000
Stock Appreciation Income Linked Securities (SAILS)SM*, or SAILSSM*. The
principal amount of each of the SAILS being offered hereby will be $ (the
closing price of the common stock, par value $.01 per share ("INSO Common
Stock"), of INSO Corporation ("INSO") on , 1995, as reported on the
Nasdaq National Market) (the "Initial Price"). The SAILS will mature on
, 1999 ("Maturity"), unless previously redeemed by the Company on
or after , 1998 (the date of such redemption is referred to herein
as the "Optional Redemption Date"). Interest on the SAILS, at the rate of
% of the principal amount per annum, is payable quarterly on ,
, and , beginning , 1995.
The Company currently owns approximately 39.6% of the
outstanding shares of INSO Common Stock. See "INSO Corporation" and
"Relationship between the Company and INSO."
At Maturity (including as a result of acceleration or otherwise) or on the
Optional Redemption Date, the principal amount of each SAILS will be
mandatorily exchanged or redeemed by the Company for a number of shares of
INSO Common Stock (or, at the Company's option, cash with an equal value) at
the Exchange Rate. The SAILS are not redeemable prior to , 1998. On or
after , 1998 until immediately prior to Maturity, on a single occasion,
the Company may redeem up to 50% of the outstanding SAILS. The Exchange Rate
is equal to, subject to certain adjustments, (a) if the Current Market Price
(as defined herein) per share of INSO Common Stock is greater than or equal
to $ per share of INSO Common Stock, shares of INSO Common Stock
per SAILS, (b) if the Current Market Price is less than $ but is
greater than the Initial Price, a fractional share of INSO Common Stock
per SAILS so that the value thereof at the Current Market Price equals the
Initial Price and (c) if the Current Market Price is less than or equal
to the Initial Price, one share of INSO Common Stock per SAILS. The
"Current Market Price" for determining the Exchange Rate at Maturity is
the average Closing Price (as defined herein) per share of INSO Common
Stock for the 20 Trading Days (as defined herein) immediately prior to
Maturity and, for determining the Exchange Rate on the Optional
Redemption Date, is the lesser of (i) the Closing Price on the second
Trading Day preceding notice of redemption or (ii) the average Closing
Price per share of INSO Common Stock on the 20 Trading Days
immediately prior to the second Trading Day preceding such notice.
Accordingly, holders of the SAILS may receive an amount less than the
principal amount thereof. The SAILS will be an unsecured obligation
of the Company ranking pari passu with all of its other unsecured
and unsubordinated indebtedness. As of June 30, 1995, the Company
had approximately $100 million of indebtedness ranking pari passu
with the SAILS and no secured indebtedness or indebtedness ranking
senior to the SAILS. The Indenture (as defined herein) does not
limit the Company's ability to incur additional indebtedness or to
issue additional debt securities that may be senior to, or rank
pari passu with, the SAILS. INSO will have no obligations with
respect to the SAILS. There is currently no public market for
the SAILS, and the SAILS will not be listed on any national
securities exchange. See "Description of the SAILS."
Attached hereto as Appendix A is a prospectus of INSO covering the shares of
INSO Common Stock which may be received by a holder of SAILS at Maturity or on
the Optional Redemption Date. The INSO prospectus relates to an aggregate of
1,750,000 shares of INSO Common Stock. INSO Common Stock is listed on the
Nasdaq National Market under the symbol "INSO."
The SAILS are being offered by the Company concurrently with an offering to the
public by INSO, pursuant to a separate prospectus, of 500,000 shares of INSO
Common Stock. After giving effect to such offering by INSO, the shares of INSO
Common Stock held by the Company would represent approximately 36.5% of the
outstanding shares of INSO Common Stock. Neither offering is conditioned
on the closing of the other offering. See "Relationship Between the
Company and INSO."
For a discussion of certain United States federal income tax consequences for
holders of SAILS, see "Certain United States
Federal Income Tax Considerations."
------------------
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH
AN INVESTMENT IN THE SAILS, SEE "RISK FACTORS" ON PAGE 5.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR AD-
EQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public(1) Commissions Company(1)(2)
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Per SAILS........................................ $ $ $
Total(3)......................................... $ $ $
</TABLE>
(1) Plus accrued interest, if any, from to the date of delivery.
(2) Before deduction of expenses payable by the Company estimated at $ .
(3) The Company has granted the Underwriters an option, exercisable for 30 days
from the date of this Prospectus, to purchase a maximum of 250,000
additional SAILS to cover over-allotments of the SAILS. If the option is
exercised in full, the total Price to Public will be $ ,
Underwriting Discounts and Commissions will be $ and Proceeds to
Company will be $ .
------------------
The SAILS are offered by the Underwriters when, as and if issued by the
Company, delivered to and accepted by the Underwriters and subject to their
right to reject orders in whole or in part. It is expected that delivery of the
SAILS in book-entry form will be made through the facilities of The Depository
Trust Company on or about .
CS First Boston Adams, Harkness & Hill, Inc.
The date of this Prospectus is , 1995.
<PAGE> 3
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE SAILS OR INSO
COMMON STOCK AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. IN
CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP MEMBERS)
AND THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS
IN INSO COMMON STOCK ON THE NASDAQ STOCK MARKET-NATIONAL MARKET IN ACCORDANCE
WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. (SEE
"UNDERWRITING.")
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's
Regional Offices at Seven World Trade Center, Suite 1300, New York, New York
10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material also can be obtained from the Public
Reference Section of the Commission, Washington, D.C. 20549 at prescribed rates.
In addition, material filed by the Company can be inspected at the offices of
the New York Stock Exchange, 20 Broad Street, New York, New York 10005.
The Company has filed with the Commission a Registration Statement on Form
S-3 (together with any amendments or supplements thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the securities to be issued under this Prospectus. This
Prospectus omits certain of the information contained in the Registration
Statement and the exhibits and schedules thereto in accordance with the rules
and regulations of the Commission. For further information regarding the Company
and the SAILS offered hereby, reference is made to the Registration Statement
and the exhibits and schedules filed therewith, which may be inspected without
charge at the office of the Commission at 450 Fifth Street N.W., Washington,
D.C. 20549 and copies of which may be obtained from the Commission at prescribed
rates. Statements contained in this Prospectus as to the contents of any
contract or other document referred to herein are not necessarily complete, and
in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference.
INSO has agreed with the Company, so long as the SAILS are outstanding, to
furnish to the Trustee (as defined herein) and the Company in sufficient
quantity or, at the option of the Company, mail to holders of the SAILS as
identified to INSO by the Company, copies of all annual reports and proxy
statements provided by INSO to its stockholders generally (the "INSO Reports").
INSO has also agreed to transmit such documents by mail to holders of the SAILS,
without cost to holders of the SAILS. The Company will also cause to be
available to all holders of record of the SAILS, upon request and without
charge, copies of INSO's annual report on Form 10-K, quarterly reports on Form
10-Q and other periodic reports filed with the Commission.
DOCUMENTS INCORPORATED BY REFERENCE
The Annual Report on Form 10-K of the Company for the fiscal year ended
December 31, 1994 and the Company's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1995 are on file with the Commission and are
incorporated in this Prospectus by reference and made a part hereof.
All documents subsequently filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act prior to the termination of the offering
of the SAILS hereunder shall be deemed to be incorporated herein by reference
and shall be a part hereof from the date of the filing of such documents. Any
statements contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or replaced for purposes of this
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or replaces such statement. Any such statement so
modified or replaced shall not be deemed, except as so modified or replaced, to
constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom a Prospectus is delivered, upon written or oral
request of such person, a copy of the documents incorporated by reference
herein, other than exhibits to such documents not specifically incorporated by
reference. Such requests should be directed to the principal executive office of
Houghton Mifflin Company at 222 Berkeley Street, Boston, Massachusetts 02116,
Attention: Investor Relations Department (telephone: (617) 351-5800).
*Stock Appreciation Income Linked Securities (SAILS) and SAILS are servicemarks
of CS First Boston, Inc.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information included elsewhere in this Prospectus and the prospectus of INSO
relating to the INSO Common Stock attached hereto as Appendix A and by the
information incorporated by reference in this Prospectus. Unless otherwise
indicated, the information contained in this Prospectus assumes that the
Underwriters' over-allotment option is not exercised.
HOUGHTON MIFFLIN COMPANY
Houghton Mifflin Company (the "Company") is one of the largest publishers
of elementary and high school textbooks in the United States. The Company's
operations are reported in two industry segments: (1) textbooks and other
educational materials and services for the school and college markets and (2)
general publishing, including fiction, nonfiction, children's books and
dictionary and reference materials in a variety of formats and media.
INSO CORPORATION
INSO Corporation, formerly InfoSoft International, Inc. ("INSO"), develops
and markets software tools for proofing, electronic reference, and information
management that improve the productive use of textual information in an
electronic environment. INSO markets its products worldwide primarily to
original equipment manufacturers ("OEMs") of computer hardware, software and
consumer electronics products. Examples of products incorporating INSO's
software include Word and Office by Microsoft Corporation; Word Pro, 1-2-3,
Notes and Smart Suite by Lotus Development Corporation; Wizard by Sharp
Corporation; and office automation software systems marketed by Digital
Equipment Corporation and Siemens Nixdorf Informationssysteme AG.
INSO began to conduct its business in its present form on March 8, 1994,
the date of the consummation of the initial public offering of the INSO Common
Stock. Prior to that time, INSO had operated as the Software Division of the
Company (the "Software Division"). See "INSO Corporation," "Relationship between
the Company and INSO" and Appendix A to this Prospectus.
THE SAILS OFFERING
SAILS OFFERED................. 1,750,000 SAILS
PRINCIPAL AMOUNT.............. $ per SAILS
MATURITY...................... , 1999
INTEREST RATE................. % per annum, payable quarterly in arrears
INTEREST PAYMENT DATES........ , ,
and , beginning
, 1995
EXCHANGE AT MATURITY.......... At Maturity, the principal amount of each SAILS
will be mandatorily exchanged by the Company
for a number of shares of INSO Common Stock
(or, at the Company's option, cash with an
equal value) at the Exchange Rate. The Exchange
Rate is equal to, subject to certain
adjustments, (a) if the Current Market Price
per share of INSO Common Stock is greater than
or equal to $ per share of INSO Common Stock,
shares of INSO Common Stock per SAILS, (b) if
the Current Market Price is less than
$ but is greater than the Initial
Price, a fractional share of INSO Common Stock
per SAILS so that the value thereof at the
Current Market Price equals the Initial Price
and (c) if the Current Market Price is less
than or equal to the Initial
3
<PAGE> 5
Price, one share of INSO Common Stock per
SAILS. Accordingly, holders of the SAILS may
receive an amount less than the principal
amount thereof. The Current Market Price for
determining the Exchange Rate at Maturity is
the average Closing Price per share of INSO
Common Stock for the 20 Trading Days
immediately prior to Maturity.
OPTIONAL REDEMPTION........... The SAILS are not redeemable prior to
, 1998. On or after
, 1998 until immediately prior
to Maturity, on a single occasion, the Company
may redeem up to 50% of the outstanding SAILS.
The Exchange Rate upon any such optional
redemption will be the same as the terms of the
Exchange Rate at Maturity, except that the
"Current Market Price" for determining the
Exchange Rate on the Optional Redemption Date
will be the lesser of (i) the Closing Price on
the second Trading Day preceding notice of
redemption or (ii) the average Closing Price
per share of INSO Common Stock on the 20
Trading Days immediately prior to the second
Trading Day preceding such notice. Because the
terms of the Exchange Rate upon optional
redemption will be substantially the same as
the terms of the Exchange Rate at Maturity,
holders of the SAILS may receive an amount less
than the principal amount thereof.
RANKING....................... The SAILS will be unsecured obligations of the
Company ranking pari passu with all other
unsecured and unsubordinated indebtedness of
the Company.
PRINCIPAL COVENANTS........... The Indenture contains a covenant that the
Company will not, nor will it permit any
Subsidiary (as defined herein) to issue, assume
or guarantee any debt for money borrowed,
including but not limited to any Funded Debt
(as defined herein) if such debt is secured by
a mortgage, pledge, security interest or lien
upon any assets, stock or other indebtedness of
the Company, without providing that the SAILS
will be secured equally and ratably with (or
prior to) such debt. The Indenture also
contains a covenant that neither the Company
nor any Subsidiary will enter into Sale and
Lease-Back Transactions (as defined herein)
absent meeting certain requirements. See
"Description of the SAILS -- Certain Covenants
of the Company."
USE OF PROCEEDS............... For general corporate purposes, including
potential acquisitions or joint ventures. See
"Use of Proceeds."
4
<PAGE> 6
RISK FACTORS
As described in more detail below, the trading price of the SAILS may vary
considerably prior to Maturity (including as a result of acceleration or
otherwise) due to, among other things, fluctuations in the price of INSO Common
Stock and other events that are difficult to predict and beyond the Company's
control.
FLUCTUATION OF PRINCIPAL AMOUNT OF SAILS BASED ON MARKET PRICE OF INSO COMMON
STOCK
The terms of the SAILS differ from those of ordinary debt securities in
that the amount that a holder of the SAILS will receive upon mandatory exchange
of the principal amount thereof at Maturity or upon redemption is not fixed, but
is based on the price of INSO Common Stock as specified in the Exchange Rate.
There can be no assurance that such amount receivable by such holder upon
exchange will be equal to or greater than the principal amount of the SAILS. If
the Current Market Price of INSO Common Stock is less than the Initial Price,
such amount receivable upon exchange will be less than the principal amount paid
for the SAILS, in which case an investment in the SAILS may result in a loss.
In addition, the opportunity for equity appreciation afforded by an
investment in the SAILS is less than the opportunity for equity appreciation
afforded by an investment in INSO Common Stock because the amount receivable by
holders of the SAILS upon exchange will only exceed the principal amount of such
SAILS if the Current Market Price exceeds the Threshold Appreciation Price (as
defined herein), which represents an appreciation of % of the Initial
Price. The value of any appreciation of INSO Common Stock between the Initial
Price and the Threshold Appreciation Price will be retained by the Company.
Therefore, holders of the SAILS will only be entitled to receive upon exchange
% (the percentage equal to the Initial Price divided by the Threshold
Appreciation Price) of any appreciation of the value of INSO Common Stock in
excess of the Threshold Appreciation Price. Because the price of INSO Common
Stock is subject to market fluctuations, the value of INSO Common Stock (or, at
the option of the Company, the amount of cash) received by a holder of SAILS
upon exchange at Maturity, determined as described herein, may be more or less
than the principal amount of the SAILS. In addition, the Company may redeem, at
its option, on a single occasion, up to 50% of the outstanding SAILS on or after
, 1998 and prior to Maturity. See "Risk Factors -- Redemption at the
Company's Option; Optional Redemption Exchange Rate."
It is impossible to predict whether the price of INSO Common Stock will
rise or fall. Trading prices of INSO Common Stock will be influenced by INSO's
operational results and by complex and interrelated political, economic,
financial and other factors that can affect the capital markets generally, the
Nasdaq National Market (on which INSO Common Stock is listed) and the market
segment of which INSO is a part. See the INSO prospectus attached hereto as
Appendix A for information concerning the operations of INSO and other matters.
At Maturity or on the Optional Redemption Date, holders of the SAILS will
receive shares of INSO Common Stock unless the Company exercises its option to
deliver cash in lieu thereof. Such option, if exercised, must be exercised with
respect to all shares of INSO Common Stock otherwise deliverable upon exchange
of the outstanding SAILS being mandatorily exchanged or redeemed at that time.
In addition, the Company may, at its option, deliver cash in lieu of INSO Common
Stock to holders of the SAILS in any jurisdiction where delivery of shares of
INSO Common Stock would require the registration or qualification of such shares
under applicable securities or similar laws or subject the Company to other
regulatory requirements.
Holders of the SAILS will not be entitled to any rights with respect to
INSO Common Stock (including, without limitation, voting rights and rights to
receive any dividends or other distributions in respect thereof) until such
time, if any, as the Company shall have mandatorily exchanged the SAILS at
Maturity or redeemed the SAILS on the Optional Redemption Date, in each case,
for shares of INSO Common Stock and the applicable record date, if any, for the
exercise of such rights occurs after such date.
5
<PAGE> 7
There can be no assurance that INSO will continue to be subject to the
reporting requirements of the Exchange Act and distribute the INSO Reports to
its stockholders or file reports with the Commission. In the event that INSO
ceases to be subject to such reporting requirements and the SAILS continue to be
outstanding, pricing information for the SAILS may be more difficult to obtain
and the value and liquidity of the SAILS may be adversely affected.
REDEMPTION AT THE COMPANY'S OPTION; OPTIONAL REDEMPTION EXCHANGE RATE
The Company may redeem, at its option, on a single occasion, up to 50% of
the outstanding SAILS on or after , 1998 and prior to Maturity
and thereupon deliver to holders of the SAILS in exchange therefor (a) a number
of shares of INSO Common Stock (or, at the option of the Company, cash with an
equal value) at the Exchange Rate and (b) cash in the amount of accrued and
unpaid interest to the date of such redemption. The Current Market Price for
purposes of determining the Exchange Rate on the Optional Redemption Date is the
lesser of (i) the Closing Price on the INSO Common Stock on the second Trading
Day preceding the date on which first occurs either the public announcement of
such redemption or the commencement of mailing of a notice of redemption to
holders of the SAILS or (ii) the average Closing Price per share of INSO Common
Stock on the 20 Trading Days immediately prior to, but not including, the second
Trading Day preceding the date of such notice. See "Description of the SAILS --
Current Market Price." Accordingly, the Current Market Price for purposes of
determining the Exchange Rate on the Optional Redemption Date may be based on a
one-day market price for the INSO Common Stock that is lower than average market
prices during such 20 Trading Day period; the Current Market Price may also be
lower than the market price of the INSO Common Stock on the Optional Redemption
Date.
DILUTION OF INSO COMMON STOCK
The amount that holders of the SAILS are entitled to receive upon the
mandatory exchange thereof at Maturity or redemption on the Optional Redemption
Date is subject to adjustment for certain events arising from stock splits and
combinations, stock dividends and certain other actions of INSO that modify its
capital structure. See "Description of the SAILS -- Dilution Adjustments." Such
amount to be received by such holders upon mandatory exchange at Maturity or
redemption on the Optional Redemption Date will not be adjusted for other
events, such as offerings of INSO Common Stock for cash or in connection with
acquisitions, which may adversely affect the price of INSO Common Stock. Because
of the relationship of the amount to be received upon mandatory exchange of the
SAILS at Maturity or redemption on the Optional Redemption Date to the price of
INSO Common Stock, such other events may also adversely affect the trading price
of the SAILS. There can be no assurance that INSO will not make additional
offerings of INSO Common Stock or as to the amount of such offerings, if any, or
take such other actions in the future.
POSSIBLE ILLIQUIDITY OF THE SECONDARY MARKET
It is not possible to predict how the SAILS will trade in the secondary
market or whether such market will be liquid or illiquid. There is currently no
secondary market for the SAILS. The Underwriters (as defined herein) currently
intend, but are not obligated, to make a market in the SAILS. There can be no
assurance that a secondary market will develop or, if a secondary market does
develop, that it will provide the holders of the SAILS with liquidity of
investment or that it will continue for the life of the SAILS. The SAILS will
not be listed on any national securities exchange. Accordingly, pricing
information for the SAILS may be difficult to obtain, and the liquidity of the
SAILS may be adversely affected.
TAX UNCERTAINTIES
The Indenture requires that any holder subject to U.S. federal income tax
include currently in income, for U.S. federal income tax purposes, payments
denominated as interest that are made with respect to the SAILS, in accordance
with such holder's method of accounting. The Indenture also requires holders to
treat the SAILS as a unit consisting of (i) a note, which is a debt obligation
with a fixed principal amount unconditionally payable at Maturity or on the
Optional Redemption Date equal to the principal amount of the SAILS, and (ii) a
forward purchase contract pursuant to which the holder agrees to use the
principal payment due on the note to purchase at Maturity or on the Optional
Redemption Date the INSO Common Stock that
6
<PAGE> 8
the holder is entitled to receive at that time (subject to the Company's right
to deliver cash in lieu of the INSO Common Stock). It is contemplated that, upon
a holder's sale or other disposition of the SAILS prior to Maturity or on the
Optional Redemption Date, the amount realized will be allocated between the two
components of the SAILS on the basis of their then relative fair market values.
Because of an absence of authority as to the proper characterization of the
SAILS for tax purposes, these tax characterizations and results are uncertain.
There is uncertainty with respect to characterization of gain or loss recognized
with respect to the SAILS at Maturity or on the Optional Redemption Date as
capital gain or loss or ordinary income or loss and, in the event the Company
delivers INSO Common Stock at Maturity or on the Optional Redemption Date,
uncertainty as to whether gain or loss can be deferred until sale or disposition
of such stock. As a result of these uncertainties, the Company has not received
an opinion of counsel with respect to the specific tax consequences of any
disposition of the SAILS. See "Certain United States Federal Income Tax
Considerations."
RISK FACTORS RELATING TO INSO
Investors in the SAILS should carefully consider the information in the
INSO prospectus attached hereto as Appendix A, including the information
contained under "Risk Factors." Factors affecting INSO which should be
considered include, among others, INSO's reliance on key customers, its
dependence on OEMs to market its products and its dependence on its ability to
enhance its current products and to develop and introduce new products that keep
pace with technological developments.
7
<PAGE> 9
THE COMPANY
Houghton Mifflin Company was incorporated in 1908 in Massachusetts as the
successor to a partnership formed in 1880. Antecedents of the partnership date
back to 1832. The Company's principal business is publishing, and it is one of
the largest publishers of elementary and high school textbooks in the United
States. The Company's operations are reported in two industry segments: (1)
textbooks and other educational materials and services for the school and
college markets and (2) general publishing, including fiction, nonfiction,
children's books and dictionary and reference materials in a variety of formats
and media. Approximately 80% of the Company's net sales for the year ended
December 31, 1994 were derived from educational publishing. The Company's
quarterly results reflect the seasonality of the educational publishing market
and for the year ended December 31, 1994, consistent with prior experience, the
second and third calendar quarters accounted for approximately 70% of annual net
sales. Seasonal losses are typically reported in the first and fourth quarters.
Textbooks and Other Educational Materials and Services. The Company
maintains a leading market position in the publication of educational materials,
including textbooks, materials for measuring achievement and aptitude,
clinical/special needs assessment testing products, computer-assisted as well as
computer-managed instructional programs on all educational levels, new computer
tools and operating systems for the college market and a computer-based career
and college guidance information system in versions for both junior and senior
high school students. The principal markets in this segment are elementary and
secondary schools and two- and four-year colleges.
General Publishing. The Company publishes trade books of fiction and
nonfiction for adults and children, dictionaries and other reference works
(including the third edition of The American Heritage Dictionary of the English
Language), and a new line of multimedia products for the consumer market, which
will include children, reference and adult hobby titles. The principal markets
for trade books and reference works in this segment are retail stores.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the historical ratios of earnings to fixed
charges of the Company for the periods indicated:
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------- --------------------------------
1995 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges(1)........ 5.6 9.6 8.1 4.5 5.1 4.3
</TABLE>
- ---------------
(1) For purposes of these computations, earnings before fixed charges consist of
income before provision for income taxes and fixed charges. Fixed charges
consist of interest expense, including amortization of debt issuance costs
and interest on capital lease obligations, and the portion of rent expense
for each period presented that is deemed by management to be the interest
component of such rentals. The Company generally reports a net loss for the
first half of the calendar year due to the seasonality of its business;
therefore, the Company believes that presentation of ratios for a period
other than a full twelve-month period is inappropriate.
8
<PAGE> 10
INSO CORPORATION
INSO develops and markets software tools for proofing, electronic reference
and information management that improve the productive use of textual
information in an electronic environment. INSO markets its products worldwide
primarily to OEMs of computer hardware, software and consumer electronics
products. INSO's products are incorporated into hundreds of applications
marketed by more than 350 different OEM licensees, including word processing
software, spreadsheets, office automation software systems, software suites,
text retrieval software, hand-held personal information managers, document
management systems, electronic reference collections and dedicated word
processors. Examples of products incorporating INSO's software include Word and
Office by Microsoft Corporation; Word Pro, 1-2-3, Notes and SmartSuite by Lotus
Development Corporation; Wizard by Sharp Corporation; and office automation
software systems marketed by Digital Equipment Corporation and Siemens Nixdorf
Informationssysteme AG.
INSO began to conduct its business in its present form on March 8, 1994,
the date of the consummation of the initial public offering of INSO Common
Stock. Prior to that time, INSO had operated as the Software Division.
Attached hereto as Appendix A is a prospectus of INSO covering the shares
of INSO Common Stock offered in connection with the SAILS.
RELATIONSHIP BETWEEN THE COMPANY AND INSO
Prior to March 1994, the Company owned 100% of the capital stock of INSO
(then known as InfoSoft International, Inc.), which previously had operated as
the Software Division. In March 1994, INSO completed an initial public offering
of 3,450,000 shares of INSO Common Stock. In connection with the initial public
offering, the Company received a cash dividend of $32,860,000 from INSO, and
upon completion of such offering, transferred the assets, businesses and
employees of the Software Division to INSO. The Company and INSO, in connection
with the initial public offering, entered into a services agreement whereby
general administrative services are provided by the Company and reimbursed by
INSO. The Company and INSO have also entered into various license agreements for
the purposes of licensing certain database content from published reference
products of the Company's Trade and Reference Division for use in certain of
INSO's products. On June 30, 1995, the Company and INSO signed a definitive
agreement relating to the purchase by INSO of all rights to the Information
Please names, trademarks, copyrights and related assets. Electronic rights to
such publication had previously been licensed to INSO. The Company will continue
to distribute the Information Please family of books. As of July 20, 1995, the
Company owned 2,321,300 shares of INSO Common Stock or approximately 39.6% of
the outstanding shares of INSO Common Stock. See "Relationship with Houghton
Mifflin" in the INSO prospectus attached hereto as Appendix A. Concurrently with
the offering of the SAILS hereby, INSO is offering for sale to the public,
pursuant to a separate prospectus of INSO of even date herewith, 500,000 shares
of INSO Common Stock (the "INSO Offering"). After giving effect to the INSO
Offering, the shares of INSO Common Stock held by the Company would represent
approximately 36.5% of the outstanding shares of INSO Common Stock.
INSO is operated and managed as an independent corporation from the
Company; however, pursuant to a formation agreement between the Company and INSO
dated January 10, 1994, as amended (the "Formation Agreement"), entered into in
connection with the initial public offering, INSO will use its best efforts to
cause its board of directors to nominate persons selected by the Company for
election as directors of INSO so that two Company nominees will serve on the
INSO board of directors (or at least two-sevenths of the board, if the size of
the board is increased), so long as the Company holds at least 20% of the
outstanding INSO Common Stock. The current INSO board member nominated by the
Company is William J. Wisneski. The Company has the right to nominate another
person for election as a director of INSO, but has indicated that it does not
intend to exercise this right at the present time. The Company is in a position,
due to its significant stock holdings and representation on INSO's board of
directors, to influence the policies and affairs of INSO and the outcome of
corporate actions requiring stockholder approval, including the election of
members of INSO's board of directors, the adoption of amendments to INSO's
Certificate of Incorporation, as amended, and the approval of mergers and
certain sales of INSO's assets. The Company is not required to
9
<PAGE> 11
retain its present holdings of shares of INSO Common Stock in connection with
the SAILS or otherwise and may sell some or all of such shares from time to
time.
Pursuant to the Formation Agreement, INSO granted the Company certain
registration rights for the registration of any or all shares of INSO Common
Stock held by the Company for resale under the Securities Act upon request by
the Company and at the Company's expense. Pursuant to the Company's exercise of
such rights, INSO is registering 2,000,000 shares of INSO Common Stock, such
number equalling the maximum number of shares of INSO Common Stock to be
received upon mandatory exchange of the SAILS at Maturity or upon redemption on
the Optional Redemption Date (assuming the Underwriters' over-allotment option
is exercised in full). INSO and the Company have agreed to share on a pro rata
basis certain costs and expenses incurred in connection with (i) the
registration of 2,000,000 shares of INSO Common Stock in connection with the
offering of the SAILS and (ii) the INSO Offering. Under the terms of the
Formation Agreement, INSO will indemnify the Underwriters, the Company, and each
person controlling any of them, against certain liabilities, including
liabilities under the Securities Act. Pursuant to the Formation Agreement, the
Company and INSO agreed to indemnify each other for certain federal and state
taxes relating to tax matters up to the time of and including the initial public
offering of INSO Common Stock, and the transactions thereby effected. In
addition, INSO agreed to indemnify the Company for all liabilities under
contracts and agreements assumed by or assigned to INSO. See "Relationship with
Houghton Mifflin" in the INSO prospectus attached hereto as Appendix A.
INSO has no obligation with respect to the SAILS or amounts to be paid to
holders thereof, including any obligation to take into consideration for any
reason the needs of the Company or of holders of the SAILS. INSO will not
receive any of the proceeds of the offering of the SAILS made hereby and is not
responsible for the determination of the timing of, prices for or quantities of
the SAILS to be issued or the determination or calculation of the amount to be
paid upon mandatory exchange at Maturity or redemption on the Optional
Redemption Date.
PRICE RANGE OF INSO COMMON STOCK AND DIVIDEND POLICY
INSO Common Stock is listed on the Nasdaq National Market under the symbol
"INSO." The following table sets forth the high and low sales prices of INSO
Common Stock for the calendar periods listed below as reported on the Nasdaq
National Market. As of March 15, 1995, there were 462 holders of record of INSO
Common Stock. The number of record holders may not be representative of the
number of beneficial holders since many shares are held by depositaries, brokers
or other nominees.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1994
First Quarter (from March 1, 1994)............................... $24.50 $17.13
Second Quarter................................................... 25.75 17.25
Third Quarter.................................................... 29.00 21.00
Fourth Quarter................................................... 35.75 27.50
1995
First Quarter.................................................... 51.75 33.06
Second Quarter (through June 29, 1995)........................... 65.00 48.25
</TABLE>
On June 29, 1995, the per share closing price of INSO Common Stock as
reported on the Nasdaq National Market was $59 1/2. INSO has paid no dividends
on its Common Stock since its formation and has stated that it has no present
plans to do so. See "Price Range of Common Stock and Dividend Policy" in the
INSO prospectus attached hereto as Appendix A.
The Company makes no representation as to the amount of dividends, if any,
that INSO will pay in the future. In any event, holders of the SAILS will not be
entitled to receive any dividends that may be payable on INSO Common Stock until
such time as the Company, if it so elects, delivers INSO Common Stock at
Maturity or on the Optional Redemption Date of the SAILS. See "Description of
the SAILS."
10
<PAGE> 12
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the SAILS
offered hereby, after deducting underwriting discounts and commissions and
estimated expenses payable by the Company, are estimated to be $ million
($ million if the Underwriters' over-allotment option is exercised in
full). The Company intends to use the net proceeds for general corporate
purposes, including potential acquisitions or joint ventures. The Company
periodically engages in negotiations or discussions with third parties relating
to potential acquisitions or joint ventures. The Company is currently
negotiating with various parties with respect to a possible joint venture
relating to educational software for the home learning market.
CAPITALIZATION
The following table sets forth the historical consolidated capitalization
of the Company at March 31, 1995, and as adjusted to give effect to (i) the sale
by the Company of the SAILS offered hereby at an Initial Price of $ per
SAILS (assuming no exercise of the Underwriters' over-allotment option) and (ii)
the estimated expenses payable by the Company related to this offering.
<TABLE>
<CAPTION>
MARCH 31, 1995
-------------------------
ACTUAL AS ADJUSTED
-------- ------------
(IN THOUSANDS)
<S> <C> <C>
Cash and marketable securities............................... $ 12,137 $
======== =========
Short-term debt.............................................. $ -- $ --
Long-term debt:
7 1/8% Notes due 2004...................................... 99,460 99,460
% Exchangeable Notes due 1999........................... --
-------- ------------
Total debt.............................................. 99,460 99,460
Stockholders' equity......................................... 222,989 222,989
-------- ------------
Total capitalization.................................... $322,449 $
======== =========
</TABLE>
RECENT DEVELOPMENTS CONCERNING THE COMPANY
The Company reported net sales for the second quarter ended June 30, 1995
of $104.7 million, down 10.7% from last year's second quarter. Including special
charges, the net loss for the quarter was $5.1 million, or $.37 per share.
Special charges of $7 million, or $.31 per share, were recorded in the second
quarter, relating to the Company's decision to improve services and reduce costs
by outsourcing its warehouse and distribution operations. The charges include
severance and transition expenses for facilities located in Burlington,
Massachusetts and Geneva, Illinois. The Company intends to sell one or both of
these facilities soon to offset these special charges. The net loss before
special charges was $.8 million, or $.06 per share, compared with net income of
$8.7 million, or $.63 per share, reported in the second quarter of 1994.
For the six months ended June 30, 1995, the Company's net sales were $155.2
million compared with $166.5 million reported in the first six months of 1994.
The six-month seasonal net loss for 1995, including special charges, was $23.6
million, or $1.71 per share. Excluding special charges, the seasonal net loss
was $19.4 million, or $1.40 per share. This compared with a net loss of $6.9
million, or $.50 per share, in the first six months of 1994 before special
charges and an extraordinary loss.
11
<PAGE> 13
SELECTED FINANCIAL INFORMATION
The following table sets forth selected financial information for the
Company for, and at the end of, the three-month periods ended March 31, 1995 and
1994 and each of the years in the three-year period ended December 31, 1994. The
selected financial information for the three years ended December 31, 1994 has
been derived from the Company's consolidated financial statements, which have
been audited by Ernst & Young LLP, independent auditors. The selected financial
information for the three-month periods ended March 31, 1995 and 1994 is derived
from unaudited financial statements. The unaudited financial statements, in the
opinion of the Company's management, include all adjustments, consisting of
normal recurring accruals, necessary for a fair presentation of the financial
position and results of operations for these periods. Financial information for
the interim periods presented is not necessarily indicative of financial
information to be anticipated for the full year. The information should be read
in conjunction with the consolidated financial statements, related notes and
other financial information incorporated by reference herein.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
----------------- ------------------------------
1995 1994 1994 1993 1992
---- ---- ---- ---- ----
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales..................................... $ 50,505 $ 49,388 $483,076 $462,969 $454,706
Costs and expenses
Cost of sales............................... 39,881 37,866 230,674 227,969 220,278
Selling and administrative.................. 40,094 37,098 192,425 173,070 190,118
Special charges............................. -- 6,513 6,513 10,560 --
-------- -------- -------- -------- --------
79,975 81,477 429,612 411,599 410,396
-------- -------- -------- -------- --------
Operating income (loss)....................... (29,470) (32,089) 53,464 51,370 44,310
Other income (expense)
Gain on sale of interest in Software
Division................................. -- 36,212 36,212 -- --
Equity in earnings of INSO Corporation...... 621 249 1,973 -- --
Loss on disposition of foreign publishing
operations............................... -- -- -- -- (13,527)
Net interest expense........................ (1,531) (552) (6,509) (2,347) (2,339)
-------- -------- -------- -------- --------
(910) 35,909 31,676 (2,347) (15,866)
-------- -------- -------- -------- --------
Income (loss) before taxes, extraordinary
item, and cumulative effect of accounting
changes..................................... (30,380) 3,820 85,140 49,023 28,444
Taxes on income (loss) before extraordinary
item and cumulative effect of accounting
changes..................................... (11,848) 610 32,710 17,650 9,373
-------- -------- -------- -------- --------
Income (loss) before extraordinary item and
cumulative effect of accounting changes..... (18,532) 3,210 52,430 31,373 19,071
-------- -------- -------- -------- --------
Extraordinary item, net of taxes
Loss on early extinguishment of debt........ -- (1,239) (1,239) (1,002) --
Cumulative effect of accounting changes, net
of taxes
Postretirement healthcare benefits.......... -- -- -- -- (13,357)
Income taxes................................ -- -- -- -- (1,300)
-------- -------- -------- -------- --------
Net income (loss)............................. $(18,532) $ 1,971 $ 51,191 $ 30,371 $ 4,414
======== ======== ======== ======== ========
Net income per share of common stock.......... $ (1.34) $ 0.14 $ 3.70 $ 2.20 $ 0.31
Dividends paid per share...................... 0.225 0.215 0.87 0.83 0.79
BALANCE SHEET DATA:
Cash and marketable securities................ $ 12,137 $ 32,188 $ 47,193 $ 84,956 $ 68,635
Working capital............................... 118,284 94,524 145,391 156,186 149,837
Total assets.................................. 447,454 464,139 497,266 398,086 371,421
Total debt, including commercial paper........ 99,460 127,650 99,445 52,998 54,653
Stockholders' equity.......................... 222,989 222,067 244,473 224,082 199,839
</TABLE>
12
<PAGE> 14
DESCRIPTION OF THE SAILS
The SAILS are a series of Debt Securities (as defined below) to be issued
under an indenture dated as of March 15, 1994, between the Company and The First
National Bank of Boston, as trustee (the "Trustee"), as supplemented by a First
Supplemental Indenture dated as of July , 1995 between the Company and the
Trustee (as supplemented from time to time, the "Indenture"). All references
herein to "Debt Securities" shall refer to debt securities issued under the
Indenture. The following summary of certain provisions of the Indenture does not
purport to be complete and is qualified in its entirety by reference to the
Indenture, a copy of which is filed as an exhibit to the Registration Statement
of which this Prospectus is a part. All article and section references appearing
herein are to articles and sections of the Indenture, and all capitalized terms
not otherwise defined have the meanings specified in the Indenture.
GENERAL
The SAILS will be unsecured and will rank on a parity with all other
unsecured and unsubordinated indebtedness of the Company. The Indenture does not
limit the amount of Debt Securities which may be issued thereunder. (sec.301)
The aggregate number of SAILS to be issued will be 1,750,000, plus such
additional number of SAILS (up to 250,000) as may be issued pursuant to the
over-allotment option granted by the Company to the Underwriters. See
"Underwriting." The SAILS will mature on , 1999, unless
previously redeemed by the Company. See "Description of the SAILS -- Optional
Redemption" below.
Each SAILS, which will be issued with a principal amount of $ ,
will bear interest at the annual rate of % of the principal amount per
annum (or $ per annum) from , 1995, or from the most
recent Interest Payment Date (as defined below) to which interest has been paid
or provided for, until the principal amount thereof is mandatorily exchanged at
Maturity or redeemed on the Optional Redemption Date pursuant to the terms of
the SAILS (or the cash option of the Company described below is exercised).
Interest on the SAILS will be payable quarterly in arrears on ,
, and , commencing , 1995 (each
an "Interest Payment Date"), to the persons in whose names the SAILS are
registered at the close of business on the last day of the calendar month
immediately preceding such Interest Payment Date. Interest on the SAILS will be
computed on the basis of a 360-day year of twelve 30-day months. If an Interest
Payment Date falls on a day that is not a Business Day, the interest payment to
be made on such Interest Payment Date will be made on the next succeeding
Business Day with the same force and effect as if made on such Interest Payment
Date, and no additional interest will accrue as a result of such delayed
payment.
MANDATORY EXCHANGE
Unless previously redeemed, as described under "Description of the
SAILS -- Optional Redemption" below, at Maturity (including as a result of
acceleration or otherwise), the principal amount of each SAILS will be
mandatorily exchanged by the Company for a number of shares of INSO Common Stock
(or, at the option of the Company, cash with an equal value) at the Exchange
Rate, and, accordingly, holders of the SAILS may receive an amount less than the
principal amount thereof. The "Exchange Rate" is equal to, subject to adjustment
as a result of certain dilution events (see "Description of the
SAILS -- Dilution Adjustments" below), (a) if the Current Market Price (as
defined below) per share of INSO Common Stock is greater than or equal to
$ per share of INSO Common Stock (the "Threshold Appreciation Price"),
shares of INSO Common Stock per SAILS, (b) if the Current Market Price
is less than the Threshold Appreciation Price but is greater than the Initial
Price, a fractional share of INSO Common Stock per SAILS so that the value
thereof (determined at the Current Market Price) is equal to the Initial Price
and (c) if the Current Market Price is less than or equal to the Initial Price,
one share of INSO Common Stock per SAILS. No fractional shares of INSO Common
Stock will be issued at Maturity as provided under "Description of the
SAILS -- Fractional Shares" below. Such mandatory exchange shall be subject to
the right of the Company to redeem up to 50% of the Outstanding SAILS, on a
single occasion, on or after , 1998, and before Maturity as described
under "Description of the SAILS -- Optional Redemption" below. Notwithstanding
the foregoing, the Company may, at its option in lieu of delivering shares of
INSO Common Stock, deliver cash in an amount equal to the value of such number
of shares of INSO Common Stock at the Current Market Price. In addition, the
Company may, at its option, deliver cash
13
<PAGE> 15
in lieu of INSO Common Stock to holders of the SAILS in any jurisdiction where
delivery of shares of INSO Common Stock would require registration or
qualification of such shares under applicable securities or similar laws or
subject the Company to other regulatory requirements in connection with such
delivery. On or prior to , 1999, the Company will notify the
Depositary (as defined below) and the Trustee and publish a notice in a daily
newspaper of national circulation stating whether the principal amount of each
SAILS will be exchanged for shares of INSO Common Stock or cash. (sec. 1304) If
the Company elects to deliver shares of INSO Common Stock, holders of the SAILS
will be responsible for the payment of any and all brokerage costs upon the
subsequent sale of such stock.
OPTIONAL REDEMPTION
The SAILS are not redeemable by the Company before , 1998. On or
after that date until immediately before Maturity, the Company will have the
right to redeem up to 50% of the Outstanding SAILS. The Company shall have the
right to redeem such SAILS on a single occasion prior to Maturity. Upon such
redemption, the Company will deliver to the holder thereof in exchange for each
of the SAILS so redeemed, (i) a number of shares of INSO Common Stock (or, at
the option of the Company, cash with an equal value) at the Exchange Rate and
(ii) cash in the amount of accrued and unpaid interest to the Optional
Redemption Date. Accordingly, upon such redemption, holders of the SAILS may
receive an amount less than the principal amount thereof. In addition, the
Company may, at its option, deliver cash in lieu of INSO Common Stock to holders
of the SAILS in any jurisdiction where delivery of shares of INSO Common Stock
would require registration or qualification of such shares under applicable
securities or similar laws or subject the Company to other regulatory
requirements.
If any of the Outstanding SAILS are to be called for redemption, the SAILS
so called will be selected by the Company by lot or pro rata (as nearly as may
be) or by any other method determined by the Trustee to be fair and appropriate.
(sec. 1103)
The Company will provide notice of such redemption of the SAILS to holders
of record of the SAILS to be called for redemption not less than 30 nor more
than 60 days before the date fixed for redemption. Accordingly, the earliest
notice date for any call for redemption of the SAILS will be , 1998.
(sec. 1104) Any such notice will be provided by mail, sent to the holders of
record of the SAILS to be redeemed at each such holder's address as it appears
in the Security Register, first class postage prepaid; provided, however, that
failure to give such notice or any defect therein will not affect the validity
of the redemption of any of the SAILS except those held by the holder to whom
the Company has failed to give such notice or whose notice was defective. (sec.
106) On and after the redemption date, all rights of the holders of the SAILS
called for redemption will terminate except the right to receive for each SAILS
redeemed, a number of shares of INSO Common Stock (or, at the Company's option,
cash with an equal value) (unless the Company defaults on such exchange or
payment). In addition, on or prior to seven Business Days preceding the Optional
Redemption Date, the Company will notify the Depositary and the Trustee and
publish a notice in a daily newspaper of national circulation stating whether
the principal amount of each SAILS to be redeemed will be exchanged for shares
of INSO Common Stock or cash. (sec. 1304)
Each holder of the SAILS called for redemption must surrender the
certificates evidencing such SAILS to the Company at the place designated in the
notice of redemption and will thereupon be entitled to receive certificates for
shares of INSO Common Stock (or, at the option of the Company, cash with an
equal value). No fractional shares of INSO Common Stock will be issued on the
Optional Redemption Date as provided under "Description of the
SAILS -- Fractional Shares" below.
CURRENT MARKET PRICE
The "Current Market Price" for purposes of determining the Exchange Rate at
Maturity shall be the average Closing Price (as defined below) per share of INSO
Common Stock on the 20 Trading Days (as defined below) immediately prior to, but
not including, Maturity. The "Current Market Price" for purposes of determining
the Exchange Rate on the Optional Redemption Date shall be the lesser of (i) the
Closing Price on the second Trading Day preceding the Notice Date (as defined
below) or, if such day is not a Trading Day,
14
<PAGE> 16
on the last Trading Day immediately prior to such day and (ii) the average
Closing Price per share of INSO Common Stock on the 20 Trading Days immediately
prior to, but not including, the second Trading Day preceding the Notice Date.
The "Notice Date" in connection with the optional redemption of the SAILS is
defined as the date on which first occurs either the public announcement of such
redemption or the commencement of mailing of a notice of redemption to the
holders of the SAILS. The "Closing Price" of any security on any date of
determination means the closing sale price (or, if no closing sale price is
reported, the last reported sale price) of such security on the Nasdaq National
Market on such date or, if such security is not listed on the Nasdaq National
Market on any such date, as reported by the principal United States securities
exchange on which such security is so traded, or if such security is not so
traded on a United States national or regional securities exchange, as reported
by The Nasdaq Stock Market, Inc., or, if such security is not so reported, the
last quoted bid price for such security in the over-the-counter market as
reported by the National Quotation Bureau or similar organization, or, if such
bid price is not available, the market value of such security on such date as
determined by a nationally recognized independent investment banking firm
retained for this purpose by the Company. A "Trading Day" is defined as any day
that is not a Saturday, Sunday or a day on which the Nasdaq National Market is
closed or banking institutions or trust companies in the City of New York or the
City of Boston are authorized or obligated by law or executive order to close
and on which the security the Closing Price of which is being determined (A) is
not suspended from trading on any national or regional securities exchange or
association or over-the-counter market at the close of business and (B) has
traded at least once on the national or regional securities exchange or
association or over-the-counter market that is the primary market for the
trading of such security. (sec. 1301)
For illustrative purposes only, the following chart shows the number of
shares of INSO Common Stock or the amount of cash that a holder of the SAILS
would receive for each SAILS at various Current Market Prices. The table assumes
that there will be no adjustments to the Exchange Rate described under
"Description of the SAILS -- Dilution Adjustments" below. There can be no
assurance that the Current Market Price will be within the range set forth
below. Given the Initial Price of $ per SAILS and the Threshold
Appreciation Price of $ , a SAILS holder would receive at Maturity the
following number of shares of INSO Common Stock or amount of cash (if the
Company elects to pay the SAILS in cash):
<TABLE>
<CAPTION>
CURRENT NUMBER OF
MARKET PRICE SHARES OF
OF INSO INSO AMOUNT
COMMON STOCK COMMON STOCK OF CASH
------------ ------------ ------------
<S> <C> <C>
$ $
</TABLE>
OTHER TERMS AND PROVISIONS
Interest on the SAILS will be payable, and delivery of INSO Common Stock
(or, at the Company's option, cash with an equal value) in exchange for the
SAILS at Maturity or on the Optional Redemption Date will be made upon surrender
of such SAILS, at the office or agency of such Paying Agent or Paying Agents as
the Company may designate from time to time, except that, at the option of the
Company, payment of any interest may be made by check mailed to the address of
the Person entitled thereto as such address shall appear in the Security
Register. (sec. 1002) Payment of any installment of interest on the SAILS will
be made to the Person in whose name such SAILS is registered at the close of
business on the Regular Record Date for such interest. (sec. 307)
All moneys paid by the Company to a Paying Agent for the payment of
principal of or interest on any SAILS that remains unclaimed at the end of two
years after such principal or interest shall have become due and payable will be
repaid to the Company and the holder of such SAILS will thereafter look only to
the Company for payment thereof. (sec. 1003)
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The SAILS will be transferable at any time or from time to time at the
aforementioned office. No service charge will be made to the holder of the SAILS
for any such transfer except for any tax or governmental charge incidental
thereto. (sec. 305)
INSO has agreed with the Company, so long as the SAILS are Outstanding, to
furnish to the Trustee and the Company in sufficient quantity or, at the option
of the Company, mail to holders of the SAILS as identified to INSO by the
Company, copies of all INSO Reports. INSO shall transmit the INSO Reports by
mail to holders of the SAILS, without cost to such holders of the SAILS. The
Company will also cause to be available to all holders of record of the SAILS,
upon request and without charge, copies of INSO's annual report on Form 10-K,
quarterly reports on Form 10-Q and other periodic reports filed with the
Commission. There can be no assurance that INSO will continue to be subject to
the reporting requirements of the Exchange Act and distribute the INSO Reports
to its stockholders or file reports with the Commission. In the event that INSO
ceases to be subject to such reporting requirements and the SAILS continue to be
outstanding, pricing information for the SAILS may be more difficult to obtain
and the liquidity of the SAILS may be adversely affected.
The Indenture does not contain any restriction on the ability of the
Company to sell or otherwise convey all or any portion of INSO Common Stock held
by it, and no such shares of INSO Common Stock will be pledged or held otherwise
in escrow for use at Maturity or on the Optional Redemption Date of the SAILS.
Consequently, in the event of a bankruptcy, insolvency or liquidation of the
Company, INSO Common Stock, if any, owned by the Company will be subject to the
claims of the creditors of the Company. In addition, as described herein, the
Company will have the option, exercisable in its sole discretion, to satisfy its
obligations pursuant to the mandatory exchange or redemption for the principal
amount of each SAILS at Maturity or on the Optional Redemption Date by
delivering to holders of the SAILS either the specified number of shares of INSO
Common Stock or cash in an amount equal to the value of such number of shares at
the Current Market Price. In the event of a sale or conveyance by the Company of
its shares of INSO Common Stock, a holder of the SAILS may be more likely to
receive cash in lieu of INSO Common Stock. As a result, there can be no
assurance that the Company will elect at Maturity or on the Optional Redemption
Date to deliver INSO Common Stock or, if it so elects, that it will use all or
any portion of its current holdings of INSO Common Stock to make such delivery.
Holders of the SAILS will not be entitled to any rights with respect to INSO
Common Stock (including without limitation voting rights and rights to receive
any dividends or other distributions in respect thereof) until such time, if
any, as the Company shall have delivered shares of INSO Common Stock to holders
of the SAILS at Maturity or on the Optional Redemption Date thereof.
DILUTION ADJUSTMENTS
The Exchange Rate is subject to adjustment if INSO shall (i) pay a stock
dividend or make a distribution with respect to INSO Common Stock in shares of
such stock, (ii) subdivide or split its outstanding shares of INSO Common Stock
into a greater number of shares, (iii) combine its outstanding shares of INSO
Common Stock into a smaller number of shares, (iv) issue by reclassification of
its shares of INSO Common Stock any shares of capital stock of INSO, (v) issue
rights or warrants to all holders of INSO Common Stock entitling them to
subscribe for or purchase shares of INSO Common Stock (other than rights to
purchase INSO Common Stock pursuant to a plan for the reinvestment of dividends
or interest) at a price per share less than the market price of the INSO Common
Stock or (vi) pay a dividend or make a distribution to all holders of INSO
Common Stock of evidences of its indebtedness or other assets (excluding any
dividends or distributions referred to in clauses (i)-(iv) above or any cash
dividends other than any Extraordinary Cash Dividends) or issue to all holders
of INSO Common Stock rights or warrants to subscribe for or purchase any of its
securities (other than those referred to in clause (v) above). An "Extraordinary
Cash Dividend" means, with respect to any 365-day period, all cash dividends on
INSO Common Stock during such period to the extent such dividends exceed on a
per share basis 10% of the average of the closing sales prices of INSO Common
Stock over such period (less any such dividends for which a prior adjustment to
the Exchange Rate was previously made). All adjustments to the Exchange Rate
will be calculated to the nearest 1/10,000th of a share of INSO Common Stock (or
if there is not a nearest 1/10,000th of a share to the next lower 1/10,000th of
a share). No adjustment in the Exchange Rate shall be required unless such
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adjustment would require an increase or decrease of at least one percent
therein; provided, however, that any adjustments which by reason of the
foregoing are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. (sec. 1303)
In the event of (A) any consolidation or merger of INSO, or any surviving
entity or subsequent surviving entity of INSO (an "INSO Successor"), with or
into another entity (other than a merger or consolidation in which INSO is the
continuing corporation and in which INSO Common Stock outstanding immediately
prior to the merger or consolidation is not exchanged for cash, securities or
other property of INSO or another corporation), (B) any sale, transfer, lease or
conveyance to another corporation of the property of INSO or any INSO Successor
as an entirety or substantially as an entirety, (C) any statutory exchange of
securities of INSO or any INSO Successor with another corporation (other than in
connection with a merger or acquisition) or (D) any liquidation, dissolution or
winding up of INSO or any INSO Successor (any such event, a "Reorganization
Event"), the Exchange Rate used to determine the amount payable upon mandatory
exchange at Maturity or upon redemption on the Optional Redemption Date for each
SAILS will be adjusted to provide that each holder of the SAILS will receive at
Maturity or on the Optional Redemption Date cash in an amount equal to (a) if
the Transaction Value (as defined below) is greater than or equal to the
Threshold Appreciation Price, multiplied by the Transaction Value, (b) if
the Transaction Value is less than the Threshold Appreciation Price but greater
than the Initial Price, the Initial Price and (c) if the Transaction Value is
less than or equal to the Initial Price, the Transaction Value. "Transaction
Value" means (i) for any cash received in any such Reorganization Event, the
amount of cash received per share of INSO Common Stock, (ii) for any property
other than cash or securities received in any such Reorganization Event, an
amount equal to the market value at Maturity or on the Optional Redemption Date
of such property received per share of INSO Common Stock as determined by a
nationally recognized independent investment banking firm retained for this
purpose by the Company and (iii) for any securities received in any such
Reorganization Event, an amount equal to the average Closing Price per share of
such securities on the 20 Trading Days immediately prior to Maturity or on the
Optional Redemption Date multiplied by the number of such securities received
for each share of INSO Common Stock. Notwithstanding the foregoing, in lieu of
delivering cash as provided above, the Company may at its option deliver an
equivalent value of securities or other property received in such Reorganization
Event, determined in accordance with clause (ii) or (iii) above, as applicable.
If the Company elects to deliver securities or other property, holders of the
SAILS will be responsible for the payment of any and all brokerage and other
transaction costs upon the sale of such securities or other property. The kind
and amount of securities into which the SAILS shall be mandatorily exchangeable
or redeemed after consummation of such transaction shall be subject to
adjustment as described in the immediately preceding paragraph following the
date of consummation of such transaction. (sec. 1303)
The Company is required, within ten Business Days following the occurrence
of an event that requires an adjustment to the Exchange Rate (or if the Company
is not aware of such occurrence, as soon as practicable after becoming so
aware), to provide written notice to the Trustee of the occurrence of such event
and a statement in reasonable detail setting forth the method by which the
adjustment to the Exchange Rate was determined and setting forth the revised
Exchange Rate. (sec. 1304)
FRACTIONAL SHARES
No fractional shares of INSO Common Stock will be issued if the Company
exchanges the SAILS for shares of INSO Common Stock. In lieu of any fractional
share otherwise issuable in respect of all SAILS of any holder which are
mandatorily exchanged at Maturity or redeemed on the Optional Redemption Date,
such holder shall be entitled to receive an amount in cash equal to the value of
such fractional share at the Current Market Price. (sec. 1302)
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BOOK-ENTRY SYSTEM
The SAILS will be issued in the form of one or more global securities (the
"Global Securities") deposited with The Depository Trust Company (the
"Depositary") and registered in the name of a nominee of the Depositary, except
as set forth below.
The Depositary has advised the Company and the Underwriters as follows: The
Depositary is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. The
Depositary holds securities that its participants ("participants") deposit with
the Depositary. The Depositary also facilitates settlement among participants of
securities transactions, such as transfers and pledges, in deposited securities
through electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. Such
participants include securities brokers and dealers, banks, trust companies and
clearing corporations. Indirect access to the Depositary's book-entry system is
also available to others, such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a participant,
either directly or indirectly.
Upon the issuance of a Global Security, the Depositary or its nominee will
credit the respective SAILS represented by such Global Security to the accounts
of participants. The accounts to be credited shall be designated by the
Underwriters. Ownership of beneficial interests in such Global Securities will
be limited to participants or persons that may hold interests through
participants. Ownership of beneficial interests by participants in such Global
Securities will be shown on, and the transfer of those ownership interests will
be effected only through, records maintained by the Depositary or its nominee
for such Global Securities. Ownership of beneficial interests in such Global
Securities by persons that hold through participants will be shown on, and the
transfer of that ownership interest within such participant will be effected
only through, records maintained by such participant. The laws of some
jurisdictions require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such limits and such laws may
impair the ability to transfer beneficial interests in a Global Security.
So long as the Depositary for a Global Security, or its nominee, is the
registered owner of such Global Security, the Depositary or such nominee, as the
case may be, will be considered the sole owner or holder of the SAILS for all
purposes under the Indenture. Unless and until it is exchanged in whole or in
part for the SAILS represented thereby, such Global Security may not be
transferred except as a whole by the Depositary to a nominee of the Depositary
or to a successor depositary or any nominee of such successor.
Payment of principal of and any interest on the SAILS registered in the
name of or held by the Depositary or its nominee will be made to the Depositary
or its nominee, as the case may be, as the registered owner or the holder of the
Global Security. (sec. 203)
The Company expects that the Depositary, upon receipt of any payment of
principal or interest in respect of a Global Security, will credit immediately
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global Security
as shown on the records of the Depositary. The Company also expects that
payments by participants to owners of beneficial interests in such Global
Security held through such participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in "street name," and
will be the responsibility of such participants. None of the Company, the
Trustee, any Paying Agent or the Security Registrar for the SAILS will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in a Global Security
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
CERTAIN COVENANTS OF THE COMPANY
The Indenture contains a covenant that the Company will not, nor will it
permit any Subsidiary to issue, assume or guarantee any debt for money borrowed,
including but not limited to any Funded Debt (herein
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referred to as "Debt"), if such Debt is secured by a mortgage, pledge, security
interest or lien (herein referred to as a "mortgage") upon any assets, stock or
other indebtedness of the Company now owned or hereafter acquired, without in
any such case effectively providing, concurrently with the issuance, assumption
or guarantee of such Debt, that the SAILS (together with, if the Company shall
so determine, any other indebtedness of or guarantee by the Company or such
Subsidiary ranking equally with the SAILS then outstanding and existing or
thereafter created) will be secured equally and ratably with (or prior to) such
Debt. This restriction, however, shall not apply to: (1) mortgages on any
property acquired, constructed or improved by the Company or any Subsidiary
after the date of the Indenture which are created or assumed contemporaneously
with, or within 180 days after, such acquisition (or in the case of property
constructed or improved, after the completion and commencement of commercial
operation of such property, whichever is later) to secure or provide for the
payment of any part of the purchase price of such property or the cost of such
construction or improvement, or mortgages on any property existing at the time
of acquisition thereof; except that in the case of any such construction or
improvement, the mortgage shall not apply to any property theretofore owned by
the Company or any Subsidiary, other than any theretofore unimproved real
property on which the property so constructed, or the improvement, is located;
(2) mortgages on any property acquired from a corporation which is merged with
or into the Company or a Subsidiary or mortgages outstanding at the time any
corporation becomes a Subsidiary; (3) mortgages in favor of the Company or any
Subsidiary; and (4) any extension, renewal or replacement (or successive
extensions, renewals or replacements), in whole or in part, of any mortgage
referred to in the foregoing clauses (1) to (3), inclusive; provided, however,
that the principal amount of Debt secured thereby shall not exceed the principal
amount of Debt so secured at the time of such extension, renewal or replacement,
and that such extension, renewal or replacement shall be limited to all or part
of the property which secured the mortgage so extended, renewed or replaced,
plus improvements on such property. Notwithstanding the above, the Company or
any Subsidiary may issue, assume or guarantee secured Debt, including any Funded
Debt, which would otherwise be subject to the foregoing restrictions, in an
aggregate amount which together with all other such Debt and all Attributable
Debt in respect of Sale and Lease-Back Transactions of the Company and its
Subsidiaries existing at such time does not at the time exceed 10% of the
stockholders' equity of the Company and its consolidated Subsidiaries, computed
in accordance with generally accepted accounting principles applied on a
consistent basis, as shown on the audited consolidated balance sheet contained
in the latest annual report to stockholders of the Company. Notwithstanding the
provisions described above, the Company's Subsidiaries may not issue, assume,
guarantee or otherwise incur Funded Debt in excess of $5,000,000 in the
aggregate at any time outstanding. (sec. 1007)
The Company covenants that it will not, nor will it permit any Subsidiary
to, enter into any arrangement with any person providing for the leasing to the
Company or a Subsidiary of any real property (except for temporary leases for a
term of not more than three years), which property has been owned and, in the
case of any such facility, has been placed in commercial operation more than 180
days by the Company or such Subsidiary and has been or is to be sold or
transferred by the Company or such Subsidiary to such person (herein referred to
as "Sale and Lease-Back Transactions"), unless either (a) the Company or such
Subsidiary would be entitled to incur Debt secured by a mortgage on the property
to be leased in an amount equal to the Attributable Debt with respect to such
Sale and Lease-Back Transactions without equally and ratably securing the Debt
Securities pursuant to the Indenture or (b) the Company applies an amount equal
to the fair value (as determined by the Board of Directors) of the property so
leased to the retirement, within 180 days of the effective date of any such Sale
and Lease-Back Transactions, of Debt Securities or of Funded Debt of the Company
which ranks on a parity with the SAILS. (sec. 1008)
For purposes of the foregoing covenants, the following terms have the
following meanings: "Subsidiary" means any corporation of which a majority of
the outstanding stock having by the terms thereof ordinary voting power to elect
a majority of the board of directors of such corporation (whether or not at the
time stock of any other 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
directly or indirectly owned or controlled by the Company, or by one or more
Subsidiaries, or by the Company and one more Subsidiaries; "Funded Debt" means
indebtedness for money borrowed which by its terms matures at, or is extendible
or renewable at the option of the obligor, to a date more than twelve months
after the date of the creation of such indebtedness; and "Attributable Debt"
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means, at the time of determination, the present value (discounted at the
interest rate, compounded semiannually, equal to the weighted average yield to
maturity of the Debt Securities then outstanding) of the obligation of a lessee
for net rental payments during the remaining term of any lease (including any
period for which such lease has been extended) entered into in connection with a
Sale and Lease-Back Transaction. (sec. 101)
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company, without the consent of the holders of any of the SAILS, may
consolidate or merge with or into, sell, lease, transfer or otherwise dispose of
its assets substantially as an entirety to any Person which is a corporation,
partnership or trust organized under the laws of any domestic jurisdiction, or
may permit any such Person to consolidate or merge with or into the Company or
sell, lease, transfer or otherwise dispose of its assets substantially as an
entirety to the Company, provided that any successor Person assumes the
Company's obligations on the SAILS that, under the Indenture, after giving
effect to the transaction no Event of Default, and no event which, after notice
or lapse of time, would become an Event of Default, shall have occurred and be
continuing, and that certain other conditions are met. (sec. 801)
MODIFICATION OF THE INDENTURE
Modifications and amendments of the Indenture may be made by the Company
and the Trustee with the consent of the holders of a majority in aggregate
principal amount of the Outstanding SAILS, except that no such modification or
amendment may, without the consent of the holder of each Outstanding SAILS, (a)
change the Stated Maturity of the principal of, or any installment of interest
on any SAILS, (b) reduce the principal amount of, or rate of interest on, any
SAILS, (c) except as contemplated by the Indenture, change any obligation of the
Company to pay additional amounts, (d) change the terms under which the SAILS
are mandatorily exchangeable or redeemable for shares of INSO Common Stock or
the coin or currency in which any SAILS or any interest thereon is payable, (e)
impair the right to institute suit for the enforcement of any payment on or with
respect to any SAILS, (f) reduce the percentage in principal amount of
Outstanding SAILS, the consent of whose holders is required for modification or
amendment of the Indenture or for waiver of compliance with certain provisions
of the Indenture or for waiver of certain defaults, (g) reduce the requirements
contained in the Indenture for consent to or approval of certain matters, (h)
change any obligation of the Company to maintain an office or agency in the
places and for the purposes required by the Indenture or (i) modify any of the
above provisions. (sec. 902)
The holders of a majority in aggregate principal amount of the Outstanding
SAILS may, on behalf of the holders of all the SAILS, waive, insofar as the
SAILS are concerned, compliance by the Company with certain restrictive
provisions of the Indenture. (sec. 1010) The holders of a majority in aggregate
principal amount of the Outstanding SAILS may, on behalf of all holders of the
SAILS, waive any past default under the Indenture with respect to the SAILS,
except a default (a) in the payment of principal of or any interest on any SAILS
or (b) in respect of a covenant or provision of the Indenture which cannot be
modified or amended without the consent of the holder of each Outstanding SAILS.
(sec. 513)
EVENTS OF DEFAULT, NOTICE AND WAIVER
Events of Default with respect to the SAILS under the Indenture include:
(a) failure to pay any payment of interest on the SAILS when due, continuing for
30 days; (b) failure to pay principal when due; (c) the acceleration of the
Company's obligation to pay any indebtedness in an amount greater than
$10,000,000; (d) failure to perform any other covenant or warranty of the
Company in the Indenture (other than a covenant or warranty included in the
Indenture solely for the benefit of series of Debt Securities other than the
SAILS), continued for 60 days after written notice as provided in the Indenture;
or (e) certain events involving bankruptcy, insolvency or reorganization. (sec.
501)
If an Event of Default with respect to the SAILS shall have occurred and be
continuing, the Trustee or the holders of 25% in aggregate principal amount of
the Outstanding SAILS may declare the principal of the SAILS to be due and
payable immediately. (sec. 502) In certain cases, the holders of a majority in
aggregate
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principal amount of the Outstanding SAILS may, on behalf of the holders of all
the SAILS, waive any past default, except a default in payment of the principal
of or a continuing default in the payment of any interest on any of the SAILS.
(sec. 513)
The Indenture contains a provision entitling the Trustee, subject to the
duty of the Trustee during default to act with the required standard of care, to
be indemnified by the holders of the SAILS before proceeding to exercise any
right or power under the Indenture with respect to the SAILS at the request of
such holders. (sec. 601) The Indenture provides that no holder may institute any
proceeding, judicial or otherwise, to enforce such Indenture, except where the
Trustee has, for 60 days after it is given written notice of default, failed to
act and where there has been both a written request to enforce such Indenture by
the holders of not less than 25% in aggregate principal amount of the then
Outstanding SAILS and an offer of reasonable indemnity to the Trustee. (sec.
507) This provision will not prevent any holder of the SAILS from enforcing
payment of the principal thereof and interest thereon at the respective due
dates thereof. (sec. 508) The holders of a majority in aggregate principal
amount of the SAILS then Outstanding may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on it with respect to the SAILS. However, the
Trustee may refuse to follow any direction that conflicts with law or the
Indenture, and the Trustee may take any other action deemed proper by it which
is not inconsistent with such direction. (sec. 512)
The Indenture requires the Company to furnish to the Trustee annual
statements as to the fulfillment by the Company of its obligations under the
Indenture and as to any default in such performance. (sec. 1009)
DEFEASANCE AND DISCHARGE
The Indenture provides that the Company will be discharged from any and all
obligations in respect of the SAILS (except for certain obligations as
specifically provided in the Indenture) upon deposit with the Trustee, in trust,
of money or U.S. Government Obligations which through the payment of interest
and principal thereof in accordance with their terms will provide money in an
amount sufficient to pay the principal of and each installment of interest on
the SAILS on the Stated Maturity of such payments in accordance with the terms
of the Indenture and the SAILS. Such a trust may only be established if, among
other things, (a) the Company has delivered to the Trustee an opinion of counsel
to the effect that (i) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling, or (ii) since the date of
the Indenture there has been a change in applicable federal income tax law, in
either case to the effect that, and based thereon such Opinion of Counsel shall
confirm that, the holders of the SAILS will not recognize income, gain or loss
for federal income tax purposes as a result of such deposit, defeasance and
discharge, and will be subject to federal income tax on the same amounts and in
the same manner and at the same times as would have been the case if such
deposit, defeasance and discharge had not occurred; and (b) the SAILS, if then
listed on any domestic or foreign securities exchange, will not be delisted as
result of such deposit, defeasance and discharge. (sec. 403) In the event of any
such defeasance and discharge of the SAILS, holders of the SAILS would be able
to look only to such trust fund for payment of principal of and any interest on
their SAILS until Maturity or the Optional Redemption Date.
The Indenture provides that the Company may omit to comply with the
restrictive covenants described under "Description of the SAILS -- Certain
Covenants of the Company" above and any such omission shall not be an Event of
Default with respect to the SAILS, upon the deposit with the Trustee, in trust,
of money or U.S. Government Obligations which through the payment of interest
and principal in respect thereof in accordance with their terms will provide
money in an amount sufficient to pay the principal of and each installment of
interest on the SAILS on the Stated Maturity of such payments in accordance with
the terms of the Indenture and the SAILS. The obligations of the Company under
the Indenture and the SAILS other than with respect to such covenant shall
remain in full force and effect. Such a trust may be established only if, among
other things, the Company has delivered to the Trustee an Opinion of Counsel to
the effect that (a) the holders of the SAILS will not recognize income, gain or
loss for federal income tax purposes as a result of such deposit and defeasance
of certain obligations and will be subject to federal income tax on the same
amounts and in the same manner and at the same time as would have been the case
if such deposit and defeasance had not occurred and (b) the SAILS, if then
listed on any domestic or foreign securities exchange,
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will not be delisted as a result of such deposit and defeasance. (sec. 1011) In
the event the Company exercises its option to omit compliance with the covenants
in the Indenture with respect to the SAILS as described above and the SAILS are
declared due and payable because of the occurrence of any Event of Default, then
the amount of money and U.S. Government Obligations on deposit with the Trustee
will be sufficient to pay amounts due on the SAILS at the time of their Stated
Maturity, but may not be sufficient to pay amounts due on the SAILS at the time
of the acceleration resulting from such Event of Default. The Company shall in
any event remain liable for such payments as provided in the Indenture.
CONCERNING THE TRUSTEE
The Trustee performs other services for the Company in the ordinary course
of business. The Trustee is trustee under the Company's $100,000,000 aggregate
principal amount of 7 1/8% Notes Due 2004 issued pursuant to the Indenture and
acts as registrar and transfer agent for the Company's common shares.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The Company believes that the following summary discusses all material U.S.
federal income tax consequences that may be relevant to a citizen or resident of
the United States, a corporation, partnership or other entity created or
organized under the laws of the United States, or an estate or trust the income
of which is subject to U.S. federal income taxation regardless of its source
(any of the foregoing, a "U.S. Person") who is the beneficial owner of a SAILS
(a "U.S. Holder"). All references to "holders" (including U.S. Holders) are to
beneficial owners of the SAILS. This summary is based on current U.S. federal
income tax law and is for general information only. The Company has received an
opinion of Goodwin, Procter & Hoar, counsel to the Company, that the following
discussion of U.S. federal income tax consequences is an accurate summary of the
material U.S. federal income tax consequences relevant to an investment in the
SAILS by U.S. Holders, but due to uncertainties concerning the tax treatment of
the SAILS as discussed below, such counsel is unable to opine on specific U.S.
federal income tax consequences of any investment in, or disposition of, the
SAILS.
This summary deals only with holders who are initial holders of the SAILS
and who will hold the SAILS as capital assets. It does not address tax
considerations applicable to investors that may be subject to special U.S.
federal income tax treatment, such as dealers in securities or persons holding
the SAILS as a position in a "straddle" for U.S. federal income tax purposes or
as part of a "synthetic security" or other integrated investment, and does not
address the consequences under state, local or foreign law.
The discussion contained herein is based upon current provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), the Treasury regulations
(proposed, temporary and final) promulgated thereunder, judicial decisions and
Internal Revenue Service rulings, all of which are subject to change, which
changes may be retroactively applied.
No statutory, judicial or administrative authority directly addresses the
characterization of the SAILS or instruments similar to the SAILS for U.S.
federal income tax purposes. As a result, significant aspects of the U.S.
federal income tax consequences of an investment in the SAILS are not certain.
No ruling is being requested from the Internal Revenue Service (the "IRS") with
respect to the SAILS, and no assurance can be given that the IRS will agree with
the conclusions expressed herein. ACCORDINGLY, PROSPECTIVE INVESTORS (INCLUDING
TAX-EXEMPT INVESTORS) IN THE SAILS SHOULD CONSULT THEIR RESPECTIVE TAX ADVISORS
IN DETERMINING THE TAX CONSEQUENCES OF AN INVESTMENT IN THE SAILS, INCLUDING THE
APPLICATION OF STATE, LOCAL OR OTHER TAX LAWS.
UNITED STATES HOLDERS
Pursuant to the terms of the Indenture, the Company and all holders of the
SAILS will be obligated to treat the SAILS as a unit (the "Unit") consisting of
(i) an exchange note ("Exchange Note"), which is a debt obligation with a fixed
principal amount unconditionally payable at Maturity or on the Optional
Redemption Date equal to the principal amount of the SAILS, bearing interest at
the stated interest rate on the SAILS, and (ii) a forward purchase contract (the
"Purchase Contract") pursuant to which the holder agrees to use the principal
payment due on the Exchange Note to purchase at Maturity or on the Optional
Redemption Date INSO Common Stock that the holder is entitled to receive at that
time (subject to the Company's right to deliver cash in lieu of INSO Common
Stock). The Indenture will require that a holder include currently in income
payments denominated as interest that are made with respect to the SAILS, in
accordance with such holder's method of accounting.
Pursuant to the agreement to treat the SAILS as a Unit, a holder will be
required to allocate the purchase price of the SAILS between the two components
of the Unit (the Exchange Note and the Purchase Contract) on the basis of their
relative fair market values as of the issue date. The purchase price so
allocated will generally constitute the tax basis for each component. Pursuant
to the terms of the Indenture, the Company and the holders will agree to
allocate the entire purchase price of the SAILS to the Exchange Note.
23
<PAGE> 25
Upon the sale or other disposition of a SAILS, a U.S. Holder generally will
be required to allocate the amount realized between the two components of the
SAILS on the basis of their relative fair market values at the time of the sale
or other disposition. A U.S. Holder will recognize gain or loss with respect to
each component equal to the difference between the amount realized on the sale
or other disposition for each such component and the U.S. Holder's tax basis in
such component. Such gain or loss generally will be long-term capital gain or
loss if the U.S. Holder has held the SAILS for more than one year at the time of
disposition, and will be short-term capital gain or loss if the U.S. Holder has
held the SAILS for one year or less at the time of disposition.
At Maturity or on the Optional Redemption Date, pursuant to the agreement
to treat the SAILS as a Unit, on the repayment of the Exchange Note, a U.S.
Holder will recognize long-term capital gain or loss equal to any difference
between such U.S. Holder's tax basis in the Exchange Note and the principal
amount of such Exchange Note. If, pursuant to the Indenture, the Company
delivers INSO Common Stock, a U.S. Holder (i) will realize no additional gain or
loss on the exchange of the principal payment due on the Exchange Note for INSO
Common Stock, (ii) will have a tax basis in such stock equal to the amount of
the principal payment and (iii) will realize capital gain or loss upon the sale
or disposition of such stock. If, pursuant to the Indenture, a U.S. Holder
receives cash in lieu of INSO Common Stock, the U.S. Holder will have gain or
loss equal to the difference between the principal amount of the Exchange Note
and the amount of cash received from the Company.
Due to the absence of authority as to the proper characterization of the
SAILS, no assurance can be given that the IRS will accept or that a court will
uphold the characterization described above. Under alternative characterizations
of the SAILS, it is possible, for example, that (i) gain may be treated as
ordinary income, instead of capital gain, (ii) a U.S. Holder may be taxable upon
the receipt of INSO Common Stock with a value in excess of the principal amount
of the Exchange Note, rather than upon the sale of such stock, (iii) all or part
of the interest income on the Exchange Note may be treated as nontaxable,
increasing the gain (or decreasing the loss) at Maturity (or the Optional
Redemption Date) or disposition of the SAILS (or disposition of INSO Common
Stock) or (iv) an Exchange Note could be considered as issued at a premium that,
if amortized, would reduce the amount of interest income currently includible in
income by a holder and would increase the taxable gain (or decrease the loss)
realized at Maturity (or on the Optional Redemption Date) or disposition of the
SAILS (or disposition of INSO Common Stock).
In addition, section 1258 of the Code may require certain holders of the
SAILS who have entered into "conversion transactions" (e.g., hedging
transactions or offsetting positions with respect to the SAILS) to recognize
ordinary income rather than capital gain upon the disposition of the SAILS.
Holders should consult their tax advisors regarding the applicability of this
provision to an investment in the SAILS.
The IRS has recently proposed regulations (the "Proposed Regulations")
pertaining to the U.S. federal income tax treatment of debt instruments with
contingent payments. The Proposed Regulations were published on December 16,
1994, but, as currently drafted, would be effective for debt instruments issued
on or after the date that is sixty days after final regulations are published in
the Federal Register. It is impossible to predict when final Treasury
regulations will be published and whether, or in what manner, the Proposed
Regulations may be modified prior to publication in final form.
Under the Proposed Regulations, the amount of interest included in a
holder's income for any year would generally be determined by projecting the
amounts of contingent payments and the yield on the instrument. Interest income
would be measured with reference to the projected yield, which might be less
than or greater than the stated interest rate under the instrument. In the event
that the actual amount of a contingent payment differed from the projected
amount of that payment, the difference would generally increase or reduce
taxable interest income, or create a loss. Because of their prospective
effective date, the Proposed Regulations, if finalized in their current form,
would not apply to the SAILS.
NON-UNITED STATES PERSONS
In the case of a holder of the SAILS that is not a U.S. Person, payments
made with respect to the SAILS should not be subject to U.S. withholding tax,
provided that such holder complies with applicable
24
<PAGE> 26
certification requirements. Any capital gain realized upon the sale or other
disposition of the SAILS by a holder that is not a U.S. Person will generally
not be subject to U.S. federal income tax if (i) such gain is not effectively
connected with a U.S. trade or business of such holder and (ii) in the case of
an individual, such individual is not present in the United States for 183 days
or more in the taxable year of the sale or other disposition or the gain is not
attributable to a fixed place of business maintained by such individual in the
United States.
BACKUP WITHHOLDING AND INFORMATION REPORTING
A holder of the SAILS may be subject to information reporting and to backup
withholding at a rate of 31 percent of certain amounts paid to the holder,
unless such holder provides proof of an applicable exemption or a correct
taxpayer identification number, and otherwise complies with applicable
requirements of the backup withholding rules.
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated July , 1995 by and among CS First Boston Corporation and
Adams, Harkness & Hill, Inc. (the "Underwriters"), the Company and INSO (the
"Underwriting Agreement"), the Underwriters have agreed to purchase from the
Company the aggregate number of SAILS set forth opposite their names:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SAILS
----------- ---------------
<S> <C>
CS First Boston Corporation..................................
Adams, Harkness & Hill, Inc..................................
---------------
Total................................................... 1,750,000
=============
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all of the SAILS offered hereby
(other than those shares covered by the over-allotment option described below)
if any are purchased. The Underwriting Agreement provides that, in the event of
a default by an Underwriter, in certain circumstances the purchase commitments
of non-defaulting Underwriters may be increased or the Underwriting Agreement
may be terminated.
The Company has granted to the Underwriters an option, expiring at the
close of business on the 30th day after the date of this Prospectus, to purchase
up to 250,000 additional SAILS, at the initial public offering price less the
underwriting discounts and commissions, all as set forth on the cover of this
Prospectus. Such option may be exercised only to cover over-allotments in the
sale of the SAILS. To the extent such option is exercised, each Underwriter will
become obligated, subject to certain conditions, to purchase approximately the
same percentage of such additional SAILS as it was obligated to purchase
pursuant to the Underwriting Agreement.
The Company has been advised by the Underwriters that they propose to offer
the SAILS to the public initially at the offering price set forth on the cover
of this Prospectus and to certain dealers at such price less a selling
concession of $ per SAILS, and the Underwriters and such dealers may
allow a discount of $ per SAILS on sales to certain other dealers.
After the initial public offering, the public offering price and concession and
discount may be changed by the Underwriters.
The Company and INSO have agreed not to offer, sell, contract to sell,
announce their intention to sell, pledge or otherwise dispose of, directly or
indirectly, and INSO has additionally agreed not to file a registration
statement under the Securities Act relating to, any additional shares of INSO
Common Stock other than in connection with the INSO Offering or any securities
convertible into or exercisable or exchangeable for INSO Common Stock without
the prior written consent of the Underwriters for a period of 90 days after the
date of this Prospectus; provided, however, that such restriction shall not
affect the ability of the Company or INSO or their respective subsidiaries to
take any such actions (i) in connection with any
25
<PAGE> 27
employee benefit, stock option or other compensation plans of INSO and (ii) in
connection with the offering of the SAILS made hereby or any exchange at
Maturity or redemption on the Optional Redemption Date pursuant to the terms of
the SAILS.
The SAILS are a new issue of securities with no established trading market.
The Underwriters have advised the Company that one or more of them intends to
act as a market maker for the SAILS. However, the Underwriters are not obligated
to do so and may discontinue any market making at any time without notice. No
assurance can be given as to the liquidity of the trading market for the SAILS.
The Company and INSO have agreed to indemnify the Underwriters against
certain liabilities, including civil liabilities under the Securities Act, or
contribute to payments which the Underwriters may be required to make in respect
thereof.
In connection with this offering, the Underwriters and selling group
members (if any) and their respective affiliates may engage in passive market
making transactions in INSO Common Stock on The Nasdaq Stock Market-National
Market in accordance with Rule 10b-6A under the Exchange Act during a period
before commencement of offers or sales of the SAILS offered hereby. The passive
market making transactions must comply with applicable volume and price limits
and be identified as such.
CS First Boston Corporation and its affiliates engage in transactions with,
and perform services for, the Company in the ordinary course of business,
including various investment banking services. Adams, Harkness & Hill, Inc.
provided financial advisory services to INSO in connection with its acquisition
of Systems Compatibility Corporation on April 1, 1995. CS First Boston
Corporation and Adams, Harkness & Hill, Inc. are acting as underwriters in
connection with the INSO Offering.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the SAILS in Canada is being made only on a private
placement basis exempt from the requirement that the Company prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of the SAILS are effected. Accordingly, any resale of the SAILS in Canada
must be made in accordance with applicable securities laws which will vary
depending on the relevant jurisdiction, and which may require resales to be made
in accordance with available statutory exemptions or pursuant to a discretionary
exemption granted by the applicable Canadian securities regulatory authority.
Purchasers are advised to seek legal advice prior to any resale of the SAILS.
REPRESENTATIONS OF PURCHASERS
Each purchaser of the SAILS in Canada who receives a purchase confirmation
will be deemed to represent to the Company and the dealer from whom such
purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase such SAILS without the benefit
of a prospectus qualified under such securities laws, (ii) where required by
law, that such purchaser is purchasing as principal and not as agent, and (iii)
such purchaser has reviewed the text above under "Resale Restrictions."
RIGHTS OF ACTION AND ENFORCEMENT
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Ontario purchasers to effect service of process within
26
<PAGE> 28
Canada upon the issuer or such persons. All or a substantial portion of the
assets of the issuer and such persons may be located outside of Canada and, as a
result, it may not be possible to satisfy a judgment against the issuer or such
persons in Canada or to enforce a judgment obtained in Canadian courts against
such issuer or persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of the SAILS to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any SAILS
acquired by such purchaser pursuant to this offering. Such report must be in the
form attached to British Columbia Securities Commission Blanket Order BOR #88/5,
a copy of which may be obtained from the Company. Only one such report must be
filed in respect of the SAILS acquired on the same date and under the same
prospectus exemption.
LEGAL MATTERS
The validity of the SAILS will be passed upon for the Company by Goodwin,
Procter & Hoar, Boston, Massachusetts. Certain legal matters in connection with
the offering will be passed upon for the Underwriters by Skadden, Arps, Slate,
Meagher & Flom, Boston, Massachusetts. Skadden, Arps, Slate, Meagher & Flom
performs legal services from time to time for the Company. A member of Skadden,
Arps, Slate, Meagher & Flom beneficially owns 1,000 shares of INSO Common Stock.
EXPERTS
The consolidated financial statements of the Company included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1994 have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon included therein and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
27
<PAGE> 29
INDEX OF PRINCIPAL DEFINED TERMS
"Attributable Debt" is defined in "Description of the SAILS -- Certain
Covenants of the Company"
"Code" is defined in "Certain United States Federal Income Tax
Considerations -- General"
"Company" is defined on the Outside Front Cover Page of the Prospectus
"Current Market Price" is defined on the Outside Front Cover Page of the
Prospectus
"Debt Securities" is defined in "Description of the SAILS"
"Depositary" is defined in "Description of the SAILS -- Book-Entry System"
"Exchange Note" is defined in "Certain United States Federal Income Tax
Considerations -- United States Holders"
"Exchange Rate" is defined on the Outside Front Cover Page of the
Prospectus
"Extraordinary Cash Dividend" is defined in "Description of the SAILS --
Dilution Adjustments"
"Formation Agreement" is defined in "Relationship Between the Company and
INSO"
"Funded Debt" is defined in "Description of the SAILS -- Certain Covenants
of the Company"
"Global Securities" is defined in "Description of the SAILS -- Book-Entry
System"
"Indenture" is defined in "Description of the SAILS"
"Initial Price" is defined on the Outside Front Cover Page of the
Prospectus
"INSO" is defined on the Outside Front Cover Page of the Prospectus
"INSO Common Stock" is defined on the Outside Front Cover Page of the
Prospectus
"INSO Offering" is defined in "Relationship Between the Company and INSO"
"INSO Reports" is defined in "Available Information"
"INSO Successor" is defined in "Description of the SAILS -- Dilution
Adjustments"
"Interest Payment Date" is defined in "Description of the SAILS -- General"
"Maturity" is defined on the Outside Front Cover Page of the Prospectus
"Notice Date" is defined in "Description of the SAILS -- Current Market
Price"
"Optional Redemption Date" is defined on the Outside Front Cover Page of
the Prospectus
"Purchase Contract" is defined in "Certain United States Federal Income Tax
Considerations -- United States Holders"
"Reorganization Event" is defined in "Description of the SAILS -- Dilution
Adjustments"
"SAILS" is defined on the Outside Front Cover Page of the Prospectus
"Sale and Lease-Back Transactions" is defined in "Description of the SAILS
-- Certain Covenants of the Company"
"Subsidiary" is defined in "Description of the SAILS -- Certain Covenants
of the Company"
"Software Division" is defined in "Prospectus Summary -- INSO Corporation"
"Threshold Appreciation Price" is defined in "Description of the SAILS --
Mandatory Exchange"
"Trading Day" is defined in "Description of the SAILS -- Current Market
Price"
"Transaction Value" is defined in "Description of the SAILS -- Dilution
Adjustments"
"Trustee" is defined in "Description of the SAILS"
"Underwriters" is defined in "Underwriting"
"Underwriting Agreement" is defined in "Underwriting"
"Unit" is defined in "Certain United States Federal Income Tax
Considerations -- United States Holders"
"U.S. Holder" is defined in "Certain United States Federal Income Tax
Considerations -- General"
"U.S. Person" is defined in "Certain United States Federal Income Tax
Considerations -- General"
28
<PAGE> 30
- ---------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE SUCH DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................... 2
Documents Incorporated by Reference...... 2
Prospectus Summary....................... 3
Risk Factors............................. 5
The Company.............................. 8
Ratio of Earnings to Fixed Charges....... 8
INSO Corporation......................... 9
Relationship Between the Company and
INSO................................... 9
Price Range of INSO Common Stock and
Dividend Policy........................ 10
Use of Proceeds.......................... 11
Capitalization........................... 11
Recent Developments Concerning the
Company................................ 11
Selected Financial Information........... 12
Description of the SAILS................. 13
Certain United States Federal Income Tax
Considerations......................... 23
Underwriting............................. 25
Notice to Canadian Residents............. 26
Legal Matters............................ 27
Experts.................................. 27
Index of Principal Defined Terms......... 28
Prospectus Relating to Common Stock of
INSO Corporation ................ Appendix A
</TABLE>
- ---------------------------------------------------------
- ---------------------------------------------------------
[HOUGHTON MIFFLIN COMPANY LOGO]
1,750,000 SAILS(SM)
Stock Appreciation Income
Linked Securities (SAILS)(SM)
% Exchangeable Notes
Due 1999
PROSPECTUS
CS First Boston
Adams, Harkness & Hill, Inc.
- ---------------------------------------------------------
<PAGE> 31
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses in connection with the distribution of the securities being
registered (other than underwriting discounts and commissions) are estimated as
follows:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee....................... $ 40,000
NASD Filing Fee........................................................... 12,100
Printing and Engraving Fees............................................... 75,000
Legal Fees and Expenses................................................... 135,000
Accounting Fees and Expenses.............................................. 50,000
Rating Agencies Fees...................................................... 62,500
State Securities Laws Fees and Expenses................................... 10,000
Trustee and Registrar Fees and Expenses................................... 10,000
Miscellaneous............................................................. 5,400
--------
Total........................................................... $400,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Underwriting Agreement (a form of which appears as Exhibit 1 hereto)
provides for indemnification of the directors and officers of the Company in
certain circumstances.
As permitted by Massachusetts law, the Restated Articles of Organization of
the Company (the "Articles of Organization") contain indemnification provisions
to the effect that, subject to certain standards, directors and officers may be
indemnified by the Company for all liabilities incurred by them in connection
with any proceeding in which they are involved as a result of serving or having
served as a director or officer of the Company or, at the request of the
Company, as a director or officer of any other organization or in any capacity
with respect to any employee benefit plan.
As permitted by Massachusetts law, the Articles of Organization provide
that a director of the Company will not be personally liable to the Company or
its stockholders for monetary damages arising out of the director's breach of
his or her fiduciary duty, except to the extent that the Massachusetts Business
Corporation Law ("MBCL") does not permit exemption from such liability.
Currently, the MBCL provides that a director remains potentially liable for
monetary damages for (i) any breach of the director's duty of loyalty to the
Company or its stockholders; (ii) any acts or omissions not in good faith or
involving intentional misconduct or a knowing violation of law; (iii) an
improper payment of a dividend, improper repurchase of the Company's stock, or
certain loans to directors and officers of the Company in violation of Sections
61 or 62 of MBCL; or (iv) any transaction from which a director derives an
improper benefit.
As also permitted by Massachusetts law, the Company has purchased
directors' and officers' liability insurance, which insures against certain
liabilities incurred in connection with the performance of their duties.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
1 Form of Underwriting Agreement
4.1 Indenture dated as of March 15, 1994 between Houghton Mifflin Company and The
First National Bank of Boston, as Trustee (incorporated by reference to Exhibit
4.1 to the Company's Registration Statement on Form S-3 (No. 33-51700))
</TABLE>
<TABLE>
<C> <S>
4.2 Form of First Supplemental Indenture dated as of July , 1995 between the
Company and The First National Bank of Boston, as Trustee
4.3 Form of the SAILS (included in Exhibit 4.2)
</TABLE>
II-1
<PAGE> 32
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
5 Opinion of Goodwin, Procter & Hoar regarding legality of securities being
registered
8 Opinion of Goodwin, Procter & Hoar with respect to federal tax matters
10.1 Formation Agreement, dated January 10, 1994, by and between the Company and
INSO
10.2 Amendment dated July 24, 1995 to Formation Agreement, dated January 10, 1994,
by and between the Company and INSO*
12 Computation of Ratio of Earnings to Fixed Charges
23.1 Written consent of Ernst & Young LLP*
23.2 Written consent of Goodwin, Procter & Hoar (contained in the opinions filed as
Exhibits 5 and 8)
24 Power of Attorney (included on the signature page of the Registration
Statement)
25 Form T-1 Statement of Eligibility and Qualification under the Trust Indenture
Act of 1939 of The First National Bank of Boston (incorporated by reference to
Exhibit 26 to the Company's Registration Statement on Form S-3 (No. 33-51700))
</TABLE>
- ---------------
* Filed herewith
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
registration statement 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.
Insofar as indemnification for liabilities under the Securities Act of 1933
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 15 above, 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 Securities Act and is therefore unenforceable. In the event that a claim
of 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 a successful defense of any action, suit or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, 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 Securities Act shall be deemed to be a part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, 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-2
<PAGE> 33
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Pre-Effective
Amendment No. 2 to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, the Commonwealth
of Massachusetts on July 25, 1995.
HOUGHTON MIFFLIN COMPANY
By: /s/ NADER F. DAREHSHORI
----------------------------------
Nader F. Darehshori
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 2 to the Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ NADER F. DAREHSHORI Chairman of the Board, President, July 25, 1995
- --------------------------------------------- Chief Executive Officer and
Nader F. Darehshori Director (principal executive
officer)
* Vice President, Corporate July 25, 1995
- --------------------------------------------- Controller and Treasurer
Michael J. Lindgren (principal financial and
accounting officer)
* Director July 25, 1995
- ---------------------------------------------
Joseph A. Baute
* Director July 25, 1995
- ---------------------------------------------
Gail Deegan
* Director July 25, 1995
- ---------------------------------------------
James O. Freedman
* Director July 25, 1995
- ---------------------------------------------
Mary H. Lindsay
* Director July 25, 1995
- ---------------------------------------------
Charles R. Longsworth
* Director July 25, 1995
- ---------------------------------------------
John F. Magee
</TABLE>
II-3
<PAGE> 34
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director July 25, 1995
- ---------------------------------------------
Claudine B. Malone
* Director July 25, 1995
- ---------------------------------------------
Alfred L. McDougal
* Director July 25, 1995
- ---------------------------------------------
George Putnam
* Director July 25, 1995
- ---------------------------------------------
Ralph Z. Sorenson
* Director July 25, 1995
- ---------------------------------------------
DeRoy C. Thomas
*By: /s/ GARY L. SMITH July 25, 1995
----------------------------------------
Gary L. Smith
Attorney-in-fact
</TABLE>
II-4
<PAGE> 35
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ------------------------------------------------------------------- -----------
<S> <C> <C>
1 Form of Underwriting Agreement
4.1 Indenture dated as of March 15, 1994 between Houghton Mifflin
Company and The First National Bank of Boston, as Trustee
(incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-3 (No. 33-51700))
4.2 Form of First Supplemental Indenture dated as of July , 1995
between the Company and The First National Bank of Boston, as
Trustee
4.3 Form of the SAILS (included in Exhibit 4.2)
5 Opinion of Goodwin, Procter & Hoar regarding legality of securities
being registered
8 Opinion of Goodwin, Procter & Hoar with respect to federal tax
matters
10.1 Formation Agreement, dated January 10, 1994, by and between the
Company and INSO
10.2 Amendment dated July 24, 1995 to Formation Agreement, dated January
10, 1994, by and between the Company and INSO*
12 Computation of Ratio of Earnings to Fixed Charges
23.1 Written consent of Ernst & Young LLP*
23.2 Written consent of Goodwin, Procter & Hoar (contained in the
opinions filed as Exhibits 5 and 8)
24 Power of Attorney (included on the signature page of the
Registration Statement)
25 Form T-1 Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939 of The First National Bank of Boston
(incorporated by reference to Exhibit 26 to the Company's
Registration Statement on Form S-3 (No. 33-51700))
</TABLE>
- ---------------
* Filed herewith
<PAGE> 1
Exhibit 10.2
AMENDMENT NO. 1 dated the 24th day of July, 1995 to the Formation
Agreement dated January 10, 1994 by and between INSO Corporation (formerly
InfoSoft International, Inc.), a Delaware corporation ("INSO"), and Houghton
Mifflin Company, a Massachusetts corporation ("HMCo").
WHEREAS, INSO and HMCo are parties to an agreement dated January 10,
1994 (the "Formation Agreement") whereby HMCo transferred to INSO certain
assets used by its Software Division in exchange for shares of INSO's Series A
Convertible Preferred Stock;
WHEREAS, the Formation Agreement provided, among other things, for
registration rights with respect to the Common Stock of INSO which HMCo would
receive upon conversion of the Series A Convertible Preferred Stock;
WHEREAS, HMCo has exercised certain of its registration rights in
connection with an offering of exchangeable notes and any related transactions
entered into in connection therewith (the "SAILS Offering"); and
WHEREAS, the parties now wish to amend the registration rights
contained in the Formation Agreement in certain respects;
NOW, THEREFORE, the parties hereby agree as follows:
1. All defined terms used herein without definition shall have the
meanings ascribed to them in the Formation Agreement.
2. Subsections (a) and (b) of Section 3 of the Formation Agreement
are hereby deleted in their entirety and replaced with the following:
"Section 3. Registration Rights.
-------------------
(a) OPTIONAL REGISTRATIONS. If at any time or times
during the three-year period commencing on the third anniversary of the
consummation of the SAILS Offering, INSO shall determine to register any of its
Common Stock or securities convertible into or exchangeable or exercisable
for Common Stock under the Securities Act of 1933, as amended (the " Securities
Act") (whether in connection with a public offering of securities by INSO (a
"primary offering"), a public offering thereof by stockholders (a "secondary
offering"), or both, but not in connection with a registration effected on form
S-8 or Form S-4 (or any successor forms) under the Securities Act ), INSO will
promptly give written notice thereof to HMCo, and will use its best efforts to
effect the registration under the Securities Act of all shares of Common Stock
which HMCo may request in a
<PAGE> 2
writing delivered to INSO within fifteen (15) days after the notice given
by INSO; PROVIDED, HOWEVER, that in the case of the registration of Common
Stock by INSO in connection with an underwritten public offering, it shall
not be required to register Registrable Securities of HMCo in excess of the
amount, if any, of Common Stock which the principal underwriter of an
underwritten offering shall reasonably and in good faith agree in writing
to include in such offering. If INSO includes in such a registration any
securities to be offered by it, all expenses of registration and offering
shall be borne by INSO, except that HMCo shall bear the reasonable fees and
expenses of its independent counsel, underwriting commissions attributable
to its shares of Common Stock being registered and transfer taxes on shares
being sold by HMCo. If the registration under this Section 3(a) is
exclusively a secondary offering, as defined in this Section 3(a), HMCo
shall bear its proportionate share of the expenses of the registration and
offering, except expenses which INSO would have incurred whether or not
registration was attempted, including, without limitation, the expense of
preparing normal audited or unaudited financial statements or summaries
consistent with this Agreement or applicable Securities and Exchange
Commission (the "Commission") filings.
"(b) REQUIRED REGISTRATIONS. If on any one occasion during the
one hundred eighty (180) day period commencing on the termination of the
three-year period during which registration may be requested pursuant to
Section 3(a) above, HMCo shall notify INSO in writing that it intends to
offer or cause to be offered for public sale all or any portion of its
shares of Common Stock, INSO will either (i) elect to make a primary
offering in which case the rights of HMCo shall be as set forth in Section
3(a) (except that INSO shall not be permitted to limit the number of shares
which may be registered by HMCo), or (ii) use its best efforts to cause
such of the shares of Common Stock held by HMCo as may be requested by HMCo
to be registered under the Securities Act in accordance with the terms of
this Section 3(b), PROVIDED, HOWEVER, that HMCo shall have the right to
request registration pursuant to this Section 3(b) only if (A) prior to the
termination of the three-year period during which registration may be
requested pursuant to Section 3(a), either INSO has not initiated a
registration in which HMCo could participate or, if such a registration
occurred, HMCo was unable to register all of the shares of Common
<PAGE> 3
Stock that HMCo requested to be included because of limitations imposed
by INSO or its underwriters; and (B) the number of shares of Common
Stock that HMCo requests to be registered pursuant to this Section 3(b)
has a market value at the date of such request of not less than $10
million. All expenses of such registrations and offerings under this
Section 3(b) shall be borne by HMCo, including without limitation the
expense of any special audit of INSO's financial statements if the
notice requesting registration does not reasonably permit the use of
existing or contemplated periodic audited statements. INSO shall not
be required to cause a registration statement requested pursuant to
this Section 3(b) to become effective prior to ninety (90) days
following the effective date of a registration statement initiated by
INSO, if the request for registration has been received by INSO
subsequent to the giving of written notice by INSO, made in good faith,
to HMCo to the effect that INSO is commencing to prepare an
INSO-initiated registration statement (other than a registration
effected solely to implement an employee benefit plan or a transaction
to which Rule 145 or any other similar rule of the Commission under the
Securities Act is applicable); PROVIDED, HOWEVER, that INSO shall use
its best efforts to achieve such effectiveness promptly following such
ninety (90) day period if the request pursuant to this Section 3(b) has
been made prior to the expiration of such ninety (90) day period. INSO
may postpone the filing of any registration statement required hereunder
for a reasonable period of time, not to exceed sixty (60) days, if INSO
has been advised by legal counsel that such filing would require the
disclosure of a material transaction or other factor and INSO determines
reasonably and in good faith that such disclosure would have a material
adverse effect on INSO."
3. With respect to the exercise by HMCo of its registration rights
in connection with the SAILS Offering and the concurrent public offering by
INSO of newly issued shares of its Common Stock (the "Concurrent Offering"),
HMCo and INSO agree that, anything to the contrary in the Formation Agreement
notwithstanding, the expenses of registration and offering associated with both
the SAILS Offering and the Concurrent Offering will be allocated between HMCo
and INSO as follows:
(a) Underwriting commissions and expenses reimbursable to
the underwriters (if any), filing fees of the Commission and the National
Association of Securities Dealers, Inc., printing costs, blue sky fees (and
related fees and expenses of counsel, Skadden, Arps, Slate, Meagher & Flom),
transfer agent and registrar fees and expenses, trustee fees and expenses,
rating agency fees and any other items not otherwise specifically provided for
in this Section 3 that can be specifically allocated to the SAILS Offering and
the Concurrent Offering shall be paid by INSO to the
<PAGE> 4
extent attributable to the Concurrent Offering and by HMCo to the extent
attributable to the SAILS Offering;
(b) The fees and expenses of counsel to INSO (Hale and
Dorr) and counsel to HMCo (Goodwin, Procter & Hoar) shall be allocated between
INSO and HMCo in proportion to the total gross proceeds from the Concurrent
Offering and the SAILS Offering, respectively, PROVIDED, HOWEVER, that any such
fees and expenses in excess of $150,000 for Hale and Dorr, and $135,000 for
Goodwin, Procter & Hoar shall be borne solely by INSO and HMCo, respectively;
and
(c) The fees and expenses of Ernst & Young LLP
attributable to its work on the Concurrent Offering and the SAILS Offering
(exclusive of audit and similar expenses that INSO would have incurred whether
or not HMCo had exercised its registration rights and exclusive of work
related to INSO's Form 8-K and amendments thereto except to the extent of
$30,000 of fees and expenses attributable to the acceleration of the audit and
review work necessary to meet the registration schedule) shall be allocated
between INSO and HMCo in proportion to the total gross proceeds from the
Concurrent Offering and the SAILS Offering, respectively.
4. Except as specifically amended herein, the Formation Agreement
shall continue in full force and effect.
IN WITNESS WHEREOF, INSO and HMCo have caused this instrument to be
duly executed under seal by their duly authorized officers as of the date first
above written.
INSO CORPORATION
By: /s/ Bruce G. Hill
--------------------------
Bruce G. Hill
Vice President and General Counsel
HOUGHTON MIFFLIN COMPANY
By: /s/ Nader F. Darehshori
--------------------------
Nader F. Darehshori
Chairman, President and
Chief Executive Officer
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
Pre-Effective Amendment No. 2 to the Registration Statement (Form S-3 No.
33-59649) and related Prospectus of Houghton Mifflin Company for the
registration of 2,000,000 Stock Appreciation Income Linked Securities and to the
incorporation by reference therein of our report dated January 18, 1995, with
respect to the consolidated financial statements and schedule of Houghton
Mifflin Company included in its Annual Report (Form 10-K) for the year ended
December 31, 1994, filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Boston, Massachusetts
July 24, 1995
